The company that convinced many people it was safe to swim in the waters of subprime debt collection now seems to be drowning.

For a while, Commercial Financial Services Inc. was hailed as a big success story. Twelve years ago, founder William R. Bartmann started with a $13,000 portfolio of consumer debts from a failed bank, and the telephone calls he made from his kitchen table led him to collect $65,000.

Taking a sympathetic approach to the debtors, Mr. Bartmann formed a company that until recently had 3,900 employees and turned its principals into millionaires. Mr. Bartmann said in an interview last spring that Commercial Financial would probably earn $220 million in 1998 and could top $1 billion by 2002.

CFS became the nation's largest collector of credit card debt, won business achievement awards, and earned millions in state tax repayments under a job incentive program. It lured employees with high wages, free child care, low-cost health insurance, large bonuses, and lavish company trips to Las Vegas and Disney World.

As part of an expansion strategy, CFS agreed in May to buy a thrift, Corning Savings and Loan Association of Corning, Ark. At the time, Mr. Bartmann said his company could boost revenues by issuing credit cards to some of the 3.6 million delinquent debt holders with whom CFS had relationships.

But the ship seems to have sunk. CFS has filed for bankruptcy protection. Mr. Bartmann and his partner, Jay L. Jones, resigned from the board of directors in October amid accusations of impropriety. A week before Christmas, half the CFS staff was told it will be laid off Jan. 8.

Last Tuesday the company got approval from bankruptcy court to suspend, terminate, or modify debt-purchasing contracts it had with eight card- issuing companies: MBNA America Bank, Fleet Bank, Bank One Corp., GE Capital Services, Chase Manhattan Bank, Discover Financial Services, Associates National Bank, and Household Bank.

A bankruptcy lawyer said at least one of those companies has expressed interest in buying CFS.

The layoff announcement by acting president Fred C. Caruso came just days after company officials had boasted that CFS was still hiring and shortly after a lawyer for the company had insisted that it was "business as usual" at the collections firm.

To try to find a buyer or partner, CFS has hired Goldman, Sachs & Co., which recommended the cost-cutting program that led to the 1,800 layoffs and other cuts, Mr. Caruso said. An international subsidiary based in London will be sold within three weeks, Mr. Caruso said.

Mr. Caruso-a turnaround consultant who was brought in from a Chicago management firm-said the company would sell its Gulfstream jet, cut Mr. Bartmann's and other executives' pay to $1 a year, and eliminate some other expenses, including daily catered lunches. He said the company would negotiate with Oral Roberts University, which owns the 60-story office tower where CFS has its headquarters. Just a few months ago CFS had leased more space and more parking there.

CFS also canceled its Christmas party, eliminated annual bonuses (which last year averaged $1,800 per employee), and said it would skip the $2.50 matching payments for every $1 employees put in their 401 (k) funds.

One bankruptcy lawyer, who characterized the CFS case as one of the biggest in the nation, said the situation could be settled soon if the company found a merger partner. CFS officials said 15 companies have expressed interest, and some have submitted proposals.

For years, CFS won plaudits for its prosperity and its business model, which seemed to prove that "tough love" could prompt delinquent borrowers to follow repayment schedules.

But suddenly, in October, the superlatives vanished when an anonymous letter was sent to bond ratings agencies, alleging misconduct by the company's principals. The letter prompted ratings downgrades and suspensions, and the resignations from the board of Mr. Jones, Mr. Bartmann, and Mr. Bartmann's wife, Kathryn. It also sparked the internal investigation.

Symbolic of the change in fortunes was the resignation of another board member, R. James Woolsey, a former Central Intelligence Agency director. He had been appointed with fanfare Oct. 2 and withdrew three weeks later.

CFS is the fourth venture in which Mr. Bartmann and Mr. Jones collaborated; the first three failed.

According to allegations in the anonymous letter and a subsequent lawsuit alleging fraud and filed by the NationsBank division of BankAmerica Corp., Mr. Jones set up a shell company, Dimat, that used CFS' money to buy assets from CFS. Dimat is registered in Shawnee, Okla., but public records show no other details.

As a financing tool for its collections operation, CFS routinely issued bonds and sold them to third parties. CFS investigators said some of the bonds' asset pools were sold to Dimat.

One of the allegations is that the assets funneled to Dimat prompted misrepresentation of CFS' actual collection of debts. Another charge is that Mr. Jones, who created most of the CFS computer system, manipulated data on the weekends.

No criminal charges have been filed against Mr. Jones or Mr. Bartmann.

The NationsBank lawsuit prompted the bankruptcy filing. The suit, filed in North Carolina, said the bank had bought $185 million in CFS bonds. But CFS was accused of failing to disclose that its collections reports included loan sales to Dimat, "a corporation owned and controlled by Jay L. Jones, who was at the time an officer, director, and shareholder of CFS."

NationsBank asked that $66 million in CFS accounts be frozen. After a North Carolina judge issued a preliminary order in NationsBank's favor, CFS went to bankruptcy court in Tulsa to stay that action.

Mr. Jones has not been involved with CFS since October, according to the company. A spokesman said Mr. Jones has had a recurrence of a heart condition, but that Mr. Bartmann has remained with the company as a "consultant."

CFS' sole remaining director is Peter Wachtell, who was appointed when the others quit and was selected by Mr. Bartmann. A CFS spokesman said Mr. Wachtell is chief executive officer of American Direct Credit, but would not say where that company is located or what it does. The spokesman said Mr. Wachtell was known to CFS' bondholders.

The internal investigation, by a Chicago law firm, is over, according to CFS. Its results have not been announced. A bankruptcy lawyer familiar with the proceedings said Mr. Wachtell will determine what action, if any, to take from here, but his decision will need approval from the bankruptcy court.

When the inquiry began, Mr. Bartmann said he had never had a connection to Dimat and learned of Mr. Jones' involvement through the anonymous letter. Neither Mr. Bartmann nor Mr. Jones is now speaking to reporters.

Mr. Bartmann has said he began buying out Mr. Jones' CFS stock position in October 1997. That was the month Dimat was incorporated, in the town where Mr. Jones grew up and once operated businesses. It has no offices or telephone there. A lawyer listed as the incorporator refused to answer questions.

Mr. Bartmann and Mr. Jones first got together in the early 1980s in Muskogee, Okla., 65 miles southeast of Tulsa. Their first partnership was an oil venture, of which Mr. Bartmann once said, "I lost my shirt."

Then Mr. Bartmann acquired an oil field supply business and hired Mr. Jones. The company went broke in the mid-1980s, and their third venture, a small loan business, fizzled shortly after.

Then, in 1986, Mr. Bartmann borrowed $13,000 and bought some loans of a defunct Tulsa bank from the Federal Deposit Insurance Corp. He tried to collect on the loans himself, deciding that a friendly approach could do wonders. He had been subjected to menacing calls from debt collectors while he was under financial waters.

Mr. Jones, who helped maintain a computer data base, was "the only one who stuck with me," Mr. Bartmann later said.

That business evolved into CFS. In 1991 the company moved to Tulsa and began concentrating on credit card debt. It signed contracts with 15 of the 25 major card issuers and has continued to acquire debt under those agreements, according to a lawyer close to the case who asked not be named. In earlier interviews Mr. Bartmann said CFS had done 14 bond issues; the lawyer said recently that no bonds are in default and no payments have been missed.

CFS stopped doing bond trusts after the ratings agencies downgraded those investments in October. CFS also halted loan sales, leaving it with actual collections as its only revenues.

Mr. Bartmann and his wife own 80% of CFS stock; Forbes estimated the couple to be worth $1.4 billion. Mr. Jones owns 19% of the stock, and 1% is split among a handful of longtime employees.

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