Lawsuit Targets 'Grossly Insolvent' Getty Petroleum

Creditors sue GPMI owners for delivering "utter lack of value," siphoning off funds

Published in CSP Daily News

NEW YORK -- Creditors of a defunct company that once ran the network of Getty gas stations have sued the men who bought the company for $1 from OAO Lukoil Holdings, accusing them of siphoning more than $6 million out of the "grossly insolvent" operation in less than a year, reported The Wall Street Journal.

The suit against Bjorn Aaserod and Joseph Scott Karro was filed last week in the U.S. Bankruptcy Court in Manhattan, in the case of Getty Petroleum Marketing Inc. (GPMI).

The creditors claim East Meadow, N.Y.-based GPMI received an "utter lack of value" in exchange for the money taken by the pair, who held down top executive slots at the company.

Creditors are suing to reclaim the cash under laws that ban outsize payments to insiders by companies that are unable to pay their bills, said the report.

Aaserod and Karro "purchased" the operations of GPMI from Russia's Lukoil in March 2011. At the time, the price was undisclosed.

The deal had analysts that followed landlord Getty Realty wondering whether the new tenants, identified as Cambridge Securities LLC, would be able to make good on the lease payments. As it turned out, they couldn't, the Journal said. GPMI defaulted on the rent within months and filed for bankruptcy protection Dec. 5, 2011.

In previous bankruptcy court filings, Aaserod recounted the tale of his discovery that Lukoil had allegedly stripped out the most valuable stations before selling him GPMI. Years into the bankruptcy proceeding, as Lukoil battled the accusations, it was revealed that the Russian company actually paid $25 million to get the string of distressed gas stations off its hands.

Creditors said Lukoil paid the cash to Aaserod's company; Lukoil denied it, but admitted providing $25 million to prop up the operation it was selling. The fight between GPMI's creditors and Lukoil took place largely in secrecy, with documents sealed at Lukoil's insistence. The case was settled when Lukoil agreed to pay $39 million to quiet accusations it engineered a sham sale of a doomed company, said the report.

The new suit aimed at Aaserod and Karro accuses them of taking nearly $3.8 million out of GPMI in the nine months before the bankruptcy filing, using the money to pay their taxes and for other personal expenses. Also in that brief period, Aaserod and Karro allegedly voted to approve lucrative employment deals for each other. Aaserod was collecting a salary of $60,000 per month as chairman and CEO of GPMI. Karro collected $40,000 per month as CFO.

Besides allegedly above-market salaries, their employment packages included "huge lump sum" pension contributions and generous bonuses, court papers claim. The pair awarded themselves a $900,000 success fee for pulling off the "sale," and charged GPMI for $91,000 in deal expenses, according to the lawsuit.

Additionally, Aaserod used the corporate credit card for $67,000 worth of international travel for himself, his wife and daughters, creditors contend. GPMI paid for trips to Rome, Paris, Nice and Oslo for Aaserod's family as the company foundered, according to records filed with the lawsuit cited by the newspaper.

After the Chapter 11 petition was filed, Aaserod and Karro funneled more than $190,000 worth of cash out of the distressed company to further fatten their pension funds, the lawsuit says.

Additionally, creditors claim Getty Petroleum's new owners took another $2.5 million out of the operation through a subsidiary they kept outside the bankruptcy, Cambridge Petroleum Headquarters LLC.

The creditors also sued Eisenberg & Carton, the law firm that represented Aaserod, Karro and Cambridge Securities, accusing it of serving as a conduit for one of the allegedly improper payments.

Jericho, N.Y.-based Getty Realty reclaimed its properties from GPMI's bankruptcy, but is still in the ranks of unpaid creditors who have filed, collectively, more than $750 million worth of claims in the case. The trustee who sued the company's former leaders on behalf of creditors told the Journal that he estimates the payout "will be well below 20%" after all the cash is raked up in the ongoing bankruptcy.

Click here to view the full Wall Street Journal report.

Keywords: 
financial, M&A