Just after it informed VCU that it must back out of a promise made three years ago, Health Diagnostic Laboratory must also explain what happened to “large sums of money” that may have changed hands in the years leading up to its recent financial troubles.
Assistant U.S. Trustee Robert Van Arsdale, who is overseeing the embattled lab company’s Chapter 11 bankruptcy case, this week questioned Martin McGahan, HDL’s chief restructuring officer, about payouts made to its shareholders as far back as two years ago.
“Some huge amounts of money went around at that time,” Van Arsdale said Thursday at a meeting of the company’s creditors.
Van Arsdale did not go into detail about how much money may have been transferred or to whom.
McGahan, who is also a principal with Alvarez and Marsal, a firm HDL hired to help it restructure financially, gave the primary testimony at Thursday’s meeting. He said the distributions in question took place before HDL hired his firm last November, and he was not familiar with the details.
Known HDL shareholders include founder and former CEO Tonya Mallory, as well as Robert Bradford Johnson and Floyd Calhoun Dent, the founders of HDL’s former sales contractor, BlueWave Healthcare Consultants.
Upon scheduling the next creditors meeting on Aug. 5, Van Arsdale requested that HDL’s lawyers come prepared to answer specific questions about the distributions.
HDL also recently informed VCU that it will not be able to fulfill the $4 million pledge it made to the school’s athletic department three years ago, the school confirmed this week.
HDL, once one of the city’s fastest-growing and most generous corporations, failed to pay its most recent $400,000 annual installment to the school due June 30.
The pledge – the largest in VCU Athletics history – promised equal installments over 10 years to help fund the school’s new $25 million basketball practice facility, along with other capital projects.
In exchange, HDL’s name was plastered on signage around all of VCU’s athletic facilities, including the Siegel Center, Sports Backers Stadium and the Cary Street Gym, declaring them part of the HDL, Inc. Athletic Village.
Those signs are still standing and will be removed, VCU spokesman Mike Porter said. The school has neither a time frame nor cost estimate for that process.
A copy of the agreement also shows that HDL was promised access to former men’s basketball coach Shaka Smart for an event each year, 100 complimentary tickets to VCU men’s basketball games each season, access to the arena floor in the Siegel Center for an event once a year, two season parking passes and four priority basketball season tickets, among other advertising opportunities.
HDL said this week it did make its first two payments from the agreement, totaling $800,000, in 2013 and 2014.
The company’s reneging of the VCU pledge, which was first reported by the Richmond Times-Dispatch, comes about six months after it began cutting back on charitable donations. At the time it was in the midst of a federal kickbacks investigation, which the company settled by agreeing to pay a fine of $47 million to the U.S. Justice Department.
Porter would not expand on how VCU plans to make up for the loss of expected HDL funds but said the practice facility will continue as planned.
VCU is also relying on a gift for the practice facility from another area company that was recently thrust into controversy. Toano-based Lumber Liquidators promised up to $1 million in a multi-year partnership that included cash and hardwood floors for the project.
A Lumber Liquidators spokesman said Thursday the company will keep its commitment to VCU Athletics.
Richmond packaging giant MeadWestvaco, now known as WestRock, also pledged $3 million over 10 years to help fund the facility.
The next development in HDL’s bankruptcy case will take place July 14, when a federal judge will decide whether to approve the company’s motion to pursue a sale of its business and assets.
Its lenders and landlord, meanwhile, have warned that the company may be close to a Chapter 7 conversion.
HDL went into bankruptcy last month after its largest lender, BB&T, cut it off from its line of credit.
What comes around goes around…