Neal St. Anthony: The corpse of Stockwalk just won't stay buried

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Updated: October 18, 2007 - 8:06 PM

Six years after bankruptcy, the securities firm's saga continues: There's new money to fight over.

The creditor actions that transcended last year's shutdown of Miller Johnson Steichen Kinnard (MJSK) are going to cost former partners real money, according to court documents and arbitration awards that date to the 2002 bankruptcy plan of Stockwalk Group.

Stockwalk Group and MJSK were the cobbled-together securities peddler composed of three small regional firms. Stockwalk, the public holding company, soared during the market bubble of 1999-2000, only to crash into a fraud-induced bankruptcy in 2001.

The several veteran partners of MJSK who bought the firm out of bankruptcy were able to pay principal amounts to creditors within several years. But the weakened MJSK, thanks to defections of key employees, sold its waning retail business in December to Stifel Financial and laid off about 30 employees.

But an unusual settlement last year with a German bank involved in the fraud that proved to be Stockwalk's undoing has given the aggrieved parties an unspecified pot of money to fight over.

The family of the late Jack Feltl, owner of one of the firms that sold to Stockwalk, brought actions against MJSK before a securities industry arbitration panel in 2006. The panel awarded Mary Jo Feltl $347,125 in compensatory damages this year, on Feltl's claim that MJSK had breached his contract and failed to make a bonus payment. The Feltls had asked for $5 million.

Jack Feltl sold his R.J. Steichen Securities to Stockwalk Group/MJSK in 2000 for about 6 million shares of publicly held Stockwalk, which were wiped out in its bankruptcy.

Meanwhile, Hennepin County District Judge Kevin Burke has granted summary judgment to the Feltl family. In that case, the family alleged that MJSK/Stockwalk failed to pay it what could be hundreds of thousands of dollars of interest under the terms of the 2002 bankruptcy agreement with creditors. MJSK paid about $3.2 million to satisfy the Feltls' bankruptcy claim as creditors, according to Burke's order.

The firm last year said that it paid out about $40 million to holders of Stockwalk bonds and other creditors from profit and legal settlements. But MJSK, under the bankruptcy agreement, didn't have to make interest payments to holders of what originally was about $56 million in high-yielding, unsecured bonds, unless its profit topped $3 million in any year after 2002. Burke dismissed MJSK/Stockwalk's argument that it is exempt from paying any more to its creditors. And there was plenty more available to pay out, thanks to a settlement with Deutsche Bank.

What's at issue is how much did the several partners of MJSK get from a confidential settlement last year with the German bank. A bankruptcy trustee and federal officials said Deutsche Bank was complicitous in an international stock fraud that duped MJSK and several other brokerages in 2001, and led to MJSK's bankruptcy.

There has been trade speculation that the Deutsche Bank settlement was as much as $40 million.

"Stockwalk's reluctance to pay interest for 2006 apparently comes from the fact that in 2006 they received quite a large settlement for another lawsuit in which they were involved," Burke said in his recent order. "The fact that they may have to pay a larger sum than they had hoped, however, does not excuse them from their contractual obligation under the plan."

The Feltl case is headed for a hearing to decide the amount owed the family, or for mediation.

Bill Goblirsch, an MJSK executive presiding over its financial remains, declined to comment concerning the litigation or the size of the Deutsche Bank settlement.

In 2006, Stockwalk/MJSK CEO David Johnson contacted unsecured debt holders to say that their bankruptcy claims would be paid off in full if they agreed to no further claims.

This summer, lawyers for the Feltls and Stephen and Claudia Wagner, other investors in Stockwalk bonds, commenced a class action suit against MJSK in Hennepin County Court on behalf of an unspecified number of bond investors who did not sign the waiver and who contend that they are entitled to interest payments on their principal amounts since the 2002 bankruptcy. A ruling by Burke in the class-action case is pending.

Stockwalk/MJSK died a messy death.

Neal St. Anthony • nstanthony@startribune.com

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