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Relativity hoped to get approval yesterday to emerge from bankruptcy, but questions have emerged about its efforts to find new investors and the amount of money it has been able to raise, Variety reported today. Despite an aggressive effort by attorneys for the studio to paint a portrait of the studio well positioned to re-emerge from the financial wilderness, re-invigorated and blessed with a new creative vision, Bankruptcy Judge Michael Wiles said that Relativity was not ready to exit chapter 11 protection. Wiles said that he was worried about the studio’s level of equity financing. He noted there are a number of outstanding creditor and vendor objections, including an ongoing legal tussle with Netflix over a distribution agreement.

Attorneys told a judge yesterday that progress in settling the 26-month-old Diocese of Gallup (N.M.) bankruptcy case has stumbled because an insurer is unwilling to provide detailed financial information demanded by a representative for future sex abuse claims against the diocese, the Albuquerque Journal reported today. An attorney for Catholic Mutual Relief Society of America, a church-owned nonprofit that insures the diocese, said that the dispute may lead Catholic Mutual to withdraw its offer to pay future claims against the diocese. Attorneys described the future claims fund as a crucial part of the settlement. The Diocese of Gallup in 2013 became the ninth Roman Catholic diocese in the U.S. to file for chapter 11 protection in response to lawsuits alleging sexual abuse of children by clergy. Mediation talks in December led to a tentative agreement on funding a settlement, but unresolved details include setting up a trust fund to pay for future claims.

Wall Street financier Lynn Tilton has agreed to open talks with bond insurer MBIA Inc. that could lead to a big change in her role at the collateralized loan funds that feed cash to her $2.5 billion distressed-debt empire, the Wall Street Journal reported today. Tilton and MBIA will discuss options including the appointment of an independent fiduciary to serve as collateral manager for three collateralized loan obligations (CLOs) dubbed Zohar I, II and III, a bankruptcy court judge said yesterday. The CLOs provide funding for the companies she owns. The announcement came at a bankruptcy court hearing in White Plains, N.Y., where Tilton and MBIA clashed over how to resolve the financial problems that erupted when Zohar I defaulted last year and the bond insurer covered the default. Tilton filed an involuntary bankruptcy case for Zohar I late last year, saying that she needed to protect it from MBIA. Joined by Cayman Islands trustees, MBIA opposed the involuntary bankruptcy and has asked that it be dismissed.

Interim U.S. Trustee Andrew Vara said in court papers yesterday that the outlook is so bleak for a bankrupt biotechnology company briefly led by controversial investor Martin Shkreli that its management should be replaced by an independent trustee, Reuters reported. KaloBios Pharmaceuticals Inc., based in South San Francisco, Calif., filed for chapter 11 protection in December just weeks after Shkreli was arrested for engaging in what U.S. prosecutors said was a Ponzi-like scheme at his former hedge fund. Vara yesterday asked the U.S. Bankruptcy Court in Delaware to consider putting KaloBios under a trustee or having the company's case converted to a chapter 7 bankruptcy. KaloBios is down to nine employees, has no ongoing trials and has no significant ongoing operations, Vara said. Additionally, a potentially pivotal deal to acquire a drug made by privately held Savant Neglected Diseases LLC is now off the table and KaloBios has only $2.9 million in unencumbered cash, Vara said. Read more. 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

The bankrupt operating unit of Caesars Entertainment Corp will soon ask a U.S. judge to shield its parent from $12 billion of lawsuits to facilitate a debt-cutting rescue deal, but approval could set a bad precedent for creditors, Reuters reported on Friday. Hedge fund bondholders have sued Caesars in New York and Delaware over guarantees on the bankrupt unit's debt. While Caesars has said that the lawsuits are without merit, it has warned it could join its operating unit in bankruptcy if rulings go against it. Bankruptcy Judge Benjamin Goldgar in July denied a request by Caesars to stay the lawsuits, but a U.S. appeals court has since said that ruling should be reviewed. The case returns to Judge Goldgar this week.

A lawyer for Texas tycoon Sam Wyly argued on Wednesday that the Internal Revenue Service had failed at trial to prove the businessman used offshore trusts to engage in a massive tax fraud, Reuters reported yesterday. Don Lan, a lawyer for Sam Wyly and the widow of his brother Charles, Caroline Wyly, said during closing arguments in a trial in federal bankruptcy court in Dallas that the IRS's case amounted to little more than "allegations and innuendo." The IRS, which is seeking $2.2 billion from the Wylys, had contended the brothers since 1992 used offshore trusts to avoid paying taxes while exercising stock options and warrants of four companies on whose boards the brothers sat. But Lan said the Wylys had relied on the advice of lawyers and other advisors in utilizing the offshore system.

Telecom firm Great Lakes Comnet Inc., which connects telecom giants like Verizon to customers in rural Michigan through a 6,500 mile-long fiber network, filed for bankruptcy protection as it battles AT&T Corp. over illegally charged fees, Dow Jones Daily Bankruptcy Review reported today. Officials who put Great Lakes Comnet into chapter 11 protection on Monday accused AT&T officials of withholding more than $24 million in payments for service although the Federal Communication Commission has yet to determine how much Great Lakes Comnet owes in the dispute. AT&T filed a complaint against Great Lakes Comnet in October 2014, saying it charged higher fees than were allowed by a regulatory benchmark for interstate access services. The FCC, which ruled in AT&T's favor in March 2015, has yet to calculate damages. AT&T officials, however, have stopped paying the full billed amount for the services it receives from Great Lakes Comnet, Chief Executive John Summersett said in court papers.

JPMorgan Chase & Co. will pay $1.42 billion in cash to resolve most of a lawsuit accusing it of draining Lehman Brothers Holdings Inc. of critical liquidity in the final days before that investment bank's September 2008 collapse, Reuters reported yesterday. The settlement was made public yesterday, and requires approval by U.S. Bankruptcy Judge Shelley Chapman. It resolves the bulk of an $8.6 billion lawsuit accusing JPMorgan of exploiting its leverage as Lehman's main "clearing" bank to siphon billions of dollars of collateral just before Lehman went bankrupt on Sept. 15, 2008, triggering a global financial crisis. Lehman's creditors charged that JPMorgan did not need the collateral and extracted a windfall at their expense.

Bankruptcy Judge Brendan Shannon yesterday said that he would approve American Apparel Inc.’s plan to exit bankruptcy and rejected a takeover attempt from the teen retailer's founder and ousted chief executive, Dov Charney, Reuters reported yesterday. The ruling by Judge Shannon clears the way for hedge funds including Monarch Alternative Capital to control the operator of more than 200 stores when it exits chapter 11. Los Angeles-based American Apparel Inc., known for its "Made in the U.S.A." fashion and sexually charged advertising, filed for bankruptcy in October, blaming changing tastes and too much debt. The reorganization plan that Judge Shannon approved would cut more than $200 million of debt and provide a cash boost. Under that plan, the company expects to be profitable in 2018, which would be the first time since 2009.