Creditors want hedge funds probed in RadioShack’s fall

A legal battle royal is threatening to break out in the RadioShack bankruptcy — and Princess Leia of "Star Wars" fame has entered the picture.

"Some rescue," lawyers for unsecured creditors jeered in a lawsuit this week, quoting Leia's complaint as Luke Skywalker and Han Solo were chaotically shooting their way out of the Death Star in Episode IV.

"You came in here — didn't you have a plan for getting out?"

The charge, however, is not that efforts to save RadioShack failed because of bungling or a lack of planning. Rather, the retailer's unsecured creditors charge that a little-known hedge fund may have shrewdly orchestrated the timing of the company's Chapter 11 filing to line its own pockets.

Specifically, the suit is asking a judge for permission to investigate whether New York-based Standard General gained control over RadioShack's board to delay the retailer's bankruptcy so it could make money for itself and other hedge funds off complex derivatives that were tied to RadioShack's debt.

Earlier this month, Standard General submitted a plan in Delaware bankruptcy court to buy as many as 2,400 RadioShack stores, with a proposal to lease about 1,750 of them to wireless giant Sprint — while closing the rest.

Unsecured creditors said this week that approval of Standard General's proposal would amount to "a blanket judicial pardon for whatever it and swap-betting hedge funds may have done."

That may have included using a $535 million rescue package that Standard General provided last October to keep RadioShack solvent just long enough to make contract terms on credit default swaps pay off, according to the suit.

On Wednesday, Standard General denied the allegations, saying its reorganization plan for RadioShack will preserve more than 10,000 jobs.

"Standard General has been a supportive investor of RadioShack and was deeply disappointed that the company had to file for bankruptcy," it said in a statement. "Our recent proposal to acquire approximately half of the store base is the best chance to preserve the business as a going concern."

Unsecured creditors counter that RadioShack, bleeding lots of red ink, would have had far more assets to reorganize if it had filed for Chapter 11 last year — a tough decision that was being mulled by the retailer's advisers before Standard General became involved.

"Shareholders would have been wiped out, but losses would have been stemmed, jobs would have been saved, and unsecured creditors would have had a recovery," the suit claims.

Instead, Standard General disclosed a 10 percent stake in the company last fall before leading the October rescue financing that was secured by RadioShack's best assets.

Indeed, RadioShack's bankruptcy may have been akin to an "assisted suicide," according to lawyers representing more than $500 million in unpaid claims from creditors, bondholders, vendors and landlords.

"The problem is, there's no suicide note, and there are too many unanswered questions."

It is not known when the judge will rule on the creditors' request.

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