Friday, December 2, 2022, 6:11 pm
News Flash Archive
When the bankruptcy court judge appointed Albert Altro as the Examiner in Express Grain president John Coleman's personal bankruptcy case, concern was expressed that the estate might not have enough money to pay for the expensive investigation.
Now the first bills have been filed by Altro and Phelps Dunbar totaling just over $120,000.
The court previously authorized Altro to hire Phelps Dunbar to serve as his legal counsel. Many motions, hearings, etc., took place during the period of the Examiner's work.
The bills cover the period from February 1, 2022 through late October.
Altro asked the court for $59,622.50 for his firm's work. Altro's rate is $395 per hour, with the other three persons billing at $225 per hour. Altro's application and invoice may be seen here:
Examiner's Application for Payment
Phelps Dunbar asked the court for $60,409.77 in fees and costs. Rates for the four people involved in the work at Phelps Dunbar range from lead attorney Sarah Beth Wilson ($450 per hour) down to the paralegal ($130 per hour).
Phelps Dunbar has already subtracted a "courtesy discount" of around $11,600 from its bill. Its itemized invoice runs to 51 pages. The application and invoice may be seen here:
Phelps Dunbar Application for Fees
Phelps Dunbar Invoice
On January 6, 2022, the Bankruptcy court judge appointed an Examiner after finding that Mr. Coleman had engaged in "bad faith" activities involving his bankruptcy case:
... the Court finds that Coleman has engaged in bad faith conduct throughout the pendency of his bankruptcy by continuously and willfully failing to participate in Court proceedings, willfully failing to participate in a Section 341 creditors' meeting, and failing to timely file required monthly operating reports or pay fees due to the UST. Although Coleman did not appear at the telephonic hearing held on January 6, 2022 and, therefore, did not testify concerning his conduct during the pendency of his case, the Court is certainly aware of his behavior and is able to ascertain his bad faith conduct through the arguments of the parties and the administration of his bankruptcy case. In reaching its decision, the Court also considered all allegations made concerning the prepetition monetary disbursements and transfers made by Express Grain on behalf of Coleman.
In explaining the court's decision not to dismiss the case as Coleman requested, the court noted:
... the Court will not allow Coleman to subvert the purpose of the Bankruptcy Code by willfully engaging in bad faith conduct to dismiss his own case for cause under Section 1112(b)(1). Further supporting this decision is the Debtor's repeated failure to appear before the Court to defend allegations made against him concerning potential fraud and misconduct, which leaves the Court with questions concerning the events that transpired prepetition and any potential misconduct on the part of the Debtor postpetition.
Because of these findings, the court determined to have an Examiner appointed, and assigned the Examiner's scope of investigation as follows:
Therefore, the Court believes that it is in the best interests of creditors and the estate to allow an examiner to conduct an investigation pursuant to Section 1104(c) of the Debtor, his assets, any and all payments made on behalf of the Debtor prepetition, and any other potential transfer of assets by the Debtor or on his behalf. Further, the examiner shall conduct an investigation as is appropriate considering the actions and conduct of the Debtor prepetition and postpetition.
To see our previous reporting on the Examiner's appointment by the judge, click here: Bankruptcy Court rebukes John Coleman for "bad faith conduct" in his bankruptcy case
But as first reported by the Greenwood Commonwealth, in the end, the Examiner did not find any "smoking gun" facts as far as John Coleman's personal bankruptcy is concerned. That report did point to some areas of concern, and recommended additional investigation.
Altro's report gives a good thumbnail sketch of Express Grain's collapse and Coleman's involvement in it.
Some of the findings and conclusions of Altro's report were:
After an extensive review of documents, including documents and records obtained by and/or made available to the Examiner and his team as noted above, as well as selected documents and records filed in the Coleman Case, the Examiner and his team report that all confirmed assets and interests held by Mr. Coleman which were previously unreported by Mr. Coleman in his filings in this Court appear to have later been disclosed by Mr. Coleman in his amended filings made as a result of the questioning during the Section 341 meeting of creditors, except as indicated further below and discussed herein.
The Examiner and his team have found indications that the title to and/or ownership rights of certain proprietary software utilized by EGT and purportedly created by Mr. Coleman may be unresolved. Further analysis and/or investigation is recommended.
The individual "trading" account with R.J. O'Brien noted based upon analysis of the 2018 tax return appears to present a potential conflict of interest for R.J. O'Brien and Mr. Coleman as R.J. O'Brien appears to have been also providing services to and for the benefit of EGT. An operating account held by Mr. Coleman with a creditor of EGT presents conditions ripe for potential fraudulent and/or otherwise potentially avoidable transfers. Further analysis and/or investigation is recommended.
The Examiner pursued a line of inquiry with Mr. Coleman as to the origins of the EGT software in order to establish ownership of the software. Mr. Coleman's counsel, Mr. Geno, interrupted this line of inquiry, representing that the software was sold in the 11 U.S.C. Section 363 sale pursuant to UMB Bank's credit bid. Mr. Geno prevented the Examiner from completing this aspect of the examination.
There is an appearance of a conflict in interest where Mr. Geno represents two estates that could potentially have a claim to title of the same asset. The matter of title to the software transferred in the sale of assets to UMB Bank may not [be] settled.
Further, in light of the falsification of the audit financial statements submitted to the Mississippi Department of Agriculture and UMB Bank, the Examiner determined that it would be prudent to expand the inquiry and analysis into EGT disbursements. The Examiner and his team asked themselves, what was the objective of Mr. Coleman's duplicitous courses of action? Were the actions intended to simply "buy time" in the hope that the economics of the business model would turn favorable, or was there an effort to create additional sources of unreported income?
The Examiner reviewed certain documents, including EGT's bank statements. Those statements did not reflect amounts out of the ordinary that were transferred to Mr. Coleman and appeared to be for salary or expense reimbursement. The amounts are consistent with expectations regarding Mr. Coleman's compensation and reimbursement of company-related expenses. The tax returns for the years 2018 and 2019 filed by Mr. Coleman were consistent with these disbursements.
The Examiner did not find overt cash transfers directly from EGT to Mr. Coleman and therefore decided to focus on disbursements to the contractors that provided services to EGT to determine if there were conditions for fraud. The significant disbursements related to construction of the biodiesel facility is non-routine in nature and therefore fertile ground for the misappropriation of funds. In general, the contractors noted from the review of the bank statements did not appear to be out of the ordinary course of business, fictitious in nature, or a facade created to make inappropriate transfers to Mr. Coleman or others.
Finally, Altro made the following recommendations:
1. The Examiner believes that further investigation of the disbursements made to the contractors and subcontractors may be of value in identifying potential fraudulent transfers. However, any benefit derived from the Examiner pursuing this further may be outweighed by the costs to the Estate. Instead, the UST or the FBI should consider sending a preservation of records letter to the contractors and subcontractors associated with disbursements emanating from the biodiesel construction project until a final determination can be made regarding the need for further investigative work.
2. The Examiner believes that further investigation of the relationship between R.J. O'Brien, Mr. Coleman, and EGT is prudent. Further investigation of the assets held by R.J. O'Brien on behalf of Mr. Coleman and Mr. Coleman's immediate family members would also be prudent.
3. Further inquiry regarding the company known as The Crew LLC identified in the Regions Bank statement for the bank account ending 8491 may be warranted, including the cash transfers between The Crew LLC, R.J. O'Brien, and EGT.
4. Further inquiry into the propriety of the intellectual property transferred in the sale of assets of EGT to UMB Bank may prove beneficial to the Estate.
5. The Examiner can confirm salary reported in Mr. Coleman's tax returns; however, the Examiner does not have a completed analysis and reconciliation of EGT disbursements recorded in Mr. Coleman's bank statements and Mr. Coleman's federal tax returns. A reconciliation of disbursements for salary and expense reimbursement from EGT should be completed.
6. Mr. Coleman reported zero tax liability on his 2019 federal tax return. Further follow-up on the taxes due as reported in the 2019 tax return may be warranted by Mr. Coleman. This follow-up is directed to Mr. Coleman and is not within the scope of the Examiner's investigation.
The entire Examiner's Report filed in the John Coleman bankruptcy case, along with the exhibits that were filed with it, may be seen here:
John Coleman Incorporated Entities
Top 40 Contractors
Index of FBI Files
Amended Bankruptcy Filing
Amended Bankruptcy Schedule
To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles
John Pittman Hey
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