Berg creditors may recoup 15-25 percent, says bankruptcy plan
Bankruptcy trustee in Meridian Mortgage case may recoup as much as $31 million.
Seattle Times deputy business editor
Investors in the collapsed Meridian Mortgage funds could recoup 15 to 25 percent of the money originally paid into what prosecutors have called the largest Ponzi scheme in state history, according to a reorganization plan filed Friday by the court-appointed bankruptcy trustee.
The current amount recovered for creditors is $19.7 million, but the total eventually could reach $31 million, said trustee Mark Calvert.
Investors in three Meridian funds filed in July to force them into bankruptcy protection, and soon a total of 11 were in Chapter 11 protection under Calvert's authority.
The founder of The Meridian Group, Frederick Darren Berg, is in federal detention awaiting trial on charges of wire fraud, money laundering and bankruptcy fraud.
Calvert's filing Friday said Berg diverted as much as $85 million to his personal use, including $45 million channeled into the luxury bus company he established, MTR Western. Another $10 million was poured into a home-building company, Meridian Greenfield, according to the trustee.
Approximately $50 million of the money invested was used to pay other investors, to perpetuate the alleged Ponzi scheme, the trustee's report says. And many investors plowed their supposed profits back into the Meridian funds.
All those phony profits are not counted as claims in the bankruptcy case and will not be repaid.
Berg's personal assets are one source of repayment for the investors, whom the bankruptcy treats as unsecured creditors. The trustee for Berg's personal bankruptcy case, Diana Carey, sold Berg's Mercer Island house and other assets, including the luxury-bus company, in the fall. The bus line netted $5.7 million and Berg's other property yielded $1.6 million, Calvert's report says.
Another source is the small number of real-estate loans, as well as foreclosed properties, that the Meridian partnerships invested in. Those assets are valued at more than $12 million, according to the report.
A third potential source is pursuing claims against others who may have improperly benefited from Meridian. The plan says the trustee "is currently investigating potential causes of action" against unnamed outsiders, which might include "any relative, domestic partner or insider of Berg."
Calvert said in a previous interview that he is weighing litigation against professional firms that advised or audited Berg's companies, among them Moss Adams and Deloitte Financial Advisory Services. The plan estimates such claims could recover $5 million for investors.
The bankruptcy plan also shows the trustee hopes to "claw back" about $3 million that certain investors received from Meridian after Berg warned in August 2009 that the funds didn't have sufficient cash to allow withdrawals.
According to the voluminous plan filed Friday, Berg's misappropriations started as early as 2001 but "the magnitude increased each year."
Rami Grunbaum: 206-464-8541