Simon & Schuster is looking to bury Treasure Trove Inc. by forcing the Connecticut publishing company into involuntary bankruptcy to extract $2 million concerning a distribution dispute.
Treasure Trove of New Canaan was created by maverick publisher Michael Stadther of Pound Ridge, author of the best-seller “A Treasure”™s Trove.” The book afforded 12 lucky sleuths gold tokens that were cashed in for original works of jewelry created specifically for the book that had a combined value of more than $1 million. Last year, he released his second treasure-hunting book, “Secrets of the Alchemist Dar,” which is not selling as well as the first, Stadther said, but did hit No. 1 on The New York Times paperback children”™s list.
Stadther said in an interview last week that Simon & Schuster is using Chapter 7, Title 11 of the U.S. Bankruptcy Code as a means to force his hand to pay $1,961,257.80 of what it says it is owed or go into bankruptcy. He said his company is not going to voluntarily acquiesce to the publishing house”™s demands.
“Our position is we had expenses and we had losses. They had expenses and losses.”
He described the matter as “a legal business dispute.”
“I am confident at the moment we will work this out. The devil is in the details,” he said.
“The next priority is to come up with an amicable settlement.”
Stadther said it was his understanding that if a deal cannot be worked out within 20 days of the July 24 filing a trustee would be assigned by the court.
He said he was doing everything to preserve the company and is still doing tours on behalf of the book.
The involuntary bankruptcy petition is not necessarily the death knell for the New Canaan-based company, according to Craig A. Wolfe, a lawyer with Kelley Drye and Warren L.L.P., a New York City law firm representing Simon & Schuster as petitioning creditor. “They could move to reorganize,” he said.
He deferred further questions to Elisa Rivlin, general counsel at Simon & Schuster. After several attempts to reach Rivlin, she said she could not comment on any pending litigation and in turn deferred questions to Adam Rothberg, vice president and director of corporate communications. Rothberg said he was unable to comment on the litigation, but did say the amount being sought also included “manufacturing costs.”
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The affidavit of David F. England, senior vice president and chief financial officer of Simon & Schuster, filed with the U.S. Bankruptcy Court of the Southern District of New York, seeks $1,961,257.80 on behalf of the publishing house, claiming that “significant portions of this debt have remained unpaid for more than six months.”
Simon & Schuster”™s claim is secured by a perfected lien on Treasure Trove”™s inventory and its proceeds.
“Treasure Trove is ”“ and has been for some time ”“ balance sheet insolvent, reporting assets of only $576,596.35 and liabilities of $7,631,389.63,” according to the affidavit.
“Notwithstanding Treasure Trove”™s admitted insolvency, the financial statements further indicate that Treasure Trove made payments during the past several months to a principal insider of Treasure Trove, Michael Stadther, on account of an alleged loan made to Treasure Trove. Although Mr. Stadther has purported to have a valid security interest in Treasure Trove”™s assets, I believe that a Chapter 7 trustee or other fiduciary should fully investigate whether these insider payments ”“ as well as any insider liens ”“ may be subject to avoidance and whether the remaining insider loan claims should be subordinated or re-characterized as equity.”
Citing financial statements, England said in the affidavit that as of May 31, Treasure Trove had “fewer than 12 creditors (excluding employees and insiders) holding claims that were not contingent as to liability or the subject of a bona fide dispute as to liability or amount.”
Stadther said the publishing house”™s reference to the balance sheet insolvency was an attempt to bolster its argument in pushing for involuntary bankruptcy.
Stadther is a multimillionaire who made his money in the software business. “At my last company, which went from zero to $100 million in revenue in about five or six years, it was tremendously successful,” he told the Business Journal in an article last year.
When his first book was released in December 2004, Stadther was a one-man writing, publishing and marketing company. He printed 40,000 copies and expected to have 35,000 returned. But a fortuitous appearance on “The Today Show” resulted in a book order of 150,000.
Last year, he created Paribus Publishing Ltd., which oversees Everyone Gets Published (EGP). The company also has a vanity publishing arm that”™s automated. An author can electronically submit a document to the company where it will be checked for style, active voice and readability.
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Stadther said the current litigation does not affect Paribus and everyonegetspublished.com.
Stadther said he will be moving his company from Cherry Street in New Canaan to Irvington.
The author is still promoting his second book and said none of the 100 diamond rings created as the treasure and worth about $2 million have yet been found. But, he said, it took several months before the first token was discovered in “A Treasure”™s Trove.”
In an interview last year, Stadther was looking to shake up the book-publishing industry with EGP and Virtual Editor, software that he said is “worth its weight in gold.”
He explained that a small company would upload an article to his company”™s Web site, www.veditor.net, where it would be assessed on readability, passive voice, double negatives, dangling modifiers and so forth. The article would be returned with the errors highlighted and editing comments.
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