U.S. Bankruptcy Court Judge Robert Jacobvitz, in a 24-page opinion issued earlier this week, rejected a motion to convert the case from a Chapter 11 to a Chapter 7, a move that would have effectively removed Judith Wagner as trustee in charge of the Vaughan Company Realtors bankruptcy estate.
“It is in the best interests of creditors as a whole, and the estate, for (Wagner) to continue to serve in this Chapter 11 case rather than convert this case to a … Chapter 7,” the judge says.
The motion to convert had been interpreted as a way to short-circuit the roughly 100 clawback lawsuits pending in federal bankruptcy and district courts in Albuquerque.
The clawbacks are loose ends from the Ponzi scheme scandal involving former real estate executive and now prison inmate Doug Vaughan.
The motion was filed by retired Albuquerque lawyer Julius Wollen, who is contesting a clawback alleging he was a “net gainer” in Vaughan’s scheme to the tune of more than $400,000.
Wollen was one of about 600 investors who loaned money to Vaughan for supposed real estate investments between 1993 and early 2010, when Vaughan and his flagship real estate company, Vaughan Company Realtors, filed bankruptcy.
The investment program turned out to be a Ponzi scheme. Although about 80-90 investors appear to have profited, according to court documents, the remainder lost a combined $75 million.
Wagner and her attorneys, currently the Askew & Mazel Law Firm, filed more than 160 clawbacks against former investors seeking the return of $37 million-worth of payments from Vaughan.
The Vaughan Company bankruptcy estate had about $67,700 in funds available when Wagner was appointed trustee in April 2010.
From that point through the end of February, Wagner collected $3.7 million in revenue against $2.6 million in expenses on behalf of the estate.
Just under half of the expenses were for professional fees.
The finding that Wagner was running the estate in the black was a factor in Jacobvitz’s decision to reject the motion to convert.