A U.S. District Judge in Newark yesterday put the remaining two companies in the Bevill, Bresler & Schulman securities network into receivership after the Securities and Exchange Commission told the judge they will be charged with fraud as will the three other companies already in receivership.
Saul S. Cohen -- who was named receiver for the government securities side of the Bevill, Bresler operations on Monday -- said in a telephone interview yesterday that there is only a "remote" chance that the companies he is overseeing will return to business, even though one has filed for protection under Chapter 11 of the bankruptcy code.
A Chapter 11 filing is designed to give a company protection from its creditors while it reorganizes its debts.
Ira Lee Sorkin, the New York regional administrator for the SEC, has estimated that investors -- most of them savings and loan associations -- could lose up to $198 million as a result of the failure of Bevill, Bresler & Schulman Asset Management Corp., which Monday filed for bankruptcy protection.
Yesterday, at Sorkin's request, U.S. District Judge Dickinson Debevoise placed in receivership Bevill, Bresler & Schulman Inc. and its parent company. Bevill, Bresler & Schulman Inc. is a broker-dealer that is registered with the SEC. None of the other companies -- which are linked through common ownership -- is registered with the regulatory agency and, as government securities dealers, were not required to be.
The two principal owners of the Bevill, Bresler group are Robert L. Bevill and Gilbert C. Schulman. There are three other investors in four of the five companies: Andrew Dale Ledbetter, Robert S. Levine and John P. Rooney. A fifth company that traded only on its owners' behalf was jointly owned by Bevill and Schulman. The SEC said losses generated by the private trading firm were transferred to Asset Management Corp. and ultimately forced Asset Management into bankruptcy court.
Cohen said he spent four hours at Bevill, Bresler headquarters yesterday and met with the principals of the firms, and said they "have been very careful" in the conversations. He said he expects to have to obtain subpoenas to get all the information he needs and said it will be some time before he can completely untangle the records of the companies.
Placing the remaining two companies in receivership will make the job easier and will enable officials to determine the links among the companies in the empire.
Sorkin told Debevoise that the SEC will file an amended complaint against the Bevill, Bresler family to include the remaining companies. He said the complaint will accuse all five companies of fraud and other violations of securities laws.
The Bevill, Bresler & Schulman empire is the second government securities trader to fail in the last five weeks. In early March, E.S.M. Government Securities Inc. of Fort Lauderdale, Fla., failed. Its customers -- mostly savings and loan associations and municipalities -- stand to lose about $315 million.
A privately insured, state-chartered savings and loan in Ohio lost so much money in the E.S.M. collapse that it threatened to wipe out a private insurance fund. After a run began on other privately insured S&Ls in the state, Gov. Richard Celeste closed them. About 30 of the 72 privately chartered Ohio savings and loan associations are still closed.
So far, the failure of Bevill, Bresler & Schulman has not had the repercussions that accompanied the E.S.M. collapse, although a Ft. Lee, N.J., savings and loan that was listed in Bevill, Bresler & Schulman Asset Management Corp.'s bankruptcy petition as a $19.3 million unsecured creditor has experienced heavier-than-normal withdrawals.
The biggest creditor of the Asset Management Corp. was an Oak Park, Ill., savings and loan, Great America.
The District of Columbia also did a $10 million transaction with Bevill, Bresler -- apparently with the broker-dealer put in receivership yesterday -- but, unlike many other investors, did not leave the government securities under the control of the securities firm.
Nevertheless, Cohen said, it is not clear whether the District can sell those securities to make itself whole or whether they will become assets of the failed firm that get divvied up among all creditors.
About $200 billion of government securities are traded each day and government officials and traders said most of the firms and the trades are safe and honest. But they said that there are problems with some "fringe" dealers that do not have the discipline or capital to operate in these markets.
"You need an incredible amount of discipline to operate in the goverment securities market," said one dealer. "Small losses can quickly become large losses." The gambler's answer -- to take even greater risks -- won't work, the dealer said.