By Mark Jewell
The Associated Press
CARMEL, Ind. - Among Stephen C. Hilbert's trappings of wealth - a Caribbean island estate, thoroughbred race horses, art and antiques - the asset he is at greatest risk of losing to the company he founded is his biggest: a 25,000-square-foot, French-style mansion on a 36-acre spread.
The college dropout and former encyclopedia salesman who led Conseco Inc. on a dizzying growth curve that ended in bankruptcy built the house a decade ago, just a mile from the insurance company's headquarters in the Indianapolis suburb of Carmel. A basketball fan, Hilbert included a private gym modeled after Indiana University's hoops shrine, Assembly Hall.
Now, five years after Conseco's fortunes dwindled and three years after Hilbert was pressured into stepping down, he could lose the home and other assets in a court battle. The fight pits Conseco's leader through nearly two decades against a company that is newly emerged from bankruptcy and making a fresh start with a new board and ownership.
"It is unusual for this kind of dispute to arise following bankruptcy, but this is far from a usual bankruptcy given the size and resources of Conseco, and the depths to which it has fallen after its 'Wall Street darling' status in the 1990s," said Todd Saxton, an Indiana University business professor.
The dispute over $218 million in loan debt threatens to force the 57-year-old, his wife, Tomisue, and two children out of the Carmel mansion. Hilbert borrowed from banks, with Conseco guaranteeing repayment, to buy stock in the late 1990s. Then the bottom fell out on the company, and last December it became the third-largest ever to file for Chapter 11 protection.
Conseco holds the $19.4 million mortgage on Hilbert's mansion and is seeking foreclosure after out-of-court talks to settle the debt failed.
Hilbert repaid $7 million before the company's bankruptcy filing, and nothing since. The $218 million includes $155 million owed on the underlying loans, with the remainder representing interest.
David Erb, of Merrion Group, a New Jersey firm that invested in Conseco after Hilbert's resignation, said Hilbert must repay the debt.
Hilbert has refused to repay, arguing that two changes in Conseco's management and ownership since his April 2000 ouster triggered a "change of control" clause in his contract.
Hilbert left Conseco with a $72 million severance package. Also pressured to resign was chief financial officer, Rollin K. Dick, from whom the company is seeking $98 million in loan debt. Conseco sued Dick last month.
Hilbert is the biggest debtor and Dick is No. 3 among a group known as the "Big 11" - Conseco officers and directors who in 1996 began taking out stock-purchase loans through a program of a type now barred under federal law.
Conseco lawyers are trying to recover $676 million they say the former insiders collectively owe. Conseco's shares hit a high of $58 apiece in 1998, but declined to less than a nickel before bankruptcy, leaving the "Big 11" with loan debts far exceeding the value of their stock. Common shareholders recovered none of their losses in a bankruptcy that wiped away more than $5 billion of Conseco's debt.
Hilbert insists he remains a fan of the company he founded with a former partner using a $10,000 loan in 1979 from Hilbert's father, then an aluminum plant maintenance worker in Terre Haute.
Hilbert declined an interview, but in an October written statement distanced himself from executives in recent corporate scandals who dumped their stock as trouble emerged. Although Hilbert bought much of his stock with borrowed money, he remained the company's largest shareholder even through tough times. "Such action supports my consistent position that I truly believed in Conseco, the company I founded and built - and still do," he said.
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