The Work

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

Make a comment

Comments (1)
Save & Share: Facebook | Del.ic.ious | | Email |

Reprints & Permissions


Report offensive comments to The Am Law Daily.

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

The comments to this entry are closed.

By: TwitterButtons.com

[email protected]

From the Newswire

Sign up to receive Legal Blog Watch by email
View a Sample