By Tanya Agrawal
Feb 12 (Reuters) - Financial adviser Capstone Advisory Group
LLC and Robert Manzo settled with the U.S. Justice Department,
and agreed to forgo a part of their fees in the bankruptcy of
investment management firm GSC Group Inc.
A bankruptcy watchdog was seeking to void the firm's fees
due to the mischaracterization of Robert Manzo - a Capstone
contractor who was presented to the bankruptcy court as a direct
employee - that may have helped in inflating fees.
Under the settlement agreement, Capstone admitted that it
erroneously described Manzo as an employee of Capstone through
RJM LLC and agreed to pay $1 million to the GSC estate by
withdrawing its final fee application of $2.75 million, and
giving up about $635,000 that it was paid as compensation.
Capstone will also agree to appoint an independent monitor
at its own expense to review its internal policies relating to
retention applications in bankruptcy cases.
The U.S. Trustee also entered into a settlement agreement
with Robert Manzo under which his firm will resign as the
liquidating trustee in the case and will forgo payment of about
$175,000 of the $398,500 in accrued but unpaid fees it has
The agreement also calls for any company controlled by Manzo
to comply with conflict checking and disclosure procedures that
the independent monitor will establish at Capstone if it is
retained by the firm in a bankruptcy case.
GSC, founded by former Goldman Sachs Group Inc partner
Alfred Eckert, declared bankruptcy in August 2010, hampered by a
liquidity squeeze and declining asset values brought on by
The case in the U.S. Bankruptcy Court in Manhattan
culminated in the 2011 sale of GSC's assets to lender Black
Diamond Capital Management.
GSC tapped Kaye Scholer and Capstone as legal and financial
advisers, respectively. Robert Manzo, the trustee in charge of
liquidating certain GSC assets in the wake of the sale, was
listed in court filings as a Capstone employee.
But Manzo was actually an independent contractor with whom
Capstone had signed a fee-sharing agreement, information the
firms kept from the court in violation of bankruptcy laws.
Most fee-sharing agreements are barred by bankruptcy rules,
in part out of concern that firms might inflate their fees to
make up for the cost of sharing. In GSC's case, Manzo was
entitled to nearly all of the fees he billed, as well as 15.5
percent of the fees billed by Capstone and a percentage of any
so-called "success fee" the firm collected after the case,
according to court papers.
Because lawyers and other professionals are paid ahead of
creditors in Chapter 11, bankruptcy laws carry strict disclosure
requirements to minimize conflicts of interest and ensure as
much money as possible is reserved for creditors.
Manzo is well-established in the restructuring world, having
advised on major cases for more than 25 years, including those
of fallen brokerage firm Refco and auto giant Chrysler.
The settlement agreements require bankruptcy court approval.
The case is In re GSC Group Inc et al., U.S. Bankruptcy
Court, Southern District of New York, No. 10-14653.
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