You Can't Cheat an Honest Man - James Walsh [109]
In May 1995, New Era sought bankruptcy protection. At a tearful meeting with New Era staffers, Bennett admitted the anonymous donors had never existed.
The Chapter 11 reorganization filing was quickly converted to a Chapter 7 liquidation. In June 1995, New Era’s creditors held a meeting in Philadelphia, where an interim trustee told them that the net losses totaled about $107 million and that the shortfall eventually could be around $41 million.
The interim trustee claimed that 163 investors were owed money and 74 investors had taken out net profits at the point New Era declared bankruptcy. He wanted the winners to give back the money so that other creditors could recoup some of their losses. He was ousted days later by a committee of creditors and investors frustrated with what it considered slow response. The committee voted in Arlin M. Adams, a former federal judge in Philadelphia, as trustee.
By September 1995, hundreds of New Era investors had filed more than $725 million in claims, many seeking not only the money they lost but also the promised returns on their investments. New Era’s bankruptcy estate had about $31 million in cash assets. So, there were going to be a lot of unhappy people.
In October 1995, Bennett released a videotape that contained his first detailed comments since New Era had declared bankruptcy. Apparently speaking with the aid of a teleprompter, Bennett apologized for the pain and suffering he had caused. “Please hear me when I say I never intended to hurt any one of you,” he said. “I know that I’ve done that, however. And I’m so sorry.”
He said that his shortcomings as a manager played a role in New Era’s failure.
Management was never my talent. Administration was never my expertise. But the responsibility rests with the chief executive, so the buck stops here.... I was at the helm when the ship sank and I should have long before attacked those weaknesses and paid attention to other needed areas of responsibility. Did I ever intentionally set out to hurt anyone? No. My professional life has been motivated toward helping people, not hurting them.
But Bennett whined that he couldn’t provide any details about his personal role until his attorneys had more time to review New Era’s documents. “I’ll be in touch with you as soon as the facts can be disclosed,” he said. Not that his investors were looking forward to that. But Ponzi perps often have an egocentric need to explain themselves. (“For some of these people, the confession is a thrill,” says one federal agent. “It’s part of the drama.”)
In January 1996, Adams—the new trustee—filed for court approval of a settlement under which Bennett would turn over about $1.2 million from a house, car, stocks, retirement savings and other sources. Bennett described these things as “literally all of my assets.”
One attorney representing some New Era investors was ambivalent about the settlement: “On the one hand, [we’re] pleased with the job the trustee has done in capturing most of Bennett’s available assets. On the other hand, the assets captured pale in comparison to the extraordinary damage done to nonprofits.”
Adams and a group of more than 30 investors sued Prudential for $90 million, alleging the brokerage firm was a “co-conspirator” in the New Era fraud. “Prudential’s involvement in the Ponzi scheme not only legitimized the venture to the charitable community, but was the crucial element that enabled Bennett and New Era to overcome any skeptics,” the lawsuit said. Prudential and Bennett “privately agreed to release the money directly to Bennett and New Era to use as they saw fit.”
The suit claimed that Bennett established a toll-free telephone number staffed by Prudential employees, who took calls from investors with questions about accounts. Prudential told investors their funds were being held safely in escrow accounts when New Era was actually using the money to pay off early participants.
Finally, the lawsuit argued that Prudential made