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HomeNewsArchivesOn Tap for Bankruptcy Hearings: Former Valet, Tax Returns and Maybe Prosser

On Tap for Bankruptcy Hearings: Former Valet, Tax Returns and Maybe Prosser

June 6, 2008 — Bankruptcy hearings at the federal courthouse on St. Thomas next week will see appearances by the former valet to Jeffrey Prosser, former owner and CEO of Innovative Telephone, Prosser's income tax filings and perhaps the man himself.
A review of the documents filed with the court in anticipation of the hearings — such as briefs, witness lists and statements of objection — shows that all sides in the controversy are throwing everything they have into the mix.
As noted in an earlier article (see "Prosser Hearing Coming to St. Thomas Next Week"), the bankruptcy court will hear three different issues over a period of four days, beginning Monday: Should a bank foreclose on the Prosser's mansion on St. Croix? To what extent are Prosser properties exempt from the bankruptcy proceedings? To what extent are assets in the hands of Prosser's adult children to be included in the bankruptcy settlement?
The exemption issue relates to provisions of the U.S. Bankruptcy law that limit the amount of a bankrupt person's assets that can be seized to pay his or her debts. The general notion is that the debtor should be left with a modest house, some clothes and the tools needed in his or her line of work. The definitions of these exemption are not hard and fast, and are thus subject to much lawyerly interpretation.
In general terms, Prosser's legal team calls for broadly defined exemptions, while the creditors and the court-appointed trustees seek narrow definitions. The trustees argue that the houses were largely paid for by one of Prosser's holding companies, and thus should be part of the bankruptcy estate; Prosser's attorneys argue that this does not matter.
Long Lists of Witnesses
Each side is required to inform the court, and the public, about the witnesses it may call and the documents it may show in the courtroom. These filings suggest a long hearing.
There are 11 names on the witness list submitted by the two court-appointed trustees: Stan Springel, the Chapter 11 official who works with the former Prosser corporations, and John Carroll, who is the Chapter 7 trustee for Prosser's personal assets.
Among those on this list is Arthur Stelzer, identified as "former valet for Jeff Prosser," who will be asked about "purchases/charges made [by Innovative Communication Corporation] at the direction of Jeff Prosser; use of real and personal property by Jeff and Dawn Prosser …."
Also on the list are two former members of ICC's board of directors: Jeffrey Prosser's brother Michael Prosser and John Raynor. Both are to be asked about this assertion: "Board of Directors of ICC did not approve various transfers in advance of the making of those transfers." (These statements are from the trustees' brief and are subject to challenge by opposing attorneys.)
Also on the trustees' witness list, followed by an asterisk, are Jeffrey and Dawn Prosser. The asterisked note says, "The trustees may offer this witness in person or by deposition."
The trustees have taken a three-level approach to the question of the exemptions. First, they said that Prosser "has conducted himself in bad faith and in an effort to thwart the bankruptcy process," and thus should be entitled to no exemptions at all. They quote a legal precedent in which this remedy is mentioned as being used in "extreme circumstances."
To support this approach, they say that "within one day of the voluntary filing by Jeffrey Prosser, and at a time when he was already subject to and a debtor within an involuntary bankruptcy proceeding, Mr. Prosser secretly transferred at least $480,000 to Dawn Prosser and then failed to disclose the transfers on his monthly operating reports …."
The trustee's second approach is to discuss each property separately and cite legal arguments why that property — under various state laws — does not allow for an exemption. And the third approach, in several cases, is to say that even if the two prior arguments fail, then the size of the exemption is a modest number: $30,000 in one case and $125,000 in another.
Real Estate Up for Grabs?
Prosser's lawyers reply, "… exemptions are typically construed liberally in favor of a debtor in order to facilitate the 'fresh start' policy considerations underlying the Bankruptcy Code …." They go on to cite various court cases that support their claim that each of the Prosser houses — in the Virgin Islands, Florida and New York — is exempt from seizure to pay Prosser's debts.
That there is one kind or another of joint ownership in each case is stressed in these arguments, since Prosser's wife, Dawn, is not a debtor, and property jointly owned by both a debtor and a non-debtor cannot be attached for bankruptcy purposes. His lawyers also deny that there was any fraud in the transference of any of the properties.
Prosser's witness list is long, including 17 specific names. Several overlap with the trustee's list, such as Michael Prosser, Raynor, Springel and Carroll. Several of the people on Prosser's lists are expected to be asked about the preparation of Prosser's income-tax filings. Another is Christine Lett, who will testify about an article she wrote for the V.I. Daily News reporting representations by Springel's lead attorney, Daniel Stewart, to the Public Services Commission.
Prosser also plans to call an unnamed person on the staff of the Internal Revenue Bureau to discuss Stewart's report to the IRB "that Mr. Prosser received transfers that should have been included in his tax returns during the relevant years …."
Prosser's lawyers also said they might introduce, as evidence, the Prosser income tax returns of 1998 through 2006.
One set of lawyers can object to witnesses or documents brought forward by the other set of lawyers, and the judge must decide to accept or overrule the objections.
The third issue — if time allows — is the question of whether ICC funds were used to buy assets and pay bills for the adult Prosser children.
Again, there are long lists of witnesses, with Jeffrey Prosser, Dawn Prosser, the Prosser children and the trustees all supplying lists of people they may want to call for testimony. The entire Prosser family is on the list provided by the trustees.
The general posture of the Prosser children, according to their lawyer's brief, is that any gifts came to them from their parents rather than from one of the Prosser corporations.
The amount of money involved in these separate disputes does not necessarily relate to the court time spent on them. The various exemption disputes collectively probably involve something like $10-12 million worth of real estate, while the question of the assets of the Prosser children may not exceed a million or two. In contrast, the former Prosser-related corporate assets, whose value is estimated to be in the hundreds of millions, will not be mentioned in next week's round of hearings.
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