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HomeNewsArchivesAlmost $1 Million Credit-Card Rebate Asked in Prosser Case

Almost $1 Million Credit-Card Rebate Asked in Prosser Case

Aug. 5, 2008 — A nearly $1 million credit-card rebate has been demanded in the bankruptcy proceedings of Jeffrey Prosser, former owner and CEO of Innovative Telephone.
It appears that after the bankruptcy process started, Prosser paid $968,000 to American Express to cover his credit-card bills. James P. Carroll, the Chapter 7 trustee in the case, has claimed that Prosser had no right to pay out those funds. He argues the money belonged to Prosser's creditors, and so Carroll filed papers with the bankruptcy court July 31 demanding that American Express pay the sum to an account controlled by the trustee.
The legal term for this process is "disgorgement." Under the bankruptcy law, if a debtor inappropriately pays someone after the start of the process, the bankruptcy court can make the recipient send the money back to the creditors' estate.
The payments were made between Aug. 1, 2006, and Aug. 24, 2007, a period of a little more than 12 months, Carroll's lawyers say. All the payments were made in amounts of even thousands of dollars, ranging from $1,000 up to $80,000. Carroll did not report on what had been charged to the account or accounts.
At press time, American Express has not yet responded to the court on this demand.
Meanwhile, the federal district court judge on St. Thomas, Curtis V. Gómez, has ruled in yet another case against a Prosser appeal from a bankruptcy court ruling — in this instance Judge Judith Fitzgerald's decision that the matter be handled under Chapter 7 of bankruptcy law, a less debtor-friendly portion of the law, rather than Chapter 11, which had been used earlier in the case. (For other recent decisions by these judges, see "Box Score: Prosser 0, Prosser Adversaries 11.")
Among the reasons Gómez cited for his decision: "The Bankruptcy Division … found that Prosser had failed to comply with its order requiring that he provide the examiner [a court-appointed official] and the trustee with 'immediate, full, complete and unfettered access' to particular documents and records within his control. That finding is fully supported by the record."
Besides the ongoing conflict between the Prosser camp, on one hand, and the creditors and the court-appointed trustees, on the other, there are continuing squabbles among the non-Prosser forces. Recent court filings reveal an at least five-way squabble over the unfinished Prosser mansion on St. Croix.
Merrill Lynch, the beleaguered Wall Street giant, wants to foreclose on the property because of a mortgage and overdue interest valued at about $732,000. Prosser's lawyers replied that Merrill Lynch has no right to what they described as a $16 million property because of the existing mortgage. And besides, they say, the house belongs to Dawn Prosser, his wife, while the liens are against Prosser.
Carroll's lawyers, have a different point of view. They say the property belongs to the creditors, generally, not to either of the Prossers or to Merrill Lynch.
A group of contractors, who have been working on the house, say Merrill Lynch should not foreclose because that would eliminate the contractors' liens worth $1.1 million.
Although there have been no filings on this issue lately from Prosser's long-time bankers, the Rural Telephone Finance Cooperative, the Prosser brief reports that RTFC has a lien of more than half a billion dollars against Prosser's various assets, apparently including the mansion.
In another development, Carroll, in one of his reports to the court, told Fitzgerald July 31 that the estate had sold three valuable watches, a man's platinum ring and seven sets of cufflinks — all formerly belonging to Prosser — for a net of $90,784. A New York firm bought the lot.
The set includes two Chopard wristwatches, and one made by Patek Philippe, the Geneva watchmaker. The full-page ads for Patek Philippe currently appearing in luxury magazines carries nothing as crass as a price tag, but they do include a headline that may have a special meaning to Prosser: "You never actually own a Patek Philippe. You merely look after it for the next generation."
There are also arguments over what should appear in the court record. Prosser's attorneys seek to convince the bankruptcy judge to obliterate from the court record two previously public records that they apparently do not like. This, of course, brings more attention to them, as opposing lawyers argue in court briefs that the texts should not be censored.
Prosser's lawyers have argued that a Delaware state court decision is hearsay and should be kept out of the bankruptcy court records. The decision, now several years old, criticized a Prosser-controlled holding company for how it handled the interests of its minority stockholders when it went public some years ago.
Prosser's lawyers have also asked for the redaction (elimination) of the replies of Carroll when Prosser's lawyers asked him about the value of the V.I. Community Bank stock previously owned by Prosser. In his reply, Carroll said the value of the stock was influenced by certain "defalcations," i.e. questionable transfers of funds that took place just before Prosser lost control of the stock, and it is this explanation that the lawyers want purged.
The conversation being debated is currently recorded in a transcription of a court-ordered proceeding, and is thus a public document.
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