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Law firm Kaye Scholer and financial adviser Capstone admitted on Monday to making "mistakes" during the bankruptcy of investment management firm GSC Group Inc., but said that they should not have to forfeit more than $10 million in fees earned from their work, Reuters reported yesterday. The U.S. Trustee Program is seeking to void the firms' fees because of their mischaracterization of Robert Manzo, a Capstone contractor who was presented to the bankruptcy court as a direct employee. Kaye Scholer served as legal counsel to GSC in bankruptcy, while Capstone was the company's financial adviser. In court papers filed earlier this month, the U.S. Trustee said that the firms covered up Manzo's contractor status and fee-sharing arrangement with Capstone, which may have served to inflate their fees.

Preparing for a possible legal fight over the Sacramento Kings, the bankruptcy trustee who controls 7 percent of the team plans to bring in "special litigation counsel" to pursue claims that minority owners are being denied the right to match the purchase offer from Seattle, the Sacramento Bee reported today. Trustee David Flemmer is preparing to auction the 7 percent share held by bankrupt developer Bob Cook in order to pay creditors' claims. The current majority stakeholder in the Kings, the Maloof family, agreed to sell its 65 percent controlling interest to a Seattle group led by hedge fund manager Chris Hansen. Preserving the legal right to match Hansen's offer would make the 7 percent share considerably more valuable, Flemmer said. A bankruptcy court hearing on the matter is scheduled for Thursday.

The U.S. Pension Benefit Guaranty Corp. (PBGC) has sued Renco Group Inc for $97 million, accusing it of trying to avoid the pension obligations of bankrupt steelmaker RG Steel LLC, Reuters reported today. Renco Group, founded by New York billionaire Ira Rennert, had a controlling interest in RG Steel, which had sponsored two pension plans for about 1,350 people. Last year, Renco sold 24.5 percent of its ownership stake in RG Steel to an affiliate of the New York-based investment firm Cerberus Capital Management before the steelmaker filed for chapter 11 protection. The PBGC said in the court filing that Renco had reduced its ownership stake in an attempt to free itself from RG Steel's pension obligations. It said in the filing that ownership of 80 percent or more in RG Steel would have made Renco responsible for the steelmaker's pension plans.

Some of the more than $100 million Peregrine Financial's former chief executive stole from his brokerage's clients went to pay for his divorce settlement, the trustee of the now-bankrupt brokerage said in a lawsuit late Friday against the former wife, Reuters reported yesterday. The lawsuit demands the return of more than $2.9 million in divorce payments and the disallowance of the former wife's bankruptcy court claims for an additional $2.4 million, money she says is still owed her from the divorce. Russell Wasendorf Sr, the former CEO, has pleaded guilty to embezzlement and is in an Iowa jail awaiting sentencing this Thursday.

Dreier LLP is demanding its share of the millions of dollars in fees earned from litigation that its former patent lawyers continued working on after the firm’s collapse, the Wall Street Journal reported on Saturday. Bankruptcy trustee Sheila M. Gowan, who is running Dreier’s liquidation, on Wednesday sued three former Dreier partners to recover the profits from the unfinished business the partners took with them when they left the firm. The firm dissolved and went into bankruptcy in December 2008, days after founder Marc Dreier was arrested for defrauding hedge funds and other investors out of more than $400 million.

Credit Suisse Group AG was ruled by a judge to be liable for all damages that could be awarded to noteholders suing the bank over fraud at National Century Financial Enterprises Inc., a figure investors’ lawyers put at more than $2 billion, Bloomberg News reported on Saturday. U.S. District Judge James Graham said on Friday that because New York law governs apportionment of fault in the case, Credit Suisse will be liable for 100 percent of former Chief Executive Officer Lance Poulsen’s share of damages. “If the jury finds at trial that Credit Suisse and Poulsen each committed fraud that caused plaintiff’s losses, then under New York law Credit Suisse will be liable, as to plaintiffs, for 100 percent of Poulsen’s share,” judge Graham said. Noteholders claim the bank, the placement agent, knew or should have known of a $2.9 billion fraud that led to National Century’s collapse in 2002. Ten executives of the Dublin, Ohio- based health-care financer were convicted of crimes, including Poulsen, who is serving 30 years in prison.

Residential Capital LLC, the mortgage company liquidating assets in bankruptcy, agreed to pay $297.6 million to end opposition by government-run loan investor Fannie Mae to the sale of ResCap’s main business, Bloomberg News reported yesterday. The Federal National Mortgage Association agreed to drop its objection to the $3 billion sale of ResCap’s mortgage servicing unit to Ocwen Financial Corp., according to a court filing on Wednesday. Fannie Mae, as Federal National is known, is the biggest owner of loans generated by ResCap. Fannie Mae had demanded the so-called cure payment as compensation for any losses that may be caused by ResCap’s bankruptcy filing.

Hostess Brands Inc., the bankrupt maker of Twinkies and Wonder Bread, asked a judge to set March 21 as the cutoff date for workers to file back-pay claims and said that it has no obligation to bargain with its former unions, Bloomberg News reported yesterday. Hostess, previously subject to 372 collective-bargaining agreements, said in court papers filed yesterday that it now has “no continuing duty to bargain with” unions objecting to sale procedures. The company said its staff has been reduced to 255 people, including 20 union members.

Creditors of bankrupt telecoms company Nortel Networks failed to reach a deal to split $9 billion among U.S., Canadian and European insolvency and bankruptcy proceedings, Reuters reported yesterday. The mediator, Warren Winkler, the Chief Justice of Ontario, said in a brief statement that he concluded further efforts at mediation are no longer worthwhile. Retirees in Canada and the United Kingdom have been fighting for a larger portion of the cash against the company's bondholders.

Hostess Brands Inc.'s bid to sell its bread brands to Flowers Foods Inc. has hit a roadblock with unsecured creditors objecting to the break-up fees Flowers is entitled to for being appointed as the stalking-horse bidder, Reuters reported yesterday. The break-up fees is too high and contains an unusual "most favored nation" provision that gives Flowers a windfall without conferring an equal benefit to Hostess, a committee representing unsecured creditors said in its objections filed yesterday. Flowers on Jan. 11 agreed to buy Wonder and other well-known bread brands from Hostess for $360 million as well as its Beefsteak brand for another $30 million. The Flowers purchase is subject to higher bids at a court-supervised auction and the company is entitled to a break-up fee of $12.6 million for the bread brands and $1.05 million for the Beefsteak brand.