Creditors seek trustee to manage bankrupt rare-coin firm

A group of unsecured creditors wants a bankruptcy judge to oust International Rarities Corp.'s owner and his hand-picked CEO from control over the coin firm, alleging a pattern of fraud and "gross mismanagement."

Matthew Burton, an attorney for the unsecured creditors, filed a motion Thursday in Minneapolis asking that a trustee be appointed to run the company in a last-ditch effort to save it from liquidation.

Joel Nesset, IRC's bankruptcy attorney, said Friday the company disagrees and will file a written response to the motion.

"Over the past three months we have worked with the committee in fashioning a plan that we feel is in creditors' best interests, and a confirmation hearing has been scheduled for Feb. 8. One of the best things about Chapter 11 is that creditors have the opportunity to make their own judgment and vote on the plan," Nesset said.

Burton's motion, tentatively scheduled to be heard Jan. 18, could pre-empt that.

International Rarities, known by its initials IRC, sought to reorganize under Chapter 11 bankruptcy protection in August. Its most recent financial report, filed Dec. 23, shows that it lost nearly $43,000 last month, even while it continued to pay substantial sums to its owner and sole director, David Marion, and to Stephen J. Hastings, who replaced him as CEO last summer.

Burton alleges that "there exists pre-petition and post-petition fraud, dishonesty and gross mismanagement" of the company. He notes that IRC and Marion are under investigation by the U.S. Securities and Exchange Commission and the FBI regarding the sale of securities in a failed expansion effort.

One example Burton cited involves Dr. Robert A. Hiatt of Holly Hill, Fla. His daughter, Susan Turner, wrote to Burton this month explaining that her 82-year-old father and his wife of 62 years live in an assisted-living facility. Turner says because her father has congestive heart failure and significant memory loss, she was granted power of attorney over his affairs in 2003.

Turner says IRC's sales staff contacted her father in 2009 to try to persuade him to trade in some gold and silver he had stored in a Swiss bank. Marion personally wrote a letter to the bank last December claiming to have power of attorney over his account and authorized its liquidation, according to Turner, adding that her father denied granting Marion a power of attorney and denies signing a form authorizing him to act on his behalf.

"This was a clear-cut plot to scam my father for nearly $400,000. A scam that was fairly easy to pull off when dealing with a confused, ill elderly gentleman," Turner said.

On the management issues, Burton questioned IRC's payments to Marion and to Hastings. Since July 8, Hastings has been paid at least $99,606 and Marion has been paid at least $120,000. Marion is paid directly and through a firm called Emmis Consulting, which Burton says collected $22,516 in November alone.

Burton also cited reports in the Star Tribune this year that said IRC has hired sales staff with criminal convictions, including a bank robber and a fraudster. At least two current employees also have criminal records in Hennepin County, he noted.

Burton said IRC has refused requests to bring in an independent party to run the firm. Hastings has said that Marion is IRC's top salesman, and it's unlikely to survive without him.

IRC's revised workout plan, submitted Dec. 23, projects paying off its creditors through 2017. Its financial projections show no increase in costs for expenses like cargo insurance, medical insurance, wages and benefits, despite a projected 38 percent increase in sales.

Under the plan, Marion would collect $120,000 a year in wages, plus annual sales commissions estimated between $390,000 to $540,000. Hastings would get $15,000 a month and would be eligible for raises to offset inflation.