State’s jobs czar without economic development experience, faced questions in past job

By: - June 3, 2014 6:19 am


The Raleigh businessman and “change agent” selected to steer the McCrory administration’s privatization of the state’s job recruitment efforts came into the high-profile job with no economic development background and a checkered work history.

Richard “Dick” Lindenmuth, 69, will be taking charge of an entirely new method of economic development in the state by leading a quasi-public group funded with a mix of private and public dollars.

The McCrory administration and Republican-led legislature are still hammering out the details of how to oversee and run the proposed public-private partnership, a nonprofit company that would be overseen by a board of directors appointed by political and business leaders.

The privately-run group was initially envisioned to take over a broad range of the state’s economic development duties, but the scope has narrowed to include job recruitment and marketing of the state.

A dozen other states have handed their job recruitment duties off to similar setups, and seen mixed results from the venture. States like Florida, Indiana and Ohio have seen controversy envelop the public-private groups over unmet targets, a pay-to-play culture and accusations of governors using the groups to reward campaign supporters.[table id=11 /]

Lindenmuth was hired in January on a $120,000 annual contract as interim CEO of the Economic Development Partnership of North Carolina. He had no experience in economic development, nor had he previously worked in the public sector. But Gov. Pat McCrory and Commerce Secretary Sharon Decker saw his decades of work in management-level positions at companies around the globe as the qualifications needed to bring jobs to North Carolina’s still-fragile economy.

An N.C. Policy Watch investigation into Lindenmuth’s background uncovered federal court records showing that controversy has marred his career in recent years. He placed his Raleigh consulting company, Boulder International, into bankruptcy in 2010 and had his fiduciary abilities called into question by a federal bankruptcy judge in a separate incident.

U.S. Bankruptcy Judge Barbara Houser, the chief bankruptcy judge for the Northern District of Texas, found that Lindenmuth improperly overcharged expenses by nearly $117,000 while consulting for a home décor company undergoing bankruptcy, a situation she found “very, very troubling” and potentially criminal.

“[T]his appears to violate the criminal violations of the Bankruptcy Code, and I mean this is not right,” Houser said, according to a hearing transcript.

Court records don’t show that law enforcement ever pursued the situation, and Lindenmuth denied any wrongdoing in court records and to N.C. Policy Watch. He did, however, agree to return $250,000, nearly half of what he was paid for seven months of work at the company.

Problems emerge in bankruptcy case

Lindenmuth, a graduate of the prestigious Wharton business school and fluent in several languages, spent much of his decades-long business career in management and executive-level jobs. He developed a specialty for helping troubled companies seeking to downsize or transform themselves. In recent years, his resume shows he turned to consulting work, specializing in corporate restructurings and crisis management.

It was in that consulting role that Lindenmuth was hired in February 2008 to work for Home Interiors Inc,, a troubled direct-sales home décor company that entered bankruptcy shortly after Lindenmuth’s arrival.

In the profile he maintains on the LinkedIn networking website, Lindenmuth says he served as Home Interior’s chief restructuring officer and “I saved $48 million and returned them to cash positive.”

Bankruptcy court records, however, paint a different portrait of his employment.

Six months after his hire, Lindenmuth was shifted from the chief restructuring position to a more general consulting role, court records show. Attorneys for creditors in the case raised questions about his qualifications when Lindenmuth said in a deposition he was largely unaware of the company’s debt scenario.

Creditors “discovered that Mr. Lindenmuth at the time lacked any significant restructuring experience with the Chapter 11 reorganization process, and had virtually no knowledge and understanding of the particulars of the Debtors’ debt and equity structure,” wrote Jay Ong, a Dallas attorney working for the bankruptcy trustee, in a September 2010 motion.

Lindenmuth told N.C. Policy Watch recently that the accusations lodged against him were groundless and part of a legal strategy by bankruptcy attorneys to recoup money.

“There was no wrongdoing,” he said, adding that he worked hard to save the company money.

Houser, the Texas-based bankruptcy judge, voiced concern about $100 hourly fees added to two subcontractors he billed for, totaling $117,000 in upcharges, according to a transcript of a December 2010 court hearing.

“I must say I’ve been doing this for a really long time at this point, and I have never seen a professional secretly upcharge – I mean, first I have never seen a professional try and expense third parties,” said Houser. She added, “The thought that someone who was hired because of his expertise in turn-around situations would not understand those very basic facts is extraordinary.”

John Northen, a Chapel Hill attorney who frequently serves as a bankruptcy trustee, said federal rules do not allow professionals working in bankruptcy cases to add extra fees to their expenses. The rules are designed to protect creditors who are owed money by the troubled company.

There is little wiggle room when it comes to consultant billing, Northen said, adding that judges don’t normally speak as forcefully as Houser did without cause. Upcharging for subcontractors is “completely inappropriate,” he said. “To have a bankruptcy judge say that, it was not close to the line.”

An attorney hired by Lindenmuth acknowledged in court documents that the nearly $117,000 markup of contractors was inappropriate and “could have been avoided.”

Lindenmuth eventually settled the matter, agreeing to pay $250,000, nearly half of the $558,000 he received from Home Interiors for seven months of work, according to court records.

The situation also led Lindenmuth to put his consulting company, Boulder International, in bankruptcy proceedings in late 2010, a move that attorneys in the Home Interior case contended was an initial attempt to escape liability.

Lindenmuth “took advantage of [his] fiduciary position to extract improper benefits” and then filed for bankruptcy as an “attempt to shield itself from its disgorgement liabilities,” Ong said, according to a court transcript.

In a letter to Judge Houser, Lindenmuth said he was financially strapped due to the recession and could not afford to fight the accusations.

Bankruptcy records show that he went from making more than $460,000 in 2008, down to $18,683 and $24,000 in the following two years.

In early 2011, a Raleigh-based bankruptcy judge approved the liquidation of Lindenmuth’s Boulder International, whose only listed assets were $2,000 worth of computer and office equipment.

State job opens up

Lindenmuth wasn’t an immediate choice for N.C. Commerce Secretary Sharon Decker, who told media at the time of his hire she considered 25 to 30 other prospects, and interviewed a dozen before offering the economic development job to Lindenmuth.

Richard Lindenmuth speaking in Cary last month.
Richard Lindenmuth speaking in Cary last month.

Lindenmuth’s background in working with troubled companies would serve North Carolina well, she said.

“He is absolutely confident in dealing with change management,” Decker told reporters shortly after Lindenmuth was hired. The $120,000 annual state contract allows him to keep his title as a managing partner for the Verto consulting firm while working for the state, an arrangement he maintains won’t pose any conflicts of interest.

Decker declined an interview with N.C. Policy Watch but released a statement Monday that she reviewed the bankruptcy issues after Lindenmuth informed her about the situation during the hiring process.

“I determined he had handled it in an appropriate way,” Decker said, according to the written statement. He “has been a good choice for the job and I am appreciative of his willingness to take on an interim assignment during this critical time in North Carolina.”

Still unclear, however, is exactly what the job will entail. The proposed public-private partnership is a signature piece of McCrory’s economic development strategy, but the Republican-led legislature will have the final say on what the partnership will be permitted to do.

McCrory’s proposed budget calls for moving $18 million and 67 jobs out of the Commerce Department to create a partnership focused on job recruitment and marketing. Decisions about financial incentives would remain with state Commerce officials.

Legislation introduced this monthby Republicans state Rep. Tom Murry and state Sen. Harry Brown includes provisions that will require the public-private group to raise $10 million in private funds in order to pull down public money, and makes the new entity subject to state open meetings, public records and ethics law.

The state Senate budget released last week, however, didn’t identify any funding for the new group and it is expected to be discussed in committee meetings later this month.

In a hearing Thursday, state Sen. Andrew Brock said the Senate didn’t want to rush approval of the group.

“We want to make sure we go through the process slow and as carefully as possible,” Brock said.

Proponents, including John Lassiter, a Charlotte attorney and a close friend of McCrory serving as the chair of the group, say that requirements for raising as much as $10 million in private funds and stringent reporting rules may end up stifling the new group’s ability to have candid conversations with potential employers.

Lindenmuth’s first few months on the job have been relatively low-key, but not trouble-free. He recently erroneously suggested that the state’s public records law was to blame for Toyota’s decision not to locate its U.S. headquarters in North Carolina.

“Why would a CEO ever let us know where they are looking if they are subject to public records?” Lindenmuth said at a meeting for the economic development partnership.

In fact, the public records law already allows for temporary withholding of information about economic development projects, and other parts of the law protect trade secrets and confidential business information.

Republican state Senate leader Phil Berger called Lindenmuth’s comments “unfortunate.”

In his new role, Lindenmuth has been going around the state talking to groups about the McCrory administration’s vision of economic development, including a talk he gave earlier this month at the Cary Chamber of Commerce.

Lindenmuth has said he’s not in favor of financial incentives to lure businesses, and told the Cary group that North Carolina’s real selling points rest in its education system, infrastructure and quality of life.

“We have a lot going for us in this state,” Lindenmuth said. “Great people, great state, the elements are all here.”

At the Cary meeting, he was asked by Rodney Carson, a MetLife director of university and community engagement, how the proposed partnership planned to raise private funds. Carson spent several years serving on the board of the Enterprise Florida, a public-private partnership in that state that continuously ran into difficulty raising money from private donors.

Lindenmuth said he doubted that businesses in the state would be willing to fund the economic development group without control over what the money went to.

“When a legislature puts restrictions on things like that, they’re not people that necessarily know how to run businesses,” he said.

Greg LeRoy, head of a Washington-based watchdog group that monitors state-level economic development efforts, criticized the public-private partnership model in a recent report, “Creating Scandals Instead of Jobs.” Many such programs in other states have turned into costly failures, he said.

Speaking specifically about North Carolina’s plan, LeRoy added that Lindenmuth’s background working with troubled companies makes him an unusual choice for the job.

“The vast majority of companies that the state economic developers want are not troubled companies, “LeRoy said. “You would hope that very few of the companies that the state wants are that way.”

Note: The reporting of this article rested on numerous court documents, click on the links to view a hearing transcript about Lindenmuth’s disputed consulting bills, the final settlement order and bankruptcy filings for his company, Boulder International.

Questions? Comments? Reporter Sarah Ovaska can be reached at (919) 861-1463 or [email protected].

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Sarah Ovaska-Few

Sarah Ovaska-Few, former Investigative Reporter for N.C. Policy Watch for five years, conducted investigations and watchdog reports into issues of statewide importance. Ovaska-Few was also staff writer and reporter for six years with the News & Observer in Raleigh, where she reported on governmental, legal, political and criminal justice issues.