Podcast presented by Moglia Advisors, a Corporate Financial Advisory Firm
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Transcript of this podcast:
Nate Jones: Welcome to the Trust US podcast with Moglia Advisors. In the Trust Us podcast, Alex Moglia and Moglia Advisors discuss our collective experiences, running, advising, restructuring and liquidating troubled companies. In each episode, we will give you a first-hand look at the inner workings of a company in distress through the eyes of those professionals, trusted with cleaning up the mess.
Before we get into our first discussion, I want to give you a brief background of the Moglia Advisors team you will be hearing from in order for you, the listener, to better understand our roles within the team.
Alex Moglia is the founder and president of Moglia Advisors. An Argentinian immigrant, Alex spent his young life in Argentina and Brazil before he moved with his family to the United States. Following early career stops at a major law firm, a New York Stock Exchange traded investment firm, and working on the Hill in Washington DC, Alex has spent the last 30 plus years focusing on his passion of helping companies in distress. Widely recognized as a pioneer in the insolvency industry, Alex has served on the boards of directors for the American Bankruptcy Institute and the National Association of Federal Equity Receivers and acts as Chapter 7 and Chapter 11 trustee in corporate bankruptcy cases nationwide, among other appointments.
Jill Niece is the Managing Director for Moglia Advisors where she is not only responsible for advising on each of the Moglia Advisors engagements in accounting, operational, and other matters, but she also excels at the critical and unenviable task of keeping Alex and the rest of us on the Moglia Advisors team strategically focused on the work at hand. Jill has over 25 years of experience in corporate accounting leadership for both privately and publicly held companies. She joined Moglia Advisors in early 2019.
Last, but hopefully not least, my name is Nate Jones and I’m one of a handful of corporate advisors for our firm. I have a varied background, having held leadership roles in accounting, finance, operations, and sales across several industries. The blend of experiences I’ve gained from these roles when combined with my understanding of data and technology, gives me a unique perspective which I bring to each of our engagements. The newest member of Moglia Advisors, I joined the team in late 2019.
With that I’m proud to present to you our first episode of the Trust US podcast, with discussions centered on consumer goods manufacturer Wildwood Industries. Please enjoy.
Nate Jones: Alex, why don’t you tell us what Wildwood Industries is and what they did?
Alex Moglia: First of all, Nate and Jill. It’s a pleasure to be together and talk about our, as we call at our firm, our adventures because they all are adventures. Wildwood was a company established by a family by the last name of Wilder. That’s where the play on words of Wildwood. And they made very, very simple products.
They made air filters for both residential, industrial, and in some cases mining applications, but it also made very plain simple products like paper bags, used to gather lawn cuttings to put leaves in the fall when you’re raking the yard for the winter. Very simple, good products that were carried in all the major retailer shelves, all of them.
Nate Jones: OK, and where were their operations based?
Alex Moglia: They were based in central Illinois in a city called Bloomington. In central Illinois.
Nate Jones: And did they do all of their own manufacturing, or do they outsource a bunch?
Alex Moglia: They did. They had a few industrial buildings scattered about town where they either made parts and then assembled them together in a single building or product lines in single locations.
Jill Niese: Solely family owned, Alex?
Alex Moglia: Yeah, family owned. It was owned by Mr. And Mrs. Wilder and first sight, you would think this is an American success story in the heartland of America. But there was a lot more to that.
Nate Jones: How long were they in business? Do you remember?
Alex Moglia: I think they probably were in business 20 – 30 years.
Nate Jones: OK. And how did you become involved?
Alex Moglia: Well, they had some difficulties that led the US Trustee system, which is a division of the U.S. Department of Justice to say this company needed some very, very strong intervention. The company had filed for bankruptcy, still operating, what is called an operating Chapter 11 bankruptcy. But there were some allegations, by both creditors and certain law enforcement agencies that, as we call it skullduggery, wrongdoing, had been committed and was being committed. So, the US Trustee for that region wanted to appoint someone with financial and operating management experience to come in and basically take over the situation.
Nate Jones: Do you recall when were appointed?
Alex Moglia: It was about 8-9 years ago. It was a long-lasting case which we closed…
Jill Niese: 2019
Alex Moglia: … in 2019. Thank you, Jill.
Nate Jones: OK, so the whole thing lasted seven or eight years.
Alex Moglia: Ah, yes, as most of our projects, our adventures, there is usually a very high intensity to the process, there is a normalization process, and then there is a climax either when we turn money over to creditors and/or sell the companies and then turn the money over to creditors. We ended up shutting down the company because the company ran out of money within days, days of my arriving there. I had to meet with hundreds of employees in a large parking lot of the company.
Nate Jones: Why don’t we get into that? Tell me about your first couple of days on the job.
Alex Moglia: Well, we had the great help of a good friend of our firm, Jeff Richardson, who is a bankruptcy lawyer in that area who was probably the only bankruptcy lawyer in the entire central Illinois that didn’t have legal representation conflict because this company was large for the area, and many, many creditors who already were being represented by lawyers in that region, and the trustees from the region all had conflicts of interest by already representing parties connected to the case.
Nate Jones: It makes sense. What, just to give a scale of the company, you said it was large, do you remember what annual revenue or something like that would be?
Alex Moglia: At this point I’d be guessing, maybe it was $100 million. I just it’s been a while. We focus not on the statistics or the financials of the company. We focus instead on their reality because often the numbers that are being quoted may or may not be realistic or accurate, either intentionally or unintentionally.
Nate Jones: Right, makes sense. OK, so tell me about your first couple of days on the job.
Alex Moglia: That was an interesting situation. We didn’t have legal counsel. There was about $300 million in claims that had been filed or asserted. Uhm, the place began to get overrun by seven different law enforcement agencies. And we had to develop a protocol to allow us to sort out the operational and financial circumstances, and the need for information, the need to access to key suppliers, key customers, employees, everything. While the law enforcement people also wanted information, but they did so for their investigative needs.
While we were trying to figure out what can we salvage out of this operation and make something good happen of what was truly a financial and legal catastrophe which was all based on fraud.
Jill Niese: You were still trying to operate as a Chapter 11? You still were trying to maintain employees and keep the organization going because you didn’t know the depth of the fraud?
Alex Moglia: Yeah, it’s interesting you say that. The first couple of days we very quickly found out that we didn’t have money to keep these, I don’t remember now, six hundred, seven hundred employees performing services. So, I needed a large place to meet them at, so we chose the biggest parking lot of all the buildings, and I got in the middle and was surrounded by hundreds of people. By then, the news of the company’s troubles had reached the media in that region. And, just as I’m trying to talk to the employees, both in English and Spanish, I would talk to them in English, explained, answered questions, but then, since I speak Spanish, do simultaneous translation on what I was saying to the shop workforce, which was primarily Hispanic.
In the interim, there was a helicopter hovering above the parking lot filming us from the local news station. And in the middle of my discussion, a TV reporter walks into the middle of the crowd and shoves a microphone in my face just as I’m trying to talk to the employees and starts posing questions which I found highly disruptive. And it took all the control and politeness I could muster to tell that reporter to leave us alone that I would talk with him at a later moment, but he was interfering with my number one need, which was the understanding, loyalty, and commitment of these employees and telling them the truth for the first time when they had been used to being told falsehoods for a long time.
Nate Jones: Yeah, I recall a case that you and I worked together that I was actually not an employee. I was a consultant, but I was in the building when you came, and it’s a very similar scenario you’re describing, and I could tell you from being in the crowd that it’s shocking. First of all, it’s very shocking because it’s a complete disruption of the normal day-to-day operations. Our company, at the time, was distressed so the normal day-to-day was pure chaos. But even in that chaos, having somebody come in and just gather all the employees and do exactly what you’re talking about was very shocking. But I’ll tell you from an employee perspective you have a mannerism that’s very calming. It’s very calming.
Alex Moglia: Well, thank you for saying that. I just try to put myself in their shoes when I assume they know nothing. I assume the employees have been ordered about without sufficient explanation or input on their part on how the company is run, and they are kept in a vacuum of knowledge. And usually there’s a vacuum of good leadership. There is often leadership, but there’s a vacuum, usually, of good leadership. This is how most companies in trouble get into trouble. It starts from the top.
Nate Jones: OK, so let’s get into a little bit of the specifics of the case. Who were the creditors in this case?
Alex Moglia: In this case, there were many, many creditors, and it was an amazing situation. Both manufacturing type, suppliers, paper, inks, metals, a variety of suppliers that serve as manufacturer enterprises, but the vast majority of the creditors were equipment finance and equipment leasing companies who had been misled in an amazingly clever way… if we can use that, because often fraudsters are quite clever… in an amazingly clever way to continue to finance acquisitions of non-existing equipment. And the company would pocket its money and use the money for operating expenses, or, even more remarkable, how the company could mislead these creditors, these finance companies (who often did not do lien searches) to often continue to use one piece of equipment as collateral for loans up to 13 times.
I’ve never seen anything like it in my career. To this day, I don’t expect that I will see that, but you never know, when companies are in distress incredible things are done.
Jill Niese: So didn’t you say that you found or some of your colleagues found a box full of plates that they would interchange off the equipment? Who was complicit with this? Was that the owners?
Alex Moglia: It was the owners and certain employees that had been intimidated, intimidated to do things that were wrong, and they knew it was the wrong thing to do, but they were so afraid of losing their jobs. They really would turn a blind eye or be very complicit in the fraud.
And what these people often would do is, there’s a piece of equipment, let’s say it’s, I don’t know, a punch press, that equipment had a serial number X for Finance Company #1 right, and the next day Finance Company #2 would want to go see it’s collateral. And The night before, they would switch the serial number that was used by Finance Company #1 to a new plaque that they would make…
Jill Niese: Serial number Z which would tie to all of their records, right?
Alex Moglia: Correct. Different finance companies and lending companies, banks, major banks, specialized lenders, etc., were lending money based on collateral that really had been pledged many times, and/or financing acquisition of equipment that never existed. Because one of the accomplices in the fraud was an outside party who posed as a manufacturer of equipment, but that complicit person, that outsider, was not making anything. It was just creating bogus invoices and bogus shipping documents so that the finance companies, the creditors, believed that there were all kinds of acquisition and holding on to of a large physical asset base. And most of that asset base didn’t exist.
Jill Niese: And Their balance sheet was inflated by that too?
Alex Moglia: Oh yes, everything was bogus, and it’s really the lesson learned here is that many lenders and finance companies lend money especially if they perceive high returns. This is one of the morals of this story if you’re a lender or a finance company of any kind. Don’t be swayed by the apparent ability of your borrower being able to pay you high interest on your money. Because in fact there’s a corporate version of a Ponzi scheme, as we have in another case that we, the three of us, have worked on in Florida, where you’re really moving money around and robbing Peter to pay Paul when, in reality, the amount of money is limited, but it’s being presented as if there is a lot more money. When, in fact, there is a fraction of that that really exists.
Jill Niese: How long were they doing this?
Alex Moglia: They did this for about, incredibly, for about 10 to 15 years they were able to maintain this Ponzi scheme. Which is extraordinarily clever, because they could in many cases, if they had enough time, not only would they be able to switch overnight, the serial numbers on equipment, in some cases they would, if they had advanced warning of field audits by their lenders, they would paint the same piece of equipment a different color. So that when these creditors all descended, coming in with photographs of their so-called collateral. Looking for it. They often had people looking at the same piece of equipment. In one picture to one lender, it’s painted green. In a different picture of the same piece of equipment to another lender it has been painted red. But it’s the same piece of equipment that had been repainted to meet with the field audit requirements of all these lenders. There were about, if I remember correctly, 32 different lenders
Jill Niese: And how many machines were there, one?
Alex Moglia: There was a fraction. I would say, just to make it illustrative, if on paper it showed that there were 1000 machines, there may have been 100 machines and those 100 machines were old, decrepit machines and nothing that was modern to comport with the records of the company and the records that the lending companies had. It’s truly extraordinary.
The question that we have always asked is how could lenders lend money without carefully, carefully doing lien searches to make sure that what is being pledged in fact, hasn’t been pledged to others improperly. As we’re working right now in another adventure of ours where real estate was pledged improperly more than once when there was a clear covenant saying, “You will not allow any other lenders to lien this property, our collateral.” But sometimes when people get desperate, they will do amazing things that they would not believe they would ever be capable of doing.
Nate Jones: Alex, since they used different serial numbers for these equipment loans, would the lien search have turned anything up?
Alex Moglia: We knew they were in trouble. Lien searches are so important. We knew the company was far more in trouble because lien searches normally that we’re used to is usually anywhere from 10 pages to maybe 100 pages. When we ordered the lien searches, it was delivered in a large banker’s box.
Nate Jones: Oh no.
Alex Moglia: We saw that, we said, “No, this is impossible. They must have delivered the lien searches for all their customers of the day.” No, these are the lien searches just for this company. And I said, “Wait a minute, we’re not General Motors or Honeywell to have that much equipment with so many liens. Something’s very wrong.” The reality is most of the liens were based on bogus information.
Jill Niese: So how did you finally get down to figuring it out? Did somebody finally spill the beans?
Alex Moglia: It was clear that the reality, even at first glance, was far different from what was being represented on paper. But when we come into difficult situations, we don’t come in guns blazing to show everybody how smart and mighty we are. No, we come in humbly, hat in hand, explaining to people why we’re there, what we’re trying to accomplish. Which is to understand the situation, develop a course of action, and collectively, and I mean the word collectively, work towards a resolution. OK?
And we approached some of these employees, but remember that I had let go these hundreds of employees. I couldn’t afford to pay them at all. So, we brought back, selectively, people that were office, mostly in the office and some production managers.
Jill Niese: So, during that big parking lot meeting, you had to tell people we’re going to let you go?
Alex Moglia: Effective right now.
Jill Niese: Wow.
Alex Moglia: And then we’re going to call you in a few days on a scheduled basis for you to come in and pick up your personal belongings. Until then, leave the premises altogether.
Nate Jones: 600 employees?
Alex Moglia: Approximately. That’s it.
Nate Jones: Holy cow.
Alex Moglia: You have to leave. You have to trust us that nothing will be stolen. We’re changing locks, changing codes on everything, on all the buildings. Whatever is there is there, and then in time we’re going to call you and we will allow you a period of time to be there, gather your belongings and leave.
Jill Niese: Several buildings?
Alex Moglia: Several buildings scattered in different parts of town. Which made the logistics even more interesting from a production standpoint. Which is poorly designed because a lot of the equipment and products kept getting moved around, and the more moving around, the more time and money is being wasted in production, as you all know.
Most of these people were humble workers, very humble working-class people, most of them immigrants. Most of them didn’t understand what in the world was going on. And this is why, because I speak a few languages, it makes it convenient to communicate with people at their level, at the level of a working-class person, which is the origins of my own family, I might add. So, for me it’s easy. And say, “I know the fears you’re experiencing. My own family lost its business when we were living in Brazil, and we were left with nothing. So, the fear and the anguish you’re experiencing, we have experienced. And then we will assure you that we will do our very best to soften the impact of what you’re feeling.” I think people believed what I was saying because I spoke from the heart. You’ve seen me, Nate, in the middle of the crowd, you know, just calming people down, as we call it in our firm, taking the heat out of the situation, to allow people to then think.
Nate Jones: Right, Alex, who all from the Moglia Advisors team was there? Was it just you or were there others involved?
We had about three people on site at the beginning. That’s it. And we worked like the devil, and we worked efficiently.
Jill Niese: Did you have to utilize law enforcement to get everybody off the premises?
Alex Moglia: It’s interesting you ask that, interesting question. This was not a major town. This is a smaller town, very respectful, down home, kind of people. And I explained to them, “Trust me, please, trust me that we will do what’s right here, no matter the outcome. We don’t know the outcome. We’ll aim for what is the best possible. But whatever we do, we’re going to do it correctly and right by you.” And then we, somehow or other, gathered up enough money, by selling some equipment, enough to bring employees back on a limited basis, enough to re-activate the company, and enough to sell the company in two major manufacturing pieces to different buyers. And they’re still operating those businesses, which is just so rewarding.
The creditors, unfortunately, suffered badly, but at least they recovered more money than they ever thought possible, and the employees, most of them eventually, like we did in the project in Memphis, Nate, we were able to find jobs for them or help them find jobs. That’s very rewarding because you feel for those people and their families and the people that depend on them.
Nate Jones: Yeah, do they still manufacture out of the same area? Do they use those buildings?
Alex Moglia: Out of the same area, they have some limited. Some buildings were eventually sold off, and in some of these acquisitions the operations get consolidated and they may or may not stay in the site involved, but if you give people enough time, they have time to find new jobs.
Jill Niese: So, you helped with out-placement?
Alex Moglia: Yes, in fact it’s funny you say that. We did the same thing in Central Illinois that we did more recently, a year or two ago, in Memphis where we brought in area employers to interview employees on a scheduled basis. So those employees that did not stay with those companies that bought the operations, were able to find employment in the area by having job fairs and counseling, and working with the county, bringing in experts that talk about how to write your resume. Many of these people, especially if English is not their first language, for them, those steps seemed insurmountable. With time they trusted us enough and they availed themselves of those resources.
Nate Jones: Alright, so let’s get into a little bit more about the wrongdoing. So, who were the principal parties involved in the wrongdoing? You don’t have to name names, but…
Alex Moglia: Right, there were some former employees that worked for the Wilders, the Wilders themselves, Mr. Wilder ended up in jail, unfortunately, and ultimately died in jail. Mrs. Wilder did some time and eventually she was released. Other employees went to jail. An outside accounting firm or an outside accountant went to jail. And then that bogus equipment manufacturer in the East coast, I believe he went to jail as well.
Jill Niese: Now, you as trustee, did you recommend them for criminal investigation?
Alex Moglia: Yeah, that’s a very sobering question and experience actually related to that question, Jill, because what we told the employees and outsiders saying, “There’s some allegations, in fact, in some cases there is clear evidence of wrongdoing on your part, either by your doing the wrongdoing or you aiding others or abetting others to engage in wrongdoing.” And what we tell them is always the same thing. We’re just trying to find out what happened, what can we salvage out of this difficult situation, and hopefully to your benefit even if you were involved in the wrongdoing. And what we asked them is the same thing, “Please trust us. Tell us this story. Tell us the truth. Help us sort things through and salvage the situation.”
And when or if law enforcement comes to us and says, “What do you think of so and so? What do you know about so and so?” We tell them, “We weren’t around when their wrongdoings took place, but so and so was very helpful to us in telling us information, providing us access to unknown assets, introducing us to people who know information we need.” All of this we share, to go back to your question, Jill, with law enforcement, but also when there is law enforcement involved, and in this case there were seven law enforcement agencies, which is a lot.
Jill Niese: Wow, like state and local?
Alex Moglia: State, local, and city. No let me start, federal, state, county, and city. They often want access to the employees and the very records we need to be able to either operate the business or at least help prospective buyers to learn about the business. To do what is called acquisition due diligence, for them to determine whether this business, or what is left of this business, or how we restarted the business. Which is truly a miracle, how we were able to do that. All the planets aligned. Because once you shut down a business, restarting a business and bringing people back, extremely difficult to accomplish.
Jill Niese: And how long did it take you to go turn it back around?
Alex Moglia: It was about a month, and a month might as well have been 10 years in these kinds of circumstances, but we were able, hat in hand, to go to people and say, “Come and help us. Come and salvage this. We can’t promise you that if the buyer buys the operation that it will offer you a job. But at least you have a chance of having a long-term employment if you demonstrate your abilities to the prospective buyer.” And people say, “Well, you know you’re right. I could be on unemployment, or I could begin to prepare myself for my next job. This time working for a company that is well run and well capitalized that doesn’t have to defraud people to be able to keep the doors open.” And people came back. You know it’s all a question of trust. They don’t know who we are. They often don’t understand what we do. But they have to look us in the eye and say, “Are these people, who are outsiders…”, and I emphasize the word outsiders, not from the area, “Are they worth trusting?” And that’s an emotional decision that we cannot control. We can only encourage them to trust us. It’s their decision whether they do or not, but, ultimately, it was just an incredible alignment of help. And I always tell people, “Look, even if we end up shutting the company down, look at what previous management did, or others did. Show the world, how you know how to finish things right. And let’s see if we can surprise…” or in the words of someone with whom we have a lot of mutual respect, “Whether we can pull another rabbit out of the hat.”
Nate Jones: Well then, it’s a good thing you did, because by restarting the operation I’m sure that led to a much better outcome for creditors, right?
Alex Moglia: Yeah, and that’s usually a truism. If you’re trying to sell a business on an operating basis or the assets of a business to be more precise, usually those assets fetch more than if the assets are idle in a building that’s dark. And even if they only fetch what people in the financial community would call liquidation values for those assets, the liquidation values of an asset that is operating being shown to a prospective buyer is usually higher than if it’s a machine lying idle in a dark building with a prospective buyer not knowing, even if the machine works.
Nate Jones: And you were talking about your interaction with law enforcement, to circle back around to what Jill asked,
Alex Moglia: Right.
Nate Jones: So, did you make any recommendations to law enforcement of people to look at?
Alex Moglia: Well, what we do is we can’t make recommendations. They often share with us, if they trust us, sentencing guidelines. Which I can assure you, if you’ve ever had a conversation with law enforcement about someone else, about what sentencing guidelines or requests will be asked of the court, it’s got to be one of the darkest moments in one’s life, from a business standpoint of trying to see how much a person will be sentenced to serve in jail. But what we always do is that we keep our word. And, if we told someone, “If you help us, we’ll tell the courts and the proper parties how much help you provided us no matter whether you engaged in wrongdoing or not.” We always keep our word, and we tell those people saying, “’So and so’, notwithstanding what he or she may or may not have done, ‘So and so’ had this definite contribution to make. And I’m asking you to consider that contribution when you decide whether to prosecute anybody, and if you do prosecute anyone, to seek what kind of sentencing you will seek.” Because we all make mistakes. We all make mistakes, and we have to be understanding of that.
Nate Jones: Simply from an administration standpoint, it makes sense to separate those two duties. You have a different job than law enforcement. Your job is not to put people in jail. It’s like you said, make the best out of that situation. And so, you need those people’s help that you’re talking about.
Alex Moglia: It’s interesting you asked that question. When I started the firm, I was 35 years old. I thought I knew a lot. I had a fairly varied background, so I figured, “Oh, I think I know pretty much everything.” So, the first case I get involved in that involved fraud, I go to the local offices of the FBI. And I go in there with my very smart suit and briefcase trying to look very, very knowledgeable and successful. And they get they put me in this faceless conference room of the FBI. I wait. All of a sudden, the door opens. This guy comes in. I still remember him by name. I won’t say it, but I still remember him. He comes in. This guy was, I was 35, he was probably in his 50s or 60s. He looks at me and goes, “Kid, tell me what’s going on.” He called me kid. I thought, “Uh, you called me kid.” I mean I thought he was going to call me Mr. Trustee because I was very full of myself, I must say. And I said, “Well, you know, we believe that this was done, and this was wrongdoing. And we have to go after these people because they stole this, and we may recover that.” He looks at me and holds his hands up saying to stop, the gesture of stop, and he goes, “Kid, it’s your job to recover the money. It’s our job to put these…”, and he used an off-color remark, ”…in jail! So don’t come to us for help to recover the money. That’s your job. Our job is to put people in jail that deserve to be in jail.”
Well, that was a sobering moment for me because I realized that, although we can collaborate with law enforcement, we’re not, to use an old phrase, G-Men. We’re not FBI people. We’re not law enforcement. We’re not Secret Service, but we often learn a lot of information that has business and, in some cases, legal implications. And we have to share that information carefully. Because, in another one of our cases before I got appointed, the FBI came in, loaded up 7 semis full of records and computers, took off for Washington DC to copy them, and I show up and there are no records.
Jill Niese: That is a conundrum. If you bring them in too soon, they could take things that you would need in order to try to recover assets.
Alex Moglia: Exactly, and that’s why that becomes a very fine balance, Jill. I call it like a dance of when to cooperate with law enforcement and to reach, what we call, a protocol. Which is, “Law enforcement, if you let us do our job, we’ll not only let you do your job, but we’ll help you by sharing information with you.”
Jill Niese: We have a current case where we are kind of doing the dance.
Alex Moglia: My sister used to work for the federal government in some law enforcement capacity, and what she did, it was very interesting undercover work. And I said to her, “Well, what you’re doing here is a real science!” And she laughed. And she said, “Alex, it’s all art. Because we usually have no information which to work on, and we just work based on experience and intuition.” That’s what we do on the commercial side and the business side. We often have to operate on just our gut or just on partial information. And sometimes, I’d like to think most of the time, we are mostly right. Some of the time we’re mostly wrong.
Nate Jones: Let’s put a bow on this one, Alex, at the end of this, did you have a meaningful distribution to the creditors?
Yeah, it was a miraculous distribution, man. I keep using the term miraculous because we often…
Jill Niese: Because the course of time was how long again? Remind me.
Alex Moglia: It was about seven years the case. It took us a long while to find money, recover money, be able to sell assets, look at money claims, find out which claims that creditors filed were legitimate.
Jill Niese: Right, the whole claims analysis takes forever. You said there were a ton of claims, so…
Alex Moglia: Right. Well, 300 million in people were owed money, some, not all of them….
Jill Niese: You mean the value of the claims or…?
Alex Moglia: The face value of the claims.
Jill Niese: Were about $300,000,000?
Alex Moglia: And those are $300,000,000 that we estimated because not all $300,000,000 of those claims…
Jill Niese: Were valid…
Alex Moglia: Were not even valid, were filed with the court. Because some creditors, when they look at a catastrophe, may just abandon all hope and just walk away and write it off. It was impressive in that area of the country. Considering that it was, this was in a smaller town. $300,000,000 is a lot of money by anyone’s definition.
Nate Jones: Yeah, and do you guys recall how much you ended up distributing?
Alex Moglia: I don’t recall other than it was a less than 10% to the creditors. Which in a situation like this, when you have what I call raging fraud because although there was manufacturing, the real action occurred with stolen money. When you have raging fraud to be able to return about 10% to the creditors, or even not even 10%, 5%…
Jill Niese: So funny, you should ask that. But I have a few stats for you. About $175 million of that, $300 million that was allowed and paid $6.3 million.
Nate Jones: That’s pretty good to be honest with you, considering that some of the equipment was pledged 13 times, I feel like that’s pretty successful.
Alex Moglia: In other cases we’ve had a billion dollars in claims and we distributed, one that comes to mind, Outboard Marine $63 million. Right, those creditors would never have thought…
Jill Niese: Over five thousand creditors.
Alex Moglia: Yeah, and the key thing…
Jill Niese: This Is not that many creditors.
Alex Moglia: Right, but in both Wildwood and Outboard Marine there was one commonality which is there a lot of employees that were owed money. And in many of these cases, we have to think in terms of retirement plans where employees’ money was put and desperate owners often take money, because they often are the trustee of the plans, take money that is retirement money set aside for workers and employees and use that money as operating cash. Which is really catastrophic on so many levels. But eventually we paid every single penny we owed the employees of Wildwood because they’re priority since all these other claims that were supposed to be secured were in fact unsecured because the collateral didn’t exist. At least the employees got paid. It gives you great satisfaction…
Jill Niese: And with interest…
Alex Moglia: And with interest! There you go. That’s right, Jill. To at least these poor folks, and many of them were, I can assure you, were barely making ends meet, were able to recover what basically had been stolen from them. Because if you induce someone to work and you don’t pay that person or you take their retirement money, to me, it’s the same. You’ve stolen money.
Nate Jones: I completely agree, and it’s great to hear honestly that the employees got made whole. That’s the general practice, right? Typically, employee wages come first?
Alex Moglia: Yeah, typically not dollar for dollar. There are certain priorities under the law that employees are our higher priority creditors than what I would call general suppliers who sell a product on an unsecured basis with no liens being applied.
Nate Jones: Well, and this case is especially satisfying in that the wrongdoers did some jail time, which is not always the case.
Yeah, and it’s unfortunate because, as I mentioned, the owner of Wildwood, the main owner, had health problems and those health problems led to his death while he was still in jail. And that’s sad. On a human level, it’s sad.
Nate Jones: Alex, you mentioned that the Wilders had a private airplane. Could you tell me more about that?
It was a company asset, and in my experience, most companies that have private airplanes should consider not having them, instead having either fractional ownership of flights of airplanes or just using charter flights on an as needed basis.
Nate Jones: OK, and can you tell me what they used the airplane for?
Alex Moglia: A common occurrence among fraudsters is the using of appearing to be philanthropists to in fact cover themselves in glory and prestige. When, in fact, they often are using such apparently, charitable actions to cover their illicit activities. And in this case, they were just covering themselves in glory by appearing to benefit members of the community who needed to be somewhere for either medical or other reasons and couldn’t afford transportation, couldn’t afford an airline flight. The Wilders would often transport people around as part of their so called being a pillar of society. It was an illicit pillar of society, however.
Nate Jones: I see, so to clarify, they would, somebody needs to get across the country because they’ve got sick kids that they’re taking care of, and so they would loan out their private airplane at company expense.
Alex Moglia: Correct, and in fact we had pilots on the payroll. When I first arrived there, I said, “Why do we need an airplane, and even if we need an airplane, why do we need to even have pilots on the payroll?” We eliminated that immediately, and we got rid of the airplane as well. It’s again unnecessary perquisites of companies. In this case it was really used to in part cover the ongoing decades long fraud.
Nate Jones: Right, well I appreciate your time today. This was a fascinating conversation we’ll pick this up again on the next, what did you call them, Alex, adventure?
Alex Moglia: Adventure, yes. Stay tuned.
Nate Jones: Yeah, I like it.
Alex Moglia: Thank you, Nate, and thank you, Jill.
Jill Niese: Thank you Alex. Bye Nate.
Nate Jones: Thanks Jill.
Nate Jones: I hope that you have enjoyed this production of the Trust US podcast with Moglia Advisors. If you’ve enjoyed our work, please like, comment, and share it on social media. Also, please consider subscribing as our intent is to continue releasing episodes regularly and you won’t want to miss them. Thank you all very much for listening.