Tribune creditors may sue former stockholders to get their money

Edward Jones, a St. Louis-based investment firm, is warning former Tribune Co. employees, retirees and other shareholders who participated in a 2007 stock buyback that they may be sued by the unsecured creditors aiming to get some money back.

A letter from Edward Jones obtained by the Daily Herald and dated Aug. 15 was sent to about 400 stock owners who altogether received about $5.4 million in the buyback. The firm had been subpoenaed to get the names of those stock owners, the amount held, and the funds that they received.

Millions of dollars more could be at stake, since Edward Jones isn't alone. Other investment firms nationwide also could be expected to hand over the same information about their clients, affecting their finances and their privacy, Edward Jones spokesman John Boul said.

“We just didn't want our clients to be surprised,” Boul said. “We've been fighting this subpoena for months now in the interest of our clients' privacy.”

A U.S. Bankruptcy Court judge last week didn't accept the privacy issue and is expected soon to require investment firms that handled clients in the 2007 buyback to report their names.

Unsecured creditors are at the end of the line when getting paid what they're owned from a bankrupt company. They often “take a bath,” said Bruce Greenhow Carruthers, a professor of law and sociology at Northwestern University in Evanston.

“This could be a way to put more money back into the company,” Greenhow Carruthers said. “If they think there was something fishy, they'll try any angle they can to pile more money back in.”

The Tribune Co., parent to the Chicago Tribune, Los Angeles Times and other newspapers and radio stations, filed bankruptcy in December 2008 — about a year after it held a $8.2 billion leveraged buyout.

The media company, like others nationwide, suffered massive losses in recent years from a floundering economy, lower advertising revenue and other debt. The Tribune's debt was reportedly about $12 billion from the buyout led by developer Sam Zell.

The underlying lawsuit alleges the buyout left the Tribune unable to pay creditors and now they are seeking to recover payments made to the stock owners as part of that buyout process, the Edward Jones letter said.

The subpoena is not unusual given the magnitude of the parties and the monies involved, said David Siegel, a Wheeling attorney not associated with the Tribune case.

“The creditors' committee may attempt to recover these funds under either a preferential transfer theory or a fraudulent conveyance theory,” Siegel said. “Under the Bankruptcy Code, each of the investors may very well have a legitimate defense to any attempt to recover the monies they received when they sold their shares.”

Edward Jones said the court soon could order it to turn over the information, which “may eventually be used to bring a claim against you to recover the funds transferred to you as part of the buyout.”

Edward Jones also told clients that they will need to get their own lawyers to represent them.

David Lemay, a New York attorney with Chadbourne & Parke LLP, one of the firms representing unsecured creditors, declined to comment. Other lawyers representing unsecured creditors did not immediately return phone calls.

Kurtzman Carson Consultants LLC of El Segundo, Calif., the claims agent for the Tribune's Official Creditor's Committee, also could not comment, said Kristal M. Bogle, vice president of marketing for Kurtzman Carson.