Bankruptcy of Phila. subprime lender nears resolution
The epic bankruptcy of American Business Financial Services Inc., a Philadelphia subprime lender that went belly-up in 2005, foreshadowing the financial crisis of a few years later, is nearing its end.
The epic bankruptcy of American Business Financial Services Inc., a Philadelphia subprime lender that went belly-up in 2005, foreshadowing the financial crisis of a few years later, is nearing its end.
George L. Miller, the trustee who has worked the courts to recoup money for creditors once owed about $1 billion, said Monday he hoped on Feb. 17 to write a $24 million check for eventual distribution to investors who bought ABFS's unsecured notes.
But don't expect dancing in the streets. The payment will amount to just 4 percent of the $600 million owed to the predominantly elderly note-holders enticed to ABFS by above-market interest rates.
The payout dismayed Alan Rogoff, a note-holder from Fair Lawn, N.J.
"Eeek....only 4 cents to the dollar? I hope not," Rogoff, 65, who lost tens of thousands in the collapse of ABFS, said in an email. "Maybe that's a typo and it really is 40 cents to the dollar..."
No such luck.
ABFS, founded in 1988 to make loans to borrowers with impaired credit, ultimately operated as a virtual Ponzi scheme that could only repay old notes to investors like Rogoff by issuing new notes.
The company started unraveling in 2003 - the year it moved from Bala Cynwyd to Center City with the help of city and state aid - amid an early subprime default wave.
"It was the foreshadowing of the collapse in 2008," said John T. Caroll III, a Cozen O'Connor attorney on the case for Miller from the start.
After the bankruptcy filing in January 2005, there was little hope of recovery for note-holders beyond litigation against the Wall Street banks that packaged ABFS loans into securities, lawyers who blessed those deals for ABFS, the firm's accounting firm, and its officers and directors.
Miller, of the Philadelphia accounting firm Miller, Coffey, Tate L.L.P, won major settlements of $100 million against the Wall Street banks, with $30 million going to his lawyers; $16.7 million from ABFS's directors and officers; and $20 million from the law firm Blank Rome L.L.P. An additional $17.5 million came from a settlement with ABFS's accounting firm, BDO Seidman L.L.P. Total proceeds from settlements were $154 million, according to Miller's latest quarterly report.
Lawyers and other professionals have been paid $80 million in the case, according to the report, which ran through Sept. 30.
The last piece of litigation was against Greenwich Capital Financial Products Inc., which provided $500 million of bankruptcy financing to ABFS before the case was converted to a liquidation.
Miller lost that case, but it still took years to reach a settlement that would allow him to pay anything to unsecured note-holders.
Still contended are some IRS claims. "I think I have enough money still in reserve to settle any of those disputes," Miller said.
Even after Miller writes the $24 million check, it could be several months before U.S. Bank, the intermediary trustee, works out a system to pay the money to Rogoff and other note-holders, Miller said.
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