Rhodes will retain control of companies

A key group of creditors is willing to set aside its motion to replace homebuilder and developer James Rhodes with a trustee in his bankruptcy cases, an attorney for the Rhodes Cos. said Monday.

Credit Suisse and the First Lien Steering Committee informally have agreed to allow Rhodes to continue operating his companies and using cash generated from home sales until the end of June, said debtors attorney James Stang of Los Angeles.

"We have reached an agreement with the First Lien Steering Committee," Stang said in a telephone call Monday. The agreement will be discussed in bankruptcy court today.

Stang was commenting on a stinging motion, in which the steering committee said money made for loans was diverted to other purposes.

"We don't think that Mr. Rhodes diverted any money improperly," Stang said. "When (the lenders) finally got their nose in the tent, they realized Mr. Rhodes runs a very successful homeowner business in a very difficult environment."

Rhodes has agreed to answer questions under oath, as has another Rhodes' executive, and a financial adviser for the lending group is working closely with the Rhodes Cos., Stang said.

An attorney for the creditor group did not return a call for comment Monday.

The lenders' group earlier lambasted Rhodes in a motion to replace him with a trustee to manage the business.

"Mr. Rhodes has violated, and continues to violate, his fiduciary duties to the creditors of these estates (and) has overseen misappropriation of the debtors' funds," the lenders' motion said. He has "destroyed millions of dollars of value" that the creditors otherwise might have recovered, the motion said. It also said:

• Rhodes approved a $75,000 bonus for himself on Dec. 31, 2008, in addition to his $400,000 yearly salary.

• Rhodes' brother, John, who was fired on the eve of the March 31 bankruptcy filing, was paid $600,000 in salary for 2008 and 2007 for services "limited in responsibility."

• Glynda Rhodes, James Rhodes' wife, received $98,000 in the last two years for limited services. The debtors also were paying for Glynda Rhodes' nanny until recently.

• Ex-wife Deborah Rhodes received $2.38 million over the last two years for a divorce settlement, but the money came from the Rhodes' companies.

Rhodes in 2007 transferred more than $7 million to Rhodes companies that are not in bankruptcy. The borrowers paid $1.75 million to Glynda Rhodes interior design business in 2007 and 2008. And other resources were diverted from Rhodes Cos. to Harmony Homes, a competitor of Rhodes Homes, allegedly through a trust in the names of James Rhodes children.

The Rhodes Cos.' bankruptcy papers list three key developments: Rhodes Ranch in southwestern Las Vegas, Tuscany Village in Southeastern Las Vegas and Pravada/Golden Valley near Kingman, Ariz.

The bankruptcy cases were filed under Chapter 11, which allows a debtor to try to reorganize its finances and emerge from bankruptcy as an operating company.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.