UPDATE: A federal bankruptcy judge on Oct. 16 ordered Alden to turn over requested documents to creditors and will allow them to question Alden president Heath Freeman under oath.
By Julie Reynolds
Saying hedge fund Alden Global Capital’s acquisition of the Fred’s pharmacy chain was “shrouded in suspicion,” a group of creditors has asked a federal judge to approve an investigation of Alden’s role in the chain’s demise.
Delaware federal bankruptcy Judge Christopher S. Sontchi has scheduled a hearing for 3 p.m. on Oct. 16 to decide if he will order Alden to turn over board minutes, lists of Alden personnel and affiliated businesses, as well as any communication related to layoffs, store closures and the relocation of Fred’s offices to a Dallas building owned by Alden’s founder, Randall Smith.
Alden owns the Digital First Media newspaper chain and has admitted in court documents that it used its newspapers’ monies to purchase its stake in Fred’s.
Citing reports from dfmworkers.org and other news sources, the creditors told the court that Alden “funneled $158 million from a floundering newspaper business in order to purchase (Fred’s) stock—stock which has since that time lost 97% of its value,” case documents show.
The creditors also requested copies of the Dallas lease agreement and records concerning payments and compensation made to Fred’s Alden-affiliated executives. They include the hedge fund’s president and cofounder Heath Freeman, as well as Alden friends and associates Timothy A. Barton, Dana Goldsmith Needleman, Steven B. Rossi, and Joseph Anto. (Interestingly, four of the five were on the board slate Alden nominated when it unsuccessfully tried to take over the Gannett newspaper chain early this year.)
Sontchi is also weighing a request by creditors to question the Alden executives about the documents.
Alden has until Friday to file any objections.
The creditors told the court they tried unsuccessfully to get Alden to voluntarily submit the documents, but said the firm only provided three documents that were public record.
“In September 2017, Heath Freeman, Alden’s managing partner, assumed the position of Chairman of the Board. Seven months later, the Board terminated the CEO of Fred’s Inc. and installed Joseph Anto as ‘interim’ CEO.
“Anto formerly worked for Digital First Media, the company that operates Alden’s newspaper business and from which Alden siphoned the funds needed to acquire a controlling interest in (Fred’s).” Alden also installed Digital First Media’s former CEO, Steve Rossi.
“Each of these individuals had minimal, if any, experience in retail upon assuming their positions,” with Fred’s, the creditors said.
Fred’s Inc. creditors aren’t the first to ask a federal bankruptcy court to investigate Alden’s behavior. A group of Payless Shoesource creditors also successfully petitioned the court to investigate Alden’s role in the permanent shuttering of the more than 2000 Payless stores across the country. That case is still unfolding in Missouri’s Eastern Bankruptcy Court.
In the combined Fred’s and Payless store closures this year, roughly 22,000 people have lost their jobs.
Click here to read the Fred’s creditors’ request for documents.