While investors try to sort out the implications of this month's proposed rehabilitation plan for Mutual Benefit Life Insurance Co., bondholder lawsuits stemming from the insurer's collapse are advancing.

Easton & Co., a securities broker based in Fort Lee, N.J., has taken the lead on behalf of investors in about 62 Mutual Benefit-backed municipal bond issues totaling $815 million.

In a complaint filed last September and another filed in May, Easton argued that Shearson Lehman Brothers knew Mutual Benefit was about to go under, but sold bonds guaranteed by the insurer without telling investors.

Easton is trying to recover damages it says resulted from lost market value on two bond deals: a 1991 DeKalb, Ga., Housing Authority issue and a 1983 Florida Housing Finance Agency issue.

The company has asked the court to expand the filing into a class action suit on behalf of all investors who bought Mutual Benefit-backed bonds from Shearson before July 1991, when the New Jersey Department of Insurance seized Mutual Benefit as it skidded into insolvency.

Easton claims Shearson knew or should have known about Mutual Benefit's problems, especially because Shearson was an underwriter on some of the bond deals.

The New Jersey broker bought $250,000 of the Dekalb bonds and $200,000 of the Florida bonds from Shearson before July 1991, when Mutual Benefit was rated AA-plus by Standard & Poor's Corp.

In marketing the issues, Shearson told investors that the Mutual Benefit bonds "were safe and conservative investments," the complaint says. But the the firm "knew or recklessly disregarded" the fact that Mutual Benefit's real estate investments "had crippled [the insurance company] and placed it on the road to impending insolvency," according to the complaint.

Officials at Shearson declined to comment on the lawsuit.

In a motion to dismiss the Florida suit, Shearson said Easton failed in its complaint to provide enough detail about the alleged information Shearson had at its disposal concerning Mutual Benefit's finances. The motion also says Easton's complaint lists 62 separate bond issues, but acknowledges that Shearson sold Easton only the Florida Housing bonds.

"Easton has no standing to bring allegations of fraud in connection with the 61 issues that it did not purchase or sell," Shearson said in its filing.

Judge H. Lee Sarokin of the U.S. District Court of New Jersey rejected a motion to dismiss the DeKalb lawsuit in April. Those proceedings are now moving through the discovery period. A hearing on the motion to dismiss the case involving Florida Housing bonds is scheduled for late October.

Earlier this month, a rehabilitation plan for Mutual Benefit was filed with the state Superior Court. Judge Paul Levy, who is overseeing the rehabilitation, must approve the plan. Objections must be filed by Nov. 16, and a hearing for final approval is scheduled for January 1993.

Another case involving Mutual Benefits is also pending in the New Jersey Courts.

In late July, three bond trustees filed motions with the New Jersey Supreme Court seeking the right to foreclose on projects financed with Mutual Benefit-backed bonds.

"We want the court to vacate the injunction and permit us to exercise all of our rights as trustees, including foreclosure," said Gary Eisenberg, an associate with Lowenstein Sandler Kohl Fisher & Boylan P.C. in Roseland, N.J. The firm represents Citizens and Southern National Bank of South Carolina, which filed one of two leave to appeal motions with the court. A separate leave to appeal motion was filed July 23 by First Tennessee National Bank and the Maryland National Bank, Mr. Eisenberg said.

Mutual Benefit had forged an agreement in November 1991 with several trustees, forbidding foreclosure on the bond issues backed by the company.

Judge Levy in December 1991 issued a restraining order prohibiting all trustees from implementing foreclosure actions.

The financially strapped company had originally sought the restraining order, arguing that a rush of foreclosure would leave it grappling with bondholder claims to cover any interest shortfalls

But in its recently completed rehabilitation plan, Mutual Benefit said it will not make up shortfalls in cases where the cash flow from projects is insufficient.

Since Mutual Benefit has said it will not make up any shortfalls, trustees should be permitted to proceed with foreclosures if they are deemed necessary, Mr. Eisenberg said.

"It's clear it will not inhibit [Mutual Benefit's] rehabilitation program," Mr. Eisenberg said.

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