Judge Lets FundAmerica’s Management Remain Intact
FundAmerica scored a major victory Wednesday when a federal bankruptcy judge--against the recommendations of a court-appointed examiner--refused to order the removal of the beleaguered company’s current management.
“There has been a lack of proof to sustain the appointment of a trustee at this stage of the case,” said U.S. Bankruptcy Judge James N. Barr in Santa Ana. “I have no indications that current management is doing anything illegal or anything that is to the detriment of the estate.”
The ruling is one of the few bright spots for the Irvine-based multilevel marketing company since it was accused this summer by state regulators across the country of operating a pyramid scheme.
The company filed for Chapter 11 bankruptcy in August after it became the subject of a nationwide class-action lawsuit.
“I am very pleased,” FundAmerica President Mitchell Blumberg said after Barr’s decision. “We intend to begin marketing in the near future.” But first the company will have to overcome a ban on its marketing activities imposed by a federal judge in San Francisco who is presiding over the class action.
The courtroom was crowded with attorneys and FundAmerica sales representatives, many of whom stood in a hallway outside and broke into smiles after Barr’s pronouncement.
“I feel fabulous. I think it’s a step forward, “ said Mark Guest, a sales representative from Monarch Beach. “I’m looking forward to using my FundAmerica membership again real soon.”
Ronald L. Durkin, a bankruptcy examiner appointed by Barr last month, had urged the appointment of a trustee after concluding that FundAmerica’s current management retained close ties to the firm’s controversial founder and ex-president, Robert T. Edwards.
Officials from Florida, where Edwards and FundAmerica have been charged with operating an illegal pyramid scheme, made similar arguments Wednesday. The company and Edwards have pleaded not guilty to the charges.
“We think the evidence is unbelievably thick, deep and probative that a trustee should be appointed,” said Sally Neely, an attorney representing Florida regulators.
Earlier in Wednesday’s proceeding, Florida authorities said the state is considering filing additional criminal charges in the FundAmerica case.
A focal point in the FundAmerica controversy is some $11.3 million that Edwards wired to mysterious entities in Hong Kong and the Netherlands before his July resignation.
So it was something of a surprise on Wednesday when FundAmerica attorneys revealed that some $6.2 million of that money is being returned by Edwards to the United States, in part to repay creditors.
