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**NOVEMBER 16, 2022**
Kuttner on TAP
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**** Bankman and the Bastardization of
Bankruptcy
He gets to cheat his customers, write off debts, and then keep control
of his company? (Yup, that's how bankruptcy often works for big dogs.)
At this writing, Sam Bankman-Fried has appointed a new CEO of his
company, John Ray III, as well as five new "independent" board members.
He has hired a legal team comprised of America's fanciest bankruptcy
lawyers. They are preparing a very complex bankruptcy filing in a
Delaware court that will allow him to write off debts while he tries to
raise new capital.
And his lawyers are trying to persuade the bankruptcy judge to allow
Bankman-Fried and his team to keep control.
The judge does have the option of appointing an independent trustee to
manage the process, displacing Bankman-Fried, his confederates, and the
affiliated lawyers who stand to collect a fortune in fees. But
Bankman-Fried and his cronies are arguing
<[link removed]>, as is
typically the case, that the very people who fleeced customers and drove
the company into the ground are knowledgeable about how the scam worked,
and thus best positioned to recover as much money as possible. So
bankruptcy judges often let the malefactors keep control.
Is there something wrong with this picture?
You bet there is. The entire bankruptcy system is one big double
standard. Individuals who declare personal bankruptcy usually find that
that their credit is ruined and their economic lives destroyed. But
corporate thugs frequently get to write off past debts and sail merrily
on, often repeating variations on the same scam.
One outrageous case, which the
**Prospect** has covered in detail, involved a private equity operator
named Eddie Lampert <[link removed]>,
who fleeced the iconic Sears Roebuck, took it into bankruptcy, and
managed to keep control of its choicest bits. This tactic is standard
practice in the repeated pillaging of retail by private equity
companies.
Get control of a retail company that has cash and real estate assets.
Strip the assets. Take the company into bankruptcy; write off debts
(including worker pension funds); rinse and repeat. Meanwhile, student
debtors are explicitly prohibited from using personal bankruptcy to
write off punishing debt.
Elizabeth Warren came to prominence as a law professor expert in
bankruptcy law and critical of abuses. As a leader of the National
Bankruptcy Review Commission beginning in 1995, she fought a heroic
battle that she ultimately lost in 2005 to keep the banking industry
from persuading Congress to toughen the terms of bankruptcy for
individuals but not for corporations. When Warren says the rules are
rigged, she knows whereof she speaks.
We need fundamental reform of the bankruptcy laws, as Warren has
proposed in the Consumer Bankruptcy Reform Act
<[link removed]>.
In the meantime, at the very least, bankruptcy judges should stop
letting scoundrels keep control of the companies that they fraudulently
milked.
~ ROBERT KUTTNER
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Manchin Decides to Torpedo Permitting Reform
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By refusing to hold a hearing for the chair of the Federal Energy
Regulatory Commission, Joe Manchin is damaging an existing effort to
improve permitting for electric transmission lines. BY DAVID DAYEN
Republicans Are in for Two Years of Hell
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Trump and the Freedom Caucus are going to unleash chaos in their own
party. BY RYAN COOPER
The Biden Administration Does Not Need Another Wall Street Adviser
<[link removed]>
The White House is considering a finance recruit whose career has been
directly at odds with all of President Biden's accomplishments. BY MAX
MORAN
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