A federal bankruptcy judge Tuesday handed a victory to the trustee in the bankruptcy case of Scott Rothstein’s defunct law firm, agreeing to advance a revised reorganization plan.
The ruling by U.S. Bankruptcy Judge Raymond Ray in Fort Lauderdale effectively takes off the table a move by opposing lawyers to convert the Chapter 11 bankruptcy case to a Chapter 7 liquidation, which would have ended trustee Herbert Stettin’s role in the case after nearly three years.
Instead, Ray will hold a hearing May 29 on whether the disclosure statement on Stettin’s revised liquidation plan should be sent to creditors for a vote. If approved, victims could get paid their first distribution in a matter of days, Stettin’s attorneys said.
Lawyers representing clients who were victimized by Rothstein’s $1.2 billion Ponzi scheme filed the motion for conversion, angered by Stettin’s original reorganization plan that would have granted TD Bank a major role in the wind-down process and a bar order against lawsuits by money-losing investors. A federal judge and jury decided last year that TD Bank aided and abetted Rothstein’s settlement financing fraud.
Lawyers from Conrad & Scherer, Kozyak Tropin & Throckmorton and other firms representing victims successfully defeated the plan in court last month. The U.S. trustee’s office and Michael Goldberg of Akerman Senterfitt, who represents the creditors’ committee, also opposed the plan. Creditors have endorsed the revised plan.
Ray ruled against the liquidation idea and ordered the proposed TD Bank bar order to be considered separately.
Stettin’s legal team at Berger Singerman filed a new plan last week calling for a reduced role for TD Bank after confirmation.
Rothstein, who is serving a 50-year prison sentence, ran money from his investment fund through numerous law firm accounts at TD Bank. The bank denies wrongdoing in the 2009 collapse of Rothstein Rosenfeldt Adler.
The updated plan still calls for TD Bank to pay a $72.4 million settlement, but the bank no longer would have the power to choose the liquidating trustee or play an administrative role approving or rejecting claims.
The plan states most of the general unsecured claims will receive full distribution.
The new plan calls for a partial bar order. Eight pending lawsuits against TD Bank covering about 100 creditors would be shut down. But the proposal carves out an exception for Texas-based Coquina Investments LLC, which won a $67 million verdict against TD Bank in January 2012 that is currently on appeal.
Also excluded is a motion for sanctions pending in Broward Circuit Court by Razorback Funding LLC, represented by Conrad & Scherer, over the failure to turn over key documents before settlement.
In court Tuesday, Goldberg strongly supported the new plan and opposed conversion to Chapter 7. A trial on the conversion had been scheduled for May 30.
Under the new plan, Goldberg said TD Bank’s claim in the estate would be fully subordinated to all other claims. The bank would pay $72 million to the estate within three business days without escrow, he said.
“The bar order has been narrowed tremendously,” he said. “This is better than the devastating effect conversion would have.”
The creditors’ committee voted 3-0 in favor of the new plan and against conversion, Goldberg noted. Ira Sochet, a Miami Beach investor who was one of Rothstein’s key investors, voted in favor of the plan.
Another Stettin attorney, Paul Singerman of Berger Singerman, told Ray the bar order was “bulletproof.”
“The process has worked,” he said.
Steven Schneiderman of the U.S. trustee’s office did not offer an opinion on the revision but noted the cost of a trial on conversion would be “extremely expensive for the estate and drawn out.”
Others also spoke in support of the new plan. The only dissenter was Chuck Throckmorton of Kozyak, Tropin & Throckmorton, who represents victims along with Conrad & Scherer.
“From where we stand, TD Bank has been adjudicated of fraud and can still pay out any amount of claims,” he said. “From where we stand, the new plan is not night and day from the old plan. In fact, this bar order is worse.”
Throckmorton argued the bar order is vague and he’s not clear if his clients would be excluded or not.
“They are booby-trapping this plan and ramming a bar order down our throats and the court’s throats,” he said.
After the hearing, Throckmorton vowed to continue fighting.