U.S. Bankruptcy Judge Judith Fitzgerald, after working on the matter for over a year, handed down a 134-page opinion that resolved some, but by no means all, of the remaining controversies in the bankruptcy case of Jeffrey Prosser, the former CEO and owner of Innovative Telephone.
Most of the decisions dealt with who appears to own various properties that once had been controlled by Prosser. The complex opinion, issued Feb. 11, sorted out many winners and losers.
In brief, they are:
A major winner is Chapter 7 Trustee John Carroll, who gets control of some assets that had been claimed by the other court-appointed trustee and/or by the Prossers.
Winners, in that they are still living in their two multi-million dollar mansions rent-free, are Jeffrey Prosser and his wife, Dawn.
Also, other Prosser family members who get to keep a Cadillac and a Mercedes.
Both a winner and a loser: Dawn Prosser, who gets to keep the jewelry that Jeffrey gave her and several pieces of real estate—but is not regarded as the owner of all the real estate, as she and her husband wanted.
Jeffrey Prosser, who loses his wine and cigar collections, and, more importantly, his many efforts to protect lots of property from his debtors by saying that his wife owned them. He is a subject of the bankruptcycase; she is not.
The one-time Prosser phone and cable companies, that were apparently milked year after year to pay for the Prossers’ love of luxuries, and therefore the people of the Virgin Islands.
Chapter 11 Trustee Stan Springel, who loses control of parts of the bankruptcy estate to the other trustee.
The English language, because the judge repeatedly used, as a transitive verb, “to gift.”
The Prosser bankruptcy case has never been just a two-sided battle, with Prosser on one side, and the creditors (primarily the National Rural Telecommunications Cooperative and the Greenlight Companies), on the other.
The court appointed two trustees: Chapter 7 Trustee Carroll who deals with Prosser’s personal finances; and Chapter 11 Trustee Springel, who deals with Prosser’s corporate holdings. Given the murky nature of Prosser’s finances, and the fact that he was the sole owner of his corporations, it was sometimes hard to determine who owned what.
Then there were various assets that could be viewed as the property of Dawn Prosser, or Jeffrey’s brother Michael Prosser, or the adult Prosser children.
Judge Fitzgerald’s long, detailed, heavily-footnoted decision was designed to settle at least some of the disputes among those named in the prior paragraph.
Springel, and his lawyers, argued that many properties associated with the Prossers should be turned over to his part of the estate, on the grounds that Prosser’s Innovative Communications Corporation had funded them. Trustee Carroll argued conversely that these properties belonged to Prosser, personally.
Both agreed that these assets should be used to pay off the debts of the estates, but they disagreed as to the route that these payments should take.
To complicate matters, Springel also has gone to court to say that Prosser fraudulently conveyed these properties from Innovative Communications to himself, his spouse, his relatives and to others. That dispute was not settled by the judge’s most recent opinion.
Earlier in this now-five-year-old legal marathon, endlessly complicated by Prosser’s delaying actions, the Prosser corporate properties were sold off, and now the phone and cable companies, the Daily News, and the BVI and French properties are all operated by new owners.
Similarly, the Prossers’ lakeside house in upstate New York, has been sold.
What’s left are the mansion in Florida and (the unfinished ) one on St. Croix, some other bits of V.I. real estate, some art work, and the cigar and wine collections.
In general terms, Fitzgerald ruled that Springel had not proved his case that various remaining properties should be recovered by his estate—she said they should go to the Chapter 7 estate instead—and that Prosser’s story that he had turned over much of his property to his wife should be disregarded.
The judge also had some sharp comments to make about Prosser’s income tax filings, and the way he drained not only the profits but the assets of his corporations.
On the first point she said, in a footnote on p. 19 of the document, “Furthermore, there is no evidence to support Jeffrey Prosser’s assertion that the purchase price of the Palm Beach house [some $5.65 million] was reported as income on his and Dawn’s tax returns . . . Examination of the tax returns establishes that Jeffrey Prosser did not report the $5.65 million in income.”
Innovative Communication had purchased the mansion for him, Prosser said, as part of his compensation package. The court had secured copies of all of Prosser’s income tax returns.
Later in her opinion, regarding these payments from Innovative to Prosser, she noted:
“Distributions from New ICC continued despite the hardship it created on New ICC and without apparent limitation.” (In other words, money that could have been spent on upgrading telephone services was used to buy things for the Prossers.)
She also commented on the not-very-assertive auditors that Prosser had hired: “Even though the deficit increased annually, the auditors did not express a ‘going concern opinion,’” as auditors routinely do under these circumstance.
She continued: “A going concern opinion is what an auditor expresses when he has a concern about an entity’s ability to survive the next fiscal year . . . A corporation that does not have significant capital assets to offset working capital deficits is insolvent, and the fact that it kept functioning while actually insolvent by improperly delaying payments owed to other companies and juggling accounts does not affect the situation ….”
Among the specifics decided by the judge:
–Michael Prosser gets to keep (or gets back) a Cadillac purchased from corporate funds, a purchase that never was reflected in the car appearing on the corporate books as an asset, and, similarly, Sybil Prosser is allowed to keep a Mercedes, for similar reasons. Earlier in the case a fleet of Mercedes and a Bentley were taken from the Prossers and sold to help meet the debts of the estate.
–Jewelry “possessed by Dawn Prosser is not listed as a fixed asset of New ICC,” the decision states, and stays with her. So do a couple of lesser bits of V.I. real estate.
–A West Palm Beach condo, occupied by Prosser’s son, Adrian, is to remain his property.
–Finally, the wine and cigar collections are to be taken over by “a constructive trust operated by the Chapter 7 Trustee”; this sounds as if Prosser loses control of them.
Next Moves–Approaching the Endgame
It will be interesting to see what happens at the next level regarding all these decisions. Will either of the trustees go to the U.S. district court on St. Thomas to appeal the judge’s decision?
Also, Prosser routinely appeals negative decisions against his interests. Will he do so this time?
Meanwhile, the next omnibus hearing on these matters is scheduled for March 1 in Fitzgerald’s home courtroom in Pittsburgh, and the auction regarding the Palm Beach house takes place the same day.