Trading in FirstPlus Financial Group stock was halted for several hours Friday on news that a fund that invests in the company's stock and is partly owned by its chief executive had filed for bankruptcy.

The fund, Knox County Partnership, formerly known as Phillips Partners Ltd., filed for protection under Chapter 11 of the bankruptcy code Oct. 2, according to U.S. Bankruptcy Court in Dallas.

Knox owned 4.579 million shares of FirstPlus stock, or 12.3% of the company, as of July 28. FirstPlus shares have fallen more than 90% from then to Oct. 8, bringing Knox's investment value from $182.87 million to $11.73 million.

FirstPlus, the leading high-loan-to-value home equity lender, is one of a number of consumer finance specialists whose shares have plummeted lately.

Trading in its shares resumed Friday at 12:06 p.m., after the companies issued press releases indicating that Knox's bankruptcy would not affect FirstPlus' stock.

Knox owns stock but "is not otherwise affiliated with FirstPlus or any of its subsidiaries, does no business with FirstPlus, and is not a competitor of FirstPlus," the Knox statement said.

FirstPlus shares gained 29% after trading resumed, to close Friday at $3.3125.

The news that Knox was filing for bankruptcy first appeared in TheStreet.com, an on-line investor magazine on Oct. 7, leading to market speculation that Daniel T. Phillips, FirstPlus' CEO, was filing for personal bankruptcy.

Mr. Phillips is a "limited partner" of Knox and did not personally file for bankruptcy, FirstPlus said in a statement.

On Oct. 6, after hearing "confidential testimony" from the company's president, a federal bankruptcy judge refused to allow Merrill Lynch International Private Finance Ltd. and NationsBank NA, which both lend to Knox, to foreclose on loans backed by FirstPlus stock, FirstPlus said.

The bankruptcy judge heard motions filed by Merrill and NationsBank on an "emergency basis" Oct. 6, FirstPlus said. Representatives from NationsBank and Merrill said the banks could not comment.

Analysts said the developments may indicate that the cash-poor firm has found an equity investor after a monthlong search. FirstPlus shares have plummeted amid rumors that no buyer could be found.

"The news has to be viewed as positive," said E. Reilly Tierney, analyst with Fox, Pitt, Kelton. "The question is did the company prove to the judge that they are working on a deal, or did they say that they actually had one?"

A FirstPlus spokesman said he could not comment. Knox Capital's legal counsel did not return phone calls by press time.

Friday's trading halt baffled analysts and investors, who were hoping a deal would be announced that afternoon.

Other Knox partners were said to include Mr. Phillips' family members.

Several analysts also speculated that longtime FirstPlus pitchman and Miami Dolphins quarterback Dan Marino was also a partner. A Miami Dolphins spokesman said that he had no comment, and Mr. Marino's agent did not return phone calls.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.