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Small-time crypto traders who invested with Celsius Network have been going toe-to-toe with legal and financial heavyweights — and notching some unlikely victories — as the company works to wrap up its bankruptcy case, WSJ Pro Bankruptcy reported. Much like the online users who banded together to defeat hedge funds’ short bets on AMC Entertainment, retail investors with crypto trapped on the Celsius platform are punching above their weight in the bankruptcy. Among the unlikely combatants: a superyacht stewardess in California, a fundraiser for a progressive nonprofit in Maryland, a college student in Florida, and a crypto influencer in New York who creates digital designs for customized mugs and T-shirts. While most bankruptcies unfold away from public view, hundreds of customers of Celsius have dissected every development online, in real-time and granular detail. Largely acting without lawyers, the crypto owners have caught a mistake by the company’s bankruptcy advisers, publicized confidential company information obtained from employees and faced down big institutional investors also scavenging for its limited assets.

A legal tactic called the Texas Two-Step for businesses to manage mass lawsuits continues to work its way through the courts despite some recent setbacks and criticism from lawmakers, WSJ Pro Bankruptcy reported. Texas law lets a company divide itself in two, loading one business entity with its assets and another with its legal or financial liabilities. Several companies facing massive numbers of lawsuits in recent years have placed their liability-laden affiliates in bankruptcy, giving the Texas Two-Step its name. Texas has allowed for such divisional mergers for nearly two decades, but its novel use in bankruptcy began in 2017 when paper products maker Georgia-Pacific placed its Bestwall unit along with asbestos-related liabilities under chapter 11. Since then, healthcare giant Johnson & Johnson and a handful of other companies have used divisional mergers and bankruptcy filings to try to settle mass lawsuits they face using the chapter 11 tactic. The Texas Two-Step allows businesses to move litigation to bankruptcy court without the loss of equity value that would come from filing for chapter 11 themselves. In bankruptcy, corporate defendants are generally shielded from jury trials so they can drive a final resolution of their legal liabilities in a single forum. Proponents of the Texas Two-Step have said it can resolve mass lawsuits more fairly and efficiently in bankruptcy compared with fighting or settling claims one by one. The corporate unit that files for bankruptcy in a Two-Step typically carries a funding commitment from its affiliates to pay creditors through the bankruptcy process. Plaintiffs’ lawyers and other critics have argued the tactic amounts to an abuse of chapter 11 by wealthy corporate defendants, meant to pressure injury victims and other claimants into accepting settlement offers. Members of the U.S. Senate Judiciary Committee held a hearing earlier this week on the legal strategy to deliberate whether companies are misusing the bankruptcy system.

Following a lawsuit against FTX Trading founder Sam Bankman-Fried's parents alleging that Stanford University received millions of dollars in donations from the now-collapsed cryptocurrency exchange, the school says it will return the funds of all gifts collected from FTX and related companies, the Associated Press reported. Lawyers for FTX on Monday accused Allan Joseph Bankman and Barbara Fried of exploiting their influence over their son to siphon millions from the company, while spending lavishly on a luxury home as well as funneling contributions to “pet causes” — and Stanford University. The suit claims that Bankman, who is a Stanford law professor and expert in tax law, directed more than $5.5 million in charitable contributions from FTX to the university — in what the complaint describes as “naked self-dealing” in an attempt to “curry favor with and enrich his employer at the FTX Group’s expense.” In a statement sent to The Associated Press on Wednesday, a university spokesperson said that Stanford “received gifts from the FTX Foundation and FTX-related companies largely for pandemic-related prevention and research.” Stanford is in discussions with attorneys for FTX debtors to recover the gifts, the spokesperson added, and "will be returning the funds in their entirety.” The university did not specify the monetary value of the gifts it received.

The Senate Judiciary Committee held a hearing yesterday titled "Evading Accountability: Corporate Manipulation of Chapter 11 Bankruptcy." Witnesses included Prof. Melissa B. Jacoby of UNC School of Law (Chapel Hill, N.C.), Lori Knapp (Greeneville, Tenn.), Prof. Samir D. Parikh of Lewis & Clark Law School (Portland, Ore.), Stephen Hessler of Sidley Austin LLP (New York) and Erik Haas of Johnson & Johnson (Armonk, N.Y.). Numerous members of the committee pressed Haas on J&J's use of the "Texas Two-Step" strategy when it funneled approximately 40,000 lawsuits into its newly created subsidiary, LTL Management LLC, and filed for bankruptcy. To view a replay of the hearing and to read prepared witness statements, please click here.

The Boy Scouts of America’s $2.46 billion settlement trust has begun sending payments to men who were abused as children by troop leaders, under a bankruptcy settlement still facing appeals from a minority group of abuse survivors, Reuters reported. The initial payments are being sent to 7,000 claimants who chose a "quick pay" option under the Boy Scouts of America's bankruptcy plan, with the first 70 claimants paid on Tuesday. Those claimants will receive $3,500 without going through the lengthier evaluation process that awaits 75,000 others who filed claims. The settlement, approved in U.S. bankruptcy court one year ago, was supported by 86% of the 82,000 men who filed abuse claims in the youth organization's bankruptcy. Retired bankruptcy judge Barbara Houser was placed in charge of managing the settlement payments when the Boy Scouts of America emerged from bankruptcy in April, and she said that her team is working to get payments out the door quickly. "We know that this day has been a long time coming for these survivors," Judge Houser said yesterday. The settlement process will take years, as Judge Houser and her team evaluate and pay claims based on factors like the severity of the alleged abuse and when and where it occurred. Individual abuse survivors are expected to receive between $3,500 to $2.7 million, depending on how their claims are assessed, according to the Boy Scouts' bankruptcy plan.

The Roman Catholic Diocese of Rochester, N.Y., last week filed an amended reorganization plan in its chapter 11 bankruptcy, which is inching toward a final settlement with hundreds of survivors of decades-old sexual abuse by priests and other church officials, the Rochester Beacon reported. The amended plan adds $51.75 million to the $75.6 million trust amount stated in the plan the diocese filed in March. The added amount reflects sums two insurers agreed to contribute months after the first plan was drafted. It also makes technical changes intended to head off insurance-company objections in how payments to survivors would be made. There is a complication, however. The diocese plan will face off against a rival plan filed by the Continental Insurance Co. Continental, known as CNA, is one of several liability carriers that the diocese has long made clear it expects to pay for much of any settlement that might be worked out. Whether CNA has standing to file its own plan is a question still to be decided by court. At stake is how much and how soon compensation will be doled out to some 485 sexual abuse survivors who have so far waited four years to see the case resolved. The diocese asked for court protection in September 2019, a month after the New York Child Victims Act took effect. The CVA opened a temporary window for victims of childhood sexual abuse to go after abusers, temporarily nullifying a statute of limitations that had protected abusers. With the CVA in place, thousands of men and women across New York filed state court actions accusing Catholic dioceses around the state of allowing priests and other church officials to sexually abuse them as children. The Rochester diocese was first in the state to seek court protection. Several other dioceses have since followed. None have yet been resolved. CNA is the only one of several insurers involved in the Rochester diocese bankruptcy that has refused to sign on to a settlement painfully worked out after years of court-ordered negotiations among the diocese, other insurers and a committee representing the interests of abuse survivors with claims in the bankruptcy.