A judge overseeing the liquidation of WexTrust Capital LLC, whose founders are serving prison terms for fraud, told lawyers he’s “deeply concerned” about the professional fees that have been charged in the case.
Denny Chin, a former federal district judge who continued to supervise the WexTrust case after his 2010 promotion to the U.S. appeals court in New York, told lawyers today that he has received complaints about the fees from victims of the WexTrust fraud.
“We have lots and lots of folks who have lost lots and lots of money,” Chin said during a hearing today in Manhattan. “I don’t want people becoming rich off of these losses suffered by others.”
In a report to Chin in February, Timothy Coleman, the lawyer appointed as receiver for WexTrust and related companies, said that the estate had paid about $15.9 million in professional fees through the end of last year, including $9.4 million to his former law firm, Dewey & LeBoeuf LLP; $136,350 to his current firm, Freshfields Bruckhaus Deringer LLP; and $4.1 million to Deloitte Financial Advisory Services LLP.
Joseph Shereshevsky, 55, and Steven Byers, 49, the founders of Chicago-based WexTrust, were arrested in August 2008 and charged with fraud. A lawsuit by the U.S. Securities and Exchange Commission claimed they defrauded investors of $255 million. In 2009, Chin approved a distribution plan under which Coleman estimated the defrauded victims would receive between 5 percent and 50 percent of their losses.
Both men pleaded guilty. Shereshevsky was sentenced to more than 21 years in prison. Byers got more than 13 years.
The receiver, who was selected to oversee WexTrust in August 2008, has so far distributed $5 million to about 1,300 victims, he said in the February report. Chin said today that some of the victims had sent e-mails to his personal account complaining about the fees. He said he set up a new e-mail account for victims to communicate with the court.
Several of the victims have complained about what they consider excessive charges for legal and accounting work.
“There are many objections to the payment of any further fees,” Chin said today.
Chin was asked today to approve new fee requests, including those of Freshfields and Deloitte. He said he will rule on the requests this week.
The SEC case is Securities and Exchange Commission v. Byers, 08-cv-7104. U.S. District Court, Southern District of New York (Manhattan).