The Lubbock man who owes perhaps more than $82 million in his bankruptcy case agreed to give up nearly $500,000 in disputed property – which could have been a lot more – after making a deal with the U.S. Bankruptcy trustee who thinks legal claims against might lose when scrutinized in court.
The deal is not yet final in court and a long list of people still have the right to object in writing by March 19.
If the deal goes through, and other exemptions are approved, Mike Cox might keep more than $600,000 of personal property including his home. He’d keep other things, including two vehicles and a boat – those three valued at a little more than $100,000.
Part of the nearly $500,000 he’d give up includes a second home, another boat, bars of silver, firearms, shares of stock and more. (The figure does not account for the unpaid mortgage on the townhome.)
This is not a comprehensive deal even if approved. It’s only a partial settlement to cover Cox’s house, a townhouse and property he holds in three family trusts.
Updated story link: Threat illustrates frustration of Ferrum Capital investors, who want to know where money went, if they’ll recover any
Background leading up to now
Multiple lawsuits accused Cox and his business partner Joshua Allen of fraud. They have filed responses denying any violation of the law. One of Cox’s companies owns a 50 percent stake in Ferrum Capital which made statewide news when a radio host associated with the company was arrested in San Antonio.
Brooklyn Chandler Willy was charged with obstruction of an FBI investigation, wire fraud, securities fraud and more, which we covered here in January and here in December.
So far, Willy is the only person associated with Ferrum Capital to be charged with a crime. The deadlines in her criminal case were recently pushed back to give prosecutors and defense time to work out a plea deal – or get ready for trial. A plea bargain is due by August 1, or a trial date of August 25 will be set by a federal judge.
Cox originally filed for bankruptcy last year with $59 million of debt. But more people have come forward with claims.
At the same time, several people filed challenges to stop the bankruptcy case. They want Cox to keep his debt and hold him responsible for full repayment.
Two days before Christmas, Barry Powell and more than 20 others with him filed a challenge to the bankruptcy – which was not the first – claiming Ferrum was a Ponzi scheme. Cox, Allen and Willy illegally sold securities, according to the challenge.
Powell claimed notes or other forms of debt are – defined in state law – securities.
LubbockLights.com reached out to attorneys for Cox and Allen repeatedly in the last two months including Tuesday before we published this story. They have not responded. We also reached out to Powell’s attorney.
Cox’s defense claims money was loaned, not securities
Last week Cox offered a defense and a counterclaim. People provided money to Ferrum as a loan, he said, not as stocks or bonds or some other financial instrument that could be called a security.
Ferrum loaned money to Collins Asset Group for the purchase of distressed debt. The investors would make money if Collins collected on difficult debts. Starting in late 2023, Collins defaulted to Ferrum. Ferrum then defaulted to the people who put up money.
“In January of 2020, Ferrum sought legal advice regarding the lending program it had with the lenders and Collins Asset Group, LLC. Ferrum and [Cox] were advised that the loans between Ferrum and the lenders were not securities and did not need to be registered with the Texas State Securities Board,” said a court document from Cox’s attorney Brad Odell.
“Further, Ferrum was audited by the Texas State Securities Board. … The Texas State Securities Board did not issue any findings that Ferrum was ‘selling’ unregistered securities,” Odell’s filing said on behalf of Cox.
Odell also asked the bankruptcy judge to rule Cox owes nothing to Powell and those who joined him.
“[Powell and the others] do not have any contractual or written agreements whereby [Cox] is liable for the debts of Ferrum Capital … ,” Odell wrote.
Trustee offers a deal
The bankruptcy trustee had an objection to Cox getting to keep the full value of his house – $560,000 – in the 6500 block of 2nd Street.
Kent Ries, an Amarillo attorney for the trustee, pointed out there’s a $189,050 cap “if the debtor violated federal or state securities laws.”
As we mentioned, Cox denies this.
The mortgage is $258,000, leaving more than $300,000 of equity. If the cap comes into play, Ries pointed out in court records that $113,000 could go to Cox’s debts.
However, under the proposed deal, Cox keeps his home but needs to keep paying the mortgage.
Right before Ferrum defaulted, Cox transferred ownership of a townhome in the 5800 block of 11th Place to his daughter, Ries claimed. The townhome has a $230,000 taxable value but a remaining mortgage of $140,000. Under the deal, Cox and his daughter give up the townhome.
Cox would give up:
- Townhome in the 5800 block of 11th Place, $230,000 taxable value but a remaining mortgage of $140,000
- 2012 Tracker boat worth $6,000
- 200 ounces of silver bars worth $7,000
- Multiple firearms worth $3,000
- Company stock worth $125,000
- Company stock worth $57,000
- Remaining interest in AAC Holdings (Walk-On’s restaurant) worth $50,000
- MCKC Services LLC (50 percent of Ferrum Companies) worth unknown
- MLC Financial Inc. worth unknown
- MKMH Interests, LLC worth unknown
- MLC-SPV, LLC worth unknown
Cox (or his three trusts) would keep:
- House in the 6500 block of 2nd Street worth $560,000 but a remaining mortgage of $258,000
- 2017 BMW X1 worth $17,500
- 2010 Ranger boat worth $44,000
- 2025 Toyota Tundra worth $45,000
- 2014 Bad Boy buggie worth $2,000
- Bank account worth $1,300
- Jewelry and furniture worth $9,000
- 2 rifles inherited from grandfather worth $3,000
- Interest in two companies (Aquasmart Enterprises and Transition Industries) worth a minimal amount
- Multiple life insurance policies with “highly speculative values”
Separate from any deal with the trustee, Cox also claimed exemptions to let him keep three IRA accounts worth $234,000, a Rolex watch worth $9,000 and a TAG watch worth $1,000.
Ries wrote for the trustee, “Based on the risk and cost of litigating … the trustee believes it is in the best interest of the [bankruptcy] estate to settle this matter … ”
There’s no guarantee the trustee could cap the homestead exemption by proving Cox violated securities law. Cox’s daughter could fight to keep the townhome and some of the assets are held in trusts – meaning there’s no guarantee the trustee could get control of them.
Ries claimed “on the other hand” this settlement is fair. It prevents an expensive court battle that either side might lose.
Trustee’s reason for offering a deal
At the end of proposed settlement, the trustee’s attorney wrote:
Based on the risk and cost of litigating the contested matter regarding the Debtor’s homestead exemption and the above-described adversary proceedings to recover assets, the Trustee believes it is in the best interest of the Estate to settle this matter consistent with the terms above. The range of outcomes includes the Debtor being allowed to retain as exempt the homestead if no security violations occurred, or if the homestead value is insufficient for Section 522(q) to have any potential effect. Further, the Townhome is subject to ownership claims of the Debtor’s daughter, and the statutory defenses available in any fraudulent transfer litigation to recover this property. Finally, the Trusts are all controlled by non-debtor parties who will assert defenses to any claims the transfers were done with actual intent to hinder, delay, or defraud creditors, and dispute the turnover of any assets. Those parties will be able to use the trust assets to litigate their matter, essentially forcing the Trustee to pay both sides of the litigation. On the other hand, this settlement results in a fair allocation of costs of litigation, risks of litigation, and potential outcomes of litigation.
Click here to see the original bankruptcy petition. Click here to see the proposed compromise.
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