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The collapse of Dewey & LeBoeuf, once one of the biggest U.S. law firms, was due not to fraud by top executives but defections by its highest-earning partners, defense lawyers told jurors yesterday at the close of a criminal trial in New York, Reuters reported. Former Chairman Steven Davis, who helped build Dewey into a 1,000-lawyer firm before it went bankrupt in 2012 under a crushing debt burden, had no reason to believe the firm's books was false in any way, lawyer Elkan Abramowitz said in state court. Along with former executive director Stephen DiCarmine and former chief financial officer Joel Sanders, Davis faces dozens of counts including grand larceny, fraud and falsifying records. The most serious charge carries up to 25 years in prison. Over nearly four months of testimony, the office of Manhattan District Attorney Cyrus Vance has argued the three men directed subordinates to conceal the firm's teetering finances from lenders like Bank of America Corp and Citigroup Inc. through false accounting adjustments from 2008 to 2012. Dewey's bankruptcy was the largest in history for a U.S. law firm.

A judge on Friday said that Credit Suisse must pay a unit of Highland Capital Management $287.5 million over a soured real estate loan, a win for James Dondero's hedge-fund firm in its multipronged fight against the Swiss bank over luxury developments, Dow Jones Daily Bankruptcy Review reported today. Judge Dale B. Tillery of U.S. District Court in Dallas County, Texas, said that Credit Suisse must pay $211.9 million in damages and restitution and $75.6 million in prejudgment damages and interest for breach of contract on a loan tied to the Lake Las Vegas planned community, which went into bankruptcy in 2008. The case was tied to a $40 million award against Credit Suisse and property appraisers over inflated appraisals used for the development projects. Highland sought an award from Judge Tillery of another $340 million, in connection with a Texas jury's finding that Credit Suisse committed fraud in connection with appraisals for the Lake Las Vegas loans. Highland is now entitled to either the $40 million or the $287.5 million, but not both.

The U.S. government's bankruptcy watchdog blasted an agreement aimed at bringing Energy Future Holdings out of chapter 11 because it requires Texas's biggest power company to pay millions of dollars in fees to lawyers, according to a court filing, Reuters reported yesterday. Energy Future Holdings struck a "plan support agreement" in August that binds key parties to work together to end the contentious bankruptcy, which began in April 2014. The support agreement is aimed to preventing pitched legal battles if the current bankruptcy exit proposal, based on the sale of the Oncor power distribution business, fails. However, the plan support agreement also requires Energy Future's creditors "to vote in favor of a plan that provides for millions of dollars (and possibly billions)" for 45 professionals working for undisclosed parties, according to the U.S. Trustee. Energy Future's bankruptcy exit plan also contains "illegal provisions," according to the U.S. Trustee, including a management incentive plan and legal settlements. Energy Future said in a separate court filing that the objectors to the plan support agreement were misreading the document, which the company said allowed it to pursue any proposed deal that was more favorable to creditors. Under the bankruptcy exit plan, a group of investors including an affiliate of Hunt Consolidated Inc. will finance a $12.2 billion deal that will give them control of Energy Future's Oncor power distribution business. The plan has the support of creditors on Energy Future's generation and retail utility side of its business, while paying off creditors on the Oncor side.

There is no quick relief in sight for thousands of former Corinthian College students seeking loan forgiveness in the wake of the for-profit giant’s collapse, according to a Washington Post commentary on Friday. The Obama administration said on Thursday that it will take several months before the government forgives the federal student loans of borrowers who believe they were defrauded by the career college chain. The timeline comes as former Corinthian students contemplate suing the government for collective debt relief rather than waiting for officials to sort through each individual claim. By law, students can apply to have their federal loans discharged if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college. The process, known as a “defense to repayment claim,” has rarely been used and is widely considered to be complicated and difficult to navigate. As it began receiving hundreds of claims from Corinthian students, the Education Department appointed an independent monitor in June to oversee and streamline the process. In his first report released on Thursday, monitor Joseph A. Smith said that the department has hired four attorneys to review and analyze state laws involved in the 4,140 claims received to date.

Gun maker Colt Defense and its creditors are close to a deal on a plan to bring the company out of bankruptcy, but if it fails, the business will go on the auction block next month, Reuters reported yesterday. Colt filed for bankruptcy earlier this year due to falling sales of its sport rifles and the loss of military contracts. The company's private equity owner has been battling its bondholders for control of the West Hartford, Connecticut-based business, and the parties are pressured by Colt's dwindling cash. "It's fair to say the parties are very close to a deal," Colt lawyer John Rapisardi told the U.S. Bankruptcy Court in Wilmington, Delaware. "The parties are working to finalize a term sheet and an agreement can be reached in a couple days." Colt wanted more time for talks but was forced to court by Morgan Stanley, which is using its bankruptcy loan to demand the start of a court-supervised auction process. Bankruptcy Judge <b>Laurie Silverstein</b> paused the hearing and sent the parties into a conference room to work out an agreement. The parties agreed to auction procedures, but postponed by three weeks the deadline for bids and a sale. An auction would be held on Oct. 20.

Patriot Coal Corp. averted a bankruptcy showdown with its miners on Thursday, after the union representing its workers and the company’s proposed suitor agreed on a new employment pact, the Wall Street Journal reported today. Patriot attorney Michael Slade said in bankruptcy court that talks between the company, the United Mine Workers of America union and proposed Patriot buyer Blackhawk Mining LLC yielded an agreement on “material terms” of a new collective bargaining agreement for Patriot’s unionized workers at what would be the post-merger company. Like a similar deal reached with the nonprofit organization hoping to buy a smaller subset of Patriot’s assets, this agreement is subject to ratification by union members. The union will ask its members to vote on the accord once the bankruptcy court has granted Patriot’s request to reject the existing collective bargaining agreements covering miners at Patriot.

The trustee winding down Lehman Brothers Holding's brokerage says hundreds of former employees still waiting to recover more than $250 million in deferred compensation don't deserve to jump in front of other unsecured creditors in the bankruptcy-payout line, Dow Jones Daily Bankruptcy Review reported today. Lawyers for James W. Giddens, the trustee in charge of unwinding Lehman's brokerage, want to reclassify the employees' secured claims, which receive priority under bankruptcy law's payment scheme, to general unsecured status. Based on analysis by the trustee's counsel, Giddens said in court papers filed on Wednesday that the deferred compensation claims should be reclassified because the former employees don't possess a lien on any Lehman property. Thus, they aren't entitled to secured status under bankruptcy code, the trustee said.

The Supreme Court’s ruling in Baker Botts v. Asarco, which held that Section 330 of the Bankruptcy Code does not itself allow for the reimbursement for time spent defending those fees has drawn a number of criticisms, according to a commentary today by Prof. Stephen Lubben in the New York Times DealBook blog. The opinion does suggest that the Supreme Court does not really understand the dynamics of large chapter 11 cases as the “traditional rule” favored in the opinion arises in traditional litigation, but a chapter 11 case is not traditional litigation, according to Lubben. In response to the court’s opinion, firms have begun to take the obvious and understandable step of putting these “fees for fees” into their retention agreements. Whether that is permissible is the subject of litigation, including two cases pending in the Delaware Bankruptcy Court. Read the full commentary.

For more on the Baker Botts ruling and retention agreements, be sure to register for the October 5 abiLIVE webinar titled “Does it Pay to Be a Bankruptcy Lawyer Anymore? Baker Botts LLP v. ASARCO LLC.” 

Defense lawyers for three former Dewey & LeBoeuf LLP leaders accused of committing financial fraud failed get the case tossed out Tuesday, as a judge ruled there was enough evidence to send the matter to a jury for deliberation, the Wall Street Journal reported. New York state court Judge Robert Stolz did reserve the right to dismiss some of the 100 counts against the trio — Dewey’s former chairman, Steven Davis, ex-chief financial officer, Joel Sanders, and former executive director, Stephen DiCarmine — before sending it to the jury. Assistant District Attorney Steve Pilnyak argued in court on Tuesday that prosecutors have laid out enough evidence over 3 months, through 41 witnesses, to prove the ex-Dewey leaders oversaw a scheme to manipulate the fallen law firm’s books in the years leading up to its 2012 bankruptcy.

A federal judge ruled on Tuesday that the former chief operating officer and chief credit officer of a California-based bank that went bust must spend more than eight years in prison, the Wall Street Journal Bankruptcy Beat blog reported yesterday. Ebrahim Shabudin had been convicted of seven federal fraud charges following the 2009 collapse of United Commercial Bank. Prosecutors accused Shabudin of orchestrating an elaborate scheme to hide the bank’s troubled finances, including securing more than $300 million in federal bailout funds that were lost when the bank failed in 2009. Its assets were sold to another bank, and its parent filed for bankruptcy liquidation. Specifically, Shabudin was accused of falsifying bank records to hide millions of dollars in losses and shore up the bank’s reputation during the height of the financial crisis. After a six-week trial, a jury in March found him guilty of securities fraud and six other charges.