July 18, 2008 — The ongoing squabbles over the substantially diminished financial empire of Jeffrey Prosser, former CEO and owner of Innovative Telephone, can be viewed as a miniature version of the continuing debate about the credit crisis, and, more broadly, the nation's economy.
How much has been lost? Who gets what portion of the remaining assets? To what extent do the (otherwise innocent) rate- and taxpayers pay? How much of the pie goes to mortgage bankers, and how much to other creditors?
All of these questions can be asked about the nation's credit and real estate crunch, and about its cameo version, the Prosser financial mess.
In the latter instance, the level of the debt has been estimated at upwards of $600 million — and climbing, as interest and administrative costs continue to mount. The extent of the assets, presumably under the $600 million figure, has been partially sketched out in a series of sales of bank stock, a newspaper and of real and personal property, such as the family's Bentley, but they mostly remain unknown. Really hard data on the extent of the assets will not be pinned down until the sales of Prosser's one-time corporate interests — such as Vitelco — have been completed.
Meanwhile, there are not only the continuing battles between Prosser's lawyers and those of his creditors, there are even more squabbles among those creditors — and sometimes among the court-appointed neutral parties, the trustees, as well.
Take the case of Merrill Lynch, the massive New York-based financial institution. On July 17 it reported a thunderous write-off of $9.7 billion for the most recent three-month period, bringing its total write-offs, worldwide, to more than $41 billion since the start of the credit crisis.
Meanwhile locally, Merrill, sued in U.S. Bankruptcy court to seize the entire value of the Prosser residential complex on St. Croix, not just for the amount owed. As of May 6, the amount owed was $701,981 in principal and $31,445 in accumulated interest. The residential property is said to be worth in excess of $4 million, but Merrill said it is entitled to the entire property, on the grounds that its stake "is measured not only by the amount of principal and interest due and owing, but also by the collateral cushion or 'loan-to-value' ratio [Merrill] bargained for at the time of the origination of the loan."
It was a reminder that when a mortgage bank forecloses on properties either modest or grandiose, it usually gets the whole house and lot, not just the dollars owed.
There are complications for Merrill in this instance, however, as the residence is part of the bankrupt Prosser estate and is also subject to an even larger mortgage provided by Banco Popular of Puerto Rico, which has filed a claim similar to Merrill's.
While the bankruptcy court works out who gets what from the planned sale of the house and grounds in the Anna's Hope area, there are multiple other disputes as well. For example:
– Stan Springel, the Chapter 11 trustee dealing with Prosser's one-time corporate assets, and James Carroll, the Chapter 7 trustee handling Prosser's former personal holdings, agree that the Prosser summer place in Lake Placid, N.Y., should be sold by Carroll to help pay the debts. But they disagree with each other as to the terms, according to court filings. Springel says $474,160 of the proceeds of the sale should go to Springel's fund, because Prosser's corporations paid this much for unstated purposes at the New York property; Carroll says that such a diversion is inappropriate.
— Attorneys for Greenlight Companies — major creditors and one-time minority stockholders in a one-time Prosser holding company — object to Banco Popular's filing's for expenses in connection with the bank's claim to mortgage-related rights to the St. Croix mansion.
— Dawn Prosser, Jeffrey's wife, objects to selling any of the houses, on the grounds that she is either the full or partial owner of all of them.
— There is no dispute about the sale, reported by Carroll, of an "18 karat gold, diamond and black coral chalice," a goblet, for a net of $44,980. It was once owned by the Prossers and was sold recently by Christie's, the New York auction house. In keeping with Christie's policies, the purchaser was not named.
— Barely raised by anyone in these hearings are questions about how much telephone customers in the territory will be affected by the Prosser bankruptcy, and to what extent — if any — the nation's taxpayers will help meet the pension shortfalls of Prosser's corporations.
As a further complication, Prosser's lawyers are trying to censor the court's transcripts to eliminate some testimony provided by Carroll June 9 in open court. During cross-examination on his statements about the value of various one-time Prosser assets, there was this exchange between Robert Craig, Prosser's ranking attorney, and Carroll:
Craig: "How about the Virgin Islands Community Bank; he valued that at $4.7 million, correct?"
Carroll: "That was the amount of his capital investment at that time, prior to some defalcations within the bank, yes, sir."
The financial maneuvering he described was subsequently corrected, Carroll said. (See "Prosser Shares in V.I. Community Bank to be Auctioned Dec. 27.")
The irony is that Carroll's one-line statement about questionable financial activities by Prosser's bank would have most likely remained buried among thousands of pages of legal documents — and thus unknown to the Source, and to many others — had Prosser's lawyers not tried to suppress it.
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