New York-based Kaye Scholer acted in the winding up and sale of investment managers GSC Group in 2010-11, and, along with a leading firm of financial advisers, billed some $10 million for their trouble.

Wilful concealment

But now, according to a report from the Reuters news agency, officials at the Justice Department in Washington have applied to the US Bankruptcy Court in the Southern District of New York to have the fees removed from the firms.
The report says the US Trustee Programme – the DoJ branch dealing with bankruptcies – maintains that the GSC trustee responsible for liquidating assets following the sale of the business was in fact an employee of financial advisers Capstone, which had been instructed with Kaye Scholer. Reuters says the federal officials allege in court papers that both the law firm and the financial advisers ‘perpetrated a fraud on this court by wilfully concealing and affirmatively misrepresenting the true nature of Capstone’s employment and financial relationship with [that trustee]’.

Without merit

A lawyer for Capstone told the agency that the allegations were ‘without merit’, with a spokesman for the law firm echoing those words. Reuters said lawyers for the trustee involved did not respond to requests for comment.
The report cites the full legal teams involved in the court application, with Kaye Scholer fielding Michael Solow, the firm’s managing partner and co-chairman of its bankruptcy and restructuring department. Capstone wheeled out Steven Mandeslberg, a litigation partner at Madison Avenue firm Hahn & Hessen, along with Andrew Leblanc, a financial restructuring partner from the Washington office of Milbank. Paul Shalhoub, a partner in the business restructuring group at the New York office of Willkie Farr & Gallagher represented the trustee.