Investors blast TA bankruptcy

By Jan Falstad of Montana Lee Newspapers

Former Montana Supreme Court Justice John Sheehy and his wife, Rita, are protesting Touch America's bankruptcy plan, filed in Delaware.David Grubbs / The Billings Gazette

A retired Montana Supreme Court justice in Helena calls Touch America's bankruptcy filing ‘‘patently abusive'' to longtime investors like him.

A retired Montana Power foreman in Butte, whose family has lost hundreds of thousand dollars, said it's up to the court to ‘‘find out where the money is and what they've done with it.''

A miner in Dillon compares watching Montana Power turn into Touch America to watching ‘‘a military coup.''

And a Belgrade rancher said U.S. bankruptcy laws favor corporations so heavily, he worries about investors losing confidence in American stock markets.

These four people are among two dozen around the country who filed objections to Touch America's bankruptcy plan filed June 16 in Wilmington, Del.

The court case

On Monday in a Philadelphia courtroom, Federal Bankruptcy Judge Kevin Carey is scheduled to hear arguments about Touch America's bankruptcy plan.

Company lawyers will ask the judge to approve their blueprint to sell most of the assets to 360net

Bankruptcy ...

Continued from Page A1

works Corp. of Vancouver, B.C., by July 28 and dissolve the corporation.

The bankruptcy could be over in two weeks if the judge agrees. Or he could throw out the plan and order Touch America to submit a new one.

The deal

Touch America calls 360's bid an initial bid that other companies can top.

However, a US Trustee recommended the judge reject the plan because it creates ‘‘unfair advantages'' for 360networks.

The trustee said the bidding process is too short, financial data hasn't been released yet and rival companies have to pay $1 million just to submit a bid. By contrast, Touch America paid $500,000 to 360networks for submitting its bid.

Some of the legal objections question how Montana Power, the utility, turned into Touch America, a telecom, then changed into a 15-pound bankruptcy file in a Delaware courtroom.

The Montana judge

Retired Montana Supreme Court Justice John ‘‘Skeff'' Sheehy is an Irishman from Butte whose father worked in the mines.

He used to play handball with another Butte family, the Gannons. Bob Gannon is Touch America's chief executive.

Sheehy, now 85, lives in Helena with his wife, Rita. They want to know how MPC went from being worth $6.7 billion when the stock peaked at $65 per share to being $500,000 in debt three years later.

Rita, a Billings native, inherited lots of stock from her parents and held on to it while raising their 11 children.

When the company was transforming itself, she said ‘‘something got under my skin'' so she sold half her stock at around $60.

John rode his shares down.

The former justice said he realized his stock would not recover when Touch America announced legal disputes with Qwest of Denver. After Touch America paid Qwest $200 million for its long-distance business in June 2000, the companies started quarreling.

‘‘The laws really don't fit what they are doing. It ought to be a crime,'' Sheehy said. ‘‘I think it's the biggest story since the days of the Copper Kings,''

Sheehy served 13 years on the state's highest court, retiring in 1991. His six-page objection asks the court to stop the sale and require Touch America to produce true and complete financial reports.

He wants all the private deals that Touch America cut before and right after bankruptcy disclosed.

And, he asked the court to require Touch America to hold an investors meeting in its hometown of Butte to answer investor questions. The last investors meeting was in Minneapolis.

The MPC true blood

Bob Vivian of Butte calls himself a loyal company man and makes sure folks know he's no ‘‘radical.''

After working for MPC 32 years, he retired as a natural gas foreman 17 years ago.

Bob and his wife, Dee, were saving their nest egg of MPC stock for their six children. Now hundreds of thousands of dollars are gone.

Vivian hand printed his one-page objection to the court.

‘‘The financial problem was devastating to many stockholders who lost their life savings and other retirement benefits,'' Vivian wrote.

He told the court to look into the company's financial secrecy and to examine the $5.4 million in Golden Parachute payments Touch America's top executives took a year ago.

Vivian won't bad-mouth any Butte executives who ran the company, saying, ‘‘We're all friends, you know that, in this town.''

But he harks back to a different time at ‘‘the power.''

‘‘We felt comfortable with the people like Paul Schmechel (former chief executive),'' Vivian said. ‘‘If they saw you on the street, they' d shake your hand and that was worth all the writing on paper you could ever have. That's the kind of town we had.''

The miner

Scott Curry manages the talc mine near Dillon for Barretts Minerals.

His wife worked for Montana Power, but left in 1997 with a substantial number of shares.

The Currys watched the stock rise sky high, then dive to penny stock territory. They sold out at 50 cents last spring and Curry blames himself.

‘‘That's part of investing,'' he said. ‘‘If you're not smart enough to sell at $65 and ride it down to 50 cents, that's your fault and nobody else's.''

But he took the time to file a court objection because he thinks executives and board members are only looking out for themselves in the bankruptcy.

‘‘They don't have the interests of the corporation in mind, they don't have the interests of the shareholders in mind, or the employees in mind,'' Curry said. ‘‘It' s almost like a military coup has occurred. It's as if Gannon has taken the corporation private.''

The horseman

Fred Sowerwine ran the well-known and successful Four Dot Ranch west of Belgrade for three decades.

He sold the horses and land in 1998 and invested the money in 45 stocks, including Montana Power.

Sowerwine said he filed an objection because ‘‘it's a crime'' to let a corporation claim bankruptcy before revealing its books.

This is his fourth investment that's gone bankrupt: paying off the attorneys, giving creditors something, but leaving investors in the dust.

He invested in a company worth $12 million that sold in court for $4 million. That's still way better than Touch America's plan, he said.

‘‘When I get in a deal that smells bad, I tend to fight,'' Sowerwine said. ‘‘The bankruptcy rules the way they are today, they're designed to wipe out the shareholders.''

He said if the rules aren't changed, Americans could lose interest in playing the stock game.

The investor

New York state investor and analyst Art Bechhoefer, who owns 21,000 shares, has asked the judge to find out why Touch America sold assets days before filing for bankruptcy.

Bechhoefer said the private lines unit was sold to 360networks for $28 million, when the Touch America business was earning more than $100 million per year.

‘‘How, then could this asset be worth only $28 million,?'' he said. ‘‘ Please do not allow the present management to wreak any more havoc, and let me know how I can proceed in order to protect my substantial interest in this company.''

The Qwest connection

Qwest Communications of Denver also filed a complaint even though, like 360networks, it is trying to buy some assets from Touch America.

Four days after the bankruptcy papers were filed, Qwest and Touch America settled their long-standing legal disputes.

Qwest will buy assets for an undisclosed amount and has offered to lend Touch America $10 million for operating cash.

In its objection, Qwest said it will ‘‘withdraw its loan'' and ‘‘place the entire settlement in jeopardy,'' if 360networks gets superior status.

Instead, Qwest said the court should give it first claim to all of Touch America's unencumbered assets.

The taxpayers

Touch America also is delinquent in paying property taxes around Montana.

At least two counties have filed with the court to collect their money.

The Yellowstone County Attorney's office asked the court to block any sale or transfer of assets in this country until the company pays $156,547 in delinquent taxes.

In Touch America's home base of Butte, County Attorney Bob McCarthy said his office also filed legal papers.

‘‘We filed a claim for our delinquent taxes of around $150,000 with the bankruptcy court,'' McCarthy said.

Jan Falstad can be contacted at (406) 657-1306 or at jfalstad(at)billingsgazette.com