(Bloomberg) -- Weiss Multi-Strategy Advisers should claw back about $30 million that it paid employees just before filing for bankruptcy, the hedge fund’s main creditor, Jefferies Financial Group, said in court Tuesday.

At Weiss’ first bankruptcy hearing, Jefferies claimed the hedge fund wrongly paid out bonuses when Weiss was already insolvent, and that cash should have been used to pay down debt owed to the bank. A Weiss lawyer said the bonuses were standard compensation for its employees and necessary because at the time the firm was trying to secure a rescue deal with Millennium Management. That deal ultimately fell through.

If Weiss doesn’t seek to recover the funds, Jefferies can ask US Bankruptcy Judge Martin Glenn for permission to try to retrieve the money itself.

Jefferies also demanded at the hearing that the defunct hedge fund’s current executives be removed, alleging that the Chapter 11 case was filed in “bad faith.” Glenn rejected Jefferies’ request to turn the hedge fund, and control of the case, over to a court-approved trustee for immediate liquidation, but added that such a move but could be sought again later.

Weiss filed for bankruptcy on April 29, about two months after the hedge fund told investors it was shuttering and returning capital. The company owes various Jefferies’ affiliates about $100 million, according to court records. As part of its bankruptcy, Weiss is seeking to recover $20 million, alleging the money either wrongly went to Jefferies over other creditors or was obtained under the threat of litigation. Jefferies has denied the allegations.

George Weiss founded his eponymous firm in 1978. As of December it managed $2.3 billion.  

The case is Weiss Multi-Strategy Advisers LLC, 24-10743, US Bankruptcy Court for the Southern District of New York (Manhattan).

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