16-13607-mkv Doc 303 Filed 11/03/17 Entered 11/03/17 10:45:37 Main Document Pg 1 of 282 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re Chapter 11 WONDERWORK, INC., Case No. 16-13607 (MKV) Debtor. FINAL REPORT OF JASON R. LILIEN, EXAMINER LOEB & LOEB LLP Walter H. Curchack, Esq. Bethany D. Simmons, Esq. Talia G. Metson, Esq. 345 Park Avenue New York, New York 10154 Telephone: 212-407-4000 Facsimile: 212-407-4990 Email: [email protected] Counsel to Examiner 14592424.11 228676-10002 16-13607-mkv Doc 303 Filed 11/03/17 Entered 11/03/17 10:45:37 Main Document Pg 2 of 282 TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY CONCLUSION ............................................... 1 II. PROCEDURAL BACKGROUND ................................................................................ 7 A. Commencement of Chapter 11 Case ..................................................................... 7 B. Examiner Appointment ........................................................................................ 8 C. Retention of Professionals .................................................................................. 10 III. INVESTIGATION AND PREPARATION OF REPORT ......................................... 11 A. Examiner’s Work Plan ....................................................................................... 11 B. Establishment of Rule 2004 Subpoena Authority................................................ 16 C. Discovery Conducted in Furtherance of Investigation ........................................ 17 1. Initial Meetings with the Debtor and Interested Parties ........................... 17 2. Document Collection and Review ........................................................... 17 3. Witness Interview Process ...................................................................... 19 4. Additional Meetings with Interested Parties ............................................ 22 5. Confidentiality and Privilege Issues ........................................................ 23 D. Legal Research Conducted to Form Conclusions ................................................ 23 E. Forensic Analyses .............................................................................................. 24 IV. STATEMENT OF BACKGROUND FACTS ............................................................. 27 A. Corporate History and Organization ................................................................... 27 B. The Debtor’s Purpose ......................................................................................... 28 1. Blindness ................................................................................................ 29 2. Burns ...................................................................................................... 29 3. Clubfoot ................................................................................................. 30 4. Hydrocephalus........................................................................................ 30 5. Cardiac Surgery ...................................................................................... 30 C. The Debtor’s Mission ......................................................................................... 31 D. Initial Fundraising Efforts .................................................................................. 31 1. The Debtor’s Relationship With HelpMeSee .......................................... 32 a. Mullaney, Thazhathu and Ueltschi Begin Exploring Opportunities for Collaboration ................................................... 32 b. Mullaney Departs from SmileTrain and the Services Agreement is Negotiated ............................................................. 33 14592424.11 i 228676-10002 16-13607-mkv Doc 303 Filed 11/03/17 Entered 11/03/17 10:45:37 Main Document Pg 3 of 282 c. The Services Agreement ............................................................. 35 d. The Debtor Launches HelpMeSee’s Direct Mail Program and the Relationship Deteriorates .................................. 38 e. Termination of Services Agreement ............................................ 39 2. The Debtor’s Initial Fundraising Efforts ................................................. 41 a. Major Donors .............................................................................. 41 b. Launch of Direct Mail ................................................................. 42 c. SmileTrain Book Distribution ..................................................... 43 V. LEGAL ISSUES PLAGUE THE DEBTOR ............................................................... 44 A. HelpMeSee Arbitration ...................................................................................... 44 1. Arbitration Proceedings .......................................................................... 44 2. Arbitration Award .................................................................................. 45 B. SmileTrain Related Litigations ........................................................................... 46 1. SmileTrain SDNY Litigation .................................................................. 46 2. SmileTrain UK Litigation ....................................................................... 47 C. Shaheen Lawsuit ................................................................................................ 48 D. Fuchs Lawsuit .................................................................................................... 49 E. SmileTrain Interference With Vendors ............................................................... 50 VI. KEY PLAYERS ........................................................................................................... 51 A. Board of Directors.............................................................................................. 51 1. Board Composition ................................................................................. 51 2. Bylaws ................................................................................................... 56 B. Officers and Management Team......................................................................... 58 1. Introduction ............................................................................................ 58 2. Mullaney ................................................................................................ 60 3. Fuchs ...................................................................................................... 61 4. Greenwood ............................................................................................. 62 5. Lazarus ................................................................................................... 63 6. Huang ..................................................................................................... 64 C. Medical Advisory Board .................................................................................... 64 D. Advisory Board .................................................................................................. 65 E. Celebrity “Supporters” ....................................................................................... 65 F. Fundraising Service Providers and Other Professionals ...................................... 66 14592424.11 ii 228676-10002 16-13607-mkv Doc 303 Filed 11/03/17 Entered 11/03/17 10:45:37 Main Document Pg 4 of 282 VII. BOARD APPROVED POLICIES AND PROCEDURES .......................................... 68 A. Investment Policy and Management of Assets .................................................... 69 B. Travel Policy...................................................................................................... 71 C. Conflicts and Ethics Policies .............................................................................. 72 D. Gifts and Donations Policies .............................................................................. 72 VIII. PREPETITION FINANCIAL POSITION ................................................................. 73 A. Bank and Investment Accounts .......................................................................... 73 1. HSBC Accounts ..................................................................................... 73 2. PayPal Accounts ..................................................................................... 74 3. Vanguard Account .................................................................................. 74 B. Insurance Assets ................................................................................................ 75 1. Mullaney Term Life Insurance Policy ..................................................... 75 2. Key Man Term Life Insurance Policies ................................................... 76 3. D&O Policies ......................................................................................... 77 4. Commercial Liability Policy ................................................................... 77 C. Impact Loans ..................................................................................................... 78 1. What is an impact investment? ............................................................... 78 2. Impact Loan Pitches ............................................................................... 79 3. Loan Terms ............................................................................................ 82 a. Basic Loan Terms ....................................................................... 82 b. Loan Forgiveness