(Bloomberg) -- Families of Sandy Hook school shooting victims have quickly raised the alarm over the latest legal maneuver from far-right radio show Infowars and its proprietor, Alex Jones.
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The ultimate parent of Infowars, Free Speech Systems LLC, filed for Chapter 11 bankruptcy on Friday just months after three corporate entities linked to Jones did the same in a failed attempt to corral and settle defamation damages owed to Sandy Hook families. In an initial hearing Monday, lawyers for for the families expressed concern about the structure of the latest move and its timing -- smack in the middle of a two-week trial in Texas that will put a dollar figure on the damages.
Free Speech Systems is seeking a special type of bankruptcy protection that allows small businesses to speed through insolvency with relatively little input from creditors. Companies are typically only allowed to utilize that kind of proceeding if they owe less than $7.5 million. The Infowars parent has more than $50 million of debt, much of it owed to an entity owned by founder Alex Jones, according to court papers.
“There are lots of red flags circling this bankruptcy already,” Avi Moshenberg, a lawyer spearheading a fraudulent transfer lawsuit against Jones and Infowars in Texas, said in the Chapter 11 hearing Monday. “This is hardly a small business.”
Free Speech Systems syndicates the Infowars radio show -- in which Jones frequently spouts conspiracy theories -- and sells dietary supplements. The company generated revenues of about $65 million in 2021, most of which came from the sale of supplements, to post a net loss of about $11 million, court papers show.
A lawyer for the US Trustee, an arm of the Justice Department that polices bankruptcy court, in the hearing said he would urge the judge overseeing the case to slow down the process. “Transparency is 100% crucial in this case,” the lawyer, Ha Minh Nguyen, said. A committee of people suing Jones and Infowars may need to be formed in the bankruptcy, Nguyen added.
Already, the transparency offered by Infowars depicts financial disarray at the company. Since Chief Restructuring Officer W. Marc Schwartz came on the scene in May, he has found that the books were never closed for 2021, internal controls were inadequate and almost no transactions were recorded in 2022, he said in a sworn declaration.
“We have very serious concerns based on discovery done in Connecticut that Alex Jones has been systematically siphoning large amounts of money out of Free Speech Systems,” Alinor Sterling, an attorney representing Sandy Hook families in a defamation lawsuit, said in the hearing. Sterling’s clients intend to “participate fully” in the bankruptcy process, she said.
Schwartz is “continuing to evaluate whether the estate has causes of action to claw back any payments or distributions to Alex Jones,” he said in his declaration. Lawyers for Free Speech Systems did not immediately respond to an email seeking comment on Monday.
The defamation trial in Texas against Jones and Free Speech Systems may conclude as early as Friday. A separate trial in Connecticut is slated for September. Judges in both Texas and Connecticut have already issued default judgments against Jones after he failed to turn over documents as part of the lawsuits, but the trials will help determine damages to be awarded.
The case is Free Speech Systems LLC, 22-60043, U.S. Bankruptcy Court for the Southern District of Texas (Victoria).
(Adds additional quote from lawyer in paragraph five, accounting details in paragraph seven.)
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