%1

The children of craft store kingpins Charles and Sam Wyly say they shouldn’t suffer for their fathers’ transgressions, but the U.S. Securities & Exchange Commission says that they shouldn’t be allowed to spend the proceeds of the brothers’ fraud, the Dallas Morning News reported today. The Wyly brothers used gains from secret, illegal, offshore transactions “as their own personal piggybank,” the SEC had said ahead of appeals hearing yesterday, where the family sought to lift a judge-imposed freeze on its assets. U.S. District Judge Shira Scheindlin’s order against 16 people, including both men’s wives and 10 children, unfairly applies to “any asset that was acquired or commingled with funds received from the Wyly brothers at any time during the past 10 years,” the family said. The appeals panel, which also included judges Jose Cabranes and Christopher Droney, didn’t immediately rule. The SEC won the freeze on the family assets as it seeks to collect a $300 million penalty levied on the Wyly brothers after a trial in which a federal jury found they perpetrated an offshore stock-trading fraud for 13 years. The SEC said the fraud yielded them $550 million in illegal profits.

Colt Defense announced yesterday that it struck an agreement with its secured lenders for $20 million in credit to allow ordinary business operations to continue during its chapter 11 bankruptcy proceedings, the Associated Press reported yesterday. Colt said that the financing will give it liquidity to meet all its obligations to customers, vendors, suppliers and employees during its court-supervised restructuring. The 179-year-old gun manufacturer filed for chapter 11 bankruptcy June 14. It estimates it owes up to $500 million to dozens of creditors.

Lehman Brothers Holdings Inc. says Stephen Ross's Related Cos. and Barclays Group PLC  were part of a group of swaps market players that "manipulated" the closeouts of derivatives contracts at the expense of Lehman and its creditors, MarketWatch.com reported yesterday. In an amended complaint filed on Tuesday with U.S. Bankruptcy Court in New York, Lehman said that after it collapsed in 2008, LCOR Alexandria LLC — a firm partially owned by Related — sought about $6.7 million from Lehman to close out a derivatives contract, even though Lehman was actually the one owed about $42 million. Lehman originally filed the suit against LCOR in November 2013, seeking about $83 million in principal and interest. The new suit, which also names a Related Cos. employee and other parties, seeks more than $15 million in some of the nine counts but an "amount to determined at trial" for some others. Lehman, which added Barclays to the suit in December 2014, said that the bank participated in the "scheme" by providing a below-market value "replacement" swap to LCOR. The complaint against Barclays alleges that  the bank aided and abetted a breach of fiduciary duty, as well as breaching its agreement to purchase the assets of Lehman's brokerage in 2008.

Molycorp Inc., the only U.S. supplier of rare earths, filed for chapter 11 protection  today along with its North American subsidiaries to restructure $1.7 billion of debt in its U.S. and Canadian operations, Reuters reported today. Molycorp, whose shares have lost 86 percent of their value in the past year, said that it had obtained agreement for up to $225 million in new debtor-in-possession financing. The company this month missed a $32.5 million interest payment on its senior secured notes, triggering concerns that it could file for bankruptcy before the end of the month. The Greenwood, Colorado-based company listed assets and liabilities of more than $1 billion in its petition in the Delaware bankruptcy court.

Spurred by its creditors' complaints, Patriot Coal Corp. overhauled its sale process as it works to secure a bankruptcy court's blessing, Dow Jones Daily Bankruptcy Review reported today. The new auction plan, which Patriot outlined yesterday before the U.S. Bankruptcy Court in Richmond, Va., gives would-be buyers more time to formulate their challenges to proposed lead bidder Blackhawk Mining LLC and reduces the amount of bidder protections available to Blackhawk. The U.S. Trustee’s office, large banks, the union representing Patriot's miners and the company's unsecured creditors were among those who raised objections to Patriot's auction plans, warning that a speedy sale timeline and substantial bidder protections for Blackhawk would freeze out rival bidders. In response to objections, a Patriot lawyer said that the company extended its auction timeline by about a month, giving rival bidders until early September to submit their offers instead of Aug. 7. An auction would be held Sept. 9, and Patriot would aim to close a sale by Oct. 9.

Colt Defense LLC bondholders have acquired $37 million worth of the gun maker’s senior debt, giving them more ammunition to fight for a better deal in the company’s bankruptcy, the Wall Street Journal reported today. Colt, whose more than 175-year history includes the development of a revolver it calls “the gun that won the West,” is seeking to slash its roughly $358 million debt load in chapter 11 bankruptcy. Bondholders that had been poised to receive little in Colt’s restructuring have opposed the process, in part by challenging the company’s plan for an early August auction led by its private-equity backer, Sciens Capital Management LLC. After hashing out a deal over the weekend, bondholders purchased a $2 million position in debtor-in-possession financing — meant to fund Colt’s operations while it is in bankruptcy — and a $35 million prebankruptcy loan from hedge fund firm Marblegate Asset Management LLC.

Salus Capital Partners LLC is pressing ahead with a bid to convert RadioShack Corp.'s chapter 11 case into a shoestring chapter 7 that would oust teams of lawyers and advisers and replace them with a trustee, Dow Jones Newswires reported yesterday. Salus, a hedge-fund owed $150 million, said in court papers on Monday that the liquidation of the ailing electronics retailer brought in far less than it should have and that legal and other professional fees are running higher than expected: $45 million by the end of June, according to court papers. The mounting legal fees "threaten to rapidly erode creditor recoveries in these cases," lawyers for the hedge fund said in court papers. "Salus stands to lose the most in these chapter 11 cases, which at this stage are essentially being funded directly from Salus's pockets." RadioShack's lawyers are trying to fend off Salus's efforts to convert the case. If Salus's motion wins a judge's signature at a hearing currently scheduled for Thursday, RadioShack's lawyers and other advisers would be displaced by a chapter 7 trustee. RadioShack says that Salus benefited from the higher prices professionals were able to get for the company's assets and, in court papers, called the motion to convert the case a "drastic remedy."

Egenix Inc., a New York-based pharmaceutical company, will enter a bankruptcy court-supervised auction with a nearly $4 million offer from two board members already on the table, Dow Jones Daily Bankruptcy Review reported today. Following a hearing on Friday, Bankruptcy Judge Brendan Shannon approved a streamlined sale process for Egenix's intellectual-property assets. Those assets will hit the auction block in July, with the $3.9 million offer from Denan Inc. setting a floor price.

Gun maker Colt Defense LLC has pushed back until Wednesday a planned showdown with bondholders that are offering what they say is a superior financing package to get the company through bankruptcy, the Wall Street Journal reported today. Colt’s lawyers say that it wants to take more time to review the loan offer from bondholders, which is an alternative to a deal the company brought with it to bankruptcy court last week. Colt asked for the adjournment in an emergency hearing on Friday before Bankruptcy Judge Laurie Silverstein, seeking “additional time for a consensual resolution of the otherwise costly litigation,” in the words of company lawyer John Rapisardi. An open-court fight threatens to be a “very, very expensive and damaging process,” the company’s lawyer warned.

Three days after laying off miners at its Pan gold mine in Nevada, Midway Gold Corp. said that it is filing for chapter 11 protection, the Denver Business Journal reported today. The gold company said in a statement that it will "restructure its business by attempting to sell non-core assets and resolving various challenges relating to Midway’s main asset, the Pan Mine project. The debtors believe that additional time and resources are necessary to successfully maximizing value at the Pan mine, which opened in March but the company said Friday it was laying off miners there because gold recovery "has continued to fall short of expectations."