Creditors — from researchers to charitable endowments — seeking to recoup losses from the bankrupt Allegheny Health, Education and Research Foundation reached a tentative agreement this week for the payment of more than $90 million.
The deal would settle all litigation spawned by AHERF's demise except for criminal charges filed against former Chief Executive Officer Sherif S. Abdelhak, 55, of Sewickley and a civil case that pits creditors against AHERF's accounting firm, PricewaterhouseCoopers LLP.
If approved, thousands of parties would divide about $60 million. State Attorney General Mike Fisher's office announced Wednesday it would get an initial payment of more than $20 million, which would be distributed among three health systems and the endowments AHERF raided more than three years ago in a bid to keep itself afloat. Another $10 million would pay attorneys' fees.
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The orphans courts in Philadelphia and Allegheny County also must approve the recovery of funds going to the state Attorney General's Office. Some of that money would reimburse the office for its audit of AHERF and other legal fees.
At its peak, AHERF had 14 hospitals in Pennsylvania and New Jersey — including its flagship, Allegheny General Hospital on the North Side. It also had two medical schools, several health and research centers and hundreds of physicians practices. The foundation collapsed under its own weight, however, and filed for bankruptcy in 1998 with $1.5 billion in debt.
About a half-dozen companies that had insured AHERF would pay $56 million dollars, while Mellon Bank, which shortly before the bankruptcy recalled loans it had made to the foundation, would pay $28 million. The rest of the money would come from funds safeguarded in an escrow account.
When AHERF filed for bankruptcy, the Attorney General's Office sought the return of more than $78 million that it claimed several high-level executives had raided from charitable endowments to pay the foundation's mounting bills.
Under the proposed agreement, the Attorney General's Office would immediately receive $20.5 million and $4 million over the next four years, spokesman Sean Connolly said. Future recoveries could net the office another $10 million, he said. If the prediction holds, the office would recover almost half of the money raided from the endowments.
"We're being real aggressive and going after this money. That's what we've been fighting for," Connolly said.
Abdelhak, charged with more than 700 criminal counts of theft and misapplication of funds, goes on trial Feb. 25 for his role in the foundation's demise. He is charged with robbing 354 charitable endowments worth an estimated $35 million.
In September, former AHERF Chief Financial Officer David McConnell, 46, of McMurray, Washington County, was admitted into a first-time offenders program that would absolve him of one count of theft if he completes it successfully. He was never found gjuilty of theft. He was ordered to repay $16,700 he was accused of steeling to lease a private luxury box at Three Rivers Stadium. Hundreds of other theft charges against McConnell were dropped after a yearlong preliminary hearing before Senior Common Pleas Judge Robert E. Dauer.
The preliminary hearing also absolved former AHERF legal counsel Nancy Wynstra, 60, of Shadyside of all theft charges lodged against her.
The remaining civil litigation pitting thousands of creditors against PricewaterhouseCoopers involves more than $1 billion, officials said. A lawsuit filed two years ago claims the accounting firm presented a rosy picture of AHERF knowing that the foundation was in financial straits.
