Saturday, May 11, 2002
Bank also sues auditor for Wilkinson
The Associated Press
LEXINGTON Union Planters Bank has joined three other creditors of former Gov. Wallace Wilkinson in suing the Lexington accounting firm that audited Mr. Wilkinson's bankrupt bookstore company.
Union Planters claims that Mr. Wilkinson, founder and CEO of Wallace's Bookstores Inc., used false and misleading financial statements to get $8 million in loans a few months before he and Wallace's entered bankruptcy.
Potter & Co., the accounting firm, has denied the negligence claims, saying it audited Wallace's for years and we stand by that work.
Also this week, Mr. Wilkinson appealed a bankruptcy judge's ruling that allows a trustee picked by his creditors to sell his assets. Mr. Wilkinson wants a court-appointed bankruptcy trustee to conduct the sales, his attorney, Robert J. Brown, said Thursday.
Both actions were filed this week in U.S. District Court in Lexington.
Union Planters joined three other Wilkinson creditors The United Co., George F. Valassis and the estate of Wendy's Restaurants founder Dave Thomas in suing Potter over its auditing of Wallace's.
Union Planters said Wallace's financial statements for the period 1998-2000 were not accurate because Wallace's was using aggressive accounting practices to inflate the value of its assets.
The 1999 statement, which was used to obtain the loans from Union Planters, overstated Wallace's value by at least $58.6 million, the bank said.
Using Wallace's stock as collateral, Mr. Wilkinson obtained loans of $3 million in July 2000 and $8 million in October of that year, just months before he was pushed into bankruptcy by his creditors in February 2001.
Mr. Wilkinson's debts totaled $418.4 million, and Wallace's, which filed for bankruptcy reorganization later that month, owed $152.3 million.
Union Planters said Potter was guilty of negligence and malpractice for not disclosing that Wallace's was not a solvent and viable going-concern business.
Mr. Wilkinson's appeal involves a flip-flop ruling by U.S. Bankruptcy Judge William S. Howard on Nov. 9. Judge Howard gave Mr. Wilkinson what he wanted and then took it away.
Mr. Wilkinson asked Judge Howard to convert his case from a Chapter 11 reorganization to a Chapter 7 liquidation so his assets could be sold by a court-appointed trustee and Mr. Wilkinson could be discharged more quickly from bankruptcy.
The judge allowed Mr. Wilkinson to convert his bankruptcy to a Chapter 7.
Then Judge Howard ordered the case reconverted to a Chapter 11, saying creditors had invested too much in developing a reorganization plan only to have it wrecked by an eleventh-hour maneuver by Mr. Wilkinson.
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