A Lift Capital client who borrowed $331 million to trade options prior to the margin lender's collapse has threatened to disrupt the settlement offer that creditors received in November.
Tony Famularo recently commenced legal proceedings against Lift, claiming the firm owed him $100 million.
The lawsuit may be delayed and if successful could affect the estimated return of 65 cents in the dollar that creditors are expecting under the settlement offer made by Lift's financier Merrill Lynch and liquidators McGrathNicol.
However, an unnamed source who is involved in the matter, close to creditors and has a substantial exposure to Lift said Famularo's lawsuit is highly unlikely to succeed.
"Three to four days before liquidators were appointed to Lift in April 2008, Famularo and his associated companies were served with a default notice from Lift because his trading positions were in margin call," the source said.
"If you receive a default notice then Lift is entitled to start selling out your positions and that's exactly what happened when Merrill Lynch took control of Lift's portfolio when Lift went into voluntary administration."
However, even after Famularo's positions were unwound and applied against the $331 million loan, he still had a $32 million shortfall which McGrathNicol's solicitors pursued on behalf of creditors, McGrathNicol documents show.
"Our understanding is Famularo has been negotiating with McGrathNicol to settle this shortfall he owed. He was trying to cut a deal where he could basically make a minimal contribution in exchange for the debt collectors being called off and court summons being dropped," the source said.
"Now he has suddenly changed his tune and in December 2009 turned around and claimed that Lift owed him $100 million because he suffered damages.
"He claimed had Merrill Lynch not sold off his positions, he would be in positive equity of $100 million because the stock market has recovered substantially."
The claims are "ridiculous" and Famularo's legal prospects in the dispute are very bleak, the source said.
"It's pretty clear his only upside is that he can try to use the court process to delay the settlement offer timetable, and thereby frustrate the rest of the creditors who want the scheme to proceed so they can get their equity back out. We're not feeling concerned about his actions," the source said.
"His lawsuit is basically to create a bargaining chip for himself. He knows we want this matter solved as quickly as possible and that we're pursuing him for the $32 million he owes.
"So by attempting to disrupt this settlement offer he is hoping the creditors forgive his shortfall and let him go. He is not going to find much sympathy from creditors for an easy exit."
Merrill Lynch declined to comment while McGrathNicol and Famularo's lawyer were unavailable for comment.
