A former partner in Bruce Rauner's GTCR equity firm testified Friday at a Tampa bankruptcy trial that the company's investment in a controversial nursing home business was damaged by poor management at the chain, squabbling creditors and a financial squeeze from a key landlord.
Edgar Jannotta Jr., GTCR's point person on the nursing home investment, testified that he and GTCR had no motive to evade liability for wrongful death lawsuits against the chain, as has been alleged, because the Trans Healthcare Inc. chain was insured for such problems.
Trans Healthcare had "no (liability) exposure in excess of $150,000" prior to GTCR's controversial 2006 sale of the chain, Jannotta said.
Jannotta, GTCR and other onetime owners of Trans Healthcare are defendants in the bankruptcy case, accused by plaintiffs' attorneys of selling the chain in a complicated transaction to dodge liability for what grew to more than $1 billion in tentative wrongful death judgments secured by the estates of several nursing home patients. GTCR attorneys argue that the firm was far removed from the operation of the nursing homes in question and contend the plaintiffs' lawyers are on a fishing expedition to extract payouts from deep-pocketed businesses.
This is actually starting to look like our future in this country, just a collection of plutocratic "Fiefdoms" run by slimy little dirtbags like Romney and Rauner. They'll feature starvation level wages (minimum wage laws will no longer exist) long hours seven day work weeks...
XRAWKR
AT 9:55 AM SEPTEMBER 27, 2014ADD A COMMENTSEE ALL COMMENTS
Rauner, the Republican candidate for Illinois governor, is not a defendant. But court records show he had key involvement with Trans Healthcare, a connection now causing discomfort for a political campaign built around the Republican's reputation for business savvy.
Rauner served on the board of Trans Healthcare for a period of time. He also was a member of an investment committee of GTCR partners that effectively ran the nursing home chain up until its sale, Jannotta said in a deposition entered into evidence in the trial before he took the stand in person. Both Rauner and Jannotta are retired from GTCR.
On Friday, Jannotta testified that Trans Healthcare's downfall was triggered by a sequence of events that began when an audit of its finances covering 2003 showed earnings had been misstated.
"It was very significant, in total it was $36 million in negative adjustment," Jannotta said. "I was upset. … We thought we had a good investment, a company that was ... progressing … so it was very surprising."
Jannotta blamed the problem on top management at the nursing home chain, saying they were not up to the task of running a rapidly growing firm. Managers at the center of those problems were hired by a GTCR-controlled Trans Healthcare board that had included Jannotta and Rauner.
Disclosure of the accounting problems prompted key lenders to threaten to seize assets of the chain, Jannotta said. On top of that, he added, most of the nursing home facilities were leased from a real estate investor who used the threat of lease cancellations to try to force a sale of Trans Healthcare to him.
That threat, Jannotta said, made it "virtually impossible" to salvage the firm by selling it to a third party.
The sale that GTCR did finally engage in involved a complicated deal that delivered the core of the firm to the real estate investor and his business associates. At the same time, plaintiffs' attorneys allege, the liabilities of Trans Healthcare were packed into a shell company sold to an elderly graphic artist in New York who has testified in depositions that he did not realize he owned Trans Healthcare and had never heard of the company.
On the fifth day of the trial, Jannotta was being questioned by lawyers defending him and GTCR in the case. Cross examination will come later from lawyers for the plaintiffs and the government-appointed bankruptcy trustee.
Under questioning by his own lawyer, Jannotta said he had never heard of the graphic artist, Barry Saacks, prior to the sale of Trans Healthcare and had never laid eyes on Saacks prior to watching his videotaped deposition being played in court earlier this week.
Jannotta said he was shocked at what he heard on that deposition.
"I was stunned," Jannotta said. "Obviously he has no knowledge of the transaction and has no experience in the nursing home business."
Jannotta blamed GTCR's business partners in the nursing home sale for bringing Saacks into the deal.
"I felt duped," he said. "Obviously what was going on on the other side of the transaction was wholly different than our understanding. "
The trial in U.S. Bankruptcy Court is scheduled to continue next week but a ruling in the case may not come until well after the Nov. 4 Illinois election.
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