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| A $1 billion lawsuit filed last week accuses former executives of a failed Alt-A wholesale lender of overpaying themselves hundreds-of-millions of dollars as the company was drowning. Just two weeks before a bankruptcy filing by the firm — which employed more than 5,000 people — executives took the corporate jet to a Hawaiian resort.The lawsuit was filed by Larry Lattig against 40 defendants in connection with the spectacular failure of First Magnus Financial Corp. in August 2007, an announcement last week said.
Lattig is litigation trustee in the bankruptcy of the failed 5,500-employee firm that was formerly based in Tucson, Ariz. He represents creditors in the case. He said more than 40 defendants are named in the complaint, including former directors and officers of First Magnus. In addition, StoneWater Mortgage Corp. — which was launched last year by former executives of First Magnus — was also named as a defendant. “First Magnus and ‘the rest of America’ were ‘victimized by the avarice and greed of seven men — Gurpreet Jaggi, Thomas Sullivan, Sr., Thomas Sullivan, Jr., Bill Gaylord, Gary Malis, Dominick Marchetti and Karl Young,'” the statement said. “These seven men paid themselves hundreds-of-millions of dollars based on completely fictitious profits.” The defendants allegedly operated First Magnus utilizing financial statements with significant accounting errors. The payouts were made in stock redemptions, bonuses and distributions when the loans were securitized. First Magnus’s management and board of directors allegedly drained the company of capital as its repurchase liabilities mounted on poorly underwritten loans in the worst markets. When repurchase demands were presented, the company was unable to meet them. In addition, employees were left hanging with $13 million in unpaid wages — even though $22 million was available from a line-of-credit at the parent company, the trustee said. “We will make certain that the creditors of First Magnus, including the thousands of employees left unpaid, recover every last penny they are owed from these defendants,” Lattig stated. He pointed to lavish spending by directors and officers that “would make even the most pampered and precocious movie star blush.” He described a wing of the headquarters dubbed the “Sullivan Wing” — presumably named for former chairman Tom Sullivan Sr. or former vice chairman Tom Sullivan Jr. The suite was built out with rich wood and marble and included a $170,000 waterfall and a $16,000 fish tank. Executives’ cars were kept in comfort in an air-conditioned garage, while they had extensive personal use of corporate jets. Just two weeks prior to the bankruptcy filing, they allegedly took an all-expense-paid trip to a Hawaiian resort. Lattig claims proprietary materials were stolen from First Magnus during the bankruptcy. He accuses the defendants of violating the Racketeer Influenced and Corrupt Organizations Act. In January 2008, a bankruptcy court judge denied class action status to a suit filed by eight former employees under the Worker Adjustment and Retraining Notification Act. |
