State Exchange Finance Company (SEFCO) 1984 Apr-Jun

1984- Apr. 4 - Braje named to role in SEFCO case

PLYMOUTH - A special prosecutor was named today by Marshall Circuit Judge Michael D. Cook in connection with a possible grand jury investigation of the State Exchange Finance Co.

Cook named Craig Braje, LaPorte County deputy prosecutor, after ruling there was a possible conflict involving Prosecutor Fred R. Jones.

Jones last month filed a petition asking the court to decide if a special prosecutor should be appointed to avoid a conflict of interest or avoid the appearance of an impropriety.

Jones petition listed dealings his law firm has had with the finance company and also said that he represents in his civil practice several clients who have pending claims against the finance company or against a debtor of the company.

The grand jury is scheduled to meet May 9 and 10, but it was not certain if the meeting will involve the finance company or whether there will be a another session later - South Bend Tribune

1984 - Apr 17 - Group acts to halt plan by SEFCO

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH - A group of shareholders is apparently mounting an attempt in federal bankruptcy court to block the planned reorganization of State Exchange Finance Co. of Culver.

In a court document, the Equity Security Committee alleges there were numerous instances of criminal and unethical conduct on the part of SEFCOs pre-bankruptcy management.

Included are alleged violations of state and federal securities laws, loans at below market rate to insiders not documented, and improper investigation on other loans of their value and success of repayment.

Based on the allegations, by far the broadest made public to date in the 15-month-old Chapter 11 case, the shareholders committee contends that SEFCOs plan of reorganization now before creditors is "improper" and "should be withdrawn."

If it is not withdrawn, the committee argues, more detailed information about SEFCOs financial condition before it filed for Chapter 11 protection and loan activities should be included in a disclosure statement which outlines the reorganization.

Creditors are to base their votes on the proposed plan from the disclosure statement. A hearing on it is set for May 11. "From its inception, the Chapter 11 was designed to be a liquidating proceeding rather than a reorganization proceeding", stated David Rosenthal, a Lafayette attorney who represents the security committee, in the objection to the plan.

There was no response to the charges from SEFCO attorneys and no immediate ruling by U.S. Bankruptcy Judge Robert K. Rodibaugh.

The move against SEFCOs reorganization follows accusations of mismanagement and criminal activity by a creditor-hired investigator and a recent announcement of a Marshall County grand jury investigation into possible state-related violations.

Nine complaints that SEFCOs former management was "aware of" or "should have been aware of" are cited in the objection, including:
* Violations of federal securities acts of 1933, 1934 and 1940 and the Indiana securities law for the sale of investment notes and stock without registration; and failing to disclose or materially represent facts upon issuance or transfer of securities.
* Violations of rules and regulations of Federal Deposit Insurance Corp., Federal Reserve Bank and the state Department of Financial Institutions for acts of soliciting the purchase of investment notes at a bank displaying FDIC identification and transferring loans prior to audits.
* Breach of fiduciary duty in causing the debtor to purchase inferior and poorly documented loans and to repurchase certain loans sold to State Exchange Bank and American Fletcher National Bank (Indianapolis) in 1982 at little or no value.
* Breach of fiduciary duty in allowing certain officers, directors and insiders to obtain assets for their personal use.
* Acts of negligence in entering into loans without proper and independent investigation of value and success of repayment; and entering into loans of such amount to . overly concentrate the loan portfolio rather than spread risk of loss.
* Assets were transferred freely between the debtor, (Farmers State) Bank of LaPaz and State Exchange Bank at the whim of the officers and directors without regard to the rights of respective creditors and shareholders, it goes on to say.


Attorneys for SEFCO, which filed for bankruptcy on Dec. 30, 1982, have said if the plan of reorganization is rejected, creditors stand little chance of gaining a sizable recovery of their deposits. - South Bend Tribune

1984 - Apr. 20 - SEFCO legal bills of $476,143 "OK"

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER State Exchange Finance Co. paid 3476,143 to six legal firms and two accounting agencies in the first year as debtor-in-possession under the federal bankruptcy code.

The fee for attorneys and accountants who provided bankruptcy-related services is for work from Dec. 30, 1982, the date of the Chapter 11 filing, to Dec. 31, 1983.

By comparison, the amount equals about 26 percent of SEFCOs $1.8 million interim distribution to its creditors last December.

U.S. Bankruptcy Judge Robert K. Rodibaugh, saying the cost is reasonable and proper, approved the billing in two court orders. The first order was on Sept.20, 1983, the second on March 29 this year.

Bills for 1984 work will be submitted later to him.

Prior to Rodibaughs latest approval of fees, objections were filed by two creditors and the Equity Security Committee, a court-appoint ed committee of major shareholders.

The 18-member Security Committee is trying to halt SEFCOs plan of reorganization, charging it is invalid because of alleged criminal and unethical conduct on the part of SEFCOs pre-bankruptcy management.

The committee has requested the appointment of a trustee or an examiner to oversee SEFCO operations and to review fee claims.

One of the protesting creditors was J. Lawrence Marshall, 73, of LaPorte. Marshall, saying he has been a SEFCO investor since 1966, complained the fees are unrealistic and unfair to the investors of SEFCO.

The other creditor, not identified to the court, said the rates are out of sight.

The law firm of Sidley & Austin of Chicago, which filed the Chapter 11 papers and was active in drafting the reorganization plan, has been paid $194,803 for services the most paid out by SEFCO.

The other SEFCO counsels have been paid $101,957. They are the firms of Jones, Obenchain, Ford, Pankow & Lewis of South Bend ($80,412) and Lord, Bissell & Brook of Chicago ($21,545).

SEFCO also has paid $80,198 for accounting services. That includes $65,867 to Crowe, Chlzek & Co. of South Bend and $14,331 to McQueen & Boyer of Plymouth.

Three law firms that have counseled the court-appointed Creditors Committee have received a total of $99,185, of which $44,435 has gone to Thorne, Grodnik & Ransel of Elkhart; $28,732 to Baker & Daniels of Indianapolis; and $22,018 to Kizer, Neu, Joyce, Wyland, Humphrey, Wagner & Gifford of Plymouth.

The fees are for the hourly rates charged by each firm and for reimbursements for such things as travel, meals, lodging car rentals, long distance telephone calls, court document processing, and copying services. - South Bend Tribune

1984 - Apr 26 - Investor pulls a surprise in filing of suit

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER The first investor to file suit against the former joint management of the bankrupt State Exchange Finance Co. and the State Exchange Bank is seeking some $5.4 million in damages.

Some of the most influential people in Marshall County are defendants in the lawsuit

The suit, filed in U.S. District Court in Chicago, caught the various parties involved in SEFCOs present reorganization by surprise.

That's because U .S. Bankruptcy Judge Robert K. Rodibaugh, presiding in the SEFCO case, has ordered that no investor-initiated suits can be filed until creditors approve or reject the plan of reorganization.

Anne Banowitz, identified only as a resident of Florida, ignored the court order and has claimed in a five-count complaint that nearly $400,000 of her bank savings was wrongly invested in SEFCO investment notes.

Banowitz is seeking $5 million in punitive damages and $400,000 in actual damagea She accuses the defendants of violations of the Racketeer Influenced and Corrupt Organizations Act, the 1933 and 1934 federal Securities Exchange Acts, fraud, and breach of fiduciary duty.

Named as defendants are the State Exchange Bank; Marcia Adams, as executor of the estate of the late Frederic E. Adams, who headed both financial institutions prior to his death; and several officers and directors.>

They others include John J. Deery, an executive vice president and senior loan officer; Robert L. Cultice, bank vice president and loan officer; Ronald E. McKee, a senior vice president; Charlotte Jung, senior vice president; Allen H. Cummins, a vice president who succeeded Adams before being replaced; Jack Carpenter; Bryce Burton; Robert Koch; Bill Annis; Margaret Swanson; Richard P. Smith; Glenn Overmyer; William F. Laramore; Robert E. Grossman; Herschel J. Umbaugh; John R. Mars, and Vivian A. Bush.

In the suit, Banowitz contends that five different notes amounting to $394,811 were purchased between July 7 and Dec. 5, 1982.

Bank-SEFCO personnel she says, bought the notes without disclosing to her SEFCOs "precarious financial condition" and "intended to use (the) funds to restore SEFCOs economic viability".

Officers and directors improperly ordered the note purchases to continue, Banowitz contends.

Her attorney, Jill G. Maltezos, would not comment on the case, or why it was filed in Chicago. But Maltezos said Wednesday the restraining order on SEFCO-related lawsuits "applies only to certain attorneys"

Sources also said the bank being named instead of SEFCO made it easier to bypass the order.

In South Bend, SEFCO attorney Thomas Lewis said he has not seen the complaint and only learned of it earlier this week.

Asked if he anticipated trying to block the suit, Lewis said if it does not mention SEFCO, then we have nothing to do with it.

Bank attorney R. Matthew Neff said he was aware of the suit, but declined any comment

A Plymouth law firm, Chipman & Chipman, is one that has been stymied in efforts to initiate litigation. E. Nelson Chipman said the firm is ready at a moments notice when the court order is lifted.

His firm unsuccessfully has tried to have it lifted.

The Chicago suit addresses many of the same charges reported by a court-appointed committee of shareholders that recently filed an objection to SEFCOs plan of re-organization - South Bend Tribune

1984 - April 29 - SEFCO ends effort to get funds back

Reclaim effort dropped SEFCO breaks standoff

CULVER The State Exchange Finance Co. is halting efforts to obtain payments from former investors in a bid to end a stalemate that is blocking reorganization of the bankrupt. Culver-based finance company.

A group of present and former officers and directors of the finance company and the State Exchange Bank have agreed to make cash payments to SEFCO, according to an announcement by Thomas F. Lewis Jr., a South Bend lawyer representing the finance firm.

Lewis said the decision not to pursue efforts to force the former investors to return withdrawals is expected to allow the reorganization effort to proceed.

The creditors committee approved the proposal on Thursday, Lewis stated in a prepared announcement.

Funds already paid to SEFCO by former investors are to be paid back, he added.

SEFCO, which has been operating under protection of the federal bankruptcy court in South Bend (or 14 months, has been seeking the return of about $10 million withdrawn by so-called preference investors during the 90 days before the firm filed the bankruptcy petition.

An estimated 800 investors were asked to repay withdrawals ranging from $20 to $900,000.

Anne Banowitz of Florida, one of the investors, filed suit in U.S. District Court in Chicago last week seeking $5.4 million in damages from the finance company and the bank.

Robert K. Rodibaugh, the federal bankruptcy judge handling the base, had issued an order prohibiting such suits.

The State Exchange Bank was a subsidiary of SEFCO at the time of the bankruptcy filing.

Rex Figg, SEFCO president and chief executive officer, said the firm hopes to pay creditors 70 to 93 cents on the dollar by mid-July if the plan is approved by the federal bankruptcy court.

The payments would clear the way for liquidation of the financial firm, Figg stated. - South Bend Tribune

1984 - April 30 - SEFO recall lacked bank's ok: Director

By MATT GALBRAITH Tribune Plymouth Bureau

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SEFCO payment to take longer

CULVER It was Incorrectly reported in Sunday's Tribune that State Exchange Finance Co. hopes to pay creditors 79 to 13 cents on the dollar by mid July If a plan of reorganization is approved.

The payment estimate covers the period of SEFCOs liquidation, which will take considerably longer, according to attorney Thomas F. Lewis. Lewis said the firm to make a partial to creditors by July.

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CULVER The controversial attempt by bankrupt State Exchange Finance Co. to collect some $10 million in preferences was done against the wishes of State Exchange Banks management, according to a bank director.

SEFCO reneged on a deal to forego the preferences, he charged, and fueled the fire of disgruntled creditors as a result

SEFCO attorney Thomas F. Lewis today denied there was any agreement with the bank, saying, "I think our actions in January (when the plan was disclosed) bear that out"

SEFCO has suspended the collection of the money, according to an announcement Saturday by Lewis. He said the matter had posed a barrier to SEFCOs reorg-anization.

Federal bankruptcy law was cited for the $10 million recall The amount collected was to be re-distributed evenly to all creditors.

The director, speaking on the condition that he not be named, said an agreement had been reached between SEFCO and bank management not to pursue the preferences withdrawals and interest payments in the 90 days before the filing for Chapter 11 protection from creditors.

He said the agreement was made during private negotiations in mid-1983 concerning the banks future role in assisting SEFCOs liquidation and creditor settlements.

From those talks also came deals that are major parts of the plan of reorganization. They call or the bank to purchase certain loan accounts and merge with SEFCO-owned Farmers State Bank of LaPaz, and in return, to make available between $3 to $3 million in stock and cash to creditors.

But SEFCO, the source contended, broke the alleged agreement on preferences without consulting the banks management Affected creditors would later be told to make arranagements to pay up or risk being sued.

That action set off a storm of angry protest which proved to be a catalyst to a chorus of charges of wrongdoing on the part of SEFCOs pre-bankruptcy management

It was really the thing that fueled the fire, said the director, referring to threats of legal actions and a general dissatisfaction among part of the group who must approve any reorganization plan.

Shortly after the preference collection was announced in January, Lewis had said the decision was made after pressure from a bankruptcy court-appointed creditors committee.

The committee, he said, believed it to be a fair approach and wanted the law followed

Last week, the committee reversed its stand and offered its support for the suspension Director meeting with SEFCO representatives.

But it also has filed an objection to the plan of reorganization on file, saying more detailed Information is needed

Its objection follows one filed by a court-appointed committee of major Shareholders, which claimed the plan is invalid - South Bend Tribune

1984 - May 6 - SEFCO investigation moved

Investigation into SEFCO moved to July

PLYMOUTH A grand jury investigation concerning the State Exchange Finance Co. will not begin until July, according to Craig Braje, special prosecutor in the matter.

Earlier this year, Marshall Circuit Court scheduled a grand jury meeting for Wednesday and Thursday, and Prosecutor Fred R. Jones had said that Braje would meet with the jury then. But Braje said Friday he would not meet with it.

Braje, who is a LaPorte County deputy prosecutor, said he was not ready to meet with the jury and probably would not be ready until July.

Braje was named special prosecutor last month by Circuit Judge Michael D. Cook, who acted after a petition was filed by Jones.

In his petition, Jones asked Cook to determine whether a special prosecutor should be appointed "to conduct a grand jury investigation of certain matters involving the State Exchange Finance Co."

In his petition, Jones mentioned dealings his law firm has had with the company, and Cook ruled that a special prosecutor should be appointed.

On Dec. 30, 1982, SEFCO filed a petition in federal Bankruptcy Court under Chapter 11 of the bankruptcy code. There have been several suits filed since then relating to this. - South Bend Tribune

1984 - May 10 - Court hearing Friday Crucial test for SEFCO

Plan on SEFCO Faces court test

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER The disputed plan to liquidate the bankrupt State Exchange Finance Co. and pay its creditors faces the first of two crucial tests in a court hearing Friday.

Failure at either stage could jeopardize the proposal, which SEFCO officials estimate would make possible a 75 to 90 percent payment to creditors on investments frozen since bankruptcy was declared.

Indirectly, it also could have devastating consequences for the State Exchange Bank, which has promised assistance in the reorganization in the form of cash and stock.

U.S.Bankruptcy Judge Robert K. Rodibaugh will hear arguments on a disclosure statement Friday morning in federal bankruptcy court in South Bend. The hearing is scheduled to begin at 10 a.m.

Two objections to the statement have been filed by court-appointed committees representing creditors and shareholders.

The disclosure statement is an outline of SEFCOs plan of reorganization. Its purpose is to explain the 106-page document to creditors, who must approve the plan.

The creditor vote will be the second major test.

Rodibaugh, reached by telephone Wednesday, agreed to explain the functional nature of the hearing. In the interview, it was assumed the disclosure statement is approved.

"After the court decides whether it is adequate, the clerk will send a Copy of the disclosure statement and the plan of reorganization to creditors," he said.

"After they receive these documents, there is a certain length of time in which they have to approve or reject the plan".

"That, in general, is the procedure in all Chapter 11 cases", said Rodibaugh, although in this case most creditors already have received a copy of the statement.

Included in the-planned reorganization are:
* Purchase of SEFCO-owped Farmers State Bank of LaPaz by about a dozen directors and officers of State Exchange Bank for $1.25 million in cash and $4.25 million in stock, to be distributed to creditors.
* Purchase of SEFCO-owned State Exchange Insurance Agency, by the bank, for $400,000.
* Purchase of certain SEFCO qualified assets, again by the bank, worth about $3 million.
* Payment by certain bank directors -of $261,000 in return for elimination of a SEFCO attempt to regain $10 million in preferences.
* Distribution of a $1 million insurance policy (which was negotiated down from $5 million after being disputed by the carrier).
* Release of claims against SEFCOs former management.


Should SEFCO creditors find the plan unsatisfactory, officials fear lawsuits will follow and said in the disclosure statement this could harm the capital position and viability of the bank.

Appeasing creditors was the reason for the recent decision to stop preference collection.

After it was announced, SEFCO attorney Thomas Lewis said the reorganization should proceed without further hitches.

Objections to the disclosure statement and reorganization plan have been submitted by the court-appointed creditors committee and the equity shareholders committee.

The creditors group said it could go along with the plan if more information is provided.

The shareholders, however, claim the plan is Invalid because of alleged criminal activities and mismanagement within SEFCO prior to bankruptcy. - South Bend Tribune

1984 - May 12 - Lawyers paving way for pact on SEFCO plan

By MATT GALBRAITH Tribune Plymouth Bureau

Attorneys laid the framework for a compromise Friday which could dear the final hurdle for creditors to vote on State Exchange Finance Co.s Plan of Reorganization.

If so, the critical vote will likely be in July.

A settlement on the disputed disclosure statement of the plan appeared within reach at the conclusion of a three-hour hearing in U.S. Bankruptcy Court in South Bend.

Judge Robert K. Rodibaugh scheduled hearings next week in the hopes of finalizing it.

Attorneys for the Culver-based SEFCO modified the outline of the proposed reorganization to satisfy two groups that filed objections. The complaints were withdrawn.

Steps also were taken to further a mending in an effort to suit the third objector. That is the Equity Shareholders Committee, a court-appointed interest

Removing their objections were the Creditors Committee, another court-appointed group of the largest creditors, and a recently organized group of preference holders.

"I want to rule on this be next Friday", said Rodibaugh. If he approves, the disclosure statement will be sent to creditors to assist them when they decide to accept or ' reject the proposed payment plan.

Meanwhile, SEFCO attorney Salvatore Barbatano estimated that if the plan is passed, creditors will receive a return on their investments of close to 87 percent. If not, he said, the return will be about 67 percent.

Barbatano called on William E. Sipes, a certified public accountant with Crowe, Chizek & Co., to support the predicted returns from data compiled in an earlier audit.

Sipes was the lone witness to testify at the hearing. He said agreements with State Exchange Bank, combined with SEFCO assets, would make available a distribution of about $24.8 million to creditors. The amount of unsecured claims is about $28.6 million.

Without those agreements in the reorganization plan, Sipes said SEFCO would have about $19.1 million to pay its creditors.

In addition, Barbatano said two funds would be created as a sort of incentive for creditors not to pursue claims against the pre-bankruptcy management of SEFCO.

Creditors would have to forego claims to participate in the distribution of this money.

The combined total of the funds is to be about $2.1 million. David Rosenthal, attorney for the Equity Shareholders Committee, said part of the groups objection to the disclosure statement deals with the creation of these funds.

He wants in the statement an explanation of what rights (creditors) are giving up and "what they are keeping" when deciding whether to pursue individual claims.

"I think this is a key issue", said Rosenthal. In order to bring about the necessary compromise, Rodibaugh instructed Rosenthal to develop a statement of this nature for possible inclusion in the disclosure statement.

Rodibaugh set a hearing for 11 a.m. next Wednesday to see if an agreement can be reached.

Rodibaugh set another hearing for two days later to determine if a ruling can be made. - South Bend Tribune

1984 - May 17 - SEFCO talks still deadlocked

By MATT GALBRAITH Tribune Plymouth Bureau

Talk of dissolving the proposed reorganization of State Exchange Finance Co. arose Wednesday after last-ditch negotiations failed to break a deadlock over what should be disclosed to creditors about SEFCOs plan.

Meanwhile, U.S. Bankruptcy Judge Robert K. Rodibaugh, citing the urgency of a ruling, took the disputed disclosure statement under advisement after a brief hearing in South Bend.

The Federal Deposit Insurance Corp. has stipulated a plan must be in progress by July 26. Without one, regulatory actions could shut the doors of State Exchange Bank, which has offered to assist SEFCO

Rodlbaughs approval of the 46-page document is required for it to be sent to creditors. He said he will rule no later than Monday."

Specifically, Rodibaugh will answer two questions:
* Will creditors have the final decision on the plan which if approved calls for an estimated 87 percent payment on investments?
* And if so, what information about the plan should they have to make an Informed judgment?


The split, which attorneys tried one last time to reconcile in a pre-hearing conference, focuses on a plan to set aside $1.2 million for distribution only to creditors who do not pursue claims against SEFCO.

Creditors not signing a clalms-release form would get about 7 percent less than those who do, SEFCO attorneys have said, regardless of how they vote on the plan.

A group of shareholders opposed to the disclosure statement requested that it have mention of prior Chapter 11 cases in which the binding effect of the no-claim agreement was questioned by the court.

But attorneys for SEFCO and the State Exchange Bank contended further explanation would "cloud and confuse the issue" and pose a threat to the overall plan.

Arguing the potential danger to the plan was Roger Branigan, a Lafayette attorney who represents a group of bank officers and directors who have offered to contribute about $5 million to SEFCO creditors.

Branigan said that without assurances of the banks survival and of the release of claims, his clients may refuse to participate.

SEFCO attorney Thomas Lewis, in objecting to the complaint by shareholders, said, "We have worked too hard ... to put our plan in jeopardy at the eleventh hour".

William Thorne, attorney representing the 800-plus creditors, said in reference to shareholders attorney David Rosenthal, "He may very well be the one who pulls the trigger on the State Exchange Bank".

After the hearing, Rosenthal denied that shareholder demands would have an adverse effect on the plan if it goes before creditors.

I think people will accept or reject based on whether they believe (SEFCO) can pull off what it says it can, said the Lafayette attorney.

Two other requests of the shareholder committee, first posed last week, were included in the disclosure statement. They are appraisals of real estate owned by SEFCO and the amount of insider preferences, estimated to be so me $2.5 million.

Other modifications to the statement had been made after objections were filed by the creditor's committee and a group of preference holders. - South Bend Tribune

1984 - May 22 - SEFCO ruling favors creditors

Creditors to have deciding vote on SEFCO PLAN

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER A judges ruling Monday cleared the way for creditors of State Exchange Finance Co. to have the deciding vote on SEFCOs proposed plan of liquidation and payment.

U.S. Bankruptcy Judge Robert K. Rodibaugh in South Bend approved an amended disclosure statement, saying it contains adequate information to enable creditors to make an informed judgment on the plan.

In reaching a decision, Rodibaugh overruled an objection by major shareholders who had requested additional information about $1.2 million set aside for creditors who dont pursue individual claims against SEFCO.

One of the first to applaud the ruling was Joseph Currens, chairman of the Creditors Committee.

"That's certainly good news, Currens said when contacted this morning. Everyone has worked very hard to get a reorganization plan that we felt would be approved.

Currens said the Creditors Committee would be meeting soon to begin formulating a recommendation on the plan to all creditors.

Another source involved in the SEFCO plan to express pleasure was A. Lee Campbell, chief executive officer of State Exchange Bank, which is assisting in the payment plan.

We're happy with the judges decision,' and that sets everything else in motion, said Campbell. "I'm very favorable about the whole thing getting done".

The bankruptcy judge set a deadline of June 25 for creditors to mail in ballots inserted in the disclosure statement. He also set June 29 for ballot counting and July 3 for a hearing to confirm the vote outcome.

More than 800 creditors, with a combined amount of $28.6 million, are expected to participate. They will decide whether to accept SEFCOs proposal, which calls for an estimated 87 percent return to them.

If they reject the plan, SEFCO says the return will be about 67 percent.

They will be divided into classes and each class must have either a majority of its members or two-thirds of the amount of claims in acceptance to approve the plan.

There also is a clause by which Rodibaugh could override the objections of one or two classes, if his actions are found to be "fair" and free of discrimination.

The disclosure statement was modified last week as attorneys tried to work out differences between SEFCO, the Creditors Committee, the shareholders and a recently organized group of preference holders.

It included wording that there will be no collection of preferences and an admission of a certain degree of wrongdoing and bad decisions by the former SEFCO management. That was included to satisfy creditors, who then withdrew an objection.

The negotiations failed to reach a compromise on the requested further case status of the release funds. But Rodibaugh settled that, saying he was not convinced the disclosure statement needed to "contain a general discussion of black letter law". - South Bend Tribune

1984 - Jun 3 - SEFCO proposal sent to creditors

By MATT GALBRAITH Tribune Plymouth Bureau PLYMOUTH - The State Exchange Finance Co. has sent its proposed plun of reorganization and court-approved disclosure statement explaining the plan to creditors, a SEFCO statement said.

According to a two-page statement released Saturday, creditors are to receive a copy of the reorganization plan and disclosure statement along with a listing of SEFCO assets and a ballot for voting purposes.

All ballots must be returned by mall by June 25. The deadline was set by U.S. Bankruptcy Judge Robert K. Rodibaugh when he approved the disclosure statement May 21.

Rex Figg, chief executive officer of SEFCO, was quoted as saying, If the plan is Implemented, the unsecured creditors will receive cash payments equal to 25 to 30 percent of the claims by Oct. 1, with the remainder payable over a three-year period."

Figg urged creditors to carefully study the plan and disclosure statement He noted that under bankruptcy law, ballots received after June 25 will not be counted.

According to figures in the disclosure statement which was prepared by SEFCO attorneys and outside auditors, the recovery for unsecured creditors will be approximately 85 percent if the plan is approved. If rejected, the amount drops to approximately 66 percent.

A hearing is set for July 3 to confirm the outcome.

As agreed earlier, SEFCO will not pursue collection of preferences. Regular customers were said to have withdrawn or been paid in interest somd $10 million in the 90 days before bankruptcy was declared Dec. 30, 1982.

"Insiders" were estimated to have been responsible for between $2 to $5 million.

Officers and directors of State Exchange Bank of Culver, the former sister institution when SEFCO was located in Culver, are paying $260,000 as part of a compromise reached on the issue of preferences.

Bank officers also have offered approximately $3.5 million to $5 million in stock and cash for the proposed merger of SEFCO owned Farmers State Bank of LaPaz and State Exchange Insurance Agency of Culver, plus certain loan accounts. - South Bend Tribune

1984 - Jun 9 - Early poll shows creditors in favor of SEFCO plan

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH - Early results show an overwhelming acceptance among creditors for the plan of reorganization proposed by State Exchange Finance Co., a SEFCO lawyer announced Friday.

In the first four days of voting, 124 creditors voted for the plan which calls for an 88 percent return on Investments and only one creditor voted against it, according to attorney Thomas F Lewis Jr. of South Bend, who released the figures.

That turnout represents slightly more than 9 percent of the nearly 1,350 ballots mailed out

The wide margin is significant because the fate of the reorganization plan depends on ballots returned. Thus, the plan will pass if a majority of returned ballots rather than 1,350 is for acceptance.

Another important factor in the initial turnout, Lewis added, is that 120 voters signed releases stating they will not pursue any Individual claims against SEFCO or its former management The remaining five creditors declined to make that agreement

A sufficient number of releases must be obtained to satisfy officers and directors of State Exchange Bank of Culver who are assisting SEFCO. They have offered to pay $4.5 million in cash and bank stock for certain SEFCO assets, and $260,000 outright in return for SEFCO's promise to suspend collection of preferences.

This reflects that the creditors are recognizing that (approval of) the plan, together with the signing of the release, will mean a faster return of a greater sum of money," Lewis said in a prepared statement.

Rejection of the plan would decrease the investment return to about 68 percent, according to SEFCOs estimate, which has been backed up by accountants who audited company holdings.

Ballots must be mailed to Lewis by June 25.

They are included in a packet sent to creditors last week, Lewis said weekly vote totals will be announced each Friday.

Lewis said of the 120 creditors who signed releases, their claims against SEFCO amount to about $3.7 million. The five who did not sign have claims of about $32,700.

SEFCO owes some $28 million in combined claims.

The voting began more than 17 months after SEFCO filed for creditor protection under Chapter 11 of the U.S. Bankruptcy Code in U.S. District Court in South Bend.

Bankruptcy Judge Robert K. Rodibaugh cleared the way for the crucial vote by approving a disclosure statement of the plan for creditors on May 31.- South Bend Tribune

1984 - Jun 13 - Claims recovery seen as lower

Low recovery seen for SEFCO creditors By MATT GALBRAITH Tribune Plymouth Bureau PLYMOUTH - Creditors stand little chance of recovering the maximum 88 percent of their claims as projected by State Exchange Finance Co., a creditor-hired investigator and critic of the reorganization said.

"They'll be lucky if they get 40 cents (on the dollar) with this plan, contended Merle Weber, a banking authority from Arizona who has followed the 17-month-old bankruptcy case.

SEFCO attorney Thomas F. Lewis Jr. called the recovery estimate a very realistic figure.

Meanwhile, SEFCO chief executive officer and director Rex A. Figg confirmed Tuesday he Intends to resign after 16 months In that position. Lewis said today Figg will step down at the end of July.

Figg referred questions to the attorney, who said, Rex had indicated all along that after the plan (of reorganization) is confirmed, he would like to go on to other things ... He's made his contribution."

Weber's remarks came as creditors are In the second week of voting on the proposed plan. Initial results announced by Lewis last Friday showed an overwhelming 124-1 count in favor of acceptance, with all but five also signing claims releases. That's approximately 9 percent of those eligible to vote on the plan.

He contends SEFCO has exaggerated what it hopes to collect on outstanding loans and in the company's liquidation process and has not provided ample documentation to creditors In a recently mailed disclosure statement of prebankruptcy operations, Including alleged criminal activity.

"I think the creditors are entitled to know this," he said.

Lewis, however, pointed out that SEFCOs disclosure statement was the work of representatives of the inance company, the State Exchange Bank, and two court-appointed committees of creditors and major shareholders and was ruled adequate by U. S. Bankruptcy Judge Robert K. Rodibaugh.

At the insistence of the creditors committee, eight paragraphs charging possible securities violations, breach of fiduciary duty, Insufficient loan documentation, and a too highly concentrated portfolio Were included in the disclosure Statement

Weber dismissed the inserts as being "watered down".

Weber drew a court restraining order Feb. 21 after SEFCO attorneys claimed he had solicited creditors to reject the plan. The order was lifted In late May, and he will address a creditors meeting at 7:30 today in the LaPaz Community Building. - South Bend Tribune

1984 - Jun 14 - Creditors gain insight on SEFCO

SEFCO creditors let off steam

By MATT GALBRAITH Tribune Plymouth Bureau

LAPAZ Their investment have been off limits and have earned no Interest for the last 17 months. Now, creditors of the bankruprt State Exchange Finance Co, have to decide how to regain most of what was lost.

They came looking for answers here Wednesday night

While voting continues on the plan of reorganization proceed by the finance company, use creditors attended a three hour meeting and heard from those knowledgeable in the matter that:
* SEFCO, the holding company of the State Exchange Bank of Culver, was made a "sacrificial lamb" to save the bank", according to Robert Cultice, a former bank officer.
* From the outset of the bankruptcy filing, attorneys have been more interested In freeing management of liability and In live banks survival rather than creditor concerns, according to Merle Weber, who was hired by creditors to research SEFCO operations.
* The only creditor filed lawsuit seeking damages from bank management may be converted to a class action suit If there Is enough interest, according to Lawrence H. Eiger, a Chicago attorney representing plaintiff Anne Banowtlz of Florida.


The 112 creditors who attended represent claims totaling some $3 1 million, organizers said they left the meeting with the understanding that another meeting may be called in the near future to consider joining a class-action suit If 11 develops.

Most were not too happy about their situations.

"I'm pretty disgusted," said Mary Alice Ziesenhene of Bremen, who indicated she likely would not vote for the plan, which If approved calls for an estimated 86 percent return on investments. "I might as well lose it all to have my say," she said of her "life's savings" in SEFCO. "You guys can do what you want I know what I'm going to do."

Paul Meyers of rural Plymouth shared the opinion of Cultice and Weber that the plan's estimated return is greatly exaggerated. Weber has said 40 percent Is more likely.

"They've had our money for 17 months... I personally have lost over 120,000 in Interest alone, Meyers told the creditors.

"If this were reversed and you had a loan and you missed four or five payments, let alone 17, they'd have you out on the street and there'd be a sheriffs sale."

Emery Davis took Issue with the claims releases. Along with casting votes on the plan, creditors also have the option of signing a form promising not to pursue further claims over and above their returns.

An insufficient number of releases could cause bank officers to withdraw their assistance in SEFCO's bailout and kill the plan.

"You sign that release, you just about sign your rights away", remarked Davis.

By comparison of the turnout Wednesday night, 125 creditors last week voted on the plan, with all but one In favor of It They represented about $3.7 million in claims.

SEFCO owes about $26 million to more than 1,300 creditors.

Cultice explained that SEFCO was sacrificed by the "Inside handling of loans" by the dual management, which was running the bank under federal restraints In 1980 and 1981 because of fiscal problems.

Internal decisions to extend credit on a large loan, which at the time of default totaled some $7 million, led to the collapse, he said, not the run on SEFCO in the few weeks before bankruptcy was filed- South Bend Tribune

1984 - Jun 17 - No protest filed in bank merger

PLYMOUTH - No protests were filed In connection with a key part of the bailout of bankrupt State Exchange Finance Co, according to the Federal Deposit Insurance Corp.

That would be the proposed merger of State Exchange Bank of Culver with SEFCO-owned Farmers State Bank of LaPaz.

The deadline for filing written protests against the merger with the FDIC regional office In Chicago was Saturday.

"There are no protests to my knowledge, Walter Thompson, assistant regional in bank merger director, said when contacted Friday.

Bank officers and directors have offered $3 million In cash and stock for the LaPaz bank. If approved, the funds would go Into the collection of assets to be used by SEFCO to pay Its creditors.

Final approval must come from the FDIC office In Washington, D.C, and Thompson said he could not say when the decision will come.

"I can't tell you any deadline because it Is a very complicated case, he replied.- South Bend Tribune

1984 - Jun 19-

SEFCO plan gets near 100 o/o backing of holders

By MATT GALBRAITH Tribune Plymouth Bureau

ARGOS Stockholders of the bank that is helping bail out bankrupt State Exchange Finance Co. were almost 100 percent behind the reorganization plan in a vote taken Monday night

In a State Exchange Bank shareholders meeting here, holders of 133,003 of the banks 134,802 shares who voted were for acceptance of the creditor payment proposal, or approximately 99 percent The bank has a total of 150,000 shares.

I'm about as optimistic as I've been in a year and a half, said Richard P. Smith, a director of the Culver-based bank, which is attempting to merge with SEFCO-owned Farmers State Bank of LaPaz as part of the assistance it has offered.

"I think this thing is going to go through", added Smith.

Meanwhile, SEFCO officials echoed that hope after releasing figures Monday showing 98.6 percent of creditors who have voted are in favor of the plan.

That is based upon approximately 34 percent of ' the 1,350 eligible creditors casting ballots.

Of that number, 90.5 percent have signed releases that free former SEFCO officers and directors from liability, it was announced.

SEFCO attorney was quoted in a news release as saying the company's management is "extremely pleased" and believes that "sufficient votes accepting the plan will be received to allow the (U.S.) Bankruptcy Court to confirm" the plan.

On Monday, Bankruptcy Judge Robert K. Rodlbaugh extended the voting deadline to July 2. The original deadline was next Monday.

Bank stockholders met for nearly two hours Monday at the Argos branch to review the proposed bank merger, future operating plans and to vote on the reorganization plan.

Attorneys representing both the bank and SEFCO criticized those who organized a creditors meeting last week to accuse officials of the two institutions of sacrificing SEFCO and creating a plan that releases former management from liability.- South Bend Tribune

1984 - Jun 22 - Quick recovery SEFCO proposal called practical

By MATT GALBRAITH Tribune Plymouth Bureau

LAPAZ While creditors continue to vote on it, their legal representative said the payment proposal of State Exchange Finance Co is not "a prefect plan," but one that assures the quickest recovery

William A Thorne, counsel for the (the creditors Committee, which has endorsed the proposal stressed the practical side of the payment plan In lengthy informational meetings in LaPaz the last two nights He was a primary speaker in the meetings

In response ro critics who believe the estimated 86 precent return to be inflated, the Elkhart attorney said they have the right to vote against the plan and refuse to release management from liability

Qualifying that statement, however he added "You may be shooting yourself In the foot "

As of Thursday, 592 creditors whose claims total about $20 million had cast ballots They voted 578-14 for the plan, according to figures from SEFCO attorneys

More importantly, 534 signed the liability release forms, while the other 58 who represent some $12 million in claims did not

Thorne and other attorneys pointed out In the informational meetings that the Federal Deposit Insurance Corp has indicated it will not approve the reorganization if the claims if non releases exceeds an unspecified dollar amount

The FDIC, they said, wants the assurance that a viable bank will emerge from the merger of SEFCO owned Farmers State Bank of Lapaz and State Exchange Bank of Culver

It ls believed the FDIC would not approve the plan if the amount of non-releases reaches $3 million

The proposed merger is included in the reorganization A group of State Exchange officers have offered $5.5 million in cash and stock for Framers State Bank to go to creditors in cash and secured notes

If the FDIC kills the plan, Thornike has said the closure of State Exchange is likely and creditors besides getting a lower return would be involved in costly and lime consuming litigation

Without a plan a return if about 66 percent is estimated through straight liquidation

About 60 creditors attended Wednesday night's meeting and about 120 attended Thursday session. Also in attendance Thursday were various SEFCO and State Exchange representatives as well an William Sipes, an accountant with Crowe Chlzek & Co of South Bend, who prepared asset and liability information on SEFCO for the US Bankruptcy Court

Sipes said the 86 percent recovery Is "the best educated guess that we can come up with," based on SEFCO assets against some $27 million in combined claims

The number of creditors is a little more than 1,300

Another speaker was William Laramore, a bank director of 14 years, who disputed accusations that the management that operated SEFCO and the bank purposely sacrificed SEFCO to save the bank "I can assure you that the directors didn't sit there, month after month, knowing there was going to be a Chapter 11" filing under the federal bankruptcy code, Laramore said

And while most creditors expressed anger over the situation they find themselves in, and some have threatened to pursue further claims, one who did not identify himself offered a somewhat different view.

"I want to close this deal, get it over with and go on with the rest of my life," he said.- South Bend Tribune

1984 - Jun 29 - SEFCO reorganization Discrediting try seen by

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH As the crucial vote of creditors winds down, a counter-attack is being aimed at the creditor representative who called the former management of bankrupt State Exchange Finance Co. corrupt and claimed it was hiding pertinent information.

The target of the campaign, Merle C. Weber, says it's an unwarranted attempt to discredit him

Court documents from Ohio provided to The Tribune show that Weber was convicted in Medina County of falsifying information to a jury, and after losing an appeal, served a 10-day jail sentence.

In another case involving Weber's work in a Carey. Ohio, bankruptcy in which money from creditors was made available to him, a lawsuit was brought by a trustee in the bankruptcy to force the return of $13,500 to the debtor's estate.

The information, released by proponents of SEFCO's proposed plan of reorganization, has not yet been made directly available to the 1,300 creditors of SEFCO who will w rap up voting on the plan Monday.

As of Tuesday, acceptance had reached about 75 percent, out of 675 ballots cast. Of that, 638 approved the plan SEFCO says will return 86 cents on the dollar of the more than $26 million in total claims, and also release the former management of any further liability.

The amount of money represented by the 638 yes votes was about $20.5 million.

The remaining "no" votes represented some $1 7 million.

Although creditors support the plan overwhelmingly, all parties are closely watching the amount of claims in the non-releases. A substantial amount of contingent liabilities still could kill the plan, attorneys have repeated.

Randy Wilson, attorney for State Exchange Bank of Culver, which stands to close if the plan is not confirmed and consummated, said creditors should know of Weber's past record since fee arrangements have been made.

"He's trying to undo this deal (the plan). Is he misleading creditors? That's a close call," said the attorney.

The fact that he was convicted in Ohio is totally irrelevant except for his credibility. That's our concern, added Wilson.

A creditor who asked not to be identified said information on Weber should be brought out, but added his investigation on behalf of creditors was a "breath of fresh air "

Weber, first brought here by a faction of creditors in February to look into the pre-bankruptcy dealings of SEFCO, was indicted by a Medina County Grand Jury in December 1976 on five counts of falsifying information about a previous grand jury.

Weber had filed a criminal affidavit against members of a grand jury, who he had testified before earlier in 1976. He had alleged personnel of the Citizens Bank & Trust Co. of Wadsworth, Ohio, had violated state banking laws

The first grand jury returned no indictments.

His subsequent criminal affidavit was filed against the nine members of that jury.

A Medina Court of Common Pleas jury in February 1977 found him guilty on five counts of falsifying information in the affidavit and not guilty on four counts.

In April 1977, Weber was sentenced to 10 days in jail. The Ohio Court of Appeals in the 9th District upheld the sentence, 21. The dissenting justice, P. J. Mahoney, wrote, "He made thoughtless, illogical deductive statements, but lacked the necessary criminal intent."

Calls Wednesday and today to reach Weber at his residence in Phoenix, Az., were unsuccessful. Last week, however, he received reports of an attack on his credibility and circulated to the news media a letter he wrote to a creditor.

In it, Weber produced copies of the checks he wrote to satisfy the court judgment in the Carey bankruptcy case and also wrote: It is not unusual for target individuals and-or their counsel to try to discredit what is being done when it gets a little hot."

SEFCO attorney has long viewed Weber as a threat to the plan. Shortly after Weber's first appearance before creditors, attorneys obtained a restraining order against him in U.S. Bankruptcy Court.

Lately, Weber has said SEFCOs former management was warned as far back as 1977 about loan practices but made little effort to abide by the regulatory standards. He also told numerous creditors that his clients, believed to be less than a half dozen, would be filing an action against the ex-management after the creditor vote..- South Bend Tribune

~ ~ Apr-Jun 1984 ~ ~ 1984 ~ ~ Oct-Dec 1984

SEFCO ~~ 1983 ~~ 1984~~ 1985 ~ ~ 1986