Alex Jones’ New Bankruptcy Law Gambit

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Infowars’ Alex Jones is back in bankruptcy court… again.

Why it matters: For the second time this year, the right-wing provocateur is testing the limits of how the US bankruptcy code can be used by companies — and their owners — to limit the cost of damages.

Fast overtaking: Jones and his Infowars empire are in the midst of a lawsuit for damages — they’ve already been held liable in defamation lawsuits filed by families of the victims of the Sandy Hook school shooting. Jones has repeatedly referred to the shooting as a hoax.

  • Companies take advantage of Chapter 11 bankruptcy when they owe creditors more money than they actually have, and need to work out a settlement and payment plan.
  • Creditors can take the form of bondholders, or claimants such as the Sandy Hook families. Usually, the company needs approval from those creditors to complete a bankruptcy plan.

Situation: Jones’ previous bankruptcy attempt involved the use – or abuse – of a special subchapter of the code intended only for small businesses.

  • That debtor-friendly process curtails many of the rights creditors get in a regular Chapter 11 case — especially the ability to form creditors’ committees with legal representation, and to have more say in accepting or rejecting a bankruptcy plan.
  • In April, Jones placed three Infowars affiliated shell companies in Subchapter V, companies he had isolated to limit the amount of money that would go into the bankruptcy settlement with the Sandy Hook families.
  • But in June, Jones withdrew those bankruptcy filings. In a motion to dismiss the case, the Justice Department’s bankruptcy watchdog called the strategy “new and dangerous,” arguing it undermined the integrity of the system.
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But Jones apparently hasn’t given up yet his desire to use Subchapter V, and his potential to force a settlement with creditors.

  • This time he submitted the parent company of his Infowars company – initially blushing a seemingly more legitimate move.

The catch: He still uses the small biz-focused sub-chapter V, which requires a company to have no more than $7.5 million in “eligible debt” to qualify.

  • But Jones’ bankrupt company, Free Speech Systems (FSS), owes much more: $54 million to a subsidiary controlled by Jones and his family, on top of the likely tens of millions it owes the Sandy Hook plaintiffs.
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So, what gives? There are a few technicalities… firstly, debts owed to insiders (such as the $54 million) are not considered “eligible debts.”

  • Ditto for “undisclosed” debt – a legal term for liabilities that have not yet been formally quantified, such as pending legal claims.

That’s the pinch. Jones has filed for FSS Subchapter V bankruptcy to settle the damages, but the amount of that damage would almost certainly make the company not suitable for actual use subchapter v.

Our Thought Bubble: Time is everything. FSS served (handily) in the middle of the claims process that could soon be number one for the Sandy Hook obligations.

  • The bankruptcy court could either allow the Subchapter V case to proceed, based on the idea that eligibility is determined by a financial snapshot at the time of filing or it may decide that compensation changes the game.
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Worth nothing: Bankruptcies show that in recent years, while the Sandy Hook lawsuit was underway, about $62 million flowed out of FSS in the form of “membership draws.”

  • It implies draws by Jones, the sole owner of the company, said Avi Moshenberg, a lawyer for the Sandy Hook families.

What to watch: Moshenberg says that even if the case remains in Subchapter V, creditors can ask the judge for additional oversight and transparency.

  • “It’s unacceptable for us to do the normal Sub-Chapter V without transparency, oversight or investigation. That’s a huge focal point in this bankruptcy,” Moshenberg told TAUT.

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