Alex Jones' attempt to hide Infowars cash from Sandy Hook families could 'rock our bankruptcy world': legal experts

The Infowars bankruptcy case could set a new precedent for companies using the court against their legal challengers.

The right-wing conspiracy site's owner Alex Jones is using “Subchapter V” bankruptcy to limit his obligation to pay off judgments for making false statements about the Sandy Hook shooting, but the Department of Justice is seeking to dismiss the bankruptcy case altogether by arguing the site's three debtors are nothing but shell companies, reported Axios.

"The strategy employed here ... is a novel and dangerous tactic that is abusive and undermines the integrity of the bankruptcy system," wrote the DOJ's watchdog in a court filing.

Jones was found liable in multiple defamation suits by families of Sandy Hook victims, and the damages trial was set to go when three small companies affiliated with the conspiracy theorist filed for Chapter 11 bankruptcy using a relatively new subchapter to help small businesses reorganize rather than liquidate.

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"I think it's fair to say that the drafters of subchapter V didn't envision this type of filing," said Ryan Preston Dahl, a partner in Ropes & Gray's business restructuring group, which is not involved in the Infowars case. "Subchapter V is intended to rehabilitate small businesses."

Subchapter V offers a streamlined process for companies with a debt load less than $3 million and currently engaged in business activities, and the companies that Jones put in bankruptcy hold few assets themselves so the plan seemed to be for him to funnel some of his money into them, have the bankruptcy court decide damages and have creditors -- the Sandy Hook families -- accept whatever was awarded.

“Courts have been clear that shell companies don’t cut it, but the analytical framework is certainly more of a sliding-scale test than a hard-and-fast calculation,” Nicholas Koffroth, an attorney with Fox Rothschild LLP, told Bloomberg Law. “A ruling in this case will add another marker on the sliding scale to help elucidate what circumstances may or may not fit within the Subchapter V eligibility standard.”

If the bankruptcy is allowed to go through, legal experts say, the Infowars case could have a seismic impact on other lawsuits.

“If this is allowed to go forward and to do so in Subchapter V — where there’s special benefits that are intended for somebody else, not these people — that will rock our bankruptcy world,” said Donald L. Swanson, a bankruptcy attorney and shareholder at Koley Jessen.

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