(Bloomberg) -- Bankrupt hedge fund Weiss Multi-Strategy Advisers LLC and its largest creditor, Jefferies Financial Group, are discussing a potential settlement that would resolve litigation related to the collapse of George Weiss’ eponymous firm.

A Weiss lawyer said in a Wednesday bankruptcy court filing that the firm has engaged in settlement talks that could resolve a lawsuit accusing Jefferies and its affiliate Leucadia Asset Management of using the threat of litigation against its employees to unfairly extract $20 million from the hedge fund before it filed bankruptcy.

The lawsuit is part of broader litigation between the firms. Jefferies has sought to claw back about $30 million in bonuses Weiss paid its employees before bankruptcy and sued George Weiss, claiming the hedge fund founder personally guaranteed more than $100 million in debt owed by his firm.

George Weiss has denied that claim and alleged Jefferies threatened to ruin his reputation in the investing industry, an allegation Jefferies has denied.

“A settlement offer has been discussed and is currently being considered by the parties,” Weiss lawyer John Jureller Jr. said in a letter to Judge Martin Glenn, who is overseeing the bankruptcy. “While a resolution has not yet been reached, the parties have committed to continue to engage in good faith discussions to see if a settlement is possible.”

The letter disclosing the settlement talks was filed after Glenn urged Jefferies and Weiss to resolve their disputes through mediation. Glenn told lawyers at an Oct. 1 hearing that Jefferies and Weiss are sophisticated parties and that the dispute “calls out for a consensual resolution.”

Weiss and Jefferies would provide the bankruptcy court with another status update next week, Jureller said in the letter.

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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