FundAmerica filed for Chapter 11 bankruptcy protection Friday and listed as its two biggest creditors two foreign entities that received millions of dollars from its former president.
In its bankruptcy petition, FundAmerica listed assets of $17,457,860 and liabilities of $14,446,229 owed to 5,704 creditors.
The company, which is under investigation in at least five states for allegedly operating a pyramid scheme, said it would ask a bankruptcy judge at a hearing Tuesday to release $280,000 of its assets in order to meet an overdue payroll.
The Irvine firm also asked the bankruptcy court to appoint an independent examiner to investigate various allegations against it.
FundAmerica's two largest creditors are the same overseas entities that its current management has said received $11.3 million in electronic-fund transfers from company founder Robert T. Edwards, who resigned shortly after his July 19 arrest by Florida authorities on pyramid-scheme charges.
No one in FundAmerica management claims to know what the company's relationship is with Theta Ltd. of the British West Indies or Acheteur International in Amsterdam. Edwards wired millions of dollars to the two entities in the months before his arrest.
FundAmerica said it owes its largest creditor, Theta Ltd. and its president, Malcolm Hope-Ross, about $4.23 million. The company's address is listed as Anguilla, an island in the British West Indies.
"I was not aware of the Chapter 11 filing," Hope-Ross said Friday. He declined to discuss his relationship with FundAmerica or Edwards, and refused to disclose the nature of Theta's business.
"I really wish I could help you," he said. "I cannot say anything at this stage."
Larry Bass, FundAmerica's bankruptcy attorney, said he has no information about Theta or Acheteur.
"We don't know much about them (Theta and Acheteur), and it's for that reason, in very large part, (that) we have asked the court to appoint an examiner to investigate the company's relationship with these entities," Bass explained.
FundAmerica's bankruptcy filing said the firm owes Acheteur $2.5 million in royalties.
The Amsterdam Chamber of Commerce and Factories said that Acheteur is a shell company and its address belongs to a local tax adviser. Acheteur President Peter Hordijk said last week that he is in the "business of business ideas." He declined to elaborate.
Some authorities were concerned by Friday's disclosure that FundAmerica owes Theta and Acheteur a combined $6.7 million--in addition to the $11.3 million that Edwards is supposed to have sent.
"Presumably, there will be a lot of scrutiny by the bankruptcy court on those claims," said California Deputy Atty. Gen. Susan Henrichsen.
Florida authorities earlier this month charged the company and Edwards with organized fraud, securities fraud and running an illegal lottery. Both have denied the charges.
FundAmerica has said it operates a legitimate consumer-buying club that gets for its members cash rebates on services such as long-distance phone calls. The company earlier this week laid off all but 58 of its 172 employees. A federal judge in San Francisco froze FundAmerica' $17.5 million in assets Wednesday and ordered the company to cease operations until the bankruptcy court could hear the case.
Bankruptcy experts said Friday that FundAmerica's Chapter 11 filing will likely result in at least a partial release of its assets. A hearing on the company's request to release the assets is scheduled for Tuesday.
"Ultimately, we anticipate emerging from Chapter 11 a stronger, more viable company, serving our members in the best possible manner," said Mitchell Blumberg, FundAmerica's president.
While the bankruptcy will succeed in putting off creditors, it won't mean any delay in criminal prosecution of the firm.
Florida officials said they plan to continue the prosecution of the company and Edwards. It is not clear how the state will collect an $8-million fine it levied against FundAmerica.
"We may have to file our claim as a creditor along with everyone else, but at this point, it continues to be our intention to use all means at our disposal to collect it," said Tery McElroy, a spokesman for Florida comptroller's office.
FundAmerica also faces a $150-million, class-action lawsuit in San Francisco.
Besides the overseas entities and the class-action plaintiffs, FundAmerica listed several service providers and some top salespeople as creditors.
MCI Telecommunications is owed $2.45 million for long-distance phone services provided to FundAmerica members.
FundAmerica's presidential directors--those members who regulators allege were at the top of the pyramid--are owed hundreds of thousands of dollars.
Financial adviser Howard Ruff--who took over as FundAmerica's president after Edwards resigned, only to be fired a week later--is also listed as a creditor. He is owed $68,371 for what the petition said is "trade."
"He has no idea what the $68,000 is," said George Duggan, a spokesman for Ruff. "It's just as puzzling to him as anyone else."
FUNDAMERICA'S CREDITORS Irvine-based FundAmerica Inc. filed Friday for Chapter 11 bankruptcy in federal court in Santa Ana. This is a list of major creditors.
Amount Name/Location Nature of Claim (in thousands) Lan Nguyen et. al/ Class-action lawsuit $150,000,000 San Francisco Theta/Anguilia British Loan 4,230,000 West Indies Aceteur/Amsterdam, Royalties 2,500,000 Netherlands MCI Telecommunications/ Trade 2,445,788 Santa Ana Promotional Specialties/ Trade 938,787 Woodland Hills Dick Applebaum Co./ Trade 345,628 Maitland, Fla. Creative Marketing Incentives/ Trade 169,232 San Francisco Commerical Press Inc./ Trade 125,221 San Diego Clear Image Duplicators/ Trade 122,821 Orem, Utah Phoenix Press, Irvine Trade 88,224 G.B. Frank Inc./ Chicago, Ill. Trade 85,301 Harvey Conner, Irvine Sales commissions 74,309 Al Krauza, Laguna Beach Sales commissions 73,673
Source: FundAmerica Inc.