Machne Menachem

Latest papers submitted to Bankruptcy Court of Pennsylvania by the Original Directors Motion #1

Posted in Uncategorized by machnemenachem on May 27, 2009

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

IN RE:
MACHNE MENACHEM, INC.,
Debtor : CASE NO. 5:01 – 04926

SUPPLEMENTAL ANSWER OF DEBTOR TO MOTION FOR
SUMMARY JUDGMENT OF YAAKOV
SPRITZER ET AL

1. Yaakov Spritzer had filed a claim against the Debtor in the amount of S1,131,675 asserting that he had loaned monies to the Debtor on the period 1996 through October 2002, when Yaakov Spritzer had operated the Debtor. The debtor’s directors had passed a resolution in early 1997 directing Yaakov Spritzer not to operate the Debtor’s camp because he had refused to show the Debtor’s records in 1996 supporting his contention that he had lent monies to fund the Debtor’s operating losses in the summer of that year.

2. All of Spritzer’s alleged loans were unauthorized and Spritzer did not keep complete records showing income and expenditures for the Debtor. An estimate of missing funds prepared by Debtor totals $3,242,642.

3. The four original directors, Mendel Hershkop, Shmuel Heber, Yaakov Spritzer.
and Yosef Goldman, operated the camp in 1995. However, a dispute arose between Yaakov Spritzer and the remaining directors and , as a result, from and after 1996 up through October, 2002, Yaakov Spritzer, along with Meir Schreiber, operated the camp in their sole discretion as they deemed fit and to the exclusion of the remaining original directors.

4. It is believed that at least starting in 2001, under the sole discretion and control of
Yaakov Spritzer and/or Meir Schreiber, the Debtor began to incur several financial losses. As a result, the utility company threatened to terminate services and the suppliers were refusing to supply goods for the 2002 season.

5. Because of the strict religious aspect of the camp, only certain types of suppliers are permitted. As a result, and in an apparent attempt to protect the 2002 suppliers, Yaakov Spritzer commenced Chapter 11 proceedings on behalf of the Debtor.

6. Prior to the filing of the Chapter 11 proceedings, the dispute between the two factions of the Hasidic community vying for control of the camp ended up in the United States District Court for the Eastern District of New York.

7. After extensive hearings, on October 18, 2002, the United States District Court for the Eastern District of New York, through the Honorable I. Leo Glasser, found that as a matter of law. Mendel Hershkop, Shmeul Heber, and Yosef Goldman (hereinafter collectively referred to as the “Majority Directors”) were and remained directors of the Debtor Corporation. The court further found that Spritzer and Schreiber conducted themselves as alleged directors of the Debtor Corporation “in blatant derogation” of applicable New York corporate law.

8. By reason of Judge Glasser’s ruling, Meir Schreiber had no authority to execute a
Note for $1,000.000 on behalf of the corporation nor accompanying mortgage of the corporation’s real estate on November 6, 2001, a copy of which is attached to Spritzer’s claim.

9. Following the ruling of the District Court, a special meeting of the Board of Directors of the Debtor Corporation was held on November 25, 2002. As a result of resolutions adopted at said meeting, the now legally re-instated Majority Directors of the Debtor Corporation resumed control of the Debtor and commenced to resume operations of the summer camp.

10. Shortly after resuming control, the Majority Directors began investigating the financial affairs of the Debtor Corporation. Unfortunately, the minority director retained the books and records of the Debtor Corporation.

11. As a result of the Majority Directors’ investigation they have uncovered substantial financial misconduct conducted by the Respondent, Yaakov Spritzer.

12. From 1996 until October, 2002, the Claimant Yaakov Spritzer, along with other individuals acting on his behalf and/or under his direction, including without limitation his son- in-law and daughter, operated the Camp as his personal asset and to the exclusion of the Majority Directors in the total disregard of applicable New York Not-for-Profit Law.

13. During the camp season the Debtor receives tuition revenues per camper as well as government aid for its food program the government food assistance actually received by the Debtor is based on the number of eligible children for which a set fee is paid per meal per child.

14. Since resuming control of the Debtor, the Majority Directors have attempted to analyze, review, and confirm the camp revenues and expenses during the period of control by Mr. Spritzer and/or those acting on behalf and/or wider his direction. Unfortunately, Mr. Spritzer did not produce sufficient documentation as to make that confirmation process possible.

15. Based upon the limited information provided by Mr. Spritzer, as well as information obtained by the Debtor from third panics, the Debtor believes and therefore avers that Mr. Spritzer has not fully and completely accounted for all revenues and/or expenses of the camp’s operations during the period from 1996 through 2002, nor has he produced the registration lists of camper for the years 1997, 1998, 2000, and 2001.

16. According to the registration list provided by Mr. Spritzer for 1996, 610 campers attended the camp as opposed to the 450 reported by Spritzer in the Debtor’s 1996 Federal Income Tax Return and as referenced in Second Amended Disclosure Statement.

17. According to the registration list provided by Mr. Spritzer for 1999, 383 campers attended the camp as opposed to the 300 reported by Spritzer in the Debtor’s 1999 Federal Income Tax Return and as referenced in his second Amended Disclosure Statement.

18. For the few years that the Majority Directors were able to obtain registration lists,
Spritzer underreported the total number of campers by 243. Debtor believes and therefore avers that for the years that Spritzer failed to provide registration lists, Spritzer under-reported the actual number of attendees as well, leaving hundreds of thousands of dollars unaccounted for.

19. The registration lists which are missing (and which would reflect the actual number of attendees) were compiled, maintained, and/or kept under the exclusive control of either Spritzer , his daughter (who served as bookkeeper), and/or his son- in-law (who served as camp director under Spritzer).

20. Even with respect to those registration lists which were provided, the Majority
Directors are unable to decipher the exact tuition amounts received per attendee or whether or not any portion of such tuition was subsidized either by government grant/or scholarships and/or a reduced rate.

21. The Debtor has requested actual copies of the registration forms submitted by each camper, which should outline and/or contain any information about scholarships, tuition rates, subsidies, etc… but Mr. Spritzer and/or his son-in-law and daughter claim the same arc no longer available.

22. Without such records it is extremely difficult for the Debtor to analyze the income of the Debtor while under the management of Mr. Spritzer. For example, taking just into account the number of attendees and assuming the full tuition, the following income is not accounted for:
1996  $303,583.00

1997  $250,345.00

1998  $291,663.00

1999  $198,358.00

2000  $286,681.00

2001  $261,501.00

2002  $234,277.00

Without full records and documentation as to the actual amount(s) charged and collected from each attendee, the actual amount(s) of any government aid and/or other scholarship, and any other donations in addition to such tuition, the Debtor cannot accurately account for its income.

23. Debtor believes and therefore avers that respect to those campers who were eligible to receive a government grant or subsidy for the food program (which Debtor believes averages approximately 90% of the campers attending), Spritzer gave those children a $200 discount from the regular tuition rate. However, the actual amount of monies received from the government averaged $360 per child, a difference of $160 per child that does not appear to be accounted for.

24. Notwithstanding the lack of records, the Majority Directors believe and therefore aver that based upon the number of camp attendees and the income reported by Spritzer, Spritzer either failed to fully report and/or account for all monies received, or in the alternative grossly mismanaged the Camp to operate at a substantial loss.

25. During the years that the Camp was in the exclusive control of Spritzer, Spritzer caused a substantial sum of monies to be utilized to pay personal credit cards of himself, his daughter, and his son-in-law.

26. The Majority Directors have determined that based upon the records discovered to
date, the debtor paid approximately $690,485.00 to pay off personal credit cards of Spritzer or individuals associated with Spritzer, including his son-in-law and daughter.
The Debtor sought documents from Spritzer to justify the credit card payments but to date only sporadic documents, consisting largely of copies of redacted credit card statements with no underlying backup invoices, etc., has been produced.

27. Debtor relied on its counsel Ronald Santora, Esquire in this proceeding, including the presentation of Objections to the Spritzer claim, which were filed, as well as the required following up to have the Objections determined. Debtor was assured by counsel that this would be done at the appropriate time.

RESPECTFULLY SUBMITTED,
/s/ ALLEN T. REISHTEIN
ALLEN T. REISIITEIN, ESQUIRE
SUITE 650, 8 W. MARKET STREET
WILKES-BARRE, PA 18701
570.823.7171
PAID# 01812
Attorneys for Debtor Machne Menachem, Inc.

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