Sandy Hook parents want Alex Jones out of Infowars bankruptcy (2)

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

“There are no honest debtors here,” the families of the victims said in a filing Thursday in U.S. 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 filing, 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 the families of some victims won judgments in their libel suits against the company and Jones for his lies that the 2012 school shooting was a hoax. In a recent case, a jury awarded the parents of a child killed in the shooting nearly $50 million in damages.

Jones himself has taken between $18 million and $62 million from Free Speech since the families sued — even though the company was allegedly insolvent — according to Thursday’s filing.

A Houston attorney, Melissa Haselden, is working as a court-appointed trustee in the Subchapter V freedom of speech case. But Haselden should be independently responsible for the business and operations of the business, the Sandy Hook families said.

An agent is automatically appointed in sub-chapter V, but the filing company generally remains in charge of the operations. Bankruptcy laws allow a trustee to take control in cases of fraud, dishonesty or incompetence.

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

“It should be noted that the cause of the appointment of a director must be demonstrated by clear and convincing evidence,” she said. “It’s a pretty high level.”

W. Marc Schwartz, appointed by Free Speech as director of restructuring, and the company tried to abuse the bankruptcy code to avoid paying the families of Sandy Hook, the families of the victims have said.

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

While Sandy Hook’s defamation cases were ongoing, Free Speech also “concocted” a $54 million secured debt to PQPR Holdings Ltd. LLC, a corporation ultimately owned by Jones and his parents, the families said. Payments on this debt were “designed to move assets and obligations as needed”, they said.

Schwartz, who serves as a supposedly disinterested CRO, “appears to have conducted no investigation into Jones’ transfers” of Free Speech assets to see if they can be recovered 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 had previously filed Chapter 11. The debtors in those cases ultimately agreed to dismiss their bankruptcy.

The families also want the court to appoint a formal panel 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. SD Tex., No. 4:22-60043, petition filed 08/25/22.

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

—With help from Alex Wolf.

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