The Legal Battle Over One of the Largest Private Estates in the U.S.Tiffany Kary
Billionaire Ira Rennert said business was “booming” during the years he’s accused of tilting one of Utah’s worst polluters into bankruptcy by looting it to build his sprawling Hamptons estate.
Rennert and his lawyers this week laid out their defense in a 12-year-old lawsuit brought by a trust for creditors of Rennert’s Magnesium Corp. of America, which went bankrupt in 2001.
Seeking as much as $700 million for bondholders and the U.S. Environmental Protection Agency, the trustee will have to prove MagCorp was insolvent, or close to it, in the 1990s when Rennert oversaw transactions that allegedly diverted $118 million to himself and other directors.
“I know the company was very solvent -- it was prosperous, it was booming,” Rennert testified Friday in Manhattan federal court. He called 1995 to 1999, when prices for magnesium were at their zenith, a “fabulous” time for MagCorp.
At issue in the trial is the connection between a $150 million bond offering made in 1996 and Rennert’s 29-bedroom, 39-bathroom mansion on New York’s Long Island, one of the largest private dwellings in the U.S. The seaside property and its Italianate home, which also boasts a 164-seat theater and 100-car garage, were valued at $170.2 million in 2004.
“They looted more than $100 million and poured it into this mansion,” Nicholas Kajon, an attorney for trustee Lee Buchwald, said in an interview. Kajon said that while $118 million was initially diverted, the trustee could seek as much as $700 million including interest.
Funds from the $150 million offering went into Renco Group Inc., MagCorp’s parent, the trustee alleges. Rennert is Renco’s chairman and chief executive officer.
One deal under fire in the case involved a $75 million payment that MagCorp made to Renco in 1996, four months before the funds were transferred to a company called Blue Turtles, which Rennert formed to buy beach-front property in Sagaponack, New York, the trustee has alleged.
“There’s no relationship between the dividend and the purchase of Sagaponack,” Rennert testified Thursday.
He acknowledged that Renco formed Blue Turtles and put money into it that was later used to buy the property. But his lawyer told the judge the money was immediately invested in hedge funds and the trustee can’t show the initial transfer was used to buy the property for around $10 million in 1997.
“It is absurd to characterize the taking of dividends out of a company one owns, with full knowledge of that company’s creditors, as ‘looting,’” Jim McCarthy, a spokesman for Renco, said in an e-mail. “The contention that dividends from MagCorp were used to fund the purchase or construction of a residence in Sagaponack is, as the trustee knows, untrue.”
Under bankruptcy law, money moved out of a company to deprive creditors of a recovery can potentially be clawed back by a trustee.
That legal theory has been used to recoup funds for environmental cleanups in the past. The U.S.’s largest recovery ever for environmental costs came through a similar lawsuit brought against Anadarko Petroleum Corp. in 2009 for its involvement in a bankruptcy that deprived the government of its ability to collect an alleged $25 billion for pollution cleanup.
Anadarko last year agreed to pay $5.15 billion to settle the claim.
The EPA has sought $900 million to clean up after MagCorp’s Rowley, Utah, plant, which is described in the trustee’s court filings as “one of the worst industrial operations in the U.S.”
McCarthy, the Renco spokesman, said: “The only environmental penalty paid by MagCorp or its successor in the last 20 years is $2,500 in 1997.”
The magnesium plant, built in 1972, polluted a pond until 1985, when rising waters spilled over into the Great Salt Lake, according to the trustee. That and other pollution from the facility account for 90 percent of Utah’s total toxic pollution.
Rennert testified that he wasn’t aware of some of the environmental pressures on MagCorp before its bankruptcy.
“Don’t paint me as a bad guy,” Rennert said. “I did everything conceivable to avoid this company going bankrupt.”
The case is Magnesium Corp. of America v. Renco Group Inc., 13-cv-07948, U.S. District Court, Southern District of New York (Manhattan).
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