A judge ruled this week that the bankruptcy trustee of American Business Financial Services Inc. must turn over part of a settlement to firms representing investors who lost $100 million when the Philadelphia subprime lender failed in 2005.
The firms are to receive at least $24 million. Of that, $12.5 million is expected to be used for the firms' fees and expenses before investors are paid. The bankruptcy trustee argued that $12.5 million was not "reasonable."
George L. Miller, the trustee, said today that the judge's decision on yesterday took the matter of fees charged by Law Debenture Trust Co. of New York and Wells Fargo Bank out of his hands.
"I'm turning over the money to them. Any dispute with respect to the fees has to be brought by a noteholder in state court," he said.
Miller, an accountant in Center City, has secured $136.5 million from ABFS' banks, its law firm, and its executives and directors to help reimburse investors who lost $700 million when ABFS collapsed.
The largest settlement was for $100 million with Wall Street investment banks. The law firms that won that settlement split $30 million.
Michael J. Byrne, chief counsel at the Pennsylvania Securities Commission, who participated in yesterday's hearing in Wilmington, said the top priority for the remaining money should be payments to noteholders.
"We are concerned that moneys that were put together in a very difficult case would be dissipated in counsel fees," Byrne said in an interview. "We want to make sure if at all possible that there is a review by a neutral, independent authority" of all payments to lawyers. The commission is considering its options.
Lawyers for Law Debenture Trust and Wells Fargo did not respond to e-mailed questions about the result of the hearing.