J. David Trustee Lowers Recovery Hopes : Will Crack Down on Those Who Received Preferred Payments

Only about $6.5 million has been recovered from the sale of assets of the bankrupt J. David & Co., the once high-flying La Jolla investment company that attracted and later frittered away up to $85 million in investors’ funds.

Eleven months after a group of investors forced the firm into bankruptcy, court-appointed bankruptcy trustee Louis Metzger says he believes he has identified virtually all of J. David’s assets and expects soon to pick up $800,000 more from the sale of seven pieces of property.

In an interview this week with The Times, however, Metzger would not predict how much money would eventually be returned to J. David’s estimated 1,000 investors.

Metzger once said that he expected to recover $30 million to $40 million.

That estimate is now uncertain, largely because of the still-unresolved status of $25 million to $30 million in so-called preference payments--funds paid out to J. David investors during the 90 days prior to the firm’s bankruptcy.

Although federal law requires those funds to be returned to the bankruptcy trustee, many investors have refused to do so. Some former investors claim they deposited and withdrew their money from J. David much like they would from a bank and so typical bankruptcy laws do not apply.

Only 150 of 230 Accepted Only 150 investors have so far accepted an early-payment proposal by Metzger that only a portion of the funds be returned--from 60% to 80%, depending on how soon the money was turned over.

The estate received only about $2.9 million in cash and notes payable from that offer, Metzger said.

Another 200 investors have refused to return their preference payments, and 30 investors who received large chunks of money in the waning days of J. David still remain unidentified, Metzger said.

Lawsuits seeking a return of the funds will begin in earnest by month’s end, he added.

Metzger has spent $2.5 million to retrieve the $6.5 million, leaving a net balance for the estate of $4 million. That money is now in a financial institution, drawing interest.

Legal fees comprise much of the expenses, totaling $1.08 million, although Metzger insisted that he has “greatly reduced” the legal expenses.

Other costs, according to Metzger, include $450,000 in administrative expenses, $350,000 in accounting fees, $325,000 for storage and maintenance of existing assets, $175,000 in costs associated with settling outside lawsuits and $125,000 in investigative fees.

‘Excellent Progress’ “We’ve made excellent progress this first year, and we’re now ready to move to new areas,” said Metzger. He said he will pursue lawsuits aggressively now and identify “insider payments” made to key employees during the year prior to J. David’s forced bankruptcy.

The 68-year-old retired Marine Corps lieutenant general would not predict how long the bankruptcy case might last, however. Metzger also is the bankruptcy trustee of MB Financial, a San Diego firm that bilked nearly $21 million from 1,200 people in an insurance premium scheme. That bankruptcy likely will wind up in the spring, about six years after the firm was declared insolvent.