Bankruptcy Fraud Resource Center | Wayne D. Holly, P.C.

Attorney Convicted of Embezzling Estate Funds Denied Compassionate Release Pending Sentencing

The U.S. District Court for the Eastern District of Ohio denied a request by John W. Gold that he be released pending sentencing following his guilty plea to embezzling property from a bankruptcy estate.  Gold admitted in a plea agreement that he embezzled the funds and also committed bank fraud and aggravated identity theft.  Many of the facts surrounding the initial charges are available in this news report.

After being indicted in 2018, Gold evaded arrest for nearly a year until he was arrested in Thailand in September 2019.  He's been in custody since.  Last month he filed a motion to be released pending sentencing which, not surprisingly, the district rejected in short order (here) holding that evidence of Gold's flight risk was "obvious" in that he evaded arrest for 324 days until located in Thailand.

The court also rejected Gold's request for compassionate release on the ground that the jail where he is housed will likely become infected with COVID-19.  Judge Polster observed that the jail is taking proper precautions to avoid an outbreak.

District Court Orders U.S. Marshall to Arrest and Incarcerate Debtors Held in Civil Contempt

The U.S. District Court for the District of Nebraska took the unusual step of directing the U.S. Marshall to located, arrest and incarcerate two pro se debtors found in civil contempt for repeatedly failing to obey orders of a Nebraska bankruptcy court.  The case is In re Berg, No. 8:19-cv-00452. 

According to the district court's order (here), the debtors apparently had flouted several orders of the bankruptcy court before U.S. Bankruptcy Judge Thomas Saladino.  The District Court held a hearing on the debtor's contempt at which the debtors failed to appear.  For failing to appear (in both the district and bankruptcy courts) the District Court held the debtors in civil contempt and further held the debtors in contempt for failing to appear at the 341(a) meeting of creditors and for failing to comply with the bankruptcy court's order to turn over assets and information to the trustee.

Accordingly, the District Court ordered the U.S. Marshal "immediately [to] arrest and incarcerate the Debtors . . . until their contempt is purged . . . by immediately turning over to the Trustee the assets described in the Trustee's motion and by submitting to an examination by the Trustee with respect to their assets, liabilities, financial transactions and any other matters relating to the administrative of their bankruptcy case."

Compassionate Release Denied to Bankruptcy Fraud Defendant In Kentucky Federal Prison

A bankruptcy fraud defendant who "relie[d] entirely on the generalized threat of COVID-19" and "failed to explain why he is particularly vulnerable to it" is not entitled to compassionate release under the First Step Act, ruled a federal court in Indiana. 

Todd Wolfe, founder of the defunct Indianapolis debt-collection agency Deca Financial Services Inc., filed the motion to have his prison sentence reduced to time served.  Wolfe pled guilty to wire fraud, bank fraud and bankruptcy fraud charges and was sentenced to concurrent terms of 51 months imprisonment for each offense in June 2017 (press release).  He is incarcerated at the United States Penitentiary in Big Sandy, Kentucky where he began serving his sentence November 29, 2018.  Wolfe's earliest release date is April 11, 2021. 

A court may reduce the term of imprisonment for a federal inmate (who has exhausted all administrative remedies) only for "extraordinary and compelling reasons" and even then must make several specific factual findings required by law.  Among "compelling reasons" suggested in the U.S. Sentencing Guidelines are (i) a terminal illness diagnosis, (ii) serious health condition from which the prisoner is unlikely to recover in prison, (iii) age-related health decline for prisoners more than 65 years old who have served at least 75% of their sentence, and (iv) other family circumstances.  While the law provides a "catch-all" for "extraordinary and compelling reasons" other than those or in combination with them, Wolfe raised a claim that his sentence was miscalculated and he should already have been released to a half-way house or home confinement.  This, according to the district court, was insufficient. 

The court observed that Wolfe does not allege any health conditions that increase his risk for suffering serious complications.  While the defendant made passing reference to COVID-19 in a supplemental filing, "the mere existence of COVID-19 in society and the possibility that it may spread to a particular prison alone cannot independently justify compassionate release, especially considering [the Bureau of Prison's] statutory role, and its extensive and professional efforts to curtail the virus's spread."

Bankruptcy Attorneys Compelled to Disclose Name of Client as Court Holds Attorney-Client Privilege Inapplicable

A South Carolina bankruptcy court last week ordered a local law firm to disclose the names of bankruptcy clients amidst a discovery dispute with the U.S. Trustee.  The attorney-client privilege, the court held, does not apply to information disclosed for the purpose of filing a bankruptcy petition or assembling the schedules because the information, ultimately, is intended to be publicly disclosed.  The U.S. Trustee sought the information in connection with its motion to review the conduct of the firm and for disgorgement of fees.  The case is In re Hogan, No. 18-05693-HB (Bankr. D. S.C. May 19, 2020) (available here).

The bankruptcy court's decision hardly breaks new ground, as the attorney-client privilege long has been held inapplicable generally to a client's identity and the amount of the fee - with an exception where disclosure of identity has not been authorized by the client and compelled disclosure would reveal a client's confidences.  The decision is a very good reminder, however, of the many pitfalls that a bankruptcy filing creates for debtors who may, or expect to, be the subject of a parallel criminal investigation. 

Courts generally have held that attorney-client privilege does not shield a debtor from compelled disclosure (by the debtor or the debtor's attorney) in a criminal case of matters required to be disclosed in the bankruptcy petition or schedules.  Thus, material of this kind can be, and regularly is, accessed in bankruptcy criminal investigations, at trial or during plea negotiations, and even at sentencing.  The precise contours of the privilege in bankruptcy-related matters, of course, must be determined on the facts of individual cases and compelled disclosure should be resisted by counsel on behalf of the (former) client when appropriate so that a proper judicial determination may be made.

Advice of Counsel Defense Negates Fraudulent Intent in False Oath Case

A North Carolina Bankruptcy Court recently upheld the advice of counsel defense to allegations that a debtor knowingly and fraudulently made a false oath in bankruptcy, confirming once again that debtors who reasonably act, after full disclosure to their attorneys, on the advice of counsel do not intend to deceive or cheat creditors.  The case, DFWMM Holdings, LLC v. Richmond (In re Richmond), Case No. 17-11413; Adv Proc. No. 18-02010 (Bankr. M.D. N.C. April 24, 2020) (opinion here), was on remand from the U.S. District Court for the Middle District of North Carolina, No. 1:19CV667 (M.D. N.C. March 9, 2020) (opinion here).   The advice of counsel defense is interpreted consistently across civil proceedings to deny a debtor's discharge (11 U.S.C. 727(a)) and criminal cases construing the parallel bankruptcy crimes provisions (18 U.S.C. 152).

A prepetition judgment creditor commenced an adversary proceeding to deny the debtor's discharge on the ground that he knowingly and fraudulently made a false oath or account in his chapter 7 case.  Following trial, the bankruptcy court found that the debtor made three false statements in the schedules or statement of financial affairs: (1) his debtors were primarily consumer debts; (2) his gross income from operation of a business was $0; and (3) failure to list his interest in a Harley Davidson motorcycle on Schedule A/B.  The secured debt owed to the financial company and the motorcycle itself was identified as collateral on Schedule D.  The court found that counsel for the debtor was fully informed of the facts in each case and the debtor reasonably relied on counsel's advice in each matter when completing the schedules.  The debtor's reasonable reliance on the advice of counsel therefore negated any inference of fraudulent intent - an essential element of the cause of action.

Bankruptcy Court Approves Levandowski's Retention of Special Criminal Counsel in Chapter 11 Case

Updating an earlier post (here) on Anthony Levandowski's request for bankruptcy court approval to retain special criminal counsel in his chapter 11 bankruptcy case, it appears that U.S. Bankruptcy Judge Hannah L. Blumenstiel approved the retention but not before the request was modified following objections from the United States Trustee and Google - Levandowski's former employer from whom the debtor was convicted of stealing trade secrets.  Prior to the May 21 hearing on the application, Levandwoski withdraw the request to retain special criminal counsel to represent both himself personally and as debtor in possession because, according to pleadings, the law is unclear whether counsel could be retained to represent the debtor in possession.  The application was modified to reflect a request only that special criminal counsel be permitted to continue to represent Levandowski personally. 

According to the docket in In re Anthony Scott Levandowski, Case No. 3:20-bk-30242 (Bankr. N.D. Cal), the application was approved "for the reason stated on the record" of the hearing on May 21.  The United States Trustee had opposed special criminal counsel's retention on a number of grounds related to the proposed fee arrangement and pending a showing that counsel's retention would benefit the estate.  The debtor argued that criminal counsel's retention benefitted the estate because a plea agreement negotiated with the U.S. Attorney's Office capped the amount of restitution in the criminal case and counsel's efforts to limit the debtor's exposure to a long prison term would leave the debtor at liberty to work and earn funds that would be property of the estate.

Counsel Not "Compelled" to Turn Over Files of Former Bankruptcy Fraud Client for Habeas Petition

The U.S. District Court for the District of Minnesota recently denied a motion to compel a bankruptcy fraud defendant's former attorney to turn over his case file to assist the former-client in preparing an anticipated habeas petition. 

Bryan S. Reichel was convicted by a jury of wire fraud and bankruptcy fraud in November 2016.  He was sentenced June 2017. Reichel appealed, and the U.S. Court of Appeals for the Eighth Circuit affirmed the convictions and sentence in December 2018. Reichel recently moved for a court order compelling his former court-appointed defense counsel to provide him with the case file.  The district court denied the motion in United States v. Reichel, Case No. 14-cr-0298 (WMW/FLN) (D. Minn. Feb. 11, 2020) (available here).

The court held that while it is mindful of certain ethical obligations that may be implicated by Reichel's request (ABA Standards of Criminal Justice, Defense Function Standards and Commentary and Minnesota Rules of Professional Conduct), ethical obligations do not vest the court with authority to compel the production from a former attorney of the case files.

Bankruptcy Judge Makes Criminal Referral of Serial Filer Who Duped Counsel into Filing Case in Ex-Wife's Name

A serial bankruptcy filer was criminally referred to the U.S. Attorney's Office in the Northern District of Texas in connection with an alleged and convoluted series of bankruptcy filings in his own and his ex-wife's name in order to stay pending foreclosure proceedings.  U.S. Bankruptcy Judge Gernigan's memorandum opinion sorting out the facts and making the criminal referral is available here.

According to the court, Gabriel Santos, who had filed bankruptcy three times, was barred from filing bankruptcy for 180 days after having his most recent chapter 13 case dismissed with prejudice. To work around the bar, Santos sought to file bankruptcy in his ex-wife's name, without a power of attorney or any other form of authorization, to prevent imminent foreclosure on his house. He falsified emails purportedly from his ex-wife authorizing the bankruptcy and sent them to his attorney the day before the scheduled foreclosure.  Santos also brought to counsel $3,500 cash.  Counsel filed a chapter 13 petition, schedules, and statement of financial affairs using Mrs. Ramos's name and social security number without obtaining a single wet signature.  Santos said his ex-wife was out-of-town and unavailable to talk to counsel on the telephone—yet, somehow, she was supposedly able to take credit counseling from a remote location and email counsel a purported profit and loss statement for a business. The attorney decided to forge Mrs. Ramos's electronic signature at least six times on documents filed with the court—allegedly assuming, in good faith (according to the court), that he had her permission—via her ex-husband—to do so.

Eventually, the chapter 13 trustee filed a motion to dismiss the case and counsel, in an attempt to undo his mistake, filed a motion to expunge on behalf of Mrs. Ramos.  After a hearing, the bankruptcy court declined to expunge the case, lest evidence of potential bankruptcy fraud might be eliminated.  Instead, the court directed the chapter 13 trustee to submit an order of dismissal.  The bankruptcy court determined that Santos not only abused the bankruptcy system but also manipulated counsel assisting Santos in what appeared to be a scheme to commit bankruptcy fraud and identity theft against his ex-wife.  As a result, Judge Gernigan referred the matter to the U.S. Attorney for further inquiry.

Bankruptcy Attorney Guilty of Embezzlement Furloughed From Prison Amid COVID-19 Pandemic

The Bureau of Prisons (BOP) furloughed a former bankruptcy lawyer serving a 63 month sentence following a guilty plea to several bankruptcy crimes.  Peter Ressler, 72, pled guilty in 2017 to wire fraud (18 U.S.C. 1343), embezzlement from a bankruptcy estate (18 U.S.C. 154), and bankruptcy fraud (18 U.S.C. 157). 

According to the government, Ressler defrauded a large number of his bankruptcy clients of approximately $3.4 million.  According to this press release, Ressler misappropriated funds on deposit from his chapter 11 and chapter 13 bankruptcy clients to his own personal use, including to pay living expenses and the costs associated with his Connecticut law practice.  In some instances, Ressler misappropriated to his own use funds received from clients in purported non-bankruptcy "workouts" rather than paying settlements with creditors. A portion of the embezzled funds were also used to make payments associated with other clients and estates from which monies had improperly been taken.  Ressler filed made false accounts and filed false operating reports in some cases to cover up the offenses.

While Ressler's motion for compassionate release was pending before U.S. District Judge Alfred Covello, BOP exercised it's authority to furlough Ressler together with several other inmates among concern for their safety amid the corona virus pandemic.  Ressler was released to home confinement for at least 30 days on May 4. The BOP could decide to permit Ressler to complete his sentence in home confinement.  He has served approximately 24 months in prison.  Apart from COVID-19 concerns, BOP could consider Ressler eligible for release to home confinement in 18 months if it determines he is qualified for the elderly offender early release program.

Disputed Plea Agreement Not Enforceable in Bankruptcy Fraud Case

A recent case that provides great practical lessons both for counsel and bankruptcy criminal defendants denied a defendant's motion to dismiss an indictment under circumstances where an alleged plea agreement on misdemeanor charges could not be proven and was never accepted by the court.

In United States v. Welch, No. 4:19-CR-00278-DCN (April 7, 2020), the defendant filed a bankruptcy petition and later was accused of concealing hundreds of thousands of dollars in assets during the case.  According to Welch, he received a target letter from the U.S. Attorney's Office.  His attorney began investigating the case and negotiated with the government a misdemeanor plea agreement.  In the ensuing time period, a discovery package arrived but no plea agreement.  Nine months later, Welch was indicted on two counts of bankruptcy fraud and two counts of concealing assets in his bankruptcy case.  He moved to dismiss the indictment on the ground that the government reneged on the alleged plea agreement or in the alternative to enforce the agreement and reduce the charges to a misdemeanor offense.  The government opposed the motion arguing (1) there was no plea agreement and (2) if there was an agreement it wasn't binding because it was never accepted by the court and the defendant did not detrimentally rely on it.

The court credited the government's position and denied the motion.  The court held there was insufficient evidence that a plea agreement was negotiated, agreed upon and drafted.  Welch provided no supporting documentation, declarations, or affidavits.  He could have provided an affidavit himself, or sought one from the negotiating attorney or prosecutor but didn't.  And he could have provided attached email negotiations as exhibits, but didn't.  On the record, the court had only alleged communications from two attorneys formerly involved in the case which amounted to inadmissible hearsay.  Without adequate admissible evidence of the plea agreement, dismissal of the indictment was not warranted. 

Interested readers are referred to the full opinion here for the court's treatment of the detrimental reliance issue, which the court need not have reached since it found no evidence for an agreement in the first place.