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Latest Testimony in GTCR Bankruptcy Trial

The major bankruptcy-related trial of the corporate owner of a troubled line of nursing homes continues in Florida bankruptcy court, and has provided more testimony and news. As a quick refresher, an investment firm previously ran by Bruce Rauner, who also happens to be a gubernatorial candidate challenging Governor Pat Quinn for the highest office in the state of Illinois, has been accused of selling off a nursing home company it owned to an elderly man who would not possibly have had a clue that the company, called Trans Healthcare, was in dire straits financially and faced judgments of close to $1 billion.

The investment firm, called GTCR, is a Chicago-based private equity firm that according to its website manages over $8 billion in capital investments. GTCR has been accused of selling the entity to a shell corporation owned by the elderly man, under fraudulent circumstances in order to avoid the judgments it faced, which stemmed from lawsuits arising out of allegations of abuse and neglect against the various nursing homes owned by the nursing home company. Shell companies are often legal entities, like LLCs, created for the transfer of assets or ownership as well as liability, and have often played a role in fraudulent dealings meant to avoid liabilities and the like. Such fraudulence is illegal and punishable in civil and criminal courts. In this case, the allegations entail not just the simple sale, but a rather complex intricate series of transactions meant to help mask the perceived fraudulence of a sale to a man that GTCR allegedly did not even know.

The lawsuit has been brought by the plaintiffs who had already won judgments against the nursing homes, in partnership with a U.S. bankruptcy trustee, to keep the investment firm responsible for the judgment obligations now held by the shell company which bears the name Fundamental Long Term Care Inc. A former principal of the investment firm has already testified, as reported by the Chicago Tribune, that “he felt duped when he found out the equity firm sold part of its nursing home business to an alleged shell corporation ostensibly owned by an elderly graphic artist with no experience.”

The former principal further testified that if he and others actually knew who the buyer was, they would not have engaged in that sale, and that they thought the sale of the nursing home company was to a group of serious buyers with whom they had previously negotiated. Important to the case is just what the principals and management knew of the deal and who were the prospective buyers. It is generally incumbent upon firm managers to do the due diligence with regard to partners in a transaction.

Supposedly if this due diligence were performed, it may have been discovered that the elderly graphic artist, who is the name owner of the shell company, had no clue about the business of nursing homes or how to run a business of that magnitude in general. The drama of this major bankruptcy trial and how it affects the judgments of the nursing home abuse victims and/or their families, along with the potential implications to the race for the governor’s office, will be fascinating to follow.

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