Last Nov. 24, two days before LandAmerica Financial Group went bankrupt, the company refused to release funds it was holding for retired Army Col. Tracy Ralphs of Suffolk.
He was about to close on a land purchase for a new home when he got an e-mail from a LandAmerica executive saying the company no longer was in business.
Ralphs had put $81,666 of proceeds from selling land -- his life savings -- into a LandAmerica account on Oct. 15, just two days before that same LandAmerica official sent an e-mail to the company's chief lawyer warning that the company was about to run out of money to pay customers like him.
And, though LandAmerica wouldn't release Ralphs' funds when promised, the company had on Nov. 12 paid a $200,000 bill from the law firm it consulted about bankruptcy -- the equivalent of five 40-hour weeks of one of the firm's top $995-an-hour lawyers, according to bankruptcy court filings.
"Now, they're talking about paying me 20 cents on the dollar," Ralphs said. He said that is what lawyers involved in the case advised him.
Like others who deposited money with LandAmerica, he believes the company took his money even when its executives knew it couldn't repay it.
In a sworn affidavit, Ralphs said the LandAmerica official who took his deposit told him on the day the Glen Allen firm filed for bankruptcy that one senior LandAmerica official knew as early as June that "this whole thing was going to blow up."
"It was just a Ponzi scheme," said Paul Busse, whose wife deposited money with LandAmerica in August 2008. "They were using money like my wife's to repay other investors."
That is why depositors such as Ralphs and Busse say they will oppose the bankruptcy plan LandAmerica filed this week and will push for legal action to get some of the company's legal and financial advisers to disgorge fees they've already been paid.
They also object to the plan's demand that participating creditors not take legal action against former officers of LandAmerica or the firms that advised the company in bankruptcy.
Ralphs and Busse are among about 400 investors who didn't make special security arrangements for their deposits, and the company's plan says their repayment will come after about 50 investors who did.
Some of those 50 will get 97 percent of their money back, and the rest will split at least $50 million. Anything left over goes toward the 400, who are owed about $193 million.
The 400 people had been told their "1031 exchange" deposits with LandAmerica were held in trust for them -- the same thing, in fact, that LandAmerica's chief counsel and Executive Vice President Michelle H. Gluck told two large banks on Oct. 7, about a week before Ralphs deposited his money with LandAmerica.
The 1031 exchange name refers to a section of the tax law that allows people to park proceeds from a real estate sale in a tax-sheltered fund until they use the money to buy another property.
LandAmerica, in turn, invested the money in a variety of ways including auction-rate securities, a high-interest-rate note then considered a safe investment. But the market for auction-rate securities froze in February 2008, making the funds inaccessible.
In the Oct. 7 letter, Gluck, now a senior vice president and general counsel of the Richmond Federal Reserve, pushed the banks to make good on their promises that the $290.5 million in auction-rate securities could always be redeemed. Gluck asked the banks to pay up because LandAmerica was using the securities to back its own promises to customers such as Ralphs.
The best the banks had offered was Citicorp Inc.'s proposal to lend LandAmerica $25 million on the security of $138.5 million of auction-rate securities.
"Your personnel are well-aware of the nature of the 1031 exchange business . . . and with that knowledge directed the company towards [auction-rate securities] as safe, highly liquid investments," Gluck wrote, adding that the banks' refusal to redeem the securities left the bank in a financial crisis.
"This situation needs to be resolved this week," she said.
LandAmerica had at that point been trying for weeks to arrange a merger or to sell its title-insurance companies, which accounted for 85 percent to 90 percent of its revenue, to address its financial crisis.
On Oct. 20, five days after Ralphs deposited his money with LandAmerica, the company's then-chairman and chief executive officer, Theodore L. Chandler Jr., wrote then-Secretary of the Treasury Henry M. Paulson Jr., asking for an urgent meeting to discuss federal help. LandAmerica didn't get the help.
A deal in early November to sell its title-insurance companies collapsed when regulators objected.
On the day Ralphs was planning to withdraw his money, Nov. 24, insurance regulators in Nebraska put LandAmerica's two main title-insurance operations into receivership, the final blow before the company filed for bankruptcy protection Nov. 26.
"I am a retired colonel, with three kids. That was their college money," Ralphs said. "Now, I'm getting 20 cents on the dollar."
Contact David Ress at (804) 649-6051 or dress@timesdispatch.com.
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