Dec. 18, 2007 — On short notice, all 10,000 shares of Virgin Islands Community Bank stock belonging to VICB sole owner Jeffrey Prosser will be sold at auction Dec. 27 on St. Thomas.
Prosser is in involuntary Chapter 7 bankruptcy and ICC — parent company to Vitelco, Innovative Cable, TV Channel 2 and other local companies — is in Chapter 11.
James Carroll, court appointed Chapter 7 bankruptcy trustee, charged with selling off Prosser's assets to pay his debtors, filed a motion with U.S. Bankruptcy Court Judge Judith K. Fitzgerald to sell the shares on Dec. 3. Fitzgerald approved the sale Dec. 11, notice was issued Dec. 13 and bids must be in by noon, Dec. 19. Bids must include a down payment of 10 percent of the bid.
Having a mere week from notice to the final date for bids is unusual. The urgency and short time frame arise out of concern the Federal Deposit Insurance Corporation at least could step in and play a role in the process, with a possible negative impact on the bank stock's value.
The precise cause for haste has not been made public.
"Your Honor has seen under seal why the Virgin Islands Community Bank is in a rush to get its issues dealt with the FDIC," Daniel Stewart, attorney for ICC Chapter 11 trustee Stan Springel, told Fitzgerald at the Dec. 11 hearing.
Stewart said an FDIC investigation into the VICB was triggered in October when Springel reported that $4 million worth of checks from Vitelco and other ICC subsidiaries owned by Prosser were presented to and cleared by the bank, owned by Prosser, even though the funds to cover the checks were not in the accounts upon which the checks were written.
During the Dec. 11 hearing, Fitzgerald described the relationship between these businesses when under Prosser's control as "incestuous." Springel removed Prosser from control of ICC in September. When news of the FDIC investigation broke, John McDonald, V.I. Banking Board director, said the community need not be concerned because the bank is solvent, adding that the bank is still operating normally and is considered to be "very liquid," though it is having "an issue with capital."
"We all understand the FDIC's concern," Gregg Galardi, attorney for the Greenlight family of hedge funds, one of ICC's creditors, said at the Dec. 11 hearing.
"Our concern is, if we don't do this sale on this time frame, there will be no proceeds for any of us, because as I just look at the law, the FDIC is able to put this bank into receivership at its whim or fancy because of outstanding issues that arose while Mr. Prosser was (in charge)."
A source close to the proceedings told the Source the decision for a quick sale was made to forestall even the possibility of concern by the FCC about any power vacuum at the top of the bank, due to Prosser, its owner, being in Chapter 7. Appointing a new board would similarly help in such a situation, the source said, but since that would have been a temporary move and the bank eventually sold in any event, a quick sale was chosen as the most practical option.
Despite cashing bad checks for millions of dollars, Stewart said Vitelco is financially sound and a repayment plan has been agreed upon.
"Each of Vitelco, New ICC and several other subsidiaries who had funds advanced on their behalf by the Virgin Islands Community Bank have executed promissory notes for the repayment of those funds," he said. "Vitelco on a stand alone basis is solvent on a balance sheet basis. It will generate more than enough funds to pay all of its creditors in full."
Once the sale occurs, the fight over who gets the proceeds will begin in earnest.
The shares were pledged by Prosser to Banco Popular as payment for debt. But the legality of that pledge has been questioned by some of Prosser's creditors and Banco Popular is expected to bid its debt for the stock.
At the same time, Springel is arguing the shares in the bank did not really belong to Prosser, so the proceeds can't go to pay Prosser's personal debts, whether to Banco Popular or anyone else.
"We believe we have found records that indicate that we, the corporation, New ICC and Vitelco itself are the owners of that bank," Stewart said. "Because our funds were the source of all the payments on the note that was used to acquire the bank."
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