Ex-L.A. Businessman’s Troubled Past an Issue in Pennwalt Takeover Fight

In the early 1980s, Abbey J. Butler was scrambling from under the collapse of his Los Angeles mail-order business and a series of lawsuits over his financial dealings.

He filed for personal bankruptcy twice. Gone were the Rolls-Royce convertible and the house on the beach at the Malibu Colony. He listed debts of $888,798 and $4,635 in assets, including a $35 watch, in 1983.

Now, six years later, the former Los Angeles businessman’s fortunes have improved dramatically. Butler is a principal partner in an investment company that has obtained commitments for more than $1 billion to finance a takeover of Pennwalt, a big chemical company based in Philadelphia.

But Butler’s past, including troubles with securities regulators, has emerged as a central issue in an increasingly bitter struggle by Pennwalt to rebuff Butler and his partners. Pennwalt claims that Butler’s background makes him unsuitable to control the company. A civil lawsuit filed by the company late last month charged that Butler omitted some of his past problems in documents filed with the Securities and Exchange Commission in connection with the takeover attempt.

“Pennwalt has been around since 1850 and has a reputation and history of being a responsible corporate citizen and also a reputation for honesty and integrity,” Edwin E. Tuttle, the company’s chairman and chief executive, said in an interview. “I just don’t believe the facts about Mr. Butler’s past, as they have been divulged over time, make one feel comfortable with the prospect of his controlling the destiny of Pennwalt.”

Dennis J. Friedman, head of merchant banking at Paine Webber, the New York brokerage financing part of Butler’s bid, said that nothing in Butler’s background weakens the $100-a-share offer for all outstanding stock.

“All of this stuff about the background of these guys has nothing to do with the price we are offering,” said Friedman. “The real question is whether the shareholders should get $100 a share or higher.”

Pennwalt has refused to talk with Butler and his associates in Centaur, the New York partnership formed last year as a vehicle for the Pennwalt bid. The company has enlisted the aid of four congressmen and Mayor Wilson Goode of Philadelphia in fighting the takeover.

The congressmen want the bid to be examined in hearings on hostile takeovers planned later this year by Rep. John D. Dingell (D-Mich.), head of the House Energy and Commerce Committee.

Rep. Ron Wyden (D-Ore.), a member of the House committee, said last week that serious questions were raised by the hostile bid and past violations of securities laws by some Centaur principals.

Centaur disclosed some of Butler’s regulatory and financial problems in its initial SEC filing. The firm also said the other three principals in Centaur have had past run-ins with the regulators.

In response to Pennwalt’s lawsuit, Centaur provided the SEC with more data about Butler’s bankruptcy and the withdrawal of his attempt to buy a radio station.

The second SEC filing did not mention civil lawsuits filed in Los Angeles alleging that Butler swindled several partners out of $250,000 in a real estate deal in the posh Malibu Colony in 1980 and alleging that he transferred $394,000 out of the mail-order company before its bankruptcy.

Butler, who now lives in New York, declined to be interviewed for this story. A spokesman for Centaur said the Malibu lawsuits were the result of a dispute among partners that was settled when Butler made full payment to the others.

The spokesman, Jerrold S. Seeman, also said that the trustee in the mail-order firm’s bankruptcy dropped the lawsuit over the $394,000 because “he must have seen that there was no merit to the allegation.”

The trustee, Sam Jonas, and the trustee’s attorney at the time, Arnold L. Kupetz, said in separate interviews this week, however, that the lawsuit was dismissed in 1980 after Butler convinced them he did not have any money.

“He appeared to us to be cleaned out at the time,” said Jonas. “We figured that to chase this guy when we couldn’t find any assets would be as worthless as a penny in hell.”

Kupetz said: “We brought him in for an interview and determined, based on what he told us, that he had no assets from which we could recover a judgment. We were pretty sure that we could get a judgment, but it didn’t seem worthwhile to keep the bankruptcy open.”

Abbey Butler’s troubles started well before the mail-order business on Sunset Boulevard, International Collectors Guild, went bust.

According to documents filed with the SEC by Centaur, Butler paid fines of $20,000 and $2,500 and was censured twice by the National Assn. of Securities Dealers in the early 1970s. The cases centered on violations of rules covering the sale of new issues of stocks.

Centaur’s original SEC filing also disclosed that Butler settled charges filed by the SEC in 1976 that he violated rules governing borrowing for stock purchases and short selling. The practice involves borrowing shares from an owner and then selling them in the hope of profiting by buying them back later at a lower price.

Didn’t Admit Wrongdoing

According to the SEC lawsuit against Butler and a New York brokerage he managed, Butler had engaged in a series of short sales that artificially depressed the price of an oil company stock and enabled Butler to reap a profit. He settled the case without admitting any wrongdoing and agreed not to violate the regulations again.

By 1976, Butler had moved to Los Angeles and rented a beachfront house in the exclusive Malibu Colony. He drove a Rolls-Royce convertible and told friends that he had made his fortune in the stock market.

“Abbey was an excellent tennis player and he had a very beautiful wife and charming children,” said Barney Rosenzweig, the producer of the television show “Cagney & Lacey.”

Rosenzweig was one of several entertainment industry people who invested in a Malibu house with Butler in 1978. Among the others were director Tom Kane, animator William C. Littlejohn and Arnold Kopelson, who would later produce the hit movie “Platoon.”

They bought a house for $737,000 as an investment and expected to sell it for a profit later.

According to three lawsuits filed in 1980 in Los Angeles by his partners, Butler used the house as collateral for a $127,000 personal loan in 1979 without telling his partners. After the house was sold for $936,000 in 1980, the lawsuits said, Butler refused to distribute the proceeds to the partners, instead giving them several checks that bounced.

Rosenzweig and his lawyer in the suit, Sam Perlmutter, said they had difficulty locating Butler in 1980. They said Butler eventually settled the matter by reimbursing the partners for their original investments.

A few months after the Malibu house was purchased, Butler’s mail-order business filed for bankruptcy. The business sold trinkets and china through advertisements in national magazines, such as Family Circle and Ladies Home Journal.

At the time of bankruptcy, the company listed debts of $856,820 and assets of $175,000. Jonas was appointed by the court to dispose of the bankrupt company.

In addition to five-figure claims from some creditors, Jonas said more than 2,000 people from around the country wrote in seeking refunds on merchandise they had paid for but never received.

A nun from South Dakota wrote that she had paid $9.15 for candles she never got, adding: “I am earning only $100 a month and would extremely appreciate my money back.”

Jonas sued Butler in November, 1979, alleging that he had transferred $394,000 in company funds to firms that he controlled in the months before the bankruptcy.

In July of 1980, court records show, the lawsuit was dismissed after Jonas told the court he would not be able to satisfy any judgment he might collect. Jonas and Kupetz, his lawyer, said Butler had convinced them that he had no money.

Just a month earlier, however, Butler and a partner had been trying to acquire control of Friendly Frost, a diversified Long Island, N.Y., company whose holdings included a radio station.

Butler abandoned the effort after the Federal Communications Commission refused to approve the transfer of the radio license without a public hearing because of the past securities violations of Butler and the regulatory problems of his partner in the deal, Neil S. Leist, according to the FCC order in the case.

Later in 1980, Butler and Leist were accused in a civil lawsuit of trying to secretly buy control of American Bakeries. The lawsuit said that the men were partners in a firm that acquired 13.3% of the Chicago-based company, including 6,000 shares held by Butler personally that were not disclosed to the SEC.

Filed for Bankruptcy in ’81

The takeover was successful and the suit was withdrawn. An official at American Bakeries said Wednesday that Butler never had a financial interest in the company. The official said Leist was killed a short time later in an auto accident.

On Feb. 5, 1981, Butler filed for personal bankruptcy in New York. In November, 1981, he asked the court to dismiss the request after working out an agreement to repay creditors.

At the time, an account in Butler’s name at a commodity brokerage contained $215,580, according to records from the Commodity Futures Trading Commission.

The brokerage was involved in a disciplinary proceeding that did not involve Butler.

But he testified before the commission that the money in his account belonged to Leist, not to him, according to Seeman, Centaur’s spokesman.

In 1983, Butler filed for bankruptcy again. He said he was unemployed, but Pennwalt said in its lawsuit that Butler was actually president of CB Equities, a New York investment firm owned in part by his son.

In its second SEC filing, Centaur acknowledged that Butler was president of CB Equities but that he was not paid until after his personal bankruptcy was concluded.