Judge orders Larry Reynolds into custody
Federal warrant issued for Valdez man
A federal bankruptcy judge in Texas has issued a warrant for the arrest of Valdez man Larry Reynolds, alleging he not only hid monetary assets from trustees from his bankrupt estate, but that he also made unauthorized withdrawals from a trust account.
Judge Russell Nelms of the US Bankruptcy Court in Fort Worth, Texas, found Reynolds in contempt of court during an August 4 hearing. Reynolds failed to appear in court for the hearing, where Dan Laine, court appointed trustee for Reynold’s estate, asked the court to compel Reynolds to return $54,511 in funds missing from the bankruptcy trust.
“The evidence shows, among other things, that Mr. Reynolds falsified his bankruptcy schedules and statements of affairs,” Nelms said during the hearing. “It shows that he misappropriated assets of both his personal bankruptcy estate as well as the Reynolds Alaska bankruptcy estate. It shows that he concealed assets of this estate, and it shows that he misappropriated monies from the Trustee’s account, in violation of the plan of reorganization.”
The judge also halted $3000 in monthly income Reynold’s had been receiving from two storage facilities he owns that are part of the bankruptcy trust. He also granted the trustee an additional $91,000 in fees that Reynolds must pay.
Nelms has since then denied two motions to stay the warrant pending an appeal.
Nelms ordered Reynolds to pay $35,960 withdrawn from a bank account under trustee control -which the judge found to be misappropriated. The funds were held in an operating account at Wells Fargo to manage revenues generated by two storage facilities that are part of the Reynolds bankruptcy trust.
Trustees discovered the unauthorized withdrawals May 9. According to the complaint, electronic banking statements showed the withdrawals were made in a “series of on-line and branch withdrawals between April 4, 2011 through May 5, 2011.”
“On May 12, 2011, the Trustee learned from the Bank that Reynolds was attempting to make an unauthorized $71,945 withdrawal from a branch office in Valdez, Alaska,” the trustee’s complaint against Reynolds said. “The Trustee, acting together with the bank, was able to stop the transaction before processing was completed and the bank once again froze the account.”
Reynolds had been removed as a signer on the account in 2009.
Reynolds was also ordered to repay $18,551 in funds missing from proceeds of hidden mineral rights sales the trustee claims had not been disclosed as part of the bankruptcy estate.
Nelms ordered Reynolds to repay the funds and disclose the source of the funding upon its return.
“One of the ironies of this case, of course, is that to the extent that we order Mr. Reynolds to repay this some -$54,000 and he does so, in all likelihood, he’s going to be repaying it out of assets that already are assets of the estate,” Nelms said during the August 4 hearing.
On Tuesday, September 6, the court denied a second motion to stay the warrant.
“I do not like to order the incarceration of anyone, and I’ve only done it two times during my tenure as a bankruptcy judge, and the first one only lasted for one day,” Nelms said during the hearing. “So, I mean, I truly do consider this a matter of last resort.”
In the motion to stay the warrant filed on behalf of Reynolds by Arlington, Texas attorney Jonathan Finke, it claimed Reynolds will suffer irreparable harm if incarcerated. Among several arguments raised in the document, it claimed Reynolds would suffer irreparable harm if put in jail because “he will not be able to earn a living during his business’ busiest time of the year.”
“…our question there is that the debtor (Reynolds) has not disclosed any kind of business income that he would now own… in his bankruptcy case,” Nancy Ribaudo, attorney for trustee Dan Lain argued before the court. “…this is yet another possible income source that hasn’t been disclosed in the bankruptcy and it may be property of the estate.”
The property and business in question, Port Valdez Marine and Outdoors, which its business license says is owned by The Reynolds Trust and was granted March 13, 2011, is housed in the old Three Bears Warehouse store on Egan Street. City tax records indicate the building is owned by Janice Reynolds, Larry’s wife.
Finke, later in the hearing told the court he had erred when stating Reynolds would suffer if he could not tend to the business.
“That was a misstatement by me in the motion as far as him having another business that he’s going to lose income from,” Finke said.
Nelms was unimpressed.
“…we have dealt over and over again with this real lack of candor on the part of Mr. Reynolds. And it’s not very defensible in business dealings in general, but when it comes to the Bankruptcy Court, it’s just downright criminal.”
Nelms said he believes Reynolds can pay back the assets he is accused of misappropriating or not declaring, but has chosen not to do so.
“I think, somewhere out there, whether it’s his mother’s trust, which has come up over and over again in this case – does he have an interest in it? Is it an asset of the estate? At times there’s been indications that he controls it and gets all the benefit of it,” Nelms said, “At other times his mother owns it. I don’t know. But I think he has access to resources where he can respond to the court’s order.”
Nelms said the trustee may have to travel to Anchorage and file a “miscellaneous action” with the bankruptcy court in Alaska for an order to be issued “…so that the local U.S. Marshall’s office up there can actually apprehend him.”
Until that occurs, Nelms suggested Reynolds weatherize his home and boat, which he claimed he could not do if incarcerated.
“…apparently he’s going to have a little bit more time to attend to them before we actually pick him up,” Nelms said.
Reynolds grabbed headlines across the state in August of 2007 when he purchased the much maligned “governor’s jet” from the State of Alaska. Reports at the time stated Reynolds paid $2.1 million for the 20-year-old Westwind II with grand plans to use the jet to shuttle well-heeled hunters to Russia. He also purchased several well-established businesses in town and publicly touted his intentions to found a bank in Valdez, as well as plans to build a three story sporting goods store on the corner of Meals and Egan that would include indoor trout fishing.
Whispers of malfeasance began circulating through Valdez, as contractors, employees and business associates became disenchanted with alleged shoddy business practices and non-payment for both labor and goods.
“It pretty much started going south pretty quick,” one former associate said, who declined to be identified publicly. “It was a fiasco.”
By 2009 Reynolds and his business empire dubbed Reynolds Alaska, were all in bankruptcy. A Polaris dealership he founded also failed. The assets of Reynolds Alaska were converted from a Chapter 11 reorganization to a Chapter 7 bankruptcy and all its assets were sold.
In addition to the contempt warrant, the judge has referred the case to the Dept. of Justice for criminal investigation.