Nov. 17, 2008 — Jeffrey Prosser's attorneys worked diligently but made little headway Monday trying to prevent the court from hearing evidence and testimony alleging he systematically funneled company assets to himself, his wife and his adult children.
Opening a new chapter in the saga of Prosser's personal and corporate bankruptcy, U.S. Bankruptcy Court met Monday on St. Thomas for the first of at least four days of what are called turnover adversary hearings. The court is to decide whether or not tens of millions of dollars spent by Innovative on Prosser and his family members were improper, and if some of it can be retrieved and turned over to Prosser's creditors. (See "Court Gives Prosser 3 Setbacks as V.I. Hearings Open.")
Prosser is in involuntary Chapter 7 bankruptcy and his former company; ICC, the parent company of local telephone provider Vitelco, is in Chapter 11 bankruptcy. ICC owes the Rural Telephone Finance Cooperative alone more than half a billion dollars and a family of hedge funds called the Greenlight entities hundreds of millions more, for nearly a billion in debt. As ICC assets are being sold off to pay its debts, both the Chapter 11 and Chapter 7 trustees have asked the court to declare fraudulent millions of dollars transferred to an array of family members and elsewhere, and have the money or the valuables that were purchased turned over to the trustees for sale.
Seven attorneys formed the team advocating for Prosser and family. Another eight were there advocating for Prosser's creditors and for the Chapter 11 and Chapter 7 trustees.
Ingrid Christian, a forensic accountant hired by the Chapter 11 trustee overseeing ICC during the bankruptcy proceedings, testified about payments made by ICC to construction contractors, artists, artisans, insurance companies, family members and others, that she judged to be "clearly not business-related."
Many of the expenses, from house and car purchases to credit card payments, have been discussed in court — and in the Source — before. (See "Almost $1 Million Credit-Card Rebate Asked in Prosser Case"and "Least of Prosser Mansions Sells for $3.55 Million.") But now the court is addressing the question of what to do with them.
In many instances, ICC paid insurance bills for family members, Christian testified.
"Fine art, jewelry, cars, homes, boats, things of that nature" were covered by insurance paid for by ICC, she said. "I found no evidence for any use of these items by (ICC). They were for Jeffrey Prosser and his family."
James Lee, lead attorney for the Chapter 11 trustee, asked Christian about cash payments to Prosser's adult children, Lyndon Prosser, Michelle LaBennett Prosser, Sybil Prosser and Justin Prosser, ranging from just a few thousand to several hundred thousand dollars. Though ICC paid regular housing allowances and other cash payments to them, none of them ever worked for ICC in any capacity, she said. Another Prosser adult child, Adrian Prosser, was employed for a time by ICC, she said.
While Michelle LaBennett Prosser was a student in Paris, ICC paid her tuition and rent and paid for a car service to drive her around the city, Christian said. But she did not list all of these expenses as being for the Prossers' personal benefit, saying that when there was an articulable doubt, she erred on the conservative side. For example, the company paid tuition for the children of other top-level managers, so there was arguably a company policy of providing the benefit for top managers such as Prosser. Hence Paris tuition was counted as a legitimate business expense, she said. And some employees received housing allowances, so the housing allowance given to Adrian Prosser was listed as a legitimate expense because he was a company employee for awhile. But rent paid for the other children was not.
Similarly, some chartered jumbo-jet rentals were flagged as personal use of corporate funds, while others, nearly as questionable, were not.
"Galaxy Jet Services is a charter-plane service used often by Jeffrey Prosser or his family," Christian said. "There were a number of payments to Galaxy that did not make it onto our tally because information was not available for all the flights, so if it didn't say otherwise, it could have been a legitimate expense. However there is one flight Dawn took, costing $64,000, I believe it was in 2007, that was put on the tally."
The flight was to take Dawn Prosser to a wedding, she said.
Karen Bentz, attorney for Dawn Prosser, and Norman Abood, one of Prosser's personal attorneys in the case, tried to persuade U.S. Bankruptcy Judge Judith Fitzgerald to bar Christian's testimony at several junctures, arguing Christian was not listed as an expert witness and either she would have to be an expert to determine which expenses were not legitimate, or any expertise she may have would somehow taint her conclusions because she was not listed as an expert.
"This is her opinion," Bentz said. "She has decided to reclassify business expenses of New ICC and put them in the category of personal expenses. … She has basically gone and recreated history."
Fitzgerald was not persuaded.
"So far there is evidence from this witness that these were not legitimate expense," she said. "Overruled."
In another instance, Abood objected to Christian using the term "beneficiary." The Prosser's St. Croix mansion at Shoy's Beach was paid for by ICC, but the title is unclear.
"Because I cannot make a determination as to the owner, I list simply a payment to 'beneficiary,'" Christian said.
"'Beneficiary' is a legal term of art," Abood said. "Ms. Christian's determination is a legal conclusion as regards this court. She is not an expert and so, again, her conclusions are misleading."
Again, Fitzgerald was unpersuaded.
"A payment made for the benefit of a person or directly to that person means they are the beneficiary," Fitzgerald said. "No expertise is needed for that. It is plain English. Overruled."
Over the course of the week, each of the turnover claims will be addressed in turn. At stake for the Prossers is what, if any, of their former property they get to keep and whether the adult children will have to repay money given them by ICC. There are many claims and counterclaims to work through, and additional hearings on the subject are scheduled in December.
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