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Friday, Dec. 11, 2009 | 2:05 a.m.
Sun archives
Related stories
- Fontainebleau judge details guidelines for credit bid (12-8-2009)
- Fontainebleau: Half-built bargain bid up by billionaire (12-7-2009)
- Fontainebleau lenders sue construction companies over liens (11-27-2009)
- Fontainebleau retail component seeks bankruptcy protection (11-27-2009)
- Contractors make another bid for Fontainebleau (11-26-2009)
- Penn National’s bid sets up auction for Fontainebleau (11-5-2009)
- Fontainebleau subcontractors organize to finish project (11-17-2009)
- Fontainebleau developer plans appeal of rulings (11-2-2009)
With a Fontainebleau Las Vegas secretary earning $48,000 annually, its chief restructuring officer making $720,000 and unemployment running at 13 percent, the bankrupt company encountered skepticism Thursday when it proposed spending some $1 million on management bonuses.
Howard Karawan, chief restructuring officer, testified during a hearing in Miami’s U.S. Bankruptcy Court that the company needs the extra money so the handful of remaining Fontainebleau executives and managers will focus not on finding new jobs but on stabilizing the casino-resort building and assisting with the auction process in which Fontainebleau is due to be sold next month.
The company, which filed for bankruptcy protection in June after lenders halted funding, had 115 employees at that time. After waves of layoffs and resignations, the company is down to 24 employees — 14 of whom would receive bonuses if they continue working through Feb. 9.
By then, a new owner may be in charge of the project and the existing employees may or may not have jobs. Financier Carl Icahn has offered $156.2 million in cash and financing for the stalled project, and Karawan testified Thursday that another 17 to 20 parties had been “kicking the tires” as potential bidders.
Fontainebleau employees felt they had long-term employment prospects when Penn National Gaming was the stalking horse bidder, but Icahn has not indicated if he will continue the construction or mothball the project, and employees know nothing about their career futures if Icahn wins the auction, Karawan said.
“There’s total uncertainty,” he testified.
With the remaining skeleton staff and key executives weighing employment options elsewhere, Karawan said, “I don’t know how we’re going to get through the sales process.”
Karawan offered to give up his own proposed bonus if that’s what it takes to keep the remaining staff together.
But banks, other lenders and construction lien holders opposed the bonus plan, in part because they would end up paying for it.
The creditors aren’t interested in parting with any more money as, already, they likely will recover just pennies on the dollar in the case. That’s because Fontainebleau’s liabilities exceed $2 billion, yet the most offered for the unfinished resort so far is Icahn’s $156.2 million.
Judge A. Jay Cristol, who has not yet ruled on the plan, said Thursday that “the court is not an enthusiast of either retention or incentive bonuses.”
“This is a difficult situation. This whole thing is a difficult mess,” Cristol said, repeating a sentiment he has expressed frequently because of the huge gap between what Fontainebleau may fetch at auction and what its creditors are owed.
Contractors attorney Philip Landau noted the unemployment rate is 13 percent in Las Vegas and that a Fontainebleau salary schedule showed a secretary was earning $48,000.
“It’s hard to say anyone is (underpaid),” Landau said.
Proposed bonuses mentioned during the hearing were $300,000 for Karawan, $100,000 for a financial officer, $75,000 for an attorney and $9,000 for a security chief.
“I can’t get this job done without these people,” Karawan said.
Attorneys for the U.S. Trustee’s Office objected to the bonus plan.
Bankruptcy law “requires that the debtors show that the retention of each such insider is essential to the survival of the business,’’ they said in court papers.
“The debtors merely state that the loss of the employees ‘has the potential to derail the debtors’ ability to consummate the sale’ and this is simply not enough to meet the standard. The debtors must show that without these insiders the sale process will not take place,” attorneys for the trustee’s office wrote.
The trustee’s office also pointed out that several Fontainebleau Las Vegas executives also are on the payroll of Fontainebleau’s non-bankrupt parent company.
The Las Vegas casino-resort was developed by Jeff Soffer, who heads Miami-based Turnberry Associates. Turnberry and its Turnberry West Construction are known in Las Vegas for building high-rise condominiums and the Town Square Shopping Center.
Multiple roles within Fontainebleau and the other Turnberry companies by Soffer and Karawan were cited in September by term lenders when they complained of “pervasive conflicts of interest” among the bankrupt casino-resort company and its officers, managers and related parties.
The context of the complaint was a motion by the lenders that the Chapter 11 case be converted to a Chapter 7 liquidation, after Fontainebleau lost the support of the lenders. Rather than converting the case to Chapter 7, Cristol ordered the appointment of an examiner to supervise the sale of the unfinished resort.
Attorneys for the examiner in the case supported the proposed bonus plan, writing in a court filing: “The examiner agrees that the debtors’ employees are necessary in order to effectuate the stabilization of the project and to obtain the highest and best value for the project through the sales process.”
WHAT ? MANAGEMENT BONUSES? for a bankrupt property? to the tune of a million dollars? this is lunacy! let 'em go, there will be plenty of qualified people standing in line in a 13 % unemployment market place just waiting to do those upper management jobs with NO bonuses. We need to get this idea of bonuses OUT of the collective thinking in today's screwed up world. I am laughing out loud at the mere thought of this company giving out ANY type of bonus to anyone right now...
Anyone remember when a bonus was given out when the employee or company had exceptional performance over the fiscal period? Pay people a fair salary and let bonuses (and tips for that matter) be a reflection on superior effort.
We are rewarding failure! How did we get here.
On a positive note, 17-20 potential buyers!!!!
CRAZY!!! tell me these people really have stayed because they thought the project would come beack. I DOUBT IT..its cause THEY ouldnt find a job either..WELCOME TO THE REAL WORLD! I agree with 9% of the world, that people should be paid on performace - not because its in their contract. The company makes money becuse of what they do - they deserve a huge bonus. If the company goes in the tank because of what they do - kick them to the curb with no severence. Someone needs to stand up here. As for "retention" bonuses? Hey, I would have loved to keep my job because I was a critical part of the company functioning - but nope, not to be AND I got no bonus!!! Tell them to go pound sand !!!!!!!
The bonus will be paid, no matter what the people think. The fat cats take whatever they want. Even if it's got to be O-T-M (Other People's Money). Economical systems work like that. Greed and capitalism for a very limited number of reckless subjects a way to get rich, even in the recession!!! Unbelievable, and it would not surprise me at all if they get away with it.
I have visions of other countries reading this and saying to themselves, "It's no wonder the U.S. economy is going down the tube".
GrandmaCrabby
TOTALLY AGREE! That salary is very on par with what that secretary most likely does. My guess she is more admin assistant, is not some young bimbo but a person with experience in her field.
That attorney sounds like one of those egomaniacs who bills $250+ plus an hour and pays his secretary next to nothing. He's like one of those cheap ass attorneys I ran into while looking for a job. He knows damn well a good secretary/admin assistant is worth that much or else he wouldn't be a successful attorney being quoted in the Sun since HIS secretary probably set up the interview to begin with and will now field phone calls for her boss and all the while making him look good.
To anyone who knows Karawan, you can be assured that his numerous misrepresentations in the testimony were more of the self serving misstatements about his own importance. He is suposedly the leader of this team, but has not been in Las Vegas more than once in 4 months, undoubtedly hard at work in the Miami court producing no positive results for Fontainebleau or the creditors. The secretary being discussed is actually out on maternity leave and was recommended for no bonus. The Judge sarcastically criticized the greedy Karawan for this attitude.
Regarding 17-20 interested parties, read "tirekickers" because that's all there were beyond Penn Gaming and now Icahn. Most other serious Las Vegas gaming companies looked at it, nodded and left including Steve W. Basically the brain trust consisting of Karawan and his mumbling attorney have stayed in Miami and have produced nothing in the way of a reorganization or strategy/tactics to enhance the value of this case. Maybe Icahn can get a plan together to make himself a nice return on babysitting this half built monster of a project.
"I can't get this job done without these people," Karawan said.
Apparently you couldn't get the job done WITH them either.
The whole "Fountainred" fiasco is emblematic of all that went so horribly wrong in the credit bubble. It should come as little surprise that executives at a bankrupt project want bonuses. Today's corporate creature is without conscience or shame, and look upon the squandering of other people's money as some sort of entitlement!
Screw 'em, let 'em walk!!!
hahahaha....too funny.
What ever happened to the concept of "SHAME". Has it been replaced with "GREED"?
Shame, Shame, Shame!!!
"its chief restructuring officer making $720,000 " ,yeah grossing $14k a week must be tough . You really need that bonus.
Democrat & RINOs: Isn't this what the TARP money was supposed to cover?
I say give the entire amount to the secretary so she can quit this job! I would hate having to work around these egotistical greedy self-serving people day in and day out and keeping a smile on my face for their benefit. After reading this article I would be ashamed to be associated with any of these undeserving losers.
These are not performance bonuses.
This is compensation that was promised to the employee for work performed, just like a sort of delayed compensation. These people were promised this compensation for continuing to do a thankless job. They completed their end of the bargain. They should be given what they were promised.
Damb, I should specialize in winding down bankrupt businesses. How do you get into that racket?
Not one dime
You people are too hung up on the word 'bonus', which infers that the payment is discretionary and performance related. These 'bonuses' are in fact nondiscretionary deferred income. In essesence these people accepted less salary up front for more pay later on. Now that the work is done (with the expectation of deferred compensation) you people would rather just take it away. Real fair.
What I really don't understand is why these companies keep shooting themselves in the foot by referring to deferred compensation as a 'bonus'. If they simply referred to these 'bonuses' as deferred compensation this 'story' would have never been reported.
These people haves B****.....What are you rewarding ? FAILURE ? Give me a break. I cannot believe how so many companies could even think about giving away money like that. I would be totally outraged if I were one of those laid off because of the bankruptcy. Bonuses like that can rehire a dozen or more people. GIVE ME A BREAK !!
Homo_Erectus,
I agree.
How many people that are commenting just read the headline.
Call it anything you like. They are bankrupt and attempting to get out of not paying their creditors. Those employees are lucky to have any income at all and are not entitled to anything at this point. When the money runs out all bets are off the table. Period - Homo Buffoonus. This BS of "well it's not a bonus, it's an incentive" and "we need to keep these people from finding other jobs" is bizarre. Let's stop playing word games shall we? Corporate greed is worse than ever. Consider this for a moment. Fountainbleau is attempting to screw dozens of businesses out of money that is owed to them for doing legitimate work. The million dollars they're asking for could very well mean the life or death of many other businesses and employees elsewhere. On my planet when a company hits hard times they dump raises, cut hours and the like and you're attempting to justify payments to people who "work" for a company that, well, DOESN'T DO ANYTHING -IT'S A GIANT EMPTY BUILDING THAT IS BANKRUPT! Um yeah.