U.S. Bankruptcy Judge Marilyn Shea-Stonum says when it comes to dispersing money in the Fair Finance Co. case, she intends to use the unwritten “White” rule, named for her predecessor.
And that means some 5,000 Ohio residents defrauded out of more than $200 million in the years-long case should get no less than half of whatever funds are brought into the bankrupt Akron company’s estate.
Shea-Stonum on Tuesday repeated at a hearing that it was her intention to abide by the informal White rule, named after former Bankruptcy Judge Harold White, who insisted that at least half of all money recovered for an estate go to claimants. The judge, who expects to retire in the near future, said her successor is not bound by the rule.
Shea-Stonum invoked the White rule as Fair Finance Trustee Brian Bash presented fee applications totaling more than $12 million — almost twice as much as has been brought into the estate. A money market fund set up to hold recovered funds for the Fair Finance Co. estate held slightly more than $6.6 million as of earlier this month.
“Bankruptcy should not simply be for the professionals,” Shea- Stonum said.
The Cleveland law offices of Baker & Hostetler, where Bash is a partner, said it is owed $7,263,478 for services rendered from Sept. 1, 2012, through Aug. 31, plus $463,906.63 in expenses. In addition, the law firm said it is owed another $4,283,862 in fees for work prior to Sept. 1, 2012. The law firm has been paid nearly $4.7 million so far in the case for work dating to 2010.
Bash did not ask for a distribution from the money market account to pay the latest fees and Shea-Stonum said she was not going to rule on the fee applications right away.
“There is very little money for distribution,” Shea-Stonum said. “I would not authorize anything other than payment of expenses to Baker & Hostetler. ... I will not be going over the 50 percent point.”
Don Russell, a retired Summit County deputy sheriff who is now 63, said Tuesday he was pleased to learn the judge mentioned the White rule but said he remains frustrated over not getting back any of the $350,000 he invested in Fair Finance. The Doylestown resident said he had bought investment certificates from Fair Finance for 20 years and was afraid of investing in the stock market. The private investment certificates, which provided business capital to Fair Finance and paid higher-than-bank-rate interest, were not insured.
“I lost my life savings,” Russell said. “My mother lost her life savings as well.”
Russell said his mother was hospitalized one day after the Nov. 24, 2009, FBI raids that closed down the business for good. “She died 29 days later. It just beat her down,” he said.
Russell said he had a heart attack five months ago and thinks the Fair Finance case “had a lot to do with it.”
He said he doesn’t want to see any more money go to professionals working the case until investors get some of their money back. While he’s optimistic at times, “it’s just overwhelming to me personally some of these days,” he said.
The Baker & Hostetler law firm basically has received $1 million a year in the case so far, he said.
“That’s crazy. That’s absolutely insane,” Russell said. “I would like my money back. It’s been four years. That’s long enough.”
Shea-Stonum said she hoped that enough money is recovered and brought into the Fair Finance estate so that the White rule is a non-issue. No money has been distributed to any of the creditors in the case.
Bash said his legal team is aggressively working to recover significant amounts of money for the Fair Finance estate for eventual disbursement to creditors. He said he urged the former investors in Fair Finance to be a little more patient.
“I always said this was not going to be an easy row to hoe,” Bash said. “Nothing has been easy in this case.”
Fair Finance, which managed accounts receivables for other businesses, was forced into bankruptcy in February 2010. Co-owners Timothy Durham and James Cochran, Indiana businessmen who bought the well-established company in 2002, were convicted last year of defrauding thousands of Fair Finance investors out of more than $200 million.
Bash outlined where he hopes to bring in more money, including possibly selling at a discount to private parties at least some of $300 million in summary judgements he has not been able to collect. The trustee also is suing Fortress Credit Corp., which provided financing to Fair, for more than $72 million.
Jim Mackinnon can be reached at 330-996-3544.