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Update: Complaint against Buffett-backed lender fails

Ex-asset manager claims Sarbanes-Oxley violation, retaliation, failure to tell investors of property income problems

Update: Complaint against Buffett-backed lender fails

Berkadia
Berkadia

UPDATE: Horan settled with Berkadia in the spring of 2013 without the damages he sought, and without being reinstated, according to people familiar with the dispute. The Labor Department took no action against the company.

EARLIER: James B. Horan, who has managed multi-million-dollar commercial real estate loans and workouts for office, apartment and industrial buildings at GMAC Commercial Mortgage, PNC Bank and other financial giants since the late 1980s, has filed a federal Labor Department complaint alleging illegal retaliation by his most recent employer, Horsham-based Berkadia Commercial Mortgage.

Horan says he warned his supervisor about improper fees charged to a Berkadia client and separately found problems with a property in which a client wanted to invest, but was prevented by management from telling the client his findings, and had his work taken away.

According to Horan's complaint, the company's action against him was in violation of a part of the federal Sarbanes-Oxley accounting law, which protects financial whistleblowers against retaliation.

Berkadia is owned by a partnership between Berkshire Hathaway Inc., the Omaha-based financial and industrial empire that has made owner Warren Buffett the richest man in America, and New York-based Leucadia Corp., which specializes in troubled assets.

The companies set up Berkadia in 2009 to manage big commercial-real-estate loans formerly owned by GMAC and its successor, Capmark Finance. Berkadia, Leucadia, Berkshire Hathaway, and a lawyer representing them in the dispute didn't return calls seeking comment on Horan's complaint.

In his complaint, Horan says he successfully resolved financial problems with a complex $350 million financial arrangement for the 14 Wall Street office tower in New York, a troubled $260 million condo project in Miami, and other "high-profile loans on the East Coast" for Berkadia.

Horan quotes a 2011 performance review by Berkadia senior vice president Michael O'Hanlon, in which O'Hanlon praised Horan's work as "always of the highest standard and quality," and added that he "maintains very good relationships with our clients," and collected millions of dollars for the firm. According to Horan, his boss also praised him in a 2010 review, noting Horan "managed and resolved more assets" than any other of Berkadia's 25 asset manaagers. O'Hanlon also praised Horan's "exceptional negotiating skills and outstanding work ethic." 

But Horan says Berkadia's praise turned to career-ending attacks in April, when he visited a property the firm was interested in, the Baychester retail center in the Bronx, N.Y., and found "numerous problems" that Berkadia supervisors refused to allow him to share with a Berkadia client who was considering an investment in bonds backed by Baychester revenues.

According to Horan, Berkadia stood to profit from the client's ignorance and possible losses because the company would likely end up servicing the resulting defaulted credits, and collecting servicing fees.

Horan alleges in the complaint that another Berkadia manager sent out an email urging him and other asset managers to "exaggerate" facts in describing properties to that same client investor.

The text of that April 8 email from a Berkadia vice president in Dallas, provided to the Labor Department as an exhibit to Horan's complaint, to Horan and other Berkadia managers on a distribution list:

Everyone needs to know their stuff. Be confident even if you are unsure. Exaggerate if you have to but do not get stumped. "I asked several brokers that question and no one had a good answer." This is a better response than I just don't know. (Unedited)

Horan says he wrote a memo to O'Hanlon "expressing his objections" over Berkadia's failure to tell the investor about Baychester's problems -- and that O'Hanlon responded by threatening to fire him.

Horan alleges in the complaint that he separately found that "Berkadia overcharged a client" by assessing an extra $600,000 in unwarranted fees. Company officials "refused to correct the mistake" when Horan showed O'Hanlon the overcharge.

Horan says he was then "stripped" of job responsibilities and his protests met with "obscenities" by management. Feeling "stress," he was offered "short-term disability leave," had his work taken away and given to others, had benefits cut, and was effectively dismissed.

Horan complains that, in violation of the federal Sarbanes-Oxley accounting reform law, which applies to both Berkshire Hathaway and Leucadia as publicly-traded companies, he was fired in retaliation for his "lawful act" of providing information to his boss as part of "an investigation." He is seeking back wages and benefits, legal fees, and "punitive damages." 

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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