W. Virginia water polluter Freedom Industries files bankruptcy in legal shell game

Freedom Industries fouled a sixth of West Virginia's water supply last week with toxic chemicals. Friday it filed for bankruptcy, which will at least temporarily shield the firm from lawsuits.

And in a brazen legal gambit, the owner of Freedom Industries has also created a shell company to provide financing to his bankrupt firm, which may allow him to retain much of the assets of the firm if and when it is dissolved in bankruptcy.

Freedom owes $3.6 million to its top 20 unsecured creditors, according to bankruptcy documents obtained by the West Virginia Gazette. The company also owes the IRS more than $2.4 million in unpaid taxes dating back 13 years.

The name of the owner of Freedom Industries, J. Clifford Forrest, also appears as an officer in a newly-formed firm -- Mountaineer Funding LLC -- which Freedom Industries named as the source of debtor-in-possession financing of up to $5 million. In a bankruptcy, the debtor in possession financier is typically placed at the head of the line of creditors making a claim on the assets of the firm. If a bankruptcy judge allows the financing to go forward, Mountaineer -- and Forrest -- might be expected to scoop up most of the assets of the bankrupt firm without any legal liability for the catastrophic environmental damages wrought by it.

Watch a report on the bankruptcy below.