A Superior Court judge granted a motion Monday to transfer three entities in the Mathon Management investor fraud case to the U.S. Bankruptcy Court for recovery of assets.
Judge Barry Schneider approved the motion allowing James Sell, the conservator in the case, to place Mathon Fund, LLC, and Mathon Fund 1, LLC — two investor entities — and WSF — World Sports Fans LLC, into Chapter 11 bankruptcy protection by Nov. 14.
The motion was made by Sell and the official investors committee. Schneider may consider allowing other entities to be transferred to bankruptcy court, Sell said.
Investors nationwide are owed an estimated $77 million that they gave to two-Mesa-based Mathon funds with promises of huge returns. Investigators for the Arizona Corporation Commission contend the funds, operated by Mesa residents Duane Slade and Guy Williams, were Ponzi schemes in which early investors were repaid by later investors rather than by real business activities.
Slade and Williams deny the charges, saying they ran a legitimate business of using investor money to provide high-interest loans to companies that needed quick cash.
On April 1, Schneider ordered Slade and Williams to cease business, and appointed Sell to recover Mathon assets to repay investors. The fraud case will go to trial in August 2006 in Superior Court.
Grant Woods, former Arizona attorney general who is attorney for Slade and Williams, couldn’t be reached for comment on Monday’s decision.
Sell determined and the investors committee agreed the three entities should be put into bankruptcy protection, said Wendy Coy, senior counsel with the Corporation Commission’s Securities Division.
"What is moving into bankruptcy court would be the assets of the entities," she said. "The underlying adjudication of the facts — did those entities violate the Securities Act — that technically will stay here (in Superior Court)."
The three entities were selected for bankruptcy protection because they represent most of the known assets, Sell said.
"It will make it easier to stop or at least put on hold some of the lawsuits that are out there," he said. "This gives us nationwide coverage for this stay. The lawsuits are not impeding the recovery process, but it certainly would slow it down once we got to the issue of who’s entitled to what. This should streamline
Placing the entities into bankruptcy protection also will allow for a more thorough examination to determine whether any investors and/or insiders received preferential treatment, said Heather Murphy, commission spokeswoman. This will better ensure a fair distribution of recovered assets, she said.
The conservator will be filing disclosure reports in the bankruptcy court, then will begin the process of selling assets and converting them into cash.
"We’ll then submit a plan to the bankruptcy court for distribution of the proceeds," Sell said. "I’m currently sitting on about $10.5 million that I wanted to distribute to the investors, and as soon as we get a plan approved in bankruptcy, we’ll be making that distribution. And if we recover additional sums by that time, we will put that in a pot and distribute those, too."
In all, Sell expects to recover $40 million to $50 million for investors.