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August 25, 2008
Seventh Circuit Rules on Personal
Liability of Bankruptcy Trustee
The U.S. Appeals Court for the Seventh Circuit recently issued a ruling
to help clarify its recent comments on a circuit split on the issue of
the proper standard to which a trustee should be held personally liable
for alleged misconduct. In the case of Maxwell v. KPMG,
the Seventh Circuit ruled that a bankruptcy trustee cannot be held
personally liable for his actions as trustee unless he willfully and
deliberately violated his fiduciary duties. The case centered on fees
and sanctions sought by KPMG against chapter 7 trustee Andrew Maxwell
for alleged misconduct in filing an appeal of a previous ruling by the
district court. The lower court had previously denied Maxwell's $626
million lawsuit against KPMG, ruling that Maxwell had not shown
“loss causation” as required by Illinois state law to prove
that the auditor breached its professional duties in events leading up
to the bankruptcy of Internet company marchFirst in 2001. Although
granting KPMG's request for sanctions in full, the Seventh Circuit found
that the trustee did not willfully violate his fiduciary duties as
chapter 7 trustee and was thus not personally liable.
href='http://www.abiworld.org/e-news/Maxwe001.pdf'>Click
here to read the Seventh Circuit's full opinion.
Chapter 11 Disclosure Statement
Approved for Health Supplement Company
A U.S. bankruptcy court on Thursday approved an amended chapter 11
disclosure statement filed by Supplements Lt. Inc., formerly known as
Leiner Health Products, Bankruptcy Law360 reported on Friday. The
company - which manufactures store-brand vitamins, minerals and
nutrition supplements - filed chapter 11 bankruptcy earlier this year on
the heels of new U.S. Food and Drug Administration regulations as well
as a Department of Justice investigation into its over-the-counter
products. The voting deadline on the company's liquidation plan is Sept.
26, with the debtors soliciting votes from secured lenders and creditors
with general unsecured claims.
href='http://bankruptcy.law360.com/articles/66959'>Read
more. (Subscription required.)
Judge Confirms Bombay Co. Liquidation
Plan
Bankruptcy Judge Michael Lynn approved The Bombay Co.'s
liquidation plan despite objections from two California counties,
Bankruptcy Law360 reported on Friday. At the hearing, Judge
Lynn also approved the liquidation trust agreement and appointed Elaine
Crowley as the liquidation trustee of the trust, according to court
documents. The counties of San Bernardino and Riverside filed an
objection to the plan earlier this month claiming that the liquidation
plan did not properly account for the personal property taxes that the
retail store still owes.
href='http://bankruptcy.law360.com/articles/66998'>Read
more. (Subscription required.)
Consumers Look to Bear Student Loan
Costs
The number of borrowers behind on payments and in outright
default are rising for some types of student loans, and the tight job
market makes it harder for graduates to find jobs that let them pay off
debts, the New York Times reported yesterday. Complicating
matters are investors who are pressuring lenders to raise revenue by
minimizing losses and expect more revenue from those lenders that
operate collection agencies. Lenders who make loans guaranteed by the
federal government can more easily take steps against borrowers - like
garnishing wages and benefits - than they can with other kinds of
unsecured consumer debts. While debtors can shed credit card debt and
other unsecured obligations through bankruptcy, they can only get relief
from student loans if they can show “undue hardship,” a term
that is not defined by the Bankruptcy Code.
href='http://www.nytimes.com/2008/08/24/business/24loans.html?sq=bankruptcy&st=cse&scp=4&pagewanted=print'>Read
more.
Study: Uninsured to Spend $30 Billion
on Medical Care
Researchers at George Mason University and the Urban Institute released
a study today showing that Americans who lack health insurance will
spend about $30 billion out of pocket on medical care this year, but
others -- mainly the government -- will end up covering another $56
billion in costs, the Wall Street Journal reported today. The
new study estimates that the government pays 75 percent, or $42.9
billion, of the amount uninsured patients can't pay -- through Medicaid,
the federal-state health-insurance for the poor and Medicare, the
federal program for the elderly and disabled, as well as state and local
href='http://online.wsj.com/article/SB121963245880668193.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Tropicana Puts Riverboat Casino on
Auction Block
Tropicana Entertainment LLC has decided to put one of its riverboat
casinos on the auction block after delaying for months a proposed $220
million sale, the Wall Street Journal reported today. The
company is seeking approval from the U.S. Bankruptcy Court in
Wilmington, Del., to remarket the Evansville, Ind., Casino Aztar, which
it has been trying to sell since late 2007. Tropicana in March agreed to
sell the casino to Reno, Nev., hotel and casino operator Eldorado
Resorts LLC for $220 million, but filed for bankruptcy protection before
the sale could close. Tropicana on Friday asked for permission to put
the asset on the auction block, with the hope of generating a higher bid
href='http://online.wsj.com/article_print/SB121961723129967441.html'>Read
more. (Subscription required.)
State Regulators Shut Down Kansas
Bank
State regulators shut down Columbian Bank and Trust Co. of Topeka, Kan.
on Friday, the ninth bank to fail this year and the fifth since July 11,
the Wall Street Journal reported today. The Federal Deposit
Insurance Corp. (FDIC) estimated that the failure would cost its deposit
insurance fund $60 million. Columbian Bank and Trust had $752 million of
assets and $622 million of deposits as of June 30, the FDIC said. The
FDIC sold to Citizens Bank and Trust of Chillicothe, Mo., the insured
deposits of the failed bank. In addition, Citizens Bank and Trust agreed
to buy $85.5 million of Columbian Bank and Trust's assets, which are
mostly cash, cash equivalents and securities.
href='http://online.wsj.com/article/SB121944778275765185.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Bernanke Urges Broader Powers for
Central Bank
Federal Reserve Chairman Ben S. Bernanke on Friday said that he wants
the Fed to have a more explicit role overseeing the plumbing of the
financial system -- the computer systems, contractual arrangements and
other mechanisms by which financial institutions conduct transactions,
the Washington Post reported on Saturday. He would like for
bank regulation to focus more on ensuring that the financial system as a
whole is in sound shape, not just on the risks facing any given bank.
'An expectation by financial market participants that financial crises
will never occur would create its own form of moral hazard,' Bernanke
said, 'and encourage behavior that would make financial crises more,
rather than less, likely.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/08/22/AR2008082203046_pf.html'>Read
more.
SEC Dealt Blow in Key Insider Trading
Case
The U.S. Securities and Exchange Commission was dealt a serious
blow on Wednesday in the first ruling to involve an insider trading case
brought against a former hedge fund salesman who used a certain type of
unregistered stock to 'hedge' a short sale, the National Law
Journal reported today. The case is one of about a dozen that the
SEC has brought alleging that hedge funds, or their managers, have used
Private Investment in Public Equity (PIPE) transactions, which are
private sales of unregistered stock in public companies, to hedge short
sales of those same companies. John F. Mangan Jr., a former hedge fund
salesman, was accused of directing short sales of stock of CompuDyne
Corp. under the expectation that PIPE transactions of CompuDyne stock
would hedge those sales. The SEC has maintained that such activities
violate §5 of the Securities Act of 1933, which prohibits the sale
of unregistered securities. Ruling on a summary judgment motion, U.S.
District Judge Graham C. Mullen on Wednesday found that knowledge of the
PIPE transaction was immaterial since the price of the stock on the day
of the short sale did not decline.
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202424013634'>Read
more.
Sarbanes-Oxley Upheld by Court as
Constitutional
An appeals court on Friday upheld the Sarbanes-Oxley Act of 2002,
dismissing arguments that the government's attempt to protect investors
from repeats of the scandals at Enron and WorldCom gave federal
overseers unchecked power, the Washington Post reported on
Saturday. The U.S. Court of Appeals for the District of Columbia Circuit
rejected a challenge to the heart of the act, the creation of a
nonprofit board to set auditing requirements and police the accounting
firms that audit public companies. Requirements of the law included top
executives to certify corporate financial statements and subjected audit
firms to periodic inspections by the new board. Businesses have
protested that the act imposed costly burdens and provided too little
benefit. The legal challenge was brought by Beckstead and Watts, a
Nevada accounting firm that the oversight board accused of performing
flawed audits, and the Free Enterprise Fund, which advocates reduced
taxes and limited government, according to court papers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/08/22/AR2008082202997_pf.html'>Read
more.
Obama Aides Defend Bank's Pay to
Biden's Son
During the years that Sen. Joseph R. Biden Jr. (D-Del.) supported
changes to the Bankruptcy Code, his son had a consulting agreement that
lasted five years with one of the largest companies pushing for the
changes, the New York Times reported yesterday. Biden's son,
Hunter, received consulting fees from the MBNA Corp. from 2001-05 for
work on online banking issues. Aides to Presidential candidate Barrack
Obama, who chose Biden as his vice-presidential running mate on
Saturday, said that Biden's son had never lobbied for MBNA and that
there was nothing improper about the payments.
href='http://www.nytimes.com/2008/08/25/us/politics/25biden.html?sq=bankruptcy&st=cse&scp=3&pagewanted=print'>Read
more.