Blackjewel LLC, its affiliated debtors and the official committee of unsecured creditors to the company asked the federal bankruptcy court to allow a probe into the financial dealings of its former President and CEO Jeff Hoops.
The "woefully insolvent" status of Blackjewel that led to the company's bankruptcy filing was due to Hoops transferring tens of millions of dollars worth of the debtor's assets for the benefit of himself, his family and related entities over several years, according to a request for examinations and written discovery by Blackjewel, its related debtors and unsecured creditor committee. The Jan. 9 motion filed in the U.S. Bankruptcy Court for the Southern District of West Virginia said the parties seek to initiate a process to make Blackjewel whole for those transfers of assets and apparent self dealings and other breaches of fiduciary duty.
"Throughout Hoops' involvement with the debtors and despite the various fiduciary obligations he owed, it appears that Hoops acted with one guiding principle: to use the debtors and their assets to improve his personal, and the Hoops parties', bottom line — despite the harm it caused the debtors and their creditors," the filing states.
Hoops was ousted from the company in July 2019 — just a few days after Blackjewel filed for a Chapter 11 bankruptcy — as part of a deal to provide financing for the company's restructuring. Several of the company's employees were suddenly laid off and faced challenges receiving their pay after a bank froze the funds that Hoops initially said he believed would be available to provide financing for the restructuring.
Before the bankruptcy, Hoops faced other legal troubles. A federal court in West Virginia ordered Hoops' Revelation Energy LLC to pay $7.3 million in damages to Fifth Third Bank NA in May 2019 due to the company defaulting on its loan obligations multiple times. Before its bankruptcy, Blackjewel also entered into a payment plan after failing to make payments on an $8.6 million tax bill in Campbell County, Wyo.
The Jan. 9 court filing said that while the company suffered millions of dollars of losses annually and failed to generate positive cash flow, the Hoops parties continued to receive unjust enrichment even as there was no realistic plan to return the debtors to profitability and solvency. The company, affiliated debtors and unsecured creditors are seeking documents and information related to several transactions involving the Hoops parties, including below-market transfers of assets to the parties, above-market invoicing for mining-related services and preferential treatment of the Hoops parties relative to other creditors and stakeholders.
The filing notes, for example, that in the 90 days before Blackjewel filed for a bankruptcy reorganization, Hoops-related entities received payments of approximately $7 million in cash or property from the debtors. There may be "hundreds of questionable transfers" within the five-year time frame allowed under state laws to challenge certain constructive fraudulent transfers, the filing states.
The probe will also focus on more than $41 million in distributions from Blackjewel related to purported and undocumented loans or advances received by Hoops and Clearwater Investment Holdings LLC prior to the bankruptcy filing, according to the motion.
"This discovery is necessary to determine the extent to which the Hoops parties enriched themselves to the financial detriment of the debtors and their estates," the filing states.
Blackjewel formed around thermal coal assets previously owned by Contura Energy Inc., a company that spun out of a bankruptcy reorganization itself. Contura subsequently refocused on eastern metallurgical coal assets and, to avoid potential liabilities after Blackjewel's bankruptcy, facilitated a sale of Blackjewel's former Powder River Basin assets to an affiliate of FM Coal LLC.
Hoops did not immediately return a request for comment.