With creditors questioning Commercial Money Center's legitimacy
and disputing responsibility for debts, a federal judge bumped the
company's bankruptcy from reorganization to liquidation. CMC has
been the subject of a Land Line probe into owner-operator complaints
about the high-interest, and often unreliable, equipment financing
offered by advance-fee finance companies.
Since CMC filed for reorganization May 30 in Fort Lauderdale's
U.S. Bankruptcy Court, some of the company's creditors claim they
are victims of a massive Ponzi scheme, according to the Miami Herald.
A Ponzi scheme is an investment swindle in which some early investors
are paid off with money put up by later ones in order to encourage
more and bigger risks.
CMC's Boca Raton attorney Bradley S. Shraiberg told the newspaper
CMC leases went to companies or individuals with poor credit who
were willing to pay high interest rates. According to the news report,
the company pooled the leases and sold the income stream to investors,
typically banks and other financial institutions, then bought insurance
policies or surety bonds to pay investors if lessees didn't make
Investors and insurance companies now dispute responsibility for
the unpaid leases. The insurers question the legitimacy of the leases,
saying they were set up with shell companies or individuals whose
signatures were forged. The insurance and bonding companies are
just trying to get out of paying claims on the defaulted leases.
''This case is a massive fraud, a Ponzi scheme of epic proportions,''
Miami bankruptcy lawyer Howard Berlin told the Herald. These creditors
aren't your run-of-the-mill man-on-the-street investors; they're
insurance and surety companies with claims totaling more than $400
million. Berlin represents Illinois Union, an insurer that issued
bonds totaling more than $100 million.
Shraiberg told the bankruptcy court CMC operated successful until
a South Florida company defaulted on a $30 million lease in August
2000, prompting CMC to file claims with its insurance companies,
according to the Herald. However, the insurance companies refused
to pay on the defaulted lease, and CMC has filed lawsuits against
five of its insurers.
RLI Insurance, which issued surety bonds totaling $54 million,
told the newspaper its investigation discovered many of the leases
were fraudulent or fictitious. The insurance company filed its own
federal lawsuit against CMC in southern California, where CMC had
operations until March 2002. RLI's attorney, Russell S. Bogue III,
told the bankruptcy court CMC filed bankruptcy in Fort Lauderdale
to avoid the rulings of the federal court in California, according
to the newspaper. However, Shraiberg says CMC filed in South Florida
to be close to the party that had defaulted on the $30 million lease.
The bankruptcy judge is expected to issue his decision any day
now whether CMC's liquidation should be overseen in Florida or California.
The court approved the employment of Las Vegas Auction Inc. as the
--René Tankersley, feature editor