Delaware’s Judge Gross Differs with Second Circuit on the Safe Harbor
Judge Gross finds Judge Gerber in Lyondell more persuasive than the Second Circuit in Tribune.
Judge Name - Do not use it.
Kevin Gross
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KaloBios in Agreement to Buy Former CEO Shkreli’s Shares
KaloBios Pharmaceuticals Inc. said it has just signed a governance agreement with former Chief Executive Officer Martin Shkreli that includes provisions to repurchase his shares and restrict his shareholder actions, Bloomberg News reported yesterday. The agreement applies to all common stock Shkreli holds or controls in the company, Brisbane, Calif.-based KaloBios said today. KaloBios filed for bankruptcy in December, after Shkreli was arrested on fraud charges related to other businesses in which he was involved. He has denied the allegations. The company has the right to purchase any or all of Shkreli’s shares beginning 61 days after June 30, when it effectively emerged from bankruptcy proceedings, according to the company.
Bank of NY Mellon Settles $312 million Claim Tied to Sentinel Fraud
Bank of New York Mellon Corp. has agreed to end eight years of litigation in which it sought unsuccessfully to recoup $312 million it lent a Chicago-area money manager that collapsed in 2007, and whose former chief is now in prison for fraud, Reuters reported yesterday. According to a Wednesday court filing, Bank of New York Mellon will be treated as an unsecured creditor with a $312 million claim in the bankruptcy of Sentinel Management Group Inc., formerly of Northbrook, Ill. The settlement with Sentinel bankruptcy trustee Frederick Grede requires court approval. It followed the Jan. 8 rejection by the federal appeals court in Chicago of the bank's effort to be treated as a secured creditor with a higher priority claim. U.S. Circuit Judge Richard Posner said that an unsecured claim was appropriate because the bank had been aware of suspicious facts that should have led it to probe whether Sentinel and its chief Eric Bloom were involved in wrongdoing. It is unclear how much the bank will eventually recover on its claim, but it previously took a $170 million pre-tax write-off, or $106 million after taxes, as a result of Judge Posner's decision. 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.
Wyly Ordered to Pay $1.1 Billion for Tax Fraud
Bankruptcy Judge Barbara Houser yesterday ordered former billionaire Sam Wyly to pay $1.11 billion in back taxes, interest and penalties after finding he committed tax fraud by shielding much of his family's wealth in offshore trusts, Reuters reported. Judge Houser calculated the payout after ruling on May 10 that Wyly and his late brother Charles conducted a "deceptive and fraudulent" scheme to cheat the Internal Revenue Service. The payout includes roughly $135.5 million of taxes, $402.1 million of interest, and $570.1 million of penalties. The Wylys were once among Dallas' most prominent families, building their fortune on holdings in such companies as arts-and-crafts chain Michaels Stores Inc. and Sterling Software Inc. But Sam Wyly and his brother were sued in 2010 by the U.S. Securities and Exchange Commission, for allegedly using a web of trusts in the Isle of Man and Cayman Islands to hide stock sales from 1992 to 2004 in Michaels, Sterling and two other companies. Charles Wyly died in a car crash in August 2011, and the government thereafter pursued claims against his estate. Sam Wyly filed for bankruptcy protection in October 2014 after he and his brother's estate were held liable in the SEC case, for an amount the regulator estimated at $299.4 million. 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.
Bernard Madoff Investors to Receive Another Payout
Bernard Madoff’s cheated investors will receive another multimillion-dollar payout, bringing their total recoveries since the collapse of his Ponzi scheme to nearly $9.5 billion, The Wall Street Journal reported yesterday. Bankruptcy Judge Stuart M. Bernstein authorized the seventh payout to investors in Bernard L. Madoff Investment Securities LLC and the order means that liquidation trustee Irving Picard can mail out checks worth $171 million to investors, expected for mid-July. Another $76 million will be held in reserve for future distribution. The latest distribution will bring total investor recoveries to about $9.45 billion of more than $17 billion in stolen principal. Picard has been leading efforts to track down stolen funds since shortly after the collapse of Madoff’s massive Ponzi scheme in December 2008. He has recovered more than $11 billion, but some of those funds haven’t yet been paid out to investors. Madoff was arrested in December 2008 on charges of running a Ponzi scheme, the biggest of all time. He pleaded guilty in May 2009 and was later sentenced to 150 years in prison. He is serving his sentence at the federal prison in Butner, N.C.
Skadden Counters Creditors' $35 Million Legal Malpractice Suit
After a client of Skadden, Arps, Slate, Meagher & Flom landed in bankruptcy court, creditors have brought suit against the law firm for legal malpractice, alleging that the firm turned a blind eye to multiple conflicts because it had a lucrative relationship with the company's founder, the New York Law Journal reported today. Fighting back against the suit, Skadden, represented by Cooley, contends the claims are purely speculative. The plaintiffs suing Skadden for $35 million in alleged damages are lenders and private-equity funds Centre Lane Partners, 10th Lane Finance Co., ZM Private Equity Fund I and ZM Private Equity Fund II. The funds are creditors of aviation company Evergreen International Aviation, which Delford Smith founded. It filed chapter 7 papers in Delaware in late 2013. The creditors sued Skadden in March after Delaware Bankruptcy Judge Mary Walrath granted them derivative standing to sue the firm. The order said the lenders are authorized, on behalf of the debtor's estate, to pursue, prosecute and settle claims against the firm. The malpractice lawsuit alleges that Skadden freely represented multiple parties, with differing and conflicting interests, on a wide scope of legal work, and this conflicted representation was not disclosed or waived. In particular, the lawsuit alleges Skadden had conflicts at the time of two "likely fraudulent transfers" that closed in 2013 and that resulted in cash being diverted from the now-bankrupt entity.
Former Monarch Mortgage Executive Arrested on Bankruptcy Fraud Charge
Edward ‘Ted’ Yoder, a former CEO and president of Monarch Mortgage, was arrested by federal authorities Thursday morning at his home in Virginia Beach, Va., on a bankruptcy fraud charge, WAVY.com reported yesterday. Yoder is accused of devising a scheme to defraud his creditors of $339,660. Yoder faces one count of bankruptcy fraud, two counts of concealment of assets, two counts of false declarations and one count of forfeiture. The documents allege that while Yoder was undergoing bankruptcy proceedings in 2012, he cashed in Sirius stock and had $339,660 wired to an account belonging to Susan Spearman (Yoder’s girlfriend at the time). Documents allege that Spearman then transferred the funds back to Yoder’s accounts; she pleaded guilty in May to a charge of federal bankruptcy fraud for her role in the scheme.
Bankruptcy Judge Sidesteps State Prohibition Against Ponzi Scheme Presumptions
Judge resuscitates Petters suits to recover fictitious profits paid in a Ponzi scheme.
Judge Name - Do not use it.
Gregory F. Kishel
Nova Scotia Millionaire Loses Bid to Avoid Extradition to U.S.
Self-made millionaire Cyril Lunn is still bound for extradition to the U.S., after losing his Nova Scotia Appeal Court bid for protection from his home and native land, the Chronicle Herald reported yesterday. The federal justice minister will surrender Lunn to the U.S. to face bankruptcy fraud charges. After leaving school in Nova Scotia at 15, Lunn eventually became wealthy in the construction industry in Boston. In August 2001, his company filed for chapter 7 in Massachusetts, attributing his financial downfall to embezzlement by a “cunning and cutthroat” common-law partner and her “surreptitious corporate mischief.” In October 2001, Lunn followed with a personal bankruptcy petition. In 2002, he returned to Canada. In autumn 2004, Lunn drove to the U.S. with a friend, and was charged with smuggling undeclared money into the U.S. after almost $70,000 cash and checkbooks from eight accounts (including one in Lunn’s name) were found in the car. In 2012, the U.S. sought his extradition from Canada to face the bankruptcy fraud charges he had evaded in 2005.
Substantive Consolidation Does Not Supply Actual Creditor for 544(b) Suit
Petters bankruptcy spawns another monumental Ponzi scheme opinion.
Judge Name - Do not use it.
Gregory F. Kishel