March 19, 2007 — In the saga of Jeffrey Prosser vs. his creditors, one person dominates the story: Prosser himself, owner of Innovative Telephone and controversial entrepreneur. He and his private planes and houses and multiple investments are well known to the V.I. public.
But there are some interesting people on the other side of the battlefield, individuals and institutions that the Source has, so far, described only in passing.
Prosser's main adversaries in the bankruptcy proceedings (now more than a year old) are, as the British would say, as unlike as chalk and cheese.
These entities, now joined at the hip, are the Rural Telephone Finance Cooperative (RTFC) and the Greenlight Companies. In earlier times, they were adversaries, each wanting maximum repayment of money owed to them by Prosser and his companies, both competing for limited resources.
They have since joined forces in an unlikely alliance of rural-progressive forces on one hand and Wall Street speculators on the other. The principal people included a 50-ish public-service executive for one of the outfits and a world-class gambler leading the other.
RTFC is an institution rooted in the New Deal tradition of public service to the disadvantaged. It all started back in the 1930s when the Roosevelt Administration decided to spend federal funds, including a lot of borrowed money, to extend electric power and telephone service to the then-countless isolated rural families.
Henry Wallace, later a left-wing candidate for President, then served as FDR's Secretary of Agriculture, and it was his department that carried out the rural-wiring programs.
In 1969, with most of the rural families connected to power and phone lines, the government decided to spin off — as a non-governmental, non-profit institution — the rural-utilities banking operation that had been part of the Department of Agriculture. The new institution was the Rural Utilities Cooperative Finance Corporation (CFC), of which RTFC was one of the main components.
Its mission: to borrow money from Wall Street and from abroad at relatively low rates and then re-lend those funds, in smaller parcels, to the nation's rural utilities, many of them non-profit co-ops. The new bank would pay for itself by the slight difference between what it paid for capital and what it received in interest. The utilities in the American islands were defined as rural operations by the Congress, and so Vitelco became eligible for RTFC membership.
For reasons that will probably never be fully understood, RTFC lent hundreds of millions of dollars over the years to Vitelco; the total RTFC wants to collect now is about $550 million. A couple of years ago, RTFC started suing Prosser to get its money back.
The ranking person at RTFC on the Vitelco matters is the senior vice president for finance and chief financial officer for both the parent institution, CFC, and its subsidiary, RTFC. He is Steven L. Lilly, the number-two person listed in the CFC chain of command in its annual reports.
Lilly, who is 57 and black, has been with CFC for 24 years now, and has moved steadily up the organization chart with the passing years. The organization has more than $20 billion in assets, paying Lilly $350,000 a year, according to the most recent CFC annual report. Lilly also gets $150,000 or so in other compensation.
Lilly has been quite active in the bankruptcy proceedings; he has testified, been deposed and made several trips to the Virgin Islands.
The cooperative bank and Lilly stand in sharp contrast to Greenlight and its principal, David Einhorn.
Einhorn, now 37, appears to be a brilliant young man who has had every advantage. He earned an Ivy league degree from Cornell, where he graduated magna cum laude. Two years after he left Cornell the New York Times announced his engagement. A couple of years after that, at 26, Einhorn co-founded Greenlight, a hedge fund, which now has $4.7 billion in assets.
Hedge funds are, in a sense, mutual funds for small numbers of large investors which often follow aggressive investment strategies. Because of the limited number of (presumably savvy) investors, there is a little or no governmental regulation of their activities. Greenlight is said to have increased its holdings an average of 27 percent a year since Einhorn founded it, a remarkably successful investing record.
This record was obtained despite the fact that several years ago Greenlight invested in one of Prosser's holding companies. When Prosser took it private, Greenlight charged that it had not been correctly paid for its minority position, and the state courts in Delaware essentially upheld the Greenlight position.
Despite Einhorn's record as an investor, one is as likely to read about his equally remarkable feats as a poker player as one surfs through Internet search results for his name. He won $659,730 and came in 18th at the 2006 37th Annual World Series of Poker, the No-Limit Hold 'em Championship. He promptly gave the entire pot to the Michael J. Fox Foundation for Parkinson's Research, where he serves as a member of the board of directors.
Another board membership for Einhorn brought him less-flattering reviews. He and Greenlight had made a large investment in New Century Financial Corporation, as the Avis reported recently, and this led to his joining the board of directors. New Century works in what is called the "sub-prime mortgage" market, specializes in issuing mortgages to people with credit problems. Einhorn resigned his directorship earlier this month when New Century ran into financial problems and government investigations of its activities.
The two major creditors in the Innovative bankruptcy have an approximately proportional stake in the case; in both instances, their claims against Prosser's companies equal about three percent of their total assets. That amounts to about $550 million for the cooperative and about $150 million for the hedge fund. Einhorn, however, has played a less visible role than Lilly, perhaps because three percent in the case of a hedge fund — where ups and downs are the norm — may be seen as less important than the same percentage in the case of a bank-like institution that has far fewer rapid variations in its assets.
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