State Exchange Finance Company (SEFCO) 1984

1984 - Jan 27 - SEFCO starts drive to recover money

SEFCO launches cash round-up

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER The State Exchange Finance Co. has started the task of recovering millions of dollars withdrawn before the cash-drained SEFCO filed for Chapter 11 bankruptcy protection.

SEFCOs message is: ante up soon, make arrangements for payment, or face being sued.

Specifically, SEFCO wants back funds that shareholders" with drew between Oct. 2 and Dec. 30,1982, when bankruptcy was declared, according to a letter mailed recently to investors with alleged preferences.

A copy of the letter was obtained by The Tribune.

SEFCO, the letter states, also wants returned from "insiders" the amount of their withdrawals a year before the filing.

The exact amount SEFCO hopes to collect is about $10 million, ac cording to SEFCO attorney Thom as Lewis, who said the amount of preferences range from $20 interest payments to one of close to $900,000.

Some 800 letters addressing preference recovery were mailed out, Lewis said today.

SEFCO wants the withdrawn funds returned to be later distributed among all creditors. A substantial number of creditors did not receive preferences, the letter ad vises, and the law seeks equal treatment

The action follows a recent court-approved, $2.3 million partial payment to creditors. The letter, bearing the signature of Lewis, states that SEFCO, acting under the bankruptcy code and at the insistence of the creditor committee, is now pursuing all preferential recovery.

Cash payment is preferred, the letter continues, but goes on to say SEFCO realizes that with the size and scope of some payments, some people will not be in the position to make a (cash) repayment.

Therefore, SEFCO proposed alternative methods of payment, according to the document:
* Full cash payment in 30 days with interest waived.
* A 75 percent cash payment now and the rest in reductions of - eventual distributions.
* Payment coming from reductions in the recent partial payback for smaller investors.
* Payment on a two-year promissory note, with interest.
* Or, any other settlement the court approves.


The affected investors ha4 30, days to notify SEFCO of the method they wish to follow. Any preferences not settled by then will be taken into bankruptcy court for a settlement by a SEFCO lawsuit.

The letter states that when the reorganization plan is approved, a "substantial portion of your payment will be returned". SOuth Bend Tribune

1984 - Feb 1 - Investors rap SEFCO recall

Some investors rebelling against SEFCO move

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER Some rebellious investors are gearing for a fight as the State Exchange Finance Co seeks to recover 10 million removed by the investors prior to SEFCOs filing for bankruptcy protection.

SEFCO recently informed more than 800 customers that it wants back the funds they withdrew or were paid in Interest in a three month period before Chapter 11 pa pers were filed Dec. 30, 1982, in federal court.

By law, the 10 million has to be divided equally among all of the firm's creditors, SEFCO explained

But the recovery effort has touched off a furor among investors, who have been told they must pay, or make arrangements for paying, amounts ranging from 20 to 900,000

"Some now talk of having to sell their homes to meet the sudden demand", complained an elderly woman who asked not to be named "Should these people pay for the errors of the old administration of SEFCO?"

Another investor, who also requested anonymity, who has been asked to repay $80,000 he withdrew has flatly refused to come up with the money now deposited "outside Indiana." He said he will go to jail if necessary.

SEFCO contends the people who withdrew sums of money before bankruptcy had "preferences." They were able to reinvest the money while others have had their savings tied up since the Chapter 11 filing.

SEFCO attorney Thomas Lewis said the finance company had no choice but to seek a recovery. The law requires it, lewis said, and a court-appointed creditor comthit-tee applied "intense pressure for it.

Joseph Currens, chairman of the creditor committee, repeated the argument that all creditors should share the funds on hand between Oct. 2 and Dec. 30, 1982.

Currens acknowledged that he has received many unfavorable responses to the creditor committee backing the recovery plan.

lewis said SEFCO is trying to be fair about It, offering repayment options for those who are unable to pay a lump sum.

"We don't want people to have to go borrow this", he said, citing the different options. One Is 75 percent cash payment with the rest in reductions of eventual distributions. Another option is to make payments on a two year promissory note.

And SEFCO, he assured, would be agreeable to any other type of settlement an Investor can get approved by the bankruptcy court.

However, Lewis said all withdrawn funds must be returned, even if investors had no knowledge of the approaching insolvency, saying "The use of the money has no bearing at all."

Preferences not settled in the next couple of weeks will be taken to court by SEFCO

1984 - Feb 12, 1984 - Reorganization plan filed in bankruptcy court \ SEFCO

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER The reorganization plan under which Slate Exchange Finance Co. seeks to liquidate and pay some $25 million to creditors has been filed In U S. Bankruptcy Court. .

SEFCO already has paid creditors $2.5 million..

An introductory paragraph to the 106-page document states that SEFCO "shall cease doing business except to the extent necessary to convert its assets to cash and to pay its liabilities. .

State Exchange Bank, the former sister Institution of SEFCO, would act as liquidating agent. The bank also has proposed merging 'with SEFCO-owned Farmers State Bank, of LaPaz, and buying other SEFCO assets transactions which would add about $8.1 million to SEFCOs cash on hand. .

SEFCOs last known cash report, as of September 1983, showed $4.1 million on hand, according to information supplied to creditors. It also Is seeking to regain some $10 million withdrawn or paid In interest before the bankruptcy..

Meanwhile, a number of investors affected by the $10 million recall are digging in for a fight. Sources have said privately that some of these "preference" holders are attempting to organize an opposition.

Those with preferences were given 30 days, starting on Jan. 19, to make arrangements to pay amounts SEFCO alleges they owe for withdrawals 90 days before bankruptcy.

The preferences, about 800 of them, range from $20 to $900,000.

SEFCO filed for Chapter 11 protection on Dec. 30, 1982.

Creditors, who must approve the reorganization plan, were informed of the plans filing by William A. Thorne, the attorney representing them. Thorne said negotiations on the plan began about five months ago.

A copy of Thornes letter to creditors was obtained by The Tribune late last week. .

"It will be several weeks before the court transmits the plan to creditors for their approval, stated Thorne, who added that SEFCO must file a disclosure statement outlining the plan and the court must then approve that statement .

In the meantime, Thorne said negotiations will continue on parts of the plan. Including:
*A contract for the anticipated merger of State Exchange Bank and Farmers State Bank, from which SEFCO, as the sole shareholder, would receive an amount of $5 million in common and preferred stock.

The new bank would retain the name State Exchange Bank.

* An agreement whereby State Exchange Bank would purchase from SEFCO $2.25 million In qualified assets, including loan accounts In the name of Plymouth Mayor Charles O. Glaub, Walter Glaub and former senior bank loan officer John J. Deery, and also acquire far $900,000 SEFCO's State Exchange Insurance Agency.
* And, an agreement under which several officers and directors of both banks would purchase a substantial portion" of State Exchange Bank stock issued to Farmers State Bank m connection with the merger.


The reorganization plan also proposes naming a committee to "initiate, prosecute, compromise and settle" preference claims.

The committee, according to the plan, would consist of representatives from SEFCO, State Exchange Bank, and the court-appointed Creditors Committee, which supports efforts to regam the $10 million.

Most parts of the plan also must be approved by either bank shareholders, the state Department of Financial Institutions, the Federal Deposit Insurance Corp., and the Board of Governors of the Federal Reserve System before the court acts. - South Bend Tribune

1984 - Feb 15- Investors hired private investigator in SEFCO case

By MATT GALBRAITH Tribune Plymouth Bureau

Plymouth - A group of investors from whom the State Exchange Finance Co wants more than 1 million hired a private investigator to look into pre-bankruptcy dealings of SEFCO, a source close to the group says

The investors are among those who withdrew some $10 million in the 90 days before SEFCO filed for Chapter 11 protection on Dec. SO, 19K2 SEFCO wants the funds back for distribution to all its creditor.

The group has retained a law firm from Indianapolis, the source said, and has scheduled a meeting to discuss available options concerning opposition to repaying the money

That meeting is scheduled for 7 p.m. Thursday in the Community Building in LaPaz.

The group hired a private investigator six months ago to collect evidence of alleged "wrongdoing by some of the (former SEFCO) officers," said the source, who spoke on the condition he would not be named

He did not elaborate on what the evidence alleges, but several Investors have claimed that SEFCO officers misled them as to the stability of the company and encouraged potential investors to make deposits there.

The FBI investigated loans administered through SEFCO. so they did not have to be reported to regulatory agencies, soon after bankruptcy was filed These loans have been described a "junk loans" by a former executive of State Exchange Bank, which was the sister Institution of SEFCO and managed by the same board of directors

The hope is to show to the U. S. Bankruptcy Court that SEFCO is liable for the withdrawn funds, the source said Tuesday night

SEFCO's bankruptcy was followed by the suicide of Frederic Adams, it's chief executive officer and chairman of the board, the installing of a new director, and the creation of separate board of directors

Through its attorneys, SEFCO has maintained that the bankruptcy code allows the recall of all funds withdrawn and Interest payments, collectively called preference so all creditors are treated equally

A court appointed creditors committee backs the recall.

1984- Feb 17 - Angry investors blast SEFCO

SEFCO reorganization Investors issue charges

By MATT GALBRAITH Tribune Bureau

LaPaz - Angry investor of State Exchange finance Co. of Culver have begun their fight against the reorganization of bankrupt SEFCO

It resulted in a flurry of angry charges (during a meeting Thursday night

Included was a charge of wide spread fraud, including cases of racketeering and loan shuffling, covered up by officials who managed both SEFCO and State Exchange Bank, alleged by an investigator hired by a group of investors

AND AN ATTORNEY retained by the group said investors may legal basis for holding the and directors in question liable for SEFCOs financial down fall.

Today a bank attorney denied intentional wrongdoing and actions by management had "no causal relationship" with SEFCO filing for Chapter 11 protection.

The attorney, Matthew Neff, of firm of Kneg, DeVault, Alexander & Capehart, claimed the charges are based on "twisted facts," and only hinder the reorganization process

ABOUT 100 INVESTORS attended the two bour meeting. They are either affected by SEFCO announced plan to regain some $10 million withdrawn before the cash drained SEFCO filed for protection from creditors on Dec 30, 1984, or have had savings locked up since the filing - or both

A group of the investors from whom SEFCO wants more than $1 million hired Merle Weber, a banking expert from Arizona, to investigate the pre-bankruptcy dealings of SEFCO The group also wants John Carr, an Indianapolis attorney, to discuss options available for opposing the recall of withdrawn funds and seeking recompense from SEFCO

"That is the most corrupt organization I've ever seen," contended Weber, referring to the structure that operated SEFCO and the bank prior to the bankruptcy

WEBER CITED documentation of a "massive interstate check "kiting operation" - payments on bad checks - that cost SEFCO hundreds of thousands of dollars from 1977 to 1982 and was "not corrected" when officials became aware of it.

However, Neff disputed the allegation by Weber

"There may have been check kitting operations going on without the knowledge of the bank management." he allowed "But when they (management) became aware of the operations, they reported them properly and then they closed the accounts

WEBER ALSO contended that Frederick Adams, the late chief executive officer of SEFCO and the bank, shifted questionable loans from the bank to SEFCO to hide them from state and federal bank examiners

Bank examiners inspected State Exchange books in late 1982 after a merger was proposed of the bank and SEFCO owned farmer Stale Bank, which is located in LaPaz

These loans, including one of $200 000 to Larry Hannah, a former executive of American Fletcher National Bank (At AFNB) in Indianapolis, have been well documented and were the subject of an FBI investigation

HANNAH WAS INDICTED Last Dec 17 by a federal grand jury on 17 counts of misusing AFNB funds, making false statement on bank records and receiving money for procuring loans

Carr, of the law firm of Buschmann, Carr and Meyer, said SEFCO investors who have been asked to return their withdrawn funds may have a defense against the repayment because these "internal transactions" possibly changed SEFCOs solvency during the period the funds were withdrawn

There are possible defenses," said Carr, adding the best bet of investors is to Join together, perhaps in a class action suit.

The meeting Thursday night came two weeks after SEFCO filed its plan of reorganization If the plan is approved by creditors, all SEFCO officers and directors would be released from personal liabilities

I THINK THE plan is impractical, said Carr Weber recommended that it be rejected outright

Carr said SEFCO officials also may have incurred liability because of allegations they mislead potential investors of the solvency of SEFCO just days before the bankruptcy.

1984 - Feb. 22 - Investigator restrained in SEFCO case

Court places curbs on SEFCO investigator

By MATT GALBRAITH Tribune Plymouth Bureau

FORT WAYNE - A federal judge has issued a temporary restraining order against an Arizona banking authority who accused former officers of State Exchange Finance Co. of Culver of mismanagement and criminal activity.

U.S. Bankruptcy Judge Robert K. Rodlbaugh Issued the order here Tuesday afternoon against Merle Weber In answer to a motion filed earlier Tuesday by SEFCO attorneys Thomas Lewis and Salvatore Barbatano.

Weber was hired by a group of SEFCO investors to Investigate pre-bankruptcy dealings. He has charged corruption and deceit were prevalent in the former SEFCO leadership.

Rodlbaugh set a hearing on a full injunction for Monday in bankruptcy court in South Bend

Lewis said today the order bars Weber from speaking to noteholders and shareholders about SEFCO's recently filed Plan of Reorganization; from accepting fees for Investigation of past SEFCO and State Exchange Bank officers, and from making false or misleading statements about SEFCO.

It also bars Weber from talking to reporters, he added

Weber, who advised creditor-investors to reject the reorganization plan during a meeting last week, was unavailable for comment

Meanwhile, Lewis said efforts by SEFCO to collect $10 million worth of preferences will be delayed SEFCO had given holders of alleged preferences until this week to make arrangements for payments or to Inform SEFCO attorneys of their refusal

Investors with alleged preferences are those who either withdrew savings or were paid Interest In the 90 days before SEFCO filed for bankruptcy on Dec. 3O, 1982. "

"We are going to file a motion with Judge Rodlbaugh asking that proceedings on preferences be delayed until after a disclosure statement (on the reorganization plan) is filed remarked Lewis.

A separate motion already is on file asking for a delay on the disclosure statement, which outlines the reorganization plan for creditors who must approve it

SEFCO has requested a disclosure delay to March 9.

Lewis denied reports that postponing preference collection was a signal that SEFCO is considering not going after the money.

The issue of preferences has been a controversial one.

Investors have told stories of having to mortgage their homes and sell off property to come up with the money. Some have threatened to go to jail if necessary to keep their savings.

SEFCO has promised lawsuits for those who refuse to pay.

Lewis said 300 to 400 preferences have been settled or had agreeable terms set for them. He called this a good response."

Originally, there were about 800 preferences alleged Holders of some of the larger preferences two are upwards of $900,000 have suggested joining in a class-action suit against paying the money back to SEFCO, which wants to distribute it to all creditors in accordance with the bankruptcy code.

There has been no indication whether enough support has surfaced for such a suit. An Indianapolis law firm has proposed handling the litigation for $300,000.

However, an attorney with that firm, John Carr, advised investors it would be a long, grueling and expensive process and that the chances for success are "against you". - South Bend Tribune

1984 = Feb 27 - SEFCO case: 10 days put on restriction

Order extended in SEFCO case

By MARTI GOODLAD HELINE Tribune Staff Writer

A temporary restraining order that prohibits an Arizona banking authority from soliciting rejections of the aa-yel unsubmitted plan of reorganization of State Exchange Finance Co. of Culver (SEFCO) was extended today for at least 10 days.

U.S. Bankruptcy Judge Robert K. Rodibaugh took under advisement a request from SEFCO attorneys Thomas Lewis and Salvatore Barbatano that the restraining order issued last Tuesday against Merle Weber be extended into a preliminary injunction.

Following heated exchanges among at least six of the 11 attorneys present at todays hearing, Rodibaugh gave the lawyers 10 days to respond to the arguments and cases cited by the SEFCO lawyers.

In light of accusations that the restraining order is overly broad, Rodibaugh said he would review the wording of the document while he considers the injunction.

he SEFCO attorneys sought the order last week as part of a complaint alleging that Weber violated federal bankruptcy laws by improperly soliciting rejections of the SEFCO reorganization plan before it is even submitted to the court.

Weber was hired by a group of SEFCO investors to investigate the conduct of SEFCO officers before the bankruptcy. The finance company filed for reorganization under Chapter 11 of the bankruptcy code on Dec. 30, 1982.

Weber, who appeared in court today without an attorney, was told by the judge that the restraining order barred him from seeking rejections to the plans of reorganization before it and the disclosure statement are filed. Rodibaugh also told Weber he was restrained from soliciting fees for litigation.

Weber denied taking the actions that were alleged by the SEFCO attorneys and told the judge he had no intention of soliciting rejections. Weber questioned wording of the restraining order that prohibited him from talking to any person who was a shareholder or noteholder of SEFCO.

The judge clarified that to mean in regards to the soliciting of rejections or fees.

South Bend Tribune attorney Louis Chapleau told the judge he objected to the language of the order if it could be interpreted to prohibit a reporter from talking to Weber.

Rodibaugh responded by saying, "It was not my intention to restrain reporters from asking questions. Barbatano quickly argued, however, that Weber should be restrained from communicating false or misleading statements about SEFCO.

Attorneys Fred Rakestraw and Eugene and Nelson Chipman objected to the language of the order if it meant they were restricted from discussing the SEFCO bankruptcy with their clients.

The three lawyers, who said they had been contacted by various creditors, were concerned about how far the restraining order could go toward inhibiting a potential lawsuit against the State Exchange Bank, which shares officers and directors with SEFCO.

Although no one has said that a lawsuit will definitely be filed, there has been considerable talk among creditors who are upset about having to pay preferences.

Investors with alleged preferences are those who withdrew savings or were paid interest in the 90 days before SEFCO filed bankruptcy. Letters demanding repayment or the threat of court action were set earlier this year.

However, today Barbatano said in court, Its not our intention to sue. We are trying to make provisions in the reorganization plan. We do not intentionally want to cause people hardship.

Attorneys Rakestraw and Chipman questioned the orders apparent restriction on them and anyone else from filing a lawsuit against a third party such as the bank

However, the SEFCO attorneys argued that such a suit, because it might affect the finance company's officers, could destroy all the work being done on the reorganization.

The officers and directors are t making significant commitments toward a total of $9 million that would result in substantial repayment in the range of 70 to 90 percent to the creditors, Lewis said.

Any litigation now could destroy that work and could ruin creditors chances for repayment by hasty actions on rejection of a settlement without full knowledge. The disclosure statement and reorganization plan are due on March 9.

Rodibaugh said he would consider all the matters when he rules on the issue shortly after the 10-day deadline for the attorneys to submit their arguments. A pre-trial conference on the case is set for March. 30. - SOuth Bend Tribune

1984 - Mar 8 - Weber wins chance to challenge order

Hearing in SEFCO case Restraint order faces challenge

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH Merle Weber, hit with a restraining order Feb. 21 after alleging criminal activity and mismanagement in the pre-bankrupt period of the State Exchange Fmance Co., will have an opportunity to challenge the restraining order.

Weber was granted a hearing Wednesday by U.S. Bankruptcy Judge Robert K. Rodibaugh, who set it for 9:15 a.m. Monday at South Bend.

In a hearing request filed earlier this week, Weber asked for a more definitive ruling than previously ordered on "whether the temporary restraining order should be continued in effect, or vacated".

Rodibaugh, who Feb. 27 extended the order at least another 10 days, did so because of confusion on the limits of restraint among the nearly dozen attorneys representing parties or potential clients in the case. The time was given to the collection of counsel to file arguments.

Rodibaugh had cited possible irreparable harm to SEFCO and its creditors in granting the original temporary restraining order. SEFCO claimed Weber was advising creditors to reject the recently filed plan of reorganization, which spells out how much SEFCO will pay creditors.

Soliciting rejections, as well as fees for the work, before a disclosure statement is filed on the plan violates federal bankruptcy codes. In addition, some creditors could stand to forfeit their votes on the plan if influenced from someone outside.

Weber denied the charges, saying to Rodibaugh, I have never made any solicitations.

The judge entered his approval to Weber's hearing request late Wednesday afternoon, the ninth day of the extension.

There were no new documents on file from other parties. SEFCO has until Friday to file the disclosure statement, which is a summary of the 106-page reorganization plan filed Feb. 7. It then must be approved by Rodibaugh before being sent out to the creditors.

After adequate time to read the challenge statement, creditors will vote on the reorganization plan.

SEFCO considered Weber a threat to the plan. In the request for a restraining order, attorneys Thomas Lewis and Salvatore Barbatano contended Weber wanted to "forestall and destroy the nearly completed reorganization process".

The petition added, "The plan, if confirmed, would resolve an extremely complex reorganization that has required the cooperation of numerous parties and of this court".

SEFCO claims rejection of the plan will mean a lower distribution to all creditors, and through Lewis, said it wants the restraining order to last until after the vote.

Weber was reportedly hired by a faction of disgruntled SEFCO creditors who wanted to explore chances of success in a class-action lawsuit, outside of bankruptcy court, against the former management of SEFCO.

Prior to bankruptcy, SEFCO was managed by the same chief executive officer and board of directors, as was the State Exchange Bank.

1984 - March 12 - SEFCO plan is filed in Bankruptcy Court \Reorganization

Plans summary filed by SEFCO

By MATT GALBRAITH Tribune Plymouth Bureau

CULVER A summary of State Exchange Finance Co.'s plan of reorganization, on which creditors are to base their votes on the plan, has been filed by SEFCO tn U.S. Bankruptcy Court in South Bend.

The 45-page disclosure statement, which must be approved by the court, is required for creditors to make an informed judgment in exercising their right to vote on the proposed reorganization, Rex Figg, SEFCO's chief executive officer, said in the document

Figg also warned in the disclosure statement that creditor rejection of the reorganization plan likely will result in "expensive and protracted litigation" and could "jeopardize the capital position and viability of State Exchange Bank". The bank is the former sister institution of SEFCO and SEFCOs liquidating agent

Should the bank fail, Figg said it is highly unlikely that the creditors of SEFCO would achieve any significant recovery.

Meanwhile, a hearing granted to Merle Weber to challenge a temporary restraining order has been rescheduled to March 28.The hearing had been set for today for Weber, restrained on Feb. 21 shortly after making allegations of mismanagement and criminal activity on the part of SEFCO's former officers and directors.

SEFCO alleges that Weber solicited rejection of the plan and accepted fees for investigating SEFCO's pre-bankruptcy dealings in violation of the federal bankruptcy code.

Bankruptcy Judge Robert K. Rodibaugh reset the hearing late last Friday after attorneys brought up scheduling conflicts.

In the disclosure statement, SEFCO, which did the bulk of its business with agricultural producers, repeated past statements blaming the Chapter 11 bankruptcy filing on an "economy-wide decline in farm income and farm land values" compounded by rumors of financial difficulties that caused a panic among investors.

From December 1981 to December 1982, Flgg said the amount SEFCO owed to note holders, or its working capital, decreased from about $38.7 million to about $26.3 million. SEFCO filed a petition for protection from creditors on Dec. 30, 1982

"This decrease in its working capital, combined with continuing difficulties in loan collections, made normal business operations impossible", contended Figg.

According to the statement, SEFCO had $26.6 million in assets and $30.2 million in claims as of Feb. 1. Included in the claims, which are divided into 10 classes of individuals and groups, is $25.1 million by unsecured creditors. For approval, a majority of the persons in each class must vote yes" or at least two-thirds of the dollar amount must have attached to it the required yes" votes.

In the reorganization, SEFCO has proposed selling $2.5 million in qualified assets for cash and preferred stock to State Exchange Bank. The SEFCO-owned Farmers State Bank of LaPaz will be merged with State Exchange Bank, with SEFCO receiving about $5.5 million in cash and common stock.

SEFCO also will sell to the bank the State Exchange Insurance Agency for $400,000, which is down from the $900,000 that negotiators for the bank and SEFCO first talked about.

In return, SEFCO will release all former bank officers and directors from personal liability.

The court is looking tentatively at a date in April for confirming the vote tally among the creditors.

1984 - Mar 16 - SEFCO probe requested

Petition filed Grand jury probe likely in SEFCO case

By RICHARD SALOMON tribune Plymouth Bureau

PLYMOUTH - A grand Jury apparently will be called to investigate the State Exchange Finance Co.

A petition was filed Thursday in Marshall Circuit Court by Prosecutor Fred R. Jones asking the court to determine if a special prosecutor should be appointed.

Jones could not he reached for comment this morning, His office said he was In court

Jones' petition asked the court to determine if a special prosecutor should be appointed 'to conduct a grand Jury investigation of certain matters Involving the State Exchange Finance Co."

There was no Immediate ruling by Judge Michael D, Cook. The grand Jury is scheduled to meet May 9 and May 10.

In his petition, Jones mentioned dealings his law firm has had with the finance agency

. He also said that the company claims In a letter written last Jan. 19 that money withdrawn by his firm between Oct 2, 1983; and Dec, 30. 1983, in the amount of $5,271.15 constituted a preference as defined by the federal act and the finance company is entitled to recover from the law firm the alleged preference payment

Jones also said in the petition that he represents in his civil practice several clients who have pending claims and/or Judgments against Syler Inc, a debtor of the finance company and/or State Exchange Bank and that he presently represents two clients who have pending lawsuits against Syler and the finance company.

Jones said in his petition it is his opinion that he can "ethically, legally, and properly fulfill my duties and responsibilities as the duly elected prosecuting attorney"

But his petition says that in the light of information provided in it is necessary that the court determine if a special prosecutor should; be appointed to avoid actual conflict of interest or to avoid the appearance of an impropriety.

1984 - Mar 19 - SEFCO bankruptcy Jury to look for wrongdoing

By MATT GALBRAITH Tribune Plymouth Bureau

PLYMOUTH - A grand Jury probe of State Exchange Finance Co. operations before bankruptcy will focus on alleged criminal acts and breached state banking rules, according to Marshall County Prosecutor Fred R. Jones.

In a cautiously worded statement made Saturday afternoon, Jones confirmed that a Marshall County grand jury will in May hear evidence concerning SEFCO and he added:

It is possible there are violations of state banking regulations or criminal violations.

Jones declined to say more about the alleged violations.

But sources close to SEFCO claim that former SEFCO officers received money in the form of reimbursements for faked expenses and loans for which false reasons of need were disclosed.

SEFCOs recently filed disclosure statement and some creditors also have indicated that officials who dually managed SEFCO and State Exchange Bank failed to reveal SEFCOs worsening financial condition.

The same management operated SEFCO and the bank before the Chapter 11 filing on Dec. 30, 1982.

Since then, separate boards of directors and chief executive officers have been selected.

The upcoming grand jury probe was made public last Thursday when Jones filed a petition in Marshall Circuit Court to determine if a special prosecutor should be appointed to conduct the investigation.

Jones, whose private law firm has had dealings with SEFCO and the bank, asked for the ruling to avoid a conflict of interest or the appearance of an impropriety.

Judge Michael D. Cook has not ruled on the petition.

It was common knowledge shortly after bankruptcy was declared that state and federal investigators were gathering information on certain loans administered through SEFCO. Until now, however, there had been no responses to Indicate any wrongdoing.

In the last several weeks, former employees of SEFCO have charged that at least one senior-level officer had billed the bank for some $12,000 in phony miscellaneous expenses. The money received allegedly was distributed to other officers and agents of the bank. In the case of another high level officer, loans were said to be procured to cover huge gambling debts and to pay for the cost of junkets to exotic resort areas.

An independent investigator. Merle Weber, has accused SEFCO officers of criminal actions for accepting and renewing notes of deposit when it was suspected within management that bankruptcy would be declared.

Weber has been issued a temporary restraining order by U.S. Bankruptcy Judge Robert K. Rodibaugh. Pre-trial hearings are scheduled in the matter later this week.

In SEFCOs disclosure statement, it was reported that a $5 million personal liability insurance policy is being contested by the carrier, International Insurance Corp, because the insurance company claims the coverage was "Fraudulently procured".

International wants to void the policy because SEFCOs financial condition was not accurately detailed in its application.

Negotiations are in process to reach a smaller settlement, according to SEFCO.

SEFCO has denied charges of intentional wrongdoing.And in its disclosure statement, SEFCO attributed it collapse to a deteriorating farm economy that caused loan defaults and a decreased working capital.

The disclosure statement is required by the court for creditors to be able to make an informed Judgement on SEFCOs plan of reorganization, which spells out when and how much creditors will be paid.

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

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