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Creditor Group Sues Zell, FitzSimons, Board, Banks & Others Over Buyout Bankruptcy

On Friday, October 22nd, the U.S. Bankruptcy Court allowed the Tribune Company creditors to sue in Federal Court, Tribune owner Sam Zell, the shareholders, the banks, or any entity involved with the 2007 $8.2 billion leveraged buyout of Tribune Company, which was led by Sam Zell. The following Friday, October 29th, the lawsuits began, with a group of creditors suing the banks involved with the LBO. This week, even more lawsuits have been filed, with these going well beyond just suing the banks.

A large group calling themselves "The Official Committee of Unsecured Creditors" filed two lawsuits with U.S. Bankruptcy Court in Delaware on Monday. The lawsuits take aim at many defendants, including Tribune Chairman Sam Zell, former Tribune CEO Dennis FitzSimons, other Tribune senior executives, members of the 2007 Tribune Board of Directors, and some major shareholders, as well as some hedge fund creditors, Morgan Stanley and the LBO's lenders from the second phase, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc.

Virtually every key principal involved in the 2007 buyout of Tribune Company are named as defendants in the lawsuits.

The complaint says: "The committee brings this action to hold accountable the persons and entities responsible for crippling the Tribune Company, once one of the country's most venerable companies."

The legal complaint pulls no punches, saying "This LBO Transaction is among the worst in American corporate history. The LBO was designed to cash out the large shareholders of Tribune and to line the pockets of defendant Samuel Zell and Tribune's directors and officers." It calls the LBO "tainted from start to finish."

The Committee's complaint claims that Sam Zell was either ignorant of the potential for bankruptcy, or purposely acted in a fraudulent manner, but regardless "acted grossly negligently" in pushing to make the LBO happen.

The lawsuits run many hundreds of pages. It is bolstered by the independent investigation done by Kenneth Klee, which found that the 2007 transaction was filled with "dishonesty" and "intentional fraud."

With the Tribune reorganization plan to exit bankruptcy, these unsecured creditors could potentially see little or no money. With these new lawsuits, these same creditors could potentially see billions of dollars. Another strong possibility is that these creditors could settle without going to court, as long as they become bigger recipients of Tribune money and equity in the upcoming bankruptcy reorganization. This is often the end result in lawsuits that occur during a drawn-out corporate bankruptcy proceeding.

These additional allegations of corporate & financial fraud threatens to worsen TribCo's already difficult path to exit its two-year old bankruptcy.

The Chicago-based Tribune Company is the country's biggest media corporation in bankruptcy. It filed for bankruptcy in December 2008, with approximately $13 billion in debt, less than one year after real estate developer Sam Zell led a more than $8 billion leveraged buyout of the media giant.

Tribune Company owns 23 television stations, 13 newspapers, various magazines, one radio station and many other websites and companies. Locally, among the company's properties include the Chicago Tribune, RedEye, Hoy, Chicago Magazine, WGN-AM, WGN-TV, CLTV, and WGN America.


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