Soaked By Congress

CHRIS USHER FOR TIME
LOSING THE HOME: After his wife's death from diabetes, Allen Smith faces losing his modest Delaware home. He fell behind on mortgage payments and other bills. Creditors will divide the proceeds from the sale of what little he has

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Let's begin with Villa. Through most of the 1990s, he was president, chief executive officer and indirect owner of 99.5% of the stock of H.J. Meyers & Co., Inc., a brokerage firm based in Rochester, N.Y., with branch offices in more than a dozen cities. H.J. Meyers was a boiler room. Its most significant feature, according to an investigation by Massachusetts securities authorities, "was the high-pressure tactics of management continually exerted on brokers, who then used high-pressure tactics on their customers." Brokers cold-called people urging them to invest in speculative securities and initial public offerings underwritten by the firm. Brokers "implied to investors that they were in possession of important nonpublic information concerning an issuer."

One investor bought stock on his credit card after being assured that he would double his $25,000 investment and that "nothing can go wrong." He didn't and it did. He lost $15,000 and was forced to take out a home equity loan to cover his losses.

Villa profited handsomely from the business. For himself, he collected cigarette speedboats and vintage autos and racing cars, from a 1957 Cadillac to a 1990 Ferrari. For his wife, he collected jewelry--a $22,000 Rolex watch, a three-carat $44,000 wedding ring and $9,000 diamond earrings.

In October 1998, Massachusetts securities authorities ruled that H.J. Meyers had engaged in fraudulent and unethical practices. They revoked the broker-dealer registrations of the firm, Villa and four of his associates. Shortly before the crackdown, H.J. Meyers closed its doors, and in November 1998 Villa packed up and headed for Florida and its generous homestead exemption. He left behind a countryside littered with investors who had lost money, including some whose retirement savings had disappeared. Some of the unlucky H.J. Meyers clients took their cases to arbitration, won awards and filed claims in Villa's bankruptcy case.

How much the creditors will eventually receive is up in the air. Charles Cohen, Villa's lawyer, says that "obviously, Mr. Villa is going to try to pay back everything he can. How much I can't tell you at this point." In the assets column, Villa's most valuable possession is his $1.4 million Boca Raton home. But it's beyond the reach of his creditors, thanks to the homestead exemption.

By contrast, 1,100 miles to the north, in Wilmington, Del., 73-year-old Allen Smith is about to lose his home in bankruptcy court. Smith was born in Birmingham, Ala., and served in the Coast Guard during World War II. After his discharge in 1945, he attended an auto-mechanics school in Detroit and then went to work as a metal finisher and body repairman for Chrysler. The company transferred him to its Delaware plant in 1959, where he worked until he was forced out after 35 years during one of the automaker's downsizings.

Smith bought his modest home in Wilmington in 1964. In 1970, at age 44, he married. His wife Carolyn worked at a neighborhood florist. "I was living good, having a good time," Smith told TIME, "giving my wife everything she needed. Tried to make her happy."

When Smith lost his job at Chrysler in 1982, he was too young to collect Social Security so he took a new job as a security guard. Two years later, his world began to unravel. "Everything just went bad at one time. It waited until I got retired. If I had been working, it would have been different, but I had retired before everything started to happen."

"Everything" began with his wife's diabetes. "She just lost her toe in 1984," he says. Then "they had to cut her leg. And they had to keep cutting it off." Finally, they amputated both legs. To accommodate her wheelchair, Smith built a ramp and made other renovations. To pay for it all and to keep up with the monthly payments on all his credit cards, he borrowed against his house, which had been paid off. "I had what they called triple-A credit," he says.

Along the way, Smith's physical condition deteriorated, and he had to quit his security job. He developed throat cancer and now speaks through a voice box. "I got sick," he says. "I got a thyroid [condition], cancer, low sugar, high blood pressure, heart murmur. I got everything. I'm lucky to be alive."

In June 1998 the Smiths filed a bankruptcy petition under Chapter 13, with the understanding they would make $100 monthly payments to a trustee who would distribute the money to creditors. By that time, the loan against their home had swelled to $64,000, and they owed $51,000 on their credit cards and charge accounts, double their annual income. That November, Carolyn Smith died. With the loss of her Social Security income, Smith struggled. His situation was further complicated by a run of misfortune. He was hospitalized after a stroke; he had cataract surgery; the friend who promised to collect his pension and Social Security checks and make his mortgage payments didn't, and the mortgage company moved to foreclose. That's when his Chapter 13 case collapsed--as happens in two-thirds of all Chapter 13 proceedings--and he was switched to Chapter 7. Now he's awaiting his discharge. He will lose his home and move to Toledo, where he will live with a niece. "I wasn't planning to move," he says. "It hurts. I don't want to be nobody's responsibility because I've always been my own man all my life."