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Ponzi fallout still spawns suits

ALBUQUERQUE, N.M. — Vaughan Company Realtors, convicted Ponzi schemer Doug Vaughan’s flagship real-estate company, may be long gone but it’s not forgotten.

DRESKIN: Was interim CEO of Vaughan Co.

DRESKIN: Was interim CEO of Vaughan Co.

The court-appointed trustee in charge of the company’s bankruptcy estate has sued two former staff members and a local real-estate services firm, Remax Elite, for damages over the demise of Vaughan Company Realtors in April 2010, three months after revelations of Vaughan’s fraud surfaced.

The crux of the civil lawsuit filed in U.S. Bankruptcy Court is the allegation that Michael Dreskin, then CEO of Vaughan Company Realtors, and Carol Williams, then an agent with the company, worked with Remax Elite to arrange a mass exodus of residential real-estate brokers and their property listings.

“As a direct result of actions by Remax, Dreskin and Williams, VCR’s opportunity to further its plan to continue as a real-estate brokerage business was thwarted and made impossible,” says the lawsuit filed by trustee Judith Wagner.

The lawsuit alleges that Remax profited from closed home sales generated by the listings brought over by the influx of 40 former Vaughan Company Realtors real-estate agents.

Vaughan Company Realtors and Vaughan filed parallel petitions for bankruptcy court protection on Feb. 22, 2010, a move that reportedly shocked the company’s management team that included Dreskin.

Within days, news broke about the Ponzi scheme, an investment swindle in which money put up by later investors is used to pay fake profits to earlier ones. Vaughan immediately resigned as Vaughan Company Realtors CEO at the request of its management team. Vaughan remained its majority owner.

Dreskin emerged as interim CEO and chief spokesman as the company, which had about 140 agents at the time of the bankruptcy filing, struggled to distance itself from Vaughan. An attempt was made to rebrand the company as New Mexico Real Estate Associates because, as Dreskin said in early April 2010, home sellers did not want a Vaughan “for sale” sign in their front yards.

Vaughan Company Realtors, whose agents were reportedly leaving at an accelerating rate, ceased operations in late April when the decision was made to appoint a trustee to take charge of the company’s bankruptcy estate. The appointment stemmed from concern about Vaughan’s role in the company.

Federal investigators would later describe Vaughan Company Realtors as a money-losing business shored up by money from the Ponzi scheme victims. In the end, 600 investors lost $75 million in the scheme.

Wagner, a forensic accountant rather than a lawyer, was appointed trustee in late April 2010. By the end of the year, Wagner was investigating whether money changed hands when Dreskin, Williams and three others joined Remax Elite.

The lawsuit can be seen as a follow-up to that investigation. In the past, Dreskin, Williams and others denied there were any bonuses or incentive payments to join Remax Elite.

The lawsuit against Dreskin, Williams and Remax Elite is the latest in the Vaughan Company Realtors bankruptcy, which has seen extensive litigation.

The majority of the litigation has been clawbacks, a specific type of civil lawsuit filed in Bankruptcy Court that seeks to recover or “claw back” certain types of payments made by a debtor before the filing of a bankruptcy petition.

In the Vaughan Company Realtors case, most of the clawback defendants were investors in Vaughan’s promissory note program. They thought their money was being used for real-estate investments when, in fact, it was being used to sustain Vaughan’s Ponzi scheme.

Out of more than 150 clawback lawsuits that were filed, 49 are still pending in Bankruptcy Court and another 41 are pending in U.S. District Court, said James Askew, who with Edward Mazel are Wagner’s lead lawyers.

About 55 clawback lawsuits were switched to District Court last year at the request of the defendants in an apparent strategy to seek jury trials.

The reduction from more than 150 clawbacks to 90 has been achieved primarily through mediated settlements conducted through the courts. Askew noted that there’s an additional 13 settlements awaiting approval, which will reduce the active caseload to 77 clawbacks in both courts.

“From the trustee’s perspective, her litigation costs go down,” he said about reaching settlements. “As the money from settlements comes in, she can build the fund that can eventually be distributed to pay claims.”

Settlements don’t appear to come easy in some cases. Court records show that settlement conferences have gone on for hours without an agreement being reached.

Protocol requires that pending settlements, whether reached in District Court or Bankruptcy Court, are subject to approval by Bankruptcy Judge Robert Jacobvitz.