SEC sues would-be 'New York Post' buyer

THE US Securities and Exchange Commission has sued the would-be rescuer of America's oldest daily newspaper, suggesting that Steven Hoffenberg illegally sold dollars 400m ( pounds 282m) worth of securities to thousands of unsophisticated or misinformed investors and has been misusing their money.

Mr Hoffenberg, who heads Towers Financial, a publicly traded debt collection agency, signed a contract on Sunday agreeing to take control of the New York Post from its bankrupt owner, Peter Kalikow. But the SEC, arguing that Towers is 'virtually insolvent', has asked that its assets be frozen, and that the company disgorge dollars 200m in allegedly ill-gotten gains.

The Post came within hours of closing last month when Bankers Trust and other lenders refused to extend further credit to Mr Kalikow, the New York property developer who acquired the tabloid from Rupert Murdoch's News America four years ago.

Mr Hoffenberg stepped in, proposing to assume the paper's liabilities and provide it with enough operating cash to survive in New York's competitive tabloid market.

But it has emerged that Mr Hoffenberg, whose company was disciplined on lesser charges by the SEC in 1988, had known for months about the impending suit. A New York judge yesterday refused to hear the SEC's request to freeze Towers' assets until 24 February, by which time Mr Hoffenberg is expected to have completed his purchase of the Post.

Mr Hoffenberg's lawyer yesterday said he would fight the suit and warned that any lien against him would hurt the paper's chances of survival. 'If they get an asset freeze against Towers, which is now the only source of working capital for the Post, that could very well cause the death of the Post,' Ira Sorkin said.

The SEC complaint says Towers exaggerated its profits and assets 'by a staggering amount' in marketing dollars 200m worth of under-collaterised bonds and another dollars 215m worth of unregistered promissory notes to investors, many of them pensioners whose net worth - less than dollars 1m - disqualifies them as buyers of such risky securities.

Towers, claiming assets of dollars 513m in 1991, portrayed itself as a booming company whose profits had soared to dollars 4.3m from dollars 1.4m in only three years.

The SEC's analysis of its balance sheet says Towers lost increasingly large amounts of money in each of those years and that the company's actual assets - dollars 250m - are dollars 130m less than its outstanding debts.

The commission also said that 'investor funds appear to have been substantially dissipated' and that much of it 'remains unaccounted for to this day'. It suggested that the proceeds from the notes were used to pay dollars 92m worth of Towers' operating expenses, including dollars 17m worth of interest payments to other noteholders.