BEHIND THE NEWS: When the rich turn poor: Bankruptcies offer unique peek

March 20, 2006

Ex-Conseco Inc. officers Max Bublitz and Jim Adams filed for bankruptcy last year. So, you might be thinking, they must have hit bottom, overwhelmed by millions of dollars in debt stemming from their former employer's ill-fated insider-loan program.

Yet a different picture emerges from a review of their court filings and transcripts of court hearings. Yes, they say their assets are a shadow of their debts. But no, that doesn't mean they're going to start living like most of us.

Take Bublitz, 50, the former president of Conseco Capital Management, who collected $8.3 million in cash compensation from 1998 to 2003 but now says he has assets of less than $1.5 million. That's far shy of the $18 million he owes in principal and interest on loans he took out in the 1990s to buy Conseco stock that ended up worthless.

Bankruptcy court records say millions of dollars Bublitz earned flowed to his wife, who isn't employed but last year bought a $3.2 million home in the San Francisco area.

Around that time, a former Conseco colleague hired Bublitz as a fixed-income portfolio manager at San Francisco's Seneca Capital Management. He received a $200,000 bonus soon after starting, but because the payment came weeks after his May 2005 Chapter 7 filing, it's off limits to creditors.

None of this sits well with Conseco, which in November filed a complaint seeking to block Bublitz's effort to shed his debts and get a fresh start in bankruptcy court.

Bublitz actually started working for Seneca months before filing for bankruptcy but concealed that fact to keep income out of reach of creditors, the complaint alleges.

Further, even after Bublitz transferred the money to his wife, he retained "effective control over the ... transferred assets, as well as the enjoyment and benefits of ownership," according to the complaint.

Bublitz's attorney says his client has done nothing improper.

The last transfers occurred more than three years before the bankruptcy filing, and were part of "standard estate planning," according to a court filing by the attorney, William O'Connor.

Bublitz "looks forward to addressing [Conseco's] insinuations and hyperbole in court," the filing said.

Conseco may launch a similar assault against Jim Adams, 46, the company's former chief accounting officer. Adams earned $4.1 million in cash compensation from 1998 to 2002 but now says he has liquid savings of less than $7,000. Court records show he owes $27 million in principal and interest under the loan program.

The company is investigating where Adams' money went, and says it might file a complaint aimed at blocking his efforts to shed debt.

At a meeting of creditors in October, Adams didn't sound as though he'd begun to pinch pennies. Adams said monthly expenses for him, his wife and three children were $20,000, including $1,100 for clothing.

Conseco also is scrutinizing whether it should have dibs on $80,000 in compensation Adams received in September after he began working for MH Private Equity Fund, a new investment firm launched by Conseco founder Stephen Hilbert.

At the creditors' meeting, Adams said he will earn $20,000 a month reviewing investment opportunities for MH, and the $80,000 represented advance payment for his first four months.

In court papers, Conseco says it's evaluating whether the compensation actually stemmed from work Adams did for MH before he sought bankruptcy in July. If so, the company contends, the money should be available to creditors.

The scope of Conseco's inquiry is "grossly overreaching," according to a filing by Gary Hostetler, Adams' attorney. He said his client had made full disclosure of his financial condition.

"In our case, we have no ability to [pay]," he told IBJ last week. "We are talking about a [more than] $20 million liability to Conseco. My client's income is substantially different than it was in the Conseco days."

Durham dials up CellStar

An investment group led by Tim Durham made a fortune a couple of years ago investing in wireless phone wholesaler Brightpoint Inc. during its darkest days. Durham alone figures he made more than $30 million when the stock surged back.

Now, he's hoping to pull off a repeat performance with Texas-based CellStar Corp., one of Brightpoint's biggest rivals.

The group began scooping up CellStar shares last summer, when they were fetching 30 cents apiece. They've since climbed to $3.35. The group now owns 1.7 million shares, or 8.4 percent of the total, worth $5.7 million.

"It was one of those situations that stares you in the face, and you say, 'This is too low to be true,'" Durham said. While there are risks in investing in businesses on the ropes, "companies just don't die easily."
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