Trustee Asks Court for Control Over More of David Bergstein’s Businesses

Ronald Durkin also wants judge to order Bergstein to cooperate with the consolidation.
David Bergstein

Seeking to stop David Bergstein from exercising any more control over companies that have ties to five entities already forced into bankruptcy, Chapter 11 trustee Ronald Durkin on Wednesday asked the federal court to consolidate a dozen more related businesses under his control.

“These cases involve the type of shell game and hopeless financial mess that substantive consolidation is meant to solve,” Durkin wrote in his filling to the U.S. Bankruptcy Court, Central District of California. “Treating the financial wreckage of the Debtors enterprise (the bankrupt companies including Capitol, Thinkfilm, Capco and R2D2 and affiliates) as legally separate entities will merely prolong a shell game that has lasted too long.”

Durkin is asking federal Judge Barry Russell to give him control over a number of entities that Bergstein has insisted are separate from those in the bankruptcy. That includes Pangea Media Group, Graybox Holdings and TFC Library Acquisition. 

Pangea was the company Bergstein used as his main business in the recent past; and Graybox is a company he has had for years through which Bergstein has conducted a variety of business and personal affairs.

Despite considerable evidence that Pangea is a subsidiary of R2D2, Bergstein has insisted it is unrelated as recently as a creditors hearing last week.

In the filing, Durkin says Pangea was formed in 2007 from another entity. He says in July 2010 Bergstein and business partner Ronald Tutor produced a “back-dated document” which showed that Pangea was a subsidiary of R2D2 and/or Capco.

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Durkin cites a document that a rep for Bergsten sent to Stephens, an Arkansas investment bank which lent them $7 million that was never repaid, that included a schematic showing that Pangea was a subsidiary of R2D2.

In the filing, Durkin also restates his belief that Bergstein and Tutor backdated a purported 2009 sales agreement by which Tutor sold his interests  in the movie companies as a way to keep Tutor from having to testify in the bankruptcy, face liability or lose his claim to more than $40 million from the bankrupt entities.

The trustee says in the filing that he believes Bergstein is being misleading once again and that this will go on until Durkin is given authority to go in and find all of the assets, determine the debts and see the complete records of these businesses.

“The affairs of the five Debtors and the 12 designated subsidiaries are so  hopelessly entangled,” Durkin adds, “that retroactive substantive consolidation is both justified and necessary.”

Citing what he calls Bergstein’s “obstruction, evasion and asset concealment,” Durkin also wants the judge to enter an order to force Bergstein to cooperate with the consolidation, file corrected and complete schedules of all the assets and debts, and attend a third creditors hearing on September 14. At the last hearing, Bergstein said it was a waste of his time and he would not attend again unless ordered to do so.

Normally creditors have one such hearing. However, Durkin’s lawyer Leonard Gumport said at the one last week that they cannot close the matter until there is full schedule of assets and debts. The most recent schedule Bergstein provided listed in the column where the numbers go the word “unspecified” over and over again.

Durkin also charges that tax returns which Bergstein had prepared and he says were sent to the IRS (although he repeatedly has failed to provide proof to the trustee that they were actually filed) are also incomplete and inaccurate.

Durkin writes that while Bergstein declared in a March 2010 legal document that his affiliated companies had revenues in excess of $100 million, the tax returns tell a different story. He describes it as “one of financial chaos, missing revenues and expenses and missing assets and liabilities.”

For instance the 2004 R2D2 tax return, filed in 2008, says the company Bergstein owned with Tutor at the time had a loss of $500,000 that year. However, left blank are spaces for information on assets, gross receipts and cost of goods sold, among others.

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The return for 2006 says there was a loss of $2 million, but Durkin notes it does not include required information about multi-million dollar loans. He says Capitol Film borrowed mover $20 million that year, mostly from defunct hedge fund D.B. Zwirn and a related fund, Bernard National.

The filing says that the request for consolidation does not include Capitol Films Ltd. which is under administration in the U.K., the British equivalent of bankruptcy.

No date was set for a hearing on the request. The next court date in the case is Aug. 9 when the judge is expected to rule on Durkin’s request to be relieved of attorney-client privilege as it relates to the bankrupt entities which he now administers.