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US Trustee Seeks Clawback of $10M in Fees from Kaye Scholer, Financial Adviser in Bankruptcy Case

Posted Jan 8, 2013 3:40 PM CDT
By Martha Neil

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The U.S. Trustee Program is asking a federal court in Manhattan to strip a well-known law firm and a financial adviser of $10 million in fees they have earned in a major corporate bankruptcy case.

Kaye Scholer and the adviser, Capstone, perpetrated a fraud on the bankruptcy court, the U.S. Trustee Program alleges, by failing to disclose a business relationship in the GSC Group Inc. case that may have resulted in inflated costs, Reuters reports.

The two defendants were legally required to disclose the independent contractor relationship between Capstone and Robert Manzo, the trustee in charge of liquidating some GSC Group assets, but didn't, the U.S. Trustee Program contends in a Friday filing. The complaint says Manzo was portrayed as a Capstone employee, but in fact wasn't, which left the bankruptcy court in the dark about the $4 million he was paid in billings and a 15.5 percent share of Capstone's fees, plus a portion of any "success" fee, the article explains.

Court papers say Kaye Scholer knew of the independent contractor fee-sharing agreement between Capstone and Manzo but didn't disclose it. In its filing, the U.S. Trustee said managing partner Michael Solow of Kaye Scholer, who worked on the GSC matter, was a friend of Manzo's who had worked with him on multiple big bankruptcy cases, according to the news agency.

Representatives of both Kaye Scholer and Capstone described the suit as "without merit." The news agency got no response Monday evening to its request for comment from a lawyer for Manzo and said Solow declined to comment.

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