Inspired Healthcare Ex-CEO’s D&O Bid Delayed as SEC Questions Surface
Inspired Healthcare Capital’s former chief executive officer, Luke Lee, is seeking bankruptcy court approval to tap a $10 million directors and officers insurance policy to pay his own legal bills, a request that has sat unresolved since June and whose hearing – originally set for Oct. 14 – has been pushed back to Dec. 3. Lee’s motion, filed through his own counsel at Cole Schotz P.C. and Nixon Peabody LLP rather than by the debtors or the creditors’ committee, asks the court to find that the automatic stay doesn’t block the insurers from advancing his defense costs, or alternatively to lift the stay for that narrow purpose. It doesn’t ask the court to decide what the policies actually cover or how much Lee might ultimately collect.
The policy itself is a $10 million, four-layer tower issued not to Inspired Healthcare but to Realty Cap Advisors LLC – a company Lee controls that isn’t a debtor in the bankruptcy – running from Endurance American Insurance Company as the primary carrier up through excess layers from Professional Solutions/Nexus Specialty, Hudson Insurance, and Capitol Specialty Insurance. Lee’s motion seeks access only to the policies’ top-priority coverage for individual directors and officers, the layer meant to pay defense costs directly rather than reimburse the company. The motion says he and other “Insured Persons” face “government investigations, regulatory inquiries, and lawsuits” they can no longer afford to defend without it, since the debtors “are presently unable to indemnify any Insured Person for Defense Costs.”
In the motion, Lee’s attorneys also write that “we are not certain of the status of any Securities and Exchange Commission investigation or claims against the Debtors at this time” – the first time an SEC inquiry has surfaced by name in any filing in this case.
The insurance fight unfolds against a broader, separate investigation into Lee’s own financial dealings that AltsWire reported on in August, when the Official Committee of Unsecured Creditors sought his bank and tax records. That probe, opened in June under Bankruptcy Rule 2004, centers on what the Committee’s own filings describe as the potential “misuse of estate assets, including diverting estate assets that were used by Mr. Luke Lee for personal benefit” through entities he and his wife controlled, against the backdrop of more than $1.2 billion raised from investors before the bankruptcy filing. Court filings have since named five of those entities specifically: LMZ LLC, LMZ Ventures LLC, MSL Management LLC, Realty Cap Advisors LLC – the same company that holds Lee’s D&O coverage – and ZOL Management LLC. As recently as early October, internal case correspondence filed as a hearing exhibit still described Lee as an “investigation target” for discovery purposes.
Patrick Lam, president of Access Capital Group, was also named as an investigation target in the discovery. Inspired Healthcare was a client of Access Capital, and Lam served as Inspired Healthcare’s national sales manager under that arrangement. Lam ended the relationship in July, after Inspired Healthcare’s financial troubles had surfaced and the company had filed for bankruptcy. His deadline to respond to document requests from the debtors has been extended six times, most recently to Nov. 2.
One thread of that investigation remains unresolved: whether Lee personally guaranteed any of the loans extended to Inspired Healthcare’s investment funds. Debtors’ counsel confirmed in early October it was still working to determine whether such guarantees exist, let alone produce them – a question that remains unanswered more than eight months into the case.
Lee also figures in a separate part of the case: the injunction AltsWire has previously covered, which freezes FINRA arbitration claims against Inspired Healthcare’s broker-dealer network and names Lee himself as a shielded party – a protection that runs through Nov. 21 regardless of the personal-finance questions raised here.
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