Trustee in Daryl Heller bankruptcy seeks liquidation as former ATM network owner’s cash dries up

• By Chad Umble / LNP | LancasterOnline

A bankruptcy trustee is asking a federal judge for permission to sell off what is left of Daryl Heller’s companies without the Lancaster businessman’s involvement.

Yet even as he seeks to liquidate Heller’s assets, the trustee has expressed doubts that a total selloff can even cover the legal and administrative costs of dissolving the business empire that Heller said was worth $370 million two years ago, just before the collapse of his ATM investment network.

To the trustee, it seems unlikely that anyone who lost money by investing in Heller’s ATMs will get anything back.

“At present, it is unclear whether such an effort would ever lead to a net positive result for the debtor’s bankruptcy estate even if the current estate had the ability to pay for it,” reads the Dec. 17 motion from bankruptcy trustee Fred Stevens that seeks to convert Heller’s bankruptcy case from a Chapter 11 reorganization to a Chapter 7 liquidation.

A bankruptcy liquidation, the trustee argues, would at least be simpler and more streamlined, forgoing some costly reporting requirements and proceeding directly to a liquidation of available assets.

“There is a substantial and continuing loss to the estate by virtue of the accrued and continuing accrual of professional fee claims that already surpass the value of the liquid assets in the Debtor’s estate,” the motion says, specifying that a hearing on the trustee’s motion is scheduled for Jan. 20.

Beach house proceeds exhausted

Stevens was appointed two months ago to oversee Heller’s assets and work toward settling the $825 million worth of claims against Heller who presided for years over an ATM investment network that made regular monthly payouts to investors for years. Those payments ended in April 2024, sparking a flurry of civil lawsuits and, ultimately, criminal charges against Heller.

Since filing for personal bankruptcy in February, Heller’s legal and administrative fees have topped $1.5 million, far outstripping the $960,000 in proceeds from the sale of a New Jersey beach house Heller said was his principal asset.

In short, Stevens concludes, Heller’s estate is “administratively insolvent.”

With bankruptcy fees continuing to mount as Heller is also paying for his own criminal defense, Stevens now wants to abandon any idea of reorganizing Heller’s businesses and move to quickly liquidate what’s left. Even so, Stevens isn’t optimistic about making any payouts to creditors.

“It is not yet readily apparent whether the estate will recover assets sufficient to satisfy the costs of administration, much less make a distribution,” reads the trustee motion.

Robert Chernicoff, a Harrisburg bankruptcy attorney not involved in the Heller case, said a conversion to Chapter 7 would reduce some fees. It would also end the obligation by the trustee in the Chapter 11 bankruptcy to reorganize and continue to operate Heller Capital Group and Heller Investment Holdings, Heller’s two holding companies with interests in ATMs as well as real estate, recreational marijuana and bitcoin businesses.

“Trustees generally don’t have money to operate the business or, for other reasons, may not wish to operate a business,” Chernicoff wrote in an email to LNP | LancasterOnline.

Chapter 11 bankruptcy filings are more typical for businesses seeking to reorganize and discharge some debts. While Heller filed a personal bankruptcy, most of his debts are tied into his companies since he offered personal guarantees on business loans. A Chapter 7 liquidation filing is the most common type of personal bankruptcy.

Sari Placona, an attorney representing Heller, said Heller had been working with the trustee for weeks on converting the case to a Chapter 7, describing it in an email to LNP | LancasterOnline as “a welcomed event.”

Placona said there are $40 million worth of claims that must be paid first − such as tax claims − which limits the amount of money the trustee can recoup for other creditors.

“There is no ‘fire sale’ − the Chapter 7 conversion is a mechanism designed to alleviate procedural roadblocks that have been created by the actions of the fund managers,” Placona wrote, referencing Heller’s former partners who managed some of the ATM investment funds and whom Heller has blamed for the investment network’s collapse.

None of the fund managers − Dave Zook, Jerry Hostetter, Buck Joffrey and William Poole − have been charged, but Zook, Hostetter and Joffrey have been targeted in one civil class-action lawsuit from investors and Zook was singled out in a separate investor suit.

An attorney for the fund managers did not respond to a request for comment.

Plummeting valuations

Heller’s dire financial situation, as described by the trustee, is a far cry from the one Heller laid out in February when he initially filed for bankruptcy. Back then, Heller claimed that his Heller Capital Group and Heller Investment Holdings had a combined value of $220 million.

By August, Heller’s estimate of his companies’ combined value had dropped to $50 million, a value he submitted as part of his plan to satisfy $118 million of the $825 million worth of claims against him. But in a September estimate of his assets, Heller listed his companies’ value as “unknown.”

“At this point, the Trustee is still without any clear understanding as to which of (Heller Capital Group’s) portfolio companies have net asset value (if any),” the recent trustee motion says.

Even assuming the assets that make up Heller’s two holding companies are still worth something, the trustee says extracting that value, settling necessary debts, and then distributing anything that’s left could be more trouble than it’s worth.

With $13 million worth of priority tax claims − including a $5 million federal tax lien − and administrative and professional costs that could amount to $3 million, the trustee says creating a repayment plan under a Chapter 11 bankruptcy would require at least $16 million.

Criminal complications

Throughout the bankruptcy proceedings, many creditors alleged that Heller’s ATM investment network was a Ponzi scheme, including 2,700 investors who claimed more than $500 million in losses from their ATM investments.

The fraud claims grew louder after an August report from a bankruptcy examiner who found evidence that old ATM investors were paid with money from new ones − the hallmark of a Ponzi scheme.

Heller was arrested Sept. 3 on federal securities and wire fraud charges. Federal law enforcement officials, in a criminal indictment, described Heller’s ATM network as a $400 million Ponzi scheme. The Securities and Exchange Commission filed similar civil charges describing Heller perpetrating “a Ponzi-like scheme exploiting retail investors.”

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

Stevens says Heller’s arrest and looming criminal trial also further complicates his ongoing bankruptcy due to the cost of Heller’s criminal defense and the government seeking the criminal forfeiture of $770 million of Heller’s assets.

“The debtor’s lack of consistent and predictable employment, plus his ongoing criminal and civil litigation render the rehabilitation of his bankruptcy estate almost impossible,” the motion says.