In the early 1980s, Abbey J. Butler was scrambling from under the collapse of his Los Angeles mail-order business and a series of lawsuits over his financial dealings.
He filed for personal bankruptcy twice. Gone were the Rolls-Royce convertible and the house on the beach at the Malibu Colony. He listed debts of $888,798 and $4,635 in assets, including a $35 watch, in 1983.
Now, six years later, the former Los Angeles businessman's fortunes have improved dramatically. Butler is a principal partner in an investment company that has obtained commitments for more than $1 billion to finance a takeover of Pennwalt, a big chemical company based in Philadelphia.
But Butler's past, including troubles with securities regulators, has emerged as a central issue in an increasingly bitter struggle by Pennwalt to rebuff Butler and his partners. Pennwalt claims that Butler's background makes him unsuitable to control the company. A civil lawsuit filed by the company late last month charged that Butler omitted some of his past problems in documents filed with the Securities and Exchange Commission in connection with the takeover attempt.
"Pennwalt has been around since 1850 and has a reputation and history of being a responsible corporate citizen and also a reputation for honesty and integrity," Edwin E. Tuttle, the company's chairman and chief executive, said in an interview. "I just don't believe the facts about Mr. Butler's past, as they have been divulged over time, make one feel comfortable with the prospect of his controlling the destiny of Pennwalt."
Dennis J. Friedman, head of merchant banking at Paine Webber, the New York brokerage financing part of Butler's bid, said that nothing in Butler's background weakens the $100-a-share offer for all outstanding stock.
"All of this stuff about the background of these guys has nothing to do with the price we are offering," said Friedman. "The real question is whether the shareholders should get $100 a share or higher."
Pennwalt has refused to talk with Butler and his associates in Centaur, the New York partnership formed last year as a vehicle for the Pennwalt bid. The company has enlisted the aid of four congressmen and Mayor Wilson Goode of Philadelphia in fighting the takeover.
The congressmen want the bid to be examined in hearings on hostile takeovers planned later this year by Rep. John D. Dingell (D-Mich.), head of the House Energy and Commerce Committee.
Rep. Ron Wyden (D-Ore.), a member of the House committee, said last week that serious questions were raised by the hostile bid and past violations of securities laws by some Centaur principals.
Centaur disclosed some of Butler's regulatory and financial problems in its initial SEC filing. The firm also said the other three principals in Centaur have had past run-ins with the regulators.
In response to Pennwalt's lawsuit, Centaur provided the SEC with more data about Butler's bankruptcy and the withdrawal of his attempt to buy a radio station.
The second SEC filing did not mention civil lawsuits filed in Los Angeles alleging that Butler swindled several partners out of $250,000 in a real estate deal in the posh Malibu Colony in 1980 and alleging that he transferred $394,000 out of the mail-order company before its bankruptcy.
Butler, who now lives in New York, declined to be interviewed for this story. A spokesman for Centaur said the Malibu lawsuits were the result of a dispute among partners that was settled when Butler made full payment to the others.
The spokesman, Jerrold S. Seeman, also said that the trustee in the mail-order firm's bankruptcy dropped the lawsuit over the $394,000 because "he must have seen that there was no merit to the allegation."
The trustee, Sam Jonas, and the trustee's attorney at the time, Arnold L. Kupetz, said in separate interviews this week, however, that the lawsuit was dismissed in 1980 after Butler convinced them he did not have any money.
"He appeared to us to be cleaned out at the time," said Jonas. "We figured that to chase this guy when we couldn't find any assets would be as worthless as a penny in hell."
Kupetz said: "We brought him in for an interview and determined, based on what he told us, that he had no assets from which we could recover a judgment. We were pretty sure that we could get a judgment, but it didn't seem worthwhile to keep the bankruptcy open."
Abbey Butler's troubles started well before the mail-order business on Sunset Boulevard, International Collectors Guild, went bust.
According to documents filed with the SEC by Centaur, Butler paid fines of $20,000 and $2,500 and was censured twice by the National Assn. of Securities Dealers in the early 1970s. The cases centered on violations of rules covering the sale of new issues of stocks.