LandAmerica knew end was near, clients say
Last Nov. 24, two days before LandAmerica Financial Group went bankrupt, the company refused to release funds it was holding for retired Army Col. Tracy Ralphs of Suffolk.
He was about to close on a land purchase for a new home when he got an e-mail from a LandAmerica executive saying the company no longer was in business.
Ralphs had put $81,666 of proceeds from selling land -- his life savings -- into a LandAmerica account on Oct. 15, just two days before that same LandAmerica official sent an e-mail to the company's chief lawyer warning that the company was about to run out of money to pay customers like him.
And, though LandAmerica wouldn't release Ralphs' funds when promised, the company had on Nov. 12 paid a $200,000 bill from the law firm it consulted about bankruptcy -- the equivalent of five 40-hour weeks of one of the firm's top $995-an-hour lawyers, according to bankruptcy court filings.
"Now, they're talking about paying me 20 cents on the dollar," Ralphs said. He said that is what lawyers involved in the case advised him.
Like others who deposited money with LandAmerica, he believes the company took his money even when its executives knew it couldn't repay it.
In a sworn affidavit, Ralphs said the LandAmerica official who took his deposit told him on the day the Glen Allen firm filed for bankruptcy that one senior LandAmerica official knew as early as June that "this whole thing was going to blow up."
"It was just a Ponzi scheme," said Paul Busse, whose wife deposited money with LandAmerica in August 2008. "They were using money like my wife's to repay other investors."
That is why depositors such as Ralphs and Busse say they will oppose the bankruptcy plan LandAmerica filed this week and will push for legal action to get some of the company's legal and financial advisers to disgorge fees they've already been paid.
They also object to the plan's demand that participating creditors not take legal action against former officers of LandAmerica or the firms that advised the company in bankruptcy.
Ralphs and Busse are among about 400 investors who didn't make special security arrangements for their deposits, and the company's plan says their repayment will come after about 50 investors who did.
Some of those 50 will get 97 percent of their money back, and the rest will split at least $50 million. Anything left over goes toward the 400, who are owed about $193 million.
The 400 people had been told their "1031 exchange" deposits with LandAmerica were held in trust for them -- the same thing, in fact, that LandAmerica's chief counsel and Executive Vice President Michelle H. Gluck told two large banks on Oct. 7, about a week before Ralphs deposited his money with LandAmerica.
The 1031 exchange name refers to a section of the tax law that allows people to park proceeds from a real estate sale in a tax-sheltered fund until they use the money to buy another property.
LandAmerica, in turn, invested the money in a variety of ways including auction-rate securities, a high-interest-rate note then considered a safe investment. But the market for auction-rate securities froze in February 2008, making the funds inaccessible.
In the Oct. 7 letter, Gluck, now a senior vice president and general counsel of the Richmond Federal Reserve, pushed the banks to make good on their promises that the $290.5 million in auction-rate securities could always be redeemed. Gluck asked the banks to pay up because LandAmerica was using the securities to back its own promises to customers such as Ralphs.
The best the banks had offered was Citicorp Inc.'s proposal to lend LandAmerica $25 million on the security of $138.5 million of auction-rate securities.
"Your personnel are well-aware of the nature of the 1031 exchange business . . . and with that knowledge directed the company towards [auction-rate securities] as safe, highly liquid investments," Gluck wrote, adding that the banks' refusal to redeem the securities left the bank in a financial crisis.
"This situation needs to be resolved this week," she said.
LandAmerica had at that point been trying for weeks to arrange a merger or to sell its title-insurance companies, which accounted for 85 percent to 90 percent of its revenue, to address its financial crisis.
On Oct. 20, five days after Ralphs deposited his money with LandAmerica, the company's then-chairman and chief executive officer, Theodore L. Chandler Jr., wrote then-Secretary of the Treasury Henry M. Paulson Jr., asking for an urgent meeting to discuss federal help. LandAmerica didn't get the help.
A deal in early November to sell its title-insurance companies collapsed when regulators objected.
On the day Ralphs was planning to withdraw his money, Nov. 24, insurance regulators in Nebraska put LandAmerica's two main title-insurance operations into receivership, the final blow before the company filed for bankruptcy protection Nov. 26.
"I am a retired colonel, with three kids. That was their college money," Ralphs said. "Now, I'm getting 20 cents on the dollar."
Contact David Ress at (804) 649-6051 or
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Reader Reactions
This whole smelly mess has been “cooked up.“ Correction: “overdone.“
We have the slick NYC lawyers swooping in to primp up and camouflage this overt criminal activity as “market driven,“ and they keep repeating this mantra.
Bull! This was an organized criminal enterprise from the get-go, starting in Feb., 2008, when the big ARS “lock up” happened. Land Am kept stealing 1031 exchangers funds for at least the following 7 months, until bankruptcy “filing.“ Remember: y’all 1031 exchangers have a GREAT Thanksgiving! That was the bogus name: “Thanksgiving Corp.,“ when the sugar-daddy, Fidelity, was going to merge, buy-up, and “save” Land Am. Take their roasting chestnuts outta the fire. Even Fidelity saw the stench and said “No thanks!“
Then, you have the “second wave” of blood sucking lawyers swoop in, run up millions in fees—and accomplish—ZERO. Nothing has been added to any fund or recovery available to exchangers. Where’s the value from millions of $ in lawyers’ fees?
Finally, you have this MONSTROSITY called a “Plan,“ which screws the exchangers and lets all the crooks go.
Jarndyce vs. Jarndyce, a la Bleak House—as Dickens said: “Suffer any wrong that can be done you, rather than come to this [bankruptcy court] place!“
Unless, of course, you are the crooks or lawyers, and its “feast city.“ (Isn’t the Chinese symbol (wei-chi)for crisis mean both “danger” as well as “opportunity?“ this seems to be the case here). Some laugh heartily all the way to the bank, while others at the same time are impoverished, eating rice and beans ad infinitum.
The Richmond Bankruptcy Court should manufacture and give our front door “Welcome” mats with the following line:
“My Bankruptcy Lawyer Drives a Rolls-Royce—ask the 1031 exchanger living inside”
PUBLIC NOTICE: If you are a criminal enterprise and want to get-off-the- hook, file in Richmond—they will take good care of you. “How else can we make these Chapter 11s work? Who is going to pay for these “complicated” cases?“ (yeah-right! a 6th grader can see this is not complicated—give the exchangers their trust/escrowed deposited funds back—HELLO!)
PUBLIC TRUST: in the Richmond Bankruptcy Court, well, you figure it out…
Not giving away secrets here, but the big money in bankruptcy is in buying up cheaply the debt (sometimes the stock, too) of the troubled company as it enters BK, exerting influence over the committees, attorneys and other processes that determine how much money gets allocated to pay off the owners of those securities, and then cashing out for fabulous profits. Profits that exceed the claims in the underlying BK case. Sometimes these dramas get played out in public, in the Journal or Forbes, with high powered lawyers and vulture funds getting seats on the committees and attempting to allocate disproportionately large sums to the classes of debt they own. Sometimes, those dramas remain in the background. In either case, the general creditors in large BK cases where these battles are going on are typically the losers, and are well advised to retain competent specialized counsel who understand how this game works.
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However, if anyone believes Cantor was only taking notes th
The bankruptcy plan is now a public document available to read as docket item 1991 and 1992 on the EPIQ website for the LandAmerica bankruptcy.
1. Mr Ralphs is unfortunately less than half right. The piece of payout pie he thinks he may get has to be shared with a number of very large claimants who were not customers, including the parent company which injected $68million of cash into LES when even their Ponzi scheme faltered. There is no assurance that any money will be left by the time they begin payouts, as the firm just filed for yet another extension. 20% of zero is still zero.
2. Not only does the plan propose that LandAm executives and directors and their attorneys and their bankruptcy committees be protected from future lawsuits, it also proposes to rewrite history so that they are deemed to be free of liability in the future.
3. The plan insists that the voters be stuck with a cramdown provision, in which a small number of voters with help from the judge and commitee can force a yes vote on the majority of voters, even if they vote no.
4. The rationale for writing plans as horrible as this one generally boils down to self-serving greed, but unravelling the particular factors is beyond the scope of most lay people. The committee appointed to represent them is most likely involved in this, and part of the problem. But, that’s Bankruptcy for you.
Let’s see I am number three who agrees with the other two posts - how about sending some of the lawyers to jail who allowed these crimes or facilitated their clients?!!! What about it Mr. Attorney General in VA?!!!! Give these idiots jobs in the federal govt - are you crazy or what! Let me see - if these same people who had their money stolen from them were to steal or misappropriate the same money from an organization - they would go to jail. But if you get a law degree and set up a law office and then take on clients who knowingly commit these crimes and then the lawyers helps - we pay their bills - something is wrong with the judicial system. People need to not just angry - they need to start taking back our government NOW!
What gets me is that one of the main players in LA’s scheme was Michelle Gluck, but further down the article says she is “now a senior vice president and general counsel of the Richmond Federal Reserve.“ Are you kidding me?
It looks like to me what she did is a felony. I thought felons were barred from holding a position with the Federal Reserve.
I agree with “dc” that these people should be charged with stealing and go to prison for this.
There are thousands of “clean” folks out there who are in need of a job and now a thief is in charge of OUR money.
Someone needs to go to prison for this! Stealing is stealing and what Land America did was no different than picking a persons pocket and maxing out their credit cards, emptying thier bank account and stealing their identity. I do hope that this doesn’t just ‘blow over’.
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