Newsletter May 2011

Medicine Gone Wrong

Commercial Recovery Associates will discuss Weinberger case on ‘American Greed’

It’s a true story that seems destined for the Hollywood treatment: A high-pro le doctor rakes in cash performing bogus surgeries, goes on the lam for ve years, and finally gets caught in a remote town in the Italian Alps. The story’s infamous star is disgraced Merrillville, Ind., physician Mark Weinberger, and when he left his practice in shambles, Commercial Recovery Associates was there to pick up the pieces.

Commercial Recovery Associates Managing Partner Robert Handler will discuss the rm’s successful wind- down of Weinberger’s clinic next month on CNBC’s documentary series “American Greed.” The episode airs May 4 at 10 p.m. Eastern/ 9 p.m. Central.

“The details of this case are unbelievable,” Handler says. “We’ve dealt with situations that involved law en- forcement before, but this one was really unusual.”

Commercial Recovery Associates began working to salvage the clinic’s operations and nances shortly after Weinberger disappeared in 2004. The ashy so-called “Nose Doctor” had numerous lawsuits pending against him, and authorities were investigating his alleged practice of performing unnecessary surgeries on patients, sometimes worsening their conditions, to collect the insurance money.

After he ed, Weinberger’s wife called the clinic looking for him, and staffers called the clinic’s lawyer when it became clear Weinberger was gone for good. The lawyer got the clinic’s main lender involved, and the lender phoned Handler for help immediately.

Weinberger, a sole practitioner, had employed 40 people at the clinic at one point, but that number had dwin- dled to 12 by the time Commercial Recovery Associates came aboard. The billing staff was gone, leaving Handler to sort out longstanding requests from employees, patients and creditors.

Meanwhile, Handler was elding calls from the FBI, the Indiana Attorney General’s Of ce and the Internal Revenue Service. Investigations turned up increasingly strange details about Weinberger’s planned disappear- ance -- he had stockpiled camping equipment in his of ce, bought raw diamonds to use as currency, hidden thousands of dollars of Euros by gluing them into books, and ordered guides from Amazon on how to ee and leave no trace.

A grand jury eventually indicted Weinberger on multiple fraud charges during his absence. While Handler read- ily complied with law enforcement requests, his focus was on the clinic’s bottom line.

“We always cooperate with law enforcement to the fullest, but we do everything we can to save the company,” Handler says.

Because of the pending charges against Weinberger, the clinic couldn’t collect its receivables, leaving the practice with no source of income. Creditors were also banging on the door, including Weinberger’s own father, who had a $1 million claim. With money quickly running out, Commercial Recovery Associates began liquidat- ing the clinic.

Handler solicited proposals from real estate rms for property the clinic owned and sold other items at auction, including medical and of ce equipment. He even sold one of Weinberger’s SUVs to be used in the 2006 movie version of “Miami Vice.” Selling assets individually instead of trying to nd a buyer for the entire business al- lowed Handler to fetch the maximum value possible for the clinic’s lenders. Handler also instituted procedures to allow the clinic’s patients to access their records and facilitated referrals to other doctors.

Nearly seven years later, Commercial Recovery Associates continues to manage the clinic’s medical records. Requests for les aren’t likely to slow down soon: Weinberger pled guilty to all the criminal charges against him after his 2009 arrest, and he was ordered in March to pay $13 million in the rst of more than 300 malpractice lawsuits led against him.

“We’ll continue to manage this for as long as it takes,” Handler says. “We try to bring ef ciency and a good bedside manner to every turnaround, and I think that’s what we did here.”

A Question of Priorities

As a restructuring professional, I often act as a fiduciary to resolve questions over a troubled business’ assets.

Depending on whether or not the company is in bankruptcy or other litigation, a number of fiduciaries can be involved in these court and out-of-court proceedings, including bankruptcy trustees, court-appointed receivers and assignees for the benefit of creditors.

These three roles have several powers and duties in common; in general, their administrative claims for fees and costs involved in managing or liquidating the troubled company take priority over those of other general creditors. According to the terms of their appointment, they can sell the business to the highest bidder, distribute the sales proceeds to creditors, and allow or reject creditor and shareholder claims. Generally, they’re required to follow liquidation priorities under state and federal law regarding taxes, secured claims, general unsecured claims, equity claims and other matters. The laws and rules that govern priority can change depending on the type of fiduciary involved and the nature of the proceeding, however, as a current U.S. Securities and Exchange Commission (SEC) case I am involved in shows.

This Chicago federal court case, United States Securities and Exchange Commission v. Jason R. Hyatt et al, Case No. 08-2224, involves approximately $22 million that was solicited from individuals for investment in a series of commercial jet aircraft transactions. After the SEC determined the investors’ funds had been misused, the commission asked me to act as the court-appointed receiver and manage the investors’ interests in six commercial jet aircraft leased to Alitalia, British Airways and US Airways. I successfully sold one of the planes, a Boeing 737 leased to British Airways, and am continuing to manage the remaining aircraft.

Under most priority rules, investors or shareholders in any business are the last to be repaid (if at all) once the business is in liquidation or receivership. Nevertheless, Commercial Recovery Associates developed and implemented a court-approved plan that used the aircraft sale and lease proceeds to repay the defrauded investors before the repaying the creditors. As I explained to the court, a securities receiver’s distribution plan may be authorized so long as it is reasonable and fair. In this case, the defrauded investors, unlike shareholders of most companies, were more like innocent crime victims than active participants who were managing the company. The court agreed with our plan, and allowed us to make the investor distributions over the objections of two creditors who were owed nearly $1 million.

This case demonstrates that even widely accepted rules regarding restructuring and distribution of assets are not set in stone. My partner, Alan Friedman, and I have enough turnaround management expertise in a wide variety of industries to find a successful solution for our clients in almost any situation. During each of our receivership engagements, we assess the stakeholders’ distinctive priorities, take a proactive approach and develop a unique plan of action to ensure results.

If relationship problems become business problems, enlist outside help

When business partners are also partners in life, it can create serious trouble at work. Seeking the advice of objective observers can be an effective way to work through these types of business issues. “We have no

“We have no axe to grind,” Commercial Recovery Associates Partner Alan Friedman says. “We’re the honest arbiters in the situation.” Commercial Recovery Associates helped one couple keep their marital problems from destroying their business by providing candid feedback and instituting good business procedures. The couple, who were divorcing, owned an entertainment venue in the Chicago area. During the divorce, the couple attempted to put a value on the business, and each side’s lawyer recommended appointing a receiver to help sort things out.

Commercial Recovery Associates was chosen in court to act as the receiver, and the firm found that the couple’s inability to agree on basic business decisions was crippling the club’s potential for success. The husband and wife had overlapping authority on booking the premises, and would often double-book dates without consulting each other. Issues with the bar staff caused tension between the couple, and those tensions spilled over into their dealings with their employees. The club also did not keep accounting records, making it nearly impossible to assess its financial situation. “We could see there was a real business there, but it clearly would not have lasted that long without serious changes,” Commercial Recovery Associates Managing Partner Robert Handler says. Commercial Recovery Associates established cash reporting procedures immediately to account for the club’s income and expenses. Friedman and Handler replaced the bartending staff, alleviating much of the tension among employees. They introduced an Internet calendaring system to eliminate booking

Commercial Recovery Associates helped one couple keep their marital problems from destroying their business by providing candid feedback and instituting good business procedures. The couple, who were divorcing, owned an entertainment venue in the Chicago area. During the divorce, the couple attempted to put a value on the business, and each side’s lawyer recommended appointing a receiver to help sort things out. Commercial Recovery Associates was chosen in court to act as the receiver, and the firm found that the couple’s inability to agree on basic business decisions was crippling the club’s potential for success. The husband and wife had overlapping authority on booking the premises, and would often double-book dates without consulting each other. Issues with the bar staff caused tension between the couple, and those tensions spilled over into their dealings with their employees. The club also did not keep accounting records, making it nearly impossible to assess its financial situation.

“We could see there was a real business there, but it clearly would not have lasted that long without serious changes,” Commercial Recovery Associates Managing Partner Robert Handler says. Commercial Recovery Associates established cash reporting procedures immediately to account for the club’s income and expenses. Friedman and Handler replaced the bartending staff, alleviating much of the tension among employees. They introduced an Internet calendaring system to eliminate booking

Commercial Recovery Associates was chosen in court to act as the receiver, and the firm found that the couple’s inability to agree on basic business decisions was crippling the club’s potential for success. The husband and wife had overlapping authority on booking the premises, and would often double-book dates without consulting each other. Issues with the bar staff caused tension between the couple, and those tensions spilled over into their dealings with their employees. The club also did not keep accounting records, making it nearly impossible to assess its financial situation. “We could see there was a real business there, but it clearly would not have lasted that long without serious changes,” Commercial Recovery Associates Managing Partner Robert Handler says. Commercial Recovery Associates established cash reporting procedures immediately to account for the club’s income and expenses. Friedman and Handler replaced the bartending staff, alleviating much of the tension among employees. They introduced an Internet calendaring system to eliminate booking

“We could see there was a real business there, but it clearly would not have lasted that long without serious changes,” Commercial Recovery Associates Managing Partner Robert Handler says. Commercial Recovery Associates established cash reporting procedures immediately to account for the club’s income and expenses. Friedman and Handler replaced the bartending staff, alleviating much of the tension among employees. They introduced an Internet calendaring system to eliminate booking issues, and even assisted with other tasks like restocking the bar. As a result of the changes, the club began running more smoothly and continues to operate today. “We took on more than what was called for,” Handler says. “The idea was to preserve the business.” The successful turnaround is one of several that Commercial Recovery Associates has handled for businesses run by married couples or relatives. While it can be difficult for partners to see the toll their personal relationship is taking on their business, a turnaround management firm can improve the business’ performance by moderating sensitive issues and providing objective expertise on finances and operations. “Whether it’s between a husband and wife, siblings, or parents and children, we can help with any partnership dispute,” Friedman says.

Upcoming CRA events

Want to see us in action? Check out our spring schedule of events.

April 14: Commercial Recovery Associates Managing Partner Robert Handler will participate in a panel discussion at “REO/Workout Lenders Workshop — Let’s Make a Deal!,” hosted by the Real Estate Investors Association. Handler will join senior loan workout executives as they discuss managing nonperforming loans and bank-owned real estate assets. For more information and registration, visit www.reia.org.

May 3: Handler will join several restructuring industry members to discuss the current outlook for turnaround and workout transactions at “Is the Distressed Industry Distressed?” Monomoy Capital Partners will host the seminar. The event will feature four separate panels, and speakers will include bankruptcy practitioners, commercial lenders and private equity players. For information and registration, visit Is the Distressed Industry Distressed?

May 4, 9 p.m. Central on CNBC: “American Greed: Nose No Bounds.” Set your DVR now! Handler will share inside details of Commercial Recovery Associates’ involvement in the Mark Weinberger case on “American Greed,” CNBC’s documentary series on infamous white-collar criminals. As the receiver for the clinic formerly owned by Weinberger — a Midwestern physician who pleaded guilty to 22 counts of health-care fraud — Commercial Recovery Associates got an inside look at the disgraced doctor’s operations. Don’t miss this unique perspective on an explosive tale that has garnered international attention.