MGT Construction trustee eyes potential litigation

mgt construction sign

An MGT Construction sign on Porter Street in Manchester. (Kieran McQuilkin)

A hired gun of sorts is being brought in by the trustee overseeing the bankruptcy case of MGT Construction, as the hunt continues for assets to repay creditors of the defunct local general contractor.

Harry Shaia, the Chapter 7 trustee tasked with recovering money to fill MGT’s eight-figure debt hole, in a filing last week asked for court approval to hire a so-called special litigation counsel, whose job it will be to investigate and prosecute potential litigation against former MGT employees, its parent company Thalhimer, other affiliates, and professional firms that previously did work for MGT leading up to its collapse last year.

The trustee argues in the court filing that bringing in a special counsel will “maximize the value of the estate and the recoveries of the debtor’s creditors,’ a list that includes 500 companies and individuals owed a combined $28 million.

Shaia’s picks are attorneys Richard Wasserman and Joseph Bellinger of Baltimore law firm Offit Kurman.

Because of MGT’s limited assets – it claims only $50,000 in its bankruptcy petition – Offit Kurman has agreed to work on a contingent fee basis, by which it will be paid depending on the amount of assets it recovers.

The firm will receive 35 percent of gross recoveries up to the first $5 million; 33 percent in excess of $5 million up to $7.5 million; and 30 percent of any recoveries in excess of $7.5 million.

The firm also would receive an initial advance of $25,000.

The filing does not state specifically the nature of any potential investigation, but the trustee and his attorneys in the early stage of the bankruptcy case have zeroed in on MGT’s accounting practices and who was responsible for them.

At hearings earlier this year, Mike Kain, a consultant hired by Thalhimer to man MGT as it was being unwound and liquidated, said that MGT’s accounting and reporting of profits on jobs was “faulty.”

MGT was put into bankruptcy in late February, several months after a separate lawsuit filed against several Thalhimer executives brought to light an alleged accounting scheme at the construction arm.

Thalhimer, the parent company and largest creditor in the MGT case, has said in court documents it discovered the scheme at its subsidiary in fall 2016, but exact details have yet to be disclosed.

A hearing to approve the appointment of special counsel is set for June 26 in front of Judge Kevin Huennekens.

Richmond law firm Kepley Broscious and Biggs, which has initially worked the case on behalf of Shaia, will continue to serve as general counsel to the trustee while Offit Kurman handles the investigations and potential litigation.

Shaia’s request for outside help follows subpoenas served last month to three former MGT employees – including its former longtime president – forcing them to face questioning and turn over documents in an under-oath deposition.

Results and transcripts of those depositions, which were held in late May, have not yet been revealed in court filings.

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