Richmond Fed's "Judgment" Problem Strikes Again
Hey remember Fedgate? I don't need to scratch at healing wounds, so I'll leave it alone for now. I will say, however, that Jr Deputy Accountant's favorite regional Fed bank got lucky. Sure, it's hard to explain how "pound of flesh" is an appropriate reference for Fed staff to make but despite Richmond's fingerprints all over the situation via their regulatory relationship with Bank of America, very few blamed the bank directly (although Save the GOP made it into a hilarious mafia drama... poor Jeffrey "Email Threat" Lacker!). It was too easy to turn Ben Bernanke into a martyr and Hank Paulson into a villain. There is still no such thing as justice as no indictments will ever be served, no SEC investigations, no Federal hearings to try these people for economic treason. Oh well.
Not so lucky for Richmond, they wrapped up Fedgate just in time for the next blow to their credibility.
From the Richmond Times-Dispatch:
In the weeks before LandAmerica 1031 Exchange Services Inc. declared bankruptcy, the company knew it had mounting money problems but continued to take on new customers and their money.
Company executives also issued a directive changing how customer cash was to be handled, but reversed that decision upon realizing it would make the firm unable to fulfill its financial obligations.
Also, in a bid to shore up the ailing company, Theodore L. Chandler Jr., president and CEO of parent firm LandAmerica Financial Group Inc., requested financial assistance from the secretary of the U.S. Treasury Department.
Depositions filed in response to bankruptcy litigation shed some light on the exchange company and its parent as both struggled to survive.
The two companies filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Richmond on Nov. 26 and since then customer money has been locked up in the bankruptcy estate.
On the day it filed bankruptcy, LandAmerica Financial announced plans to sell off its primary title insurers, which represented about 85 percent of company revenue. Since then, the Innsbrook-based firm has been selling off assets, closing subsidiaries and winding down operations.
Much of the depositions' details revolve around a weekend in October when company executives reversed policy upon learning the company could run out of money.
"I suspect we have a week, two at most, before the Exchange Company runs out of cash if we make all remaining [holding company] cash available," Ronald Ramos, vice president and treasurer of the exchange company, wrote in response to an e-mail.
The Friday, Oct. 17 e-mail was to Michelle Gluck, executive vice president and chief legal officer for LandAmerica.
Gluck, who now serves as senior vice president and general counsel for the Federal Reserve Bank of Richmond, had recently ordered that customer money be placed in segregated accounts, rather than lumped into one commingled account holding money belonging to multiple clients.
That note followed a policy change earlier in the month by exchange company Senior Vice President Stephen Connor in response to a new Treasury regulation.
LandAmerica's creditors are a tad pissed and I could see how they might feel that way. Regional Fed banks are supposed to staff knowledgeable parties best equipped to serve the needs of their particular district, not take a page from the Board hiring on Enron's ex PR girl.
Come on, boys, I still <3 you but you've really got to get it together, you're making it way too easy.
It has been brought to my attention that this is, in fact, the most relevant part of the Times-Dispatch article. What's the first rule of the Internet? The best part, as always, is the comments:
Perhaps more troubling to me is that, while she might well have acted perfectly legally, Ms. Gluck, a senior executive on a clearly questionable Land America senior management team, has now been appointed Senior VP and Chief Legal Counsel for the Federal Reserve Bank of Richmond which, among other things, bears enormous responsibility for supervising financial institutions. It seems the “fox may now be guarding the henhouse”?.
At a bare minimum, any reasonable person would expect that the President and Board of Directors of the 5th District Federal Reserve Bank would have waited until the conclusion of all legal actions in this matter before rushing to appoint an attorney as Chief Legal Counsel while there are legitimate questions about her role and conduct in the LandAmerican 1031 debacle. One wonders why or whether, even though Ms. Gluck apparently advised Land America to segregate 1031 monies, she did not disclose the material deficiencies in Land America’s custody arrangement for those funds, at least to the Treasury and regulatory groups. I believe she had an ethical duty to make those disclosures. The unanswered questions about the nature and extent of her activities relative to the 1031 monies causes me great concern about her appointment as the Federal Reserve’s chief legal officer - a post that requires unquestioned ethical conduct and adherence to sound business practices at all times. Given the unanswered questions about the Land America’s senior management team’s conduct, one cannot safely assume at this point that Ms. Gluck’s conduct at Land American met those high standards.
At this point, my perception of Ms. Gluck’s conduct does not meet the high standards set by her predecessor at the Federal Reserve with whom I was acquainted and whose ethical standards and business practices were admired and clearly beyond reproach - at all times.
I would think an inquiry by the Virginia State Bar into Gluck’s and Conners’ conduct at Land American would clearly be in order.
Anonymous ("Question Govt") brings up a great point, what was Richmond's rush?