Fraud suit against Heilig-Meyers goes to trial
By Clint Engel -- Furniture Today, November 2, 2008
NEW YORK — Long-gone furniture retailer Heilig-Meyers is still making waves in a fraud case involving asset-backed securities that share some of the same characteristics of the investment instruments that led to the current financial meltdown.
An amended lawsuit, filed by AIG and other investors against Bank of America in 2003, recently went to trial in U.S. District Court in Manhattan.
The suit contends that the Richmond, Va.-based retailer kept two sets of books and used an accounting method that led investors to believe that Heilig-Meyers was more profitable than it was.
The case involves asset-backed securities sold in 1998 that were pools of receivables — the financial contracts of Heilig's customers, who had bought furniture on credit.
Bank of America and the former First Union bank bought the majority of the securities and resold the bulk of them to institutional investors. AIG and others bought about $300 million of the securities, which are now nearly worthless, The New York Times reported.
Heilig-Meyers, once the nation's largest furniture chain, filed for bankruptcy protection in 2000 and subsequently liquidated and spun off subsidiary operations. Only Richmond, Va.-based The RoomStore, separated from the Heilig-Meyers estate, continues to operate.
The judge presiding over the case dismissed some of the complaints brought by the investors, but allowed others, which has led to the trial.
According to court documents, one of the surviving accusations is that Bank of America knew Heilig-Meyers kept “two sets of books related to its loss and delinquency experiences,” and that the bank knew but didn't disclose that comparisons between Heilig's and similar retailers' loss and delinquency rates were based on a liberal “recency method” of accountings that artificially bolstered results, rather than a traditional “contractual method.”
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