Posted 10/5/2009 12:00 am
Updated 1 year ago
The record suggests that the former class-action lawyer with a national reputation still has liquidity issues that are making it difficult for him to come up with the restitution owed to clients in a securities case.
Ongoing cash-flow problems are further complicated by financial claims against him and by his highly leveraged spending habits.
Lawyers who won a multimillion-dollar judgment against Cauley and his billboard companies in the electrocution of a young employee have moved aggressively to protect their clients' interest, and at least two banks have filed collection suits for loans made when Cauley was considered to be very rich indeed.
Along the way, Wachovia Financial Inc. of Charlotte, N.C., repossessed his private jet, a Gulfstream G450 with an estimated value of $27 million.
Cauley, who surrendered his law license in May, was scheduled to be sentenced this Wednesday in federal court in New York for his confessed misappropriation of client funds. But last week, his lawyer requested a second continuance, saying Cauley needed still more time to come up with the restitution "because, after sentencing, it will be much harder and most certainly disserve the victims."
Unspoken in the motion is the presumption that Cauley's sentence will include significant time in a federal prison; the sentencing guideline in his case ranges from about six to about eight years, according to a source familiar with the federal criminal system.
If the motion is granted as expected, the new sentencing date likely would be in December at the earliest. Cauley's criminal defense lawyer, John Wesley Hall of Little Rock, is set to begin a six-week federal capital murder trial on Oct. 13.
To This Point
Cauley pleaded guilty on June 1 to wire fraud and criminal contempt for stealing from what was originally a $65.8 million settlement in a class-action securities case against the Bisys Group.
Cauley, sole signatory on the settlement account, couldn't come up with the last $9.3 million owed to clients when the federal judge in New York ordered the final distribution of funds.
Cauley himself told The Wall Street Journal that shoring up cash-flow problems was the motive behind his theft. (Last fall, Arkansas Business agreed to Cauley's demand that its reporters no longer attempt to contact him for comment on any articles.)
He was charged only with misappropriating $9.3 million, although there is widespread suspicion that he helped himself to considerably more of the settlement money.
For one thing, disclosures filed with the Securities & Exchange Commission show that he sold more than $10 million worth of stock in Home BancShares Inc. of Conway between Oct. 29 and Nov. 21, 2008 - just days before the distribution of the settlement was ordered. (Cauley subsequently resigned from the HBI board of directors, which he joined early last year after the bank holding company bought Centennial Bank of Little Rock, in which Cauley was a major investor.)
Cauley had more than the $9.3 million in cash and easily liquidated securities earlier this year, according to sources familiar with his financial affairs.
Prosecutors said Cauley wired a total of $36.7 million to the Bisys case administrator between Dec. 19 and Feb. 19. The $9.3 million shortage was discovered by the court when Cauley failed to pay the last installment in April.
Prosecution commenced almost immediately. He was quickly able to pay another $500,000, but the remainder has been slow in coming. Federal prosecutors agreed to a four-week delay from the original sentencing date of Sept. 10 to give Cauley more time to liquidate assets and make good on promised restitution.
But that extra time yielded no extra money, according to defense attorney Hall.
Hall said Cauley had indicated that deals to come up with the remaining $8.8 million had been complicated by other courtroom problems.
"They report to me they're pretty close, but there are so many legal entanglements," Hall said.
Lawyers have tied up the assets of more than 120 limited liability companies associated with Cauley in an effort to collect on a $3.7 million verdict against him and his billboard ventures. Also in the knot are lenders filing suit to recover money on delinquent loans to Cauley or his enterprises.
The new motion to delay sentencing that Hall filed last week alludes to "substantial funds that are designated for restitution" that are "subject to a bank lien which defendant is attempting to resolve."
This is a cryptic reference to accounts receivable and to future settlements from lingering litigation work used to secure Centennial Bank loans totaling more than $13 million, according to sources familiar with the details.
Cauley's ability to make the Bisys plaintiffs whole hinges on whether these assets can be freed up or the debt restructured.
"We hope Gene can pay back the money, so our clients won't suffer," said one attorney involved with the Bisys Group settlement.
Further complicating his financial meltdown are lawsuits filed by banks seeking to collect on delinquent loans, both large and small.
- First Tennessee Bank of Memphis is trying to recoup $3.39 million outstanding on a loan to Cauley's Coco Holdings I LLC, delinquent since March 31. A court-appointed trustee is now overseeing the operation of Coco and its related billboard investment entities.
The bank alleged that assets used to secure the loan were transferred without its consent. Cauley personally guaranteed the debt.
- Capital Bank of Little Rock filed a foreclosure suit against Cauley on Aug. 27. First mortgage debt of $76,817 was secured by a 1,400-SF home in west Little Rock's Sandpiper Creek neighborhood.
According to court filings, Cauley paid off the mortgage in mid-September.
Although the debt was in Cauley's name, he had transferred ownership of the property to his mother, Carolyn Cauley. The transaction was dated Dec. 15, 2008, but wasn't filed of public record until March 26, 2009.
A second bad-debt claim by Capital Bank, on a $192,829 balance owed on a line of credit to Gene Cauley, remains active.
Plaintiff v. Defendant
Cauley is also on the hook for a personal judgment of $545,000 in connection with the July 2005 death of a 22-year-old employee of his billboard ventures. The family of Matt Johnson also landed a judgment of nearly $3.1 million against 10 billboard entities led by Cauley.
That May 21 judgment also made Billboard Acquisitions I LLC and Billboard Acquisitions VIII LLC liable for nearly $218,000 in legal fees and costs incurred by First Electric Cooperative Corp.
First Electric was sucked into the litigation, but a Saline County jury found the power company had zero responsibility for Johnson's electrocution. Adding grist to the case: Cauley's Seco Outdoor Advertising Corp. didn't have the workers' compensation insurance it was supposed to have.
Allen Bird II, a Little Rock lawyer helping track down Cauley assets to collect on the judgment, has staked a claim on 32,147 shares of Home BancShares stock.
The shares, recently valued at more than $700,000, have been held in escrow as part of an earn-out provision since Centennial Bank was acquired by HBI.
"We believe the bank stock will more than cover the individual judgment, and the stock is not due to come out of escrow until January," Bird said. "We'll just bolster our position and make sure we have a good position at the table when all this starts to unfold."
The First Tennessee litigation has added another layer of complexity to the collection efforts as Cauley's money troubles mount.
"This thing is a mess now," said Will Bond, a Little Rock lawyer representing the Johnson family.
Hovering above the fray is a lawsuit filed against Cauley by Seiz Sign Co. of Hot Springs. The company claims Cauley breached a 2006 agreement to buy the firm for $8.75 million.
The lawsuit is seeking $5 million in damages after Cauley allegedly tried to change the deal to buy the billboard side of the business for only $4.5 million.
"We're just kind of standing by waiting and watching before we spend any more time or money on it," said Bud Cummins, attorney for Seiz. "Time will provide some indicators if Mr. Cauley would be able to meet any additional liabilities or not. If it turns out that Mr. Cauley is insolvent, there's no point in going forward."
Back in June, Cauley got permission from prosecutors to travel to Dallas to consult with a bankruptcy attorney. Last week, according to a letter to the court from his lawyer, he was back in Dallas again.
His mission wasn't specified this time. But the letter did say that he was staying at the Four Seasons Resort & Club - where, according to its Web site, room rates start at $355 per night.
The Property Securing Cauley's Freedom
Gene Cauley chose about 460 undeveloped acres in west Pulaski County when it came time to put up $3 million worth of real estate to help post bond earlier this year.
The block of land, about a mile north of Lake Maumelle, is divided into four tracts used to secure debt totaling about $6.8 million. If Cauley has $3 million of equity in the property, that means the land is worth at least $21,300 per acre.
The land was assembled in four transactions with Cauley's SEC WLR Holdings II LLC buying the property from 2610 Acres LLC, a company associated with Cauley and upscale homebuilder Rick Ferguson of Little Rock.
A 150.38-acre tract is secured by a $2.3 million mortgage held by Twin City Bank of North Little Rock. The land was purchased for a reported $3 million in July 2007.
A 108.76-acre tract is secured by a $1.37 million mortgage held by Allied Bank of Mulberry. The land was acquired for a reported $1.4 million in July 2007.
A 100.86-acre tract is secured by a $1.57 million mortgage held by Metropolitan National Bank of Little Rock. The land was bought for a reported $3.5 million in September 2005.
A 100-acre tract is secured by a $1.59 million mortgage held by Metropolitan. The land was purchased for a reported $2.5 million in January 2006.
The two Metropolitan loans now are cross-collateralized with each other as well as three other loans from the bank that totaled $4.8 million, $1.46 million and $132,600.