Monday, October 17, 2011

Judge denies bid by government for Solyndra trustee

FBI sought contract information

Seldom photographed
Mary F. Walrath ruled
against a more
transparent procedure
Washington Times
Jim Mcelhatton

WILMINGTON, Del. — Customer contracts figure prominently in the FBI’s criminal investigation of solar panel maker Solyndra LLC, which went bankrupt despite receipt of more than a half-billion dollars in federal loans, according to testimony on Monday.

A top company official testified in U.S. Bankruptcy Court in Delaware that the FBI’s search warrant affidavit specifically sought information about company contracts.

The official, Ben Schwartz, a vice president and lawyer at Solyndra, was testifying because the U.S. Office of the Trustee said he had refused to answer questions about contracts. His refusal, government lawyers argued, proved that a trustee should be appointed to take over the company.

But U.S. Bankruptcy Court Judge Mary F. Walrath refused, saying there was no indication of any fraud or mismanagement at the company.

Mr. Schwartz’s testimony sheds new light on the federal investigation of Solyndra. The company’s former chief executive officer, Brian Harrison, and current Chief Financial Officer W.G. Stover both cited their Fifth Amendment rights in refusing to testify about the company’s collapse at a recent congressional hearing.

In a recent legal filing, the trustee's office cited the executive’s refusal to testify, difficulty in getting information about contracts, and Mr. Stover’s current position at the company as factors in their seeking a trustee.

But lawyers for Solyndra argued that there’s been no proof of any fraud or mismanagement and that the Department of Energy had representatives attend company board meetings for months before the bankruptcy.

Mr. Schwartz testified that he was surprised the FBI raided the company days after the bankruptcy filing last month. He said Solyndra had a good relationship with the Energy Department, which had awarded the company more than $500 million in government loans. He also said the DOE had access to the same financial information given to regular board members.

“An FBI raid is not something I would have thought was necessary,” he said.

Mr. Schwartz also said contracts were specifically “called out” in the FBI’s warrant. He said the FBI had copied the company’s electronic database so agents would have access to anything at the company that was in electronic format. He did not indicate what other information was included in the affidavit.
He said he discussed contract matters with outside lawyers as well as company officials, but noted those discussions were confidential under attorney-client privilege.

Last month, Solyndra officials refused to discuss the company’s contracts at a private meeting with a bankruptcy analyst for the Justice Department. The decision fueled the push to have a trustee take over the failed company.

Bankruptcy analyst Jeffrey Heck of the U.S. Office of the Trustee, an arm of the Justice Department that oversees bankruptcy cases, said that during a routine interview not long after Solyndra filed for bankruptcy, Solyndra officials suggested he “move on” when he asked about its contracts, according to an affidavit filed Friday by Mr. Heck in U.S. Bankruptcy Court in Delaware.

In seeking the appointment, the Office of the Trustee had cited Mr. Heck’s affidavit describing his inability to obtain information from Solyndra about company contracts. In a meeting with company officials, Mr. Heck said, he asked specifically about pending contracts and cited an Oct. 2, 2008, news release from Solyndra.

Mr. Heck also testified at Monday’s hearing. He recalled the initial meeting in a conference room at the Doubletree Hotel blocks away from the courthouse last month. He said he wanted more information about the contracts after reading an account that the company had $250 million in cumulative sales.

He also testified that he never had a debtor decline to answer a question because there was an investigation or pending litigation.

It was clear before her ruling that Judge Walrath had questions about the motion to appoint a trustee. When a government lawyer mentioned the FBI raid at Solyndra, she said she thought “people were innocent until proven guilty.” She also noted that not answering a question about contracts during the initial interview with Mr. Heck fell “far short” of the standards needed to appoint a trustee.

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