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WILMINGTON, Del. Oct 26 A bankruptcy judge
appointed a trustee to take over the liquidation of Thornburg
Mortgage after it was discovered former executives were using
staff and equipment to launch a start-up venture.
The judge entered the order on Friday.
At a hearing earlier this month, the court heard how
"virtually every employee" of Thornburg was being used to
develop a new company being launched by Thornburg's top
A Department of Justice official had asked the court to
appoint a trustee to take over the management of the Thornburg,
which filed for bankruptcy in May with $24.4 billion in assets,
one of the largest filings of 2009.
The company was once one of the leading providers of
"jumbo" residential mortgages, but now plans to liquidate.
The government attorney had argued the company's management
and board of directors should not be allowed to run the company
because they did little after learning on Aug. 11 that the
former chief executive and chief financial officer might be
misusing company funds to develop their start-up.
The pair resigned on Sept. 15.
The company, which recently changed its name to TMST Inc,
has argued in court documents that a trustee is not needed
because former chief executive Larry Goldstone and former chief
financial officer Clarence Simmons have resigned and conflicted
staff have been removed.
In addition to paying themselves a total of $232,000 in
bonuses without approval from the compensation committee,
Goldstone and Simmons directed bonus payments of $93,000 to
other managers of Thornburg Mortgage who were involved in
helping launch the SAF project, according to court documents.
SAF was formed to pursue a Thornburg Mortgage strategy to
acquire a bank or thrift that would give the company access to
deposits and Federal Home Loan Bank funds for issuing
In a separate complaint, the company is seeking to recover
from the two former executives the funds and staff costs,
estimated at $200,000, that were diverted to develop SAF.
The case is In re: TMST Inc, U.S. Bankruptcy Court,
District of Maryland, No. 09-17787.
(Reporting by Tom Hals; editing by Andre Grenon)