Mark Nussbaum’s try and wind down his former legislation corporations in chapter court docket was blocked by a decide who stated the filings had been made in dangerous religion.
Nussbaum, who’s accused of working a Ponzi scheme via his legislation corporations’ escrow accounts, put his defunct legislation corporations, Nussbaum Lowinger and Mark J. Nussbaum & Associates, into chapter 11 court docket in April after rising annoyed with the dissolution course of in New York state court docket.
The Manhattan District Lawyer charged Nussbaum with grand larceny for diverting over $15 million of shoppers’ escrow funds. Nussbaum has pleaded not responsible.
Nussbaum’s chapter legal professionals argued that chapter court docket was a greater venue for dealing with instances involving an alleged Ponzi scheme than the state court docket. They claimed that chapter court docket is “exceptionally accustomed to Ponzi schemes” and the method has a “well-developed jurisprudence” to resolve issues extra effectively than state court docket.
However U.S. Chapter Choose Sean Lane questioned Nussbaum’s motives for bringing the corporations into chapter 11, writing that the filings appeared pushed by his “need to restart the method, with no believable rationale apart from to delay the invention of further belongings.”
Lane additionally raised issues about Nussbaum’s restructuring officer, Ephraim Diamond, who is expounded to Nussbaum’s ex-law associate Samuel Lowinger. In his 24-page Aug. 14 ruling, Lane described Diamond as “handpicked” regardless of his “familial ties” to Lowinger.
Collectors are searching for to gather over $400 million from Nussbaum’s former legislation corporations, based on a court docket submitting. Some shoppers put tens of thousands and 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 method known as “displaying capital,” by which debtors used escrow cash to show to lenders they’d sufficient money to shut a deal.
However Nussbaum bumped into larger bother when he diverted $336 million from his shopper accounts to his enterprise associate 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 project for the good thing about collectors, or ABC, an alternative choice to 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 towards two firms 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 belongings. 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 legislation corporations into chapter 11. 4 days after that, the legislation corporations terminated the ABC settlement with Eisenberger.
Lane pointed to that sequence in questioning whether or not the chapter filings had been meant to profit collectors. Nussbaum’s determination to terminate the settlement with out court docket approval or notifying collectors, the decide wrote, “undermines the debtors’ competition that these bankruptcies had 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 staff and no money circulation.
“The court docket traditionally seems with skepticism upon efforts to alter venues in such circumstances,” Lane stated.
The wind-down of Nussbaum Lowinger will now transfer again to state court docket, 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
