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[Summary: RMC filed for Chapter 11 bankruptcy November 2, 2018]
[See also: Bullion Dealer Data]

Blog With Details on Refiner Clawbacks

March 2, 2021 2:00PM EST
Well, it's been about 2 years since I wrote about RMC. I take a quick glance at new court filings, but haven't found anything worth writing about.

A refiner has written in their blog about the clawbacks against RMC customers. A clawback in bankruptcy is when the bankruptcy trustee (or equivalant) requests or sues to get money from a customer that received money/property from the business shortly before it filed for bankruptcy.

In this case, quite a few companies (refiners, some bullion dealers) are being sued for well over $20 million total.

$6M Complaint Against an Owner

February 5, 2019 10:35AM EST
Law360 reported that some creditors have filed a complaint against one of the owners of RMC for a fraudulent transfer (note that depsite the word "fraud" in the name, a fraudulent transfer does not mean someone intended fraud).

RMC was started by Richard Rubin, who died in 2013. Richard Rubin's wife, Rose Rubin, was a director of RMC. Their son Jason Rubin in the President and CEO of RMC.

The complaint says that RMC's insiders transferred substantial sums to themselves through salaries, bonuses, and dividends to fund lavish lifestyles. I have seen this confirmed by the bankruptcy schedules, which show millions of dollars in wages/dividends in 2019. The complaint mentions a bonus of $5.7M in 2014 to fund the purchase of a house and the taxes related to the bonus.

The complaint starts the unravelling of where the $70M-$85M loss came from. It suggests that "accounting contrivances" were used, including assigning "a significant, wholly unsubstantiated value" to barrels of "hydroxides" (a by-product of refining and clean-ups that contain unknown amounts of precious metal).

Note that where I say "owner" here, RMC is technically owned by a Trust, but to me it seems that the Rubins effectively collectively benefited from the company as if they were owners.

RMC Assets Sold to Asahi

February 2, 2019 10:00AM EST
According to S&P Global, Asahi won the auction for the RMC assets (minus the precious metals), for $25.5M. Valcambi had put in a stalking horse bid for $16M.

The way the bidding worked (per docket 399), it seems that Valcambi was willing to spend close to the $25.5M (and Asahi likely would have paid at least a bit more if necessary). Given that Valcambi was willing to spend about $9M more than its original stalking horse bid (and gets $480,000 cash for losing since they were willing to provide that original bid), perhaps it wasn't so wise for RMC to have been negotiating with Valcambi before the bankruptcy.

Bankruptcy Schedules Filed

January 21, 2019 10:00AM EST
RMC has released the bankruptcy schedules, which number into the hundreds of pages, partly due to the number of different related companies involved.

Among other things, they show that the company was doing about $2.5B to $3.5B of business each year for the past few years. They show about $297M owed to creditors (including secured and unsecured creditors). They also show that one of the owners took out over $1.2M in 2018 (including $550,000 on June 11, 2018, at least a month after the 'significant inventory discrepancy' was discovered).

You can download the schedules at the official bankruptcy website (dockets 483 through 503 -- 484 is one of the more important ones).

Objections to Examiner

January 17, 2019 9:55AM EST
RMC, at least one major creditor, and the unsecured creditor's committee (UCC), have all objected to the U.S. Trustee's recommendation of bringing in an examiner.

It sounds like all the parties believe that they can work this out more efficiently in court, and that bringing in an examiner would just add an extra layer of expenses. It is also pointed out that while an examiner would be an independent party that could investigate to see if there was fraud, the UCC has already started taking on that task.

Valcambi Hoping to Buy RMC

January 9, 2019 9:35AM EST
Valcambi has made a $16M "stalking horse bid" to buy what appears to be almost the entire RMC business, minus any precious metals. It also does not include leases in Canada or China (possibly because they are outside the jurisdiction of the U.S. courts).

A stalking horse bidder is someone who hopes to buy part of the assets of a bankruptcy estate for a set price, but other bidders can come in. This way, a sale is essentially guaranteed. In exchange for the commitment to buy (and to help justify expenses to prepare the bid), the stalking horse bidder gets a break-up fee if they are outbid (in this case, $480,000).

Anyone looking to buy a precious metals refinery in the United States? For just $16,100,000.00 you can place a bid (the bid increment is $100,000).

The court is scheduled to approve the bid procedures within the next few hours.

Monthly Operating Report

December 24, 2018 9:50AM EST
We learned that RMC discovered a 'signicant inventory discrepancy' in April, 2018, while preparing their 2017 year-end financials and first quarter financials for 2018.

Yesterday, RMC filed their first Monthly Operating Report. In it, they state "the Debtors do not prepare monthly financial statements." It is unclear if quarterly statements are always made. The Tulving Company, Bullion Direct, and NWTM Mint all had neglected their accounting (such as not filing tax returns) before they shut down; accounting is very important in the bullion industry. I've never run a business that does billions of dollars of business each year with razor-thin profit margins, but if I did, I would have monthly financial reports prepared.

We also learned that RMC spent just over $1M in November for payroll. They also liquidated $52M of inventory, saying both "liquidation of metal inventory at market prices with applicable premiums or discounts" and "liquidation of metal inventory at market prices less minor discounts." I tend to notice seemingly minor discrepancies such as this. To me, this screams "WE SOLD AT A BIT BELOW SPOT BECAUSE WE WERE SELLING SO MUCH, BUT DON'T WANT TO SHOUT IT OUT TO THE WORLD." Note the appropriate people: please find out exactly what "premium or discount" applied here, to make sure there was no sweetheart deal. Yes, selling 3 million ounces of silver in a month may require selling at a discount to spot, but someone may want to make sure it was a reasonable discount.

RMC currently has $37.9M of "Raw/WIP inventory in which the estimated metal content is highly uncertain and subject to change materially, as this inventory is suboptimal for RMC's refinery" (this material usually is sold to other refiners). I assume they pay based on the final value of the metal, not just a guesstimate.

The MOR shows $131M of "Metal Obligations - Payables" (e.g. metal owed to mines). Note that the original bankruptcy filings show $86.3M of "Metal Obligations". I'm starting to see how people can have troubles getting the numbers to add up.

Miami Herald Article

December 24, 2018 9:20AM EST
The Miami Herald, who covered the Elemetal/NTR fiasco, wrote a very good article about the RMC bankruptcy.

U.S. Trustee Recommends Chapter 11 Examiner

December 19, 2018 7:05PM EST
The U.S. Trustee, that oversees bankruptcies, has requested that the Court authorize a Chapter 11 examiner.

Part of the reasoning is that it would be best for a disinterested party to assist in determining what happens to metal that has contested ownership (e.g. that RMC believes secured creditors, namely banks, have a lien on, whereas many creditors believe they own). Interestingly, a footnote states "Should the Court direct the appointment of an examiner, the Court may also find it to be cost effective and in the interest of all parties for the Examiner to also investigate and report to the Court his or her findings on the related topic of whether the Debtors’ admitted “significant discrepancy” in the amount of its pre-petition inventory was due to an accounting error as Debtors’ assert or whether there were other reasons for the discrepancy."

That is the first reference I have seen to the elephant in the room: $100M doesn't just accidentally disappear. Something happened to it. It could be something unintential (such as accounting errors over the course of many years), but screams "Hey, maybe someone stole the money, or chose to run the business with serious debt."

Creditors' Meeting

December 4, 2018 5:10PM EST
There will be a creditors' meeting at 1/23/2019 at 03:00 PM at Office of UST (One Bowling Green, Fifth Floor, Room 511, New York, NY 10004-1408).

Good Article/FAQ

November 22, 2018 1:50PM EST
There is a legal blog that has some good information and a FAQ at http://blog.peaseandcurren.com/2018/11/15/republic-bankruptcy-frequently-asked-questions/.

Unsecured Creditors' Committee (UCC)

November 19, 2018 5:45PM EST
The U.S. Trustee has appointed an Unsecured Creditors' Committee for the RMC bankruptcy.

The members are listed in Docket 113.

Quick Facts

November 6, 2018 1:35PM EST
Estimated Assets: $174.7MSource: Docket 2
Estimated Liabilities: $265.1M to $290M+Source: Docket 2
# Creditors: 1,000 to 5,000Source: Voluntary Petition
Cause: Significant inventory discrepancy
(no further details)
Source: Docket 2
RMC Owner: 100% owned by Amended and Restated Richard Rubin Revocable TrustSource: Docket 2

Assets (per docket 2):
Cash $  8.5M
Inventory $141.2M
Plant/Equipment $ 25.0M
TOTAL: $174.7M
Liabilities (per docket 2):
Senior Debt $177.3M
Accounts Payable $  1.4M
Metal Obligations $ 86.3M
TOTAL: $265.1M

For assets: Cash should be money in bank accounts, inventory is likely a combination of finished goods owned by the company (e.g. RMC silver bars) and metal being refined for customers, and plant/equipment is the value of everything else (equipment, buildings, etc.).

For liabilities: Senior debt is money owed to lenders, who are secured creditors (they have liens against all assets, essentially meaning the proceeds from the sale of assets goes to them until they are paid off). Accounts payable are companies they owe money to for goods/services provided (e.g. the electric bill). Metal obligations likely includes customers who have sent metal to be refined, but could include other metal (e.g. if they store metal for some customers).

Although Metal Obligations shows as $86.3M, it may be higher: the top 30 unsecured creditors (which does not include the senior debt) are listed as being owed over $110M.

Expected Outcome

November 6, 2018 10:00AM EST
First, I need to make it clear for those of you that do not know me that I am not a lawyer, nor do I have any legal training. That said, I am one of the most knowledgable people regarding bullion bankruptcies and fraud.

If the asset and liability numbers submitted are correct (they aren't, but lets assume they are), RMC has $174M of assets, $177M of senior debt, and $86M of metal obligations (metal owed to refiners and other creditors). The senior lenders assert blanket liens against all RMC assets.

With a Chapter 11 bankruptcy (referred to as "reorganization"), the idea is that the business will continue running. In this case, that seems nearly impossible from the information given (they are some $100M underwater). But a Chapter 11 could allow them to sell the company as a going concern or sell the assets.

In a Chapter 11 bankruptcy, liens are considered secured debts. The assets backing the secured debts are usually sold, with all proceeds going to the creditor (up to the amount they are owed). So in this case, the expected outcome would be that all the assets would be sold (either as a going concern, or in pieces), with that ~$174M going to the secured creditors (senior lenders).

That would leave nothing left for the unsecured creditors (basically anyone that isn't a bank that lent money to them).

There are, as normal in a case like this, many unanswered questions. One is why they list only $86M of metal obligations, but the top 30 unsecured creditors are owed over $110M. Another is what happened to the $100M or so that RMC owes that it does not have. And pehaps the biggest is whether the significant inventory discrepancy was theft, accounting fraud, gross mismanagment of some sort, or something else.

RMC Files for Chapter 11 Bankruptcy

November 5, 2018 12:50PM EST
Republic Metals Corporation (RMC) has filed for Chapter 11 bankruptcy.

They filed under 3 names: Republic Metals Corporation, Republic Metals Refining Corporation, and Republic Carbon Company, LLC.

Trying to merge the 3 bankruptcies filings, it seems that they have assets of $101M-$500M and liabilities of $101M-$500M, with an estimated 1,000-5,000 creditors. Docket 2 estimates $174M of assets ($8M cash, $141M inventory, $25M equipment) and $264M of liabilities ($177M senior debt, $1.4M accounts payable, $86M metals obligations).

More details are available in a letter they sent to their partners.

It sounds like the main cause for the bankruptcy may have been: "In April 2018, [RMC] discovered a significant discrepancy in its inventory accounting as part of its preparation of 2017 year end financials and quarterly financials for the first quarter, 2018 ... a final report that confirmed inventory discrepancies in the Debtors' books and records." (from Docket 2.

The law firm handling the bankruptcy at this point has a webpage with lots of information about the case.

RMC tried selling its business to an unnamed "strategic refiner", but that deal could not go through in time to avoid a bankruptcy filing. The potential buyer is reportly Valcambi.

Have any information not in court documents? I have an anonymous tips page (which also has email contact info).

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