Fortgang Accused of Fraud, Court Orders Property Seizure
June 20, 08
The Fortgang family is being accused of fraudulently transferring more than $100 million out of Fabrikant before the company filed for Chapter 11 bankruptcy. The U.S. Bankruptcy Court Southern District of New York authorized M. Fabrikant & Sons liquidators to round up Fortgang-held property to recover the money. In the latest development of the downfall of M. Fabrikant & Sons, Shared Assets Trust alleged in a court filling Tuesday that, "In the 16 months preceding Fabrikant’s chapter 11 filing, the Fortgang family, which owned and controlled Fabrikant, caused it to make fraudulent and preferential transfers totaling more than $100 million to affiliated companies…that were themselves owned and controlled by members of the Fortgang family." Shared Assets Trust is one of two liquidating trusts created when liquidation plans were confirmed in Fabrikant's Chapter 11 cases. On June 18, Chief Judge of the Court Stuart M. Bernstein ruled that Shared Assets Trust "is entitled to recover those sums over and above all asserted counterclaims," authorizing it, "to take all necessary steps to secure, remove and/or take inventory" of property located at family apartments on Fifth Avenue, New York and other listed addresses," including breaking open, entering and searching for said property." This with the assistance of the U.S. Marshal. An attorney representing a number of the defendants claimed in a letter to the court that his clients "stand to be irreparably injured," by the order, requesting interim relief. The failure of two of Fabrikant's biggest clients, Crescent Jewelers and Friedman's, brought down the diamond jewelry firm. Fabrikant was Friedman's largest unsecured creditor with outstanding debts of $17 million. The bankruptcies of these two clients led to “substantial” write-offs, according to court papers. A few months later, in November 2006, Fabrikant filed for Chapter 11 protection, listing $226 million in assets and $363 million in debts – owing the banks $162 million. In April 2007, the company petitioned the court for the sale of its inventory and other assets, setting a total reserve price of $48.5 million, which the court approved in June. According to a revised Chapter 11 plan filed last November, Fabrikant's unsecured creditors may see as little as 7.5 percent of what they are owed. Last week Whitehall Jewelers said it is considering bankruptcy protection after receiving default notices from Fabrikant Receivables, LLC.