Former executives of Worley & Obetz, their relatives and the company’s insurance carriers have agreed to pay $4.3 million in real estate and cash to the trustee overseeing the company’s bankruptcy, according to a court filing Wednesday.
The transfer of 13 properties in Manheim, Lancaster and Bradford County plus payouts under two liability-insurance policies would settle the trustee’s allegations that three of the company’s insiders -- the CEO and two financial executives -- were guilty of fraud and others were negligent, breaching their fiduciary duty of oversight by failing to detect the fraud.
The agreement, reached through mediation, is subject to the approval of U.S. Bankruptcy Judge Magdeline Coleman in Philadelphia. If the settlement is approved, the money would go to the defunct company’s creditors, who were owed $90.1 million when the firm folded. The trustee has recouped millions for them already by selling other company assets.
Trustee Christine Shubert urged the judge to approve the settlement, explaining that pursuing the legal case further “would largely be fruitless,” as the effort would be slow and costly, and the defendants have limited resources remaining.
In a statement, Shubert said, “We appreciate the cooperation and assistance of all parties, including the Obetz family, in arriving at what we believe to be a fair and reasonable outcome.”
“Since the beginning, my goal and that of my family has been to assist the creditors of Worley & Obetz in obtaining a recovery,” said Seth Obetz, co-owner and vice chairman of the company. “We … are pleased that the settlement will result in closure of this sad chapter in our lives and careers.”
In her 360-page complaint filed in October 2018, Shubert initially targeted 18 properties, saying they were bought with Worley & Obetz’s help – including down payments, loans and loan guarantees -- but provided no benefit to the company. The insiders countered that all of the transactions were appropriate.
Over the ensuing months, however, Shubert dropped her claims on five properties, most notably Molly’s convenience store in Manheim, allowing the insiders to keep them.
Worley & Obetz was a 72-year-old family business based in Manheim that sold propane, heating oil and gasoline. It abruptly collapsed and closed in June 2018 after it was discovered that CEO Jeffrey Lyons had swindled banks out of $67 million in loans to the company.
The shocking shutdown cost all 270 employees their jobs. Two days later, the firm filed for bankruptcy liquidation.
The scandal drew the attention of two groups of investigators: law enforcement (initially local, then federal); and Shubert, whose job is to make sure the liquidation process recoups the most money possible for creditors.
Lyons, as well as Worley & Obetz’s controller during the first 13 years of the scam and her successor for the last two years of the scheme, have pleaded guilty to their roles in the scandal, which saw the co-conspirators pad the firm’s revenue by $1.995 billion.
According to Shubert, Obetz and Lyons liberally tapped Worley & Obetz’s ample cash – swollen by Lyons' fraud, unbeknownst to Obetz -- to help create the real estate portfolio for themselves and their relatives. These actions constituted unjust enrichment, Shubert alleged.
To acquire the properties being transferred to the trustee, the pair used $1.04 million of company money for down payments. They also had had the company guarantee $3.76 million in mortgages, loan them $765,000 and advance them $385,000, the settlement indicates.
Here’s a closer look at the properties to be transferred to the estate, according to court documents.
Two properties -- acquired by Lyons, Obetz and his siblings Molly and Sam for $1.95 million -- at 55 Doe Run Road, Manheim, and 41 Doe Run Road, Manheim, were leased to Worley & Obetz for storage, truck parking and office space. Shubert said the space was not needed by the company, although it provided $275,000 in down payments and guaranteed $1.59 million in mortgages on them.
Also being shifted to the trustee are the interests of Seth Obetz, his wife Melissa, Lyons and his wife Julie in a $925,000 vacation house on Fenwick Island in Delaware. Worley & Obetz made the $540,000 down payment. As LNP | LancasterOnline previously reported, the house was sold in 2019 and the proceeds put in escrow until the trustee’s claim is resolved.
In addition, a commercial property at 202 Greenfield Road, formerly headquarters of Worley & Obetz’s commercial division and a WoGo fuel station, is going to the trustee too. It was acquired by Seth Obetz from the company for $1.37 million with the help of a $387,000 loan to him from the company. Some $235,900 remains outstanding.
Back in Manheim, Worley & Obetz made an $85,000 down payment and guaranteed a $765,000 mortgage for Seth Obetz to purchase 149 Doe Run Road, the trustee said. The tract is 20 acres of fields leased to a local farmer.
Seth Obetz and Jeffrey Lyons bought four additional Doe Run Road properties for $1.8 million, again with a boost from Worley & Obetz. The company paid the $227,000 down payment and guaranteed a $1.4 million mortgage. They sold two of them for $350,000, but none of the proceeds went back to the company. Seth Obetz and/or Jeffrey Lyons had the company lease storage units and parking spaces on the parcels they retained, which the company didn’t need, Shubert said.
The two executives later used a $300,000 cash advance from Worley & Obetz to buy 45 Doe Run Road. This property is earmarked for the trustee too. However, under the settlement with the trustee, Seth Obetz will be given the chance to top the winning auction bid and buy it back, since it’s the headquarters of his current business, Seth Energy.
The final five parcels going to the trustee are properties in Sayre, Bradford County, that were purchased by Seth and Melissa Obetz with a $678,000 loan from Worley & Obetz. The properties were used by a Worley & Obetz acquisition, J.W. Bishop. The Obetzes have $371,600 outstanding on the loan.
The trustee intends to sell the 13 properties at auction and give the proceeds to Worley & Obetz's creditors.
Seth Obetz is retaining four other buildings in addition to Molly’s, 35 Doe Run Road, Manheim. They are: 1075 White Oak Road, Manheim, a 25-acre farmette leased to a tenant; 211 S. Charlotte St., Manheim, a small apartment building; a garage and office space at 535 Stiegel Valley Road, Manheim; and a vacation home on the bay in Rock Hall, Maryland. Shubert’s attorneys did not respond to questions about why Shubert dropped her pursuit of these.
Excluded from the list of properties under Shubert’s scrutiny is the former Worley & Obetz headquarters at 85 White Oak Road, Manheim. It was owned by the defunct corporation.