O.C. Finance Firm Seeks Bankruptcy Protection

A Newport Beach finance company filed for bankruptcy protection Tuesday after state regulators who are accusing it of fraud named an investigator to look into its operations.

Performance Capital Management Inc. said its petition for reorganization under Chapter 11 of the federal Bankruptcy Code is part of a plan to convert its five limited partnerships into a new publicly traded corporation.

Regulators at the California Department of Corporations said the filing will not prevent them from pursuing a state lawsuit that accuses the firm of duping more than 1,500 people who have invested an estimated $58 million in the firm.

“We can fight this out in the courts in the next year and spend an enormous amount of money in doing this and put all our plans on hold or we can move into the bankruptcy court and deal with the [state regulators] there,” said Vincent Galewick, chief executive and founder of Performance Capital.

The company buys bad credit card debt from banks for pennies on the dollar and then either collects on those debts or repackages and resells them.

Galewick said the company has planned for several years to go public and had registered with the Securities and Exchange Commission a year ago.

By filing for bankruptcy protection, he said, the company hoped to deal with both the consolidation of the limited partnerships and the state’s lawsuit at the same time.

“They think that if they declare bankruptcy that they’re better off because we won’t bother pursuing them anymore,” said Bill McDonald, chief of enforcement for the Department of Corporations.

Performance Capital began soliciting investors in 1991, according to a lawsuit filed in Los Angeles Superior Court by the state against Galewick and his companies. In 1996, the largest fund, which had raised $28.7 million, lent $2.3 million to three of the other funds, which the lawsuit says is a violation of the company’s charter.

Galewick said the transfer was a result of an accounting technicality and was repaid when state officials pointed it out. He added that “nobody was harmed by it, nothing happened that prejudiced anybody.”

State officials, who are trying to bar Galewick from the securities industry and revoke his company’s broker-dealer license, said the arrangement marks it as a fraud.

“When you give people their own money back in their investment and pretend that they are reinvestments where there are no investments made, that would be characterized as a Ponzi scheme,” McDonald said.

But Galewick said that the company is profitable and has $10 million in cash on hand and a portfolio of $2.3 billion in bad debts on which it is trying to collect. The company, which has 200 employees, will have revenue of $40 million this year, Galewick said.