Hanover trustee sues dozens of investors

Lawsuits seek to recover $2.1 million from noteholders who received payouts in alleged Ponzi scheme

Email | Print By E. Thomas Wood

Call it blaming the victim if you want, but the law is the law.

Sam Crocker, trustee in the involuntary bankruptcy of alleged $20 million Ponzi scheme Hanover Corp., has filed suit against 63 individuals who received payments from the company before its meltdown in 2006. The adversary proceedings in Nashville's U.S. Bankruptcy Court seek approximately $2.1 million in refunds.

Bankruptcy trustees are required by law to recover funds from any party that obtained them from the debtor in voidable transactions. In the case of Murfreesboro fraud artist Robert McLean, a trustee earlier this year filed suit against more than 50 people who had invested in the high-yield promissory notes McLean was marketing prior to the involuntary Chapter 7 filing against him in July 2007 and his suicide two months later.

Those legal actions sought the return of all funds that had been paid out to investors, but Crocker explained yesterday that the new Hanover lawsuits are targeting only the amounts noteholders received in excess of amounts invested. "They got something for nothing," Crocker said.

Some of the defendants had formerly lost money on Mobile Billboards of America, a Ponzi scheme prosecuted by the Securities and Exchange Commission in 2004. Daryl Bornstein, who had been a salesman for Mobile Billboards, went to work for Hanover and attracted several of his former clients by offering to include the amounts of their prior losses in their Hanover investments.

"In other words, Hanover agreed to repay loans that it never received, and had no obligation to pay," one of the lawsuits states.

In a 2007 deposition, Sherrard & Roe attorney Steve Hurd asked Hanover founder Terry Kretz about the arrangements made for Bornstein's clients:

Q.: Why would Hanover issue a note representing money Hanover did not receive?

A.: Based – at that time, it was a formula that made sense for us at that time based on return. The whole premise of Hanover Corporation was to help people who had lost money in the market in general. You know, our whole thing was about a regeneration of funds for folks. That was our premise. And then alongside of that is – we're believers in Jesus Christ and religious people, and our thing was to fund the Kingdom of God, and that is where we stand with it.

Other investors received payments unrelated to Mobile Billboards. Claims against four individuals account for more than $1 million of the total Crocker is seeking – Roy Blizzard of Austin, Texas; Reta Brown of Chattanooga; Dewight Phillips of Cookeville and Tony Bilbrey of Livingston. Many of the investors listed are in Middle Tennessee, but some are as far afield as Michigan and South Carolina.

Crocker reached a settlement in October with Madison's Cornerstone Church, where Hanover founder Terry Kretz and several other parties involved with the company are or were parishioners. Crocker had sued Cornerstone last year after learning that Hanover had given the church some $176,000 over the years. The church agreed to pay $50,000 to settle the matter.

Hanover investor Lisa Reitmeyer has stated that the Securities and Exchange Commission took her deposition last year and that FBI agents have questioned her at length and gathered evidence from her, including recordings she made of telephone calls with Kretz. To date, no criminal charges have been filed in connection with Hanover.

Kretz has filed personal bankruptcy, giving him automatic protection from civil legal action, but Bankruptcy Court Judge George Paine ruled earlier this year that the protection should be stripped. The judge concurred with a group of investors who claimed that Hanover was a "fraudulent Ponzi scheme."