The more than 5,000 Fair Finance Co. creditors defrauded of more than $200 million could get a distribution of recovered funds before the year ends.
But how much money might be coming — and when — has not been determined.
Marilyn Shea-Stonum, the chief bankruptcy judge overseeing the Fair Finance case in U.S. Bankruptcy Court in Akron, on Tuesday pressed trustee Brian Bash to make his first distribution of recovered money in the years-long case by the end of 2012.
Shea-Stonum’s urging in a regularly scheduled status conference came during a sometimes contentious discussion between her and Bash on how to compensate all of the lawyers and other professionals who have been working the case since February 2009. That’s when the longtime Akron financing company was forced to liquidate following a federal criminal investigation that last month resulted in the convictions of the company’s two Indiana-based owners, Timothy Durham and James Cochran and former Chief Financial Officer Rick Snow.
“I want this case moved along so you can make an interim distribution [to creditors] within the year,” Shea-Stonum said.
“When I get to a certain threshold that I have looked at, I will make an interim distribution,” Bash said. He said outside the courtroom that he has recovered more than $6 million to date and is not prepared to say when a distribution will be made.
Shea-Stonum’s request comes at a time when a private company is offering to pay Fair Finance creditors immediately about six cents on every dollar owed them. The company is offering to buy out investor claims at a discount now in the hope that Bash eventually will recover substantially more money than six cents on the dollar.
The trustee has urged the thousands of creditors, most of whom are Ohio residents who bought uninsured investment certificates from Fair Finance, to carefully consider the implications of accepting the company’s initial offer. Bash said he believes he will be able to bring in substantial money — while not specifying a dollar amount — to the Fair Finance estate for eventual distribution to creditors.
In one court filing last month, the trustee said although he “believes significant additional cash will be recovered as a result of the trustee’s lawsuits, there can be no guarantee of that result.” Bash noted Tuesday that in the nationally known Bernie Madoff fraud case, companies initially offered to buy investor claims for about 12 cents on the dollar and that the offers since have grown to more than 60 cents on the dollar.
In addition to any interim distribution to creditors lies the issue of millions of dollars in unpaid fees racked up by all of the bankruptcy lawyers, accountants and related professionals in the case. That money will have to come out of any recovered funds in the complicated Fair Finance fraud case.
Shea-Stonum last year approved the payout of $1.7 million in legal and professional fees incurred solely in 2010.
The judge earlier this year ruled out a proposal from Bash that professionals give up more than $1.65 million in hourly billings in 2011 and instead be paid solely a flat commission.
Shea-Stonum on Tuesday also made it clear she is unhappy with Bash’s latest compensation proposal that would have his law firm, Cleveland-based Baker & Hostetler, be paid a sliding scale contingency fee. At one point she criticized it as a “heads we win, tails you lose” approach. She said she is unwilling to grant Bash’s compensation motion as presented.
The latest proposal called for Baker & Hostetler to be paid 30 percent of the first $50 million recovered; 15 percent of the recoveries from $50 million to $100 million; and 10 percent of recoveries over $100 million.
Under that scenario, Bash’s proposal showed Baker & Hostetler would be paid $15 million if the trustee recovered $50 million. The firm would be paid $32.5 million if Bash recovered $200 million. If the trustee recovered $1 billion, the law firm would get $112.5 million.
As of May 31, Baker & Hostetler said it had incurred nearly $5.8 million in unpaid hourly fees, not counting more than $860,000 of Bash’s time spent on the case, according to court documents. The law firm agreed to waive $2.4 million in fees if the judge approved the contingency plan.
Shea-Stonum said it appears that the law firm is trying “to change compensation 27 months into the case.” Shea-Stonum called that “troubling” and also said she did not want people to think that distributions are being held up because of the fee compensation issue.
Bash, a partner in Baker & Hostetler, made a rare personal appearance in Akron. Most hearings the past couple of years have been conducted via telephone conference calls in open court.
The judge said that Bash’s law firm is not a “disinterested party” regarding compensation and noted that Bash himself would be paid millions of dollars if he succeeds in lawsuits seeking about $1.6 billion in recovered assets plus damages.
“If you succeed to the ultimate intent you can, you will be getting a trustee fee in the area of $10 million,” Shea-Stonum said. “To people [Fair Finance investors] who are wanting to get back some money in this case, that is money beyond their wildest dreams.”
Bash said he understood the judge’s concerns and said that he never thought of receiving a $10 million fee.
“You have ... cases of $1.6 billion. Tell me you have not thought of this,” Shea-Stonum said.
Bash told the judge his entire intent regarding his proposed compensation package is not to take advantage of the case or of the investors.
“I just want to make sure I can get money out to the investors,” Bash said afterwards. “I want to make sure it isn’t a feeding frenzy for the lawyers. ... I want to make sure it isn’t all going to the lawyers.”
Shea-Stonum and Bash briefly talked about last month’s convictions of Durham, Cochran and Snow in U.S. District Court in Indianapolis. Bash referred to them as the “three miscreants in the case.” Shea-Stonum noted that the Indiana jury returned verdicts the same day it began deliberations.
The next status hearing is 9:30 a.m. Aug. 21
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org.