By: Wes Culver
On Tuesday, June 2nd, the US Court of Appeals for the 2nd Circuit agreed to hear Indiana State Treasurer Richard Mourdock’s claims against the government’s managed restructuring of Chrysler Corporation. The centerpiece of the plan is to sell the bankrupt automaker to Italian automobile manufacturer Fiat. Unlike bankruptcies of the past though, this bankruptcy is like none before. The federal government managers of this situation have used the power of the federal government to step in and dissolve the rights of Chrysler bond-holders.
Chrysler bonds are owned by many, many people in our country. Many people may have them as part of their 401K or their retirement investment fund and not even know it. The elimination of the rights of these bondholders substantially decreases the value of any fund or portfolio that owns Chrysler debt.
In Indiana three public funds, the State Police Pension fund, the Teachers Retirement Fund and the Major Moves Highway Construction Fund own large amounts of Chrysler bonds. These funds have collectively lost roughly $5 million as a result of the federal government’s unwise rewriting of bankruptcy law and the rules that govern bankruptcy court proceedings.
The question about Chrysler is not whether or not they should go bankrupt, but who they should belong to coming out of that bankruptcy. Law and history both say that those who invested in the company and owned the company should the ones that own it upon its emergence from court. Perhaps because of political expediency, or perhaps because of well-intentioned but misguided thinking, the government has changed long-standing law with the result being a terrible shift away from previous bankruptcy precedents.
The transfer of wealth that is taking place here is not the transfer of wealth from the “rich” to the “poor”. The transfer of wealth is going from those who invested in an American company to an Italian automaker that is getting 20% ownership for free! Indiana State Treasurer Richard Mourdock’s principled opposition to this action should earn him the respect of all who believe that obligations are to be honored and responsibilities are to be fulfilled irrespective of how convenient such action is.
Wes Culver (R-Goshen) represents Indiana’s 49th House District in the Indiana General Assembly.
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After reading the bankruptcy judge’s decision, I think this is just factually incorrect. Unless you can point to a scenario where first priority lien holders get more through liquidation than they do under the restructuring plan approved by the bankruptcy court, you just can’t say that first priority lien holders are having their rights trampled upon.
The fact is that no junior lien holders are receiving value by virtue of their pre-petition bankruptcy claims. The only creditors receiving value for such claims are the first priority lien holders of which the Indiana funds own 0.6% of the pie. Furthermore, the principled Richard Mourdock bound the Indiana funds to certain contractual obligations when he invested the funds in this particular investment. Among those contractual obligations was the obligation to abide by the decisions of an agent representing the funds. That agent took direction from the other fund holders in proportion to the dollars invested. 96% of the dollars invested told the agent to agree to the restructuring plan.
If Mr. Mourdock believes that Indiana’s fellow investors breached their fiduciary duties because of political pressure, will he be so zealous in defending Indiana’s investments as to sue those other investors for the damage they have allegedly caused? Or, through this action, is Mr. Mourdock exposing the Indiana funds to further losses by acting outside of the investment contract to go against the wishes of fellow investors, thereby exposing Indiana to suits by those investors seeking to recoup the money they might lose from the Indiana fund’s actions?
In any event, from this creditor’s rights attorney’s perspective, it will be interesting to see how this plays out.
(And, a complete aside for Mr. Culver if he’s reading the comment section — I wonder if he knows any Guipes from Goshen. That’s my step-dad’s family.)
Isn’t it clear that the so called agents had conflicts of interest. You gotta ask why so many people do not want the details of this deal to come to light and are trying to keep it buried.
This car deal would make for a great “wag the dog” style movie. I expect that truth would be stranger than fiction.
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