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Valley of Lakes RICO Class Action against PNCBANK, et al.
ripped edge: attorney general PA


	IN THE UNITED STATES BANKRUPTCY COURT
       FOR THE MIDDLE-DISTRICT OF PENNSYLVANIA

IN RE				:	CHAPTER 11
				:
C.B.G. LIMITED			:	CASE NOS. 5-92-00525
TRACHELE, INC.			:	5-92-00615
VALLEY UTILITIES CO., INC.	:	5-92-00617
THE ONEIDA WATERS CO.,		:	5-92-00619
CHEZ-RAEL, INC.			:	5-92-00620
				:
DEBTORS-IN-POSSESSION		:


	OBJECTION TO DISCLOSURE STATEMENTS OF DEBTOR AND CREDITOR 
	  AND REQUEST FOR APPOINTMENT OF A TRUSTEE PURSUANT TO 
	     11 U.S.C.  1104(a), OR AN EXAMINER PURSUANT 
	              TO 11 U.S.C.  1104(b)(2)


	The Office of Attorney General, Bureau of Consumer 

Protection, has been granted the leave of the Court to appear and 

be heard on behalf of Consumers because said appearance is in the 

public interest as set forth in the Bankruptcy Rule 2018(b), 11 

U.S.C.A.  This Order of the Court was entered and filed on August 

31, 1994.

	The intervention of the Office of Attorney General, 

Bureau of Consumer Protection, was prompted by the receipt of 

several dozen formal complaints from residents and property 

owners of Valley of Lakes.  The office of Attorney General 

believes that the unsecured interests of both complaining and


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silent residents and property owners will be adversely effected 

by the implementation of either of the two Disclosure Statements

now before the Court.

	Therefore, the Office of the Attorney General of the 

Commonwealth of Pennsylvania, moves the Court as follows:



      I.  OBJECTIONS TO DEBTORIS DISCLOSURE STATEMENT

	1.  To refuse to approve the Disclosure Statement filed 

by C.B.G. Limited, Trachele, Inc., Valley Utilities Co., Inc., 

The Oneida Water Co., and Chez-Rael, Inc., (hereinafter 

"Debtors") on or about August 31, 1994, on the grounds that: (a) 

the Debtors have concealed and misrepresented the financial 

viability of the proposed financier, Agnew International Ltd.; 

(b) the statement does not provide information of a kind and in 

sufficient detail that would enable a hypothetical reasonable 

investor typical of holder of claims or interests to make an 

informed judgment; and (c) the plan could never be legally 

confirmed pursuant to 11 U.S.C.  1129; as is more particularly

detailed hereinafter.

	2.  Said Disclosure Statement states that a new 

corporation Eagle Rock Resort, Inc. ("ERR") will purchase the 

assets of the Debtors based on a loan from a "British

investor/lender" known as Agnew International Ltd., located at


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the offices of Caribbean Corporate Services Limited, Omar Hodge 

Building, Wickhams Cay I, P.O. Box 362, Road Town, Tortola, 

British Virgin Islands.  The Debtors represent the "ERR has 

entered into a loan agreement with Agnew International to borrow 

twenty-five (25) million dollars of which ten (10) million 

dollars will be used to fund this Plan of Reorganization." See 

Page 12 of Debtor's Disclosure Statement.

	3.  Said Disclosure Statement conceals and fraudulently 

misrepresents the fact that the alleged "British 

investor/lender", Agnew International Ltd., is actually a 

Caribbean shell company which does NOT have the capital 

structure, or financial resources, to make a loan for $25 

million.  In truth and fact, Agnew International Limited only has 

a maximum authorized capital of $50,000(US).  A copy of the 

Memorandum of Association, Articles of Incorporation of Agnew 

International Limited, dated January 5, 1994, together with a 

final certification by the British Vice Consul, New York N.Y., 

pursuant to Fed.  R. Civ.  P. 44, is attached hereto as "Exhibit 

A." According to paragraph 8 of the Memorandum of Association of 

Agnew International Limited, at page 2, which is attached hereto 

as "Exhibit All, the total authorized capital of the company is 

"US $50,000.00."


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	4.  Said Disclosure Statement conceals and fraudulently 

misrepresents the financial resources of Agnew International 

Ltd., to wit:

		a.  Said Caribbean shell company is less than one 

		    year old.  A copy of the Certificate of 

		    Incorporation of Agnew International Limited, 

		    dated January 5, 1994, together with a final 

		    certification by the British Vice Consul, New 

		    York, NY, pursuant to Fed.  R. Civ.  P. 44, is 

		    attached hereto as "Exhibit "B".


		b.  Said Caribbean shell company only has an 

		    existence in the office of its "registered 

		    agent", like any typical shell company.  

		    According to paragraph 2 of its Memorandum of 

		    Association, at page, 1, which is attached 

		    hereto as "Exhibit All, Agnew International 

		    Ltd. is "situated at the offices of Caribbean 

		    Corporate Services Limited, Omar Hodge 

		    Building, Wickhams Cay I, P.O. Box 362, Road 

		    Town, Tortola, British Virgin Islands.


		c.  Said Caribbean shell company cannot engage in 

		    the business of banking.  According to


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		    paragraph 5(c), of its Memorandum of 

		    Association, at page 1, which is attached 

		    hereto as "Exhibit All, "The Company may not: 

		    (c) carry on banking or trust business, 

		    unless it is licensed to do so under the 

		    Banks and Trust Companies Act, 1990."  There 

		    is no indication that it is so authorized.


		d.  Said Caribbean shell company is not even 

		    authorized to do business in the British 

		    Virgin Islands.  See paragraph 6, of its 

		    Memorandum of Association, at page 1, which 

		    is attached hereto as "Exhibit A."


	5.  Said Disclosure Statement misrepresents the 

"OPERATIONS DURING CHAPTER 11" of VALLEY UTILITIES CO., INC.  The 

Debtors attempt to mislead the Court into believing that they are 

complying with their duties as a public utility.  In truth and 

fact, the Debtors have grossly mismanaged the operation of Valley 

Utilities Co., Inc.  The Debtors have failed to disclose to the 

Court that Valley Utilities Co., Inc. has been cited for 

violations by the Department of Environmental Resources of the 

Commonwealth for violating the terms of its permit.  A copy of a 

Notice of Violation issued to Valley Utilities, Inc., dated


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August 15, 1994, by the Department of Environmental Resources of 

the Commonwealth, for "violation of the terms and conditions of 

the permit and the Clean Streams Law, the Act of June 22, 1937, 

P.L. 1987, as amended", is attached hereto as "Exhibit C." In 

addition, scores of sworn complaints have been filed with the 

Public utility Commission by the residents of the Valley of Lakes 

against Valley Utilities Co., complaining of gross mismanagement.  

Some homes in the Valley of Lakes development are repeatedly 

flooded as a result of the gross mismanagement of this company.  

Furthermore, the office of Consumer Advocate has intervened in 

the complaint proceedings before the Public Utility Commission.  

The complaints request, inter alia, that a trustee or receiver be 

appointed to operate the system.

	6.  Said Disclosure Statement misrepresents the 

"OPERATIONS DURING CHAPTER 11" of THE ONEIDA WATER CO.  The 

Debtors attempt to mislead the Court into believing that they are 

complying with their duties as a public utility.  In truth and 

fact, the Debtors have mismanaged the operation of the Oneida 

Water co.  The Debtors have failed to disclose to the Court that 

Oneida Water Co. has been cited by the Department of 

Environmental Resources for its operations.  A copy of a Notice 

of Violation issued to Oneida Water Company, dated May 18, 1994, 

by the Department of Environmental Resources of the Commonwealth,


6


for "violation of Chapter 109.501 of the Rules and Regulations of 

the Department of Environmental Resources pertaining to drinking 

water for construction and use as a source of supply and 

modification to a public water supply system without the 

appropriate permits" is attached hereto as "Exhibit D." 

Additionally, in 1992, several complaints had been filed with the 

Public Utility Commission by the residents of the Valley of Lakes 

against Oneida Water co., complaining of gross mismanagement.  

The recommended decision of a Public Utility Commission 

Administrative Law Judge is pending before the Public Utility

Commission.

	7.  Said Disclosure Statement completely misrepresents 

the "OPERATIONS DURING CHAPTER 11" of C.B.G. LIMITED.  While 

C.B.G. Limited has used its Chapter 11 Protection to continue to 

collect maintenance fees, it has completely failed to maintain 

the development.  The Office of the Attorney General, Bureau of 

Consumer Protection, has received dozens of formal complaints 

from the residents testifying to the lack of maintenance.  It 

appears that C.B.G. Limited is using the funds it collects for 

maintenance for other purposes.  As the Court knows, a Debtor-in-

Possession in a Chapter 11 case has the same fiduciary duties as 

a trustee appointed by a Court.  See, e.g., Wolf v. Weinstein,


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372 U.S. 633, 649, 83 S.Ct. 969, 10 L.Ed. 2d. 33 (1963).  C.B.G. 

is clearly breaching its fiduciary duties.

	8.  Said Disclosure Statement completely misrepresents 

the "CAUSES OF DEBTORS' FINANCIAL DIFFICULTIES".  The disclosure 

statement attempts to paint a picture in which the Debtors were 

victims of the economic times.  In truth and fact, the Debtors 

collected tens of millions of dollars in revenue and loans, and 

then simply failed to deliver the promised improvements in 

violation of the Interstate Land Sales Full Disclosure Act (15 

U.S.C.  1701 et. seq.). The Debtors engaged in a massive multi-

state media campaign promising that they would make the "Valley 

of Lakes" the premier resort in the northeast.  The Debtors filed 

numerous registration statements with the Department of Housing 

and Urban Development (HUD), and its state counterparts, 

promising to complete the improvements by the late 1980s.  The 

Debtors reneged on virtually all of their promises, prior to the 

filing of this petition, and in violation of the Interstate Land 

Sales Full Disclosure Act (15 U.S.C.  1701 et seq.). The 

Debtors used the Chapter 11 reorganization to shield themselves 

from the claims of the property owners.  As detailed in the 

Valley of Lakes Civic Association Proof of Claim, the developer 

owed approximately $10 million dollars worth of uncompleted work-

-although they collected the revenue from the lot sales at


			8


inflated prices.  As a result, numerous families lost their life 

savings, by e.g.: purchasing golf course lots of a promised 

"Arnold Palmer designed and managed golf course" which never 

materialized; purchasing "lake front lots," for as much as 

$100,000 each, on the promised "Lake Algonquin" which never 

materialized; purchasing unimproved lots for inflated prices 

based on the promised improvements only to see the improvements 

never materialize and the development virtually shut down; 

purchasing unimproved lots based on the developer's promise to 

install water lines, and/or sewer lines, and/or roads which never 

materialized.  Moreover, from the developer's actions, it is 

obvious that he never had any intention of completing the 

promised improvements.  For example, he never even obtained a 

permit to build the dam necessary to complete the promised lake.  

In fact, the Debtors undertook virtually the same course of 

action as the previous developers which were prosecuted for 

violations of the Interstate Land Sales Full Disclosure Act (15 

U.S.C.  1701 et. seq.), and mail fraud by the U.S. Attorney for 

the Middle District of Pennsylvania.

	9.  Said Disclosure Statement, apart from its gross 

misrepresentations, lacks "adequate information" as required by 

11 U.S.C. 1125, because it does not detail the loan agreements


			9


with the alleged financier, lacks income projections, lacks 

balance sheets, etc.

	10.  Said Disclosure Statement's proposed 

Reorganization Plan is fatally flawed because Agnew international 

Ltd. does not have sufficient financial resources to make a $25 

million loan.  Plans that are mere visionary schemes based on 

speculation, conjecture, or unrealistic projections cannot be 

confirmed.  See In re Briscoe Entervrises Ltd., II, 138 B.R. 795 

(N.D.Tex. 1992); In re Sound Radio, Inc., 93 E.R. 849, 856 

(D. N. J. 1988) , aff'd in part, remanded in part, 103 B. R. 521 (D.N.J. 

1989), aff'd, 908 F2d 964 (3rd Cir.1990). Therefore, confirmation 

issues may be taken up at the disclosure hearing.  See In re 

Pecht, 53 B.R. 768 (E.D.Va.1985) (where it is apparent that the 

plan accompanying the disclosure statement cannot be legally 

confirmed, it is appropriate for the court to address 

requirements of 11 U.S.C.  1129(a)O.  See, also, In re McCall, 

44 B.R. 242 (E.D.Pa.1984).

	11.  Said Disclosure Statement demonstrates bad faith 

on the part of the Debtors because of its nondisclosure and 

misrepresentation.  A finding of bad faith is warranted based on 

nondisclosure or misrepresentation.  See, e.g., American United 

Mutual Insurance Co. v. City of Avon Park, 311 U.S. 138 (1940); 

Barnes v. Whelan, 689 F.2d 193 (D.C.Cir. 1982); In re Goeb, 675


			10


F.2d 1386, 1390 n. 9 (9th Cir. 1982) ; Big Shanty Land Corp. v. 

Comer Properties.  Inc., 61 B.R. 272, 281 (N.D.Ga. 1985).

Consequently, the plan cannot be approved for lack of good faith 

pursuant to 11 U.S.C.  1129 (a)(3).

	12.  Said Disclosure Statement also demonstrates bad faith 

on the part of the Debtors because it is not feasible.  See 

In re Briscoe Enterprises Ltd., II, 138 B.R. 795, 809 (N.D.Tex. 

1992) (A plan that is not feasible does not support a finding of 

objective good faith).  Consequently, the plan cannot be approved 

due to a lack of good faith pursuant to 11 U.S.C.  1129(a)(3).

	13.  Said Disclosure Statement's plan of reorganization 

can not be approved because it violates 11 U.S.C.  1129(a)(11), 

which requires that "Confirmation of the plan is not likely to be 

followed by the liquidation, or the need for further financial 

reorganization, of the debtor or any successor to the debtor 

under the plan, unless such liquidation or reorganization is 

proposed in the plan." Since Agnew International Limited does 

not have $25 million to loan to Eagle Rock Resort Inc., it is 

almost certain that Eagle Rock Resort Inc. would file for 

reorganization shortly after approval of the plan, i.e. 

manifesting the "new entity syndrome', prevalent in bankruptcy

practice.


11


	14.  Said Disclosure Statement's plan of reorganization 

can not be approved because it violates 11 U.S.C.  

1129(a)(5)(A)(i), which requires that the proponent of the plan 

have "disclosed the identity and affiliations of" "a successor to 

the debtor under the plan." The Debtors have failed to disclose 

any information about Eagle Rock Resort Inc., the company they 

propose to succeed the debtors.  In fact, it appears that said 

corporation has not even been formed, which throws into question 

the validity of any loan agreements with a non-existent 

corporation.  A copy of certificate of non-existence, as to any 

corporation named "Eagle Rock Resort, Inc." by the Secretary of 

State of the Commonwealth of Pennsylvania is attached hereto as 

"exhibit E."

	15.  Said Disclosure Statement and plan have been used 

by the Debtors in violation of 11 U.S.C.  1125(b) and Rule 

3017(a).  Specifically, the Debtors have mass mailed throughout 

the U.S. solicitation form letters urging the property owners of 

the Valley of Lakes to immediately pay the Debtors money, in the 

amount og $360.00 each, based on the Debtors' representations 

concerning their new financier and the presentation of their 

alleged "plan" to this Court on September 1, 1994.  A copy of 

said solicitation letter is attached hereto as "Exhibit F".


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     II.  OBJECTIONS TO CREDITOR'S DISCLOSURE STATEMENT

	16.  And the office of Attorney General, Bureau of

 Consumer Protection, further moves this Court to refuse to 

approve the Disclosure Statement filed by PNC Bank, National 

Association, (hereinafter "Creditor") on or about September 15, 

1994, on the grounds that: (a) the Creditor has concealed and 

misrepresented the nature of the "class action" lawsuit 

represented in Creditor's Disclosure Statement; (b) Creditors 

statement relies on and is based on the inadequate and false 

information presented by the Debtors; (c) Creditor's statement 

does not provide information of a kind and in sufficient detail 

that would enable a hypothetical reasonable investor typical of 

holder of claims or interests to make an informed judgment; and 

(d) the plan could never be legally confirmed pursuant to 11

U.S.C.  1129; as is more particularly detailed hereinafter.

	17.  Said Creditor's Disclosure Statement seeks to 

liquidate the assets of the Debtors, while nonetheless obtaining 

a discharge of the liabilities of the Debtors, pursuant to

Chapter 11 of the bankruptcy laws.  Creditor's Disclosure 

Statement proposes to have a trustee sell the assets of the 

Debtors, free and clear of all liens, and to permit the unsecured 

creditors to share in a fund of $500,000 "provided it receives 

the entirety of its distribution from the Free and Clear Sale."


13


	18.  Said Creditor's Disclosure Statement lacks 

adequate information and is based almost completely on 

misrepresentations from the Debtors.  The Creditor's Disclosure 

Statement admits that its information is based on Debtors' 

Disclosure Statement.  The Creditor's Disclosure Statement, at 

page 1, states that: "Since the Creditor is not the Debtors 

above, the Creditor must rely significantly upon the information 

provided by the Debtor in delineating a Disclosure Statement 

under 11 U.S.C.  1125 to provide 'Adequate Information' .... As 

such, the Creditor relies upon the Disclosure Statement filed by 

the Debtors herein for many elements of its disclosure." 

Consequently, the Creditor's Disclosure Statement fails to 

provide adequate information because the Debtors' Disclosure 

statement is based on numerous misrepresentations, and lacks 

adequate information, as discussed supra.  Creditor's Disclosure 

Statement is based on false information in virtually all of its 

elements: "Description and History of Debtors", "Debtors 

Statement of its Financial Difficulties", "Operations During 

Chapter 11", "Analysis of Present Situation", etc.

	19.  Said Creditor's Disclosure Statement fails to 

disclose, and misrepresents the nature of the claims of the 

residents of Valley of Lakes, and improperly classifies these 

claims.  Specifically, at page 15, Creditor's Disclosure


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Statement classifies the residents, claims as follows: "(f) 

Funds for Claims of Residents - Inclusive of all rights as shown 

in their Proof of Claim and as reflected in a Class Action 

Complaint filed against Debtor. 2 1/2% of the allowed claim." 

The Creditor's Disclosure Statement fails to disclose to this Court 

that the Creditor is also a defendant in said Class Action Complaint.  Failure to 

make such a disclosure demonstrates bad faith.  See, e.g., In re 

Unichem Corporation, 72 B.R. 95 (N.D. Ill. 1987)(court found lack 

of good faith where nature of court proceeding not disclosed).

	20.  Said Creditor's Disclosure Statement is made for 

an improper purpose.  At present, the only reason that the 

Debtor's continue to operate the Valley of Lakes Development is 

that the Creditor (PNC Bank Corp.) has refused to exercise their 

right to foreclose.  As it admits, the creditor has already 

obtained relief from the automatic stay and can foreclose on the 

property.  Yet, it has refused to do so.  As a result, the 

property owners in the Valley of Lakes have been forced to live 

in a development that is grossly mismanaged by a "developer" 

which defrauded many of them of their life savings, as discussed 

supra.  The only purpose in re-organizing the debtor pursuant to 

the creditor's plan would be to discharge the debtor from its 

liabilities.  It would be an abuse of the bankruptcy laws to 

discharge Debtors who have so abused their fiduciary duties, and


			15


have engaged in dishonesty, fraud and mismanagement, both during 

their Chapter 11 protection and prior to the filing of the

petition.

	21.  Said Creditor's Disclosure Statements embodies a 

plan which is not viable because it is highly unlikely that any 

funds would be left after the Creditor receives the entirety of 

its distribution from the proposed Free and Clear Sale.

Consequently, the unsecured creditors would be receiving nothing 

from creditor's plan.



      III.  REQUEST FOR APPOINTMENT OF TRUSTEE OR EXAMINER

	22.  For all of the above reasons and causes, the 

office of Attorney General, Bureau of Consumer Protection, 

further moves this Court to appoint a trustee to oversee the 

Valley of Lakes Development pursuant to 11 U.S.C.  1104(a).  As 

the Court knows, where the Debtor fails to disclose material and 

relevant information to the Court and creditors, a Chapter 11 

trustee is required.  See, e.g., In re V. Savino Oil & Heating 

Co., Inc., 99 B.R. 518 (E.D.N.Y. 1989) ; In re Deena Packaging 

Industries, Inc., 29 B.R. 705, 706 (S.D.N.Y.1983). Pursuant to 

11 U.S.C.  1104 (a), a trustee is required where a debtor-in-

possession has breached its fiduciary duties, or where there are 

allegations of fraud, dishonesty, incompetence, misconduct,


16


mismanagement, or irregularity in the management of the affairs 

of the debtor.  Moreover, the interests of the property owners, 

the largest body of unsecured creditors, are continually being 

prejudiced because the property owners are forced to live and own 

property in a development which is grossly mismanaged.

	23.  As an alternative to the appointment of a trustee 

pursuant to 11 U.S.C.  1104 (a), the Office of Attorney General, 

Bureau of Consumer Protection, moves for the appointment of an 

Examiner pursuant to 11 U.S.C.  11 04 (b) (2) . As the Court knows, 

upon the request of a party in interest, the appointment of an 

examiner is mandatory in cases in which borrowed money debt 

exceeds $5 million.  See, e.g., In re Revco D.S. Inc., 898 F.2d 

498 (6th Cir. 1990).  The Debtors' borrowed money greatly exceeds 

$5 million.  Consequently, the appointment of an examiner is 

mandatory in this case.



	WHEREFORE, the Office of Attorney General, Bureau of 

Consumer Protection, prays that (a) the Court refuse to approve 

the disclosure statement of the debtor; (b) the Court refuse to 

approve the disclosure statement of the creditor; and (c) that 

the Court appoint a trustee to oversee the Valley of Lakes 

Development pursuant to 11 U.S.C.  1104 (a), or appoint an


			17


examiner pursuant to 11 U.S.C.  1104(b)(2); and for such other 

relief as this Court deems just.


				/s/

				J.P. McGowan
				ATTORNEY I.D. NO. 30126
				DEPUTY ATTORNEY GENERAL
				OFFICE OF ATTORNEY GENERAL
				BUREAU OF CONSUMER PROTECTION
				214 SAMTERS BUILDING
				101 PENNS AVENUE
				SCRANTON, PA 18503
				TELEPHONE: 717-963-4913

Valley of Lakes RICO Class Action against PNCBANK, et al.

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