Meet Mr. Fixit
Big fees and campaign gifts dog a bankruptcy guru
Cooper's Catalyst Equity Partners, affiliated with Kroll Zolfo Cooper, invests in small, distressed companies. Other investors in his fund include J. P. Morgan Chase, Citibank, FleetBoston, and GECC. These institutions also have been secured creditors in bankruptcy cases in which Cooper has served as restructuring agent.
In an interview, Cooper says this web of relationships doesn't pose a conflict, since Catalyst Equity Partners is a separate entity. Moreover, he says, he always discloses potential conflicts to the courts, as required by law. "Since we have disclosed all of this, it puts even more pressure on us to behave appropriately at all times," Cooper says. "When you walk around with no clothes on, so to speak, people can determine whether or not you're being aboveboard in all of your undertakings."
Not everything, however, takes place in the open. It was behind closed doors that Cooper and others on the board of directors of Laidlaw, a diversified concern, decided against revealing to federal officials potentially serious violations of campaign laws. Cooper was named chief restructuring officer of Laidlaw, which filed for bankruptcy in Buffalo two years ago. Martha Hesse, a board member and former head of the Federal Energy Regulatory Commission under President Reagan, discovered that a Laidlaw subsidiary apparently had been illegally reimbursing some employees who had made federal campaign contributions.
Laidlaw's law firm, Jones, Day, Reavis & Pogue, launched an investigation into the campaign activities at the subsidiary, American Medical Response Inc. During the period 1995 through 2001, its review showed, some employees who contributed to federal campaigns received "bonus" payments from a "supplemental compensation plan." The firm examined $75,000 in contributions and said that employees denied that their donations were linked in any way to the compensation plan. But "there is a risk," the law firm's report said, "that a prosecutor would conclude that [plan] funds are partially used for illegal purposes." In the past, the lawyers said, prosecutors had dealt harshly with companies that made illegal campaign gifts.
Nonetheless, the law firm advised Laidlaw's board not to inform the Federal Election Commission of the findings. "The potential harm to the corporation resulting from voluntary disclosure," the law firm wrote, "significantly outweighs the perceived benefits associated with governmental disclosure." Hesse disagreed, but Cooper and the other directors endorsed the law firm's approach, according to minutes of a Dec. 17, 2001, meeting. Ivan Cairns, general counsel at Laidlaw, describes the board's action as "appropriate," and adds, "Mr. Cooper was very supportive of that action." Hesse, Cooper, and a Jones, Day attorney declined to comment.
Polaroid's bankruptcy also is troubling. The judge in the case recently appointed an independent examiner to investigate the company's bankruptcy and sale; critics want to know who bought Polaroid and to understand how the company was valued. "This was a highly peculiar bankruptcy proceeding," says Mark Agrast, an aide to Rep. William Delahunt, a Massachusetts Democrat. "There was a failure to ask obvious questions. It's going to decimate a lot of people."
When Polaroid took the advice of Cooper's firm and filed for reorganization in 2001, it reported $1.8 billion in assets. Last summer at an auction, the Waltham, Mass., company was sold to a fund called One Equity Partners for $255 million. Critics of the sale say the buyer got $231 million in cash, meaning the effective price for Polaroid was a mere $24 million--a steal by any measure. Bankruptcy records show Cooper's firm was intimately involved in the deal. It assisted both Polaroid management and One Equity Partners in valuing the assets and in negotiations. One Equity Partners, the venture capital arm of Chicago-based Bank One, never disclosed its investors in bankruptcy proceedings. Cooper says he has no business dealings with any of the investors but declined to disclose their identities.
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