A judge on Monday approved a $1 million settlement in the bankruptcy case of Las Vegas developer Jean Marc El Jwaidi.
The settlement could end a 2-year-old bankruptcy case that originated with El Jwaidi during the economic boom raising some $13 million from investors for a retail and mixed use project on the Las Vegas Beltway at Russell Road called PG Plaza.
By the summer of 2009 PG Plaza was not built, El Jwaidi and one of his companies ended up in bankruptcy and El Jwaidi was hit with criminal charges alleging he duped two senior citizen investors in what state securities investigators called a Ponzi scheme.
Investigators claimed money raised from investors was used to finance El Jwaidi's lavish lifestyle and gambling debts.
But El Jwaidi says the PG Plaza plans collapsed because his company was defrauded by a Connecticut man who had promised that his company, Kenlin Capital, would finance PG Plaza to the tune of $30 million so the investors could be paid back and PG Plaza could be built. That man, Joseph Sorrentino, wound up in prison for a loan fraud scheme in which he accepted advance fees for loans that were not funded.
With the criminal case against El Jwaidi resolved with the payment of $338,000 in restitution to the victims and El Jwaidi’s development company Babuski LLC shut down by its bankruptcy, El Jwaidi is now trying to emerge from his personal Chapter 7 bankruptcy.
His discharge from bankruptcy was threatened when the case’s bankruptcy trustee filed a complaint alleging financial irregularities cost the bankruptcy estate hundreds of thousands of dollars in losses.
But under plans approved Monday by Bankruptcy Judge Linda Riegle, a benefactor is stepping up to pay $1 million to the bankruptcy estate to settle the trustee’s complaint.
This is expected to result in the distribution of about $800,000 to unsecured creditors who have filed claims in the case totaling $19.1 million.
Other than $2.4 million in side deals El Jwaidi made with two big creditors, the $800,000 is all the unsecured creditors will receive.
Under one of those side deals, El Jwaidi would buy back for $2 million the land for the proposed PG Plaza real estate development that Vestin Mortgage had foreclosed on – potentially putting El Jwaidi back in the development business.
Riegle on Monday accepted representations that the $1 million is not coming from El Jwaidi or his bankruptcy estate – because if it did creditors would already have a claim to that money.
"Mr. El Jwaidi warrants that none of these monies are or were part of the bankruptcy estate. If that warranty is incorrect – I don’t want to use the word 'false' – then the settlement is void," Riegle said.
"I guess being in this job so long I am naturally a suspicious person," the judge said. "But we have warranties this money is coming from a third source. Investors have reasons for doing what they do, and there are friendships.
"Perhaps more importantly, even though it would appear the trustee would have a good claim to prevent the discharge of the debtor and all his debts, it truly would be a Pyrrhic victory," Riegle said. "Because all the denial of discharge does is enable creditors to go chase the debtor for infinity.
"Here we’ll at least have a pile of money that can be used to satisfy the creditors’ claims to some extent," she said, adding a difficulty in the case has been that some of the money raised by El Jwaidi may have been lent to his company Babuski that’s already gone through bankruptcy.
Timothy Cory, attorney for Trustee William Leonard Jr., told Riegle that the lone objection to the compromise had been worked out when the objecting creditor was told the settlement does not unfairly affect that creditor.
"Like any good compromise, it’s not perfect. Nobody’s particularly happy," Cory said.
He said El Jwaidi has until Friday to pay the $1 million to the bankruptcy estate and $2 million to Vestin for the PG Plaza land.