U.S. Bankruptcy Judge Thomas P. Agresti on Thursday approved a $23.8 million settlement between the trustee representing creditors of bankrupt Le-Nature's and K&L Gates stemming from the law firm's 2003 investigation of the fraudulent Latrobe water bottler.
Before the settlement can be finalized, Allegheny County Common Pleas Judge R. Stanton Wettick must dismiss a related civil suit brought by the trustee, Marc S. Kirschner, against the law firm.
The settlement will conclude one of the last chapter's in the 2006 collapse of Le-Nature's, one of the largest financial frauds in Western Pennsylvania history.
Le-Nature's founder Gregory J. Podlucky, his wife Karla, their son Jesse, and Gregory Podlucky's brother, Jonathan, were given federal prison sentences for their involvement in the scheme. Several others pleaded guilty or were convicted.
After creditors took Le-Nature's into bankruptcy in 2006, creditors and criminal investigators discovered the company was a house of cards. While the company's auditors certified in 2005 that it had annual revenue of $287 million, a closer look at the two sets of books kept by the company indicated actual sales were about $32 million annually.
Mr. Kirschner filed suit against K&L Gates and Pascarella & Wiker, a Pittsburgh accounting firm that helped K&L Gates with its investigation. The probe was prompted by allegations of misconduct by a former executive. The trustee filed similar lawsuits against the company's auditors, investment banker and other parties for their failure to uncover the fraud.
To date, Mr. Kirschner has recovered more than $125.3 million from the litigation, including the $23.8 million from K&L Gates. Mr. Kirschner told Judge Agresti the settlement marks the first time Le-Nature's unsecured creditors will collect something from the massive fraud. He estimated their recovery at 4 cents on the dollar.
In court documents, Mr. Kirschner's lawyers estimated that if the matter were not settled, they would spend $5 million or more pursuing the matter against K&L Gates.
The trustee could recover additional funds for creditors from a lawsuit against Pascarella & Wiker pending before Judge Wettick. The only source of possible recovery beyond that is about $1 million in cash and about 1,000 items of jewelry that federal investigators seized from Gregory Podlucky during their investigation, Mr. Kirschner told the judge.
He said he has not seen the government's appraisal of the items but estimated they are worth $500,000 to $1.5 million.
Gregory Podlucky is contesting the seizure and is asking that his conviction be thrown out, Mr. Kirschner said.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.
Len Boselovic: email@example.com or 412-263-1941. First Published February 27, 2014 4:35 PM