Uncooking the Books at Affiliated Eats Into Assets Available for Creditors

by Mark Friedman  on Thursday, Apr. 5, 2012 11:34 am  

Affiliated, once one of Arkansas’ largest private companies, listed in its bankruptcy filing $47.6 million in assets and $101.5 million in debt, of which $62.5 million was to unsecured creditors.

Thomas said last week that his firm continues to work for Cox and referred other questions to him. A secretary for Cox said he doesn’t grant media interviews, and he didn’t return calls for comment.

Thomas said it was unclear how long it will take before Affiliated’s creditors are paid and the bankruptcy case is closed.

Check Kiting

In the months leading up to Affiliated’s bankruptcy, Mills and Martinez protected their bonuses by operating a check-kiting scheme that totaled nearly half a billion dollars, according to lawsuits and criminal filings in U.S. District Court in Little Rock.

In 2010, Mills pleaded guilty and was sentenced to 41 months in federal prison for participating in the check-kiting scheme. He is scheduled for release June 15.

A federal jury found Martinez guilty last year, and he was sentenced in October to a year in prison for his role in the scheme. He is scheduled for release on Oct. 18.

Cox has sued Affiliated’s board of directors in U.S. District Court in Little Rock and claimed that Mills and Martinez cooked up the check-kiting scheme to disguise the poor financial health of Affiliated and to keep the company limping along as long as possible. Cox blamed the board’s policy of awarding bonuses based on revenue rather than profit.

(See also $40 Million Lawsuit Set for Mediation)

It is unclear how Mills and Martinez hoped to stop the check-kiting scheme once it was set in motion. The size of the kiting steadily increased as the fraud continued.

From Sept. 29 through Nov. 21 of 2008, the amount of checks kited usually was between $1 million and less than $3 million per business day. But after Dec. 3, 2008, the daily amount kited never fell below $4 million per business day.

The daily amount reached $10.3 million on Feb. 25, 2009, and then $11.6 million on Feb. 26, 2009 — huge numbers for a company that had net income of $7.3 million for 2006 and 2007 combined.

 

 

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