Going after Tribune shareholders who cashed out in Zell sale

We're talking about the Chandler family, former CEO Dennis FitzSimons, and of course hedge funds and money managers. They all could be exposed to a barrage of litigation from creditors wanting at least some of their money. So serious is the litigation threat that institutional shareholders are setting aside money in anticipation of a settlement or judgment, the WSJ reports (though proving a case like this will not be easy).

Creditors are going after the shareholders under a legal concept known as "fraudulent transfer." The theory allows creditors to argue that the banks financing Tribune's buyout and the shareholders who cashed out should have known the deal would destroy the company. As a result, the argument goes, the banks shouldn't be allowed to recoup their loans and the shareholders should have to give back money they received. In certain instances, merely demonstrating a company was insolvent at the time of a leveraged buyout can leave deal participants exposed.

[CUT]

In the lawsuit filed in Delaware bankruptcy court last year, Tribune creditors allege that Mr. Zell's buyout was "among the worst in American corporate history." The creditors' complaint said an unnamed engineer of the deal likened it to "carrying a fat person up [Mount] Everest, hopefully it doesn't kill us." The lawsuit was filed by Tribune's official committee of unsecured creditors, which serves as a watchdog in the bankruptcy case and represents bondholders and a variety of other creditors.

No word on what would happen to the small fry who cashed out of Tribune shares.