Judge weighing imposition of $3.1 million ruling

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Associated Press

Posted on January 1, 2013 at 2:01 PM

Updated Tuesday, Jan 1 at 2:01 PM

LOUISVILLE, Ky. (AP) — A federal bankruptcy judge is weighing whether to reinstate a $3.1 million judgment against a Kentucky businessman and disbarred attorney after finding that the pair fraudulently took control of a tool and machine fabricating business.

U.S. Bankruptcy Judge Joan Lloyd in Louisville is weighing objections from businessman Randall Scott Waldman and several companies to the damages being awarded to businessman Ronald B. Stone. Lloyd also sanctioned disbarred attorney Bruce Atherton of Louisville.

Lloyd's decision on reinstating damages comes two months after the U.S. 6th Circuit Court of Appeals overturned a similar decision, finding that Lloyd overstepped her bounds. The appeals court ordered Lloyd to issue a finding of facts and legal conclusions to back up the damage award.

A hearing is set for Jan. 8 in Louisville.

Lloyd concluded that Waldman "carefully orchestrated" a scheme that resulted in the assets of Stone's company being transferred to an entity in which Stone was a minority owner, leaving him unable to recoup his losses.

"The evidence clearly supports a finding that these transfers were done for the purpose of defrauding creditors," Lloyd wrote.

As for Atherton, Lloyd found his actions in taking part in the fraudulent scheme to be the type "of conduct that undermines public confidence in the entire legal profession" and permanently disbarred him from practicing bankruptcy law in the western district of Kentucky.

"Atherton's actions were nothing less than reprehensible," Lloyd wrote.

The case stems from a business deal between Stone, who owned Stone Tool and Machine Inc., and Waldman. Stone's company owed Fifth Third Bank more than $1 million in 2003, a debt secured by mortgages and liens on the business and Stone's home.

Stone's attorney, Atherton, introduced his client to Waldman as a potential investor in the business.

Stone Tool and Machine filed for bankruptcy in 2004. Atherton then allowed deadlines to pass, giving Fifth Third Bank an opportunity to foreclose on the business assets in state court and gather judgments against Stone and the company.

Waldman then offered the bank a deal — he would pay $900,000 to Fifth Third Bank in exchange for the bank's rights as a creditor of Stone and the business. Waldman and Atherton approached Stone with a deal that would give Waldman control over Stone Tool and Machine, but allow Stone to hold a 40 percent ownership in the new business and have a job for at least five years in exchange for Waldman paying off Stone's debts.

Stone agreed and, at Atherton's insistence, signed away the company without reading the paperwork. Waldman then took the assets to his newly acquired company to complete the deal with Fifth Third Bank and become Stone's largest creditor.

In October 2006, Stone obtained a copy of the documents he signed and realized he wasn't a partial owner. After a fist fight with Waldman, Stone resigned from the company with all his debts still in place.

Waldman then sought garnishments against Stone in an effort to collect on the judgment initially won by the bank. Stone filed for personal bankruptcy, alleging that Waldman defrauded him. Stone also sued Atherton, who was disbarred for his part in the scheme.

Lloyd dismissed Stone's financial debts to Waldman and awarded the $3 million in damages. U.S. District Judge John G. Heyburn in 2011 upheld the decision. Lloyd said Atherton's actions were "nothing less than reprehensible."

In a separate case, Atherton pleaded guilty in 2010 to conspiracy to commit wire fraud by aiding a Pennsylvania scheme to drain the assets of companies offered for sale. He spent 10 months in federal prison and was released in 2011. Prosecutors say he opened shell accounts in Louisville to hold funds diverted from four companies.

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Follow Associated Press reporter Brett Barrouquere on Twitter: http://twitter.com/BBarrouquereAP

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