Bankruptcy vs Alex Jones

Ordering chaos, with a glass of whine

This post is a revised and updated version of something I posted at my faculty blog site.

A small cast of unsavory characters crop up in my business law classes as cautionary tales. What happens if you fake it ‘til you make it? Elizabeth Holmes. What’s the downside of a too-pliant board? Elon Musk. Why do CEOs have to sign off on financials? Ken Lay and Jeff Skilling. Why should they be careful what they say about their own company’s stock? Elon Musk. Why not make your divorce lawyer your corporate general counsel? Elon Musk. Why not offer to barter farm animals for indecent acts? Elon Musk. 

Alex Jones and his profitable conspiracy theory factory, Infowars, are turning into another example. What happens when you intentionally inflect emotional distress on more than a dozen parents of murdered children, use the attention to sell marked-up erection pills and fake Covid cures, get sued, cheat at trial, accidentally hand the plaintiffs a phone full of smoking guns, and enrage jurors into blasting you with a billion-dollar verdict? Absolute chaos. There’s not nearly enough time to cover all the sordid background in class, obviously, much less here. But the process of untangling it has a lot to teach about how business law solves–slowly, imperfectly–seemingly unsolvable problems. 

The trials that resulted in Jones’s huge debt to the Sandy Hook families did tremendous work in uncovering the truth of his predatory business model. The families and their lawyers made it possible for real consequences–never common in the world of professional conspiracy theorists, and getting less so–to bring his empire to heel. But the plaintiffs are victims of their own success, in a way. For all his dirty business, Jones is merely a multimillionaire; he can’t possibly pay the damages he owes. The inevitable result was bankruptcy court, possibly the perfect place to methodically put order to the chaos. 

Bankruptcy courts and the code they work from evolved to deal with messy debtors. Jones is messier than many, but there’s little in the business itself that the average bankruptcy judge hasn’t seen before: Jones owes more money than he can pay. He cannot discharge the debt. His assets will be mostly sold off to pay it down, including the company that made him as rich as the goat testicle-implanting father of country music who pioneered this business model. Those judges know what to do in cases like this: push up their eyeglasses, roll up their sleeves, flex their muscles, sharpen their knives, tune the guitars, gas up the war wagons, load the — no, never mind, they schedule a hearing to discuss the process by which arguments for setting the procedures for conducting an asset sale can be heard. And that kind of grinding, methodical pace is exactly what’s needed.

Bankruptcy moves faster than a lot of litigation, but it doesn’t move fast. It’s a deliberate process exactly because so often it deals with messy, complicated situations. The tools it uses to do that, like professional trustees applying a massive and complex statute, are good for getting to the right result as often as possible, as quickly as feasible, and as efficiently as reasonable. That doesn’t mean they make the job fast, easy, or comprehensible to laypeople. 

The Alex Jones bankruptcy is on the very verge of exhaustedly slumping over the finish line. Or, well, a finish line. The bankruptcy court kept it moving with occasional kicks and more than a few setbacks—usually tactical moves by Jones to slow things down and give him options for pulling enough cash from the business to keep him in Jack Daniels. One of the last and most important steps was liquidating “Free Speech Systems,” the po-faced holding company of Infowars. That means selling off its assets, starting with the intellectual property.

Spectators generally assumed that the most interested parties would be Alex Jones himself, working with some shady friends and investors, to buy back the IP that would let him buy back the sort of assets that would keep his pill mill in business: domain names, trademarks, social media accounts, and other sales tools. And that happened, more or less; the leading cash bidder was “First United American Companies, LLC,” the vehicle that currently operates one of Jones’s storefronts and may be backed by his frequent collaborator and convicted felon Roger Stone. The result would have likely been a relatively seamless transition: Jones would continue broadcasting and selling supplements under a slightly different brand name, no less an affliction than he has for past decades.

(In theory the Sandy Hook parents would continue to collect the bulk of whatever money Jones himself made, but obviously no one expects him to play fair.)

Then chaos came again. The Onion, recently reinvigorated by its acquisition by the “Global Tetrahedron” team, parachuted in and won the auction. Their strategy seems obvious in hindsight, in the way that a lot of brilliant ideas do. They apparently (there is some speculation at work here, given that the story hasn’t been fully told yet) approached Jones’s largest creditors–the Sandy Hook families. With the families’ agreement, they made a savvy and effective bid. They offered to pay just $1 million in cash, far less in cash than the competing FUAC bid, but bolstered by some very clever moves.

First, the Sandy Hook families offered to pass on their share of that cash to the other creditors, and since they own nearly 99% of Jones’s debt, that made the offer far better for those creditors. In other words, had FUAC paid $3.5 million in cash, the non-Sandy Hook creditors would have been worse off because the Sandy Hook families would have been entitled to the majority of that money. But in the Tetrahedron offer, the families voluntarily sent a portion of their share to the other creditors, making them better off even though the total cash price was lower.

Second, the families agreed to contribute part of Jones’s debt to them to the Tetrahedron bid, essentially forgiving a part of the vast amounts he’ll never pay anyway. The trustee conducting the auction agreed to count that debt reduction as cash, since it goes towards the outstanding liabilities just the same as cash would. That gave the families and their allies at Global Tetrahedron the ability to bid hundreds of millions of dollars without raising much cash. (A little would be needed to pay the auctioneers and other necessary costs, and probably put a little down towards the other debtors who weren’t part of the deal.) That was a problem for the losing bidder, which had only offered $3.5 million. I’m a lawyer, not an accountant, but even I can do that math.

Third, and most impressively to me as a lawyer and a person, Tetrahedron committed to a revenue sharing deal with the Sandy Hook families. If and when Global Tetrahedron (basically The Onion) makes money using the Infowars assets, the Sandy Hook families will take a share. How large the share is wasn’t decided at the time of the bid; the parties just committed to making a deal here and hashing out the numbers later. That’s a powerful move by Tetrahedron. Jones used Infowars to make money by torturing those families for years. The Onion’s plans for it are far more benign, but they are still going to use it to sell product. Giving the families a stake in that is a decent, ethical, and canny move. 

Between these clever twists on their bid, Tetrahedron was the obvious winner. Just on the numbers alone, any other bidder would have to offer $7 million in cash to put the non-Sandy Hook creditors in a better position than they would be under the Tetrahedron bid. And not surprisingly, the trustee announced that the trustee agreed. His announcement turned Infowars from an unfunny joke in Alex Jones’s hands to a very funny one in the Onion’s. But courts don’t like surprises, and bankruptcy courts are humorless even by the standards of the federal judiciary. At an emergency hearing last week, lawyers for the losing bidder (who formally, officially, are not representing Alex Jones or Roger Stone) argued that the auction violated the rules. The judge was concerned, raising his voice and becoming far more animated than he has been at other contentious moments in this case. He ended the hearing by scheduling another hearing, to take evidence on what actually happened in the auction and presumably arguments on whether to permit the sale or re-run the auction.

On Monday the 25th, the court held a status conference to start to straighten out some of the allegations and disputes that have arisen since then. Jones sued the trustee (which is prohibited by law) and the Sandy Hook families (which is prohibited by decency), FUAC moved to disqualify the Onion as a bidder, Infowars asked for an emergency order keeping the trustee from keeping them from making money, lawyers bailed out of the case and parachuted in, and things generally got more and more chaotic.

The court responded by starting, again, to bring a bit of order. It let every party have their say and scheduled a hearing in early December at which it will either approve or disallow the Onion’s winning bid. (A lot of other stuff happened, but nothing as significant as that.)

Reactions at the delay have ranged from bemusement to anger; many people feel at the moment that American institutions are failing, and they were not amused to see Infowars snatched from the jaws of poetic justice. But the court did exactly what the court was supposed to do, and what we should want it to do–it stepped in to bring order to chaos. 

There really are some sharp questions to be answered, including whether the trustee had the authority to accept the creative elements of the Tetrahedron bid and whether that bid is fair to the various creditors–and even whether it’s fair to Jones. Bankruptcy law protects the devil and his victims. The losing bidder has fairly little ground to stand on, but not none. The auction procedure did change from the kind of “open-cry auction” that the trustee originally proposed, where the losing bidder could “overbid” (a fancy word for offering more than the last guy). The wound up converting the action to a single round of best-and-final offers, which seems to have been permitted by the court’s order but did take the judge by surprise. I doubt any of these issues will derail the sale. The arguments filed to date seem to strongly favor the trustee and Tetrahedron. And on the fundamentals, the whole point of the sale was to reduce Jones’s debt to the creditors–and almost all of it is owed to the Sandy Hook parents. Their approval of the Tetrahedron bid should weigh very heavily here.

If the judge rejects the bid of the Sandy Hook families and Global Tetrahedron, it will be because there was a real problem in the procedure that affected the rights of one of the parties–something that it’s better to straighten out now, rather than later on appeals. But most likely the court will approve the sale, and Infowars will ascend from the sewer it is today to take its place alongside The Onion and Clickhole as a nice little bit of dark humor in weird times. It took longer than we might have liked, cost far more than people expect, and did less for the Sandy Hook parents than we could wish. But it brought order to chaos, an almost impossible task. The alternative, playing the case fast and loose, would only have played into Alex Jones’s hand; he’s better at chaos than the courts are. Plodding certainty is the best of all the options. 

The moral of the story is the same one that comes along with most of those above. Jones is learning, like Elizabeth Holmes, Ken Lay, Jeff Skilling, Sam Bankman-Fried, and plenty of others before him, that the courts grind slowly, but they grind exceeding small. It can feel like justice takes forever to arrive, and sometimes it does. But that just makes it more important that we take a moment to observe when the system works.