How did LandAm's Gluck end up at the Richmond Fed?

By Adrienne Gonzalez. Adrienne is founding editor of Jr Deputy Accountant, 3x weekly columnist for accounting tabloid Going Concern and CPA Wrangler by day for Roger CPA Review.

"With her broad range of leadership experience and extensive legal expertise, I know she'll make great contributions to the Bank and to the Federal Reserve System," said Richmond Fed President Jeffrey Lacker in July of the Fifth District's new Legal Counsel Michelle Gluck. It leads one to wonder how thoroughly Lacker was briefed on Gluck's sordid history at Richmond-based LandAmerica Financial Group previous to his statement. I still can't understand why the Bank would hire her, maybe by the time I'm done with this I will.

For the not-so-quick background on Gluck and both previous and current employers, do check out LandAmerica: The final days appeared like a Ponzi scheme, The Good, the Bad, and the Less Bad for Richmond Fed and her bio that still sits on the LandAm web site:

"Executive Vice President - Chief Legal Officer Michelle has more than 20 years of experience in the legal profession. As General Counsel, she contributes sound legal reasoning and practical insights into legal issues facing LandAmerica. As Corporate Secretary, she oversees the governance of our Board of Directors. Michelle joined LandAmerica in 2003 after serving Kmart Corporation as VP - Associate General Counsel & Assistant Secretary. She holds a juris doctor degree from the University of Michigan Law School and a bachelor's degree in English from the University of Michigan, where she graduated with honors."

This Tuesday is the deadline for LandAmerica 1031 exchange victims (LES - dubbed exchangers amongst themselves) to accept pennies on the dollar for funds lost in LandAm's bankruptcy proceedings. It is suspected that many Exchangers will vote for the plan, which guarantees at least some monies returned to victims instead of an excruciating court battle that many of LandAm's unsecured creditors simply cannot afford.

The smoking gun in the decision could be what Richmond Fed's new top lawyer knew in the months leading up to LandAm's bankruptcy. But before we can jump into all of that, we've should take a long hard look at her track record.

Said one Richmond Times-Dispatch commentator:

"One wonders why or whether, even though Ms. Gluck apparently advised Land America to segregate 1031 monies, she did not disclose the material deficiencies in Land America's custody arrangement for those funds, at least to the Treasury and regulatory groups. I believe she had an ethical duty to make those disclosures. The unanswered questions about the nature and extent of her activities relative to the 1031 monies causes me great concern about her appointment as the Federal Reserve's chief legal officer - a post that requires unquestioned ethical conduct and adherence to sound business practices at all times. Given the unanswered questions about the Land America's senior management team's conduct, one cannot safely assume at this point that Ms. Gluck's conduct at Land America met those high standards."

Presumably, with Gluck's "broad range of leadership experience and extensive legal expertise," she also understood the dangerous line her former employer was straddling by commingling client funds. LandAmerica 1031 Exchange Services Inc. senior VP Stephen Connor claims "trust" was meant in marketing materials in a "strictly pedestrian sense," thereby absolving his former firm of guilt by way of careful definition.

LandAm bankruptcy judge Kevin Huennekens - who also oversaw Circuit City's dismantlement in bankruptcy court - sided with Connor, claiming LES client ("victim", depending on who is telling this story - it's all in the careful linguistic nuance after all) money belonged to LandAm's carcass - "property of the estate" in his words - and not with the clients.

Gluck and 22 of LandAm's top executives filed a $29.8 million "unpaid termination compensation" claim against the company, with five execs seeking to recoup between $1.3 million and $2.6 million each. Former LandAm CEO Ted Chandler is seeking a whopping $5.3 million, so we'll give it to Michelle Gluck for knowing how to lie low in these situations.

Anyway, here's just a bit more of her history that I assume was uncovered by Richmond somewhere in the hiring process:

Gluck begged Citigroup and SunTrust to make those illiquid ARSs liquid again in letters dated October 7, 2008 but alas, no magic wand was going to unfreeze the ARS market, no matter how nicely Gluck asked.

In January of 2008, LandAm reached a $3.5 million settlement with the California Department of Insurance for "unfair rating practices."

Gluck explains how to perform an "emergency restatement" of financials (a.k.a. "Oops, we totally made the last one up, let's get a do-over on these statements") in Counsel to Counsel January 2007, almost a full year before LandAmerica's exchange arm imploded. The definition of transparency in our time is that the criminals leave their own maps lying around.

Let's go further back. In 2006, Gluck and the rest of the LandAmerica crew were investigated by the House Financial Services Committee for something that appears to be financial terrorism:

"Senior company management, including CEO Ted Chandler and General Counsel Michelle Gluck, in internal correspondence, authorized LandAmerica Senior Vice President Peter Kolbe to use personal background information obtained on Colorado Deputy Commissioner Erin Toll to raise conflict of interest charges in an effort to limit her investigation into LandAmerica's Colorado operations, undermine her efforts to lead a multi-state settlement on captive reinsurance, and in the opinion of Ms. Toll, to discourage her from testifying at a hearing before a subcommittee of the Committee."

And now the lawyer who watched all of this unravel from the inside and has been fairly quiet (er, completely silent) on ongoing LandAm bankruptcy developments is leading the legal team at the same Fed bank that oversaw Fedgate. Neither Richmond nor Gluck have made any noise on LandAmerica, leading one to wonder what due diligence was performed in the hiring process. Couldn't Richmond have named an interim replacement for James McAfee, previous top lawyer at the Bank, from the inside until their top candidate worked out her, uh, problems with her former employer?

I ask again, is this who we want working at the Fed?! And why would they have wanted her?

Going back to the Richmond Times-Dispatch commentator in August:

"At this point, my perception of Ms. Gluck's conduct does not meet the high standards set by her predecessor at the Federal Reserve with whom I was acquainted and whose ethical standards and business practices were admired and clearly beyond reproach - at all times."

I have to agree with this assessment. It seems the largest battles of McAfee's career at the Fed centered around people who took on too much debt and got ticked off at credit card companies. The lawyer Gluck replaced gave cryptic speeches on the Fed itself and summoned the ghost of Carter Glass for an interview in Minneapolis Fed's Region in 1997. Perhaps I haven't performed enough due diligence on his track record but I don't see anything that remotely resembles Gluck's resume. He even poked fun at the Fed's own bizarre existence in front of a bunch of central bankers.

So what happened? A lapse in judgment at the Richmond Fed?

LandAm 1031 Exchange victims are expected to settle November 10, 2009 and Gluck is comfortable from her perch on the upper floors of the Richmond Fed overseeing the economy of the Fifth District. Business as usual, it appears.