LOUISVILLE, Ky. (AP) — Kentucky is not seeking to collect a $20 million judgment the state won in court from a now-bankrupt oil company found to have bilked its customers in a drilling scam.
Instead, funds from a court-ordered auction of Young Oil's assets will go to an Ohio-based bank and other creditors holding collateral as the Kentucky firm seeks to end its long-running bankruptcy.
A federal bankruptcy judge on Thursday approved the sale of Young Oil's remaining leases and assets with the funds to pay secured creditors, including FirstMerit Bank, an Akron, Ohio-based company, which holds a $1.7 million claim and is at the head of the line to collect.
Under the settlement, FirstMerit Bank shall take 75 percent of all the proceeds of the auction, with 25 percent going to the company's bankruptcy trustee, Thomas Duddy. Duddy already has $351,000 from a garnishment placed on Young and the sale of an automobile.
Because the state's claim is unsecured, Kentucky would only collect after all the secured debts are paid off, meaning it would likely receive little, if any, money.
"We're not going to pursue any claim that would interfere with the investors," said Jennifer Doom, a spokeswoman for the Kentucky Department of Financial Institutions. "We're not contesting anything or objecting to anything."
Anthony L. Young of Knob Lick ran Young Oil Corp. as it collapsed into bankruptcy in 2009, two months before Franklin Circuit Court Judge Thomas Wingate concluded that the CEO and his company committed fraud and violated the Kentucky Securities Act. The Kentucky Department of Financial Institutions sued Young Oil and froze its assets in 2008 after receiving investor complaints. Young Oil raised nearly $20 million from investors through the sale of 57 partnerships from 1997 through 2008 in Kentucky and Tennessee.
Young and the company owe the state a $20 million judgment. U.S. Bankruptcy Judge Joan Lloyd suspended attempts by the state to collect the judgment in November 2009 because of the pending bankruptcy case.
No date has been set for the auction of the company's remaining leases and assets. Duddy said once the sale is done, he'll issue a report to the judge.
"She would divvy up the money," Duddy said. "There's not much probably there."
Doom said any move by Kentucky to collect the fund would interfere with investors who lost money to Young.
"I don't know if the unsecured creditors will get anything," Doom said.
Young is also facing a sentencing in federal court on June 17 in three criminal cases. The charges, including mail fraud, failing to report income taxes and making false statements to a firearms dealer and stem in part from Young soliciting $750,000 from investors for a trio of oil drilling partnerships — identified as Prospects 54, 55 and 56 — with three potential wells in each prospect.
Prosecutors say Young fraudulently told investors that $650,000 of the money covered the cost of drilling and the other $100,000 took care of organizational costs for the three wells at each of the prospects. Young also told investors he would cover any costs above $750,000, prosecutors said.
The drilling and organizational costs were "substantially less" than $750,000 and Young did not invest the majority of the money in the prospects, prosecutors said.
Young has pleaded guilty in all three cases.
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