NEW YORK - Balch Hardy Scheinman & Winston Inc. filed for bankruptcy to dissolve the firm in the face of a $4.4 million court judgment.
A New York state court jury ordered Balch Hardy to pay nearly $4.4 million to Richard J. Brignoli and Brignoli Models Inc. for breach of contract in the use of an options overwriting model.
R. Steven Hardy, principal who oversees marketing, said the firm won't attempt to reorganize and has no plans to appeal the award.
The last half-dozen or so of Balch Hardy's clients terminated their accounts following the verdict in November by a jury in the Supreme Court of New York, which is the primary trial court in the state.
The clients included the Houston Retirement System, Los Angeles Fire and Police Pension System, San Bernardino (Calif.) County Employees' Retirement Association and the Spencer Foundation, Chicago.
At the beginning of last year, Balch Hardy had only $150 million under management in an equity strategy it called Wealthmax, and it appeared to have little under management in options overwriting. At a peak in 1990, the firm wrote options on $2.2 billion in assets that were managed by others and had $300 million under management in its then-new Wealthmax equity strategy.
Balch Hardy filed Jan. 21 in federal bankruptcy court in New York for protection from creditors under Chapter 11 of the Bankruptcy Code.
The filing followed Mr. Brignoli's rejection of offers to settle for a reduced amount in view of the lack of assets or capital in the firm to pay the full award.
"They were all very reasonable settlement proposals on the table he (Mr. Brignoli) refused to consider," said Christine Reddington, attorney with the New York law firm of Jacobson & Triggs, the Balch, Hardy counsel.
Russell D. Munves, attorney with the New York law firm of Storch Amini Munves, the Brignoli counsel, agreed.
"Let me assure you, we were not an impediment to a settlement," he said. "But it was Mr. Brignoli's decision."
"Based on the bankruptcy filing, it doesn't look like they (Balch Hardy) will realize anything near that ($4.4 million) amount" to pay Mr. Brignoli, added Mr. Munves, who said his law firm worked on a contingency-fee basis.
In negotiations to settle the judgment, Mr. Brignoli at one point proposed Balch Hardy pay him $500,000 cash and give him 50% of the equity in the firm.
Balch Hardy countered by offering $300,000 cash and 100% of the equity.
Mr. Brignoli said he turned down the proposal because the firm all but ceased to exist because of the loss of its remaining clients.
Mr. Hardy, as well as Ms. Reddington, doubt the sale of the firm's assets, including an equity management model and its Style Advisor portfolio analysis software, will come near to satisfying the judgment.
Mr. Brignoli said he will seek to sue personally the four principals of Balch Hardy - William F. Balch, Peter W. Scheinman, Kenneth Winston and Mr. Hardy - for any amount he doesn't collect out of the bankruptcy proceedings, asserting they fraudulently transferred revenue from the firm to themselves in the form of excess compensation in order to leave the firm with as little capital as possible.
Mr. Hardy denied any fraudulent conveyance.
"Our bankruptcy guys couldn't believe Mr. Brignoli wouldn't settle, because he'll get nothing" out of the bankruptcy because of Balch Hardy's lack of assets, said Mr. Hardy.
The jury ordered Balch Hardy to pay Mr. Brignoli and Brignoli Models $3.3 million to cover the portion of the revenue Mr. Brignoli should have been paid, dating from 1980 through last November.
With interest, the judgment calls for Balch Hardy to pay a total of $4.4 million, consisting of $2.6 million to Brignoli Models and $1.8 million to Mr. Brignoli.
In the bankruptcy, Balch Hardy has three main assets it could sell: An options overwriting model, whose value is now in dispute because of the outcome of the suit with Mr. Brignoli; an equity management model, called Wealthmax; and consulting-type analytical personal computer software, called Style Advisor.
"We never took the lawsuit seriously," Mr. Hardy said. "Had we been concerned about the suit, we would not have put Wealthmax" or Style Advisor in BHSW.
Both products were developed after Mr. Brignoli filed his original breach of agreement suit in 1986. In fact, Balch Hardy won the original case, in a Supreme Court of New York jury trial, in 1990. But Mr. Brignoli got a new trial after he won an appellate court ruling to throw the verdict out because of a judicial error in the trial.
Mr. Hardy said he is planning to bid in the bankruptcy proceedings for the Style Advisor and start his own firm to market that product. But he said his plans are indefinite.
Mr. Balch, who founded the firm with Mr. Hardy in 1973, plans to retire from the industry, Mr. Hardy said. Mr. Balch was unavailable for comment.
Mr. Scheinman, who joined the firm in 1977, declined to comment.
Mr. Winston, who left Brignoli Models to join Balch Hardy in 1989, resigned from the firm in December, following the verdict.
He developed the Wealthmax equity model for Balch Hardy, giving it to the firm in exchange for 25% ownership. More recently, he developed the Style Advisor. Both are now the property of the firm, awaiting sale in the bankruptcy proceedings.
"I'm screwed," Mr. Winston said, noting he has been left with nothing. "All the work I did is lost."
He said he hasn't the wherewithal to buy back either the Wealthmax or Style Advisor. He said he is seeking employment, trying to stay in the industry.
Balch Hardy is the second firm in the past five years with which Mr. Brignoli had some sort of relationship that has been forced out of business as a result of litigation involving Mr. Brignoli.
In 1989, Brignoli Curley & Roberts Associates was dissolved under a court order by Judge Milton Pollock, ruling, among other breaches, that Mr. Brignoli misappropriated funds.
As a result of that judgment, Mr. Brignoli may not realize much of whatever payment Balch Hardy makes because of a still-unpaid $1.3 million award he owes to former principals of Brignoli Curley & Roberts.
John J. "Jac" Curley, one of the former principals and now a partner of Cornerstone Asset Management, L.P., New York, said the BCR receiver has a judicial order to ensure any proceeds Mr. Brignoli would receive first go to pay the BCR award.
In the more recent case, the jury supported Mr. Brignoli's complaint that based on an oral agreement, Balch Hardy was to pay him 25% of its gross revenue for its longtime use of his options overwriting methodology.