Mrs. Foss takes stand at hearing

Patricia Foss, wife of former Foss Manufacturing CEO Stephen Foss, was a board member some eight months before she said she was, according to documents presented Thursday by attorneys representing creditors examining her as a hostile witness.

But Patricia Foss testified that the documents were in error describing them as “an inconsistency on my husband’s part.”

“I kept asking him to correct it,” she said. “I don’t know why he didn’t change it.”

It was Patricia Foss’s first day of testimony in U.S. Bankruptcy Court in Manchester. As a board member, creditors allege, she looked the other way while her husband looted the insolvent company for his family’s benefit. Creditors wanted to tighten up a freeze on her assets before they were whisked beyond their reach. But Patricia Foss who took the stand with a walker, has contended that this would hinder her battle against the potentially fatal disease known as ALS, or Lou Gehrig’s disease.

Foss Manufacturing of Hampton had sold most of its assets as a going concern last month, but left behind a bankrupt shell renamed Felt Manufacturing which could owe as much as $16 million to unsecured creditors.

“If these assets disappear, the creditors will get left high and dry,” argued Robert J. Feinstein who represents the Official Committee of Unsecured Creditors.

At issue on Thursday was whether the asset freeze would continue and whether Judge J. Michael Deasy would put the couple on a monthly budget and attach their New Hampshire assets, including their Rye residence which is now up for sale.

Stephen Foss, who did not appear at the hearing – and who has previously pleaded the 5th Amendment against self- incrimination — has not presented a detailed defense of his liability at this point. The former CEO and board chairman who resigned last August has gone along with the asset freeze, though he has complained that the budget and attachment were “pure harassment.”

His wife, however, contends that she knew very little about the business and that by the time she joined the board, it was too late to do much about it. Therefore her liability – if any – would be relatively small, she argues.

Michael R. Gottfried, her attorney, said her maximum liability – which is being contested — would be $1.4 million if she joined the board at that date, whereas it would be $2 million more if she joined it eight months earlier.
Thus the dispute over when she joined the board. Patricia Foss claims she joined in a brief informal meeting, along with her daughter, on Feb. 14, 2005 — slightly more than half a year before the September bankruptcy filing. The family members replaced the company’s CEO and chief operating officer in order to provide “new blood” and “independent” members to make a more “professional board,” Patricia Foss testified.
On Thursday, the creditors’ financial consultant testified that she discovered in Stephen Foss’s office the minutes of a meeting of the exact same duration describing Patricia Foss’s election to the board, dated July 1, 2004.
Patricia Foss testified that she never saw that document, and didn’t even attend a meeting at that date. But she did say she attended three monthly meetings from October to December 2004 for which the minutes – which she said were prepared by her husband — identified her as a board member. Foss however, testified that she was attended the meetings as a stockholder.
Although she repeatedly asked her husband to correct the error, she never saw any corrected minutes.
In other aspects, however, Patricia Foss testified that she had little knowledge of the company she was overseeing as a board member, or of the various family enterprises to which that Foss Manufacturing transferring money.
For the most part, she said was not aware at the time that her husband was allegedly using company expenses for personal reasons, and denied that she personally benefited from such transfers.
For instance, she said she refused to say that she profited after Foss Manufacturing paid off her home mortgage via a limited liability company in which she, her husband and her daughter had a third ownership interest because she didn’t know all of the details between the LLC and her husband’s company.
Similarly, she said that the money from the company didn’t directly come to her. Instead, it went into a joint bank account that her husband used, and then her husband transferred $15,000 a month into another joint bank account primarily used by her.
She said that at the time she didn’t think that it was her duty as a board member to look into her husband expenses.
“At that point it wasn’t our first priority,” she said. “Stephen had built the company for 30 years.” Instead, she said, she was trying to turn the troubled company around.
However, she did say she was aware that in 2005 a family trust was receiving dividends at the same time the company was not contributing to the pension plan of its employees. The dividends were never even discussed at the board meetings, she testified.
“But you were aware dividends were being paid and you did nothing as a board member to stop it?” asked Feinstein.
“That’s correct,” she said.
Gottfried argued that the attempt to freeze assets was really unnecessary because as a board member she is covered by a $10 million insurance policy. Feinstein countered that it was not a “slam dunk” that she would be able to collect that insurance money — and even if she did, it would still not cover what she might have to repay as a beneficiary from the alleged looting of the company.
The creditors’ consultant Lynn Huras had earlier testified that she could not estimate how much of the money in question was used for personal expenses or for legitimate business expenses. Sean T. Carnathan who represents Stephen Foss, argued that the company owed the former CEO money from previous loans, rather than the other way around.
Gottfried also questioned Huras’ expertise, eliciting an admission that the Toronto-based consultant was getting paid some $250 an hour despite not graduating from college or being certified as an accountant. And after working on the Foss case for some 150 hours a month since October, he asked her whether she had submitted “a personal business breakdown of any of these bills, have you?”
No, said Huras, because the audit was not yet complete. But she said a “significant” portion of the expenses were clearly personal, citing as examples restaurant bills for meals that only included Stephen Foss and his wife, wood flooring for the Fosses’ personal home and travel for Stephen Foss to testify in the legal proceedings involving Tyco International. Foss sat on the board of Tyco, whose former CEO Dennis Kozlowski was convicted last year of looting that public company for his own benefit. – BOB SANDERS

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