American Business Financial Services Inc (fka ABFIQ)

[AKAPAK]

News? Distribution of ABFS settlement is in dispute

Dec 01, 2009 (The Philadelphia Inquirer - McClatchy-Tribune Information Services via COMTEX) -- A fight has broken out over a $100 million October settlement with three Wall Street banks in the bankruptcy of American Business Financial Services Inc., a Philadelphia subprime mortgage lender that collapsed five years ago.

Two trustees, Law Debenture Trust Co. of New York and Wells Fargo Bank, representing individual investors who bought ABFS securities, are seeking $28 million of the settlement money.

George L. Miller, an accountant responsible for liquidating ABFS, and Greenwich Financial Products Inc., a lender to ABFS caught up in its own protracted legal battle with Miller, filed objections.

A hearing on the requested payment, which would first be used to pay lawyers' fees and other expenses before any money went to investors, is scheduled for tomorrow afternoon in Wilmington bankruptcy court.

The October settlement is one of three -- totaling $136.5 million -- secured by Miller from ABFS's executives and directors, its law firm, and, most recently, its Wall Street banks.

But none of the money has been paid to the 22,000 mostly elderly investors who bought unsecured ABFS notes, which paid high interest rates.

Payment has been blocked by litigation between Miller and Greenwich.

Law Debenture Trust and Wells Fargo said in their motion that they represented the interests of thousands of noteholders.

"The severe financial hardships suffered by some of them as a result of the loss of access to their principal, while in some cases living on a fixed income, cannot be overstated," the filing said.

The $100 million settlement from Wall Street banks gives the noteholders a chance to "recover a portion of their investment," the filing said.

In a footnote, however, the companies say that their fees and expenses will come out before any money is paid to noteholders. Miller said in his objection that the two companies were seeking a total of $12.5 million for these costs; the rest eventually would go to investors, minus any additional costs incurred. Attorneys for Law Debenture Trust and Wells Fargo did not return calls seeking confirmation of that figure.

Even if the first priority were to distribute money to noteholders, that could not happen any time soon. Miller said a list of noteholders and how much each was owed would not be completed for a year.

He also argued that Law Debenture's and Wells Fargo's requested fees were not "reasonable," as required by their contract. Miller said his own general counsel's fees and expenses have totaled $2.7 million.

Two Philadelphia law firms -- Obermayer, Rebmann, Maxwell & Hippel L.L.P. and Kaufman, Coren & Ress P.C. -- are looking at a handsome payday from the $100 million settlement with JP Morgan, Credit Suisse, and Morgan Stanley. The two firms worked on a contingency basis and are due to split $30 million.

The payments were approved by bankruptcy court Nov. 18 but have not yet been made because Miller is waiting for $7.5 million from Morgan Stanley.

Contact staff writer Harold Brubaker at 215-854-4651 or [e-mail].



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Harold Brubaker

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