U.S. Trustee Program’s Settlement With Financial Adviser Includes Monetary Remedies, Independent Monitor

WASHINGTON – The U.S. Trustee Program has filed in bankruptcy court a national settlement with financial adviser Capstone Advisory Group LLC in the bankruptcy case of GSC Group, Inc. If approved by the Bankruptcy Court for the Southern District of New York, the proposed settlement will resolve the U.S. Trustee’s allegations that Capstone failed to make accurate and complete disclosures to support the bankruptcy court’s approval of its employment in the case. In particular, the U.S. Trustee alleged that Capstone made inaccurate representations about its relationship with a contractor assigned to lead its engagement and to perform work in the case.

Under the proposed settlement, Capstone will pay $1 million; waive an additional success fee of $2.75 million; adopt policies and procedures approved by an independent monitor to ensure accurate and complete disclosure, including with respect to employment of contractors and conflicts of interest; and undergo compliance reviews by the monitor for two years.

If approved by the bankruptcy court, the settlement will mark the first time the U.S. Trustee Program has obtained relief that includes an independent monitor’s review of a professional firm.

“This important settlement shows that the U.S. Trustee Program will take vigorous enforcement action when we uncover evidence that experienced professional firms have failed to satisfy their bedrock obligations to provide true and complete facts to the U.S. Trustee and the bankruptcy court,” stated Clifford J. White III, Director of the Executive Office for U.S. Trustees.  “I commend Capstone for recognizing the seriousness of this matter by voluntarily accepting significant financial consequences and subjecting itself to independent review to ensure that similar conduct does not recur.”

Director White also commended U.S. Trustee Tracy Hope Davis for bringing the original action in the bankruptcy court in Manhattan, as well as attorneys who worked on the case, including Trial Attorney Andrea Schwartz of the U.S. Trustee’s Office in Manhattan and Trial Attorney Carole Ryczek of the U.S. Trustee’s Office in Madison, Wis.

The USTP also reached agreement with the contractor and his affiliated companies.

The case is In re GSC Group Inc., U.S. Bankruptcy Court, Southern District of New York, No. 10-14653.