TMST Inc. (fka THMRQ)

[terrycarter]

Thornburg seeks to recover funds from former execs

http://www.reuters.com/article/bankruptcyNews/idUSN0747819720091007

BALTIMORE, Oct 7 (Reuters) - Bankrupt Thornburg Mortgage filed a complaint in federal court to recover hundreds of thousands of dollars from two former executives, accused of using company offices, assets and payroll to launch a start-up company.

The former chief executive and chief financial officer paid themselves and others unauthorized bonuses, contracted with vendors and booked trips using money from Thornburg Mortgage, which is bankrupt and supposed to be liquidating, according to a Tuesday court filing.

Thornburg Mortgage, which recently changed its name to TMST Inc, filed for bankruptcy in May with $24.4 billion in assets, one of the largest filings of 2009. The company was once one of the leading providers of "jumbo" residential mortgages.

After the bankruptcy, CEO Larry Goldstone and CFO Clarence Simmons began work on founding SAF Financial Inc.

In addition to paying themselves a total of $232,000 in bonuses without approval from the compensation committee, the two paid $93,000 in bonuses to other managers of Thornburg Mortgage who were involved in the SAF project.

Goldstone and Simmons also contracted with vendors to provide services, paid for by Thornburg Mortgage, that would benefit SAF but that were no longer needed for Thornburg's liquidation, according to court documents.

The company seeks to recover the funds used to found SAF.

SAF was formed to pursue a Thornburg Mortgage strategy to acquire a bank or thrift which would give the company access to deposits and Federal Home Loan Bank funds for issuing mortgages.

Goldstone and Simmons initiated and spent money developing the strategy for use by Thornburg Mortgage. However, the company had to abandon it as the housing market crashed and the company's lenders demanded more collateral for their existing loans, sparking a liquidity crisis and eventually the bankruptcy.

SAF came to light in August, when a "whistle-blower" letter was sent to the committee of unsecured creditors saying that Goldstone and Simmons were using company staff, funds and assets to launch SAF.

Goldstone and Simmons resigned last month.

On Wednesday, the bankruptcy court was hearing arguments over the request by a federal official for the appointment of a trustee to take over the management of Thornburg Mortgage.

The company said a trustee is unnecessary because Goldstone and Simmons have been replaced.

The case is In re: TMST Inc, U.S. Bankruptcy Court, District of Maryland, No. 09-17787 (Reporting by Tom Hals; Editing by Tim Dobbyn)