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Ambac asks judge to bar creditors' board nominee

The Ambac building at One State Street Plaza is seen in New York March 5, 2008. REUTERS/Joshua Lott
The Ambac building at One State Street Plaza is seen in New York March 5, 2008. REUTERS/Joshua Lott

By Tom Hals

(Reuters) - Bond insurer Ambac Financial Group Inc is aiming to block investment strategist Charles Lemonides from assuming a role on the company's board of directors when it exits Chapter 11 bankruptcy, accusing him of "offensive" conduct.

Lemonides, chief investment officer for asset manager ValueWorks LLC, is a member of Ambac's creditors' committee, which nominated him to serve as a director of Ambac after it exits bankruptcy under the ownership of its creditors. He is one of four nominees scheduled to join the board.

But Ambac is asking U.S. Bankruptcy Court Judge Shelley Chapman to bar Lemonides from the role and direct the creditors committee to appoint someone else.

Ambac said in a court filing on Monday that Lemonides pressured its chief financial officer, David Trick, to hire an unqualified candidate as Ambac's chief investment officer and tried to exclude other board nominees from overseeing the search process.

"Lemonides made several statements to Trick implying that the new board's evaluation of Trick's own job performance and compensation would be affected by whether the applicant, Lemonides' personal friend, was hired," Ambac said in the filing. "Lemonides' conduct is inappropriate and offensive for a prospective board member of a public company."

Lemonides did not respond to a phone call or e-mail seeking comment. An attorney for Ambac, Peter Ivanick of law firm Hogan Lovells, declined to comment.

Ambac was once the second-largest U.S. bond insurer, but suffered big losses after it strayed from its original business of guaranteeing municipal bonds and began insuring bonds backed by home loans. It filed for bankruptcy in November 2010.

Its main operating unit, Ambac Assurance Corp, was restructured in 2010 and Roger Peterson, a special deputy for Wisconsin's Commissioner of Insurance, oversees a segregated account that contains many risky mortgage obligations.

While the company's reorganization plan was approved by the U.S. Bankruptcy Court in March 2012, the company is still in Chapter 11 while it resolves tax and regulatory disputes.

Ambac also said in its court filing that Lemonides had ignored requests by the company's chief executive, Diana Adams, to avoid discussions with Peterson without management's approval.

In an e-mail disclosed in the filing, Lemonides wrote to Adams on February 6 to say that he was given the impression by "Roger" that he was ready to strike a deal and allow the company to emerge from bankruptcy. A reply e-mail from Anthony Princi, an attorney for the creditors committee, warned Lemonides not to talk to "Roger or any other representative" of the Office of the Commissioner of Insurance, indicating he was referring to Peterson.

A spokesman for the Wisconsin Insurance Commissioner did not immediately respond to a request for comment.

Ambac said it had the support of the three other board nominees to replace Lemonides. However, when Adams met with the Unsecured Creditors Committee to ask them to withdraw Lemonides, they declined.

Ambac said it will also ask the U.S. Trustee, an agent of the Department of Justice, which oversees bankruptcy cases, to remove Lemonides.

Princi, a Morrison Foerster attorney who represents the creditors' committee, did not respond to e-mail and telephone requests for comment.

The case is Ambac Financial Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 10-15973.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Dan Grebler)

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