Medley LLC: Liquidating Trust and SEC Fallout

Medley LLC, the operating entity behind the alternative asset management platform built by twin brothers Brook and Seth Taube, filed chapter 11 in the District of Delaware on March 7, 2021, listing $5.4 million in assets against $140.8 million in liabilities. The filing came after Medley missed February 2021 interest payments on two series of publicly traded notes and could not pursue an out-of-court restructuring because its noteholder base consisted largely of retail investors who had purchased "baby bonds" through brokerage accounts. The case moved from petition to a confirmed liquidating trust in just over seven months, but the wind-down has extended well beyond that timeline — the trust remained active as of early 2026, with an adversary proceeding against former special counsel still pending adjudication.

The SEC later charged Medley Management, Brook Taube, and Seth Taube with systematically overstating assets under management by over $1 billion, resulting in a $10 million civil settlement in April 2022. A Delaware Chancery Court had separately found that Medley-affiliated directors breached fiduciary duties in connection with a proposed three-way merger that was abandoned.

Debtor	Medley LLC
Court	U.S. Bankruptcy Court, District of Delaware
Case Number	21-10526
Petition Date	March 7, 2021
Judge	Hon. Karen B. Owens
Confirmation Date	October 18, 2021

Company Background and the Medley Platform

Medley LLC was an alternative asset manager focused on credit-oriented investment strategies, primarily senior secured lending to U.S. middle-market companies with revenues between $50 million and $1 billion. The Taubes co-founded Medley Management in 2006 and took the parent company public in September 2014 at $18 per share on the NYSE under the ticker MDLY.

The First Day Declaration described Medley as operating a single investment-management segment serving permanent capital vehicles, long-dated private funds, and separately managed accounts. Fee-earning assets under management stood at approximately $1.3 billion on the petition date, down from a peak exceeding $5 billion in 2015-2016. Medley itself held about $5.4 million in assets as of year-end 2020 and had no direct employees; 48 employees worked for its direct subsidiary, Medley Capital LLC.

The broader Medley platform included Medley Capital Corporation (NYSE: MCC), a publicly traded business development company that deployed over $5.7 billion to more than 300 companies, and Sierra Income Corporation, a non-traded BDC that raised nearly $1 billion from retail investors before closing in July 2018. MCC voted to internalize management in November 2020, severing ties with the Taubes and renaming itself PhenixFIN Corporation effective January 2021. Sierra later merged with Barings BDC Inc. in 2022.

Causes of Distress and Filing Triggers

The First Day Declaration tied the filing to declining fee-earning assets under management, loss of the MCC advisory relationship after that client internalized management, COVID-era pressure on revenues, and resulting liquidity strain that impaired the debtor's ability to service its notes. The declaration also identified an ongoing SEC investigation as an additional material risk.

Revenue in 2020 was $31.7 million — insufficient to service $141 million in debt. Medley retained B. Riley Securities in December 2020 to explore restructuring alternatives, but the debtor called out-of-court options "largely unworkable" because thousands of individual bondholders had purchased the baby bonds through brokerage accounts, making a consensual workout impractical. The debtor stated that chapter 11 was the mechanism to restructure note claims and the Strategic Capital Advisory Services claim, deleverage the balance sheet, and avoid triggering change-of-control provisions in advisory contracts that risked further client defections. Management's filing thesis centered on preserving advisory-contract value that would have been lost in an immediate liquidation or other uncontrolled change-of-control event.

Capital Structure and Baby Bond Obligations

The First Day Declaration described a streamlined prepetition capital structure with no secured debt and minimal trade debt. The principal funded obligations were:

• Approximately $69 million of 7.25% senior notes due 2024 (NYSE: MDLQ)
• Approximately $53.6 million of 6.875% senior notes due 2026 (NYSE: MDLX)
• An approximately $7.7 million claim held by Strategic Capital Advisory Services, LLC

The notes had been issued between August 2016 and February 2017 in four "baby bond" offerings that raised a combined $122.6 million from retail investors. The SEC later found that the offering registration statements incorporated overstated assets under management figures that included non-discretionary "committed capital" from clients with no obligation to invest. The declaration also noted potential liabilities tied to ordinary-course operations, litigation, and a lease guaranty.

Medley Management Inc., which owned approximately 98% of Medley LLC's membership interests, held the equity position that the confirmed plan cancelled with no recovery.

The Plan of Reorganization and Wind-Down

Medley filed a chapter 11 plan and disclosure statement alongside its petition on March 7, 2021. A combined disclosure statement and plan filed in July 2021 proposed a controlled wind-down to preserve value from remaining advisory contracts and causes of action rather than force an immediate liquidation.

The plan created a reorganization-and-wind-down structure under which the debtor would remain in existence for administrative convenience but a liquidating trustee would be substituted as manager and hold the sole trust interest. The liquidating trust was to be funded with cash on hand, rights to distributions and proceeds from remaining company contracts, and causes of action and their proceeds. The plan included a Sierra-supported employee retention plan to keep personnel managing revenue-generating advisory relationships through the transition. The confirmation hearing, which lasted two days, focused in part on approximately $5.7 million in future payments to compensate employees of non-bankrupt investment adviser Medley Capital LLC.

The Confirmation Order entered October 18, 2021 found the plan and the global settlement fair and overruled unresolved objections. It approved debtor releases, exculpation for defined exculpated parties subject to carve-outs for willful misconduct, actual fraud, and gross negligence, and a permanent injunction. The plan became effective on the same date, with assets and causes of action vesting in the liquidating trust.

UST and SEC Objections to Confirmation

The plan drew objections from both the U.S. Trustee and the SEC.

U.S. Trustee objections. The U.S. Trustee objected at the solicitation stage on August 9, 2021, challenging compressed plan-supplement timing, the adequacy of the liquidation analysis, the breadth of debtor releases and exculpation, the injunction language, treatment of notes-trustee fees without a fee-application process, independent director compensation, and plan language that would disallow claims without a formal objection process. The U.S. Trustee renewed several of those points at confirmation on September 28, 2021, focusing on release and exculpation provisions, payment of notes-trustee fees without Section 503(b) showings, and insider retention compensation under the non-debtor compensation plan. The requested relief was denial of confirmation absent evidentiary support and narrowing modifications to the release and exculpation provisions.

SEC objections. The SEC filed a limited objection to solicitation in August 2021 and a later confirmation objection under seal in redacted form. Based on available filings, those disputes focused on plan treatment involving Medley Capital, releases, and disclosure issues. The court overruled the objections and entered the confirmation order, with Judge Owens ruling from the bench after the two-day hearing.

SEC Enforcement and the Taube Brothers

AUM inflation. From August 2016 through April 2021, Medley included over $1 billion in non-discretionary "committed capital" from clients with no obligation to invest — approximately 20% of the reported $5 billion in assets under management. Two managed accounts claimed commitments of $800 million and $250 million respectively, but invested only $81 million and $49 million over 2.5 years. The inflated figures were incorporated into the baby bond offering documents that raised $122.6 million from retail investors. The SEC's order found that the Taubes and Medley did not disclose the risk that a significant amount of the clients' capital would never be invested and would therefore never generate the fee income on which Medley's financial growth depended.

Misleading merger projections. In June 2018, the Taubes used positive projections of Medley's likely future growth — for which the SEC found they had no reasonable basis — to recommend a three-way merger whereby Medley's two BDC clients, Medley Capital Corporation and Sierra Income Corporation, would acquire Medley Management and provide the Taubes with contracts for high-paying jobs. The materially misleading projections were incorporated into calculations of the "expected" benefit included in the proxy materials that encouraged investors to vote in favor of the transaction.

SEC settlement. On April 28, 2022, the SEC announced charges and a settlement with Medley Management Inc., Brook B. Taube, and Seth B. Taube. The parties agreed to pay $10 million collectively: $4 million from Medley Management, $4 million from Brook Taube, and $2 million from Seth Taube. The settlement included cease-and-desist orders and censures without admission or denial of findings. The SEC found violations spanning Securities Act antifraud provisions (Sections 17(a)(2) and 17(a)(3)), Investment Advisers Act fiduciary rules (Sections 206(2) and 206(4)), and Exchange Act reporting, books and records, and proxy requirements (Sections 13(a) and 14(a)). The respondents were expected to satisfy their penalty obligations by making payments to bondholders in the Medley LLC bankruptcy proceeding.

Delaware Chancery proceedings. In a separate matter, FrontFour Capital Group filed suit in Delaware Court of Chancery in February 2019 to block the proposed three-way merger. Vice Chancellor Kathaleen McCormick found that directors breached fiduciary duties to Medley Capital shareholders, concluding that the Taubes dominated and controlled the board. The merger was abandoned in May 2020.

Professional Retentions and Fee Awards

The debtor was represented by Lowenstein Sandler LLP as lead counsel and Morris James LLP as Delaware counsel, with Eric Monzo, Brya Keilson, and Jeffrey Waxman of Morris James and Robert M. Hirsh, Eric Chafetz, Michael A. Kaplan, and Phillip Khezri of Lowenstein handling the representation. Eversheds Sutherland (US) LLP served as special counsel. The official committee of unsecured creditors was appointed April 22, 2021, with FTI Consulting serving as the committee's financial advisor and Kelley Drye & Warren LLP as committee counsel.

The omnibus final fee order entered in January 2022 granted final compensation and expense awards to the debtor's and committee's retained professionals. The largest final compensation awards included approximately $1.247 million to Kelley Drye & Warren LLP, $1.162 million to Eversheds Sutherland (US) LLP, $1.143 million to Morris James LLP, $1.05 million to the debtor's accountants, and $925,096 to FTI Consulting, with aggregate allowed compensation of $6,813,499.79 and aggregate allowed expenses of $40,266.13. Lowenstein Sandler separately negotiated a $685,000 fee guarantee that drew objections from both the SEC and the U.S. Trustee, who argued the firm exacerbated the case instead of facilitating a speedy resolution.

Post-Confirmation Liquidating Trust

The liquidating trust has continued well beyond the October 2021 effective date. The post-confirmation report for the quarter ended December 31, 2025 reported:

• $22,261,095 in cumulative disbursements since the effective date
• $128,721,951 of allowed general unsecured claims
• Approximately $10,255,798 paid on general unsecured claims, representing an 8% recovery
• The trustee used December 31, 2026 as a placeholder for a future final decree filing date

The trust has also pursued recovery actions beyond the Eversheds adversary proceeding. In May 2022, Medley Management sued Lowenstein Sandler in a separate action over the firm's bankruptcy work, adding another dimension to the post-confirmation litigation profile.

Adversary Litigation Against Eversheds Sutherland

The trust's adversary proceeding against Eversheds Sutherland, the debtor's former special counsel, remains the most significant live contested matter in the case.

The liquidating trust filed an adversary complaint on March 3, 2023. A liquidation trustee had earlier asked a Delaware bankruptcy judge to vacate the firm's final fee application, alleging that Eversheds misrepresented how much it was paid for prepetition services. By early 2026, briefing had closed on Eversheds' summary judgment motion, which argues that the trust's claims are barred by a release. The trust filed its opposition contesting the release defense, and Eversheds filed its opening brief on summary judgment. A notice of completed briefing was filed February 10, 2026, leaving the matter ripe for adjudication.

Key Timeline

March 7, 2021	Medley LLC filed chapter 11 in the District of Delaware, together with a plan and disclosure statement
March 10, 2021	Court held the first day hearing
April 22, 2021	U.S. Trustee appointed an official committee of unsecured creditors
July 6, 2021	Medley filed its combined disclosure statement and plan
August 9, 2021	U.S. Trustee and SEC filed objections to solicitation
September 28, 2021	U.S. Trustee filed confirmation objection
October 18, 2021	Court entered the Confirmation Order; plan became effective the same date
January 10, 2022	Court entered the omnibus final fee order
April 28, 2022	SEC announced $10 million settlement with Medley Management and the Taube brothers
March 3, 2023	Liquidating trust filed adversary complaint against Eversheds Sutherland
January 21, 2026	Trust filed post-confirmation report for quarter ended December 31, 2025
February 10, 2026	Notice of completed briefing filed on Eversheds summary judgment motion

Frequently Asked Questions

What happened to Medley LLC?

Medley LLC filed chapter 11 on March 7, 2021 in the District of Delaware. The court confirmed a liquidating trust plan on October 18, 2021, and the trust continues to administer remaining assets and litigation as of early 2026.

Who are Brook and Seth Taube?

Brook and Seth Taube are twin brothers who co-founded Medley Management in 2006 and served as co-CEOs until resigning in May 2021. They remained as co-chairmen of Medley Management's board. In April 2022, the SEC settled charges against both for overstating assets under management by over $1 billion, with combined penalties of $10 million.

What is the recovery for Medley LLC creditors?

As of the post-confirmation report for the quarter ended December 31, 2025, the liquidating trust had paid approximately $10.3 million on $128.7 million of allowed general unsecured claims, representing an 8% recovery. Distributions continue and the trust's adversary litigation against Eversheds Sutherland remains pending.

Who is the claims agent for Medley LLC?

Kurtzman Carson Consultants LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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