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The trustee seeking money for Bernard Madoff's victims suffered a big defeat as a federal appeals court rejected his bid to recover nearly $30 billion from JPMorgan Chase & Co. and other banks he accused of aiding in the swindler's fraud, Reuters reported yesterday. The U.S. Court of Appeals for the Second Circuit said that trustee Irving Picard lacked standing to pursue a variety of claims on behalf of former Madoff customers. It also said that because Picard "stands in the shoes" of the former Bernard L. Madoff Investment Securities LLC, he could not pursue other claims on behalf of the firm's bankruptcy estate over a fraud that the firm itself orchestrated.

Blackstone Group LP agreed to pay $10 million to settle a lawsuit that had sought $8.4 billion for its role in the sale and subsequent bankruptcy of hotel chain Extended Stay Inc., Reuters reported yesterday. Citigroup Inc., an adviser to the private equity firm that took control of Extended Stay in a 2007 leveraged buyout, agreed to pay $200,000, according to a court filing yesterday. Bank of America Corp., which advised Blackstone, was also released from the lawsuits as part of the settlement. The lawsuits stemmed from the 2009 bankruptcy of Extended Stay Inc., which creditors blamed on a leveraged buyout of the chain two years earlier. In 2007, Blackstone sold the chain of about 680 hotels for $8 billion to a little-known private equity investor, David Lichtenstein. The settlement excluded Lichtenstein. After Extended Stay filed for bankruptcy, a trustee acting for the benefit of its creditors filed five lawsuits in 2011. The lawsuits alleged that Blackstone skimmed $2.1 billion from the sale of the chain. The trust also asked the court for $6.3 billion in punitive damages because it alleged Blackstone and others maliciously breached their duties to Extended Stay creditors.

More than 1,000 creditors of the European operations of failed U.S. investment bank Lehman Brothers will share a 3.5 billion pound ($5.5 billion) payout next week, Reuters reported today. The payout means the recovery so far for creditors from one of the banking collapses at the heart of the 2008 financial crisis is 68.5 cents in the dollar. PricewaterhouseCoopers, joint administrators for Lehman Brothers International (Europe), said a dividend of 43.3 percent of what creditors were owed—the second so far—would be paid on June 28. The administrators for what is the biggest bankruptcy in history said in their last progress report in April that unsecured creditors could be paid in full and there could be surplus funds.

Ally Financial Inc.'s proposed $2.1 billion agreement reached last month with creditors of its bankrupt Residential Capital LLC subsidiary cleared a key court deadline with only one vigorous objection, though several warning shots were fired, Reuters reported yesterday. Ally agreed to the settlement last month to end allegations it stripped ResCap of choice assets including the online lender, Ally Bank, before dumping the business into bankruptcy, which left creditors empty-handed. Syncora Guarantee Inc. insured some of the mortgage-backed bonds issued by units of ResCap, which have fallen sharply in value, and it objected for a variety of reasons. Syncora alleged that ResCap did not explain how it decided to split money from the Ally settlement among different bond insurers. The Department of Justice's bankruptcy watchdog, plaintiffs in a class action and government's pension insurer also objected as the deadline passed yesterday. Several parties also let the court know that while they were not formally objecting, they were taking up positions against the yet-to-be-filed reorganization plan. ResCap plans to file a reorganization plan by July 3 that will explain in more detail how creditors will be paid. A hearing has been scheduled for June 26 before Bankruptcy Judge Martin Glenn to approve the Ally settlement plan.

Two decades after Lou Pearlman launched the Backstreet Boys, the pop stars are still dealing with the fallout from the one-time music mogul’s fraud, the Wall Street Journal reported yesterday. Pearlman is now serving a 25-year prison sentence for running a multimillion-dollar Ponzi scheme while his bankruptcy is drawing to a close. Shortly after a plan to pay Pearlman’s creditors and cheated investors was filed in bankruptcy court, the trustee overseeing the case filed objections to some $3.5 million in claims that the Backstreet Boys—Nick Carter, Howie Dorough, Brian Littrell, A.J. McLean and Kevin Richardson—filed against their ex-manager nearly six years ago. The claims, for reimbursement of legal fees BSB racked up in lawsuits involving Pearlman and his record company, lack the evidence needed to support them, according to bankruptcy trustee Soneet Kapila. Kapila is also objecting to the nearly $26,000 claim of Aaron Carter, Nick Carter’s brother and a solo artist once signed to Pearlman’s record label, for the same reasons. The Orlando, Fla., bankruptcy court will review Kapila’s creditor-payment plan at a July 17 hearing.

A bankruptcy judge said that a recent “flurry” of court filings by Heller Ehrman LLP may “dramatically” affect the defunct law firm’s quest to chase down unfinished business profits, the Wall Street Journal reported today. Bankruptcy Judge Dennis Montali handed Heller a mild scolding on Saturday as he called for a status conference to discuss the new and “challenging” issues the firm’s lawyers have introduced as its remaining unfinished business lawsuits head to trial. In bankruptcy, Heller sued dozens of law firms that took on its former partners following its 2008 dissolution. The lawsuits aim to recover its share of the profits from continued client relationships. Most of the suits settled, but four remain against Davis Wright Tremaine LLP, Foley & Lardner LLP, Jones Day LLP and Orrick, Herrington & Sutcliffe LLP. In March, Judge Montali ruled that Heller is entitled to some of the profits but left the specific amount undetermined.

W.R. Grace & Co. heads to court today to defend its chapter 11 workout plan against challenges from investors in its aged bank debt and others whose protests have barred the chemical company from ending its 12-year stay in bankruptcy, Dow Jones Daily Bankruptcy Review reported today. Investors in the Maryland-based company's aged bank debt say that they're being shortchanged under Grace's Chapter 11 plan, deprived of about $185 million of the interest they're owed for waiting out the long bankruptcy case.

Lawyers for former MF Global Chief Executive Jon Corzine and his top lieutenants are opposing a deal between the bankruptcy trustee winding down the company's brokerage business and JPMorgan Chase & Co. that would funnel $300 million to the firm's customers, Dow Jones Daily Bankruptcy Review reported today. Corzine's lawyers, along with attorneys representing former No. 2 Bradley I. Abelow, ex-finance chief Henri J. Steenkamp and other top brass, are not objecting to the settlement between the bank and James W. Giddens, the trustee representing customers. But they are upset that the deal is structured so that two-thirds of the funds will first go to the general estate of MF Global Inc., which intends to then loan $200 million to the commodity customers.

Dutch sports car maker Spyker NV's $3 billion lawsuit accusing General Motors Co. of trying to bankrupt Swedish automaker Saab was dismissed by a U.S. federal judge yesterday who said the U.S. automaker had the right to block the sale of a company using its technology, Reuters reported yesterday. Spyker sued GM in August 2012, seeking damages and accusing the U.S. automaker of trying to stop a deal with Zhejiang Youngman Lotus Automobile Co. and eliminate a potential rival in the growing Chinese market. "General Motors had a contractual right to approve or disapprove the proposed transaction," U.S. District Court Judge Gershwin Drain said. "The court is going to grant the motion to dismiss the matter."

Bankruptcy Judge Allan L. Gropper on Friday approved an investor group's $275 million bid to sponsor a plan to bring the newly resurgent K-V Pharmaceutical Co. out of bankruptcy after "peace broke out" between two warring factions of bidders, Dow Jones Daily Bankruptcy Review reported today. The settlement, announced in court Friday afternoon, brings to an end months of legal sparring between the investor group—Greywolf Capital, Susquehanna International Group, Deutsche Bank Securities Inc. and Kingdon Associates—and a separate group of lenders led by Silver Point Capital. The investor group has agreed to backstop a $238 million rights offering that will form the backbone of K-V Pharmaceutical's chapter 11 plan.