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Journal North: Home | Sports | Opinion | Obits | Entertainment
Sunday, October 11, 2009
Thornburg Targets Executives
By Mark Oswald
Journal Staff Writer
The court fight over the remains of bankrupt Thornburg Mortgage is getting more intense.
The company — formerly New Mexico's largest publicly traded company — is going after its own longtime executives with a list of charges. Even in formal legal language, the accusations are harsh: "self-dealing," "corporate waste" and "unjust enrichment" among them.
Last week, Thornburg Mortgage filed a complaint in federal court accusing two of its former key managers of inappropriate use of hundreds of thousands of dollars just before and since the mortgage firm filed for Chapter 11 bankruptcy in May.
Among the allegations is that Larry Goldstone — until last month the CEO, president and the public face of Thornburg Mortgage as it fought to survive the economic turmoil of the past two years — and former chief financial officer Clarence Simmons got $232,000 in bonuses without approval from the company board.
The complaint says Goldstone approached the board about a raise or bonus in March or April and the board refused. But Goldstone then "caused" Thornburg Mortgage's management company, a separate entity run by Thornburg Mortgage founder Garrett Thornburg, to pay the bonuses, with the expense passed on to the mortgage firm, according to the complaint.
The court filing says the bonuses were not authorized by Garrett Thornburg. It doesn't specify how the $232,000 was divided between Goldstone and Simmons.
The two executives resigned last month amid allegations that they had improperly used Thornburg Mortgage staffers at the bankrupt company's expense and other Thornburg resources to help with startup of a new company that Goldstone and Simmons founded several months ago.
So far, Goldstone and Simmons have not responded to the allegations, which were made in court filings by both Thornburg Mortgage itself and the federal government. Calls left for Goldstone, Simmons and lawyers representing their new company, SAF Financial, were not returned Friday.
At issue is alleged misuse of funds or other resources that should be used toward the bankruptcy liquidation. Thornburg's debts amount to more than $1.3 billion, according to a court filing.
The U.S. Trustee, a branch of the U.S. Department of Justice that serves as a bankruptcy watchdog, wants a judge to replace Thornburg Mortgage's board and turn over management to an independent trustee, citing the alleged misuse of company assets to help Goldstone's new company.
The allegations came to light after an anonymous whistle-blower letter was sent to the committee of Thornburg's unsecured creditors.
The Aug. 25 letter, now part of the court file, says staff members were coached "on how to falsify time records to allow for their time spent working on the new company to be charged to the creditors of the bankrupt company."
Other charges
The complaint filed by Thornburg Mortgage last week in bankruptcy court in Baltimore — the Santa Fe-based company at this point is officially a Maryland corporation — also accuses Goldstone and Simmons of more prosaic improprieties, including taking computers, cell phones and documents as they cleared out of the Thornburg offices in September and, in Simmons' case, overbilling for personal expenses on a trip to New York.
Thornburg Mortgage, which recently changed its name to TMST Inc., was started by Goldstone and Garrett Thornburg in 1993. Making high-end "jumbo" loans, it built up an impressive portfolio with a national profile before it succumbed to the worldwide crash in mortgage-based securities.
The company's complaint against Goldstone and Simmons, setting the scene for its allegations, describes an effort by Thornburg Mortgage to save itself called "the Thrift Strategy."
Starting in late 2007, the company explored converting to a "thrift" — a bank or savings and loan — by either acquiring or forming a state-chartered thrift. This would have enabled Thornburg Mortgage to "access core deposits and the Federal Home Loan Bank system, and other sources of financing available only to depository institutions," the complaint says.
At one point, Union Savings Bank in Albuquerque was identified as a potential target for acquisition.
But by April of this year, Thornburg Mortgage was insolvent, after major creditors called in their debts. Days before it filed for bankruptcy May 1, Goldstone, Simmons and others at the mortgage company formed a new company, SAF Financ ial Inc., that would on its own pursue "the Thrift Strategy." All of the owners of SAF were officers or employees of Thornburg Mortgage.
'Two-hatters'
The court complaint describes a scheme under which some employees were subsequently supposed to work for both Thornburg Mortgage and Goldstone's new SAF Financial as the bankruptcy liquidation proceeded.
These employees were sometimes called "two-hatters," the complaint says, because they metaphorically wore two hats by working for both companies.
The complaint alleges that Goldstone and Simmons "manipulated" employment policies to benefit SAF to the detriment of Thornburg Mortgage. Initially, separate accountings were maintained of employees' time spent working for Thornburg Mortgage and for SAF. But some employees were still supposed to work only for Thornburg Mortgage. "Compensation for any work performed on behalf of SAF was to have been the responsibility of SAF," the complaint states.
But as the bankruptcy case proceeded, the complaint alleges, Goldstone and Simmons "caused" Thornburg Mortgage to pay as full-time employees staffers who didn't put in 40 hours a week for the mortgage company. They also "developed policies" that allowed Thornburg employees to perform work for SAF while being paid by Thornburg, after Simmons and Goldstone concluded there wasn't enough bankruptcy work to keep "two-hatters" employed full time by Thornburg.
The complaint maintains that Goldstone and Simmons had Thornburg Mortgage give full-time jobs or bonuses to SAF employees or owners and to "potential" SAF employees. This was done "in order to permit them to perform services for SAF" while employed at Thornburg "and/or to ensure their availability for SAF when needed in the future," the complaint says.
Under the policies of Goldstone and Simmons, some "two-hatters" were paid for merely being in the building and available to work on Thornburg's bankruptcy, "even if little or no work" for Thornburg was actually performed. Thus, some workers were being paid by Thornburg when they were "in the building" but were actually working for SAF, the complaint alleges.
"Since Goldstone and Simmons were asked to resign, TMST (the bankrupt Thornburg Mortgage's new name) has reduced its payroll by approximately 50 percent, primarily by eliminating employees that spent time working on SAF matters," the complaint says.
On a court hearing last week, Anne-Drue Anderson, Thornburg Mortgage's new president since Goldstone's departure, testified, "We didn't know that virtually every employee in the company had done (SAF) work, " according to a Reuters news service report.
The estimate of how much was spent by Thornburg Mortgage on wages for SAF work "exceeds $200,000," the court complaint says.
Another recent court filing by Thornburg Mortgage says a decision was made to fire Goldstone and Simmons after the company's bankruptcy lawyer investigated the allegations in the Aug. 25 whistle-blower letter. Both men had already submitted resignation letters and eventually resigned effective Sept.15. Other executives — senior vice presidents Deborah Burns, Amy Pell and Charles McIntosh and technology director Carlos Gonzales — were notified Sept. 13 that they'd been fired, the court document says.
Management company role
Some parts of the complaint involve the relationship between Thornburg Mortgage and a separate entity, Thornburg Mortgage Advisory Corp. (TMAC), which is owned and controlled by Garrett Thornburg, co-founder of the mortgage company with Goldstone. He started a financial empire in Santa Fe after moving here from New York in the 1980s.
Until just prior to the bankruptcy, TMAC was paid $2 million a month plus incentives to run Thornburg Mortgage. Garrett Thornburg was both the owner of TMAC and president of Thornburg Mortgage's board. Goldstone and Simmons also had roles with both companies, according to the complaint.
On Oct. 2, Garrett Thornburg announced his resignation as board chairman of Thornburg Mortgage, citing the "shocking allegations" against Goldstone and Simmons.
He remains as chairman and president of TMAC. "I wanted to avoid the appearance of any conflict of interest," Garrett Thornburg said in a news release. He couldn't be reached for comment Friday.
As noted above, the bonuses for Goldstone and Simmons apparently were paid by TMAC without Garrett Thornburg's authorization. Simmons "caused" Thornburg Mortgage to reimburse TMAC "for these bonuses and attendant payroll taxes," the complaint says.
Also, the complaint says that, just prior to the May bankruptcy, Goldstone and Simmons used TMAC to make a series of questionable payments to financial services vendors.
"There was no business reason to make such payments to these vendors, while not making payments to other vendors with similarly unsecured claims in bankruptcy, except to preserve the goodwill of those certain vendors for the benefit of SAF," the complaint says. Some of the vendor services paid for by Thornburg were really for SAF, the complaint also maintains.
Thornburg Mortgage is fighting the federal government motion to have an independent trustee take over the bankrupt company, saying it's not necessary because Goldstone and Simmons have been replaced. The next hearing on the matter is scheduled for Oct. 20.
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