In the GWG Holdings bankruptcy, a new judge will be appointed to preside and a new wind down trustee will also be appointed, after Chief U.S. District Judge Alia Moses this week granted a motion to recuse U.S. Bankruptcy Judge Marvin Isgur.
A group of GWG bondholders — who separately are pursuing racketeering charges against several entities (Jackson Walker, Porter Hedges, David Jones and Elizabeth Freeman) they allege were enriched by keeping secret a live-in, intimate relationship between then-bankruptcy judge Jones and bankruptcy lawyer Freeman — had in August asked the court to recuse Judge Isgur and remove Freeman.
On Monday, Chief Judge Moses obliged, entering a two-and-a-half-page order agreeing that “to avoid the appearance of impropriety,” she would recuse Judge Isgur from the case. A Dallas-based financial services firm that sells bonds backed by life insurance policies, GWG filed its Chapter 11 bankruptcy petition in April 2022.
Chief Judge Moses wrote that while she “believes Judge Isgur to be impartial, Judge Isgur’s professional history with Jones is enough for a well-informed, thoughtful, and objective observer to harbor doubts about his impartiality.” She wrote that the GWG bankruptcy is “one of many tainted by the undisclosed intimate relationship between former-United States Bankruptcy Judge David Jones and his former-law clerk-turned-Jackson Walker partner, Elizabeth Freeman.”
The order calls out both the “deliberately concealed relationship” between Jones and Freeman and the “scheme” between the duo, Jackson Walker and Freeman’s own law firm that was “concocted to receive millions in attorneys’ fees for their own financial benefit.”
“As the true extent of the Jones-Freeman relationship and scheme continues to become known, it is necessary for this Court to act to avoid actual impropriety and the appearance of impropriety.”
“Avoiding the appearance of impropriety may require recusal of a judicial officer even when this court does not question the judicial officer’s impartiality. Such recusals are necessary to protect both this court and its honorable judges,” Chief Judge Moses wrote. “The court finds such a recusal necessary here. Jones and Judge Isgur were once colleagues. At Jones’s directions, all complex chapter 11 bankruptcies filed in the Southern District of Texas were assigned to either Judge Isgur or Jones. Unbeknownst to Judge Isgur, this assignment was part of the Jones-Freeman scheme. Judge Isgur now faces a professional conundrum, not because of his own actions, but because Jones abused the judicial authority entrusted to him.”
Chief Judge Moses wrote that the case would be reassigned to another bankruptcy judge in the Southern District of Texas in a forthcoming order. As of Thursday morning, such an order had not been posted to the docket.
On Wednesday, two days after the recusal order was issued, Freeman filed a concise notice of resignation, citing the wind down trust agreement provision that allows her to resign with 60 days’ notice.
“Section 7.4 provides that the Bankruptcy Court shall appoint the successor trustee. I hereby resign with such resignation to be effective 60 days from today or such other date as determined by the Bankruptcy Court,” the notice reads.
On Aug. 4, the bondholders filed two separate motions: one seeking to have Judge Isgur recused, and one asking the court to remove Freeman as trustee, arguing the “malfeasance” by Jones, Freeman and Jackson Walker “permeate the docket.”
The motion references the letter Judge Isgur authored, referring Jackson Walker for possible disciplinary proceedings for failure to disclose the Jones-Freeman relationship, quoting the portion where he said Jackson Walker’s failures had “defiled the very temple of justice.”
“Although the letter did not make a point of it, Ms. Freeman committed the very same violations of non-disclosure,” the motion reads. “It is not clear whether Judge Isgur filed a Rule 6 complaint against Ms. Freeman, at least as a matter of public record. This is curious because as noted in the order resolving the matter, Rule 6 only applies to individuals, and not law firms.”
“Regardless of whether Judge Isgur filed a disciplinary complaint against Ms. Freeman, however, he has allowed her to continue in a fiduciary role as wind down trustee for more than 10 months after his referral letter despite her ongoing concealment of the relationship from the court, her clients, and opposing parties and counsel. Judge Isgur has allowed Ms. Freeman to continue to profit from the fraud she and Jones perpetrated on the court.”
Since her appointment as wind down trustee in June 2023, the bondholders told the court she has already collected at least $1 million and has projected future fees of $665,000. Judge Isgur’s failure to remove Freeman, they wrote, allowing her “to remain in her lucrative, fiduciary position that she assumed through her relationship with Jones is a further blow to public confidence in the Houston Division of the Bankruptcy Court.”
“The various media articles covering the scandal confirm as much,” the motion reads.
The motion also points to the “close personal relationship” between Jones and Judge Isgur that both men have acknowledged. Isgur has called Jones his “adopted son,” according to the motion that also quotes from a speech Jones gave in 2023 where he said he speaks with Judge Isgur multiple times a day and that after joining him on the bench, Judge Isgur “listened to all of my crazy ideas, he protected me, and like he had done as a lawyer, he taught me how to be a judge.”
“Judge Isgur’s failure to remove Ms. Freeman despite the patent breaches of fiduciary duty and ethical misconduct would lead a reasonable person to harbor doubts about his impartiality concerning plaintiffs’ motion to remove Ms. Freeman and the bankruptcy proceeding at large,” the bondholders wrote. “Judge Isgur granted the motion filed by Jackson Walker and Ms. Freeman to appoint Jones. He approved the resulting plan and appointed Freeman as wind down trustee. As part of that approval, he approved the wind down trust agreement that purports to release and exculpate Ms. Freeman from liability.”
The case number is 22-90032.