Investors here face hit in Bennett Funding case

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Local dollars were on the line when a Syracuse leasing company crashed into bankruptcy court recently, turning what was a two-front assault by Securities and Exchange Commission lawyers into a potential three-ring securities fraud spectacular.
Soon after the SEC filed civil and criminal charges against Patrick Bennett, former chief financial officer of Bennett Funding Group Inc., four of the Syracuse corporation’s companies filed for Chapter 11 bankruptcy reorganization.
This week kicked off with a meeting of investors–individuals, banks, trusts and pension plans–jamming with the white knight summoned by bankruptcy lawyers to try to keep the giant office-equipment leasing operation up and running.
Non-indicted family members stepped out of management of the company in the wake of the charges.
Bankruptcy lawyers tapped Matthew Harrison of the New York turnaround firm of Ballenger, Budetti and Associates LLP to pull value for investors out of the wreckage.
It is not yet known how bad the damage is, or where it will fall, one lawyer said.
Big local names in the bankruptcy lists of top 80 creditors include Charles Schwab & Co. Inc., Fleet Investment Service, physician Michael Pichichero, OnBank & Trust Co., Brighton Securities Corp. and Sage, Rutty & Co. Inc.
Sage, Rutty president and chief operating officer Wayne Holly refused to say who else had a ringside seat when Harrison met with those who may take hits due to Bennett’s alleged fraud.
Holly got word of the Chapter 11 powwow late last week, and showed up to get firsthand information for clients Sage, Rutty could not reach, he said.
“As soon as we have facts, we will pass the word to our investors whose money might be jeopardized,” Holly added.
“We are sensitive to protecting the interests of our clients and have been in touch with each and every one of them.”
Those who bought into the once-venerable Bennett through Sage, Rutty are listed in bankruptcy papers as being exposed to more than $300,000 of potential loss.
Brighton Securities and Charles Schwab each handled more than $200,000 for Bennett investors, according to Chapter 11 filings.
Fleet Investment is on the list in connection with an IRA valued at $600,000. OnBank is listed as trustee of an IRA whose value exceeds $400,000.
Not on the top 20 list but still watching the situation closely are banks including M&T Bank and Lockport Savings Bank.
M&T Bank’s exposure is “minimal,” bank spokeswoman Nancy Brock said.
Some Lockport Savings investments may not be involved in the Chapter 11 filings at all. But the bank has thrown its Bennett investments into non-performing status anyway, said Paul Kolkmeyer, executive vice president and chief financial officer.
Until Lockport Savings knows whether its investments are jeopardized, the bank is positioning itself for the worst.
Even if all is lost, Kolkmeyer said, there will be no impact on earnings. Lockport is insured against potential losses of this type.
“Those running this bankruptcy have to get their arms around the situation,” Kolkmeyer said. “These are some complicated financing structures.”
As explained by Robert Noonan, principal of a Pittsford leasing company not involved in any of the Bennett deals, there are a variety of ways to get money into a leasing pool.
Structured like mutual funds, leasing pools contain a number of equipment leases supposed to return a certain rate to investors, in addition to possible gains if the leased equipment appreciates in value.
Individuals, pension plans, insurance companies and other entities can put money in via private offering partnerships or other vehicles, said Noonan, principal of Real Lease Inc.
Or the leasing company can assemble a package of leases and securitize them through banks, while retaining servicing rights, Noonan explained. Again, methods of selling the stream of payments in the secondary market are varied and complicated, he said.
“The bottom line is that everyone is investing in the track record of the leasing company. Bennett was a very mature company,” he said.
Hopes are that the Chapter 11 filings will buy time to assess the damage done to an estimated 22,000 investors in Bennett Funding’s once-respected office-equipment leasing operation, said Alan Marder.
An attorney with Shaw, Licitra & Associates P.C. in Garden City, Marder said, “We have the business records we need to get a handle on the situation and maximize return for investors.”
His firm is backing Harrison, a veteran of the Wedtech Inc. Chapter 11 operation, to run the Bennett Funding bankruptcies. The SEC is angling to get its own officials in place.
Meanwhile, lawyers are scoping out Bennett family assets not involved in the Chapter 11 filings, with an eye to springboarding off the SEC fraud actions and diving into whatever pool of cash can be found to pay investors.
Filed in New York, the SEC complaint was sealed by court order.
According to a report in the Wall Street Journal, it accuses Bennett of operating a Ponzi scheme, paying old investors with new investors’ money, and floating phony leases in lease pools.