David C. Farmer, Successor-Trustee vs. Harmon

(Formerly Woo vs. Harmon & Nicholson vs. Harmon)

CV05-00030 DAE KSC

U.S. District Court For the District of Hawaii

Judges: David A. Ezra; Kevin S. Chang



Subsidiary CEO/Subsidiary Chairman of the Board at Marsh & McLennan Companies, Incorporated, New York, New York; Officer since March 2006

M. Michele Burns, age 50, is chairwoman and chief executive officer of Mercer. Ms. Burns joined MMC as executive vice president on March 1, 2006, assumed the position of chief financial officer of MMC on March 31, 2006 and moved to her current position with Mercer on September 25, 2006. Prior to joining MMC, Ms. Burns was executive vice president and chief financial officer since May 2004, and chief restructuring officer since August 2004, of Mirant Corporation, an energy company. Prior to joining Mirant, she was executive vice president and chief financial officer of Delta Air Lines, Inc. from August 2000 to April 2004. She held various other positions in the finance and tax departments of Delta beginning in January 1999. Delta filed for protection under Chapter 11 of the United States Bankruptcy Code in September 2005.

A director of Wal-Mart Stores, Inc. and Cisco Systems, Inc., she previously served as executive vice president, chief restructuring officer, and chief financial officer at Mirant Corporation following the company's bankruptcy filing in 2003.

Cash Compensation (FY December 2006)

Salary: $625,000

Bonus: $750,000

Latest FY other long-term comp. $945,832

Total: $2,320,832

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From wikipedia:


In 2006, Wal-Mart was 67th most profitable corporation (profits divided by total revenue), behind retailers Home Depot, Dell, and Target, and ahead of Costco and Kroger. For the fiscal year ending January 31, 2006, Wal-Mart reported a net income of $12.178 billion on $344.992 billion of sales revenue (3.5% profit margin).[54] For the fiscal year ending January 31, 2006, Wal-Mart's international operations accounted for about 20.1% of total sales.[27] As of Mar 06, 2008, net sales for the 4-week period ending Feb 29, 2008 was $29.1 billion, up 8.9% from the previous year's results.


Wal-Mart is governed by a fifteen-member Board of Directors, which is elected annually by shareholders. S. Robson Walton, the eldest son of founder Sam Walton, serves as Chairman of the Board. Lee Scott, the Chief Executive Officer, serves on the board as well. Other members of the board include Aída Álvarez, James Breyer, M. Michele Burns, James Cash, Roger Corbett, Douglas N. Daft, David Glass, Roland A. Hernandez, Allen Questrom, Jack Shewmaker, Jim Walton, Christopher J. Williams, and Linda S. Wolf.

Notable former members of the board include Hillary Clinton (1985–1992) and Tom Coughlin (2003–2004), the latter having served as Vice Chairman. Clinton left the board before the 1992 U.S. Presidential Election, and Coughlin left in December 2005 after pleading guilty to wire fraud and tax evasion for stealing hundreds of thousands of dollars from Wal-Mart. On August 11, 2006, he was sentenced to 27 months of home confinement, five years of probation, and ordered to pay $411,000 in restitution.


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March 28, 2007

Goldman Sachs, Cisco Systems, Henry Paulsen, IRS and U.S. Government, Sued for Tax and Bankruptcy Fraud -- Fitzgerald's Office to Defend Government.

US Newswire

CHICAGO -- High-profile United States Attorney Patrick Fitzgerald's office is defending three employees of the Internal Revenue Service (IRS) and U.S. Attorney Lynne Murphy for their part in a purported $9 million tax fraud. They have been sued in the Northern District of Illinois for allegedly fabricating and falsifying IRS tax records.

According to the suit, one Michael Henry purchased $8 million of stock in American Metrocomm Communications, by paying $2 million cash and giving the company a non-recourse note in the amount of $6 million....


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NEW DISCOVERY OF FACTS: Proposed Successor-Trustee David Farmer has worked with Judge Robert Faris and Marsh & McLennan’s Mercer Consulting Services in the Aloha Airlines bankruptcy case.

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March 17, 2002

Dead air deal rankles Aloha

By Susan Hooper, Honolulu Advertiser

The proposed merger between the state's two local airlines foundered because Hawaiian Airlines wanted to change the terms of the agreement, including eliminating the Houston consulting firm coordinating the deal, the chief executive of Aloha Airlines said in a statement today.

Hawaiian's proposal also would have given Hawaiian chairman John Adams the top spots in the merged airline, eliminating Greg Brenneman, the TurnWorks executive who had been orchestrating the merger, according to Glenn Zander, Aloha's president and chief executive officer.

"Aloha could not accept Hawaiian's new proposal because in our judgment, it was not in the best interest of the state, the traveling public or Aloha's shareholders and employees," Zander said.

The details emerged a day after Hawaiian said it was pulling out of the deal because it did not wish to extend what it called an April 18 "outside date for completing the merger." It said increasing costs and risks of the deal were factors.

The announcement surprised many in the state, including employees of both airlines and state legislators who as late as last Tuesday had held a hearing on the merger.

Today, Zander said Hawaiian's action was "regrettable" and said members of Aloha's board of directors voted unanimously to reject Hawaiian's proposal. He also praised Brenneman and TurnWorks for their work on the merger.

Hawaiian spokesman Keoni Wagner said tonight, "We don't necessarily agree with Aloha's characterization of the negotiations, but we also choose not to discuss publicly what would otherwise be private conversations."

The apparent power grab by Adams came even though he and his affiliated companies would have been the financial winners if the merger had gone through. Adams stood to receive assets valued at about $109 million. Adams, his companies and other Hawaiian shareholders also would have held a 52 percent stake in the new airline.

Under terms of the original merger, the shareholders of privately owned Aloha Airlines — many of them relatives of the company founders — would have gotten 28 percent of the merged airline, worth an estimated $56 million.

TurnWorks would have received a 20 percent stake in the company.

For more than a year, Aloha and its consultant have viewed TurnWorks and Brenneman as essential to the success of the merger, according to documents filed with the Securities and Exchange Commission last month that outlined how the merger came about.

Aloha's consultant, Mercer Management, initially approached Brenneman in February 2001 asking whether he wanted to invest in the airline. In July, Brenneman, a former top executive with Continental Airlines, met further with Mercer to discuss a possible investment and subsequent merger with Hawaiian.

Hawaiian officials, contacted in August, initially appeared cool to the idea but after the Sept. 11 terrorist attacks, and subsequent downturn in travel, they agreed to "discuss a possible merger involving the two airlines and TurnWorks," according to the documents.

On Sept. 22, according to the documents, Mercer and senior management officials of Aloha and Hawaiian met and Mercer proposed that both airlines should continue to include Brenneman and TurnWorks in the merger discussions as Brenneman "was likely to be an important factor in creating an agreement between the two airlines, leading the integration efforts, and running the combined carrier and in generating maximum value for shareholders of both companies."

On Sept. 25, the documents say, all parties agreed to proceed with merger talks. They also agreed "that the involvement of TurnWorks and Brenneman would be an important factor in consummating a deal, as past efforts to combine the two airlines were not successful."

TurnWorks officials said in a statement today, "We were surprised and disappointed (by Hawaiian's decision) ... The failure to extend the timetable essentially precludes completing this complex transaction....

The abrupt end to the merger, which was announced Dec. 19, leaves the future of the two airlines and of Hawai'i's interisland airline market uncertain. In announcing the deal three months ago, executives with both airlines said they needed to merge because conditions in the airline industry — and in the interisland market in particular — had made it impossible for them to survive separately.

After the Sept. 11 attacks, both airlines lost tens of thousands of dollars a day and furloughed hundreds of workers. In recent weeks, as the Mainland economy has recovered, there have been signs of improvement in the local airline market.

Still, documents filed with the Securities and Exchange Commission show that Aloha is financially more vulnerable than Hawaiian. The privately held airline has more debt on its books and reported a $1.25 million loss at the end of the third quarter Sept. 30. The airline also has smaller and older aircraft and fewer flights to the Mainland.

Today Zander said Aloha has its own business plan to move ahead "on a stand-alone basis." Aloha spokesman Stu Glauberman said Zander will be meeting with Aloha's employees' union executives tomorrow.

Before the announcements over the weekend, the two airlines had been working on a joint application to take advantage of a special antitrust exemption granted by Congress last November to cooperate on some operations, such as routes, scheduling and pricing....

Gov. Ben Cayetano had been a supporter of the merger and said today, "The failure of the merger had nothing to do with the U.S. Department of Justice, the state Legislature or public opposition. This was a business decision that we will have to accept. The state administration will do its best to try to assure that Hawai'i will continue to have two viable interisland carriers."

State Sen. Ron Menor, D-18th (Mililani, Waipahu, Crestview), chairman of the Senate Commerce, Consumer Protection and Housing Committee, had opposed the merger and his committee took part in statewide hearings....

The mood among workers at Honolulu's interisland terminal was split between the two airlines today, with Aloha employees grim-faced and in no mood to talk about the failed merger, and Hawaiian employees buoyant.


November 12, 2007

Second Act

Phyllis Berman, Forbes

Robert Clements became a legend making big money in Bermuda insurance for Marsh & McLennan. Now at age 75 he's finally amassed some nice coin for himself--partly at his former employer's expense.

During a 35-year career at Marsh & McLennan, the giant insurance services firm, Robert Clements revolutionized the Bermuda insurance industry. Two insurers he set up for Marsh, ACE Ltd. and XL Capital Ltd., later went public and now have a combined market cap of $34 billion. Clements was also key in creating another successful insurer, Mid Ocean Re. One history of Bermuda insurance calls him a "founding father."

Clements was a hired hand. He got no founder shares in ACE or XL. In 1986, the year after he pulled off his reinsurance innovations, his bonus was bumped up only $25,000. A decade later he left his job running Marsh's investment arm and a year after that left the board of directors. Although he would remain a few more years as a consultant, at age 65 he essentially was out on his own.

Clements started doing insurance deals for himself. In his seventh and eighth decades Clements launched three companies. One, Arch Capital Group, is now about to crack the world's thousand biggest by market cap. This time around his ideas made him and his family a pile that came to several hundred million dollars before substantial charitable donations.

Doing well is the best revenge. The executive who replaced him at Marsh in 1996, Jeffrey Greenberg, later became chief executive--but lost that job in 2004 when then New York Attorney General Eliot Spitzer alleged fraudulent selling practices. Marsh's shares are trading at barely half of what they were five years ago, and its short interest has risen sharply, meaning a lot of people are betting on a further fall. Of Marsh and its continuing troubles, Clements, a quiet, handsome man with piercing blue eyes who dresses casually, says cagily, "Of course, I wish them the best. But I'm hardly surprised, given the problems they have been forced to cope with."

A Chicago native, Clements went to Dartmouth. "I was never particularly ambitious," says the 75-year-old. "I was a mediocre student. When it came to my career, I was most concerned about vacations and retirement than how I was going to make a living." Clements recalls one professor telling him his real major was "poker, beer and class-cutting." Clements joined Marsh in 1960, working as a casualty broker in Canada; his dad, also a Dartmouth grad, was a manager in the firm's Chicago office.

Higher-ups spotted his talent. Clements rose through the ranks and moved to the New York corporate offices to become head of national casualty in 1975. In 1991 he became the parent company's vice chairman, in recognition of his work in the 1980s dramatically expanding the insurance market in Bermuda.

In the years after World War II the self-governing British colony had risen to prominence as a center for captive insurers. These are insurance firms created and wholly owned by a company (often U.S.) to self-insure only that company. Back home the parent company gets a tax deduction for premiums that really are transfers of assets held in reserve for future payouts. In Bermuda the reserves compound in a low-tax regime. Part of Bermuda's lure was avoidance of U.S. state-by-state bureaucracy and quick regulatory approvals. Also, Hamilton, Bermuda is just a three-hour flight from New York.

Clements' opening came in the mid-1980s when a crisis hit the market for excess (or "surplus") insurance, most notably policies underwritten by Lloyd's of London. This coverage kicks in after an underlying "primary" policy pays to its coverage limit. A string of huge claims--asbestos illnesses, hurricanes, the Bhopal gas disaster and other environmental ills, augmented by big jury awards--threatened to bankrupt some insurers. In some cases the excess insurer was being asked to pay for misdeeds that occurred before the primary insurance policy was even in effect.

Doodling on a notepad during a Paris-New York flight in 1984, Clements came up with the idea of creating entirely new terms that came to be known as "occurrence reported" coverage. Customers wanting excess insurance would have to purchase or self-insure large amounts of underlying primary insurance--in some cases covering the first $50 million of claims. New excess policies would cover old claims, say for groundwater contamination, if filed during the new policy period--but only to the limits of the excess coverage. Limits would be limits.

However, Clements' plan, and a similar plan for directors and officers coverage, attracted little interest from traditional insurers or, in the beginning, even from Marsh, his own employer. Marsh said he could set up the operations as long as it didn't have to put in any capital. It would, however, like to get some warrants--long-term options on shares of the new company.

In 1985 Clements persuaded 34 large U.S. companies--such as U.S. Steel, GE, Merck, Dow and Emerson Electric--to invest a total of $285 million to get ACE off the ground. Another $410 million went into XL Capital a few months later. Among the startups' positives: efficient staffing levels, pricing freedom since few competitors offered the product, no lingering claims--and new lucrative high-end products for Marsh's army of brokers.

ACE went public in 1993. Its market cap today is 69 times the money its industrial backers put in. The initial stakes in XL Capital, which went public in 1991, have grown 33-fold. "The biggest thing that has happened in the insurance business since the Chicago fire," one trade pub gushed about Clements' successes. Marsh likely collected several billion dollars from those warrants.

Clements' third company: Mid Ocean Re, a Bermuda reinsurer aimed at catastrophes like hurricanes or collapsed buildings as opposed to longer-gestation situations like asbestos contamination. This time Marsh took a 10% stake for $36 million in the 1992 founding. Clements got a sliver of equity. Marsh's stake paid off nicely when Mid Ocean was sold a few years later to, as it happened, XL Capital.

One night while at dinner with his eldest son, John, a West Coast investment banker, Robert Clements griped that his ideas were being copycatted during the long stretches it took to raise capital for a new company. "The next time you have a great idea, Dad," John said, "you should raise a fund." Replied Clements, who had spent much of his working life putting together deals for his employer, "What's a fund?"

In 1995 Clements started Arch Capital, another reinsurer with money from Marsh, other investors and himself. After he left Marsh, Marsh sold its interest. Clements then sold off Arch's book of existing business, raised $750 million from outside investors and in 2000 relaunched Arch as a public company, getting 4% of the stock as a fee. It was a good time to start a new reinsurance company, since the established ones were so fearful of potential big claims (like the resurgence of asbestos claims) that they refused to offer policies even to their best risks. In 2006 Arch had $3 billion in premiums.

Enough reinsurance. Why not move in on the primary market? Clements raised $1 billion and this year started Ironshore Ltd. The company, which has only 40 employees and works out of a small office in Hamilton, expects to offer policies insuring against storm and earthquake damage in several dozen countries, including the U.S.

In 2004 Clements, his son and two ex-Marsh presidents raised $320 million to launch Integro Corp., which brokers the sale of large, complex policies for corporations. So far, however, Integro has yet to prove itself, amid industry gossip that the expensive force of brokers it recruited--many from scandal-plagued Marsh--has yet to earn its keep. Clements says Integro is growing rapidly and wasn't supposed to make money in its first three years.

On Sept. 11, 2001 Clements, a kayaker, stroked into Long Island Sound to watch the huge black stream of smoke rising 35 miles to the southwest at the World Trade Center. (XL Capital and ACE were among the companies that had exposure to the resulting multibillion-dollar billion casualty settlement.)

The tragic event underscored the peculiar nature of insurance. "What we do is a kind of a craft," he muses. "Underwriting complex, enormous risks for the corporate world is something like a being high-wire walker."


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Michelle Burns is expected to testify as to her relationships with Bill Clinton; Hillary Clinton; Eliot Spitzer; Joshua Gotbaum; Aloha Airlines; David Banmiller; David C. Farmer; Delta Airlines; Michael Boyd; The Boyd Group; Enron; Rocco Sansone; Kamehameha Schools; P&C Insurance Co; Edwina Clarke; Rodney Park; Clyde Mark; Hamilton McCubbin; Dee Jay Mailer; Marsh & McLennan, Inc.; Mercer Consulting; Putnam; Federal Insurance Company (Chubb Group); XL Insurance; ACE, Ltd; American Re; Mid-Ocean Reinsurance; Employers Re; AIG; Royal SunAlliance Insurance; Wayne Metcalf; Rey Graulty; J.P. Schmidt; Colbert Matsumoto; Island Insurance Co.; St. Paul Travelers Insurance Company; Hawaiian Insurance & Guaranty Co.; C. Brewer & Co.; Zephyr Insurance; Ron Poepoe; Dee Jay Mailer; Investors Equity, Diane Plotts, Chris Hemmeter, Kaiser Permanente, The Global Fund, Ben Benson, Mark McConaghy, PricewaterhouseCoopers; James B. Nicholson, David Banmiller, Bonnie Freitas, James Cribley, Robert Clements, Paul Bremer, Judge Robert Faris, Trinity Investment LLC, VMS Realty Partners, Jon Miho, Charles Sweeney, George Ruff, Cisco Systems, Henry Paulson, Goldman Sachs, Condoleezza Rice, John Waihee, Henry Peters, Tom Coughlin, Wal-Mart, and others to be named upon discovery.

Internet References:

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