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Sandy Hook Parents Want Alex Jones Out of Infowars Bankruptcy (2)

Aug. 26, 2022, 2:01 PMUpdated: Aug. 26, 2022, 5:16 PM

Sandy Hook victims’ families asked a court to remove Alex Jones and his bankrupt company that runs conspiracy website Infowars from controlling its operations and Chapter 11 proceedings, arguing that the right-wing radio host improperly seized millions of dollars in assets.

“There are no honest debtors here,” the victims’ families said in a filing Thursday at the US Bankruptcy Court for the Southern District of Texas. “Since the Sandy Hook Families filed their lawsuits, the Debtor has systematically transferred millions of dollars to Alex Jones and his relatives and insider entities.”

Free Speech Systems LLC, the Jones-controlled company that operates Infowars, should be removed as “debtor in possession” of its bankruptcy case, the families said. That would leave an independent trustee in charge of the case filed under the small business section of Chapter 11, known as Subchapter V.

Free Speech Systems filed for bankruptcy in July, after some victims’ families won judgments in their defamation lawsuits against the company and Jones for his lies that the 2012 school shooting was a hoax. In one recent case, a jury awarded parents of a child killed in the shooting nearly $50 million in damages.

Jones himself took between $18 million and $62 million from Free Speech since the families filed suit—even though the company was allegedly insolvent—according to the Thursday filing.

A Houston attorney, Melissa Haselden, is working as a court-appointed trustee in Free Speech’s Subchapter V case. But Haselden should independently be in charge of the case and company operations, the Sandy Hook families said.

A trustee is automatically appointed in Subchapter V, but the filing company typically remains in charge of operations. Bankruptcy laws permit a trustee to take over control in cases of fraud, dishonesty, or incompetence.

Having a trustee take over the affairs of a corporate debtor happens from time to time but it’s an “extreme remedy” made on a case-by-case basis, said bankruptcy attorney Bridget M. Dennis of Shutts & Bowen LLP.

“It should be noted that cause for appointment of a trustee has to be shown by clear and convincing evidence,” she said. “This is a fairly high standard.”

W. Marc Schwartz, appointed by Free Speech as its chief restructuring officer, and the company have attempted to abuse the bankruptcy code to avoid paying the Sandy Hook families, the victims’ families said.

Prior to the bankruptcy, the Sandy Hook families sued Jones and others, alleging that Free Speech transferred its assets to keep them away from the reach of creditors, including the families.

While the Sandy Hook defamation cases were pending, Free Speech also “concocted” a $54 million secured debt to PQPR Holdings Ltd. LLC, a company ultimately owned by Jones and his parents, the families said. Payments on this debt were “designed to shift assets and obligations as best suits their needs,” they said.

Schwartz, who serves as the purportedly disinterested CRO, “appears to have performed no inquiry into Jones’s transfers” of Free Speech’s assets to see whether they can be clawed back by the bankruptcy estate, even though the families have sued to assert such claims, they said.

The families also claim that Schwartz has a conflict of interest, having previously served as CRO for three Infowars companies that previously filed Chapter 11. The debtors in those cases eventually agreed to dismiss their bankruptcy.

The families also want the court to appoint an official committee to represent them as holders of tort claims against Free Speech and Jones. In ordinary Chapter 11 cases, a committee of unsecured creditors is routinely appointed.

The case is In re Free Speech Systems LLC, Bankr. S.D. Tex., No. 4:22-60043, motion filed 8/25/22.

(Updated with additional remarks in the eighth and ninth paragraphs.)

—With assistance from Alex Wolf.

(Updated with additional reporting.)

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editors responsible for this story: Maria Chutchian at mchutchian@bloombergindustry.com; Roger Yu at ryu@bloomberglaw.com