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Justice Dept. scrutinizes area bankruptcy sales

An arm of the U.S. Justice Department is investigating the way property sales are handled in the Tampa division of federal bankruptcy court, one of the busiest in the nation. The probe comes in the wake of a St. Petersburg Times story earlier this year that revealed most assets of bankrupt businesses and individuals are sold in "private sales" not advertised to the general public. Moreover, as the Times reports today, a large number of sales are made to one Pinellas County liquidator. (See story, 14A)

"Some of these issues have come up before," said Robert Coley, United States trustee for the region that includes Florida. "We have an ongoing investigation and beyond that we have no comment."

Coley's Atlanta-based office, part of the Justice Department, oversees the trustees in the Tampa division. Their main duty is selling the assets of bankrupt debtors. Although Florida law allows debtors to keep their homes and much of their personal property, hundreds of thousands of dollars worth of non-exempt assets are sold every year to pay off creditors.

The way those sales are conducted has stirred criticism from would-be buyers. They say it is almost impossible to find out what's for sale unless one is friendly with certain trustees and appraisers.

"It's kind of clique-ish," says Tom Parker, a Pinellas auctioneer. "If you don't belong to the clique, you don't get to do business."

Several trustees deny any favoritism, and say they too are concerned there is no good way to spread the word of pending sales.

"The trustees really have a very difficult job of trying to get notice to people," says trustee Melody Genson. "There's no budget with which they can go out and advertise things."

As a result, adds trustee V. John Brook, "we're stuck with who we can find."

The issue has become more pressing as the number of bankruptcy filings grows, and with it the amount of saleable assets. A week ago, the 14-county Tampa division logged its 10,000th filing this year, a record for the area and one of the highest levels in the country. And experts predict far more individuals and businesses will seek refuge in bankruptcy court if the economy continues to decline.

Buying from bankruptcy estates can be risky _ property is sold subject to liens and has no guarantees _ but it can also be immensely profitable.

"Absolutely," says George Chelekis, whose Clearwater publishing company puts out the Action Guide to Government Auctions. "Quite a few guys are making a ton of money. I know one guy who tapped into the system in New York and he's got the largest warehouse I've ever seen. It looks like Macy's."

In Tennessee, Kentucky and many other parts of the country, much of the property from bankrupt debtors is sold at public auctions that are advertised in local newspapers and draw hundreds of people. The competitive bidding helps drive up prices and bring in more money to pay creditors.

However, as the Times previously reported, auctions are rarely held by the Tampa court and property is almost never advertised in newspapers or legal reviews, as it is for sheriff's and police sales. The clerk of bankruptcy court used to keep a book listing property to be sold, but stopped doing that last year, saying it was not the clerk's responsibility. Private efforts to publish a "bankruptcy sales bulletin" foundered because the authors couldn't find out what was for sale.

As a result, it is impossible for a member of the general public to learn what's being sold _ and to whom _ unless he or she goes through all 15,000-plus active bankruptcy files.

"I don't think there's any real super way of getting this information out there," says Russell Winer, a Tampa lawyer. "For some reason there seems to be some sort of bottleneck in getting the information beyond the parties who have an immediate interest and knowledge and out to the general public."

Acting on behalf of a creditor in 1987, Winer objected to the proposed sale of the inventory of a bankrupt Tampa optical store. The trustee in the case had planned to sell it to Pinellas liquidator Richard Johnson for $14,000, a figure Winer called "grossly underpriced." Records show the inventory eventually was sold for $19,101 _ still three times less than the creditor claimed it was worth _ but it could not be determined from the case file who bought it. Johnson says he didn't and the trustee has since resigned and could not be reached for comment.

Chief Bankruptcy Judge Alexander Paskay says he has no way of knowing about sales unless a creditor objects.

"If they sell to their grandmother under the table it's not my responsibility," he says. "It's the trustees'."

The U.S. Trustee's office would not comment, citing its investigation.

Paskay says it is "not unlikely" there could be collusion among trustees, appraisers and liquidators. Before the 1978 overhaul of the bankruptcy code, while judges still monitored sales, one buyer had a "total monopoly" and one trustee pocketed $2,000 from a $2,500 transaction, Paskay says.

"I referred it to the U.S. attorney but nothing ever happened," he says.

Trustees say they would like to advertise sales in the newspaper, but claim the court won't let them bill the bankruptcy estate for the costs of the ads. (Paskay says he doesn't recall a single trustee ever asking him.)

"The trustees don't really have the financial abilities to front all this money without the expectation they're going to be reimbursed for the cost of each sale," says trustee Buddy Ford.

Ford and other trustees say the so-called "private sales" are actually more public than they appear to be since notices go out to the debtor, the lawyers, all known creditors and anyone who has requested notice of that particular case. In addition, a copy of the sale notice is put in the public court file, where anyone can look at it.

Most trustees say they also keep, and use, lists of potential buyers who have asked to be contacted when property is sold.

Still, some who would like to buy say they never get the chance.

"I've sent them all letters and let them know I'm interested but I've not received any response," says Jimmy Marino of Pauline Liquidators in Tampa.

"The only time they ever call me is when they've got junk and nobody else will buy it," says Floyd Randall, another Tampa liquidator.

David Kroslak, owner of a Tampa restaurant and bakery equipment company, finds some trustees "are more cooperative than others" but says he has bought from a few estates.

"I like it the way it is," Kroslak says. "A good living can be made from it. But it's not being fair to society because everybody should be notified. (Creditors) are losing out."

Since the Times' first story on bankruptcy sales, Paskay and Judge Thomas Baynes have authorized more public auctions, trustees say. However, the cost of an auction can exceed the proceeds unless many items are auctioned at once or have a value of at least $10,000.

"You can't have an auction with one car and two chairs," says Genson, the trustee. "You really have to have a company with major assets."

Ford says he and other trustees recently held a meeting to discuss ways of getting word to more people. Among the suggestions are putting copies of sale notices on the bulletin board in the clerk's office, where anyone could quickly leaf through them.

"The way we do it now is in compliance with the (bankruptcy) code and local rules," Ford says. "But I do appreciate the concern that the general public does not have the knowledge or the ability to go in and pull all the files and monitor every case."

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