A trustee on Thursday told creditors that the personal bankruptcy case of former USA Capital President Joseph Milanowski would yield little or no recovery of losses suffered when the hard-money lender collapsed in 2006.
USA Capital was managing $962 million in investments for 6,000 individuals when it and related companies filed for bankruptcy in 2006.
The Las Vegas company solicited money from investors and used it to make short-term loans secured by real estate. Investors were attracted by double-digit yields on their money and the relative security of real estate for collateral, but many lost large sums of money when USA Capital closed.
Several of the 20 investors present at the meeting at the Foley Federal Building in Las Vegas said they lost their retirement savings at USA Capital.
In August, Milanowski pleaded guilty to one count of wire fraud at USA Capital.
Nevada State Bank and some USA Capital entities earlier forced Milanowski into Chapter 11 bankruptcy, which allowed him to continue business operations.
At the request of trustee Ford Elsaesser, Milanowski’s bankruptcy case was converted on Dec. 31 into Chapter 7, which calls for liquidation of assets to pay off creditors.
Elsaesser told about 20 creditors attending the meeting that they may recover some of their losses from the USA Capital corporate bankruptcy proceedings. However, the trustee told them to expect little or nothing from Milanowski’s personal bankruptcy.
Milanowski, who personally guaranteed many loans at USA Capital, has $340.3 million in liabilities and $870,000 in assets, according a report filed in October. Some of the liabilities stem from personal guarantees that Milanowski, former USA Capital partner Tom Hantges and others provided for loans at USA Capital.
The Milanowski family agreed to pay $1 million in cash to the bankruptcy estate and to turn over claims Joseph Milanowski had in USA Commercial Real Estate Group, one of the USA Capital companies.
The trustee also said investigators in Milanowski’s personal bankruptcy and those of USA Capital found no evidence that investors money was diverted to offshore accounts.
“We think we turned over every rock (looking for hidden assets),” Elsaesser said. “We found what we found and we settled on that basis. We didn’t determine that any significant amount of money went to Mr. Milanowski personally or through Mr. Milanowski to other parties.”
If Milanowski made misrepresentations to hide money from creditors, the agreement with the Milanowski family could be voided, Elsaesser said.
The debtor testified that he received an annual salary of $200,000 in the last few years of USA Capital’s operations.
A couple of creditors questioned Milanowski about specific investments and transactions, but he told them he did not recall those transactions.
“Mr. Milanowski seems to have a case if amnesia or whatever,” said creditor Donald Pensler. Pensler stood over Milanowski, showed him documents and angrily challenged him until the trustee asked Pensler to sit down.
Russell Walker, Milanowski’s attorney, told Pensler: “This really is not a forum for you to make personal attacks.”
Pensler said: “I established the fact that he’s a dummy and can’t remember a damn thing and he’s a felon.”
Several investors said they objected to discharging Milanowski from his debts through bankruptcy, but Elsaesser said five other parties already have filed legal challenges against discharging Milanowski.
Commented Wayne Allen, one of several former USA Capital investors: “If he goes to Europe with $100 million, we’ll never see it again.”
“I don’t think he’s going to Europe anytime soon,” Elsaesser said.
Federal prosecutors are recommending that Chief U.S. District Judge Roger Hunt sentence Milanowski to eight to 12 years in prison, depending on how much he cooperates with the government. Hunt has said he may sentence Milanowski to a longer term.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.