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The Federal Deposit Insurance Corp. is bolstering its efforts to recover $1 billion from a pair of accounting firms that failed to catch massive fraud that brought down Colonial Bank, the bank regulator's sole effort to sue the auditors of a failed bank since the onset of the financial crisis, Dow Jones Daily Bankruptcy Review reported today. The FDIC, the government agency in charge of managing the receiverships of failed banks, is suing the two firms—PricewaterhouseCoopers LLP and Crowe Horwath LLP—for professional malpractice, gross negligence and negligent misrepresentation for failing to detect the long-running fraud at Colonial's largest client, Taylor Bean & Whitaker Mortgage Corp.

Investors who sold Tribune Co. stock in a 2007 buyout led by developer Sam Zell won a legal battle yesterday that protects them from being sued twice over that deal, which has been blamed for the media conglomerate's bankruptcy, Reuters reported yesterday. A New York federal judge ruled that individual Tribune creditors cannot pursue a novel lawsuit to recover money investors received by selling into the Zell deal because another case was pursuing the same claims. Creditors blame Zell's $8.2 billion leveraged buyout for loading the Tribune with so much debt that it made the publisher's 2008 bankruptcy inevitable. The creditors want some of the money that was raised by issuing that debt, which went to buy Tribune stock. While the Tribune emerged from bankruptcy last year, the legal troubles for former Tribune stockholders are far from over. Judge Richard Sullivan dismissed the cases by individual creditors because of the similarity to a lawsuit by a trustee who is also working on behalf of creditors from the Tribune bankruptcy.

Lenders to hedge-fund manager Philip Falcone's LightSquared Inc. yesterday questioned the selection of an independent LightSquared director to help oversee a sale of the wireless telecommunications firm, Dow Jones Daily Bankruptcy Review reported today. The lenders in bankruptcy court papers claim that the director, Donna Alderman, isn't independent because she previously sparred with Dish Network Corp., the company currently offering $2.22 billion for LightSquared. A bankruptcy judge is set to hold a hearing today to review rules governing LightSquared's expected auction later this year.

Coal-mining company Patriot Coal Corp. won bankruptcy court approval to broaden an ongoing investigation into the spinoffs that it says allowed its predecessors to dump hundreds of millions of dollars in legacy liabilities on its shoulders, Dow Jones Daily Bankruptcy Review reported today. Bankruptcy Judge Kathy Surratt-States on Friday authorized Patriot and its unsecured creditors to add Arch Coal Inc. to a pending probe into former parent Peabody Energy Corp. On Thursday, the judge cleared Patriot and the creditors to also investigate private-equity firm ArcLight Capital Partners LLC.

A federal judge rejected a bid by defunct law firm Dewey & LeBoeuf's former managers to move a lawsuit accusing them of violating securities laws to New York from Iowa, Dow Jones Newswires reported on Friday. In an order signed earlier this month, Judge James E. Gritzner of the U.S. District Court in Iowa said the U.S. Bankruptcy Court in Manhattan isn't the proper venue for the case, in which a U.S. unit of U.K. insurance giant Aviva PLC is suing former Dewey Chairman Steven Davis and two others over a 2010 bond deal made when the firm was in "dire" financial trouble.

Litigation over Goldman Sachs Group Inc.'s role in the spectacular rise and fall of eToys Inc. finally ended yesterday with court approval of a $7.5 million settlement, Reuters reported yesterday. The online toy seller's IPO in 1999 became a poster child for the excesses of the dot-com bubble. The stock quadrupled when it began trading, but two years later the company was in bankruptcy. The case was brought by creditors of eToys, who alleged that Goldman Sachs underpriced the stock to ensure a huge pop in price on the first day of trading. The litigation slowly worked through multiple appeals in New York state courts but never went to trial. The two sides struck a settlement earlier this year, on the eve of arguments in New York's Court of Appeals to overturn a dismissal of the case.

Jon Corzine, the former head of MF Global Holdings Ltd., masterminded a scheme to inflate earnings that led to the eighth-biggest bankruptcy in U.S. history, according to an updated lawsuit filed by a trustee for the failed futures broker, Bloomberg News reported yesterday. Corzine, a former Democratic governor and senator from New Jersey and once a co-chairman of Goldman Sachs Group Inc., implemented the trading scheme to prop up profits and get “in the money” on his stock options, according to an amended complaint filed in Manhattan bankruptcy court yesterday. The new complaint intensifies the lawsuit brought in April by former trustee Louis J. Freeh against Corzine and senior executives Bradley Abelow and Henri Steenkamp. Freeh had said only that the executives dramatically changed MF Global’s business plan without addressing weaknesses. According to the new complaint, their actions rose to the level of a “scheme.”

Colonial BancGroup Inc.'s lawyers say that a pair of recent appellate court rulings in favor of the Federal Deposit Insurance Corp. over bank-holding company creditors actually strengthens its claim to hundreds of millions of dollars in disputed tax refunds, Dow Jones Daily Bankruptcy Review reported today. Lawyers for Colonial said in a Friday court filing that the recent rulings in favor of the FDIC over creditors of the former parents of NetBank and BankUnited actually confirm that the holding company owns the tax refunds because under Colonial's tax sharing agreement the holding company, not Colonial Bank, pays all the taxes. At issue is more than $600 million in tax refunds, deposits and securities that went up for grabs when Colonial Bank was shut down four years ago and the FDIC took over as the receiver for the defunct bank.

Lehman Brothers Holdings Inc. is asking a bankruptcy judge to reject Freddie Mac's $1.2 billion "priority" claim against the estate in order to free up hundreds of millions of dollars for other creditors, Dow Jones Newswires reported yesterday. Lehman said in a court filing that it is willing to allow Freddie Mac to collect money as a "general unsecured" creditor — which would fetch far less than the full amount of the claim — but doesn't want to continue keeping $1.2 billion set aside as it waits out its fight with the government's mortgage entity. The money stems from two short-term loans Freddie Mac made to Lehman in the month before it filed for bankruptcy, which Lehman never paid back. Lehman lawyers said Freddie Mac didn't offer any explanation as to why it should be entitled to a priority claim, which typically gets placed ahead of other creditors in a bankruptcy case. As part of its historic creditor-payback plan approved by a judge in December 2011, Lehman agreed to set aside the $ 1.2 billion so it could move on with the proposal and wait until later to settle the issue with Freddie Mac.

Edison International is firing back in a battle with its Edison Mission unit over an investigation into whether the power company siphoned off value from the subsidiary ahead of its bankruptcy filing, Dow Jones Newswires reported on Friday. Edison International said in court papers filed on Thursday that it has been "exceedingly cooperative" with an investigation into its relationship with Edison Mission, turning over tens of thousands of documents so far. The documents that it doesn’t have, and which Edison Mission and its creditors want to force the parent to turn over, should be subject to continuing negotiations, Edison International said.