The embattled wind-down trustee for defunct life insurance bond seller GWG Holdings in a Houston Chapter 11 case has resigned from the role amid the fallout from her secret romance with a then-bankruptcy judge in the Southern District of Texas.

Elizabeth C. Freeman, a former Jackson Walker LLP partner who gained notoriety after her yearslong romantic relationship with U.S. Bankruptcy Judge David R. Jones came to light, posted a notice Wednesday that she was resigning from the role of wind-down trustee for GWG Holdings. Her resignation came after bondholders called for her to be removed from the case.

Freeman's sparse notice of resignation notes that a wind-down trustee is permitted to resign via 60-day written notice to grant the bankruptcy court time to appoint a replacement. The 60-day clock began Wednesday.

Freeman initially fought to remain on the case, which she said was nearing resolution.

In response to calls for her to step down, Freeman argued that bondholders' allegations against her "have nothing to do with" her work on the matter.

Bondholders in the Chapter 11 case urged Freeman, who now operates her own practice, to step down from the role over her connections to the romance scandal that has rocked the Southern District of Texas bankruptcy court.

"Notwithstanding the myriad lapses of judgment and violations of applicable rules of ethics and conduct, the gravy train continues for Ms. Freeman — she continues to collect fees as wind down trustee despite securing the position through fraud," the bondholders said in the motion.

The move is the latest consequence of a scandal that began about two years ago, when reports first surfaced tying Jones to prominent bankruptcy attorney Freeman, a former clerk. Jones resigned from the judiciary in October 2023.

Jones, who was at the time a member of a two-judge "mega bankruptcy panel" in the district, oversaw mediation that led to a settlement that came ahead of the Chapter 11 action. The case then went to the other half of the team, U.S. Bankruptcy Judge Marvin Isgur.

Southern District of Texas Chief Judge Alia Moses recused Judge Isgur from the Chapter 11 action earlier this week, stating in her order that, though the case was "one of many tainted by the undisclosed intimate relationship" between Jones and Freeman, Judge Isgur was not believed to be involved with or aware of "the Jones-Freeman scheme."

The Office of the U.S. Trustee has launched litigation attempting to claw back millions of dollars in fees paid to Jackson Walker for its work in about 30 bankruptcy cases Jones oversaw during the time he was on the bench and romantically attached to Freeman.

Last week, bondholders objected to a proposed $405,000 settlement between Jackson Walker and GWG Holdings amid the separate but related fee suit, alleging that the deal "smacks of collusion."

In that action, the objectors pointed to Freeman's role as wind-down trustee, arguing that under the deal as contemplated, Freeman would be permitted to continue paying herself, while debtors earn pennies on the dollar.

"Plaintiffs do not merely assert legal malpractice," the objectors said. "Rather, they allege causes of action based on Jackson Walker's intentional misconduct in targeting distressed entities to plunder for professional fees and aggrandizement. These claims include fraud, conspiracy and violations of the RICO statute, among others."

Freeman, Jones and Jackson Walker are also fighting a class action brought by bondholders over the secret romance. A separate but similar racketeering suit over the relationship was dismissed last year.

Freeman told Law360 in an email, "I do not comment on pending matters."

Counsel for the GWG Wind Down Trust and for the bondholders did not immediately respond to requests for comment Thursday.

The TWG Wind Down Trust is represented by Elizabeth C. Freeman of the Law Office of Liz Freeman, Eric M. English and Megan Young-John of Porter Hedges LLP and Matthew Probus of the Probus Law Firm.

The bondholders are represented by Mikell A. West and Robert W. Clore of Bandas Law Firm PC and Shelby A. Jordan of Jordan & Ortiz PC.

The case is In re: GWG Holdings Inc., case number 4:22-bk-90032, in the U.S. Bankruptcy Court for the Southern District of Texas.