Several parties investigate Stewards top manager

YOUNGSTOWN, Ohio — Top executives of bankrupt Steward Health Care System LLC are the subject of a “comprehensive investigation of pre-bankruptcy transactions” being conducted by the bankrupt company’s transition committee, as well as government agencies, state regulators and the Official Unsecured Creditors Committee.

The revelations came during a hearing on Monday in U.S. Bankruptcy Court in Houston on Steward’s emergency motion, which U.S. Judge Christopher Lopez granted, to pay a commitment fee of $6.75 million plus expenses and to grant a preferred position to a third-party lender to provide $225 million in new debtor-in-possession financing (DIP) by June 14.

Ray C. Schrock, the company’s lead bankruptcy attorney, briefly mentioned the transition committee’s investigation into how Steward’s top executives might have enriched themselves, but assured Lopez that the committee members had “no connection to insiders.”

Schrock said that “confidential investigations” were also being conducted by unnamed government agencies. “We are in constant contact with the state regulators,” he added.

The conduct of Steward’s top executives is also being investigated by the Official Unsecured Creditors Committee, its attorney Brad M. Kahn told Lopez. And the committee is paying close attention to Steward’s leases with Medical Properties Trust, he said.

Lopez has so far made no indication that he would consider appointing a federal auditor to uncover possible misconduct on the part of hospital management.

Meanwhile, U.S. Senators Sherrod Brown (D-Ohio), Elizabeth Warren (D-Massachusetts) and Ed Markey (D-Massachusetts) called on the U.S. Trustee Program to appoint a trustee to lead Steward in place of the current management team.

In a letter Monday to Tara Twomey, director of the Executive Office for United States Trustees, the senators describe how years of “greed and mismanagement by executives at Steward, Medical Properties Trust (its landlord and lender) and private equity investors (Cerberus Capital Management) … resulted in unsustainable debt and led to Steward’s bankruptcy, putting patients and communities at risk.”

In particular, Steward Health Chairman and CEO Dr. Ralph de la Torre is being rebuked by the senators for his allegedly lavish lifestyle, which reportedly includes “access to two luxurious private jets and ownership of two luxury yachts.”

De la Torre is also under scrutiny for a deal with Medical Properties Trust, which bought the company’s real estate in 2016 and owns a 10 percent stake in Steward. Cerberus Capital Management, the private equity firm that funded Steward’s growth, and Steward executives acquired 10 million shares of MPT in 2016. Then, in 2020, “MPT invested $200 million in a joint venture with (de la Torre), who was acting in a personal capacity independent of his role at Steward, to pursue international opportunities,” according to the Boston Globe.

The senators’ letter states that a trustee can be appointed to run a bankrupt company under the U.S. Chapter 11 procedure if there is evidence of “fraud, dishonesty, incompetence or gross mismanagement.” The trustee has the power to “claw back funds by challenging past fraudulent transactions by company officers,” the letter says.

At Monday’s court hearing, the Steward Transition Committee and the unsecured creditors’ investigations into executive conduct were briefly mentioned early in the hearing when attorneys gave Lopez a general update on the status of the Chapter 11 proceedings.

“We have stabilized operations with our suppliers and hospitals,” Schrock said. “The amount of work being done cannot be overstated. … There are 31 complex hospital sales processes running simultaneously. … We meet with multiple buyers multiple times a day and update stakeholders, and we continue to make progress in each market.”

Steward Health Care Services operates 31 hospitals in eight states and a network of 6,000 physicians.

The local hospitals include Trumbull Regional Medical Center in Warren, Hillside Rehabilitation Hospital in Howland and Sharon Regional Medical Center in Sharon, Pennsylvania. The bid period for these hospitals ends June 24. A hearing on all received sales proposals is scheduled for July 11.

Copyright 2024 The Business Journal, Youngstown, Ohio.