Mastro distribution delayed

Seattle Times December 1, 2011

Mastro bankruptcy trustee warns penny on the dollar payout could be delayed

The trustee in Michael R. Mastro's massive bankruptcy says the fugitive real-estate magnate's unsecured creditors could get about 1 percent of their money back early next year, though further litigation could put that off a year or two.

By Eric Pryne

Seattle Times business reporter

The trustee in Michael R. astro's massive bankruptcy says the fugitive real-estate magnate's unsecured creditors could get about 1 percent of their money back early next year. Michael Mastro, longtime Seattle developer, is a fugitive.

But that distribution would be delayed if a Mastro business associate succeeds in keeping several million reserved while he appeals a court ruling against him, trustee James Rigby said in a report to creditors this week.

And any payout beyond that penny on the dollar is several years away, he added.

Mastro, 86, a longtime Seattle developer and lender, was pushed into one of Washington's largest bankruptcies in July 2009 after the collapsing economy undercut his highly leveraged real-estate empire.

Using financial information filed by Mastro, Rigby initially estimated the developer owed unsecured creditors $325 million. But the trustee said in his latest report that he now expects court-approved claims will total less than $250 million.

Mastro and his wife, Linda, disappeared this summer after failing to comply with a court order to hand over two diamond rings valued at $1.4 million. Warrants were issued for their arrest, but their whereabouts remain unknown.

Mark Eriks, U.S. Marshal for Western Washington, said Thursday there's nothing new to report on the search for the couple. But Rigby said in an interview that he's optimistic they will be caught: "This is a really small world."

In his report, Rigby said he has $5.6 million cash on hand, mostly proceeds from sales of Mastro properties. But that includes $2.5 million that was held in reserve during a trial to determine whether a Mastro associate from Monaco, Hendrik Dorssers, was entitled to part of the proceeds from the sale of Mastro's Medina waterfront mansion.

Bankruptcy Judge Marc Barreca ruled against Dorssers two months ago. But John Tollefsen, Dorssers' lawyer, said Thursday his client intends to appeal and ask that an even larger sum — $3.2 million, to account for mounting interest — continue to be held pending a final decision.

If Dorssers does obtain a hold on the money, Rigby said, his planned 1 percent payout to creditors likely would have to wait until the appeal is resolved.

That would take at least several months, Tollefsen said; Rigby said it could take two or three years.

Rigby said he wants to keep substantial cash on hand to, among other things, pay premiums on $3.25 million in life-insurance policies on Mastro to which creditors are beneficiaries.

Rigby and his team of lawyers, accountants and consultants also recently submitted bills for $1.2 million in fees and expenses for court approval. Court records indicate they already have been paid about $5.6 million from what they have collected from Mastro's assets.

The bills are big, Rigby acknowledged, but without his team's efforts, creditors wouldn't be in line to get anything. He attributed most of the costs to a long court battle with Mastro and several associates over the Medina mansion, "a huge case that should never have taken place."

Eric Pryne: 206-464-2231 or epryne@seattletimes.com