The trustee for Fair Finance Co. wants money back from some people who owned Fair investment certificates and received payments shortly before the Akron firm went into bankruptcy nearly two years ago.
The investors were not identified in the trustee’s status report filed late Monday and discussed Tuesday morning at a status hearing in U.S. Bankruptcy Court in downtown Akron. Letters have already been sent to the certificate holders from whom the trustee is seeking money.
Brian Bash, the Cleveland-based trustee for Fair Finance, said he “will be pursuing certain payments made by [Fair Finance] to investment certificate investors as preferential payments … or fraudulent transfers.”
Bash said “preference payments” total $932,865.94 and “fraudulent transfer payments” total more than $2.6 million.
The claims do not allege anything illegal on the part of investment certificate holders, said Kelly Burgan, Bash’s legal counsel.
“They do not mean or imply people who received money did anything wrong,” she said. The trustee’s team is making the claims after looking at what money was paid out to investors prior to bankruptcy, she said.
These types of claims are routine in bankruptcy proceedings, she said. The bankruptcy code allows the trustee to pursue claims on people who received money from Fair Finance 90 days prior to the bankruptcy filing, she said.
“We don’t want to sue investors. We take no joy in it,” Burgan said. “We tried to balance our duty to recover funds with the practicality.”
Bash will not be pursuing claims against people with relatively small investments such as $2,000 to $5,000, she said. “We imposed a dollar limit,” she said.
“In connection with any such claims, the trustee is committed to taking into consideration the possible financial impact of the Fair Finance bankruptcy on the investor and reviewing any individual cases of financial hardship in connect with such claims,” the status report says.
“We’re not looking to squeeze blood out of a rock,” Bash said via teleconference call. “We are looking for a fair and equitable manner to handle this situation.”
About 5,300 Ohio residents and organizations bought more than $200 million in uninsured Fair Finance investment certificates.
Bash said that the dollar amount in the claims being filed exceeds the total losses in the bankruptcy case.
Bash is filing waves of lawsuits seeking to bring in tens of millions of dollars into the Fair Finance estate for eventual distribution to creditors who largely are investment certificate owners.
Bash filed 27 lawsuits last week seeking more than $11.6 million. The trustee anticipates filing an additional 50 to 60 lawsuits through Feb. 3.
Bankruptcy Court Chief Judge Marilyn Shea-Stonum said she wants the people named in each lawsuit to appear in person as part of pre-trial conferences scheduled to start in March. The judge said that she thinks “more progress will be made with face to face meetings.”
Burgan said it is still too soon to say how much money, if any, will end up being distributed to Fair Finance creditors. The initial distribution of recovered money went to pay for legal and forensic accounting costs incurred in 2010.
Fair Finance was forced into bankruptcy in February 2010 following FBI raids just before Thanksgiving in 2009; the longtime consumer loan and accounts receivables business never reopened after the raids. Fair Finance’s Indiana owners, who bought the company in 2002, are awaiting trial on federal charges that they operated the company as a Ponzi scheme.
The next regular status hearing is scheduled for 9:30 a.m. Feb. 21 in U.S. Bankruptcy Court in Akron.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org