Hide and seek

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"Everybody knows Lou is active," says Barry Annino, another commercial real estate agent.

Reese doesn't deny that, but says, "Expertise is one thing, ownership another." Reese says he was involved as a consultant earlier this year when a partnership that included his family's money purchased a $1.9 million building in Exposition Park. The building houses an artists' colony of apartments and an eclectic mix of galleries and restaurants.

In testimony in his bankruptcy, Reese portrayed himself as someone so broke, it would be hard to see him even making his rent in such a place. He said he earned a $28,800 annual salary and has as his only cash asset a five-gallon jar in his closet containing approximately $800 in change. His wife pays his bills. He has no checking or savings accounts, and instead of the Rolls-Royce he drove in the mid-'80s, his only car now is a blue 1987 Cadillac sedan, he testified.

"Why no checking or savings accounts?" one Advantage Capital lawyer asked Reese on the stand. "Because I owe a jillion dollars," he replied. "Didn't see much point in having an account and having the money put in there and seized."

"So you're trying to make sure your creditors couldn't get to it?" the attorney asked.

Said Reese, "Just trying to get by."

Just how, one might ask, could his fortune slip out of his hands and so conveniently end up in places where it is still at his disposal?

"We got some good legal advice and did some good estate planning," Reese asserts. His attorney, Phil Palmer, says the Reese family assets are beyond the reach of Lou's creditors because "Susan Reese crossed all her t's and dotted her i's."

Texas' notoriously lax debtor laws allow someone like Reese to keep his house, regardless of value. More important in this case, state law sets out a four-year statute of limitations after which it is difficult to go after assets that have been sold, given away, or transferred in any way to avoid payment of debts. For many of the Reese dealings, that time period passed years ago, when the federal government was still holding his bad debts.

Advantage Capital pushed Reese to pay up after the sting, and he responded with a deal. According to both sides, his first offer was $75,000 and a cut on the movie rights to the story of how he was set up.

Napp declined, went to the federal courthouse to renew legal collection efforts and, in the early going, won several rounds. U.S. Magistrate Jane Boyle ruled that the tape recording was authentic and admissible in court.

Within two months, Reese filed for bankruptcy.

Napp would have wanted things to go differently in U.S. Bankruptcy Judge Harold Abramson's court. But Napp's company, the FDIC, and the trustee appointed to go after assets for the creditors have often been at odds. (In a bankruptcy, creditors are prohibited from trying to collect their debts; that function is handed over to a court-appointed trustee, who is given the power to manage the debtor's assets and locate funds for creditors.)

Napp and her attorney, bankruptcy specialist Gerrit Pronske, believe the trustee can challenge as fraudulent transfers a number of Reese assets, particularly the valuable Hawaii acreage, because Texas' four-year statute of limitations had not run out. But they are the only creditor to think so. Trustee Milo Segner, who would not return phone calls for this story, and government lawyers have been less aggressive.

"Until Stacey showed up, the government wasn't pursuing Reese at all," says Jeffrey Homburger, the investor in Napp's collection group. "They were willing to wait for decades until he died or tried to sell his house and collect a tax lien."

The most significant rift between Advantage and the government has come over extending the Reese money hunt to bank havens abroad. "With the trustee, a federal judge, the FDIC, and Advantage, it would have been the collection dream team," says Pronske, who usually works the other side of the street and helps wealthy individuals ward off creditors. But the team never suited up for their away game in Switzerland.

Napp says she floated a proposal last summer to the FDIC in which Advantage would absorb the costs of sending legal discovery efforts abroad. In return, it expected to recover 10 times its investment off the top of any Reese funds recovered.

"We had barristers and solicitors lined up and legal papers written; we were all ready to go," says Napp.

But the FDIC had another idea, she says. It wanted the first $1 million recovered and a 50-50 split on the rest. "Why would we invest in that?" says Napp.

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Thomas Korosec
Contact: Thomas Korosec