Bankruptcy Fraud Resource Center

District judge sets aside bankruptcy fraud convictions

According to this report in The Bay City Times, U.S. District Judge Thomas L. Ludington has granted Patrick B. Kalahar's motion for judgment of acquittal following Kalahar's conviction in the Eastern District of Michigan on multiple charges of bankruptcy fraud.  Kalahar was charged by superceding indictment (available here) in October, 2006 with making false declarations in a bankruptcy case for allegedly failing to schedule a claim by a credit union and failing to disclose a closed bank account on his statement of financial affairs.  A jury convicted Kalahar of the bankruptcy criminal charges and related bank fraud charges in April.  A copy of the opinion and further analysis to follow.

Promotional Copies of Bankruptcy Fraud Treatise Now Available

A limited number of discounted promotional copies of the new bankruptcy fraud treatise, Bankruptcy Crimes Law & Procedure are now available to readers of this blog at 35% off the regular retail price of $289.00.  The promotional copies are available at $187.85 for a very limited time. The Table of Contents and additonal information on the book's exhaustive content is available by clicking the links in the right margin of the blog home page.  For questions or orders, contact the blog owner by clicking the link in the upper right corner of the blog home page.

No privilege or immunity for draft bankruptcy schedules in bankruptcy criminal investigation

Two of the most valuable sources of information in the investigation of a debtor's alleged bankruptcy fraud are the debtor's bankruptcy attorney and drafts of the debtor's schedules (including the completed intake questionnaire).  With limited exceptions, a debtor's bankruptcy counsel may properly be interviewed by investigating authorities, and both he and his files may be subpoenaed for use before a grand jury or during trial.  The contours of this rule, and its exceptions, I analyze in Chapters 5 and 6 of my treatise on bankruptcy fraud, Bankruptcy Crimes Law and Procedure (LRP 2006).

Most recently, the U.S. District Court for the District of Columbia enforced the general rule in United States v. Naegele, No. 05-0151 (PLF) (D. D.C. Jan. 4, 2007), denying the attorney client privilege and work product immunity for a debtor's draft bankruptcy schedules that the government had subpoenaed during the investigation of several alleged bankruptcy crimes.  Upon receiving a subpoena, for his files and trial testimony, the debtor's bankruptcy attorney moved for a protective order, which the government opposed. 

While several categories of documents were at issue, the district court held that the attorney client privilege did not attach to draft bankruptcy schedules because the information they contained was intended to be disclosed publicly to the bankruptcy court and therefore was not confidential.  Naegele, slip op. at 9.  The court also denied the draft schedules any work product immunity holding: "the bankruptcy filing was not itself 'litigation' in anticipation of which protected attorney work product can be created."  Naegele, slip op. at 13.

While neither of these rulings beaks new ground the opinion is important reading for bankruptcy practitioners.  The full text of the opinion is available here.

Does amending schedules preclude a bankruptcy fraud conviction?

One of the most common misconceptions concerning bankruptcy fraud is that a amending a petition or schedule to supply missing (or to correct inaccurate) information in an original filing protects the debtor from a bankruptcy fraud charge.  In the classic context, suppose a debtor omits an asset from the schedules.  A trustee's examination during a meeting of creditors uncovers the asset and the debtor is instructed to amend the appropriate schedule.  The schedule is in fact then duly amended, filed and noticed.  Does the amendment - and hence the disclosure - mean the debtor could not properly be charged with a concealment or false statement?  The answer is no.  While amendments are liberally allowed (see Fed.R.Bank.P. 1009(a)), subsequent remedial measures do not shield a debtor from criminal prosecution (or conviction), although the corrective action may be admissible in a criminal case to show a lack of fraudulent intent. 

Applying this well established rule, the Tenth Circuit recently rejected a debtor's argument that amending his schedules to correct a false social security number (SSN) operated as a defense to a false declaration charge (18 U.S.C. 152(3)).  In United States v. Beach, Nos. 05-3362 - 063053 (10th Cir. Apr. 9, 2007) (unpublished) (available here), a debtor filed a pro se chapter 7 bankruptcy petition in which his SSN was reversed, except for one number.  The clerk eventually noticed the inaccuracy and alerted the debtor to the deficiency.  Within a week of the original filing the debtor filed an amended petition with his correct SSN.  Before discovering the deficiency, however, the clerk published a Notice of Commencement of Case containing the incorrect SSN.  Following his conviction for making a false declaration, the debtor appealed, raising the amendment, among other issues, as a challenge to his conviction.  The circuit court properly rejected the argument finding significant that the "damage" was already done by the time of the amendment because the clerk had issued the Notice with the incorrect SSN (slip op. at 10 n.4). 

While the result is correct, the rationale is not.  The crime was complete the moment the debtor filed the original schedule containing the false declaration with fraudulent intent.  The "harm" caused to creditors or the public in receiving an incorrect Notice is irrelevant to the issue of liability.  In other words, the debtor would properly have been convicted even had he amended the petition in time for the original Notice to be published and had no creditor ever been deceived. 

A final note.  Interestingly in this case, the clerk noticed the error and called it to the debtor's attention before the amendment, making the case even weaker for an "amendment defense."  As a  practical and legal matter, a debtor must have corrected the original inaccuracy before it was discovered to have any realistic chance of demonstrating that the corrective measure shows a lack of fraudulent intent.      

The collateral consequences of a client's bankruptcy fraud

One of the perils of bankruptcy work, particularly in representing debtors, is the risk that a client accused (or convicted) of bankruptcy fraud will claim "my lawyer told me to do it."  Of course, the allegation is nearly never true, and is no defense besides.  But the allegation once made can be a nightmare for the bankruptcy practitioner.  The Seventh Circuit's recent decision in United States v. Roti, No. 06-3192 (7th Cir. May 3, 2007), illustrating this point, should be mandatory reading for the bankruptcy bar - or at least that segment of it that does debtor work. 

Judge Easterbrook's opening paragraph sets the tone:

EASTERBROOK, Chief Judge.  Saddled with a judgment for more than $400,000 on account of a guarantee of his small corporation's debts, James Roti decided to hide his assets from creditors.  He has been convicted of bankruptcy fraud, see 18 U.S.C. § 157, and concealing assets from the bankruptcy trustee, see 18 U.S.C. § 152.  His sentence is 21 months' imprisonment.  Roti concedes that he parked some assets with family members and moved others to accounts unknown to his creditors, and that he lied to his principal creditor, to the federal bankruptcy court, and to the trustee.  Roti says that his lawyer Andrew Werth put him up to it, and at trial he contended that he should be acquitted because Werth managed the scheme's details. . . .

The full text of the opinion is available here.

Maine woman pleads guilty to converting federal funds and making false oath in bankruptcy

Barbara Jean Pearson has pleaded guilty in the District of Maine to the sole count of a criminal information charging her with converting federal funds from the U.S. Department of Health and Human Services Low Income Home Energy Assistance Program and to count 6 of an indictment (available here) charging her with making a false oath in bankruptcy by failing to disclose a business bank account.

Under the terms of a plea agreement, Pearson has waived her right to appeal her conviction and any sentence imposed with the applicable Guidelines range.  The government has agreed to move to dismiss the seven remaining counts of the indictment after sentence is imposed.  A sentencing date has not yet been set.

Gary Peel's motion for new trial available

Updating yesterday's post concerning the case of Illinois attorney Gary Peel, his motion for a new trial is available here. 

In the most relevant aspect of the motion, Peel argues that the district court's exclusion of certain evidence pertaining to his ex-wife prevented him from presenting a complete defense.  In particular, Peel argues that the district court improperly denied the admission of evidence regarding Peel's claims against his ex-wife relating to improper use of marital funds.  This evidence, he explains, would have allowed the jury to consider the full extent of the consideration he was giving up in negotiations with his ex-wife.  Without the evidence, the jury was not allowed to properly weigh whether Peel had fraudulently used the pictures to gain an advantage in the bankruptcy, as the government charged.  In fact, according to the motion, Peel's conduct with respect to the photos was "not done for the purpose of obtaining an advantage in the bankruptcy," but rather "was a reaction to activities on the part of his ex-wife in making private matters in the bankruptcy public."

To this observer, Peel's argument seems strained and will not win a new trial.  The government has not yet filed its opposition.  Stay tuned for further updates.

Peel files motion for new trial on bankruptcy fraud charges

Convicted attorney Gary Peel has filed a motion for a new trial of charges for which he was convicted on March 23, including bankruptcy bribery, obstruction of justice and possession of child pornography, according to this excellent article in The Madison Record.  I will post the motion and discuss the salient arguments concerning the bankruptcy fraud charges later today.

Pennsylvania man convicted of concealing financial accounts

Andrew Andros pleaded guilty this week to a single count indictment in the Western District of Pennsylvania charging him with concealing financial accounts with Ameritrade, Spectra Fund and e-Trade during his 1999 bankruptcy case.  The indictment is available here.  Andros' plea agreement (available here) with the government contemplates that he will receive a 2 level reduction to his offense level at sentencing for accepting responsibility.  Andros is scheduled to be sentenced on July 11.

Gary Peel finally detained pending bankruptcy fraud sentencing

Gary Peel, whose well publicized conviction for bankruptcy bribery, obstruction of justice and possessing child pornography has been reported in numerous columns on this blog, was finally detained pending his June 25 sentencing date.  As reported here, Judge Stihel originally ordered Peel detained pending sentencing but stayed the order when Peel moved for reconsideration.  Upon reconsideration, Judge Stiehl found insufficient evidence of the "exceptional circumstances" required to warrant Peel's release pending sentencing.  Peel turned himself in Monday morning.

"Operation Truth or Consequences" case summaries available

The Justice Department has produced a tidy little report entitled "Operation Truth or Consequences: Case Summaries by State and Judicial District," which I believe I made available some time ago.  The report contains a summary of the charges brought against each of the individuals indicted (or otherwise formally charged) in the well-publicized bankruptcy fraud sweep last fall.  I have reported on each case as developments since then warrant, but several folks have written asking for a copy of the report so I am making it available again here.

New York man convicted of concealing bank accounts

James LoCastro has pleaded guilty to a 2 count criminal information (available here) charging him with failing to file a tax return and concealing gambling income during his 1999 chapter 13 bankruptcy case in the Northern District of New York.  According to the plea agreement in the case (available here), LoCastro did not disclose the existence of two bank accounts into which he deposited and withdrew nearly $200,000 from October, 2000 through June, 2003.  LoCastro also failed to file tax returns for the years 1999-2002, during which time his gross income from business and gambling totaled nearly $1 millon.  The parties agreed, however, that the tax loss for which the defendant was accountable is $53,654. 

In exchange for the guilty plea, the plea agreement contemplates that LoCastro will receive a 3 level reduction to his offense level for acceptance of responsbility.  He is scheduled to be sentenced on August 10.

Debtors' attorney convicted of embezzlement

Robin L. Musher also known as Robin L. Grassel pleaded guilty to 2 counts of embezzling money belonging to the bankruptcy estates of debtors whom he represented.  Musher was indicted  - and convicted - in the Western District of Pennsylvania.  The indictment is available here. 

According to this news report in The Pittsburgh Tribune Review, "Musher admitted that in December 2003 she illegally deposited into her account a check for $47,000 from the sale of property belonging to clients James and Joyce Boughman. Musher and prosecutors agreed that she took $15,000 of that for herself."  In addition, Musher also illegally deposited in December 2004 a check for $104,000 from the sale of property belonging to Michael and Patty Webber, other bankruptcy clients.

Musher is scheduled to be sentenced on June 28. 

Peel ordered detained pending sentencing on bankruptcy bribery charges

According to news stories here and here, Judge Stiehl has ordered that Gary Peel, the Illinois attorney convicted of bankruptcy bribery,  obstruction of justice and possession of child pornography, be detained pending his sentencing on June 25.

District court to determine today whether Gary Peel will be detained pending sentencing

According to this news story in the Madison Record, Judge William Stiehl will determine today whether Gary Peel, who was convicted last Friday of bankruptcy bribery, obstruction of justice and possessing child pornography, will de detained pending his sentencing on June 25.

The government has sought an order detaining Peel because it argues that possession of child pornography is a crime of violence.  The defense concedes that the mandatory detention provisions contained in 18 U.S.C. § 3143(a)(2) apply to Peel's case, but argues that the court retains discretion to grant discretionary release pending sentencing when "exceptional reasons" justify continuing a defendant on bond.

I'll continue to monitor the proceedings and report on the result of the hearing when news is available.

Missouri couple sentenced for concealing assets and false declaration

According to this story in The St. Louis Business Journal, Michael Binns and Mary Binns were sentenced in the Eastern District of Missouri for their roles in concealing assets and making false statements in their joint bankruptcy case filed in December 2003. 

A three count indictment (available here) charged the couple with concealment (Count 1) by failing to disclose a boat, a motorhome, a BMW, three motorcycles, an ATV, a jet-ski, three insurance policies and four retirement accounts all in violation of 18 U.S.C. 152(1).  Count II charged the couple with making a false declaration by failing to disclose each of the same items on Schedule B to their bankruptcy petition in violation of 18 U.S.C. 152(3)  Count III also charged Michael Binns with falsely testifying that a he had disclosed all of this assets in violation of 18 U.S.C. 152(2).  During pre-trial proceedings, the District Court denied the defendants' motion to sever their trials.  The District Court also ruled that Counts I and II were multiplicitous in that they charged two crimes for essentially a single act of nondisclosure.  Had the couple not reached a plea agreement, the government would have been required to elect which count on which it preferred to proceed.  The multiplicity issue is a complex one that will be discussed in a further post.

Under a plea agreement with the government, Mary Binns pleaded guilty to making a false declaration (Count II) for which she was sentenced to three years probation.  Michael Binns agreed to plead guilty to concealment (Count I), for which he was sentenced to 42 months of imprisonment followed by 2 years of supervised release.

Attorney Gary Peel convicted of bankruptcy fraud and obstruction

According to this news report, a jury has convicted Illinois attorney Gary Peel on charges of bankruptcy fraud, obstruction of justice and possession of child pornography.  Peel was charged with bankruptcy bribery, obstruction of justice and possession of child pornography in a case in which he was charged with attempting to trade sexually explicit photos of his ex-wife's underage sister to his ex-wife if she would drop her objection to the dischargeability of Peel's financial obligations to her as a result of divorce proceedings.  The jury convicted Peel of all counts.  Previous posts covering the Peel case are available here, here and here.

Hawkins sentenced for falsifying credit counseling certificates

Marquitta Hawkins, whose case was reported on here and here, was sentenced on Friday after pleading guilty to falsifying credit counseling certificates for bankruptcy cases.  Hawkins was sentenced to seven weeks of time served, six months of home confinement, forty hours of community service and three years of supervised release.

Arizona family indicted on charges of concealing assets and lying in bankruptcy case

A husband and wife, and their daughter were indicted (available here) in the District of Arizona on numerous federal charges, including concealing assets and making false statements in a bankruptcy case.  Sergio Renteria, his wife Sandra Renteria, and their daughter, Kayla Taylor were charged with concealment, making false statements conspiring to impair the Farm Services Agency (FSA), disposing of property pledged to the FSA and making false statements to influence a loan.  The family allegedly obtained loans totalling $800,000 from the FSA and failed to repay them.  Taylor allegedly used the loan proceeds to purchase automobiles while claiming the funds were used for farm operations.  The defendants also allegedly sold crops and farm equipment that had been pledges to the FSA as collateral.  Various of the defendants then allegedly made false statements in the Renteria's bankruptcy case and allegedly concealed hundreds of thousands of dollars of assets.

An April 3 trial date has been vacated and rescheduled to September 11.  The new deadline for plea agreements is August 15.

   

Jury convicts Andrew Yao of making false oaths in bankruptcy deposition.

According to this news article, Andrew N. Yao was convicted yesterday after three hours of juror deliberations of 2 counts of making a false oath in bankruptcy.  As detailed in this post, Yao was charged in the District of Delaware with twice lying during a bankruptcy deposition concerning the purpose of 2 sizeable wire transfers from the account of a corporate debtor of which Yao was sole shareholder.