The restructuring of defunct ticket reseller and possible Ponzi scheme vehicle National Events Holdings LLC was again put on pause Tuesday when a New York bankruptcy court concluded there simply wasn’t enough information to make a major ruling in the hopelessly tangled case just yet.
U.S. Bankruptcy Judge James L. Garrity adjourned the hearing on Falcon Investment Advisors LLC’s motion to lift the automatic stay until June 29. In the meantime, he said, he’d approve an order authorizing the debtor to continue using cash collateral to keep the lights on.
“I’m not soliciting any additional briefing,” Judge Garrity said. “My hope is that during this brief respite the parties will be able to put their heads together and determine how best to move forward.”
The two major creditor factions in the case appeared utterly deadlocked at the hearing, with private equity firm Falcon saying it should be allowed to lift the stay and liquidate National Events’ $5.8 million in remaining assets — essentially terminating the case in the process. Meanwhile, Taly USA Holdings Inc. and Hutton Ventures LLC told the court it was far too early in the complicated case for such an aggressive move.
Falcon, National Event’s largest creditor, says it’s put roughly $45 million into the debtor and hasn’t received a dime of its principal back yet. That debt was secured by liens on “substantially all of the debtor’s assets,” according to Falcon’s motion.
Taly and Hutton are still owed roughly $16 million and $10 million respectively, but they’ve already received about half of their principal back, according to court documents.
Those loans weren’t made directly to the debtor, however. They were made to two other entities associated with National Events’ disgraced founder and former CEO Jason Nissen, who Taly has said broke down and told Taly executives last month he’d been running the business as a Ponzi scheme since at least 2015. Those entities, National Events of America Inc. and New World Events Group Inc., own 76 percent of the debtor.
Falcon told the court that that means Taly and Hutton don’t even have direct claims against the debtor itself, but Robert K. Dakis of Morrison Cohen LLP, who represents Taly, countered that “this is an ongoing criminal enterprise, and each of the companies in the chain was a part of that.”
Taly and Hutton want to continue investigating what exactly happened at National Events, but Falcon says that would boil down to an investigation into whether or not they can sue Falcon for additional recovery, financed by Falcon’s collateral.
“Are they going to spend our money to try our money to extort money from us?” Joel H. Levitin of Cahill Gordon & Reindel LLP, who represents Falcon, asked the court. “We agree something needs to be worked out, but not on the back of our collateral.”
National Events also told the court it would like to be able to continue pursuing its own investigation, but Judge Garrity said that seemed like a strange proposal given that the debtor “was in the middle of” the fraud that brought it down in the first place.
Further complicating the case is the fact that a court-appointed receiver, Edward J. LoBello, now controls National Events of America and New World.
LoBello was appointed in a suit against Nissen brought by Taly in New York state court. William C. Heuer of Westerman Ball Ederer Miller Zucker & Sharfstein LLP, who represents LoBello, told the court the receiver is entitled to take over the debtor if he wants to, but Falcon and the U.S. trustee disputed that.
Regardless, Heuer said, the receiver is the party best positioned to carry out a truly neutral investigation into National Events.
“We need a neutral, comprehensive process that’s cleansed of prepetition taint,” Heuer said.
When Judge Garrity asked where the money for that would come from, Heuer said Taly and Hutton had floated the idea of extending a debtor-in-possession loan to National Events.
Falcon had initially proposed extending its own $485,000 DIP loan to National Events, but Judge Garrity shot that down at the first-day hearing earlier this month, citing clauses in the DIP motion that would have recognized Falcon’s liens and released claims against it, among other things. Falcon then withdrew that offer and filed its motion to lift the stay a few days later.
In their joint opposition to Falcon’s motion to lift the stay, Taly and Hutton said Falcon’s “aggressive” moves in the case were suspicious given that it controlled half of National Events’ two-person board when it filed for bankruptcy.
At the hearing, Falcon said its about-face wasn’t “nefarious,” it was simply a logical response to National Event’s disappointing progress in collecting on its debts and selling its remaining tickets. Falcon said that in the week since the last hearing the debtor was expected to make $87,000 but only brought in $19,000.
Falcon told the court it was convinced it could do a better job of liquidating those assets on its own instead of continuing to pay National Events’ handful of remaining employees to do it.
“We’ve been funding this for a few weeks already and we’ve gotten nothing,” Levitin told the court. “Who’s going to pay for people to go through the computers and turn over information to the receiver? Are we stuck doing that just because we decided to file for Chapter 11 instead of Chapter 7?”
Counsel for Hutton told Law360 after the hearing he was pleased with Judge Garrity’s decision. The other parties declined to comment.
National Events is represented by Stephen B. Selbst and Hanh V. Huynh of Herrick Feinstein LLP.
Taly is represented in the bankruptcy by Joseph T. Moldovan of Morrison Cohen LLP.
Hutton is represented by Gerard S. Catalanello and James J. Vincequerra of Alston & Bird LLP.
Falcon is represented by Joel H. Levitin, Brian T. Markley and Richard A. Stieglitz Jr. of Cahill Gordon & Reindel LLP.
Edward J. LoBello is represented by William C. Heuer of Westerman Ball Ederer Miller Zucker & Sharfstein LLP.
The bankruptcy is In re: National Events Holdings LLC, case number 1:17-bk-11556, in the U.S. Bankruptcy Court for the Southern District of New York.
The civil case is Taly USA Holdings Inc. et al. v. Nissen et al., case number 652865/2017, in the Supreme Court of the State of New York, County of New York.