FundAmerica to Seek Protection Under Chapter 11
FundAmerica filed papers Tuesday in U.S. District Court in San Francisco giving a required 24-hour notice that it intends to seek protection from creditors in a Chapter 11 bankruptcy reorganization.
Also Tuesday, attorneys in a $150-million, class-action lawsuit against the beleaguered Irvine marketing company asked a judge in San Francisco to instead put FundAmerica into receivership.
U.S. District Court Judge Marilyn Patel has scheduled an emergency hearing in San Francisco for this afternoon to decide on a course of action.
The company and its former president, Robert T. Edwards, were charged last week in Florida on counts of fraud, securities fraud and running an illegal lottery.
Authorities in four states claim that FundAmerica is a pyramid scheme, though the company maintains it is a legitimate consumer buying club.
Daniel Girard, an attorney in the San Francisco class-action lawsuit, said he is asking the court to appoint a receiver so that FundAmerica members can determine what has happened to company money.
The California, Washington and Florida attorneys general filed papers in support of a court-ordered receivership.
“In order to fully protect the public and prevent the dissipation of FundAmerica’s assets, it appears that the appointment of a receiver for FundAmerica . . . would be appropriate,” California Deputy Atty. Gen. Susan E. Henrichsen wrote in an affidavit.
Two weeks ago, FundAmerica disclosed that Edwards had wired $11.3 million to two mysterious entities overseas. Girard contends, however, that the figure is nearly $17 million because several million dollars were sent to another entity in British Columbia between November, 1989, and July, 1990.
The class-action suit claims that FundAmerica is still under Edwards’ control despite vigorous denials by the company’s new executives--some of whom are Edwards’ friends.
“(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. “The only real injury to FundAmerica under receivership would be its inability to commit future securities-laws violations.”
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.
“By imposing the largest fine ever levied in a Florida investor-protection case, we are sending a message to con artists contemplating operations in this state that fraud will not be tolerated,” Lewis said.
Florida authorities estimate that Florida citizens who invested in FundAmerica have lost approximately $8 million since March, 1990.
If convicted of the charges against him in Florida, Edwards could be sentenced to more than 65 years in prison.
Both Edwards and FundAmerica have denied the charges.
The company issued a terse statement Tuesday, accusing Florida officials of malicious prosecution.
“The events in Florida are disgraceful,” FundAmerica said in its statement. “These are underhanded tactics by the government. . . . Thousands of people from all walks of life are in support of the program and the benefits they have derived.”
The 4-year-old company is fighting to stay in business amid a flood of controversy, investigations in several states and other legal problems.
Patel has frozen the company’s assets as part of the class-action suit, preventing FundAmerica from paying its salespeople and other employees. Florida officials have said that FundAmerica had revenues of $33 million in the first four months of 1990.
FundAmerica officials have maintained that the company is a consumer buying club that offers cash rebates to members because it purchases services in bulk. But nearly all of the company’s service providers--including MCI Communications and Carlson Cos. Inc.--have canceled their contracts with FundAmerica.
FundAmerica had 100,000 members in eight states earlier this summer.
