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Fraud inquiries narrow focus on Thornburg executives

March 10, 2010

1:00 AM

Last week, local dailies and international newswires broke the news that a court-appointed trustee in Thornburg Mortgage's ongoing bankruptcy case had alleged a "multi-faceted conspiracy" by former executives to defraud the company and its creditors of millions of dollars. While SFR has reported on these allegations in the past, the 82-page complaint has new details, including internal emails.

In another case—one that has received less attention locally—there are more details on the collapse of one of Santa Fe's largest employers. On Jan. 27, US District Judge for New Mexico James Browning dismissed a class-action claim against Thornburg Mortgage. That lawsuit alleged company executives had repeatedly misled investors as the mortgage crisis unfolded over the past several years. However, Browning decided to let more narrowly directed claims proceed against former Thornburg Mortgage Chief Executive Officer Larry Goldstone and former Chief Financial Officer Clarence Simmons—both of whom also are at the center of the bankruptcy fraud complaint.

Together, the cases provide a timeline of deception, which SFR has compiled below. The details through Feb. 28, 2008 are drawn from Browning's ruling. The allegations after that date are drawn from the March 2, 2009 fraud complaint filed by Joel Sher, the US Justice Department-appointed trustee in the Thornburg Mortgage bankruptcy.

Admittedly, it's a one-sided story. As to the other side:

"We believe the allegations are without merit and leave out many important facts and tell only half the story," Sam Rosenthal, an attorney for Goldstone and Simmons in the bankruptcy case, tells SFR.

Date	What Happened	Why It Was Deceptive
June 6, 2007	The subprime mortgage crisis is well underway. At an investment conference, CEO Goldstone says TM is protected because it focuses “on prime mortgage loan originations, as opposed to subprime.”	Goldstone “was so deeply involved” in TM’s operations “that he knew” the company had as much as 25 percent of its portfolio backed by non-prime mortgages.
Aug. 14, 2007	TM announces in a press release that it is exploring the possibility of selling some of its assets to raise cash.	Without telling investors, the company had already begun selling assets four days earlier.
Feb. 28, 2008	In its annual report, TM announces that it was forced to pony up $300 million in “margin calls”—immediate demands for payment—to creditors. TM also acknowledges that the sudden demands for payment came as a result of the $2.9 billion TM held in mortgage securities backed by non-prime loans.	TM neglected to mention that, on that very day, it had defaulted on a $320 million loan from JPMorgan Chase by failing to make an additional $28 million payment.
April 28, 2008	TM announces that the New York Stock Exchange was commencing an inquiry into TM’s trading activities during January 2008, a month in which a company stock offering brought $212 million in new investment.	TM had received the letter from the NYSE seven weeks earlier, on March 6, and failed to mention that fact in the nine public regulatory filings and press releases it released in the meantime.
March 9, 2009	CFO Simmons signs off on two compensation payments, each for $2 million, to employees and management. The second payment includes a pre-payment to executives for the month of March.	“Fearing that a bankruptcy filing was imminent,” Simmons allegedly sought to wring as much money as he could out of the company. He asked his “assistant to immediately process his expenses for reimbursement…including billing [the company] a hotel rate ($500.00 per night) for his use of his wife’s apartment in New York City.”
March 29, 2009	Goldstone attends TM’s telephonic board meeting.	Goldstone fails to mention that, about an hour earlier, he had emailed a human resources employee with instructions to make secret payments totaling $325,000 to himself and three other executives who were working on a new company, SAF Financial, on TM’s dime. “Four checks approved…SSSHHH!” Goldstone’s email said.
April 3, 2009	In a press release, Goldstone expresses sympathy for dozens of employees that would lose their jobs in TM’s just-announced bankruptcy. “Today has been a really difficult day for our organization as we have separated with a majority of our colleagues…who we care about deeply,” Goldstone says. “[W]e will be providing support to help them get through this difficult time.”	Early that morning, Goldstone emailed company founder Garrett Thornburg, noting that early executive severance pay “could be clawed back [in bankruptcy], plus we would be subject to judicial action as insiders that did something to benefit ourselves to the detriment of the creditors…There is a lawyer call this morning to discuss this matter further to try and determine a way around this.” Apparently unknown to Thornburg, Goldstone and Simmons were arranging to pay themselves and their alleged co-conspirators more than $842,000 out of TM’s coffers, in what the US bankruptcy trustee calls “an unchecked frenzy of self-dealing and wanton and reckless breach of fiduciary duty and loyalty.”
May 1, 2009	TM files for bankruptcy.	Goldstone emails TM attorney Karen Dempsey, who was to be an officer in the still-secret new company, in an attempt “to manipulate the minutes of the April 26, 2009 Board of Directors meeting.” The amended minutes “reflect what he believed would insulate” himself and the other executives of the new company. “No board [approval] is required,” Goldstone wrote. Dempsey went along, replying, “Yes-those minutes will reflect that discussion.”
June 2009	TM’s bankruptcy counsel begins requesting details on payments TM made to Ketchum, a marketing firm that Simmons and Goldstone allegedly hoped to hire to work for their new company.	TM spokeswoman Suzanne O’Leary Lopez emailed a Ketchum employee about the bankruptcy counsel’s demand for proof that actual work was performed to justify a $165,000 retainer paid in March. Since it hadn’t been, O’Leary Lopez suggested representing “March work as work that was paid for in the 2Q retainer.”
July 5, 2009	TM spokeswoman O’Leary Lopez tells SFR that the new company is “just a rumor” and “I just don’t know who’s involved in this, who’s setting it up, what’s the name of it…nothing’s been set up."	Court documents show O’Leary Lopez was involved with the new company. On April 24, CFO Simmons sent her an email update about the new company, writing, “We are on our way.” And on May 18, Lopez’ supervisor, Amy Pell, who was also involved in the new company, sent an email to employees: “Please refrain from having open conversations regarding any new venture you may be working on. Remember the walls are paper thin and these people [TM’s creditors] will be looking to get value out of every paper clip. Let’s not give them the opportunity to look anywhere besides Thornburg Mortgage. Thanks.”