Judge warns attorneys in USA Capital case
Bankruptcy Judge Linda Riegle on Friday warned attorneys for dissident investors and the New York firm that services loans for failed USA Capital that their legal fights could result in losses for investors.
Legal battles are delaying resolution of problem loans at USA Capital, which became insolvent last year.
With the real estate market weakening, she said the property that is being used as collateral to back many of the loans may soon lose much of their value, she said.
“We have talk of a real estate bubble,” Riegle said. “The attorneys fees are mounting. This case is going to eat you alive.”
Riegle compared the situation to ancient Greek wars that were disastrous for both the winning and losing countries.
“The people were all dead. The cities were sacked. There was nothing left,” the judge said.
USA Capital solicited money from investors and used it to make short-term loans to developers. It filed for bankruptcy in April 2006 while holding $962 million in assets for 6,000 investors.
Compass Partners paid $67 million for the right to service USA Capital loans and to get ownership stakes in some loans.
Riegle now is dealing with a dispute over a May letter that the Lenders Protection Group sent to borrowers in 67 loans, advising them to stop making payments to Compass Partners.
Compass Partners objected to the interference.
Riegle in June ruled that Compass would continue as the loan servicing company until she or another judge ruled to the contrary.
Riegle said the letter probably caused all but two borrowers to stop making payments to Compass.
In response to that order, the Lenders Protection Group mailed a letter of clarification to borrowers on Thursday. But Compass attorney Robert Moore complained his client had not approved the letter and objected to some of the letter’s contents.
Riegle Friday issued another order, specifying procedures and directing the parties to mail a new letter along with a copy of her ruling to borrowers and Lender Protection Group members.
During the hearing, Alan Smith, an attorney for the Lenders Protection Group, angrily complained about Riegle’s continuing criticism of him.
“I’m so tired of hearing this. I don’t want to hear it anymore,” Smith said.
The bankruptcy judge suggested that Compass and the Lenders Protection Group seek mediation from a bankruptcy judge in Reno.