Car Auctioneer Seeks Protection Amid Allegations
California’s biggest retail auctioneer of used cars has sought bankruptcy protection amid allegations that it intentionally shortchanged creditors.
Leadco Inc. in Santa Ana, doing business as Western Leasing, agreed Thursday to allow a court-appointed examiner to search its books for any “fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity” in its operations, according to U.S. Bankruptcy Court papers.
Leadco, which buys used cars wholesale and resells them, had $130 million in revenue last year from the sale of thousands of cars to bargain-seekers at widely advertised auctions. It is believed to be the biggest such operation on the West Coast, according to industry experts.
Its Chapter 11 reorganization filing lists assets of $14 million and debts of $15 million.
Raymond Todd Neilson was appointed to examine Leadco’s operations. Neilson is a forensic accountant who investigated Charles H. Keating Jr.’s businesses for creditors after the collapse of Keating’s Lincoln Savings & Loan in Irvine.
By consenting to the audit, Leadco hopes to clear its name, said one of its lawyers, Richard A. Marshack.
“He’ll find some little accounting errors. You always do,” Marshack said. “But we expect he’s going to focus on the ability to reorganize [Leadco] and the best way to reorganize.”
Creditors’ lawyers contend in court papers that Leadco’s owner, Bijan B. Sharifi, may already have spirited funds outside the country and may be preparing to flee.
They maintain the company raised $5 million at auctions in the 10 days before its bankruptcy filing, stopped paying its bills and yet lists just $500,000 in ready cash.
Marshack denied any wrongdoing. He said Leadco has laid off 300 employees as the result of its bankruptcy and wants only to retrench to two auction locations, down from its high of eight locations. He said the biggest problem was the failure of a finance company to pay a $6-million debt to Leadco.
Leadco typically paid $5,000 for the cars it resold to the public at auctions in Upland, Carson, Pomona, San Jose, San Mateo and near Los Angeles International Airport, according to documents filed with the bankruptcy court.
