Bankruptcy trustee to take control of Daryl Heller’s assets

• By Chad Umble / LNP | LancasterOnline

Control of Daryl Heller’s financial assets will be given to a court-appointed trustee who will be in charge of selling them to pay off his creditors, a judge decided today.

In overseeing Heller’s Chapter 11 bankruptcy case, the trustee could also seek to claw back money paid out as part of Heller’s ATM investment network since a court-appointed examiner has described it as a Ponzi scheme.

The examiner in Heller’s New Jersey bankruptcy case reported in mid-August that nearly $370 million worth of payments sent to 2,700 ATM investors were derived from new investors and not from revenue from the cash machines. Those findings, which were echoed in a Sept. 3 federal Securities and Exchange Commission complaint and a federal criminal indictment charging Heller with fraud, prompted U.S. Bankruptcy Court Judge Jerrold Poslusny to schedule a hearing for Wednesday to consider the appointment of a trustee.

Heller’s attorneys filed a letter today saying they consented to the appointment of a trustee, and the judge agreed.

The hearing scheduled for Wednesday would have considered whether to appoint a trustee in the Chapter 11 case or convert the entire case to a Chapter 7 bankruptcy liquidation which would automatically be overseen by a trustee.

In the letter from Heller’s attorneys agreeing to a Chapter 11 trustee, they requested that Heller be allowed to work with the trustee and continue to draw a salary that his bankruptcy reorganization plan says is $40,000 a month.

“Retaining the debtor’s institutional knowledge and established relationships under trustee oversight will accelerate transactions, unlock strategic opportunities, and materially enhance distributions to creditors,” the letter said. “The debtor’s continued employment will generate significant revenue and maximize the sale of assets, which the debtor fears will be materially diminished without his involvement.”

Judge Polusny said any decisions about Heller’s continuing involvement in overseeing his assets while drawing a salary would have to be made by the trustee.

The actual order to appoint a trustee will be drafted by the Office of the U.S. Trustee, a component of the Justice Department which oversees bankruptcy cases and will recommend who to appoint as trustee.

“Mr. Heller has cooperated with the bankruptcy process and creditors since he filed his petition, and his decision to voluntarily agree to the appointment of a trustee is another step in the long line of his cooperation with this process and the courts,”  Sari Placona, an attorney representing Heller wrote in email to LNP | LancasterOnline. “Mr. Heller has always and continues to take the actions not only required of him but those that are in the best interests of those impacted.”

Attorneys representing the ATM investors who have the largest claim in Heller’s bankruptcy did not respond to requests for comment.

Liquidation, clawbacks

Since filing a personal Chapter 11 bankruptcy in February, Heller has been operating as the “debtor in possession,” meaning he has remained in control of his assets as he seeks to pay creditors.

In a repayment plan he filed in early August, Heller described satisfying $118 million of the $825 million worth of claims against him, amounting to 14 cents on the dollar. Heller’s plan to pay only a fraction of what he allegedly owes assumes he can get $583 million worth of claims dismissed, including most of the $542 million claim from investors in his collapsed ATM network.

Heller’s reorganization plan, which would have been subject to creditor approval, called for him to manage the liquidation of all his assets over a period of up to 10 years while receiving a salary that could have amounted to $3 million during that span.

The appointment of a trustee will end Heller’s control over his own finances, including how and when to sell parts of his businesses. The trustee will now seek to maximize the value of Heller’s assets in order to create a pool of cash to pay creditors. And, in what is known as a claw back, the trustee could also file suit against anyone who received money from Heller’s ATM investment network and distribute how they see fit.

The well-established legal precedent of clawbacks could require investors to give up money they thought was a return on their investment but was instead what the court considers a “fraudulent transfer.” By collecting money from some people who came out ahead, the trustee could send some of that money to people who lost more, thereby evening out the losses.

Heller was arrested Sept. 3 on federal securities and wire fraud charges. After spending two nights in a federal detention center in Philadelphia, he was released Sept. 5 on $500,000 unsecured bail. A trial date set for April will likely be pushed back.