• by Steve McClellan  @mp_mcclellan, December 30, 2013

A U.S. Trustee in California weighed in on the KSL Media bankruptcy case last Friday, urging the judge overseeing the case to appoint an independent trustee to replace the current Chapter 11 trustee, KSL Controller Janet Miller-Allen.

The U.S. Trustee cited numerous problems with the way Miller-Allen was handling the wind-down process of the media agency which went belly-up in September leaving debts of nearly $100 million. The Trustee noted that under questioning Miller-Allen appeared to be clueless about numerous issues directly affecting the case, and that on-going and unproductive “acrimony” between the creditors and the debtor was putting at risk money that the creditors are entitled to.

The U.S. Trustee noted that Miller-Allen was promoted from what was essentially a bookkeeping role with a $95,000 salary to controller of the company with a salary increase to $160,000 about one month before the company filed for bankruptcy on September 11.

“In addition to lacking key information about the Debtors’ financial affairs, Miller-Allen does not appear to be controlling the direction of the case or instructing the Debtors’ professionals,” such as its attorneys and forensic accountants, the U.S. Trustee said. More than two months after the filing, the Trustee added, Miller-Allen “had not set any timelines for the Debtors’ professionals to file a [liquidation] plan, and has set no deadlines for the Debtors’ financial advisors’ reconstruction,” of the company’s muddled and in some cases non-existent financial records over the past several years.

Miller-Allen has also admitted knowing very little about what the company has done or is doing regarding the alleged misappropriation of millions of dollars by former controller Geoffrey Charness, who worked at the company from 2006 to 2010. He’s accused of redirecting $145 million in KSL Media funds through personal credit card accounts that he set up in his name and that of his wife Jennifer.  “She did not know whether KSL had taken any action against Charness, whether Charness had responded to KSL’s legal action, or how much KSL sought from Charness,” the Trustee said.

The company also recently corresponded with an insurance company through which KSL has directors and officers liability coverage that Miller-Allen knew nothing about, the trustee said. “She did not know who paid the bankruptcy filing fees or whether anyone else was making any payments for the Debtors’ bankruptcy expenses,” the Trustee asserted. “She did not know why $365,000 were not transferred into KSL’s debtor-in-possession bank account at the commencement of the case, but instead remained in the accounts of a bank that had been a client of KSL.”

Also troubling, said the Trustee, was the fact that Miller-Allen believes she is supposed to be reporting to KSL founder Kal Liebowitz, who supposedly has no role administering the case. To the extent that he does would pose a huge conflict of interest, the Trustee argued, noting that “there is evidence that KSL may have multiple claims against Liebowitz, for the promissory note of $2.8 million and the use of company funds to pay his personal legal expenses, such as payments to his divorce attorney.”

Beyond those claims, the Trustee argued that Liebowitz’s management of the company prior to filing for bankruptcy was also inept. “It is unconscionable that three years passed before Debtors’ pre-bankruptcy commencement of an action against Charness,” which was started only shortly before the firm filed its Chapter 11 petition in September.

Miller-Allen, the Trustee concluded, “is not competent to act as the fiduciary charged with the administration,” of the KSL Media wind down. An independent replacement “is in the best interest of the creditors, whose funds are at stake.” Those funds total at least $32 million in cash and maybe more depending on what future investigations uncover.