Trustee’s Newsletter #7

May Newsletter
June 16, 2008

It is Sunday morning and again I begin a draft of the monthly newsletter. It seems that every time I sit to write the letter something of significance happens in the case that causes me to postpone its release.

 

Much has happened since my last newsletter and generally these developments are a positive for us in this case.

First, there was the activity surrounding the fee applications filed by the professionals in this case.  We have concluded the hearing on fee applications on June 11, 2008 (“Fee Hearing”).  As many are aware, I had decided not to litigate with the Pre-Trustee professionals at this time over their substantive fee applications and have reached an understanding that they will share $1.7 million pro rata for services rendered pre-Trustee as well as payment of their expenses.  The reason for my decision was based purely on economics which dictated there was little to be gained in litigating the fees currently when such litigation avenues are available to us at a point in time further on in the case. I saw no reason for spending victims and creditors funds currently in that endeavor. We still have the right to recover the $1.7 million later if they are found to be not entitled to it. This is not binding upon anyone, the court will not make any findings and it does not preclude us from later objecting and making any affirmative claims against them.  I objected to many of the expenses and we also reached agreements with the professionals to permit me to withdraw my objections.  In all, over $200,000 in expenses were reduced.  My professionals also consensually took certain reductions in expenses.  My thanks to many who reviewed and who submitted their thoughts on various line item expenses.

Judge Glenn at the Fee Hearing reserved his decision on all applications and asked for my submission of what I believed to be the value of the estate.  I have filed a public version with only a limited litigation analysis and have submitted to the court a version with an expanded description, which I requested be filed under seal.  Subsequently the US Trustee filed a motion requesting an expansion of my filing and that also has been done. I don’t mean to be secretive about my analysis but for strategic reasons, I really don’t want to tip anyone who may be a potential target.

The Court also requested a budget for fees going forward. That task is extremely difficult because from this point forward virtually all efforts are and will be involved in litigation and settlement efforts. We can only control one half that equation and the other half is determined by our opponents. If we knew how high the flood waters would be, how long they would last and how long the rain will continue to fall, the clean up process would be more subject to a budgetary process. I can say that while our current “burn rate” (the rate that which fees are incurred) is approximately $1,375,000 per month. The greatest portion of that dealt with the creation of the document data bases that will be necessary going forward in the various litigation processes. That number will be coming down substantially in the next 60 days. The future expenses will be greatly determined by the tenacity encountered in the litigation process.

We have also filed an application to approve our settlement with the Trustee in the West Oaks Mall chapter 11 so to avoid litigation and to bring in funds for the estate ($550,000).

I have recently filed a motion seeking to enter into a mineral development lease with Petrohawk Energy Corporation, pursuant to which, in essence, Petrohawk will pay to IPofA Shreveport Industrial Park, LLC, one of the “IPofA Debtors,” for the right to exploit natural gas believed to be located in a geologic formation known as the “Haynesville Shale” located beneath the surface of the real property owned by IPofA Shreveport.  An expert retained by me has opined that that the value of the natural gas at the Shreveport property could be between roughly $30 million and $58 million if the shale formation produces gas in line with current projections.  Pursuant to the proposed Petrohawk lease, in the event that its exploratory drilling reveals sufficient gas deposits justifying extraction, Petrohawk will be entitled to continue extraction as long as such is economically desirable.  IPofA Shreveport would receive a 25% royalty of the gross revenue realized from the natural gas extracted.   Simultaneously, I have moved for relief from the orders approving certain stipulations with Cordell Funding and Cordell Retirement, pursuant to which those entities – which assert secured claims against the Shreveport property -- were granted, inter alia, relief from the automatic stay.  My ability to realize value from the Haynesville Shale may depend on the result of this motion and/or additonal litigation with Cordell Funding.

We had set a date of June 13th for the acceptance of written proposals for the purchase of the Salina Central mall. We received approximately 20 offers but unfortunately none of the offers are currently adequate to pay off the 1st mortgage holder, Wachovia who is owed about $32,000,000 and the other secured claimants (Real estate taxes, unpaid contractors, leaseholders, etc) who are owed approximately another $2,000,000 and pay any brokerage commissions. We will be discussing the best exit strategy with Wachovia over the coming 1-2 weeks.

The insurance claims area moves forward and the Proof of Loss will be filed on or before July 31st at which time the insurance Companies will have 120 days to respond. Although we can take no formal action in the 120 day period, I would anticipate that we will begin discussions with the insurance Companies during this period.

We are in the process of selling the rest of the real estate, most of the balance of the “toys” and the First Montauk stock.  We are also looking at liquidating the Okun jewelry.

We have begun a long process to determine the proper creditor mailing matrix as well as beginning to organize the claims data base.  This is a long process and I remind all that if you have a change in address, please file something with the court so as to ensure that our list is accurate.  I have posted a link on my webpage that deals with this issue. Address Changes must be handled in the manner described at the webpage link.

We continue our discovery efforts and have issued a multitude of subpoenas and will continue to conduct depositions or interviews of relevant parties.  We also continue to deal with Okun’s criminal cases as it impacts our discovery.  As always, we continue to cooperate with the government.

While I thank the vast majority for their continued support, I can only assure you that I will continue to do my best to maximize recovery for the victims and creditors.