A federal bankruptcy watchdog filed a rare letter defending her personal role in negotiating settlements to resolve a professional fee dispute in GSC Group Inc.’s chapter 11 case, the Wall Street Journal reported today. In an eight-page letter addressed to Bankruptcy Judge Shelley C. Chapman, U.S. Trustee Tracy Hope Davis responded to the “concerns” the court raised about the trustee’s role in a settlement process that has taken several twists and turns in recent months. “The UST has endeavored to handle this matter with the utmost integrity and professionalism and in compliance with the court’s guidance and rulings,” Davis wrote. “The UST regrets any confusion that has arisen over the course of many hearings and conferences held in this case and hopes that the UST has satisfied the court’s concerns.” GSC Group, an investment manager whose funds targeted distressed debt as well as U.S. and European corporate debt, sought chapter 11 protection in August 2010 and eventually sold its assets to Black Diamond Capital Management LLC. Its case heated up earlier this year, when Davis claimed that law firm Kaye Scholer LLP and financial adviser Capstone Advisory Group LLC hid conflicts of interest and fee-sharing agreements, and also made “inaccurate and incomplete” disclosures. The trustee settled the allegations, but Capstone’s deal later fell apart, paving the way for a trial to go forward last month on the advisory firm’s conduct.
