M. Fabrikant creditors committee sues eight lenders for return of $80 million in collateral

By Caroline Salls

Pittsburgh, Oct. 1 - M. Fabrikant & Sons, Inc.'s official committee of unsecured creditors is seeking the return of $80 million in collateral the company used to secure loans from eight banks, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the filing, the lenders knew the money Fabrikant was borrowing was actually being transferred to the companies affiliated with the Fortgang family, which controlled Fabrikant.

Since the money was being transferred at a time when Fabrikant itself was insolvent, the committee said bankruptcy law allows the secured loans to be avoided, and in turn the collateral must be returned.

In addition, the committee said some of the loans were used by the affiliates to pay some of the debt they owed to the banks, so the banks allegedly owe Fabrikant more than $38 million the banks collected from the other Fortgang affiliates.

The committee said the banks knew Fabrikant obtained the loans in order to fund transfers to other companies owned or controlled by Charles and Matthew Fortgang.

The banks named in the committee's complaint include JPMorgan Chase Bank, NA; ABN Amro Bank NV; Bank of America, NA; HSBC Bank USA, NA; Bank Leumi USA; Israel Discount Bank of New York; Antwerpse Diamantbank, NV; and Sovereign Precious Metals LLC.

M. Fabrikant, a New York-based manufacturer and distributor of diamonds and gemstone jewelry, filed for Chapter 11 on Nov. 17, 2006. Its case number is 06-12737.

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