What a mess Saul Steinberg has left behind.
The once powerful insurance giant he built, Reliance Group Holdings, yesterday filed for Chapter 11 bankruptcy protection against a tangled backdrop that could lead to a grim ending.
Investor Carl Icahn is maneuvering to get control of the reorganization even before it's off the ground.
And bureaucrats in Pennsylvania and their hired consultants have gained control of the company's $12.59 billion in assets, installing new phone lines under their control and seizing mail and e-mail, according to SEC filings.
And creditors who are owed $12.87 billion are still far apart in finding ways to reorganize the company to recover at least part of their investments.
Steinberg, 61, convalescing from a stroke last year, has seen his family's $2 billion fortune in Reliance stock dwindle to just about $286,200 as of yesterday.
In the bankruptcy, all common stock will eventually evaporate, including his 20.6 million shares.
Reliance, already delisted from the New York Stock Exchange six months ago for not being valuable enough, was trading in other markets at just 13 cents a share yesterday, with 1.2 million shares changing hands.
Although the insurance group has hit bottom and sold off most of its subsidiaries, it still has value as a well-known name and is licensed in every state to do business, said industry sources.
It also has a $3.5 billion pool of cash that has been set aside to pay insurance claims, and a network of agents across the nation.
Insurance regulators in Pennsylvania two weeks ago got control of that cash, plus Reliance's other assets and - according to regulatory filings - aren't renewing any policies or writing any new business.
Reliance, formed in 1817, is domiciled in Pennsylvania, giving that state jurisdiction over its fate. A Pennsylvania judge ordered the Pennsylvania Insurance Department to seize the company for rehabilitation - or possible liquidation if that doesn't work.
Meanwhile, Icahn intends to revive Reliance with an infusion of cash and a new marketing team that could restore Reliance its former glory.
Icahn has been buying up bank debt on Reliance since last year for around 17 cents on the dollar. Icahn needs to get one-third of the debt in order to block any reorganization plan he doesn't like - provided the state of Pennsylvania doesn't pull the plug on what's left of Reliance.
Icahn needs $97 million in bonds to block the restructuring. Earlier this year, he owned $43.6 million in Reliance senior debt, had tendered for another $40 million, and had told investors that he wants to buy more senior debt on the open market.
Icahn had no comment on the bankruptcy filing.