LAS VEGAS SUN FILE
Saturday, April 25, 2009 | 2 a.m.
- Kats Report: Bankruptcy's a beach as Jim and Glynda hit Cabo (4-9-2009)
- Kats Report: No more $20,000 guitars? Rhodes' bankruptcy to be felt in uncharitable ways (4-3-2009)
Beyond the Sun
Rhodes Homes President Jim Rhodes is accused of misappropriating money by creditors who want him removed to prevent what they say is continued mismanagement.
In Chapter 11 bankruptcy reorganization proceedings, attorneys for Credit Suisse and other lenders allege Rhodes directed millions of dollars from more than $370 million in loans to Rhodes Homes to finance his companies not covered by the loans. That includes Harmony Homes, operated by Rhodes through a trust in his children’s names, the bankruptcy filing said.
It alleges questionable activity, possibly even criminal, in the weeks leading up to the Chapter 11 bankruptcy filing March 31. Rhodes Homes had $8 million in cash on its balance sheet in the beginning of March but when the bankruptcy was filed, it had dropped to $1.8 million, creditors claim in court documents.
The allegations include that Rhodes paid family members for limited work, bought luxury automobiles and may have used company money for a divorce settlement.
Because of what the creditors view as Rhodes’ widespread fraudulent activity, the lawyers said they have no confidence in Rhodes’ ability to rehabilitate the company and formulate a workable plan for reorganization. They want to remove management from any control over day-to-day operations and want a court-appointed trustee to run the company.
A hearing is scheduled for Tuesday in U.S. Bankruptcy Court.
Rhodes Homes spokesman Bill Marion said discussions between the company and creditors have been productive and expects the hearing to be positive.
“Since the filing, the creditors have consulted, with unfettered access to all of the books, and it is my sense there will be an agreement,” Marion said. “They will pull the request for a trustee. There is no evidence of any of those allegations, and they are aware of that.”
Creditors’ attorney Ira Dizengoff, with Akin Gump Strauss Hauer & Feld in New York, declined to comment on the case.
Rhodes Homes filed for Chapter 11 bankruptcy protection for a group of companies after it was unable to meet a March 31 principal and interest payment. The company’s assets were used as collateral for $500 million in financing arranged by Credit Suisse in November 2005. The other lenders are Highland Capital, General Electric Corp., CypressTree Investment Management and Sorin Capital Management.
A consulting firm hired by Credit Suisse to conduct an internal review reported nearly $2.4 million was paid over the past two years to Rhodes’ ex-wife, out of the accounts of an affiliate company not covered by the debt. According to an employee of Rhodes, the payments were part of a divorce settlement and the cash may have come from Rhodes’ companies, the consulting firm said in the bankruptcy filing.
The report also said Rhodes Homes made disbursements in excess of $7 million to outside companies affiliated with Jim Rhodes in 2007.
Among the other accusations:
• Rhodes’ brother, John, was an employee of the company and received a salary of about $600,000 in 2007 and 2008 for services that “appear limited in their responsibility.”
• Rhodes’ current wife, Glynda, was also an employee and received a salary of $98,800 in 2008 and 2007 for “services that were similarly limited.”
• Rhodes Homes had been paying for a nanny.
• The company paid about $1.75 million to Glynda Rhodes’ interior design business in 2007 and 2008.
• Jim Rhodes received a $75,000 bonus on Dec. 21 in addition to his $400,000 annual salary. This bonus was approved at a board meeting in April 2008 at which Rhodes was the only attendee.
• Among the assets listed for Rhodes Homes is a Bentley with a book value of $76,000 and two Mercedes Benzes with book values of $98,000 and $67,000.
• More than $3 million was spent acquiring and improving land in Arizona that was owned by a Rhodes company other than the ones that received loans.
• Rhodes Homes employees worked for other Rhodes businesses.
The filing branded Rhodes as one of Las Vegas’ most controversial homebuilders, saying “his self-dealing and illegal conduct extend to many facets of his life.”
The filing mentioned accusations of Rhodes’ making illegal contributions to candidates and paying nearly $150,000 in fines, and to his implication in the federal investigation of former Clark County Commissioner Erin Kenny, who pleaded guilty to federal bribery charges.
Rhodes Homes owes more than $370.7 million to the creditors and has obligations to equipment lenders and others of $35.2 million.
The consultant’s report cited two former employees who said Rhodes’ management style was one of “intimidation and micromanagement,” causing poor business decisions and high employee turnover.
Rhodes Homes is the developer of Rhodes Ranch in the southwest valley and master-planned communities of Tuscany in Henderson. It also has eyed development in Northern Arizona.
In filing for bankruptcy protection, Rhodes cited the severe economic downturn for land and home values plummeting and new-home sales falling dramatically.
The company continues to operate and says it is working on a restructuring plan to emerge through the bankruptcy process.