The news that the venerable Bethesda, Maryland, auction house Sloan's had filed for bankruptcy protection on December 3, 2002 (see M.A.D., January 2003, p. 20-A), brought a flurry of legal petitions and further revelations about the troubled company.

Maryland officials revealed that Sloan's had been operating without a Personal Property Dealer license since July 31, 2002.

The bankruptcy, operating without a license, and consumer and other complaints raise the probability that Sloan's, in its present form, will not be allowed to operate in Maryland. The following excerpted letter from Elizabeth B. Davison, director of Montgomery County Department of Housing and Community Affairs, details the licensing problems.

"We intend to decline to renew Sloan's Secondhand Personal Property Dealer License. Chapter 44A, Secondhand Personal Property, of the Montgomery County Code specifies that our Department may refuse to renew the license of any person if we find `[t]he person has violated or is attempting to violate any provisions of this Chapter or any rule or regulation adopted under the Chapter,' Section 44A-12(a). Sloan's has violated Chapter 44A in several ways.

"First, Sloan's has, since July 31, 2002, conducted, without a license, the operation of a secondhand personal property dealer, in violation of Section 44A-2 of the Montgomery County Code. Sloan's permitted its license to expire despite having received from our Department a letter dated May 31, 2002, reminding Sloan's of the expiration date, attaching an application, and requesting that it be returned completed by June 30, 2002. That was followed by a letter dated July 25, 2002, reminding Sloan's of the July 30, 2002, expiration and warning that a civil citation would be issued if the completed application and fee were not received by July 31, 2002. Because Sloan's continued to do business without the license, our Department issued a civil citation to Sloan's on September 26, 2002, sent by certified mail, return receipt requested, to Deborah Seidel, who was listed as president on the expired license. Our Department never received the return receipt, so we issued a new citation on November 14, 2002, and served it via certified mail, return receipt requested, on Sloan's resident agent. Thereafter, your application, dated November 22, 2002, was received by us on November 27, 2002.

"Sloan's has violated Section 44A-6 of the County code by failing to `deliver to the [police department] director, or his designee, on or before the first business day of each week, a complete correct and legible copy of the information required to be kept in Section 44A-3, on forms prescribed by the director for all secondhand personal property purchases, obtained, acquired or received since the date of the last report.' Indeed, it appears that Sloan's has never filed one of these weekly reports despite being made aware of the requirement.

"Third, Section 44A-12(c) of the Code states the we may refuse to renew a license if `[a]ny officer, manager, agent or employee of the individual or dealer has violated or is attempting to violate any provision of this Chapter or any rule or regulations adopted under this Chapter...' Section 44A-2 says that `[a]n individual, must not act as an officer, employee, or agent, and in that capacity engage in transactions involving secondhand personal property, for a person required to be licensed by this Chapter unless the person possesses a valid and current dealer's license.' Sloan's employees and officers engaged in transactions involving secondhand personal property while Sloan's was unlicensed. Sections 44A-12(c)(1) and (2) do allow the Department to issue a license to a person or dealer who `[h]ad no knowledge of' violations of Chapter 44A and who was `unable to prevent' such violations, but those provisions are inapplicable here. The present managers, officers, and owners of Sloan's were aware of the violations of Chapter 44A and were in a position to prevent the violations from occurring.

"Section 44A-13 of the County Code specifies that a dealer must be offered the opportunity for a hearing to show cause why a license should not be revoked, suspended, or refused. Please note that, under 44A-13(b), the hearing officer who presides over a show cause hearing may consider any violations of Chapter 11, the consumer protection law, or any other applicable law or regulation, committed by Sloan's or its officers, managers, and agents. Violations of the consumer protection law constitute an independent basis for denying your application. As you know, we have received many complaints from consumers regarding Sloan's business practices. We have forwarded many of those complaints to your counsel. The consumers have complained that Sloan's has not paid them for consigned goods that were sold and that Sloan's has damaged consigned goods. We are also aware that the Montgomery County Police Department may have seized property that was in Sloan's possession as part of a criminal investigation."

A show cause hearing has been scheduled for February 18 at the Division of Consumer Affairs.

Evan Johnson, the acting chief at consumer affairs, said Sloan's was pushing to move up the hearing date. Sloan's had planned a January 17 sale, which has obviously been scrapped.

Sloan's has asked the bankruptcy court for permission to use any remaining funds, such as credit cards and bank accounts, to pay pre-petition (before December 3) wages, salaries, and trust fund tax checks, and also to use the funds for other ordinary business purposes.

Predictably, a number of creditors have filed objections to the expenditures by the company that may have 1000 creditors and owe as much as $10 million.

At the end of December, Sloan's had still not filed a Schedules of Assets and Liabilities or a Statement of Financial Affairs. On December 30, it asked the court for an extension of time to file those required disclosures.

An Official Committee of Unsecured Creditors has been set up, with attorneys Marc E. Albert and Darrell W. Clark employed as committee counsel. The phone number to reach both is (202) 785-9100.

The question of who owns the company has been resolved, sort of.

In January, Sloan's chairman of the board, Andre Sassoon, told Eric Friedman, investigative administrator of the Montgomery County Office of Consumer Affairs, that venture capitalist and former chairman Jeffrey Neuman owned 30% of the firm and that an overseas company, Hesperides Holdings, owned the rest.

We ran a number of Internet searches for Hesperides, including the following: the Securities and Exchange Commission international listings, a Wright Research Center search of 18,000 companies, a European business directory, Business Wire archives, LexisNexis, Hoover's Online, and Portico.

No record of Hesperides emerged.

On December 23, Andre Sassoon added his name to the list of creditors.

Jeffrey Neuman is a secured creditor of Sloan's. He had filed a UCC lien well prior to the bankruptcy filing. He also filed a Notice of Appearance as a creditor with the U.S. Bankruptcy Court on December 24.

Some of the consignors to Sloan's big $1.2 million sale of September 20 and 21, 2002, were paid, Eric Friedman said, but we have heard from others who weren't. One of the largest appears to be the Elizabeth du Pont Bayard Weedon family trust of Charlottesville, Virginia, which filed a claim for $132,800 on December 24.

Lots 870 through 908 of the September 21 session at Sloan's were from the Elizabeth du Pont Bayard Weedon estate.

Other consignors, some with claims as low as $500, were not paid.

Some consignors, whose merchandise was not sold at Sloan's last sales, have been encouraged to come in and pick up their merchandise, Eric Friedman said. "The judge said if it's still there, go and get it."

In at least one instance, this has led to even more confusion.

Alexander Khochinskiy of Moscow, Russia bought four lots at Sloan's September sales and paid for them with a debit card account. Two of the lots had not been shipped before Sloan's December 3 bankruptcy filing.

Rebecca Lemmon, Sloan's director of auction administration and operations, e-mailed Khochinskiy and informed him of the bankruptcy and what followed: "Prompted by these proceedings, the consignor of these items removed the Diamond Brooch and Ring from Sloan's DC Gallery on Monday, December 15, 2002, and refused to leave them."

Alexander Khochinskiy's English is not the best, but he informed us on January 10 via e-mail that, "...the money for 2 lots - $2,950, which was getting from my credit card account, they does not want to return me!

"I will appreciate you for any help and advises in this my problem. Meanwhile, its very hard for me to participate in any judicial or other official acting in USA, because I'm in Russia."