Wednesday, November 11, 2009

Citigroup's Fraudulent Loans

"A judge ruled that loans made to Tousa Inc. ahead of the home builder's bankruptcy filing were 'fraudulent transfers,' ordering lenders to turn over more than $600 million. ... The 'disastrous business venture,' Judge [John] Olson wrote, spurred Tousa to borrow $500 million from Citigroup Inc. and others in July 2007, just six months before Tousa filed for Chapter 11. ... In bankruptcy proceedings, a judge can find certain debt deals to be fraudulent transfers if a company was insolvent when taking on new liabilities. Such deals can also be deemed fraudulent if they leave a company with insufficient capital to pay debts when they come due. After a 13-day trail in August, Judge Olson ruled that Tousa's relevant subsidiaries were insolvent at the time they took on the new debt. The judge also noted that the transaction made Tousa 'even less solvent.' The judge also concluded that Tousa's senior lenders 'did not act in good faith' and were 'grossly negligent.' Tousa executives and lenders pressed forward with the deal in part to reap bonuses and fees, the judge wrote in Tuesday's ruling. The judge also faulted Alix-Partners LLP, a turnaround firm hired by Tousa to give a solvency opinion, noting it stood to get $2 million in fees by delivering a favorable analysis", Mike Spector at the WSJ, 15 October 2009, link: http://online.wsj.com/article/SB125555159224285641.html.

Good Judge Olson. It's nice to see Citigroup kicked in the keesta. These loans do not surprise me. What's surprising is how rarely they are exposed.

2 comments:

Anonymous said...

The breadth and depth of the thievery is astounding.

This nation has had a lot of its wealth stolen.

And the jury acquitted the Bear fund managers? Astounding... astounding.

Independent Accountant said...

Anonymous:
I am pleased the Bear Stearns Two were acquitted. See my 3 July 2008 post: http://skepticaltexascpa.blogspot.com/2008/07/bear-stearns-two.html.

IA