Attorneys for USA Capital and a reputed former associate of mob boss John Gotti agreed to procedures for determining who gets to keep $9.75 million from the sale of the Royal Hotel.

Bankruptcy Judge Linda Riegle said she will hold a hearing on March 2 on arguments over whether Salvatore Reale, a reputed former Gotti associate, should be allowed to keep the money.

Private lender USA Capital filed for bankruptcy in April when it became insolvent, although it controlled $962 million in assets for several thousand investors around the country.

Before that, the company solicited money from individual investors, including Reale, and used the money to make short-term loans to developers who provided real estate as collateral for the loans. USA Capital owners Tom Hantges and Joe Milanowski borrowed money from investors as well for real estate ventures that the men pursued as USA Investment Partners.

USA Investment Partners borrowed $14 million from the USA Capital Diversified Fund, a mortgage loan fund that pooled money from investors. Milanowski, one of the owners of USA Investment Partners, has agreed to make $58 million in assets available for the fund and other creditors of USA Capital, including USA Investment Partners' interest in HMA Sales, the owner of the Royal Hotel.

On Dec. 22, however, the hotel was sold. A few days later, attorneys for USA Capital obtained a court order freezing the proceeds from the hotel sale.

At the hearing Wednesday, Henderson attorney Douglas Gerrard represented Reale. Gerrard said he will review documents controlled by USA Capital's interim managers before the hearing. But Gerrard agreed to postpone the effective date of his subpoena for the documents until Jan. 22 so that attorneys for Milanowski will have time to obtain a "protective order" to keep some information confidential.

USA Capital attorney Lenard Schwartzer said Gerrard agreed to a temporary restraining order on a bank account that holds $6.7 million of the $9.75 million paid to Reale while the dispute over the money remains unresolved.

Gerrard said that Reale loaned Hantges and Milanowski more than $13 million, most of which went to USA Investment Partners. The money was invested in entities in which USA Investment Partners had an interest, including HMA Sales, the former owner of the hotel, Gerard said.

"In this case, there is no question that my client has a valid loan," Gerrard said after the hearing. Reale was paid in accordance with legitimate loan documents, Gerrard added.

Attorneys for USA Capital have argued that the payment to Reale was a fraudulent transfer. USA's interest in HMA was part of $58 million that Milanowski turned over to USA Capital so that the bankrupt company could use the money for the benefit of creditors and investors.

Thomas Allison, chief restructuring officer for USA Capital, said he has not obtained information about the amount of the hotel sale but he said it appears to have been done through two payments.

Also Wednesday, the judge disallowed a claim made by Del and Ernestine Bunch that they should have been allowed to vote on the reorganization plan for USA Capital. The Bunches made a $10 million loan to USA Commercial Mortgage, the company's loan servicing affiliate, six years ago. They twice granted USA Commercial Mortgage a one-year extension on repaying the principal in return for a 5 percent penalty fee and an increase in the interest rate to 24 percent.

The loan was not backed by collateral. Attorney Lenard Schwartzer said the Bunches received $400,000 in interest payments within 90 days of the bankruptcy filing, and he argued that the Bunches' should return that money if they wanted an opportunity to vote and if they wanted to make a $10 million claim.

Bunch attorney Richard Holley said his client would put the sum in escrow, but Riegle said it was too late for them to do that under bankruptcy court law. She has not ruled on the related question of the Bunch family claim against USA Capital.

Earlier Wednesday, Riegle learned that two attorneys for direct lenders, who invested in fractional interests of short-term loans, may appeal her decision to confirm the plan of reorganization for USA Capital.

Attorney Alan Smith of Reno, who represents about 300 investors, said investors who purchased fractional interests in individual loans should be allowed to replace Compass Partners of New York as the loan servicing agent for their loans. Janet Chubb, a Las Vegas attorney for other investors, may join in the appeal.

"We want to preserve the right of direct lenders so that they can choose a different (loan) servicer if they want," Smith said.

An attorney for Compass Partners objected, noting that the New York firm paid $67 million for loan servicing agreements as well as other assets.

Riegle said she was reluctant to stay or delay bankruptcy proceedings while the appeal may be pending.

When the confirmation plan becomes effective, probably by Feb. 1, two new entities will be created. One will be a new USA Capital Diversified Trust Deed Fund, and the second will be the USA Capital Liquidating Trust.

The two entities are expected to file lawsuits against former insiders at USA Capital in an effort to secure assets for the benefit of creditors and investors in USA Capital. The lawsuits could be filed as "adversary actions" in bankruptcy court, federal lawsuits or lawsuits in Clark County District Court.

"In the meantime, (interim manager) Tom Allison is working hard to collect loans," said Marc Levinson, an attorney for the Diversified fund committee.