The Infowars circus returned to a bankruptcy courtroom in Victoria, Texas this morning. If Judge Christopher Lopez thought he’d seen the back of Alex Jones and his three rings of crazy when the prior attempt to stymie the Sandy Hook plaintiffs fell through, he was sadly mistaken.
In short, on the eve of the first defamation trial by surviving family members of Sandy Hook victims, Alex Jones placed three basically worthless shell companies in bankruptcy and successfully got the three scheduled trials stayed. The plan was to fob all the plaintiffs off with $10 million, an amount which wouldn’t even come close to covering their legal bills. The US Bankruptcy Trustee filed a hair on fire objection, characterizing the entire exercise as an illegitimate abuse of the bankruptcy process, particularly since they filed in Chapter V as a small, family business.
Before that issue got litigated, the tort plaintiffs in Connecticut and Texas non-suited the shell companies, mooting the issue. But not for long!
One advantage for Jones in the prior filing was that it spared him having to disclose of his own assets and the finances of his main company, Free Speech Systems LLC. But desperate times call for desperate measures, and the first trial, in which Neil Heslin and Scarlett Lewis, parents of slain 6-year-old Jesse Lewis, are seeking $150 million in damages, is looking pretty desperate.
So now Jones put FSS on the bankruptcy block, revealing the company’s income. Spoiler Alert: It’s A LOT. According to the declaration filed by the proposed chief restructuring officer Marc Schwartz, FSS/Infowars sells about $600,000 worth of supplements a week. And yet, the company purports to be bankrupt thanks to upwards of $60 million in “debts” to its supplement dealer, a Nevada company called PQPR Holdings Limited LLC.
PQPR apparently failed to invoice FSS for years’ worth of supplements, only remembering to send a bill after Jones and FSS got default judgments against him in the Sandy Hook suits thanks to his egregious failure to comply with discovery orders. At that point, FSS signed promissory notes, securitizing the debts, prioritizing PQPR as a creditor, and allowing FSS to start shoveling mountains of cash out the door and off its books. Convenient timing!
The Texas plaintiffs filed a lawsuit in April alleging that the notes and transfers violate the Texas Uniform Fraudulent Transfer Act (TUFTA) because, and indeed the declaration admits that PQPR is effectively owned by Alex Jones and his parents David and Carol. Surprise!
All of which brings us to this morning, when all the parties descended on Judge Lopez’s courtroom, again.
FSS’s lawyer Kyung Lee got the ball rolling by asking the court to immediately lift the stay on the Heslin/Lewis case, allowing the jury to continue its work. With the order issued, the Connecticut plaintiffs requested similar relief to allow jury selection to begin next week for the scheduled September 6 trial.
Noting that the declaration failed to mention the TUFTA filing and the questionable promissory notes, Ryan Chapple, counsel for the Connecticut plaintiffs, requested full discovery on the relationship between various Jones entities and PQPR, expressing concern “that the debtor may use this court … as a means to legitimize that debt.”
Similarly his colleague Alinor Sterling noted “very serious concerns … that Alex Jones has been systematically siphoning large amounts of money out of FSS,” adding that “this supposed loan between FSS the debtor and PQPR is just one example.” Nevertheless, Sterling expressed relief that “the right entity has now filed” and affirmed her clients’ intent to “participate fully in this process.”
Avi Moshenberg, a lawyer for the Texas plaintiffs agreed that Jones has been “siphoning money to shell entities owned by AJ and his parents and his children to make him judgement proof.” He claims that Jones himself received $62 million in transfers from FSS in the past two years, far more than the $108,000 per month he receives in salary.
The Texas plaintiffs seem to be less committed to the legitimacy of the proceedings, with Moshenberg noting that FSS raced into court this week to avail itself of the less intrusive Chapter 5 bankruptcy process for small businesses, since the award in the pending Texas case will probably increase FSS’s debt enough to push it into the realm of Chapter 11.
For the government’s part, Melissa Hazelton, the proposed US Trustee, promised to “look at this with fresh eyes” — a deviation from the position of her predecessor in the prior case. But Hazelton promised that “transparency is crucial” and noted that the declaration contemplates a potential clawback from Jones, without specifying why or what prompted the statement. She also professed “very grave concerns” about the relationship between the Jones entities and PQPR.
Most interestingly, Judge Lopez seems intent on interrogating the relationship between the proposed chief restructuring officer Marc Schwartz and the various Jones entities. Schwartz appears to have represented the three shell companies in their negotiations with Jones to fund the proposed litigation settlement trust at the same time he was representing FSS. And while Schwartz is not a lawyer, it’s definitely not a great look.
The parties will be back in court on Wednesday. But in the meantime …
Cool, cool, keep talking.
Free Speech Systems LLC Bankruptcy [Docket via Court Listener]
Liz Dye lives in Baltimore where she writes about law and politics.