Economics/Class Relations

Bankruptcy under scrutiny

October 26, 2023 • 5 min read
with Dan DeFrancesco
Good morning. The police ordered residents of Lewiston, Maine, to shelter in place Wednesday night as a shooting unfolded. At least 22 people were killed, per CNN. The gunman is still at large.


In today’s big story, we’re looking at US senators questioning a controversial bankruptcy tactic following Insider’s reporting.

What’s on deck:
But first, it’s a Texas Two-Step.


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The big story
Where companies go to fail

They say everything is bigger in Texas… except for corporate bankruptcy settlements. 


The state known for big things makes a notable exception when it comes to bankrupt companies settling outstanding debts.


Thanks to a nifty bit of corporate restructuring — aptly named the Texas Two-Step — companies incorporated in the Lone Star State are able to settle their liabilities for a fraction of the price while shielding their most valuable assets from debt collectors.


But the controversial bankruptcy tactic is now being called into question by multiple US senators who filed a letter questioning the “abusive strategy” after reporting by Insider’s Dakin Campbell and Nicole Einbinder.


The additional attention could upend the way major companies file for bankruptcy going forward.


So how’d we get here?


A refresher:

  • In August, Nicole and Dakin published a report on Corizon Health, once the nation’s leading prison health provider, which split itself into two entities as lawsuits mounted against it over claims of negligent care and prisoner deaths on its watch. One company, YesCare, got the active prison contracts; the other, Tehum, got saddled with most of Corizon’s debt and went into bankruptcy.
  • Later that month, Tehum reached a tentative bankruptcy deal in Texas’s southern district that was later disclosed to be $37 million, a fraction of the company’s debt.
  • In early October, Dakin and Nicole reported on a court document claiming Judge David Jones, who mediated Tehum’s settlement deal, was in a romantic relationship with YesCare attorney Elizabeth Freeman, calling into question the deal.
  • Jones, a prominent player in the bankruptcy space, was initially recused from his cases and put under investigation before resigning a couple of days later.
  • Corizon’s bankruptcy deal, meanwhile, was delayed on October 18 as a judge raised concerns about the deal, saying it “has to be reconsidered.”
Adria Malcolm for Insider
Beyond the complex financial maneuvering involved in the Two-Step, it’s important to remember the people impacted by this.

Like Hector Garcia, a father of four who collapsed three days into his six-day jail sentence and died soon after receiving shoddy medical care from Corizon, according to his family’s suit. His family could have received just $5,000 under Corizon’s original settlement deal.


Johnson & Johnson, which is facing more than 40,000 lawsuits from customers alleging its talc-based baby powder caused cancer, also attempted the Two-Step twice and is reportedly considering a third try.


Ending the Two-Step likely won’t stop companies from attempting to protect their assets and limit their liabilities during bankruptcy filings. But it would be a big step toward preventing them from skirting paying people they’ve impacted.

Read the full story
3 things in


🔔 Before the opening bell: US stock futures fall early Thursday ahead of the gross domestic product report for the third quarter. 

Eoin Noonan/Getty Images
1. Wall Street’s heavy hitters are worried about the global economy. Ray Dalio, Jamie Dimon, David Solomon, Larry Fink, and Steve Schwarzman offered some bleak outlooks during a recent conference. From inflation to a recession to commercial real estate, here’s a rundown of their thoughts.


2. Everything to know about the Treasury-market turmoil. The meltdown in the bond market has sparked a panic across Wall Street. But the impact of Treasury prices plummeting isn’t isolated, as it’ll affect consumers and the broader economy.


3. The predictions are in for Amazon’s third-quarter earnings reports. The tech giant will report today after the closing bell. Among the top areas of focus are the results of Amazon’s Prime Big Deals Days event and guidance on consumer spending during the holidays.

3 things in
iStock; Rebecca Zisser/Insider
1. Women working in Utah’s Silicon Slopes shared its dark side. It’s the fastest growing state for tech jobs. Utah boasts job opportunities, reasonable housing prices, abundant natural beauty, and more. But unlike other techy states, it ranks abysmally low on women’s equality.


2. AI, Threads, and hiring faster next year at Meta. The company reported its third-quarter earnings on Wednesday, and it beat analysts’ revenue and profit estimates. Mark Zuckerberg was joined by other execs to discuss the company’s key priorities heading into the new year.


3. Google’s owner Alphabet and Microsoft get mixed reactions amid AI pushes. After a strong quarterly earnings call, Microsoft shares climbed 4%. Meanwhile, Alphabet slipped 7% after its cloud division fell short of expectations.

3 things in
Arantza Pena Popo/Insider
1. Ted Pick was named the new Morgan Stanley CEO. The 54 year old rose from a “rough edged” deal junkie to CEO. And he’s credited with transforming Morgan Stanley’s key equities and fixed-income businesses. Pick will start the new role on January 1.


2. Sam Bankman-Fried will take the stand in his criminal trial. He is facing seven charges of fraud and a potentially hefty prison sentence. Plus, SBF risks more prison time if he lies. One of the 11 biggest bombshells from the case so far is that his co-conspirators knew they were doing something wrong.


3. Citadel founder Ken Griffin has a new favorite Republican candidate. He had been looking for an alternative candidate to former President Donald Trump. Griffin was originally a prominent supporter of Florida Gov. Ron DeSantis. But now, he sees Nikki Haley as “a rockstar.”


In other news



What’s happening today
  • China is planning to launch the Long March 2F rocket into space. It’ll carry three Chinese astronauts — also called taikonauts — to the Tiangong space station.
  • Happy birthday to Man of the Year Schoolboy Q. Hillary Clinton, Seth MacFarlane, and Crissa Jackson were also born on this day.
  • Earnings today:, Ford, Intel, Comcast, Chipotle, UPS, Southwest Airlines, and other companies.


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The Insider Today team

Dan DeFrancesco, senior editor and anchor, in New York City. Diamond Naga Siu, senior reporter, in San Diego. Hallam Bullock, editor, in London. Lisa Ryan, executive editor, in New York.


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