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Lull denied debt protection
by Michael Levine - The Garden Island
Debt protection typically sought during bankruptcy proceedings has been denied for James Lull, the former Kapa‘a branch manager for the U.S. Financial Mortgage Corp. whose complex web of loans left many investors out in the cold, but monetary relief may not come anytime soon for creditors.
Ronald K. Kotoshirodo, the United States Trustee now responsible for looking into Lull’s financial history, accounts and transactions, said this week that Lull’s debts were not discharged and that his office, part of the U.S. Department of Justice, is continuing to pursue assets that can be added to his estate and distributed.
“We’re hoping to find enough money to pay back the creditors,” Kotoshirodo said. “We’ve got a long way to go.”
Attorney James Wagner, whose Honolulu-based law firm originally assisted Lull in filing bankruptcy in December 2006, confirmed Tuesday that all claims were upheld through bankruptcy proceedings. Bankruptcy Judge Lloyd King ruled against discharging the debts in March.
Kotoshirodo estimated the funds recovered to date at $750,000, including a $400,000 settlement approved Thursday in Honolulu. Much of that money will go toward paying administrators, attorneys and others who have been working on the case for a year and a half without pay, Kotoshirodo said.
In Thursday’s settlement, Alice Gordon, a claimant who received preferential transfers from Lull just before he filed for bankruptcy, also agreed to reduce her claim from $10.8 million to $4 million.
Even with that substantial reduction, the total amount of outstanding claims against Lull still approaches $50 million.
“When you get down to the meat of the coconut and assess the claims,” that number could go down further, explained Michael A. Lilly, one of the multiple attorneys representing Kotoshirodo.
But before the claims are paid out or even investigated further, Kotoshirodo and his staff still need to gather up all of Lull’s assets through a variety of lawsuits against insiders and others who received payments from the debtor prior to bankruptcy.
As a U.S. Trustee, Kotoshirodo has the authority to “avoid,” or undo, transactions undertaken by Lull before filing for bankruptcy and is responsible for distributing assets fairly amongst creditors.
Some 10 such lawsuits are underway in the Honolulu bankruptcy court system.
If further assets are located and liquidated by Kotoshirodo and his staff, primary creditors will not be compensated evenly or simultaneously, but in a specific order.
The Internal Revenue Service’s priority claim seeks more than $125,000, and secured claimants, who would grab the next $12.7 million of recovered funds according to court records, “still have ingots in the fire,” said one of many attorneys hoping to acquire funds for his client.
Secured claimants are typically lien-holders that were promised property as collateral for their investment. Examples include home and car loans.
Countrywide Home Loans Inc., which held the primary mortgage on Lull’s home, is one of the few secured claimants. Robert E. Chapman, who represents Countrywide, said that a second mortgage holder, the Patti K. Irvine Revocable Trust, purchased the home in question at auction earlier this year and the two companies will need to work out some sort of deal in coming months.
Grant K. Kidani, a Honolulu attorney representing California-based secured claimant James Alexander, said that the case “is a mess right now” and that “it’s up to a judge” whether his client receives the $275,000 he claims is owed.
Only after the secured creditors are compensated will the nearly $35 million in unsecured claims be dealt with. All of the unsecured creditors will simultaneously receive the pro-rated portion of any additional recovered funds based on the size of their claims, which could end up being just pennies on the dollar depending on how effective Kotoshirodo is in recovering assets, attorneys said yesterday.
“His (Kotoshirodo’s) goal is to do everything he can to get money back to the creditors,” said Stephen A. Jones, another attorney for the U.S. Trustee. “There’s a lot of work in front of us.”
As for the possibility of fraud charges being brought against Lull, Kotoshirodo has described the operation as a “Ponzi” scheme, which pays investors’ profits with subsequent investments rather than by legitimate revenue, but declined to comment on the possibility of his work leading to criminal proceedings.
“That is not our kuleana,” Lilly said.
• Michael Levine, staff writer, can be reached at 245-3681 (ext. 252) or via e-mail at mlevine@kauaipubco.com
Ronald K. Kotoshirodo, the United States Trustee now responsible for looking into Lull’s financial history, accounts and transactions, said this week that Lull’s debts were not discharged and that his office, part of the U.S. Department of Justice, is continuing to pursue assets that can be added to his estate and distributed.
“We’re hoping to find enough money to pay back the creditors,” Kotoshirodo said. “We’ve got a long way to go.”
Attorney James Wagner, whose Honolulu-based law firm originally assisted Lull in filing bankruptcy in December 2006, confirmed Tuesday that all claims were upheld through bankruptcy proceedings. Bankruptcy Judge Lloyd King ruled against discharging the debts in March.
Kotoshirodo estimated the funds recovered to date at $750,000, including a $400,000 settlement approved Thursday in Honolulu. Much of that money will go toward paying administrators, attorneys and others who have been working on the case for a year and a half without pay, Kotoshirodo said.
In Thursday’s settlement, Alice Gordon, a claimant who received preferential transfers from Lull just before he filed for bankruptcy, also agreed to reduce her claim from $10.8 million to $4 million.
Even with that substantial reduction, the total amount of outstanding claims against Lull still approaches $50 million.
“When you get down to the meat of the coconut and assess the claims,” that number could go down further, explained Michael A. Lilly, one of the multiple attorneys representing Kotoshirodo.
But before the claims are paid out or even investigated further, Kotoshirodo and his staff still need to gather up all of Lull’s assets through a variety of lawsuits against insiders and others who received payments from the debtor prior to bankruptcy.
As a U.S. Trustee, Kotoshirodo has the authority to “avoid,” or undo, transactions undertaken by Lull before filing for bankruptcy and is responsible for distributing assets fairly amongst creditors.
Some 10 such lawsuits are underway in the Honolulu bankruptcy court system.
If further assets are located and liquidated by Kotoshirodo and his staff, primary creditors will not be compensated evenly or simultaneously, but in a specific order.
The Internal Revenue Service’s priority claim seeks more than $125,000, and secured claimants, who would grab the next $12.7 million of recovered funds according to court records, “still have ingots in the fire,” said one of many attorneys hoping to acquire funds for his client.
Secured claimants are typically lien-holders that were promised property as collateral for their investment. Examples include home and car loans.
Countrywide Home Loans Inc., which held the primary mortgage on Lull’s home, is one of the few secured claimants. Robert E. Chapman, who represents Countrywide, said that a second mortgage holder, the Patti K. Irvine Revocable Trust, purchased the home in question at auction earlier this year and the two companies will need to work out some sort of deal in coming months.
Grant K. Kidani, a Honolulu attorney representing California-based secured claimant James Alexander, said that the case “is a mess right now” and that “it’s up to a judge” whether his client receives the $275,000 he claims is owed.
Only after the secured creditors are compensated will the nearly $35 million in unsecured claims be dealt with. All of the unsecured creditors will simultaneously receive the pro-rated portion of any additional recovered funds based on the size of their claims, which could end up being just pennies on the dollar depending on how effective Kotoshirodo is in recovering assets, attorneys said yesterday.
“His (Kotoshirodo’s) goal is to do everything he can to get money back to the creditors,” said Stephen A. Jones, another attorney for the U.S. Trustee. “There’s a lot of work in front of us.”
As for the possibility of fraud charges being brought against Lull, Kotoshirodo has described the operation as a “Ponzi” scheme, which pays investors’ profits with subsequent investments rather than by legitimate revenue, but declined to comment on the possibility of his work leading to criminal proceedings.
“That is not our kuleana,” Lilly said.
• Michael Levine, staff writer, can be reached at 245-3681 (ext. 252) or via e-mail at mlevine@kauaipubco.com
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