Easy money? Update: Advance-fee finance company's reorganization becomes liquidation amidst Ponzi scheme accusations

| Monday, September 16, 2002

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 payments.

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 auctioneer.
--René Tankersley, feature editor

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