NORTH BAY – Attorneys and accountants working on the Warren Capital fraud case billed a total of more than $818,000 through January 2015, according to new documents received by the North Bay Business Journal.
As previously reported, billing was $577,000 through Dec. 2014. Fees and expenses billed in January alone totaled $241,044, according to the latest documents.
For services in the month of January, receiver Michael Kasolas billed $74,360. His attorneys at Arent Fox billed nearly $100,000 based on reported time of 123 hours. Accounting firm Hemming Morse billed $31,435.
At the end of January, Kasolas reported total cash balances of $1.8 million. Roughly $400,000 worth of fees billed by Kasolas, Arent Fox and Hemming Morse through January had yet to be paid. Deducting this amount, total cash balances are about $1.4 million.
No billing has been reported for services performed by the three firms for February or March 2015.
The professional fees will reduce funds available to investors who lost an estimated $11 million in a Ponzi scheme allegedly perpetrated by Warren Clayton Stephens, the late owner of Warren Capital Corporation and subsidiary Warren Equipment Finance, both previously based in Novato. On Dec. 9, a San Francisco court appointed Kasolas as receiver of the defunct companies. Stephens died on Nov. 10.
More than half the fees and expenses through January — about $431,000 — were billed by Arent Fox, a 400-attorney law firm hired by Kasolas. Arent Fox claimed that its attorneys worked a total of 787 hours through the end of January. No contested litigation has been filed in the case.
The lead attorney, Robert O’Brien, is the Los Angeles-based California managing partner for Arent Fox. O’Brien and another partner, Steven Bledsoe, organized meetings of investors held in December and January in San Rafael.
At the second meeting, investors Harry Polley, Leo Joseph and Tim Smith were elected as a committee to represent the investor group. The committee hired its own legal counsel, Orrick, Herrington & Sutcliffe, and Palo Alto Financial Services as its separate accountants. Orrick, Herrington billed $19,920 for 25 hours of work in January — $800 an hour, according to the documents.
Over about 14 years, Stephens sold purportedly secured corporate promissory notes with interest rates averaging about 9 percent to investors in Warren Equipment Finance. Mr. Stephens claimed that the notes were secured by equipment leased to or financed for local businesses through Warren Capital.
Kasolas, who has an office in San Francisco, hired Hemming Morse to do forensic accounting in the case. Hemming Morse billed $31,435 in January, and had already billed $122,538 through December.
“The receiver is intending to work with the note-holders’ committee to make an early distribution to the note holders from the cash on hand,” Kasolas said in the most recent filing.
In January, $322,159 in professional fees were paid out, including $140,722 to Kasolas and $181,234 to Arent Fox. In December, $90,000 was paid in professional retainers.
Payroll of nearly $22,000 was paid to the few Warren Capital employees in December. Prior to his appointment as receiver, Kasolas acted briefly as interim CEO of both companies, and “the staff of Warren Capital was laid off,” he said. Some staff members were hired as independent contractors to help with the wind-down.
Kasolas reported that as of November 2014, the total amount owed to investors was about $23 million. The receiver found 26 leases funded by Warren Equipment Finance and serviced by Warren Capital. “The total remaining receivables on all leases as of January 31, 2015 was $321,000,” Kasolas said.
Most available cash came from life insurance proceeds. The two companies were named as beneficiaries on four insurance policies on the life of Stephens, with a total value of $1.75 million. Kasolas collected on these policies, including $750,000 on life insurance where Warren Capital was beneficiary received in December. Another $250,000 was received in December where Warren Equipment Finance was beneficiary. The remaining $750,000 was collected in January with Warren Equipment Finance as beneficiary.
Kasolas noted that the companies may have claims against the estate of Stephens, and he is negotiating settlements “with Mr. Stephens’ estate and others.”
He is also exploring possible claims against a directors and officers liability insurance policy Mr. Stephens had with Great American Insurance Companies.
The companies have numerous accounts in several area banks. Warren Capital had accounts at Wells Fargo, North Coast Bank, First Community Bank, Five Star Bank and Comerica Bank, Kasolas reported, with total balances on Dec. 9 of $76,732. Warren Equipment Finance had accounts at Comerica, the former Sonoma Bank and First Community Bank, with total balances on Dec. 9 of $774,381, Mr. Kasolas reported.