HomeGold to protect executives

SPARTANBURG - Moments after telling a bankruptcy judge that there's no proof of corporate misdeeds at HomeGold Inc., the company's attorneys took steps to extend a $10 million insurance policy that could cover claims of executive mismanagement.

HomeGold and key creditors met in U.S. Bankruptcy Court here to settle early differences in the case. The Columbia-based mortgage firm, which lost more than $115 million during the past two years, sought bankruptcy protection on March 31.

In addition to the bankruptcy proceedings, three sets of investors have filed securities fraud lawsuits against HomeGold and its subsidiary, Carolina Investors. The backers of Carolina Investors, a Pickens investment firm also in bankruptcy, claim HomeGold owes them more than $275 million.

The mortgage company and its creditors agreed Tuesday to let a bankruptcy court trustee appoint an examiner to investigate the company's transactions. The findings will be shared with other parties, such as the U.S. Securities and Exchange Commission and state attorney general's office.

HomeGold attorney Bill Calloway said examples of mismanagement had not surfaced, but an examiner could help answer questions coming from a variety of sources.

"Even though we are convinced that's not a problem, we feel like an examiner would be an invaluable asset," he said.

U.S. Bankruptcy Judge Thurmond Bishop also ruled Tuesday that HomeGold could use cash it was to have paid to settle a previous lawsuit to keep the company alive and extend insurance covering the liability of corporate officials.

The money was part of a $10 million settlement HomeGold reached with a set of North Carolina residents who claimed they were charged excessive fees or interest rates for mortgages. The company paid about $1.8 million of the settlement before seeking bankruptcy protection.

Calloway said he planned to use more than $500,000 of the money to extend the company's $10 million insurance policy covering the liability of its directors and officers.

Carolina Investors' attorney Geoffrey Levy backed the move. Considering the investor lawsuits, extending the insurance policy should be a priority, Levy said. "We don't want to throw the baby out with the bath water," he said.

HomeGold and its creditors are scheduled to meet again later this month for another hearing to continue settling preliminary issues with the case.