A settlement is being sought with former executives by a former financial giant that is in corporate bankruptcy. Investors in a hard-money lender in Maine are spooked by the cost of legal representation, while one ‘big bucks’ filing is being fought tooth-and-nail by the company’s creditors.
Bankruptcy Trustee Joel I. Sher has asked the court to approve a $6.5 million settlement obtained with the former officers of Thornburg Mortgage Inc. In court documents filed Feb. 13 in federal bankruptcy court in Baltimore, Md., the trustee asked the court to approve a global settlement that would put to rest the legal claims and plethora of lawsuits swirling around the former executives that stem from the 2009 Chapter 11 bankruptcy filing. The agreement calls for the surrender of personal property and release of claims against the defendants.
However, the requested settlement does not affect the lawsuits filed against the investment banks. For example, a Baltimore federal judge ruled in September 2011 that the trustee overseeing the liquidation of Thornburg Mortgage Inc. could move forward in its lawsuit against Barclays Capital Inc. The trustee has also sued some of the biggest names in mortgage finance including Goldman Sachs, Chase and Bank of America.
The trustee continues to settle claims in the case of the Financial Resources Mortgage Inc. bankruptcy. Two hearings are scheduled on March 15. The hearings will be on the trustee’s motion to approve a compromise and settlement with two of the defendants.
The claims of a couple described as the leaders of the group of investors of the commercial mortgage company were settled in July after they reportedly saw the legal fees incurred by another woman in attempting to recoup her investment. The company promised high rates of return to those lending it money to fund specific projects.
The bankruptcy is one of the most complicated in Maine’s history, spawning numerous lawsuits and state investigations into the agencies charged with regulating Financial Resources and the handing down of prison sentences for its principals.
In the fifth-largest bankruptcy for a financial company, MF Global, the court ruled on Dec. 27 that the trustee does not have a conflict stemming from prior work done for one of MF Global’s lenders. MF Global filed for bankruptcy after it was forced to reveal that it had made a $6.3 billion bet on European sovereign debt, spooking investors and customers.
The deadline for objecting to administrative claims is March 8 in the Taylor, Bean & Whitaker Chapter 11 bankruptcy. Taylor Bean & Whitaker Mortgage Corp.’s liquidation plan was confirmed in July. The plan calls for the estate’s remaining assets to be placed into a trust for distribution to creditors. A hearing on the 93-page reconciliation report is scheduled for March 9 even though the court has already approved the liquidation plan.
The Florida businessman, Lee Farkas, who built Taylor Bean from a small mortgage company into the largest mortgage lender in the United States, was sentenced to 30 years in federal prison.
A third confirmation hearing is reportedly scheduled for Feb. 16 in the Washington Mutual Inc. bankruptcy. According to a story in American Banker, the company warned that delays in its attempts to exit from bankruptcy are costing $30 million a month, money that will affect creditors at the bottom of the repayment plan. In a bankruptcy filing, there is a hierarchy of creditors where certain types of creditors receive a priority in payments in full over others; thus, the more money in the bankruptcy pot, the more there is for creditors at the bottom of the payment priority pyramid.
Washington Mutual and WMI Investment filed a motion on Feb. 14 asking the court to oppose a request for an order for direct appeal to the Third Circuit of the Feb. 16 confirmation hearings. Evidently, anticipating unhappiness with the result of the yet-to-be-held confirmation hearing, a consortium of holders of trust preferred securities have already asked the court for permission to appeal to another court, while Washington Mutual and WMI have asked the court to deny that request.
The Seattle Times reported Wednesday only 62 percent of WaMu’s shareholders will approve a plan to bring the company out of bankruptcy, though 66 percent is needed. The plan would reportedly allot around $7 billion in disputed assets to more senior creditors and give preferred and common shareholders ownership of a much smaller company centered on a mortgage reinsurer.
Citing people familiar with the matter, Bloomberg reported that Residential Capital LLC is talking to buyout firms including Fortress Investment Group LLC and Cerberus Capital Management LP about selling itself through a pre-packaged bankruptcy. Parent Ally Financial Inc. wants to establish a plan for ResCap by March 31, prior to upcoming financing and liquidity deadlines.
