Claims transfer dispute

SITUATION

During the multi-billion-dollar bankruptcy case of Mirant Corp., an Atlanta-based power generation company, the Court asked William Snyder, the Examiner and a Managing Partner of CRP, to investigate the actions of a debt settlement company and a certain company representative to determine if they had acted in an improper manner when soliciting 62 creditors in the Mirant case for claims transfers.

After the investigation, the Examiner’s team, consisting of Mr. Snyder, CRP Partner Paul Ravaris, and Gardere Wynne Sewell LLP attorneys Richard M. Roberson and Michael P. Cooley, filed a complaint against the debt settlement company and its representative, saying that they had engaged in a scheme to transfer ownership of small, unsecured creditor’s claims to the debt settlement company without the knowledge or consent of the original creditors. The scheme allowed the company to purchase debt claims for pennies on the dollar and affected 105 claims for nearly $340,000, collectively.

CRP’S APPROACH

The debt settlement company investigation and trial lasted nearly two months. During the investigation, the CRP-Gardere team made several discoveries, which they presented to the Court as evidence of the company’s impropriety. They discovered:

• The scheme targeted small claims that were scheduled but had had no “proofs of claim” filed.
• To carry out the scheme, a representative of the debt settlement company sent a letter and check to bank-administering lockboxes belonging to the creditors.
• The letter stated the company’s intention to purchase the claim with the enclosed check, which was for 1% of the face amount of the claim.
• The letter further stated that if the company cashed the check, it was accepting the terms of the agreement and the company would take the necessary steps to finalize the transfer.
• The creditors did not solicit the letters, checks or the transfer.
• Creditors were not given a fair chance to review or become aware of the offer before the transfer was put into motion.

RESULTS

The Court found in favor of the CRP-Gardere team, granting each of its petitions, including:

• Resolving the issue of ownership, enabling the debtors to maintain accurate records and ensuring that the debt settlement company did not receive compensation as an unsecured creditor; this enabled the rightful owners to receive compensation
• Expunging from the Mirant case record all notices purporting to a transfer of unsecured claims to the debt settlement company, to prohibit the company, the company representative or any of their affiliates from filing documents relating to these claims
• Issuing a temporary restraining order against the debt settlement company and its affiliates