Two partners in USA Capital have said they offered interests they own in Royal Resort in Las Vegas as compensation to investors. Photo by John Locher.

Fees for lawyers and other professionals are piling up in the USA Capital bankruptcy case, causing the leader of one investor group to worry that little will be left for investors who entrusted $962 million in assets to the private lender.

Donna Congelosi, who heads an informal investor group based in Reno, was reacting to a decision to designate separate attorneys for three different investor committees in the USA Capital bankruptcy case. All of the attorneys and other professionals will charge fees that come out of USA Capital's assets that otherwise might be available for investors.

"We're just in a projected cat fight here," Congelosi said Tuesday. "We can argue all we want, but the judge ultimately will make the decision."

Previously, attorney Frank Merola of Stutman, Treister & Glatt of Los Angeles was selected to represent three committees of investors, except in instances where there were disagreements among investment groups.

On Friday, however, the U.S. Trustee's office, which serves as a bankruptcy watchdog agency, objected to having the same attorneys speak for investors in two separate funds operated by USA Capital as well as investors who hold fractional interests in individual mortgage loans that USA Capital originated.

An attorney for Assistant U.S. Trustee August Landis filed papers that cited an alleged conflict of interest between the investor committees.

Congelosi said she also is concerned about retirees who have been forced to sell their homes and move in with their families because they are no longer getting payments from USA Capital.

"We need to get cash into these peoples hands sooner rather than later," she said.

Also Tuesday, Nevada Mortgage Lending Division Commissioner Scott Bice would neither confirm nor deny whether criminal investigators were reviewing the collapse of USA Capital.

"I can't answer for the criminal justice system," Bice said. "The commingling of funds and various other things certainly bring to light some criminal things."

Several weeks ago, Bice said he had no knowledge of any criminal investigation of USA Capital.

Thomas Allison, chief restructuring officer at USA Capital, said in a statement that he was unaware of any inquiry by law enforcement officers into USA Capital's activities.

"If there is (a criminal investigation), we've got to deal with it," said Thomas Hantges, a founder and major owner of USA Capital. Hantges said there were no crimes committed at USA Capital.

Joseph Milanowski, Hantges' partner in many of the USA Capital companies, did not respond to calls for comment Tuesday.

Separately, Bice said attorneys for Allison and Milanowski have been unable to complete to an agreement relating to collateral for an unsecured debt. Milanowski offered to provide collateral for an unsecured $58 million loan made by USA Capital to Milanowski and Hantges.

Hantges has said he and Milanowski offered interests they own in Royal Resort at 99 Convention Center Drive and undeveloped land near Temecula, Calif.

Bice said an attorney for Milanowski has been unwilling to approve the agreement, in part because Allison is demanding that the partners make commitments to pay interest on the loan and to make regular payments.

Sources say that Milanowski is continuing to offer short-term loans, although he was terminated at USA Capital after the bankruptcy filing in April. Bice said he was not aware of loan proposals, but he said Milanowski legally could make loans if it is Milanowski's own or Milanowski's wife's money rather than money from other investors.

USA Capital, a private lender, solicited investment money from individuals around the country to use for short-term loans secured by real estate. Many of the borrowers sought loans to develop real estate parcels. Investors were attracted by the prospect of double-digit interest rates.

USA Capital was making monthly reports to the Mortgage Lending Division, showing all of the borrowers were current in making payments. Yet Bice has since learned that many of the loans were past due, although USA Capital continued to make payments to investors as if the loans were current.

Congelosi criticized Bice for failing to uncover the bad practices at USA Capital before the company filed for bankruptcy. The commissioner has acknowledged that his division failed to review the books and records of USA Capital within a year, as required by law, but he said examiners would have found nothing because the problems were concealed through false records.

"Fraud is fraud, and crime is crime," Bice said.