Jan. 11, 2009 — Jeffrey Prosser's attorneys are using a federal anti-racketeering statute as a new weapon against his creditors.
Prosser, the former CEO and owner of Innovative Telephone, has been in bankruptcy proceedings for close to three years. His new weapon is a civil suit filed in the St. Croix federal court under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Through New York attorney Lawrence Schoenbach, Prosser, several family members and a friend have filed an 84-page document, charging that 15 people and organizations have violated RICO in their efforts to secure funds from Prosser and his former organizations. According to lawyers, RICO, originally designed to combat gangster influence in business matters, has also been used for years in many non-gangland settings.
Defendants in the suit are five executives of cooperatives, four hedge funds, three national rural-cooperative organizations, two accounting firms and one law firm. They all relate, directly or indirectly, to the non-profit, specialized bank, the National Rural Utilities Cooperative Finance Corporation (CFC), that wants Prosser and his former corporations to repay the half billion dollars or so that it lent to various Prosser entities.
The four hedge funds are all Greenlight Companies, once minority stockholders in an earlier Prosser-controlled holding company. Greenlight won a major victory against Prosser in the Delaware court system several years ago regarding how much was owed to those stockholders. Greenlight has struggled to get paid ever since.
What Prosser Charges
Prosser makes two major points in his Dec. 8 filing:
— CFC, and its allies, victimized him as part of the process of taking money from rural telephone companies (such as Innovative Telephone or Vitelco) for the benefit of rural electrical companies. This appears to be a new strategy for the Prosser forces.
— more specifically, CFC, and its allies, have manipulated documents and used other illicit techniques in efforts to wrest funds from Prosser and his former companies. Some of the arguments on this point have been raised earlier and have been dismissed by judges hearing them.
Prosser is joined in the suit by his wife, Dawn; one of his adult children, Adrian Prosser; and by John P. Raynor (who has also gone through bankruptcy proceedings), his longtime advisor and once a board member of Prosser-controlled companies.
The three Mainland-based cooperatives Prosser is suing are, in the order of their creation, the National Rural Electric Cooperative Association (NRECA), a service and lobbying organization for non-profits, largely in the American West, that bring electricity to their members; the National Rural Utilities Cooperative Finance Corporation (CFC), the specialized bank that, in turn, created the Rural Telephone Finance Cooperative (RTFC), which lent the hundreds of millions to Prosser.
NRECA played a major role in the founding of CFC, which controls RTFC. Vitelco was a member of RTFC for years.
According to the brief, "The purpose of CFC's racketeering activities and the pervasive and continuing pattern of accounting fraud is CFC's survival. CFC uses funds unlawfully procured through loans made to rural telephone companies and money laundering to subsidize loans made and allocations of patronage income to rural electric companies."
"Patronage income" is the term cooperatives use to describe rebates they pay their members.
To support its charge of financial manipulation, Prosser's brief cites differing total-net margin (income) figures nationwide for the same year, as reported by different accounting firms, for the electric and the telephone companies.
The second set of Prosser charges — about RTFC's illicit activities in connection with Prosser, specifically — revolves largely around RTFC's alleged physical manipulation of a 2001 loan-agreement document signed between the bank and Prosser. This argument has been raised by Prosser in past court documents, without apparent effect.
What the Brief Does Not Say
If one looks at this filing against the massive backdrop of the bankruptcy litigation over the years, what the brief does not say is as interesting as what it does say.
There is no discussion at all of what happened to the money the CFC and allied conspirators are said to have obtained illicitly. In the bankruptcy filings, on the other hand, there are countless descriptions of credit-card bills paid by various Prosser entities; millions of dollars worth of wine purchased; watches, jewelry and artwork bought; and mansions acquired.
Also, no other rural phone company has joined the suit, or gets mentioned by name, though at least half of the brief deals with allegations that CFC juggled the books to hurt member phone companies — and thus benefit member electrical companies.
The People Involved in the Litigation
The new litigation brings some new names into the squabble over Prosser's convoluted finances.
Since the Prosser suit was filed with the federal court on St. Croix, it may well mean the introduction of a new judge in the case. All of the ongoing bankruptcy litigation is in the U.S. Bankruptcy court on St. Thomas, which involves Bankruptcy Judge Judith Fitzgerald. Appeals from her decisions have gone to the St. Thomas federal district court judge, Curtis Gómez. Both of these judges have often, but not always, ruled against Prosser's motions.
The new case might go, at least initially, to the one sitting federal judge on St. Croix. He is Raymond Finch, brother to J'Ada Finch-Sheen, the former V.I. attorney general who Prosser has often retained in the past. Judges sometimes recuse themselves when faced with what may look like conflicts of interest. Whether the defendants in the case will raise this issue is not known, and probably will not be until they file their replies to the charges Feb. 11.
Though the suit pits the bankruptcy-case principals against each other, it is not a matter for the bankruptcy courts.
The Greenlight companies have retained St. Thomas attorney Richard H. Dollison of Stryker, Duensing, Casner & Dollison to work on the matter. The rest of the defendants — all 11 of them — have hired St. Thomas attorney J. Daryl Dodson of Moore, Dodson & Russell.
Another new name in the ongoing Prosser-creditors struggle is that of former Congressman Glenn L. English, a Democrat from Oklahoma. He is listed on the first page of the filing as one of the defendants, presumably in his role as the CEO of the National Rural Electric Cooperative Association, one of the defendant entities. He is not discussed, however, with the rest of the defendants in the part of the brief where all the rest of the 15 defendants are identified in individual paragraphs.
That gap in the presentation is just one of several suggesting lawyers put the RICO brief together hurriedly. For instance, in the case of Steven L. Lilly, an RTFC official, the reader is told twice in three lines that he "resides at 4285 Phoenix Rd., Bealeton, Virginia," but despite this repetition, current phone-company listings, as well as land records in Fauquier County, Va., show that a family named Carlson lives at that address.
Similarly, John P. Raynor, a long-time Prosser ally and one of the plaintiffs, is listed as a "confident" of Prosser, when the lawyers probably meant "confidant."
An RFTC spokesman told the Source that the agency would not comment on the matter, pending the filing of its reply in court Feb. 11.
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