[[link removed]]

THE PONZI-FRIENDLIEST COURT IN AMERICA  
[[link removed]]


 

Maureen Tkacik
May 6, 2024
American Prospect
[[link removed]]


*
[[link removed]]
*
[[link removed]]
*
*
[[link removed]]

_ Steward Health just filed for bankruptcy in Houston’s
scandal-plagued, private equity-pilled bankruptcy court. _

The "complex cases panel" in the Southern District of Texas handles
more big bankruptcies than anywhere in the country, Keith
Burtis/Creative Commons

 

A massive chain of crumbling safety net hospitals that Sen. Elizabeth
Warren (D-MA) has described
[[link removed]]
as a “ponzi scheme” filed for bankruptcy protection today in the
notoriously
[[link removed]] “debtor
friendly” Southern District of Texas bankruptcy court, bringing new
urgency to the glacial effort—inasmuch as one exists—to stabilize
the hospitals’ finances and bring their jet-setting plunderers to
justice. 

The hospital chain in question is, of course, Steward Health
[[link removed]],
a Boston-born, Dallas-headquartered collection of about 30 nightmarish
hospitals mostly located in Florida and Massachusetts, from which
insiders have siphoned well over $1 billion. Steward now owes nearly
$300 million in unpaid compensation
[[link removed]] to
physicians and other staffers and about $558 million to its top 30
[[link removed]]
non-insider creditors, including the Center for Medicare and Medicaid
Services. 

The bankruptcy court is the Houston-based “complex cases panel” in
Texas’s southern district, founded by the notorious Judge David R.
Jones, who resigned in disgrace last fall
[[link removed]] after a
small creditor in the bankruptcy of the oilfield services firm
McDermott International revealed in a court filing that Jones was the
live-in boyfriend of one of the attorneys working the bankruptcy, as
well as dozens of others over which he had presided. In just one of
the many details that connect the two scandals, McDermott’s
then-chief financial officer John R. Castellano has been named
Steward's chief restructuring officer.

As the Prospect explained in our investigation
[[link removed]] of the
court, the complex cases panel has for years been the foremost
destination of ponzified companies seeking to avoid questions and
accountability. In the alleged name of speed and “efficiency,”
Judge Jones and his former law partner Marvin Isgur quickly canceled
all kinds of debts owed to small businesses, asbestos-poisoned
retirees, unionized workforces, and retail investors. In the process,
they let off the hook private equity firms and other corrupt insiders
that had looted oil and gas drillers, retailers, restaurant chains, a
prison health care contractor
[[link removed]]
and at least one hospital chain, Pipeline Health, whose dubious 2022
bankruptcy plan was financed by a real estate investment trust called
Medical Properties Trust, which also has deep financial ties with
Steward. 

Enabling all this reverse wealth redistribution was the bankruptcy
juggernaut Kirkland & Ellis, which the aforementioned creditor,
Michael Van Deelen, has sued
[[link removed]]
along with Jones for racketeering. An anonymous letter
[[link removed]] sent to the
Prospect in March alleges that judges Jones and Isgur actually
traveled to Chicago just before they established the complex cases
panel in 2016 to explicitly promise Kirkland’s senior restructuring
partners in person that if they began filing major cases, they would
“be pleased with the result/outcome.” Not long afterward, Jones
and Isgur—the only two judges in the court allowed to handle
“complex” cases—were handling more big bankruptcies than any
other judge in the country; in 2020 nearly half of all major corporate
bankruptcies were filed in the district.

Since then, all the big-time bankruptcy law firms got into the action,
many of them using a local firm in Houston called Jackson Walker. Liz
Freeman, Jones’ former clerk and then mistress, became a partner at
Jackson Walker and argued numerous cases in Jones’ court.

Steward’s firm is Weil Gotshal, which has filed the Chapter 11 cases
of Apollo Global Management portfolio company Chuck E. Cheese, Advent
International's Serta Simmons and a half dozen PE-controlled energy
companies over the past few years. The Serta Simmons bankruptcy, in
which Judge Jones endorsed an (allegedly illegal) deal Advent made to
cram down haircuts on certain senior bondholders while privileging
others, was particularly controversial
[[link removed]],
and after Jones resigned creditors sued to appeal the settlement.
Steward’s lead bankruptcy attorneys, the $1,500 an hour
[[link removed]]
Gabriel Morgan and the even pricier Ray Schrock, also handled the
Serta Simmons restructuring.

Jones resigned from the bench in October, but his replacement is
unlikely to differ too much from him ideologically: Alfredo Perez
[[link removed]]
is a former Weil Gotshal partner. Steward’s bankruptcy has been
assigned to Christopher Lopez, the panel’s rookie third judge, but
Lopez frequently assigns his fellow bankruptcy judges to mediate
disputes between creditors. So it’s possible that Perez will be
invited in to deal with matters pertaining to a case brought by his
former firm.

Steward is based in Dallas, not Houston, though unlike Sorrento
Therapeutics
[[link removed]]
and other recently bankrupt companies whose only asset in the district
when they filed Chapter 11 was a UPS mailbox rented by a Jackson
Walker attorney, the chain still operates a troubled hospital in
downtown Houston that has been sued for nonpayment by five different
vendors in 2024 alone. 

AS THE _PROSPECT_ has detailed extensively
[[link removed]]
in previous articles
[[link removed]],
Steward was the 2010 creation of a narcissistic cardiac surgeon named
Ralph de la Torre and the private equity firm Cerberus, which even at
the time had a well-established track record of bankrupting portfolio
companies for profit. Together they bought up distressed hospitals
from Boston to Youngstown to Utah, mortgaged their assets to the hilt,
and stiffed doctors, construction contractors, staffing agencies and
even the lunchmeat company
[[link removed]]
at one hospital cafeteria to make their interest payments and pay De
La Torre’s inflated salary, which one individual familiar with
Steward’s finances estimated at around $16 million per year. 

The hospitals languished without the substantial capital investment
required to maintain and upgrade facilities. De La Torre’s
supposedly disruptive “business model” began to look increasingly
like a dangerous kickback scheme, and then in 2016 Cerberus sold its
hospital buildings to Medical Properties Trust for more than twice
their assessed value and pocketed the proceeds for their investors.
The hospitals themselves were left reeling under the weight of
impossible lease payments. 

Steward launched a quixotic expansion effort largely financed by MPT,
picking up hospitals discarded by other private equity-owned chains
and launching an international division supposedly aimed at converting
state-owned hospitals overseas to destinations for “medical
tourism.” Steward International’s first big venture involved
privatizing three hospitals
[[link removed]]
owned by the government of Malta, where prosecutors would eventually
accuse Steward of defrauding the government of 400 million euros and
using much of it to pay off various shell companies linked to cronies
of the then-prime minister and his corrupt chief of staff Keith
Schembri, who worked closely with Steward execs
[[link removed]]
to fast-track the deal and was later charged with fraud, corruption
and money laundering. In 2017 a friend and business partner
[[link removed]]
of Schembri's paid two men to assassinate an investigative journalist
who had been scrutinizing the hospital deal on her blog; Steward was
eventually exiled from the tiny country. 

Back at home and flush with cash from the sale-leaseback, Cerberus was
eager to exit Steward, which it finally managed to do in 2020 and 2021
with the help of a byzantine deal orchestrated by MPT, whereby De La
Torre “bought” Steward from Cerberus for $335 million
[[link removed]],
then immediately turned around and used Steward's cash to pay himself
a $100 million dividend, with which he purchased and renovated a $40
million mega-yacht. The company also acquired at least two business
jets and a private suite at Dallas’s AA Arena, where the NBA’s
Mavericks play. 

The hospitals continued to hemorrhage cash, and cope with their
problems by simply not paying their bills. Dozens of small businesses
sued Steward for nonpayment of services that had been rendered well
over a year or more earlier. MPT, meanwhile, used a blend of deceptive
accounting tricks, slow-walking and outright fraud to conceal the fact
that Steward wasn't paying its $440 million annual rent bill.

The hospitals devolved into conditions a Louisiana physician
interviewed by a federal health inspector described
[[link removed]]
as “Third World.” In one Florida hospital
[[link removed]]
where more than a half dozen nurses contacted the Prospect, no fewer
than 5,000 bats infested the top floors, forcing the intensive care
unit to move down to the second floor, where a burst pipe caused most
of the sinks to back up with sewage. At another Steward hospital 30
miles down the highway, a physician described being pressured by
Steward brass to refuse care to Medicaid patients and remotely
supervise nurses via teleconference software who were performing
complex procedures they were woefully unqualified to do. In
Massachusetts, a new mother died during surgery after experiencing
extensive blood loss
[[link removed]]
at a Steward hospital shortly after the medical device supplier
Penumbra repossessed an embolism coil designed to control postpartum
bleeding.

Last week, a judge in Malta ordered
[[link removed]]
authorities to seize the assets of De La Torre, two Steward executives
and a whole host of the cronies to whom Steward had wired funds as
part of its contract to run the Maltese hospitals. But in the United
States, authorities have mostly dealt with Steward by sending angry
letters. Sen. Warren has penned letters to Steward, De La Torre,
Cerberus, MPT and the Australian investment firm Macquarie, asking
pointed questions about how many dividends they’ve collected from
Steward's carcass. After badgering MPT to disclose Steward's
financials to its investors for years, the SEC finally sent the REIT
one final irate letter announcing
[[link removed]]
it was making public all its previous letters. 

Upon learning about the bankruptcy filing, the Massachusetts Attorney
General Andrea Campbell issued a bland statement
[[link removed]]
almost identical to one she issued four months ago about asking
“questions” and demanding “accountability,” with one
unintentionally amusing additional sentiment: “We expect the
bankruptcy process to bring greater transparency and stability, as
well as greater legal oversight over Steward’s operations than
before.” Isn’t it pretty to think so! 

Sadly, because bankruptcy courts supersede all other civil
proceedings, “greater legal oversight” will not be an outcome of
Steward’s chapter 11 filing unless someone, somewhere decides to
charge De La Torre, Cerberus, Medical Properties Trust and/or their
many conspirators for some of the many crimes they have committed in
the process of driving more than three dozen direly needed community
hospitals into the ground. If only the Massachusetts Attorney General
had the power to do something like that.

Maureen Tkacik is investigations editor at the Prospect and a senior
fellow at the American Economic Liberties Project.

YOU CAN COUNT ON THE _PROSPECT_, CAN WE COUNT ON YOU?

THERE'S NO PAYWALL HERE. Your donations power our newsroom as we
report on ideas, politics and power — and what’s really at stake
as we navigate another presidential election year. Please, BECOME A
MEMBER [[link removed]], or MAKE A ONE-TIME DONATION
[[link removed]], today. Thank you!

* bankruptcy
[[link removed]]
* Healthcare
[[link removed]]

*
[[link removed]]
*
[[link removed]]
*
*
[[link removed]]

 

 

 

INTERPRET THE WORLD AND CHANGE IT

 

 

Submit via web
[[link removed]]

Submit via email
Frequently asked questions
[[link removed]]
Manage subscription
[[link removed]]
Visit xxxxxx.org
[[link removed]]

Twitter [[link removed]]

Facebook [[link removed]]

 




[link removed]

To unsubscribe, click the following link:
[link removed]