EXPERT WITNESS & FORENSIC ACCOUNTING CASES:
When a highly publicized publicly traded company which had to file bankruptcy was believed to be involved in a massive ponzi scheme, we were retained by the creditor’s committee to conduct a simultaneous fraud investigation and preference analysis to aid in the recovery of assets. We assessed the value of numerous properties. We participated in the negotiation of settlement agreements with a variety of lenders and in the development of the reorganization plan. We served as damage experts for lawsuits against the accountants, stockbrokers, and title company. During the course of seven years of litigation, we reviewed thousands of documents and determined the value of approximately 100 real estate projects. Our efforts resulted in $30 million of recoveries for the estate and the largest jury verdict in Northern California- $122 million against the former president.
After settling a multi-million dollar lawsuit for improper title policies, a large title insurance company turned to its insurance carriers for relief. The three underwriters in question claimed that their policies did not cover the issues involved and refused restitution. The plaintiff sought recovery of millions of dollars in punitive damages. When the case went to trial, Sugarman & Company LLP was retained by plaintiff’s counsel as their expert. Our testimony helped to convince the jury that damages were justified and to award settlement.
When a large sporting goods retail operation, alleging $1.5 million in damages due to overpayment of income taxes, sued its Big Four accounting firm, we served as the defendant’s experts on the standard of care and damages. The conflict arose out of complicated tax elections. The plaintiff charged the Big Four firm with failure to discover, in a timely manner, an error in LIFO inventory calculations made by their predecessor. The IRS refused to allow the company to file an amended tax return to correct the error. A favorable settlement was reached.
Following an economic downturn, an asset manager, overseeing billions of dollars in union pension plans, was sued for significant damages based on alleged imprudent investments and violation of fiduciary duties. Among the charges, the plaintiffs alleged that the asset manager had failed to conduct appropriate due diligence in acquiring the real estate, had improperly managed the subsequent workout, and had conflicts of interest with the general partner. We were retained by defense counsel to testify on the standards used in the workout and to conduct valuations of the property and portfolio in question. We prepared detailed testimony, including market study comparisons and both individual and portfolio alternative investment calculations. Ultimately, the case was settled for an amount satisfactory to all parties.
A Fortune 500 company in the household products field had a real estate subsidiary with a $120 million real estate loan for renovation of an office building. The loan was secured by real estate, letters of credit, liquid collateral and, ultimately, by the CEO’s oral guarantee. When the project failed to proceed as planned, the loan went into default. The financial institutions that financed the project retained us as experts on the damages and other related matters. After conducting our analysis, we testified in deposition. The debtor settled the morning we would have appeared in court, agreeing to repay the banks 100% of their debt.
In an accounting malpractice case against a Big Four firm filed by the bankruptcy trustee, we were retained by defense counsel to calculate the damages and provide expert testimony. The Big Four accounting firm had performed audits for a Southern California automobile dealership whose owner was found guilty of a variety of fraudulent transactions, including financing non-existent sales. After we analyzed the overall operations and hundreds of auto loans, we were able to substantiate that the damages were significantly less than the $100 million asserted by the trustee’s expert. The case was settled for a nominal amount.
WORKOUTS AND BANKRUPTCY CONSULTING CASES:
Sugarman & Company LLP was retained to serve as Chief Financial Officer and workout consultants to a multi-million dollar, health care service corporation. As CFO, we restructured the cash management system, worked with the lenders, examined and prepared financial forecasts, and analyzed expenses and construction in progress for cost-cutting recommendations. We also re-negotiated $125 million in bank loans to allow the corporation to continue operations and complete the development of a hospital under construction. We negotiated with the general contractor to defer payment until a buyer was found. The original debt was repaid in full, a new loan negotiated, and the company is again profitable.
A $25 million advertising company with offices across the country sought to restructure its debt out-of-court. As their workout consultants throughout a five-year transformational process, Sugarman & Company LLP successfully negotiated the forgiveness and restructuring of $50 million in debt with three lenders and assisted with the sale of operating divisions. In addition, we provided systems and supervision that helped the company increase its efficiency, including preparing revised projections, implementing cost-cutting measures, comparing weekly cash flow projections against actual results; and assisting in the adoption of a company-wide, automated, financial reporting system. The company was able to restructure its debt and is now a successful, going concern..
A group of private investors acquired a grocery chain and wanted to close a losing division. The division’s stores were the anchor tenant in seven shopping centers throughout Northern California with a combined lease liability of $30 million. Sugarman & Company LLP analyzed the problem and developed a solution outside of bankruptcy and without litigation. We worked directly with the landlords and found replacement tenants for each property or negotiated termination of the leases for a nominal cost. To accomplish this, we hired local real estate brokers, made lists of potential tenants, and contacted the companies ourselves. We also worked closely with counsel versed in landlord/tenant law.
In a bankruptcy case involving a 125-room, European-style hotel in Southern California, our mandate was to assist the secured creditor’s attorney in evaluating the debtor’s plan of reorganization, including assessing the feasibility of continuing to operate the hotel, identifying the appropriate interest rate for post-confirmation loans, and serving as an expert witness on these issues. Toward these ends, we conducted an extensive review of documents, reviewed alleged claims against the property, and visited the site. We evaluated the appropriate interest rate to be utilized in the specific circumstance and contrasted that rate with the debtor’s proposal. We also prepared a detailed analysis of the historical operations of the hotel and analyzed the debtor’s projections. Ultimately, we found that the plan proposed by the debtor was not feasible. As a result of our testimony and other factors, the debtor’s plan was denied and the lender was granted relief from stay.
A national mortgage brokerage company, which acted as the originator of single family home mortgages and wholesalers of loans to lenders, suffered a significant downturn due to the decline in demand for mortgages. When its business dropped from $500 million per month to $50 million, they sought to close down the majority of their 50 offices. Sugarman & Company LLP was hired to help them terminate their lease liability at nominal costs. We worked with the secured and unsecured creditors on claims totaling $75 million and implemented plans that satisfied all parties. Through negotiations, we successfully reduced their lease liability from $6 million to $1 million payable over an eight-month period.
At the request of the primary lender for a $70 million real estate development company, Sugarman & Company LLP was appointed as Federal Bankruptcy Examiner. Within two weeks, we had made our preliminary report to the court, in which we identified and quantified the major problems facing the company, as well as determined preferences. We also assessed the use of fraudulent conveyances and reported to the court on the validity of the charges of malfeasance. Ultimately, our analyses became an integral part of the amended disclosure statement filed by the company and were used by the debtor and its creditors in settlement negotiations.
When the owner of the 750,000 square foot apparel mart in San Francisco was unable to service a $120 million loan, the secured lender began foreclosure procedures and requested the appointment of a receiver. A Sugarman & Company LLP partner was appointed receiver. Among his duties were managing cash flow, negotiating with creditors, contractors and special event promoters, and supervising staff. Sugarman & Company LLP staff met with more than 100 tenants to discuss past due rents, existing leases and alleged lease violations. He negotiated settlements from tenants against whom prior lawsuits were filed and initiated lawsuits against additional tenants for past due rents. We assisted in marketing the property and interviewed potential sales brokers. In all, Sugarman & Company LLP operated the property successfully for eight months without additional funding from the lender.