Mark Nussbaum’s try to wind down his former regulation corporations in chapter courtroom was blocked by a choose who stated the filings have been made in dangerous religion.
Nussbaum, who’s accused of operating a Ponzi scheme by his regulation corporations’ escrow accounts, put his defunct regulation corporations, Nussbaum Lowinger and Mark J. Nussbaum & Associates, out of business courtroom in April after rising annoyed with the dissolution course of in New York state courtroom.
The Manhattan District Legal professional charged Nussbaum with grand larceny for diverting over $15 million of purchasers’ escrow funds. Nussbaum has pleaded not responsible.
Nussbaum’s chapter attorneys argued that chapter courtroom was a greater venue for dealing with circumstances involving an alleged Ponzi scheme than the state courtroom. They claimed that chapter courtroom is “exceptionally acquainted with Ponzi schemes” and the method has a “well-developed jurisprudence” to resolve issues extra effectively than state courtroom.
However U.S. Chapter Choose Sean Lane questioned Nussbaum’s motives for bringing the corporations out of business, writing that the filings appeared pushed by his “want to restart the method, with no believable rationale aside from to delay the invention of further property.”
Lane additionally raised considerations about Nussbaum’s restructuring officer, Ephraim Diamond, who is expounded to Nussbaum’s ex-law companion Samuel Lowinger. In his 24-page Aug. 14 ruling, Lane described Diamond as “handpicked” regardless of his “familial ties” to Lowinger.
Collectors are looking for to gather over $400 million from Nussbaum’s former regulation corporations, in line with a courtroom submitting. Some purchasers put tens of hundreds of thousands of {dollars} within the agency’s escrow accounts, which Nussbaum used to make arduous cash loans to actual property dealmakers. He additionally deployed a technique referred to as “exhibiting capital,” during which debtors used escrow cash to show to lenders they’d sufficient money to shut a deal.
However Nussbaum bumped into greater hassle when he diverted $336 million from his shopper accounts to his enterprise companion and actual property investor Mendel Steiner. Steiner died by suicide in January 2025 and Nussbaum shut down Nussbaum Lowinger days later.
He appointed Sheldon Eisenberger to supervise an task for the advantage of collectors, or ABC, a substitute for chapter. Eisenberger was tasked with pursuing excellent money owed to repay Nussbaum Lowinger’s collectors and obtained a default judgment for greater than $300 million in opposition to two corporations previously managed by Steiner.
However the relationship between Nussbaum and Eisenberger grew to become more and more strained. Eisenberger sued Nussbaum’s private legal professional, alleging the legal professional helped Nussbaum divert property. Eisenberger later discontinued the lawsuit beneath a stipulation that Nussbaum and the legal professional cooperate in turning over the supplies.
Three weeks later, Nussbaum employed Ephraim Diamond as a restructuring officer and put his defunct regulation corporations out of business. 4 days after that, the regulation corporations terminated the ABC settlement with Eisenberger.
Lane pointed to that sequence in questioning whether or not the chapter filings have been meant to profit collectors. Nussbaum’s determination to terminate the settlement with out courtroom approval or notifying collectors, the choose wrote, “undermines the debtors’ competition that these bankruptcies have been filed in good religion to serve collectors’ pursuits.”
Lane additionally discovered that the debtors — Nussbaum Lowinger and Mark J Nussbaum & Associates — had no sensible path to reorganization, no workers and no money move.
“The courtroom traditionally appears to be like with skepticism upon efforts to vary venues in such circumstances,” Lane stated.
The wind-down of Nussbaum Lowinger will now transfer again to state courtroom, the place Eisenberger will proceed his uphill battle of amassing on Nussbaum’s money owed.
Mark Nussbaum declined to remark. An legal professional for Eisenberger didn’t reply to requests to remark.
Learn extra
Creditors seek at least $400M from Mark Nussbaum’s former law firms
Manhattan DA charges dealmaker Mark Nussbaum with grand larceny
