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Lenders Want to Replace Trustee in Education Management Liquidation

With the schools it once ran facing an uncertain future, defunct for-profit operator Education Management Corp. is caught up in an unusual bankruptcy court battle that has lenders trying to oust a veteran trustee, George Miller, WSJ Pro Bankruptcy reported. Neither the lenders nor Miller would discuss the reasons behind the move to replace him as trustee in six of the bankruptcy cases involved in the liquidation of Education Management. Until last year, the company operated one of the nation’s largest chains of for-profit schools, including the Art Institutes chain. In June, Education Management filed for chapter 7 bankruptcy protection, with no schools to operate and little cash. It is the job of the bankruptcy trustee to find cash for creditors, and, in a bare-bones case like Education Management’s, that often means finding someone to sue. Education Management sold the bulk of its schools to a Los Angeles nonprofit, Dream Center Foundation, months before filing for bankruptcy protection in June.

U.S. Trustee Objects to Reagor-Dykes Request to Hire CRO

In documents filed on Monday, a U.S. Trustee objected to Reagor-Dykes Auto Group's request to hire a Chief Restructuring Officer (CRO) to investigate the actions of the former Chief Financial Officer and anyone who may have been working with that person, KCBD.com reported. On Thursday, Reagor-Dykes Auto Group filed a motion to allow them to hire the CRO. The documents say because of the departure of the former CFO and the current state of RDAG, the company and owners have determined it necessary to bring on the Chief Restructuring Officer firm. This person will also take on the duties of a Chief Financial Officer. The U.S. Trustee said on Monday that the CRO would have expanded powers which would permit him to independently investigate Reagor-Dykes' prior financial transactions and their owners and officers. The documents say these duties belong to a chapter 11 trustee or an examiner, not a CRO. They are asking the court to deny Reagor-Dykes Auto Group's application to employ a CRO.

Brand-Licensing Company Iconix Looks to Pare Debt

Iconix Brand Group Inc., the licensing company that owns such brands as London Fog and Umbro, is facing a tough road ahead as it grapples with a heavy debt load, declining stock price and a search for a new chief executive, WSJ Pro Bankruptcy reported. The company, which licenses many of its brands through major retailers, has faced issues similar to those of its licensees as the retailing environment grows increasingly difficult. However, Iconix management said in a recent earnings call that it is working to address its debt load early on, retaining advisory firm Guggenheim Partners to help it pay down its $789 million debt load and an upcoming 2020 maturity. Interim Chief Executive Peter Cuneo, who took the helm in June, said a steering committee has been formed, consisting of members of the board and management, to “undertake a further operational review” of its business. The company is also beginning talks with investors, Cuneo said. The New York company owns nearly 30 brands and more than 1,000 licenses with leading retailers and manufacturers globally, according to its website. Since the end of 2017 Iconix has paid down $38 million of its debt and plans, with Guggenheim’s guidance, to focus on continuing that trend, along with cutting expenses.

DOJ to Distribute Nearly $16 Million in Petters Ponzi Scheme Case

The U.S. Department of Justice is distributing about $16 million to people who were defrauded by a man convicted of leading a multi-billion dollar Ponzi scheme, the Associated Press reported. Thomas Petters was found guilty in the scheme and sentenced to 50 years in prison in 2010. Investors had thought they were financing the purchase of consumer electronics, but the goods didn’t exist. The money acquired through the scheme supported Petters’ companies and his extravagant lifestyle for more than a decade. The payments are going to about 360 investors worldwide. Bankruptcy trustee Douglas Kelley said that he’s collected money owed to investors by squeezing funds from Petters’ personal holdings and some former companies, as well as others who worked with Petters. He said that he expects “there’s probably another $19 or $20 million that the government will distribute.” Creditors who’ve sought compensation through bankruptcy court are on track to receive about $450 million.

Analysis: U.S. Pursues One of the Biggest Mortgage-Fraud Probes Since the Financial Crisis

Lax and fraudulent lending on single-family homes played a role in inflating and popping the housing bubble a decade ago. The 2010 Dodd-Frank financial overhaul required home borrowers to document their income, and home lenders to verify it, but the rule doesn’t apply to multifamily housing, the Wall Street Journal reported. Lenders in that market review data submitted by borrowers to ensure the properties earn enough to repay loans, but they generally don’t examine every lease to check income. Neither do Fannie Mae and Freddie Mac, the government-sponsored mortgage giants that buy and securitize loans. Credit-rating firms that grade the securities for investors also generally don’t review loans for fraud. Owners of an apartment complex near Pittsburgh, who wanted to take out a mortgage on the buildings, allegedly made vacant units look occupied by turning on radios, placing shoes and mats outside doors and in one instance having a woman tell inspectors her boyfriend was asleep inside. The owners obtained a $45.8 million loan, which was wrapped into mortgage securities and sold to investors. Practices such as these — which were alleged in a federal search-warrant application — have sparked one of the largest mortgage-fraud investigations since the financial crisis. It focuses on whether income from commercial properties was falsified, a move that would enable owners to get larger mortgages and take out cash or expand their businesses faster. Still in its early stages, the investigation has so far yielded a fraud-conspiracy indictment against four real-estate executives in upstate New York. Loans that some or all of them were involved with totaled about $170 million, the indictment alleges.

Midstates Is in Talks to Buy Some Sandridge Assets

Midstates Petroleum Co. may soon walk away with at least some of Sandridge Energy Inc. after setting out to acquire all of it earlier this year, Bloomberg News reported. Midstates is in talks to buy Sandridge’s Mississippi and Oklahoma operations, and a deal could be reached by the end of the month. The transaction hasn’t been finalized and talks could fall through. Sandridge has been exploring strategic options since June following activist investor Carl Icahn’s successful campaign to win control of the company’s board. Oklahoma City-based Sandridge, which is working with Royal Bank of Canada, rejected a stock-for-stock merger with Midstates in March.

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