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February 11, 2009 5:17 PM

My Rich Uncle's Liquidation Bad News for Law Firms

Posted by Brian Baxter

My Rich Uncle is broke.

That's because New York-based MRU Holdings, the student lender that popularized the brand My Rich Uncle, filed for Chapter 7 liquidation on February 6 and suspended operations.

Thanks in part to its snazzy marketing handle, MRU, which launched in 2000, received a fair amount of press in 2006 for upsetting the established student loan order with a two-page ad in The New York Times.

More recently the specialty finance company saw the $85 billion student loan market fall victim to the credit crisis--the government is planning a $60 billion industry bailout--as the market for securitized student debt evaporated. MRU began having trouble raising capital, stopped making new loans, and then breached a debt covenant.

According to bankruptcy court records, MRU has $11 million in assets and liabilities totaling $45.7 million.

That's bad news for the 18 law firms owed nearly $2 million in fees from MRU for work they did for the company, which has been beset by an array of legal issues. In December, a former employee was arrested for allegedly embezzling $2.3 million from MRU accounts.

Among the law firms hoping to collect from MRU: Bryan Cave, Mayer Brown, McGuireWoods, Paul, Hastings, Janofsky & Walker, Steptoe & Johnson, and Stroock & Stroock & Lavan. (We've broken out the amounts owed into a list below.)

Not every firm has been left in the cold. Bankruptcy court records in Manhattan show that in the last three months MRU has paid $100,682.20 to New York's Pryor Cashman, $17,170.70 to Kaye Scholer, and $13,300 to New York's Yeskoo Hogan & Tamlyn.

Court documents also show that MRU paid $834,464.98 to Baker & McKenzie in nine separate installments beginning in mid-November. Ira Reid, a financial restructuring and insolvency partner with the firm, is serving as MRU's bankruptcy counsel. (Reid declined to comment.)

A call to MRU's trustee, Ian Gazes of New York's Gazes LLC, was not immediately returned by the time of this post.

The following is a list of MRU's unsecured law firm creditors, by order of amount owed:

$846,894.72 -- Paul, Hastings, Janofsky & Walker -- legal services, October to December 2008

$264,972.47 -- Stroock & Stroock & Lavan -- consulting services, July 2008

$255,592.32 -- Mayer Brown -- legal services, May to September 2008

$129,003.23 -- Steptoe & Johnson -- legal services, April to July 2008

$108,947.31 -- Withers Bergman -- legal services, May to September 2008

$106,449.75 -- Hudson Cook -- legal services, January to December 2008

$34,233.19 -- Richards, Layton & Finger -- legal services, October to November 2008

$30,543.65 - Bryan Cave -- legal services, April to November 2008

$14,229.12 -- Pryor Cashman -- legal services, October 2008 to January 2009
(Note: The firm has already been paid $100,682.20 by MRU.)

$12,562.90 -- Sommer Barnard (now part of Taft Stettinius & Hollister) -- legal services, April 2008

$11,675.43 -- Morris, Nichols, Arsht & Tunnell -- legal services, July 2008

$11,277.80 -- McGuireWoods -- legal services, September 2008

$10,386.43 -- Powers Pyles Sutter & Verville -- legal services, April 2007

$7,192.00 -- Potter Anderson & Corroon -- legal services, April 2008

$6,269.35 -- Gust Rosenfeld -- legal services, December 2008 to January 2009

$3,300.00 -- Yeskoo Hogan & Tamlyn -- legal services, November 2008 (Note: The firm has already been paid $13,300 by MRU.)

$3,247.44 -- The Webb Law Firm -- legal services, October 2008

$2,837.73 -- Belkin Burden Wenig & Goldman -- legal services, April to October 2008

TOTAL: $1,847,939.41

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What happens about making payments to the private student loans that were given in late 2007 or before?

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