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HomeNewsArchivesJohn Ashcroft Praised as His Firm Stumbles in Prosser Case

John Ashcroft Praised as His Firm Stumbles in Prosser Case

May 23, 2007 — While John Ashcroft got high marks from many on the mainland last week for his sick-bed rejection of White House pressure to approve what he regarded as an unconstitutional law-enforcement tactic, his consulting firm took a setback in the Jeffrey Prosser bankruptcy case.
Prosser is owner of Innovative Telephone Company.
Ashcroft, President George W. Bush's first attorney general, was featured in Congressional testimony about his reaction in 2004 to an anti-terrorist proposal pressed by the White House. Usually regarded as a staunch Bush loyalist, Ashcroft rose from his intensive-care bed to tell Bush's aides that he would not reverse the Department of Justice's rejection of the Bush proposal, the exact terms of which were not made public.
Ashcroft received praise for his action from unexpected quarters in the media and from senators from both parties. The hospital incident took place during Bush's first term.
But on May 16, the day the press reported the sick-bay confrontation, Ashcroft's newly formed firm was singled out for negative treatment in the monthly Prosser bankruptcy hearing in Pittsburgh. Not surprisingly, that event didn't get the same kind of play from the mainland media.
As background, the rules in American bankruptcy cases are somewhat different than the rules of the game elsewhere in the business world. The players have, in a sense, given up some of their rights in order to secure other rights, and the judge has unusual powers. In this case, the judge has taken steps to reduce legal costs and to limit the powers of some of the many, many actors.
Earlier in this case — at the request of Prosser's creditors and over Prosser's objections — Bankruptcy Judge Judith Fitzgerald appointed a case trustee to manage Prosser's firms through the rest of the bankruptcy process. The trustee subsequently asked the judge to approve the hiring of four firms to help him. Another Fitzgerald appointee, an examiner assigned to sort out Prosser's personal finances, asked the judge to allow him to hire three more firms to help him — the seven firms were variously legal, accounting and consulting organizations.
One of the firms the trustee wanted to hire was the Ashcroft Group. Lawyers for one of Prosser's two main creditors, Greenlight Companies (once minority shareholders in the predecessor firm to Innovative Communications Inc.) objected to all seven appointments. The grounds: The extra work forces were not needed and would use up funds that otherwise might go to the creditors.
At the May 16 hearing, the judge accepted the appointments of six of the firms but suspended a decision on the suggested appointment of the Ashcroft firm. There appeared to be two reasons for this: First, the other firms were accounting and law firms, working in areas routinely expected in bankruptcy cases; the Ashcroft Group has a different focus, working in the homeland security and telecommunications arenas. Secondly, the firm was said to "be only doing particular spot assignments."
The judge: "They're doing just spot assignments and there's an $80,000 (per month) fee application?"
One lawyer said the notion of John Ashcroft getting involved had soothed the V.I. Public Services Commission, previously a critic of the trustee. But the $80,000 bill was withdrawn for "a host of reasons, and — one of which is that they — there were some errors in the fee application and the trustee has asked them to meet with them on this," the lawyer said. He continued, "They do not have extensive experience representing debtors-in-possession or parties in interest in a Chapter 11 (case)."
This was the explanation of Craig Rasile of Hunton & Williams, the law firm representing the case trustee, Stan Springel, a seasoned West Coast business executive. Chapter 11 is part of bankruptcy law.
Added Greg Galardi, a Greenlight lawyer and a critic of the hiring of the Ashcroft Group, "Clearly their lack of experience to file $80,000 gets me even more nervous."
The decision not to decide immediately on hiring the Ashcroft Group was made by the judge, a high-level civil servant in what had been Ashcroft's Justice Department. It is not known whether Ashcroft has been told by his staff of the $80,000 billing and its consequences.
Meanwhile, the judge also cut back on some other fees. For example, she heard the trustee's lawyer argue that one of Prosser's lawyers, Michael Lichtenstein of Maryland, had charged for 153 hours of work trying to undo the appointment of the trustee, all without checking with his nominal supervisor — the trustee. She initially cut Lichtenstein's pay back to one hour, and then, during the hearing, relented and increased his allotment to 40 hours for that task.
The hearing included an abundance of lawyers, often charging someone $200 an hour or more. The transcript listed 42 of them, along with the equally well-paid trustee and the examiner. The attorneys represented the interests of the debtors, the creditors, the neutral parties and assorted other factions, such as that of the Rothschild bank, not further identified, which is seeking to arrange the financing of a settlement of the underlying dispute.
The V.I. Public Services Commission did not appear to have a representative at the hearing, either in person, by video conference or by phone.
Both the trustee and the examiner gave generalized reports to the court. The trustee argued in vain that his report and the rest of the proceedings be kept secret. The judge said that she could not grant the request, stressing the number of people joining the proceedings by telephone.
Both the trustee and the examiner complained to the judge that they could not get all the financial information they needed from Prosser's people; the latter argued that the Prosser financial staff was too small to provide that information because it was totally engaged in working with the Rothschild representatives on a refinancing plan.
The judge questioned why the lack of staff time was a problem: "They (ICC) have to have a database that's already been done for somebody else."
Prosser and his allies have traditionally been unwilling to open their finances to any government agency.
The next hearing will take place of June 28, probably in the Virgin Islands. At that time, a fundamental question will be argued: Do the debtors owe $402 million plus interest, the agreed-upon figure of last year, as Prosser argues? Or, because the $402 million was not paid on time, is the amount now up to $650 million, as the creditors contend?
Meanwhile, two other Prosser items surfaced off island:
— critics of the administration in Belize said that the total losses to that government caused by the aborted effort of Prosser to buy that nation's phone company had topped $35 million; and
— Delegate Donna M. Christensen clarified her position after writing to a colleague in the U.S. House of Representatives expressing concern about the financial viability of the National Rural Utilities Cooperative Finance Corporation, long Prosser's bankers and the main creditor in the bankruptcy case. Christensen said that her concern about CFC did not mean that she was taking sides in the bankruptcy case.
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