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eToys, Inc. Fraud Against Shareholders
Shareholders Say More Fraud in Bankruptcy System
By: Madison B.
WJFA Staff Writer
1 March 2005
In the late 1990s, the on-line-toy-retailer eToys.com, experienced stellar growth, which encouraged investors to purchase millions in stocks.
As with so many of the dot.com companies in that era, however, eToy's P&L numbers were an illusion.
The eToys story has the accounting firm Merrill Lynch in the hot seat because of accusations it created a false set of books that showed eToys as a viable company with healthy profits.
By 2000, the dot.com bubble collapsed and the dubious accounting practices exposed. eToy's filed a Chapter 11 bankruptcy on 7 March 2001.
The shareholders are crying foul because they say the company frauded them, and then as the company began collapsing, the corporate officers allocated millions of dollars from the corporate account to pay themselves and then they resigned.
The officers contend the payments were salary and bonuses they were entitled to receive. The shareholders counter that it was ill gotten funds that rightfully belongs to the shareholders.
After the departure of the corporate officers, an interim chief was appointed to manage the company through its asset liquidation in bankruptcy.
Shareholders say the bankruptcy trustee and its law firm are guilty of fraud by stripping etoys assets that should be paid to reimburse the fraud victims. They filed a criminal complaint with the evidence to the U.S. Trustee in Delaware and never heard from them.
"I have been trying to get the FBI and the Dept of Justice to clean the corruption, but I am always sent to a party of authority that places the investigation in a dead end, with no results," said Stephen L. Haas, a party in the bankruptcy turned activist with the shareholders in the eToys case. "I alleged possible corruption, failure to perform by the attorney for the bankruptcy trustee Mark Kenney, who has sat idle while these crimes against us all continue to be rampant, blatant and flagrant."
Below is a Wall Street Journal article about the eToys bankruptcy scandal. The victims say the story is from a business publication standpoint and misses the big story, which is hedge fund corruption (big money, power and influence) on the Bankruptcy Court.
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Other WJFA viewers that came to this page, also found the pages below helpful.
An insight on the many ways some unscrupulous bankruptcy trustees victimize debtors in the bankruptcy system.
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eToy Shareholder's Complaint
The eToys' Shareholders accuse bankruptcy trustee Mark Kenny and his attorney, Paul R. Traub of stripping eToys' remaining assets while the corporation has been in the BK system under a Chapter 11 reorganization plan.
Complaint
Prepared and Filed by Laser Haas
eToys' creditor
1 - U.S. Trustee Robert DeAngelis replaced by Kelly B Stapleton in Phil Region 3, in Dec. 2004 (the date of the hearing on the original allegations).
2 - RR Donnelley and Goldman Sachs dissolve themselves of one another on 01-05-05. ($300 million suit of Sachs that RR Donnelley voted on.)
3 - The U.S. Trustee has sought sanctions, for $1.6 million and $750,000, which Traub agreed to. It was due to the responses of 01-25-05 public record and Hearing of 02-01-05, where shareholders were permitted to place the attorney's on the stand and the 02-09-05 court-approved depositions of the attorneys and Barry Gold.
4 - The 03-01-05 hearing, where James Garrity (former Fed Justice NY, who is of the firm Sherman Sterling and was hired by Traub to negotiate the Trustee settlement).
This is when Judge Walrath rejected approving the settlement. She took all matters under advisement and most importantly, when Garrity raised the issue that I could no longer be Pro Se because my claim was by a Corporation. The Court depose Traub, Barry Gold etc, on the details of the payments by Traub's firm to Barry Gold.
They testified that the terms of void "ab initio" and removal of Mark Kenney by USC 324 for "failure to do, and continued failure to perform." (the fact that brought light to the legal terms was the way counsel(s) went quite on the subject when the terms were stated.)
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Lawrence A. Friedman
Former Chief Administrator
U.S. Trustee Office Washington, D.C.
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5 - Former Lawrence Friedman, Chief Administrator in Washington D.C., U.S. Trustee Office (who had personally corresponded with Haas and assured him that corrective measures would be taken) -- resigned for personal reasons shortly afterwards.
6 - The Judge in the KB case did strike and expunge Haas' notes in the public pacer system of the same conflicts ongoing in that case where Paul Traub partner with Barry Gold, who worked at Stage Stores with Michael Glazer (CEO of KB) -- where Traub asked the Court for permission to prosecute the $100 million payment Michael Glazer paid himself and others prior to filing Bankruptcy of KB.
7 - Five days after Judge Sullivan struck from the record and expunged from the system, all my notes to him and the public, he was removed and replaced by Judge Shapero.
8 - The firm of Traub, Bonacquist, & Fox is just Traub, because Bonacquist is out of touch and Michael Fox has gone to Olshan & Frome.
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Traub Bio
Name: Paul R. Traub
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Paul Traub is accused of hiding his relationship with eToys' CEO he had recommended. He says innocent omission.
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Birth date:
31 January 1952
Location: Brooklyn, N.Y.
Occupation: Bankruptcy Attorney
Admitted to Bar: 1978
Law Firm: Traub, Bonacquest, & Fox
Business Located: New York
Education:
High School: 1969 Massapequa, New York H.S.
Bachelor of Arts: 1973 S.U.N.Y. Buffalo, N.Y.
Juris Doctorate: 1977 Golden Gate University
Associations:
-American Bar Association
-Commercial Law League of America
-New York State Trial Lawyers Assoc. -Turnaround Management Assoc.
-Salvation Army Manhattan Advisory Board
Career Moves:
Traub specializes in business law and bankruptcy, insolvency, and trial litigation. The majority of bankruptcy attorneys are paper preparers, so, Traub being a litigator and experienced in business law, puts him in the the advanced skills division among his peers.
He was the founding member of Traub, Bonacquist, and Fox law firm. In September, 2006, Marc Dreier, sole equity partner of Dreier, LLP, acquired the boutique law firm. Paul Traub became a Dreier partner and co-chair with Norman Kinel of the Bankruptcy and Business Reorganization group.
On Dec. 5, 2008, after Dreier's arrest for being involved in an alleged scheme to sell $700 million in fictitious promissory notes, Traub and the other bankruptcy lawyers resigned and restarted Traub, Bonacquist, & Fox.
In February 2009, Epstein, Becker, & Green, a firm specializing in government contracts, brought the seven-member Traub/Dreier bankruptcy team to its New York office, to merge the two powerhouse law firms.
Notable Bankruptcy Cases:
- eToys.com
- FAO Schwarz Inc.
- KB Toys Inc.
- Kmart
- Office Max
- Stage Stores
Notable Clients:
- Halston
- Joan & David
- Levitz
- Bombay Company
- Linens 'n Things
- Zales
- Whitehall Jewelers.
source:
Bar Association of New York
Dreier LLP May 15, 2008 press release
Traub's bio page at Epstein Becker & Green
http://www.ebglaw.com/showbio.aspx?Show=9748.
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