Distressed Tax-Exempt Bond Fund

Fraud Investigator

A very large distressed tax exempt bond fund purchased all of the then outstanding bonds issued on behalf of a then defunct urban nursing home chain for less than 1.5% of par. The bonds had been issued to finance the purchase of three large nursing homes by a university hospital system. All of the nursing homes were closed within three years of the acquisition.  Prior to selling the bonds, the bond trustee had tried unsuccessfully to build a legal case to hold the university hospital system directly responsible for repaying the bonds. HMP was engaged to assist counsel in building a case demonstrating that the university hospital system was directly responsible for the failure of the nursing homes through its own gross negligence.

Issues

• All of the nursing homes had been closed for more than three years at the time HMP was retained.
• More than two million pages of documents that were produced as part of the original suit by the bond trustee were available but in a highly disorganized manner.
• Each of the homes had been effectively closed by the state regulators for failure to meet basic patient care and life safety standards.

Approach

• HMP engaged a geriatrician and other geriatric clinical experts to assist in the investigation.
• HMP staff and legal counsel used multiple methods, including advertisements in the local media, to locate former managers, members of the medical and nursing staffs, state regulators who inspected the facilities and former patients and members of their families.
• HMP conducted several hundred interviews with former staff, management, patients and state inspectors to document their perception of conditions within the facilities and the causes for their rapid decline and ultimate failure.
• An HMP managing director with extensive experience at the C-Level with both university and multi-hospital health systems closely examined the sponsoring system’s direct role in the management and governance of the nursing homes.
• HMP collaborated with counsel to combine the clinical aspects of the facility’s decline with the parallel management and governance failures to create a compelling argument as to the specific causes for the facility’s failure.

Result