A trustee overseeing the liquidation of failed Continental Capital Corp. of Sylvania has made a determination in about a third of the 321 claims submitted by former clients, but conceded that many others will not be easily resolved.
"These are entirely different from any case I have seen involving a liquidation by the Securities Investor Protection Corp.," said trustee Thomas Zaremba, a Toledo lawyer.
Lawyers for the quasi-governmental agency, which covers client losses not arising from ordinary trading activity at bankrupt brokerages, agree that many claims involve highly unusual transactions, Mr. Zaremba said.
"We'll be cutting new ground I'm sure," he added.
The case revolves around Continental's founder and longtime chief executive, William C. Davis, a prominent metro Toledo resident who traveled in lofty social circles and persuaded many leading physicians and top movers and shakers to invest with him.
Mr. Davis is the subject of a criminal investigation and civil fraud complaint by the U.S. Securities and Exchange Commission.
He couldn't be reached for comment yesterday.
Two Ann Arbor lawyers representing him in the SEC case in U.S. District Court in Toledo recently withdrew without explanation.
Judge James Carr, on July 14, halted proceedings in that case, also without explaining.
Attorney Peter Kelley, who dropped out of the SEC case, said he continues to represent the former broker in the criminal investigation. Mr. Kelley said Mr. Davis is looking for a new lawyer to handle the SEC matter.
Clients of Continental's investment arm, which is being liquidated under the supervision of U.S. Bankruptcy Judge Mary Ann Whipple in Toledo, have filed $20 million in claims.
The trustee in the case said he has resolved about 100 of the claims.
Most involve people who filed as a perfunctory matter but suffered no losses or whose accounts are intact at a clearinghouse through which Continental funneled ordinary stock and bond purchases.
Fifty-five other claimants have been asked to provide additional information.
The most complicated claims, however, involve so-called private placements, or investments in small non-public companies in which Continental officials may have been involved as owners or officers.
In and of themselves, such transactions aren't unusual or improper.
However, client files in some such transactions include promissory notes covering the investments.
Lawyers acting on behalf of the trustee have to determine if the investment was made with the client's consent, the extent of involvement of Continental officials in the subject company, and other matters, Mr.
Sixty-nine claims involve such transactions, according to a recent report filed by the trustee with the bankruptcy judge. Two claims have been approved, and others are under various states of review.
Lawyers for the trustee and the Securities Investor Protection Corp. will gather in Toledo next week to evaluate those claims, Mr. Zaremba added.
John Counter, a former client of Mr. Davis who lost "several hundred thousand dollars," said he has heard nothing about his claim. His 2002 federal court lawsuit was among the first to raise questions about the broker's conduct. "I'm somewhat optimistic," said the retired railroad worker, who lives in Brownstown, Mich. "I can't afford not to be optimistic."
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