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Friday, August 7, 2009
Dykstra creditor seeks hearing

By Mike Fish
ESPN.com

Lenny Dykstra, the ex-ballplayer turned entrepreneur, is accused of having "engaged in fraudulent and deceitful acts" by a major creditor in the federal Chapter 11 bankruptcy protection claim he filed last month.

Attorneys for Index Investors, which made two separate loans totaling $770,000 last year secured against the luxury southern California home once owned by hockey star Wayne Gretzky, filed a motion in U.S. Bankruptcy Court asking that Dykstra be replaced as trustee of the estate and the case be converted to a less protective Chapter 7 bankruptcy.

Lenny Dykstra
Lenny Dykstra, seen in 2008, has filed for Chapter 11 bankruptcy protection.

Under bankruptcy law, Chapter 11 filing is typically reserved for businesses or individuals with extensive assets -- which creditors contend Dykstra has yet to prove he has -- and allows for reorganization without having to dispose of all assets. In contrast, under Chapter 7, Dykstra would be hurt far worse, as he'd be required to liquidate all his assets, without the exception of his personal residence, to cover his debt. An emergency hearing on the motion is scheduled for Tuesday.

The loans entitle Index Investors to the second and third secured interest in the Thousand Oaks, Calif., estate home, which Dykstra purchased from Gretzky for $18.5 million in 2007. The first lien is held by JP Morgan Chase as security against a $12 million loan on the home.

The motion to be heard Tuesday alleges that Dykstra misrepresented last month that he had insured the home, his most valuable property asset. Attorneys for his creditors subsequently discovered that Dykstra had presented them a policy that had two weeks earlier been canceled after he failed to pay the $7,800 premium. The motion chastised Dykstra for leaving the multimillion dollar property uninsured, noting that the southern California area has sustained numerous devastating fires in recent years.

A call to Dykstra's bankruptcy attorney seeking comment was not immediately returned Friday.

Dykstra's bankruptcy filing last month came in the wake of more than 20 lawsuits he faces tied to his activities as a financial entrepreneur, including The Players Club, a glossy magazine for athletes he had helped launch in 2008. The 46-year-old former outfielder has no more than $50,000 of assets and between $10 million and $50 million of liabilities, according to a petition filed with the U.S. Bankruptcy Court in the Central District of California.

Attorneys argued that Dykstra is not qualified to manage the estate during bankruptcy, describing him as "an individual whose fortunes have soured, and whose abilities are suspect." They said his "post-petition conduct mirrors his pre-petition conduct [which has resulted in numerous lawsuits being filed against him]."

Index Investors also alleged that Dykstra induced them late last year into making the loans by offering financials that represented his net worth in excess of $58 million. According to the court filing, he initially wanted the money to cover past-due attorney fees and to purchase an engine for his Gulfstream jet, which he said would then be sold and the proceeds used to cover the initial loan.

The motion alleges Dykstra, who played 12 years with the New York Mets and Philadelphia Phillies before retiring in 1996, never made a payment on either of the two loans.

Mike Fish is an investigative reporter for ESPN.com.