SFG bankruptcy case may return to Missouri

Stevens Financial Group Inc. may soon be facing its creditors in bankruptcy court here instead of Phoenix if local attorney Raymond I. Plaster and the Arizona U.S. Trustee have their way.

Plaster also said he has asked the Arizona trustee to appoint a committee to represent the unsecured creditors.

According to Plaster, he was advised April 18 that the Arizona trustee's office would join in the motion Plaster filed earlier to transfer the Chapter 11 case to the southern division of the Western District of Missouri located here. Plaster's motion was filed March 28.

SFG, a licensed consumer finance company with headquarters in Springfield, filed for reorganization protection March 19 in Arizona where the Colonial Trust Company is located. Plaster said Colonial is an "indentured trustee who is supposed to supervise the collateralization" of SFG's securities. However, most of the creditors are in Missouri, Plaster said, at least 3,500 of them.

Wells Fargo Financial Leasing Inc., an unsecured creditor, filed a motion April 18 to join in Plaster's motion to transfer. That same day a group of unsecured creditors as an "unofficial committee" filed a similar motion, Plaster said. Missouri Secretary of State Matt Blunt on April 5 wrote to the bankruptcy judge asking that the case be sent to Missouri.

Plaster said the U.S. Trustee, the secretary of state of Missouri and the others who have requested the case be moved here represent " a pretty powerful group of people who say you have no right to bring this case out there."

Blunt wrote that "Arizona is not a convenient forum for the thousands of Missouri residents who have invested their funds in SFG's debt instruments." He advised Judge Redfield T. Baum that the Missouri Securities Division has conducted "an extensive investigation of the securities activities" of SFG, which has agreed to stop selling securities in Missouri.

In Plaster's motion to transfer, filed on behalf of Stephen P. Morrison, co-trustee of the Stephen P. and Carolyn S. Morrison Trust, Plaster wrote," the debtor is the subject of an ongoing dialogue with the Missouri secretary of state, and its investors have a vested interest in seeing this reorganization take place within its borders in front of a judge readily familiar with the laws of the state of Missouri." Plaster said his client, the Morrison co-trustee, "just wanted to get the ball rolling."

SFG is already in front of a federal judge here in a civil rights case it filed against the former Commissioner of Securities Douglas F. Wilburn, current Commissioner Douglas Ommen and others alleging racial discrimination. That case has been delayed until May 12 by U.S. District Judge Nanette K. Laughrey, of the central division of the Western District which is located in Jefferson City. The civil rights suit was filed, Feb. 2.

SFG President Clarence Stevens said in the press conference announcing the civil rights action, "The Wilburn administration sought to shut down our business because we make loans to people who are not necessarily white and who are not necessarily rich. We refuse to stop making loans to hard-working Americans, no matter what their race or national origin. And this is why the ex-commissioner wants to shut us down."

The "ongoing dialogue" mentioned by Plaster resulted in a cease-and-desist order which started SFG's slide into bankruptcy. That order was filed by former Commissioner Wilburn at 4:10 p.m. Jan. 5, his last day in office. Wilburn claimed the company didn't have enough income to service its debts to investors.

But Helen Chaitman, SFG's civil rights attorney, stated in an exclusive interview with the Business Journal, "The real issue here is the investors. The commission is charged with protecting the investors and by destroying SFG ... they are going to create a tremendous loss for 5,000 Missouri residents who don't deserve to lose their money."

The civil rights action also was against commission staff members John L. Ellis and Mary Hosmer, as well as outgoing Secretary of State Rebecca McDowell Cook. Ellis is the chief enforcement officer of the division, Hosmer an assistant commissioner. The suit also asked the court to enjoin the commission from further action against SFG.

However, SFG consented to the order in lieu of a hearing on Feb. 15. Shortly after that the civil rights case was filed alleging the racial discrimination charges set forth in the statement of facts portion of the pleading.

SFG has claimed all along that the commissioner didn't have sufficient evidence to shut down the operation. In SFG's legal brief to the commissioner concerning the cease-and-desist order, it stated "What is patently absent from the 111 paragraphs (in the cease and desist petition) is any allegation that any of the respondents committed a violation of securities laws ... the order is remarkably lacking in any factual allegations that there was a failure to disclose, or a fraudulent misrepresentation of, information that would be material to an SFG investor."

"Representatives of the division did not do an objective random review of SFG's computer files," the pleading continued. "Instead they deliberately chose to look at files containing accounts that were originated in 1997 or earlier, knowing that consumer loans generally mature after three years." The company stated that only 1 percent of the company files were examined by the commission.

However, all those allegations may be moot when a true accounting is made because an independent accounting firm has been selected to look at SFG's books. The consent order demanded that SFG select an accounting firm by March 15. It selected the local firm of Dunton, Hayes and Associates LLC. The secretary of state approved that selection April 11.

William Dunton, one of the firm's partners, said that since tax season has just ended, his firm hasn't been able to confer with SFG officials but will do that this coming week.

In the meantime, attorney Plaster said SFG creditors are coming out of the woodwork. "Lawyers just call me up and say I've got a group of people. What should I tell them?'"

Plaster has requested that the trustee form a 1102A committee pursuant to bankruptcy rules to represent the interests of the unsecured investors who are owed nearly a half million dollars. SFG's bankruptcy schedules revealed the following classes of investors, Plaster said:

One creditor secured by real estate, totaling $1,619,039.53;

Investor claims presumably secured by all of the debtor's assets, totaling $78,336,291.85;

Priority wage and personal or real property tax claims of $65,698.20;

Unsecured claims in the amount of $240,796.22;

Unliquidated claims of the holders of executory contracts and leases.

The total claim is $80,261,825.80, with investor claims making up 97.6 percent of all claims against SFG, Plaster said.

The investors committee will be made up of the seven top unsecured creditors, Plaster said. "I requested the 1102a so there will be somebody to speak for the group and advise these people what to do."

As of April 18, he said, the trustee's office said it would send the notice to the 20 largest investors to see if any are interested in forming a committee.

An "unofficial" committee already exists made up of investors in Texas, Plaster said, and that group has joined his motion to transfer venue here.

The first meeting of creditors is set for May 8, according to local attorney David Schroeder, who represents six creditors.