November 17, 2016 / 10:00 PM / in a year

West Virginia regulator sues Alpha Natural on fraud allegations

CHICAGO, Nov 17 (Reuters) - West Virginia’s environmental regulator sued Alpha Natural Resources Inc’s former management on allegations of fraud on Wednesday, saying top executives should be held accountable for an unusual $100 million funding gap that has emerged just three months after the U.S. coal producer exited bankruptcy.

The lawsuit accused six senior executives including CEO Kevin Crutchfield of making misleading financial projections about Alpha so its bankruptcy plan would get court approval. After the plan was approved in July, the executives joined the management team of Contura Energy Inc, which bought some of Alpha’s most productive mines.

“In knowingly making or allowing to be made, false and misleading projections to obtain confirmation of (Alpha‘s) chapter 11 plan, each of the named individual defendants committed a fraud upon this court,” the West Virginia Department of Environmental Protection (DEP) said in the lawsuit.

Contura did not respond to a request for comment on behalf of Crutchfield.

Alpha said in a Nov. 3 court filing it had uncovered $100 million of “unaccounted-for obligations,” including taxes, payroll and royalty payments that were not accounted for when it reorganized.

Bankruptcy attorneys said companies rarely return to court to address such a large liability so soon after exiting bankruptcy.

West Virginia said the shortfall threatened Alpha’s viability and could saddle the state with cleaning up retired mining sites, which is expected to cost hundreds of millions of dollars.

Lawyers for Alpha and Contura denied the claims in court on Thursday and said they would begin talks with the regulator to address its concerns.

Alpha and Contura reached an agreement this month to divvy up the obligations and planned to ask for bankruptcy court approval on Thursday for their settlement.

U.S. Bankruptcy Judge Kevin Huennekens postponed a decision in light of the lawsuit.

Alpha’s reorganization split the company in two, with its lenders forming Contura to operate more productive mines and the remainder of the company focusing on cleaning retired mining sites, mostly in West Virginia.

Alpha has said it has more than $1 billion in environmental obligations, much of which were covered by a federal program called “self-bonding” that exempt companies from setting aside cash or bonds to restore abandoned mines to their natural setting.

Alpha and Contura agreed to provide $400 million over the next decade for mine cleanups. In a court filing this week, Contura said it believed that Alpha will have sufficient liquidity to meet its commitment. (Reporting by Tracy Rucinski; additional reporting by Tom Hals; editing by Grant McCool)

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