Bonneville Pacific has hired a crack Arizona law firm to go after its own auditors, Portland General and former players in the bankrupt power company.
The Arizona firm sent eight people to Salt Lake City this week to begin building a case against Deloitte & Touche, Portland General and founders and former officers of Bonneville Pacific who may have defrauded the company."The investigation has begun in earnest," said Vernon Hopkinson, attorney for Bonneville Pacific's trustee.
So have the legal battles.
Portland General's attorneys filed a motion in U.S. Bankruptcy Court Thursday to have Bonneville Pacific's Chapter 11 bankruptcy converted to a Chapter 7.
Hours earlier, Bonneville Pacific's trustee filed a report with the court condemning Portland General for keeping irregularities at Bonneville Pacific a secret from stockholders while it plotted to abandon the Salt Lake company.
Trustee Roger Segal urged the bankruptcy judge to allow Bonneville Pacific to proceed with its lawsuit against Portland General. Bonneville Pacific will likely win its suit against Portland General and could win hefty damages against the company, which would be distributed to Bonneville Pacific's creditors.
Portland General, on the other hand, urged the judge to order the liquidation of all Bonneville Pacific assets. Bonneville Pacific's assets are bleeding away while the company struggles to reorganize itself, Portland General said in its motion.
The money derived from the sale of assets would be distributed to creditors, including Portland General. The Oregon power company says Bonneville Pacific owes it more than $70 million, making Portland General Bonneville Pacific's largest creditor.
The two companies fired Thursday's salvos after attempts to settle their lawsuits against each other failed.
From the beginning, each side considered a settlement unlikely. The two sides "were never even close" to settling, Hopkinson said.
At this point, a settlement appears impossible.
"We are looking after our own interests after being badly, badly hurt by Bonneville Pacific," said Brian C. Johnson, attorney for Port-land General.
Segal will fight Portland General's Chapter 7 motion, Hopkinson said. He thinks Bonneville Pacific's creditors - including stock and bond holders - will, too.
"It's true Bonneville Pacific is losing money," Hopkinson said. But Segal expected that.
"Anytime you are in a mess like this, your first few months are disasters. We've worked to stop the hemorrhaging, and I think we've been fairly successful at it."
Attorney fees have been the biggest drain on Bonneville Pacific's assets lately, Hopkinson said. "In August, when we didn't have to pay attorney fees, we actually made money."
Thursday was also the first day Bonneville Pacific's new lawyers were on the job. Segal hired the Arizona law firm of Beus, Gilbert & Morrill, a move approved last week by U.S. Bankruptcy Judge John Allen.
But unlike other attorneys in the case, Beus' team will be paid only if it brings money into the Bonneville Pacific estate. The contract between Bonneville Pacific and the Beus firm awards Beus between 20 percent and 40 percent of any money it recovers for Bonneville Pacific.
One of the firm's chief responsibilities will be investigating and probably suing Deloitte & Touche, the accounting firm that annually audited Bonneville Pacific and failed to uncover allegedly sham deals crafted by former company officers.
Gary Bendinger, attorney for Deloitte & Touche, did not comment on the matter when contacted by the Deseret News.
The Beus firm will also investigate and possibly sue former company officers. The contract between Beus and Segal calls for the law firm to seek possible damages against people named in the June report by bankruptcy examiner Alan V. Funk. The contract, which is has been filed with the federal court, does not specify which people.
Leo Beus - the firm's senior partner and the man heading Bonneville Pacific's new investigation - recently won a $338 million jury verdict against Price Waterhouse. After an 111/2-month trial, a jury concluded that Price Waterhouse failed to thoroughly audit a failed Arizona bank.
News of the verdict ran on the front page of the Wall Street Journal the day Beus flew to Salt Lake City to interview with Segal. Beus' victory prompted Segal to hire his firm, Hopkinson said.
Portland General's move to put Bonneville Pacific into Chapter 7 will not fend of Bonneville Pacific's suit against the Oregon company, Hopkinson said.
"The only way the suits would stop is if the trustee is somehow removed, and that doesn't look likely," Hopkinson said. "There's no move to get rid of him yet."
The trustee had harsh words for Portland General in the report he filed Thursday. Segal accused Portland General of deliberately hiding "irregularities" at Bonneville Pacific from the company's stockholders.
Portland General knew by the summer of 1991 that Bonneville Pacific had inflated the worth of its assets and was not properly reporting income, Segal said in his report. As a 49 percent owner of the Bonneville Pacific, Portland General could have done something about that.
But instead of "timely confronting those at fault" and restructuring the company's management, Port-land General's officers silently plotted to abandon Bonneville Pacific, Segal said in his report.
"When Portland General abandoned Bonneville Pacific, it was left in the hands of the very persons which Portland General now alleges were the perpetrators of the fraud on Portland General and others," the report said.
"Portland General simply slipped out of town and abandoned (Bonneville Pacific), leaving Bonneville Pacific again in the control of persons such as Robert Wood and Jack Dunlop," Segal wrote.
Portland General lawyers disagree. "Portland General was not responsible for any losses suffered by Bonneville Pacific. In fact, Portland General was the largest victim of Bonneville Pacific," said Robert Lochhead, attorney for Portland General.