Losers in ‘80s Buyout Binge Strike Back : Investment: Those badly victimized in failed junk-bond acquisitions are seeking compensation in bankruptcy court.

The excesses of Wall Street in the 1980s made casualties out of investors great and small. But in the aftermath of the failed junk-bond buyouts, mergers and bankruptcies, one thing is coming clear: Some of the big victims can hit back.

That is an unexpected outcome of the collapse of Robert Campeau’s department-store empire in 1990, which has dumped Bloomingdale’s and other Campeau-owned retailers into bankruptcy court.

Campeau’s demise was a long nightmare for hapless investors, who saw the value of their stock and bond holdings plunge toward a vanishing point.

Now, however, a group of investors who contend that they were cheated by Campeau stands to receive stock valued at $192 million from Campeau’s old, U.S.-based holding company and from some of his former bankers as compensation for their losses, which were many millions of dollars more.

The tentative settlement is by far the largest of its kind. Experts expect it will add momentum to similar investor demands for reparations arising from some of the notorious takeovers and buyouts of the past decade.

“You’re going to see a lot more of these (buyouts) from the 1980s being undone,” with victims compensated in bankruptcy court, said Douglas G. Baird, a University of Chicago law professor and bankruptcy expert.

Investors and others have made comparable legal claims in bankruptcy proceedings of drugstore chain Revco D.S. Inc., shoe manufacturer Interco, convenience-store operator Circle K Corp. and dress-design maker McCall Pattern.

In a related case that involves claims by former employees rather than investors, pensioners of Kaiser Steel Corp. are seeking to recover millions of dollars lost in a takeover of the company by Minneapolis-based corporate raider Irwin L. Jacobs.

John J. Remondi, a senior executive at Fidelity Investments, the nation’s largest mutual-fund company, headed a group of powerful bondholders that pressed the case against Campeau.

Their counter-attack was based on a series of ill-fated checkerboard moves that the Canadian financier made in 1988 and 1989.

First, Campeau’s Allied Stores Corp. sold two valuable properties, Brooks Brothers and AnnTaylor clothing chains. Then it transferred $693 million--all the proceeds from the two sales, plus a bit more--up the corporate ladder to Campeau holding companies.

At the same time, Campeau acquired Federated Department Stores Inc., the owner of Bloomingdale’s and other store chains, employing a $500-million loan from the Bank of Montreal and the French-based Bank Paribas. Most of the $693 million from the Brooks Brothers and AnnTaylor deals was used to repay that loan. Allied Stores became the controlling shareholder of Federated.

But it became clear almost immediately that Federated was too big for Campeau to swallow. The money drained from Allied to finance the Federated acquisition had left Allied mortally wounded.

Some Allied stores could no longer afford to stock shirts and other items for the 1989 Christmas shopping season. And Allied no longer had the money to pay interest owed to a large group of investors holding bonds that matured in 1997.

It was these Allied bondholders who took the offensive, charging they were defrauded by Campeau’s decision to use the $693 million in Allied money to finance a Federated deal that they said was doomed to fail. “This is a classic case of robbing Peter to pay Paul,” said Jonathan M. Jacobson, an attorney with Coudert Brothers in New York who represents the bondholders.

The bondholders’ case, and all of the similar legal efforts being mounted, are based on a once-obscure provision in bankruptcy law called “fraudulent conveyance.” It dates back to a statute passed by England’s parliament in 1571 in the reign of Queen Elizabeth I, but it is rapidly gaining attention because of its potential value in the recent wave of U.S. bankruptcies.

The law’s key element is to provide strong financial remedies when a company’s assets are taken from it unfairly--that is, without the return of something equally valuable--at a time when the company is insolvent or when the transaction makes it insolvent.

The Allied bondholders claimed that the withdrawal of cash from Allied was just such a “fraudulent conveyance,” which drove it into bankruptcy.

The settlement proposed by Allied--which is the parent of retail chains Jordan Marsh, the Bon, Maas and Stern’s--becomes final only when the entire bankruptcy case is resolved. That means an agreement also must be reached in the bankruptcy of Allied’s sister company, Federated.

But the basic structure of the proposed settlement is expected to remain intact, according to lawyers and investment bankers on both sides of the case.

Both Allied and Federated are currently operating while in bankruptcy.