Free Speech Systems LLC, Infowars' ultimate parent, filed for Chapter 11 bankruptcy on Friday, just months after three corporate entities linked to Jones did the same in an unsuccessful attempt to corral and settle defamation damages owed to Sandy Hook families. In an initial hearing on Monday, lawyers for the families expressed concern about the structure of the latest move, as well as its timing — right in the middle of a two-week trial in Texas to determine monetary damages.
Free Speech Systems is attempting to obtain a type of bankruptcy protection that allows small businesses to exit insolvency with little input from creditors. Companies are typically only permitted to use this type of proceeding if their debt is less than $7.5 million. According to court documents, the Infowars parent company owes more than $50 million in debt, the majority of which is owed to an entity owned by founder Alex Jones.
"There are a lot of red flags already circling this bankruptcy," Avi Moshenberg, a lawyer leading a fraudulent transfer lawsuit against Jones and Infowars in Texas, said during the Chapter 11 hearing Monday. "This isn't a small business."
The Infowars radio show, on which Jones frequently spews conspiracy theories, is syndicated by Free Speech Systems, which also sells dietary supplements. According to court documents, the company generated approximately $65 million in revenue in 2021, the majority of which came from the sale of supplements, for a net loss of approximately $11 million.
During the hearing, a lawyer for the US Trustee, an arm of the Justice Department that polices bankruptcy court, said he would ask the judge overseeing the case to slow down the process. "Transparency is absolutely critical in this case," said Ha Minh Nguyen, the lawyer. Nguyen added that a committee of people suing Jones and Infowars may need to be formed as part of the bankruptcy proceedings.
Already, the transparency provided by Infowars depicts the company's financial disarray. Since his arrival in May, Chief Restructuring Officer W. Marc Schwartz has discovered that the books for 2021 were never closed, internal controls were inadequate, and almost no transactions were recorded in 2022, he stated in a sworn declaration.
"Based on discovery done in Connecticut, we have very serious concerns that Alex Jones has been systematically siphoning large amounts of money out of Free Speech Systems," Alinor Sterling, an attorney representing Sandy Hook families in a defamation lawsuit, said during the hearing. Sterling's clients intend to "participate fully" in the bankruptcy proceedings, according to her.
In his declaration, Schwartz stated that he is "continuing to evaluate whether the estate has causes of action to claw back any payments or distributions to Alex Jones." On Monday, lawyers for Free Speech Systems did not immediately respond to an email seeking comment.
Jones and Free Speech Systems' defamation trial in Texas could end as soon as Friday. In Connecticut, a separate trial is scheduled for September. Jones has already received default judgments in both Texas and Connecticut after failing to turn over documents requested in the lawsuits, but the trials will help determine the amount of damages to be awarded.