U.S. Bankruptcy Judge Ellen Carroll made the ruling as part of proceedings initiated when the rap label filed for bankruptcy in April. Carroll said the label's accounting practices were in disarray and noted that Knight testified he hadn't reviewed the financial statements in a decade.
"It seems apparent there is no one at the helm," she said, adding there appears to have been gross mismanagement, allowing her to take away Knight's control.
Knight was not present at the hearing and a message left for his attorney was not returned.
The label and Knight filed for protection under Chapter 11 of federal bankruptcy law. Knight has claimed debts of more than $100 million. The federal filing halted a state court action in which a former couple, who claim they helped found the label, were trying to collect a $107 million judgment from Knight.
Knight has a history of legal problems. He was convicted of assault in 1992 and placed on probation, then jailed for five years in 1996 for violating that probation. He was returned to jail in 2003 for again violating parole, this time by punching a parking attendant at a Hollywood nightclub. He was released in 2004.