Chapter 11: The task of rebuilding Salvaging Inphomation a daunting endeavor

March 14, 1998|By William Patalon III | William Patalon III,SUN STAFF

Michael W. Lasky may not be in control at his now-bankrupt Inphomation Communications Inc. in Pikesville. But neither is he out of work: He and other employees still show up each day as a court-appointed trustee tries to direct the resurrection of the company that owns the Psychic Friends Network and that once had annual revenues approaching $140 million.

The trustee is Paul Michael Sweeney, an attorney with the Silver Spring law firm of Linowes & Blocher LLP. Sweeney is reluctant to talk about the task before him and has empowered his law partner, James Vidmar, to speak for him.

"Mr. Lasky is still coming to work every day," Vidmar said. "Most of the employees are. A lot of time is being spent between the lawyers -- the bank's lawyers, the unsecured creditors. You have to create a situation where money is coming back to the creditors."

In an interview, Vidmar was willing to give a peek at what happens inside a once-successful company that has filed for Chapter 11 bankruptcy protection -- and that, in an unusual step, has had an outside trustee installed by a judge to see if the firm can be revived, or at least salvaged in part for creditors.

"In many respects, this is your average Chapter 11 case," Vidmar said. "They'll take some time evaluating things -- maybe 90 days."

But in many ways it's not a typical bankruptcy reorganization. For instance, take Lasky, Inphomation's founder and chief architect: a man who Bankruptcy Judge James F. Schneider only half-facetiously said should be padlocked out of the com-

pany's offices for actions the jurist felt were at least dishonest -- if not criminal, a word Schneider used in open court. (However, Schneider later added that the trustee could retain Lasky to help in the corporate revitalization.)

"The one issue," Vidmar said, "is do you trust Mr. Lasky enough to work with him? Unfortunately, he's got some issues. The bank feels like he defrauded them -- that's not good. He's burned some bridges -- that's not good. But the man in his career has been the most phenomenally successful person in all the [infomercial] industry."

Lasky built Inphomation into an infomercial powerhouse, using singer Dionne Warwick as a celebrity spokeswoman and 900 lines to ring up big bucks by pairing callers with the company's huge stable of telephone psychics.

That creativity and success are why Lasky still goes to work each day at Inphomation's Pikesville headquarters. Little more than three weeks ago, on Feb. 18 to be precise, he had appeared out on his ear when Schneider sided with a group of creditors in ordering the appointment of an outside trustee.

The potential for controversy is also one reason that Sweeney is leaving the public commentary to Vidmar. Sweeney is trying to diplomatically balance the interests of Lasky, who's technically still the owner of the company; a group of unsecured creditors represented by Baltimore attorney Richard L. Wasserman; and NationsBank NA, which claims it is owed about $7 million by Lasky and Inphomation. (Nationsbank is waging a lawsuit, separate from the bankruptcy case, in which it claims that Lasky and his wife, Kelly D. Lasky, committed fraud by pledging expected income tax refunds as collateral for loans, then failing to hand over the tax-refund money when they received it.)

Needless to say, Vidmar said, Sweeney doesn't want to further roil the already turbulent waters. He just wants to see if a profitable business can be pulled from all the problems.

Typically, in a Chapter 11 bankruptcy case, under an arrangement known as "debtor in possession," the owner of a business "hopes to wrestle it back from creditors," Vidmar said. The balance sheet is a bit out of whack, with debts a bit higher than assets, but the owner arranges to buy back the liabilities from the creditors.

That maneuver is usually undertaken when the court hasn't installed a trustee. However, Judge Schneider was apparently so aghast at Lasky's lack of financial controls and apparent attempts to divert assets and business into a separate and seemingly clandestine company, that he felt an outside trustee was in order.

"I've heard nothing but evidence of concealment, dishonesty and less than full disclosure," Schneider said in making his Feb. 18 ruling at the end of a two-day hearing. "In some cases, I think I've heard evidence of criminal activity."

One example of the tension between Sweeney's role and Lasky's came March 3, when Sweeney discovered that a Lasky employee had made an unauthorized remote entry into the computer system. He swiftly prepared an order asking that the employee be compelled to testify under oath.

But in talking with the employee, Vidmar said, "What we found out over the next couple of days is that this was an absolutely innocuous, explainable, harmless entry." Still, Vidmar added, Sweeney decided to get the judge to file the order, to show Inphomation employees that the trustee was monitoring things closely.

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