Some pretty shady stuff was going on at Heller last year, if a new report in the bankruptcy court is to be believed.
In early 2008, someone at Heller Ehrman instructed its accounting department to distribute $9 million in profits it did not have, and then cover it up, an interim status report alleges.
Also, in late 2007, Heller printed 118 checks made out for $3 million in total to pay for expenses. It then placed a hold on the checks and didn’t let them clear until early 2008, the report says.
The information is the result of investigations by the Creditors Committee. The report indicates it believes Heller’s management was making these “very troubling business decisions” to boost its 2007 numbers.
“Whatever the rationale, the reality was that Heller LLP boosted its 2007 financial numbers at the expense of the 2008 numbers, even though 2008 looked to be an even worse year for the firm’s revenues,” the report says.
No wonder Bank of America was so nervous by September 2008.
See Page 7 of the report (.pdf) for details of the new allegations.
The $9 million in overstated profits was originally recorded as “excess distributions,” but the accounting department was told to record them instead as “shareholder loans,” the report says.
It's unclear whether shareholders knew these were loans or not.
When an accountant tried to inform shareholders in writing of the “loans,” he was told not to, the report alleges. Bank of America believes Heller never intended to collect on the loans, the report says.
The estate also believes its former shareholders owe it $106 million. That’s how much partners received as profit distributions in 2007 and 2008.
Thomas Willoughby, who represents the creditors committee, declined to say who instructed the accountants or whether the estate would target that person or people in court.
“We filed it to inform the court, the creditors, and parties in interest of the status of our investigation,” Willoughby said, declining further comment because of confidentiality agreements.
— Amanda Royal
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