Dems slam Fox’s role in SME bankruptcy

The Montana Democratic Party is criticizing Republican Attorney General Candidate Tim Fox's role in the ongoing Southern Montana Electrical Cooperative bankruptcy proceeding. 

Earlier this month the Democrats accused Fox of "playing a central role in a legal scheme that could put millions (of dollars) in the pockets of out-of-state predatory lenders."

At issue is Fox's role in representing lenders who gave money to embattled SME to build the Highwood Generating Station.

First some background: Critics of the beleaguered power venture say the giant finance companies knew, or should have known, that loaning SME the capital to build Highwood Generating Station was a risky venture.

Public Service Commission chairman Travis Kavulla, a Republican, said in an interview with the Tribune last month that the loan Prudential Capital Group of Dallas gave to SME was "totally well-above the market rates" given to similar power plants.

Prudential, the largest lender to loan SME money, loaned the company $75 million at 8 percent interest which the company used along with along with a $10 million loan from another lender at 7.25 percent interest, “to pay for a plant that should have cost more like half that," Kavulla said, adding that the the loans were "risky and predatory."

The Democrats jumped on an recent Associated Press story, in which Kavulla said he he is "concerned the individual members of the electricity cooperative may end up paying the price for the bad decisions by Southern managers and lenders."

The cost to run the plant currently exceeds the open-market price of electricity, Kavulla said.

So where does Tim Fox come into play in all this?

Fox is representing Prudential Capital Group, the largest lender, in the ongoing bankruptcy saga. According to federal court records, lawyer and trustee fees related to the bankruptcy proceedings have already eclipsed $1 million.

"If Fox and his clients have their way in court, SME customers — both ratepayers and taxpayers — could be on the hook to pay back millions, including over a million in attorney fees. This will amount to tens of thousands of dollars each for a loan that Fox's clients likely knew was 'risky and predatory," the Democratic Party said in its Oct. 1 release.

Fox's attorney fees account for a just a tiny fraction of the overall fees paid in the case. According to court records Fox, who is charging an hourly rate of $250, filed reimbursement requests totaling $12,500 since getting involved in November, 2011.

That's chump change compared to many other lawyers involved in the case, some of whom charge up to $845 per hour for their time.

For his part Fox declined to comment on his role in representing Prudential in the SME bankruptcy.

"I don't talk about my clients' business in pending cases," Fox said in an interview. "I can't do that, ethically. It's public record that I have appeared on behalf of a creditor in a bankruptcy case, but that's all I can say about that."

Fox's opponent in the attorney general race, Helena Democrat Pam Bucy, said in a statement that she believes everyone deserves legal representation, but she is troubled that Fox took Prudential on as a client in a case that opposes Montana ratepayers and taxpayers.

"The attorney general is Montana's chief consumer protection advocate," Bucy, a former assistant attorney general under Democrat Mike McGrath. "We established the Office of Consumer Protection at the Department of Justice so that Montanans would have legal recourse in cases like this, where out-of-state lenders have made risky and predatory loans to Montana consumers. Since we are both running to be Montana's chief legal representative, it is alarming to see my opponent put the profits of risky, predatory out-of-state lenders before the well-being of Montanans."

Since electric coops are not regulated by the PSC, the SME case would fall to the next attorney general and the Office of Consumer Protection if consumers file a complaint of unfair debt collection practices, the Democrats claim.

According to the latest Public Policy Polling survey, Fox has 45-35 lead over Bucy with a whopping 20 percent still undecided.