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SALT LAKE CITY (AP) -- A bankruptcy trustee for Magnesium Corp. of America has filed a lawsuit alleging the company concealed environmental problems from bond investors.
The suit also targets financial and legal advisers who helped MagCorp raise $150 million from a 1996 bond sale for the company, since reorganized as USMagnesium.
Trustee Lee E. Buchwald filed suit in a New York bankruptcy court asking for up to $1.5 billion for investors. He contends bondholders were kept in the dark about a longtime waste-dumping dispute between the company and environmental regulators.
The U.S. Environmental Protection Agency sued MagCorp, its chain of parent companies and owner Ira Rennert for $902 million in January 2001. At one point MagCorp's lawyers and the EPA called a truce to negotiate a possible settlement over toxic wastes being poured into unlined ditches and a 400-acre pond on Great Salt Lake's western edge.
"If bondholders had known about the potential environmental liabilities, they never would have invested," Leo Beus, a Tucson, Ariz., attorney representing the bankruptcy trustee, told The Salt Lake Tribune.
Potential bond investors were told of some risks. A prospectus explaining the bond sale said more than half the $150 million raised would go to MagCorp's parent company, the Renco Group, as dividends and management fees. They also were informed that MagCorp had more liabilities than assets. Company officials also reported MagCorp was prepared to spend much as $40 million to modernize their smelter to cut energy costs and reduce chlorine emissions that for years made the plant the nation's top toxic air polluter.
But bondholders weren't told MagCorp had been fighting with state and federal environmental regulators since 1992, the trustee's suit says. Instead, MagCorp. insisted it was exempt from pollution controls by mining laws, though government regulators disagreed.
Also named in the suit were KPMG Peat Marwick LLP, which audited MagCorp's books; brokerage firm Donaldson, Lufkin & Jenrette Securities Corp., which underwrote the bonds; investment bankers Houlihan Lokey Howard & Zukin, which provided a solvency opinion; and Cadwalader, Wickersham & Taft, which performed legal services.
MagCorp should have set aside a reserve of money to deal with any environmental problems and disclosed the financial risks of violating toxic waste laws, Buchwald said.
Five Utah-based officials named in the suit are MagCorp President and CEO Michael H. Legge, Vice President of Operations Ron L. Thayer, Finance Vice President Todd R. Ogaard, Human Resources Vice President Lee R. Brown and Vice President of Sales and Marketing Howard J. Kaplan.
Jon Goldberg, a spokesman for Rennert's New York-based Renco Group Inc., said the trustee's claims were "cut and pasted" from the EPA's suit, which company officials have asked Utah's U.S. District Court to dismiss.
"We believe the allegations are categorically false," Goldberg said. "And we are confident the court will view it the same way."
Other defendants had no comment.
(Copyright 2003 by The Associated Press. All Rights Reserved.)