After a federal watchdog asked for an investigation of alleged improprieties in the Thornburg Mortgage bankruptcy case, company president and CEO Larry Goldstone and CFO Clarence Simmons resigned this week.

Their resignations, posted on the Securities and Exchange Commission's Web site and first reported by Reuters, became official Tuesday.

The U.S. Trustee for the District of Maryland, where the mortgage company's Chapter 11 bankruptcy case is pending, alleged that Goldstone and Simmons misused funds and resources in starting up a new business after the bankruptcy filing.

The U.S. Trustee asked for appointment of a trustee to take over the Santa Fe company's affairs or an examiner to conduct an investigation into the two executives' actions in establishing SAF Financial and serving as that firm's CEO and CFO.

Anne-Drue Anderson, a Thornburg director since 2003, has been named president, treasurer, principal executive officer and principal accounting officer for TMST, the new name for Thornburg Mortgage.

Anderson's appointment was made at a board meeting of TMST, spokesman David Miller said Thursday. Miller declined further comment.

SAF Financial was formed to explore and implement a plan to acquire a depository financial institution from which to build an asset base for mortgage lending. Goldstone has said previously that such an institution would have protected TMST from the kind of financial collapse the former Thornburg Mortgage experienced during the global financial crisis in 2008.

At the time the jumbo mortgage lender filed for bankruptcy protection on May 1, after laying off more than 100 employees, the company listed total assets of $24.4 billion and total liabilities of $24.7 billion, according to Reuters. Thornburg's 20 largest unsecured creditors included a host of financial entities. The largest listed was Wilmington Trust Co., which was owed $1.3 billion.

It was a committee of these unsecured creditors that tipped off the U.S. Trustee for the District of Maryland after the committee received an anonymous letter saying that Goldstone and Simmons were misappropriating a portion of the debtors' payroll to help fund work on a start-up company.

Following the formation of SAF, the trustee's filing states, Goldstone and Simmons continued to serve as CEO and CFO, respectively and were "highly compensated" at their pre-bankruptcy salaries with the assets of TMST.

On May 11, SAF engaged debtors' special corporate counsel, the law firm of Orrick, Herrington and Sutcliffe, to represent the firm in corporate matters, the trustee's filing stated.

"Orrick's connection to and representation of SAF was not disclosed in this proceeding until Aug. 28, 2009, and only after (the) allegation surfaced that Goldstone and Simmons were misappropriating estate assets in connection with SAF's start-up," the trustee filing said.

In the argument made for a trustee to take over administration of TMFT's Chapter 11 bankruptcy filing, the U.S. Trustee for Maryland pointed out that "a basic tenet of bankruptcy is that a debtor-in-possession (as TMFT has been) administer the assets of the estate and any business conducted therein as a fiduciary for both equity interest and creditors."

But if the debtor-in-possession defaults, then the bankruptcy code requires that "the stewardship of (the) reorganization be turned over to an independent trustee,'' the U.S. Trustee stated.

In another rebuke, the U.S. Trustee indicated that SAF's use of company employees to staff a start-up "is, at its very best, strong evidence of incompetence and/or gross mismanagement."

"Compounding the debtors' gross mismanagement and lack of candor to this court is Orrick's undisclosed representation of the insiders' new company," the U.S. Trustee said. "The debtors' inability to protect estate assets from such misuse ... is inexcusable and constitutes a clear cause for the appointment of a trustee in these cases."

According to its Web site, the U.S. Trustee program is that part of the Justice Department that "seeks to promote the efficiency and protect the integrity of the Federal bankruptcy system."

Thornburg Investment Management, a mutual-fund operation, is not affected by the bankruptcy filing. Garrett Thornburg has chaired both firms; however, the two companies are separate legal entities.

Contact Bob Quick at 986-3011 or bobquick@sfnewmexican.com.