Ex-Conseco director’s wife ordered to pay $5M-WEB ONLY

A Hamilton County judge yesterday ordered the wife of a former Conseco Inc. director to pay the insurer $5 million in its ongoing quest to recover unpaid stock loans.

The judgment against Margaret Massey, wife of James D. Massey, stems from a November ruling from U.S. Bankruptcy Judge Basil H. Lorch III that said Conseco could pursue its fraudulent transfer claims against her.

Hamilton Superior Court Judge Steven Nation conducted a three-day bench trial in January before awarding Conseco $5 million. The company had asked for $14.5 million.

“For over five years now, Conseco has taken the position that the Masseys have committed fraud, and Judge Nation’s ruling now confirms Conseco’s position,” said the company’s attorney, Reed Oslan.

One of the Masseys’ lawyers, Ronald J. Waicukauski, however, said the fraud was not intentional, and the court agreed.

“We disagree strongly with this finding of the court, but we are pleased that the court has correctly rejected Conseco’s principal claim and has acknowledged that the Masseys engaged in no intentional fraud at any time,” Waicukauski wrote in an e-mail to IBJ.

Conseco alleged that the couple committed fraud by transferring assets to Margaret Massey in an attempt to conceal them from the insurer.

The amount of the judgment, though relatively small, is significant for Conseco. It marks the first time the company has won a judgment against a director’s spouse. Conseco’s fraudulent transfer claims against other spouses all were settled before reaching trial.

The $5 million judgment is the latest financial setback for the couple.

James Massey, a former Merchants National Bank CEO, filed for bankruptcy in October after the Indiana Supreme Court refused to hear his appeal of a $9 million judgment Conseco won against him in 2006.

At the time, Massey listed assets of less than $1 million and liabilities of more than $20 million, which will make it difficult for Conseco to collect either judgment.

In June, Conseco won another judgment against Massey, for $29 million, in a court in Illinois.

The company is trying to wrap up five years of litigation that now has netted settlements or judgments with 10 of the 11 borrowers, who in total owed the company nearly $700 million. All the borrowed stock became worthless when Conseco entered bankruptcy reorganization in December 2002.

The remaining holdout is Dennis E. Murray Sr. But in October, U.S. District Court Judge Larry J. McKinney declared him liable for at least some of the millions of dollars he borrowed to buy Conseco stock in the late 1990s.

And the following month, the magistrate judge under McKinney recommended a ruling that Murray fraudulently transferred $3.4 million to his wife to shield it from Conseco. McKinney has yet to rule on that recommendation.