%1

Madoff trustee Irving Picard, who will try to reinstate hundreds of lawsuits through an appeal to be argued on March 5, had his chances of success dealt a blow last week when the U.S. Supreme Court decided a case involving R. Allen Stanford’s Ponzi scheme, according to a Bloomberg News analysis today. Picard is appealing a federal district court decision barring him from suing to recover transfers made more than two years before bankruptcy. Were Picard to succeed on appeal, he might eventually be able to pay defrauded customers in full. Customers’ recoveries currently are in the 56 percent range. In last week’s decision in Chadbourne & Parke LLP v. Troice, the Supreme Court ruled in favor of defrauded customers, allowing them to sue firms and individuals who helped sell Stanford’s fraudulent securities. At first blush, Troice seems to help the Madoff trustee because the high court allowed defrauded investors to sue. Looking at the Troice opinion in detail, though, it’s at best unhelpful for Picard and customers who are suing third parties to recover their losses.

Sorenson Communications Inc. filed for chapter 11 protection yesterday, a court filing showed, as declining revenue and mounting debt forced the company to consider restructuring, Reuters reported today. Sorenson, which provides video relay services for people with hearing loss, said in less than a year it would be obligated to pay about $1.28 billion. Due to regulatory changes, the debtors cannot pay or refinance the obligations based on its projected revenue and cash flow, the court filing showed. The Federal Communications Commission's 2010 reduction in rates and increased minimum performance requirements for video conferencing services, made it infeasible to provide the service over the long term, the company said.

Federal officials have signed off on a deal creating an independent trust to fund and oversee ongoing environmental cleanup at Eastman Business Park, the Rochester (N.Y.) Democrat & Chronicle reported today. The fund will contain $49 million provided by Eastman Kodak Co., with an additional $50 million in New York state money available if needed to pay for environmental study and remedial work at the sprawling business park in Rochester and Greece. Creation of the environmental trust was an element of Kodak's plan to emerge from chapter 11 bankruptcy last year.

Shareholders say they are entitled to a bigger piece of Overseas Shipholding Group than they are being offered as one of the world's largest tanker operators prepares to leave bankruptcy, and they have turned to the courts for help, Dow Jones Daily Bankruptcy Review reported today. Two groups of investors filed protests in court on Wednesday. According to shareholders, Overseas Shipholding is advancing a "flawed" restructuring strategy while ignoring shareholder-backed turnaround proposals.

Mt. Gox, once the world's biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying that it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system, Reuters reported today. The collapse caps a tumultuous few weeks in which the company has remained virtually silent after halting trades of the crypto-currency, shaking the nascent but burgeoning bitcoin community. Mt. Gox said that the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users' bitcoins and 100,000 of its own. Many bitcoin market participants have said Mt. Gox's problems were specific to the company and were caused by what they said was a lax attitude by Mt. Gox's French CEO Mark Karpeles, while bitcoin itself — free of any central bank control — was still a noble venture.

The Supreme Court ruled yesterday that victims of former Texas tycoon R. Allen Stanford's massive Ponzi scheme can go forward with class-action lawsuits against the law firms, accountants and investment companies that allegedly aided the $7.2 billion fraud, the Associated Press reported yesterday. The decision is a loss for firms that claimed federal securities law insulated them from state class-action lawsuits and sought to have the cases thrown out. But it offers another avenue for more than 21,000 of Stanford's bilked investors to try to recover their lost savings. Federal law says class-action lawsuits related to securities fraud cannot be filed under state law, as these cases were. But a federal appeals court said the cases could move forward because the main part of the fraud involved certificates of deposit, not stocks and other securities. The high court agreed in a 7-2 decision, with the two dissenting justices warning that the ruling would lead to an explosion of state class-action lawsuits.

The trustee in charge of Lehman Brothers Holdings Inc.'s failed brokerage defended his bid to consolidate the deferred-compensation claims of former Lehman employees into one proceeding, saying that doing so would save the estate money, Dow Jones Daily Bankruptcy Review reported today. Lawyers for trustee James W. Giddens said in a court filing on Tuesday that consolidating the claims into one is the best option, contrary to the arguments of 340 former employees who want their complaints heard separately. Among other benefits, consolidation would keep Lehman from having to spend more in litigation, the lawyers said.

When Hostess Brands Inc. went bankrupt in 2012, it triggered anxiety among employees at Ottenberg’s Bakery, a family-owned enterprise in Maryland, since the companies shared a pension plan, and if Hostess couldn’t pay its retirees, Ottenberg’s would have to pick up the tab, Bloomberg News reported yesterday. Last week, Ottenberg’s employees received the good news that the U.S. government saved their benefits by sacrificing those of Hostess’s drivers, who will now get a reduced payout financed by the government. Ottenberg’s employees are among the 10.4 million Americans with retirements tied to multiemployer pension plans, large investment pools long considered low risk because they don’t rely on a single company for financing. Two recessions, industry consolidation prompted by deregulation, and an aging workforce have funds facing a $400 billion shortfall that has some near insolvency. Dozens already have failed, affecting 94,000 participants.

Federal bankruptcy watchdogs are once again patrolling in full force, restarting the consumer debtor audits that a tight budget forced them to suspend last year, the Wall Street Journal reported today. The U.S. Trustee Program announced that it will resume ordering audits of certain consumer debtors on March 10. The program indefinitely suspended the audit program last March due to budgetary constraints. When Congress overhauled the Bankruptcy Code in 2005, it directed bankruptcy watchdogs to ferret out fraud by auditing consumer debtors. U.S. trustees may randomly designate for audit one out of every 250 consumer bankruptcy cases per federal judicial district. The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 also authorized audits of any cases in which debtors posted statistically unusual income or expenditures.

Restora Healthcare, an operator of two long-term acute care hospitals and skilled nursing facilities in Phoenix, announced it has filed for chapter 11 protection to recapitalize and reorganize its business, the ABL Advisor reported yesterday. Restora’s secured lender, Healthcare Finance Group will continue its support of Restora with court-approved funding for Restora’s payroll, suppliers, staff physicians and others during the bankruptcy. Restora’s current revenue-cycle management firm, Acuity Healthcare, has agreed to invest new capital in the business and has been contracted to provide management services upon emergence from the reorganization process.