ShareThis Page
Business

Judge rejects converting LeNature's to liquidation

| Friday, Dec. 28, 2007

A bankruptcy judge in Pittsburgh has refused to convert the LeNature's Inc. bankruptcy case to Chapter 7 liquidation, thereby paving the way for lawsuits against Wachovia Bank and the former bottling company's accountants.

U.S. Chief Bankruptcy Judge M. Bruce McCullough on Thursday allowed the case to proceed under Chapter 11 reorganization.

In reaching his decision, McCullough said he "read and re-read most of the pleadings" and noted he had held "at least two and perhaps three hearings" on the issue.

Wachovia Bank and BDO Seidman had sought to have the status of the case changed. That would have lessened their chances of being sued over allegations by creditors that they failed to detect widespread fraud, which led to the company's financial downfall in November 2006.

On Thursday, McCullough will decide whether to approve a reorganization plan submitted by creditors that would enable the hiring of a liquidating trustee who will have a $15 million war chest to sue Wachovia and the accounting firm.

The trustee would replace R. Todd Neilson, who has been conducting an extensive investigation into allegations of fraud by former CEO Gregory Podlucky of Ligonier and other former company executives.

In addition to Neilson's probe, federal investigators are investigating allegations of money laundering, and bank, wire and mail fraud involving Podlucky and other former company officers.

Wachovia Bank has been waging a relentless legal battle in Pittsburgh, North Carolina and New York to stave off potential lawsuits that a group of hedge funds are expected to file. The funds purchased the bulk of Wachovia's $275 million in loans to LeNature's six weeks before the company was forced into bankruptcy.

Harbinger Capital, which owns $86 million in loans, is the lead plaintiff of the group, which filed a civil racketeering lawsuit in federal court in New York against Wachovia seeking to recover its losses. Wachovia has been trying to keep the case in North Carolina where its headquarters are located.

In order to fund the litigation against Wachovia and the accounting firms, the hedge funds have ponied up the money. If they are successful, they could recover hundreds of millions of dollars in damages for the secured and unsecured creditors who are owed up to $1 billion.

The sale of LeNature's assets so far has generated only about $22 million -- of which $8 million was paid to the broker who engineered the sale of the Latrobe plant to Giant Eagle Inc. Also at issue is an estimated $30 million worth of jewelry found inside LeNature's Latrobe plant could be sold to benefit creditors. The gems were seized by federal agents.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.

click me