The trustee to five consolidated bankrupt estates involved in a $140 million Ponzi scheme has launched an adversary proceeding against Bermuda-based Lines Overseas Management.

Creditors including victims of the Ponzi scheme have filed proofs of claim of more than $100 million against the Chapter 7 consolidated bankrupt estates of Midland Euro Exchange, Midland Euro Inc. Midland Group, Moshe and Zvi Leichener.

Estate trustee Christopher Barclay alleged in his compliant filed against LOM with the US bankruptcy court in the central district of California that Midland agreed to give brokers or finders procuring investor funds ?including defendant LOM? a commission of one percent or more per month on all funds of the broker or finder?s investors purportedly held for investment with Midland.

Mr. Barclay said the monthly commissions rewarded came from commingled proceeds of the Ponzi Shcme.

Causes of action against LOM concern alleged fraudulent transfers totalling at least $395,677 from a Midland account ?to or for the benefit of the defendants in excess of the amount of money that the defendants transferred to Midland,? according to court documents, the complaint said. ?All of those transfers were proceeds of the Ponzi Scheme made from commingled funds in the Midland/Lechner accounts.?

The trustee said in court documents: ?Defendant Lines Overseas Management Limited was at all times a broker or finder who procured investors for MEI or MEEI, and is an entity to whom or for whose benefit the recoverable transfers alleged in this complaint were made.?

LOM has filed a motion to dismiss Mr. Barclay?s action on the grounds that the court does not have personal jurisdiction over the Bermuda-based company.

A LOM spokesperson said that the allegations by the Midland trustee are ?totally false and without merit?.

?LOM has never had any connection to or relationship with Midland, nor any knowledge of its existence (prior to the civil suit),? he said adding that LOM has never ?done business? with Midland, never ?introduced? or ?procured? any investors for Midland and never was promised nor received any commission or other income from Midland.

The spokesperson added that the proceeding in which LOM was named was among more than 150 proceedings filed concurrently in that court by Mr. Barclay ?apparently against any entity which ever received a transfer from Midland?.

?LOM had a single customer that on his own accord, wired funds to his account at Midland in 2001 from his LOM account; in 2002 funds were wired back from his account at Midland to his account at LOM.

?This was not in any way an investment facilitated by LOM; it was simply a request by the customer to transfer out funds from his account,? the spokesperson said, adding that the customer?s written confirmation of this has been forwarded to the bankruptcy Trustee. ?There is no indication or suggestion that the customer had any relationship to Midland other than being one of hundreds or thousands of investors.?

Zvi and Moshe Leichner, the architects of the Ponzi scheme, raised some $140 million from investors on the promise of high returns between 1999-2003. Both are serving time in prison after admitting their intent to defraud their creditors and investors.

LOM is also using jurisdiction as grounds for dismissal in a separate case lodged by the US Securities and Exchange Commission last year.

The SEC turned to the courts last year in a bid to enforce four subpoenas for information served on managing director Scott Lines and LOM last year in relation to two separate investigations into alleged securities fraud.

The US Bankruptcy Court for the Central District of California stayed LOM?s motion to dismiss until January 18, 2006 pending a ruling of the US District Court for the District of Maryland in the SEC?s case.

?Though there is no doubt that LOM would prevail on the merits, LOM filed a motion to dismiss the suit on jurisdictional grounds in the hope avoiding the time and expense required to actually take the suit to trial,? the spokesman said.