A federal judge in Pittsburgh has approved a liquidation plan that paves the way for the lawsuits against individuals, financial institutions and accounting firms accused of contributing to the Latrobe beverage company's downfall.
Chief U.S. Bankruptcy Judge M. Bruce McCullough this week approved the plan, which replaces trustee R. Todd Neilson of Los Angeles with liquidating trustee Marc Kirschner of New York.
The plan was crafted after months of negotiations and underwent two major revisions despite dogged opposition by attorneys for Wachovia Bank. The troubled Charlotte-based bank on Thursday named Robert Steel as its new chief executive, and its stock tumbled to a 17-year low amid questions about his ability to rescue the nation's fourth-largest bank from problem loans.
The plan gives Kirschner the power to investigate allegations of fraud and mismanagement that plunged LeNature's into more than $800 million of debt and triggered a federal grand jury probe into mail, wire and bank fraud and money laundering involving former executives.
Kirschner's task will be to recover damages owed to creditors who allege they were duped by Wachovia Bank into buying LeNature's staggering debt.
Kirschner's likely targets will be Wachovia, accounting firms BDO Seidman and Ernst & Young and former LeNature's executives who face years of lawsuits. Wachovia is expected to appeal McCullough's decision, which was filed Tuesday.
Christy Phillips-Brown, a spokeswoman for Wachovia, did not respond to a request for comment. An Ernst & Young spokesman declined to comment.
Jerry Walsh, a spokesman for BDO Seidman, said the accounting firm is "one of many victims of collusive fraud at LeNature's. We will defend ourselves vigorously against any unfounded lawsuits."
To pursue the lawsuits, Kirschner said a trust will be created within the next 11 days and funded by a $15 million loan from creditors. He also will have between $21 million and $45 million that has already been recovered, to pay legal fees.
He has until October to file the lawsuits.
"The deadline under the code is within two years from the bankruptcy," Kirschner said.
The bankruptcy began Nov. 1, 2006.
A seven-member oversight board comprised of creditors will be created to oversee Kirschner's efforts, which he said could take as long as five years to litigate. Creditors have already filed other lawsuits against LeNature's and its former executives.
Wachovia loaned LeNature's $278 million and underwrote another $150 million in bonds. BDO Seidman and Ernst & Young were the company's auditors and have been accused in court documents of failing to detect alleged widespread fraud that forced the beverage company into bankruptcy and triggered a federal grand jury investigation. That probe by inspectors from the U.S. Postal Service, the IRS and the U.S. Attorney's Office in Pittsburgh pursued bank, wire and mail fraud and money laundering, according to court documents.
Wachovia has been accused in court documents of selling -- known in banking parlance as syndication -- all but $23 million of its loans and bonds to unsuspecting lenders who said they were not informed of problems within LeNature's.
Lenders and creditors voted overwhelmingly to approve the liquidation plan. McCullough ruled they met the requirements for the plan to be approved under the U.S. Bankruptcy Code.
In 2006, Kirschner was the trustee in the bankruptcy case of Refco Capital Markets Ltd., a futures and commodities brokerage firm that hid $430 million in bad debt from its clients before it went into bankruptcy in 2005.
Kirschner filed lawsuits against law and accounting firms to recover $2 billion in claims. He said those claims are pending.
Even though his appointment isn't official, Kirschner already has been at work.
In June, he testified in bankruptcy court that he already has subpoenaed millions of pages of documents and has completed "much of the legal work." He estimated the litigation could take three to five years.
"That's realistic," Kirschner said.
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