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Celsius Network Ltd., the bankrupt cryptocurrency lender, is seeking to give coins back to a sliver of users who are locked out of their accounts, Bloomberg News reported. The company asked for a bankruptcy judge’s permission to release about $50 million worth of cryptocurrency stuck on the platform in so-called custody accounts, which were designed to store digital assets rather than generate returns. A full hearing on the request is set for October 6, according to court papers. The move highlights a split among the many thousands of users burned by the company’s bankruptcy. Those who deposited crypto with the goal of earning interest on their holdings signed over their ownership of the coins to Celsius, according to the company, while those who only stored their assets on the platform technically retained title to the coins. The roughly $50 million Celsius is seeking to return now is just a fraction of the more than $200 million trapped in custody accounts on the platform. That’s because many users shifted their holdings from interest-bearing accounts into custody arrangements shortly before the bankruptcy, which may allow Celsius to assert ownership over the coins, a lawyer for Celsius told Bankruptcy Judge Martin Glenn in a hearing yesterday. The custody accounts are also just a tiny slice of the crypto users haven’t recovered from Celsius. The market value of assets in so-called earn accounts totaled about $4.2 billion as of July 10, according to court papers.

A company partially owned by Alex Jones is asking a judge to allow a court-appointed trustee to review the bankrupt Infowars parent’s finances, a request that could delay Sandy Hook victim families’ attempt to remove him from the chapter 11 proceeding, Bloomberg Law reported. PQPR Holdings Ltd., which is owned by the right-wing conspiracist and his parents, on Wednesday said it would pay up to $100,000 for an examination of bankrupt Free Speech Systems LLC’s finances by the bankruptcy trustee working on the case. Free Speech, a Jones-controlled company which operates his website Infowars, declared bankruptcy in July after a state court ordered him to pay judgments for his lies that the 2012 school massacre was a hoax. Last month, a jury awarded two parents nearly $50 million in damages. PQPR’s motion comes after families of Sandy Hook Elementary School shooting victims last week asked a Texas bankruptcy court to remove Jones and his bankrupt company from running its operations and chapter 11 proceedings. The families’ requests to remove Jones should be put on hold until a trustee has reported its findings to the court, PQPR said. PQPR, which is listed as one of the largest creditors of Free Speech, is partially owned by Jones through several limited liability companies and managed by Jones’ father, according to court papers. Jones father and mother also hold interests in PQPR via separate limited liability companies, according to court records.

Altera Infrastructure LP’s proposal to take out a bankruptcy loan from its owner Brookfield Asset Management Inc. raises broader questions on how insider dealings should be investigated in chapter 11 cases—and by whom, WSJ Pro Bankruptcy reported. Despite Altera’s bankruptcy filing last month, Brookfield has a path to maintaining its 100% stake in the offshore vessel business. Altera has proposed a chapter 11 restructuring that keeps its owner in control in return for the cancellation of $769 million in secured debt held by Brookfield. Funding for the proposed plan would also come from Brookfield, which has offered a $50 million bankruptcy loan to keep the business afloat. Such insider debts are always scrutinized in bankruptcy, but especially so for Altera. Its chapter 11 case has centered on how bankruptcy courts should evaluate disputed transactions between a troubled company and its controlling investor, and on how to satisfy creditors’ demands for an accounting while still saving the business. Brookfield is in a position to bankroll the restructuring after a controversial debt exchange last year in which it swapped $699 million in unsecured bonds it held for an equivalent amount of secured debt. That effectively subordinated $276 million in similar claims held by BlackRock Financial Management, Capital Group and other creditors that elected not to participate in the exchange. The chapter 11 plan nearly wipes out those bondholders, offering them only warrants for a minority stake in Altera. As it neared chapter 11 this year, the company decided to hire independent directors to review the debt exchange who found no viable causes of action against Brookfield. Altera has said that further investigation into its dealings with Brookfield, or the possible impact on its creditors, isn’t needed. “The question has been asked and the question has been answered,” Altera lawyer Joshua Sussberg said at a court hearing in August. Unsecured creditors don’t agree, saying that an outside probe is needed to determine whether Brookfield made off with value it doesn’t deserve. So Altera is headed toward a contested hearing on its bankruptcy loan, which includes a broad release of liability for Brookfield in connection with the disputed exchange. Brookfield is requiring that its proposed loan won’t be used to fund “a second investigation and the pursuit of claims against Brookfield that have already been determined by independent fiduciaries to be meritless,” according to its court papers. At the same time, Altera has said it needs the funding urgently.

3M Co. had good reason to bet that it could use U.S. bankruptcy laws to shield itself from a mountain of personal-injury lawsuits filed over its allegedly defective military earplugs. But after a bankruptcy judge rejected a key aspect of its legal strategy, 3M is facing an uphill battle to find a way to control its costs stemming from 230,000 lawsuits on behalf of military veterans, the largest single multidistrict litigation by number in U.S. history, WSJ Pro Bankruptcy reported. A handful of large, solvent businesses have accessed chapter 11 in recent years to fight back against tort litigation, moving those liabilities to a new subsidiary and then to bankruptcy court for settlement. And bankruptcy courts have shielded them from further trials and verdicts in the civil justice system, even though they didn’t file for chapter 11 themselves. 3M used an existing subsidiary to try to replicate that outcome for its own legal problem: the mass lawsuits alleging the company’s combat earplugs exposed U.S. service members to harmful noise that damaged their hearing. It hasn’t worked as planned. Last week, a bankruptcy court declined to extend chapter 11 protections to 3M based on a bankruptcy filing by its subsidiary Aearo Technologies LLC, the earplugs’ manufacturer. As a result, 3M remains exposed to further jury verdicts in the earplug cases, which have yielded $265 million in damage awards against 3M in the small number that have gone to trial.

A bankruptcy court is expected to approve the Boy Scouts of America’s sex-abuse settlement plan, advancing the use of chapter 11 to resolve mass torts in an evolving area of the law, WSJ Pro Bankruptcy reported. Large companies and nonprofits have drawn controversy for invoking bankruptcy as a litigation management tactic and using the tools of chapter 11 to forge settlements outside the civil jury system. The Boy Scouts faced protests from insurance companies, abuse victims and others involved in its strategy for settling 82,200 claims of childhood sexual abuse. Ultimately, 86% of the survivors who cast ballots on the plan voted yes. In July, Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court in Wilmington, Del., largely overruled those objections and indicated she would approve the chapter 11 plan once it was revised to reflect her views. Her ruling is likely to be appealed. The Boy Scouts are expected today to propose a revised plan for the judge’s confirmation.

The parent company of far-right website Infowars agreed yesterday to face a second U.S. defamation trial stemming from the company's false claims the deadly 2012 Sandy Hook elementary school shooting was a hoax, Reuters reported. Free Speech Systems' attorneys told U.S. Bankruptcy Judge Christopher Lopez in Houston the company would no longer oppose a trial in Connecticut next month, even though the company's bankruptcy would normally shield it from lawsuits. The Connecticut trial will determine how much FSS and its founder, conspiracy theorist Alex Jones, should pay in a defamation case brought by family members of children slain in the shooting. Families of children killed in the 2012 shooting have won judgments finding Jones and his companies liable for defamation in Texas and Connecticut. On Aug. 5 a Texas jury decided Jones must pay the parents of a 6-year-old boy killed in the massacre $45.2 million in punitive damages — on top of $4.1 million in compensatory damages — for falsely claiming the shooting was a hoax. Free Speech Systems filed for chapter 11 on July 29, when the Texas defamation trial was already under way. The company initially argued that going to trial in Connecticut would jeopardize its ability to reorganize, but it agreed to participate after a Connecticut judge ruled that the trial could go forward against Jones, who is not bankrupt.

A federal appeals court resuscitated a $200 million bankruptcy claim against PG&E Corp., ruling in favor of investment firms that argued the California utility underpaid them on accrued interest when it exited chapter 11 as a solvent company in 2020, WSJ Pro Bankruptcy reported. The Ninth U.S. Circuit Court of Appeals in San Francisco found that unsecured creditors of a solvent business like PG&E have an equitable right to interest payments after a chapter 11 filing at the original rate specified in the contract. PG&E’s chapter 11 plan didn’t pay full contractual interest of 10% or more, instead offering unsecured creditors the federal judgment rate of around 3%. Yet the bankruptcy plan also classified those creditors as unimpaired, or paid in full. Monday’s ruling sided with Citigroup Inc., Whitebox Advisors LLC and Olympus Peak Asset Management LP, but didn’t award them the $200 million interest outright. The bankruptcy court that oversaw PG&E’s restructuring must now “weigh the equities and determine what rate of interest the creditors were entitled to,” according to the decision. PG&E’s reorganization plan paid $25.5 billion in wildfire-related claims and covered its other financial debts under a complex compromise between shareholders and creditors.

A bankruptcy judge declined on Friday to shield 3M Co. from continued litigation involving its military earplugs, a setback for the conglomerate’s attempt to shift the mass injury claims to a friendlier forum, WSJ Pro Bankruptcy reported. Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis said he wouldn’t extend to 3M the same protection against the pending earplug injury lawsuits that its subsidiary Aearo Technologies LLC received by filing for chapter 11 last month. The bankruptcy filing marked the latest of several recent attempts by corporate defendants to leverage the powers of chapter 11 to resolve legal troubles. But 3M didn’t succeed as other businesses have. Judge Graham’s ruling leaves roughly 230,000 personal injury claims pending against 3M, which didn’t seek chapter 11 protection itself, but has played a central role in the bankruptcy proceedings of Aearo, the earplugs’ manufacturer. Friday’s decision backed plaintiffs’ lawyers, who have alleged the defective earplugs left U.S. military veterans with lasting hearing damage and won $265 million in jury verdicts before Aearo filed bankruptcy. 3M, which has denied the combat earplugs are unsafe, said it would appeal Friday’s ruling and that continuing to litigate the earplug cases one-by-one over the coming years “benefits no one.”

Providers of the legal services that underpin the nation’s largest corporate bankruptcies are facing pushback in a major chapter 11 hub involving their side deals with a claims-trading startup, the Wall Street Journal reported. Judges in the busy U.S. Bankruptcy Court in New York are scrutinizing those deals with the legal servicers, hired as claims agents in chapter 11 cases to carry out the vast amount of administrative work spawned by large corporate restructurings. Four of the top six firms in the field had deals to provide claims data from their bankruptcy cases to Xclaim Inc., a claims-trading platform, according to the startup. The service providers agreed to supply publicly-available chapter 11 claim information to Xclaim in a digital format that can be used by the platform to facilitate trade between bankruptcy creditors and debt buyers. In return for the information, Xclaim paid the claim agents 10% of the commission it received when its users completed a trade on its platform, court papers show. Bankruptcy specialists who have reviewed the agreements say the deals are problematic because when private companies do claims-agent work, they are stepping into the shoes of courtroom clerks who perform the same tasks in smaller chapter 11 cases but are barred from making money off them. New York judges and the U.S. Trustee Program, are scrutinizing the Xclaim agreements. Read more.
https://www.wsj.com/articles/bankruptcy-services-providers-are-question…

Be sure to read in-depth analysis "Claims Agents Are Barred from Making Money on the Side from the Claims Docket" from ABI Editor-at-Large Bill Rochelle's August 23 column. https://www.abi.org/newsroom/daily-wire/claims-agents-are-barred-from-m…

Sandy Hook victims’ families asked a court to remove Alex Jones and his bankrupt company that runs conspiracy website Infowars from controlling its operations and chapter 11 proceedings, arguing that the right-wing radio host improperly seized millions of dollars in assets, Bloomberg Law reported. “There are no honest debtors here,” the victims’ families said in a filing Thursday at the US Bankruptcy Court for the Southern District of Texas. “Since the Sandy Hook Families filed their lawsuits, the Debtor has systematically transferred millions of dollars to Alex Jones and his relatives and insider entities.” Free Speech Systems LLC, the Jones-controlled company that operates Infowars, should be removed as “debtor in possession” of its bankruptcy case, the families said. That would leave an independent trustee in charge of the case filed under the small business section of chapter 11, known as subchapter V. Free Speech Systems filed for bankruptcy in July, after some victims’ families won judgments in their defamation lawsuits against the company and Jones for his lies that the 2012 school shooting was a hoax. In one recent case, a jury awarded parents of a child killed in the shooting nearly $50 million in damages. Jones himself took between $18 million and $62 million from Free Speech since the families filed suit—even though the company was allegedly insolvent—according to the Thursday filing.