Advertisement BUSINESS DAY Fraud Trial to Focus on Accounting at Heilig-Meyers By LYNNLEY BROWNINGOCT. 27, 2008 Continue reading the main storyShare This Page American International Group, sued Bank of America in 2003, accusing it of fraud and deceit in connection with its sale of $648 million in securities offered by the Heilig-Meyers Company, once the nation’s largest publicly traded retailer of home furnishings and a onetime darling of Wall Street. The plaintiffs, who bought about $300 million of the now nearly worthless securities, are seeking more than $530 million in damages and compensation. The asset-backed securities in question, which were sold in 1998, were interests in pools of receivables — in this case, simple financial contracts that customers of Heilig-Meyers signed when they bought furnishings and agreed to pay for them over time. Heilig-Meyers, which at its peak in the late 1990s had more than $2.7 billion in annual revenue, with nearly 1,300 stores in 38 states, catered to lower-income borrowers who needed consumer credit. The contracts, or receivables, were the company’s main source of income. A.I.G. and nearly a dozen other large investors, including Citigroup’s Travelers Insurance, Allstate, Société Générale, Bank Leumi and Bayerische Landebank of Germany, bought large chunks of the securities, most of which lost almost all of their value after Heilig-Meyers unexpectedly filed for bankruptcy protection in August 2000. Most of Heilig-Meyers has since ceased to exist. Continue reading the main story Advertisement Continue reading the main story The judge in the case, John G. Koeltl of Federal District Court in Manhattan, dismissed an initial lawsuit filed by the investors in 2001. They filed an amended claim in 2003. The original lawsuit included First Union, now part of Wachovia, as a defendant, but that bank has since settled with investors Judge Koeltl has already dismissed two important accusations — that Bank of America had a conflict of interest because it purchased and held all of the securities from a separate offering in 1997, and that the bank had not disclosed to investors that Heilig-Meyers used a decentralized billing and collections system that was difficult to farm out to another company in the event the furniture store had financial troubles. Heilig Meyers, which was based in Richmond, Va., announced in August 2000 that it would stop servicing the customer contracts, several weeks before it filed for bankruptcy. Newsletter Sign Up Continue reading the main story Sign up for the all-new DealBook newsletter Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them. You will receive emails containing news content, updates and promotions from The New York Times. You may opt-out at any time. SEE SAMPLE PRIVACY POLICY OPT OUT OR CONTACT US ANYTIME The jury trial will focus on the remaining accusations leveled by A.I.G. and its co-defendants: that Bank of America had not disclosed to investors that Heilig-Meyers kept two sets of accounting books and that the company was basing its loss and delinquency statistics on historical patterns rather than current data based on actual payments and collections. The current data, the complaint contends, showed that Heilig-Meyers was not as profitable as the investors said they were led by Bank of America to believe. Both Bank of America and First Union bought the majority of the 1997 securities but sold the bulk of the 1998 offerings to institutional investors. The investors contend that Bank of America did not disclose that Heilig-Meyers used a “recency” accounting method rather than the standard “contractual” method, and that actual loss and delinquency rates on the contracts were in fact twice as high as stated by Bank of America. The asset-backed securities were based on the overly optimistic figures, which improperly inflated the true collateral behind them, the investors say. Two credit-ratings agencies, Moody’s and Duff & Phelps, rated the 1998 offerings investment grade, according to David Spears, a lawyer for some of the plaintiffs. The 1997 offering was not rated. In a statement on Monday, Bank of America said that “we intend to defend ourselves vigorously and look forward to presenting the facts in court.”
BUSINESS NEWS Former furniture chain Heilig-Meyers in fraud lawsuit Claim alleges company kept two sets of books Furniture Today Staff//Staff Editors•October 28, 2008 NEW YORK — Long-gone furniture retailer Heilig-Meyers is still making waves in a fraud case involving asset-backed securities that share some of the same characteristics of the investment instruments that led to the current financial meltdown. The New York Times reported that the amended suit, filed by AIG and other investors against Bank of America in 2003, is set to go to trial in U.S. District Court in Manhattan. The suit contends that the retailer kept two sets of books and used an accounting method that led investors to believe that Heilig-Meyers was more profitable than it was. The case involves asset-backed securities sold in 1998 that were pools of receivables – the financial contracts of Heilig’s customers, who had bought furniture on credit. Bank of America and the former First Union bank bought the majority of the securities but went on to sell the bulk of them to institutional investors. AIG and other investors bought about $300 million of the securities, which are now nearly worthless, the newspaper said. Richmond, Va.-based Heilig-Meyers filed for bankruptcy protection in 2000 and subsequently liquidated and spun off subsidiary operations. Only Richmond, Va.-based The RoomStore, separated from the Heilig-Meyers estate, continues to operate.