FundAmerica Settlement OKd by Bankruptcy Judge

A federal bankruptcy court judge approved a two-part settlement Friday that calls for Irvine-based FundAmerica to repay $19.3 million owed to its creditors and clears the way for its emergence from Chapter 11 bankruptcy protection.

One part of the settlement, approved Dec. 19, calls for FundAmerica to pay $9.1 million to outside investors who filed a class-action suit against the multilevel marketing company. The suit was filed after former FundAmerica President Robert T. Edwards was arrested by Florida authorities in July and charged with operating an illegal pyramid scheme.

Another part of the settlement, approved Friday, provides for FundAmerica to pay $4 million of an estimated $7 million in claims made by former top-level marketing representatives who sold memberships for the company, said Mitchell Blumberg, FundAmerica’s president and chief executive.

The agreement, approved by U.S. Bankruptcy Court Judge James Barr in Santa Ana, must still be approved by a U.S. District Court in San Francisco, where the class action was filed, said William Bernstein, attorney for the plaintiffs in the suit.

Edwards and overseas companies controlled by him would pay $6.2 million to FundAmerica as part of the settlement. Of that amount, the company would distribute $3.6 million to plaintiffs in the class action and $2.4 million to the company’s unsecured trade creditors. The company would retain $200,000 for itself, Bernstein said.

“This settlement brings substantial sums back into the company,” Blumberg said. “We hope to begin operating in California in January and in other states as early as possible.”

Blumberg said he expects the company could clear all hurdles to emerge from bankruptcy by the second quarter of 1991. Edwards, who is no longer involved in the company, still faces criminal fraud charges in Florida, where a trial is scheduled to begin Feb. 18.

Bernstein said he had no idea what the estimate would be for the percentage of the original claims that creditors would recover under the agreement.