HDL is renting out some of its downtown space to VCU. Photo by Burl Rolett.
Despite fighting to remain out of the spotlight, some former and current insiders from Health Diagnostic Laboratory will soon be under the microscope.
A federal judge on Thursday gave the green light to a group of HDL’s creditors to conduct an investigation into several of the bankrupt company’s former executives and current board members. The process will be on the lookout for reasons to recapture large sums of money that allegedly changed hands in the years leading up to the once fast-rising blood testing firm’s recent downfall.
The creditors’ investigation, called a 2004 examination, allows the committee to hold depositions and demand relevant documents and is part of HDL’s lingering bankruptcy case. The company filed for Chapter 11 protection in June, and the bulk of its assets were sold late last month to a Texas-based competitor, True Health Diagnostics.
What’s left of HDL is an estate with assets including investments and shares, along with debts owed to hundreds of creditors. Some of its largest lenders include health insurance giant Aetna, the Washington Redskins, and the federal government, which is owed $47 million from a settlement HDL agreed to in order to resolve a Department of Justice kickback investigation.
With its investigation, the creditors committee will look into several alleged money transfers, reported by the Wall Street Journal and Forbes, that include $119 million to HDL’s 16 shareholders between 2011 and 2013. Of that, $50 million allegedly was paid out to HDL’s three co-founders: Tonya Mallory, Joseph McConnell and Russell Warnick. The committee’s goal is to find out if HDL has the right to make claims and retrieve some of that money for creditors.
Mallory, McConnell and Warnick are all included in the examination, as are shareholder Tipton Golias and the founders of HDL’s former sales contractor, Robert Bradford Johnson and Floyd Calhoun Dent.
At Thursday’s hearing, the committee’s attorney Richard Kanowitz of the Cooley law firm had to fight against numerous objections before the 2004 examination was approved, most notably from HDL itself, backed by its board of directors.
Four out of five members of HDL’s board are included in the investigation: McConnell, Warnick, Noel Barlett and Robert Galen. The fifth member, John Young, was just appointed to the board in August.
“What did they think was going to happen when the (Department of Justice) calls fraud?” Kanowitz said at the hearing.
HDL and members of its board of directors argued that the timing is not right for the examination to move forward, as what’s left of the company is now working to put together a liquidation plan.
Tyler Brown, a Hunton & Williams attorney representing HDL, said the company hopes to exit bankruptcy by January. He said his team is working to develop a liquidation plan to be filed within the next two weeks or so.
Additionally, an insurance plan set in place to cover losses resulting from “wrongful acts” by directors and officers is set to expire on Nov. 1, and HDL is considering extending that coverage.
Brown suggested waiting until HDL had worked through the plan, find out who should prosecute in the event that the examination discovers potential claims, and deal with its insurance issue before pursuing the investigation.
Testifying on behalf of HDL was Richard Arrowsmith, who works as the company’s chief restructuring officer and for consulting firm Alvarez & Marsal. Arrowsmith said the examination would be a waste of funds.
Kanowitz was quick to point out that Arrowsmith reports to the board and argued that the board and HDL are biased in their objections. He said when the board was voting whether or not to object to the examination, the results were 4-1 – with all but Young, the only member not named in the investigation, in favor of an objection.
Mallory, a co-founder who abruptly stepped down as CEO last year, also filed an objection to the 2004 examination motion, but only as it relates to two pending lawsuits against her. The DOJ and Aetna are both HDL creditors with access to the examination results, and both entities have filed suits against Mallory. She asked that the findings be kept from them, but that request was denied.
Otherwise, Mallory’s motion stated that she “looks forward to providing information to correct certain misperceptions and misstatements of fact.”
Judge Kevin Huennkens ultimately agreed with Kanowitz, saying that it is “entirely appropriate” for the committee to do the investigation as an independent party.
The investigation will begin immediately.
HDL is renting out some of its downtown space to VCU. Photo by Burl Rolett.
Despite fighting to remain out of the spotlight, some former and current insiders from Health Diagnostic Laboratory will soon be under the microscope.
A federal judge on Thursday gave the green light to a group of HDL’s creditors to conduct an investigation into several of the bankrupt company’s former executives and current board members. The process will be on the lookout for reasons to recapture large sums of money that allegedly changed hands in the years leading up to the once fast-rising blood testing firm’s recent downfall.
The creditors’ investigation, called a 2004 examination, allows the committee to hold depositions and demand relevant documents and is part of HDL’s lingering bankruptcy case. The company filed for Chapter 11 protection in June, and the bulk of its assets were sold late last month to a Texas-based competitor, True Health Diagnostics.
What’s left of HDL is an estate with assets including investments and shares, along with debts owed to hundreds of creditors. Some of its largest lenders include health insurance giant Aetna, the Washington Redskins, and the federal government, which is owed $47 million from a settlement HDL agreed to in order to resolve a Department of Justice kickback investigation.
With its investigation, the creditors committee will look into several alleged money transfers, reported by the Wall Street Journal and Forbes, that include $119 million to HDL’s 16 shareholders between 2011 and 2013. Of that, $50 million allegedly was paid out to HDL’s three co-founders: Tonya Mallory, Joseph McConnell and Russell Warnick. The committee’s goal is to find out if HDL has the right to make claims and retrieve some of that money for creditors.
Mallory, McConnell and Warnick are all included in the examination, as are shareholder Tipton Golias and the founders of HDL’s former sales contractor, Robert Bradford Johnson and Floyd Calhoun Dent.
At Thursday’s hearing, the committee’s attorney Richard Kanowitz of the Cooley law firm had to fight against numerous objections before the 2004 examination was approved, most notably from HDL itself, backed by its board of directors.
Four out of five members of HDL’s board are included in the investigation: McConnell, Warnick, Noel Barlett and Robert Galen. The fifth member, John Young, was just appointed to the board in August.
“What did they think was going to happen when the (Department of Justice) calls fraud?” Kanowitz said at the hearing.
HDL and members of its board of directors argued that the timing is not right for the examination to move forward, as what’s left of the company is now working to put together a liquidation plan.
Tyler Brown, a Hunton & Williams attorney representing HDL, said the company hopes to exit bankruptcy by January. He said his team is working to develop a liquidation plan to be filed within the next two weeks or so.
Additionally, an insurance plan set in place to cover losses resulting from “wrongful acts” by directors and officers is set to expire on Nov. 1, and HDL is considering extending that coverage.
Brown suggested waiting until HDL had worked through the plan, find out who should prosecute in the event that the examination discovers potential claims, and deal with its insurance issue before pursuing the investigation.
Testifying on behalf of HDL was Richard Arrowsmith, who works as the company’s chief restructuring officer and for consulting firm Alvarez & Marsal. Arrowsmith said the examination would be a waste of funds.
Kanowitz was quick to point out that Arrowsmith reports to the board and argued that the board and HDL are biased in their objections. He said when the board was voting whether or not to object to the examination, the results were 4-1 – with all but Young, the only member not named in the investigation, in favor of an objection.
Mallory, a co-founder who abruptly stepped down as CEO last year, also filed an objection to the 2004 examination motion, but only as it relates to two pending lawsuits against her. The DOJ and Aetna are both HDL creditors with access to the examination results, and both entities have filed suits against Mallory. She asked that the findings be kept from them, but that request was denied.
Otherwise, Mallory’s motion stated that she “looks forward to providing information to correct certain misperceptions and misstatements of fact.”
Judge Kevin Huennkens ultimately agreed with Kanowitz, saying that it is “entirely appropriate” for the committee to do the investigation as an independent party.
The investigation will begin immediately.
As the proverbial “clawback” efforts commence, spirits are either sinking or perking up at this latest development (depending on which side of the fence you’re on).