The creditors committee in the bankruptcy of Ponzi schemer Scott Rothstein’s defunct law firm on Monday blasted a controversial plan to allow TD Bank a key role in the reorganization.
Akerman Senterfitt bankruptcy practice chair Michael Goldberg, who represents the unsecured creditors, is the latest of a host of attorneys for creditors and other parties to file motions protesting the proposed reorganization plan filed by trustee Herbert Stettin.
The plan calls for TD Bank to take an oversight role after confirmation even though a federal judge and jury decided the bank aided and abetted the $1.2 billion fraud at Rothstein Rosenfeldt Adler.
Under reorganization, TD Bank would settle claims against it, pay $ $72.4 million and receive a bar order immunizing it from Rothstein-related lawsuits. The bank would have a key role in choosing a liquidating trustee and be allowed to pursue its own claim against the estate.
"The committee believes that the trustee should explain the rationale as to why he believes TD Bank, based on its previously adjudicated knowledge of the underlying fraud, should be entitled to a role in the selection of the liquidating trustee and trust monitor," Goldberg wrote.
He suggested the judge should consider TD Bank’s proposed settlement before reviewing the reorganization plan.
"In a bizarre twist, if the plan is confirmed TD Bank will become the single largest creditor of this estate," Goldberg’s objection said. "The disclosure statement provides no real explanation of the trustee’s rationale for giving TD Bank the largest single claim in the case but simply states that this outcome is the result of settlement negotiations between the trustee and TD Bank."
Goldberg framed his 14-page filing as a "limited objection" to the plan’s disclosure statement but went on at length with criticism of the proposal.
Paul Singerman of Berger Singerman, one of Stettin’s attorneys, did not return calls for comment by deadline. He has said only a small number of creditors oppose the plan, but Goldberg’s motion disputes this. He asserted a "vast majority" of creditors, including six of the seven original committee members, holding $400 million of the original $470 million of claims, have filed objections.
Goldberg questions what bankruptcy provisions allow a trustee to sue a party for fraud, settle the claim and grant the "alleged fraudster" a claim against a bankruptcy estate.
Additionally, he objects to the fact that Stettin did not consult with the creditors committee before formulating the plan. Like others, he objects to paying Stettin when the estate funds the liquidating trust and not when creditors receive payment, an issue currently on appeal. Goldberg calls this "in contravention to the regular guidelines which provide that a trustee does not receive statutory commissions until distributions are made to creditors."
A hearing is set Wednesday before U.S. Bankruptcy Judge Raymond Ray in Fort Lauderdale in the case.