Attorneys for Conseco Inc. have a new target in their legal assault a g a i n s t f o r m e r C E O S t e p h e n Hilbert. It's Haverstick Consulting Inc., the Carmelbased company Hilbert now leads.
In court papers filed last week in Hamilton County, Conseco attorneys charge that Hilbert and his wife, Tomisue, transferred millions of dollars into Haverstick in recent years but did not receive stock of equal value in return.
"These transfers were made by Hilbert and Tomisue with the actual intent to hinder, delay or defraud creditors, including Conseco," company attorneys charge in court documents.
Conseco is seeking permission from Judge Judith Proffitt to add Haverstick as a defendant in its ongoing debt-collection lawsuit against Hilbert. It wants transfers reversed and the proceeds applied toward reducing the staggering debt Hilbert amassed in the mid-1990s borrowing money to buy company shares that ended up worthless.
David Kleiman, an attorney with Dann Pecar Newman and Kleiman representing Hilbert, scoffed at the allegations, saying: "This is a pathetic attempt to manufacture a claim that doesn't exist."
Kleiman said Conseco mischaracterizes the nature of the transactions. He said Hilbert, Haverstick's chairman and CEO, would have had no motivation to make moves that were to his financial disadvantage.
When the transactions occurred, Hilbert and former Conseco Chief Financial Officer Rollin Dick effectively owned the company, Kleiman said. He likened the transactions to stock splits, which affect the number of shares a company has outstanding but not the value of a person's investment.
Conseco, however, says otherwise. "We're anxious to have them explain that in court," company spokesman Jim Rosensteele said. "Our legal position is that sort of new math simply doesn't work."
Attorneys for Conseco say they're going to such lengths because the assets Hilbert holds in his name are roughly valued at $30 million, far less than the $72 million judgment Proffitt issued against Hilbert in October.
At that time, Proffitt rejected a range of defenses that attorneys for Hilbert argued should extricate him from the debt. Attorneys for Hilbert have appealed the decision, and Proffitt has stayed the judgment while they do so.
In total, Conseco says, Hilbert owes more than $234 million on his loans-including $162 million in principal, which Conseco's trying to collect through a separate lawsuit in Chicago.
With so much owed, and relatively little in Hilbert's name, attorneys for Conseco are turning over every stone in an effort to uncover additional assets.
Directly in their sights is Tomisue, who they charge received tens of millions of dollars in so-called "fraudulent transfers" in recent years, swelling her wealth while diminishing Hilbert's ability to repay the loan debt.
Legal observers say a solvent person generally can transfer property as he chooses, as long as the transfer won't render him insolvent. An insolvent person who transfers assets must receive something of equal value in return.
Attorneys for Hilbert argue that all transfers were proper, including those for Haverstick.
But legal observers say numerous issues can muddy the analysis of such disputes, such as disagreements over whether assets involved in swaps are truly of equal value and whether a person making transfers had reason to anticipate they would later prevent him from paying creditors.
In the case of Haverstick Consulting, Conseco attorneys charge that the Hilberts received far too few shares of Haverstick stock when they converted loans to the company into equity in 2001 and 2002.
Hilbert and Dick had become major investors in the IT consulting firm in November 2000, just as the technology bubble burst and the economy slowed.
By 2001, according to court papers filed by Conseco, Hilbert, Tomisue and family trusts had begun lending money to Haverstick to cover its operating expenses. By mid-2002, they'd pumped more than $6.9 million into the company.
In December 2001 and July 2002, according to court papers, the Hilberts converted those loans into stock at $3 a share-a price attorneys for Conseco charge was vastly inflated.
According to Conseco, the Hilberts had valued the shares at just 3 cents apiece when Stephen transferred Haverstick shares to Tomisue in September and October of 2001. In addition, an analysis done in December 2001 by a Purdue economist had valued Haverstick shares at 3 cents each.
The Hilberts received 2.3 million shares of Haverstick stock in the swaps. If the stock had been valued properly, the company said, the Hilberts would have received that number of shares by converting a mere $69,000 of their loans.
Conseco says the rest of the loans-more than $6.8 million-should be recovered from Haverstick as a fraudulent transfer. It wants to seize that from Haverstick and apply it toward reducing Hilbert's debt.