Bankruptcy Vendors Agree to Pay $900K in DOJ Info-Sharing Probe

Epiq Corporate Restructuring, Omni Agent Solutions Inc. and Stretto Inc. agreed to repay a total of $900,000 to bankrupt companies they’ve worked for to resolve a call for sanctions by the Justice Department for sharing creditor claims information with a market-making platform.

The three claims agent filed a joint motion Monday with the DOJ’s bankruptcy monitoring division—the US Trustee—detailing a proposed settlement over previously undisclosed agreements they held with XClaim Inc. The companies are often hired in large Chapter 11 cases to process paperwork and provide case-related information to creditors

The US Trustee in January urged the US Bankruptcy Court for the Southern District of New York to temporarily suspend their businesses or require them to pay back some of the nearly $360 million in debtor-paid fees they earned while dealing with XClaim. Government attorneys said the companies violated a “fundamental bankruptcy tenet” by failing to disclose their relationships with XClaim to the court.

The companies, which have terminated their contracts with XClaim, argued that the US Trustee’s arguments rest on inapplicable standards of disclosure and said that they never lied to the court.

If approved by the court, Stretto will repay an aggregate total of $175,000 to three companies with cases pending in New York under the stipulated agreement, including crypto platforms Voyager Digital Holdings Inc. and Celsius Network Ltd.

Omni and Epiq agreed to aggregate payments of $225,000 and $500,000, respectively, to be apportioned out among more than 100 debtor companies that filed for bankruptcy at some point over the last several years.

XClaim functions as a platform for parties to buy and sell claims held against bankrupt companies. It held deals with the claims agents to provide information in exchange for a small share of trade-related fees.

XClaim was blocked from accessing free public records as a result of the court proceedings, but it has seen a “huge increase” in its brand awareness since, company CEO Matt Sedigh said in an email.

The court’s actions “made public records less public and punished those with the foresight to make bankruptcy more equitable and transparent,” he said.

The claims agents came under fire following an August ruling by Judge Sean H. Lane in the bankruptcy for Madison Square Boys & Girls Club Inc. Lane found Epiq’s deal with XClaim was impermissible.

The district’s chief bankruptcy judge, Martin Glenn, then initiated a proceeding to obtain more information about the underlying agreements.

The case is Matter of Certain Claims and Noticing Agents, Bankr. S.D.N.Y., No. 22-00401, settlement 4/3/23.