FundAmerica May File for Chapter 11

FundAmerica gave the required 24-hour notice Tuesday that it intends to seek protection from creditors in a Chapter 11 bankruptcy reorganization.

Also Tuesday, attorneys in a $150-million class-action lawsuit asked U.S. District Judge Marilyn Patel in San Francisco to instead put FundAmerica into receivership. Patel scheduled an emergency hearing in San Francisco todayto decide what course of action should be taken.

The 4-year-old Irvine marketing company, which filed the bankruptcy notice in U.S. District Court in San Francisco, is fighting to stay in business amid a flood of controversy, investigations in several states and other legal problems.

Authorities in four states claim FundAmerica is a pyramid scheme, though the company maintains it is a legitimate consumer buying club. The company and its former president, Robert T. Edwards, were charged last week in Florida with organized fraud, securities fraud and running an illegal lottery.

Daniel Girard, an attorney in the San Francisco class-action lawsuit, said he is asking the court to appoint a receiver so FundAmerica members can determine what has happened to company money. The California Attorney General’s Office said Tuesday that it has filed an affidavit in support of a court-ordered receivership.

Two weeks ago, FundAmerica disclosed that Edwards had wired some $11.3 million to two mysterious entities overseas.

“(The receiver) would have the power to collect FundAmerica’s assets and attempt to recover the overseas transfers and to account for the funds that FundAmerica has raised and apparently dissipated during the course of its existence,” Girard said.

Meanwhile, Florida Comptroller Gerald Lewis on Tuesday permanently banned FundAmerica from doing business in that state and ordered the controversial marketing company to pay an $8-million fine.