Bankruptcy Fraud Resource Center

Illinois farmer's wife sentenced to probation following guilty plea

Updating a story we reported here, Margaret Diekemper was sentenced to two years of probation and a $500 fine for her role in a bankruptcy fraud scheme in the Southern District of Illinois following a plea agreement reached with the government last November.  Diekemper was also prohibited from any contact with her husband - whose sentencing hearing is scheduled for next month.  Federal prosecutors asked U.S. District Judge G. Patrick Murphy to impose a one year term of imprisonment, citing the defendant's cooperation with the government in their case against her husband.  Judge Murphy imposed probation after remarking that Diekemper's "overbearing, ignorant" husband seemed to bear the most responsibility for their involvement in the bankruptcy fraud scheme. 

IRS bankruptcy fraud investigation leads to structuring charges

According to this Wisconsin State Journal article, Ismail Beciri was charged in the Western District of Wisconsin with four counts of structuring financial transactions to avoid federal reporting requirements after a federal agents searched his home for evidence of bankruptcy fraud.  Beciri filed bankruptcy in November 2007.  During the course of a search for evidence of bankruptcy fraud, authorities uncovered evidence that Beciri had cashed approximately 60 checks totalling nearly $450,000 in several banks across Wisconsin, according to the Journal.  The status of the bankruptcy fraud investigation is unclear.

Judicial Conference certifies to House bankruptcy fraud basis for judge's impeachment

In a previous post (here) we commented that the Judicial Conference of the United States had certified to the House of Representatives that impeachment proceedings may be warranted against U.S. District Judge G. Thomas Porteus (E.D. La.) and the House Judiciary Committee has formed a task force to investigate the matter.  While no new developments have come to light, the certification documents do shed light on the nature of the allegations against Judge Porteus - and they include several bankruptcy criminal charges.

According to the certification document (available here), the Judicial Conference's determination is based upon "substantial evidence" that Judge Porteus (1) repeatedly signed false financial reporting forms under oath concealing cash and other gratuities solicited and received from lawyers who appeared in proceedings before him; (2) made false representations to gain extension of a bank loan; and (3) "repeatedly committed perjury" by signing false statements under oath in a personal bankruptcy proceeding enabling him to discharge his debts.

The certification does not otherwise elaborate on the bankruptcy criminal allegations.  House Judiciary Committee Chariman John Conyers, Jr. announced here that the Committee has retained Alan I. Barron as Special Counsel to lead the investigation.  The task force conducting the investigation is being lead by Rep. Adam Schiff (D-CA) as Chairman and Rep. Bob Goodlatte (R-VA) as its Ranking Member.

Pennsylvania debtors receive 15 day prison sentence for failing to disclose family business

Tammy Beecher and Wyatt Beecher, a Pennsylvania couple, were each sentenced to fifteen days in prison by U.S. Magistrate Judge J. Andrew Smyser in the Middle District of Pennsylvania for contempt of court for untruthful conduct in their joint bankruptcy case.

According to a press release issued by the U.S. Attorney's Office, the Beechers filed a chapter 7 bankrutpcy petition in May 2007.  The filing stated that the Tammy Beecher had no income and that neither debtor had been involved in the operation of a business within the previous six years.  In fact, the Beechers owned a family business, "Fun 4 Kids Entertainment."  Only after the Beecher’s were presented with a coupon for $5 off any party, and reminded by the chapter 7 trustee they signed the bankruptcy petition under penalty of perjury, did the Beecher’s admit that the business had been operated on-and-off for the past three years.

Funeral home operator indicted on charges of concealing assets and faking funeral expenses

Eunice Roper-Allen, of the Allen Funeral Home, who was indicted last month in the Central District of Illinois, has entered a not guilty plea to charges that she concealed assets in her bankruptcy case and defrauded a funeral home client by falsifying a decedent's funeral expenses.

In the three bankruptcy-related counts, the indictment charges Roper-Allen with concealing two bank accounts, a van and real estate located in Michigan.  The defendant is also charged with failing to disclose a 2005 judgment against her in the approximate amount of $70,000.

In other charges, Roper-Allen is accused of committing mail fraud in a scheme to defraud a customer of $44,000.  According to the indictment, Roper-Allen advised the customer to deposit into Roper-Allen's account $84,000 that belonged to a deceased relative in order to circumvent probate proceedings.  Roper-Allen later returned $40,000 together with falsified checks and receipts of fake funeral expenses to account for the difference.

Speedy trial limits extended in Rivas case on defense complexity motion

The trial of Louis Rivas on a multitude of bankruptcy and non-bankruptcy criminal charges arising from the collapse of his foreign curency exchange firm, The Forex Project (discussed in this post), has been re-scheduled to July 20, 2009.

U.S. District Judge Curtis Collier granted a common defense motion to extend the speedy trial limits due to the complexity of the case.  Among voluminous discovery materials to be reviewed, the case includes over 500 witness located in more than 20 states.  A summary of the charges and access to the indictment is available here.

Parmalat founder sentenced following conviction for bankruptcy fraud in Milan

According to this news report, Calisto Tanzi, the founder of Italian food manufacturer Parmalat was sentenced earlier this month in Milan to serve ten years in prison for his criminal role in the firm's well-publicized collapse.  Tanzi was convicted and sentenced on bankruptcy fraud and criminal association charges.  Dubbed "Europe's Enron," the Parmalat collapse resulted in a series of criminal trials including two of Tanzi's adult children (who negotiated lighter prison sentences) and numerous other defendants.  Three employees of Bank of America were acquitted of related charges.  Tanzi is the first Parmalat executive to sentenced to prison.

Florida mortgage fraud scheme ends in eight year prison term

Anthony Dehaney, whose conviction in a multi-million dollar mortgage fraud scheme we previously reported on here, was sentenced today in the Southern District of Florida to eight years in prison.  Dehaney pleaded guilty to conspiracy, mail fraud and making a false declaration in a bankruptcy case last October.  He admitted before sentencing that he began investing in real estate in 2002 when advisors instructed him that nobody would review the details of his mortgage applications.  He also ackowledged lying on numerous loan applications between 2003 and 2006.  When the real estate market turned for the worse, Dehaney filed fraudulent (forged) bankruptcy petitions on behalf of three straw buyers in order to stop pending foreclosure proceedings.

The sentence imposed by U.S. District Judge William Dimitrouleas exceeded prosecutors' recommendations by approximately three years according to published reports.

Woman charged with filing fraudulent bankruptcy petitions in alleged foreclosure scheme

Sonia Alburez was charged last week with four counts of bankruptcy fraud for allegedly filing fraudulent bankruptcy petitions in the Northern District of California. 

According to the indictment, Alburez solicited homeowners who were delinquent in their mortgage payments and convinced them that her company, Community Home Saver Program, could prevent or delay foreclosure if the homeowners would transfer a fractional interest in their home to one of several fictitious entities and paid Alburez' fees.  She is accused of then filing fraudulent bankruptcy petitions listing the properties to trigger the automatic stay while she collected between $1,500 and $2,500 per month from the homeowners.

Probation imposed for couple convicted of concealing income

According to this news report, Juan Tenorio and Charlene Tenorio each were sentenced to terms of probation after a jury in the District of Guam convicted them of concealing nearly $75,000 in income from their engineering firm during their 2002 bankruptcy case.  U.S. District Judge Francis Tydingco-Gatewood sentenced Juan to five years probation, a fine and restitution.  Charlene received a two-year term of probation, a fine and will be required to make restitution as well.  

Italian fashion designer charged with fraudulent bankruptcy in Rome

According to this AP story, Italian financial police have said that they have arrested fashion designer Gai Mattiolo on charges of fraudulent bankruptcy in Rome.  The charges relate to Mattiolo's allegedly siphoning funds from his fashion house before filing bankruptcy.

As described, the charge of fraudulent bankruptcy appears to be the more serious of two potentially applicable charges under Italian bankruptcy law.  Fraudulent bankruptcy carries a jail sentence of 3-10 years while the lesser "bankruptcy offence" provides for a sentence of six months to two years.

Plan proponents convicted in Hawaiian Airlines bankruptcy fraud case

William H. Spencer and Paul Boghosian were convicted on numerous federal charges relating to their fraudulent conduct in proposing a reorganization plan in the 2003 Hawaiian Airlines bankruptcy case.  Spencer was convicted following a two-week jury trial in Manhattan.  Boghosian pleaded guilty on October 29th.

According to trial evidence, in connection with a bankruptcy court's consideration of two competing reorganization plans, one backed by Hawaiian Investment Partners Group LLC ("HIP Plan") and another jointly backed by the trustee and Hawaiian Holdings Inc., Spencer submitted false affidavits to the bankruptcy court claiming he could provide between $300 and $500 million to fund the HIP Plan through a trust that he controlled. He later submitted a supplemental affidavit, with attached purported bank records, in which he represented that the trust had agreed to commit $500 million to fund the HIP Plan, and that the money was being held in a Netherlands bank account.  Both defendants also gave false deposition testimony and used the false affidavits to solicit interested parties to support the HIP Plan.

As it turned out, the funds did not exist and the documents submitted to the bankruptcy court were completely fraudulent.

Sentencing is scheduled for January 30, 2009 

Deloitte report studying link between bankruptcy and fraud available

The Deloitte Forensic Center and its Reorganization Services Group has produced the findings of a report that studied the correlation between bankruptcy and fraud.  The primary question examined was whether the increased scrutiny that follows a company's bankruptcy filing leads to more incidents of fraud claims as compared to companies that have not filed bankruptcy.    The report is available here.

Among its findings:

·         Companies filing for bankruptcy protection are three times more likely than non-bankrupt companies to face enforcement action by the SEC relating to alleged financial statement fraud.

·         Companies that were issued financial statement fraud-related SEC Enforcement Releases were more than twice as likely to file bankruptcy protection as those not issued one.

·         Approximately one in seven financial statement fraud SEC Enforcement Releases issued to companies that filed for bankruptcy protection were issued prior to their bankruptcy filings. These situations may provide a warning signal of potential bankruptcy filing.

·         Bankrupt companies receiving SEC Enforcement Releases were twice as likely as non-bankrupt companies to have more than 10 alleged financial statement fraud schemes – and at least 1.5 times more likely to have six to 10 alleged fraud schemes than non-bankrupt companies.

Bankruptcy fraud sweep announced in Southern District of West Virginia

Four defendants in the Southern District of West Virginia have been charged in separate cases with various bankruptcy crimes in a small fraud sweep that U.S. Attorney Charles T. Miller hopes will "serve as a warning to those who would abuse the [bankruptcy] system."

Victoria Caudill was charged with concealing assets (18 U.S.C. 152(1)), making a false declaration (18 U.S.C. 152(3)) and devising a bankruptcy fraud scheme (157(3)) for allegedly transferring a $60,000 workers' compensation settlement payment to a bank account not in her name and then failing to disclose the account in multiple filings in her bankruptcy case.

Clinton Smith was indicted and charged with concealing assets (18 U.S.C. 152(1)), making a false declaration (18 U.S.C. 152(3)) and devising a bankruptcy fraud scheme (157(3)) for allegedly failing to disclose in his bankruptcy case his interest in an income stream from the sale of a 50 acre parcel of property formerly jointly owned with his then wife.

Jennifer Longwell was charged by indictment with two counts of making a false oath (18 U.S.C. 152(2)) and one count of concealing assets (18 U.S.C. 152(1)) in her bankruptcy case for allegedly not disclosing the proceeds she received from the sale of two parcels of real estate and then giving false testimony at the meeting of creditors concerning the same transactions.

A fourth defendant, Tracy Helms was charged by information with violating 18 U.S.C. 152(1) by allegedly concealing guns and jewelry in her bankruptcy case.

Farmer pleads guilty; denies involvement in deaths of potential witnesses

As expected, Joey Diekemper has reached a plea agreement with the government and pleaded guilty to conspiracy to commit bankruptcy fraud in Illinois bankruptcy fraud case with ties to a double homocide of two potential witnesses.  Diekemper entered a guilty plea on Wednesday before U.S. Magistrate Judge Clifford Proud.  Outside of court, Diekemper's attorney denied his client had any involvement with the deaths of neighbors who owned the property on which a tractor Diekemper was charged with concealing was allegedly stashed.  Sentencing is scheduled for March 9.  Diekemper's wife, who previously pleaded guilty to conspiring with her husband to conceal assets in their bankruptcy case, will be sentenced on the same date.

Illinois farmer due in court for change of plea hearing; guilty plea expected

Several news outlets here and here are now reporting that Joseph Diekemper, whose wife's guilty plea to conspiracy to conceal assets in bankruptcy case we reported here, is due in court tomorrow for a change of plea hearing.  He is expected to plead guilty under a plea agreement with the government in a case of bankruptcy fraud that also has ties to a double homocide.  For details of the alleged connection and of the deaths of two potential witnesses in the bankruptcy criminal case, see our previous post here. 

Farmer's wife guilty of conspiring to conceal assets

Margaret Diekemper pleaded guilty in the Southern District of Illinois to conspiring with her husband, Joseph "Joey" Diekemper, to conceal assets in their bankruptcy case.  Twenty-two other felony counts will be dismissed as part of plea bargain.  The couple was indicted in June on numerous bankruptcy felony counts inlcuding concealing assets in their multi-million dollar bankruptcy case.  Joseph is incarcerated while awaiting trial on the bankruptcy fraud charges pending against him because a judge revoked his bond for weapons violations.

In a seperate investigation related to the same case, authorities are also investigating the deaths of two potential witnesses found shot to death on property where the couple allegedly hid a tractor they were charged with concealing.  According to news reports citing an FBI memo, the killings came only days after one of the victims approached the FBI about the tractor and told investigators that he was worried that Joseph would burn down his house.  Firefighters found the bodies while responding to a fire at the victims' home.

Margaret is scheduled to be sentenced on February 9th.

District court vacates conviction for not disclosing closed bank account; held false statement not material

Does a false declaration made knowingly and fraudulenly in a bankruptcy case need to be "material" to constitute a bankruptcy crime?  The statute prohibiting such statements (18 U.S.C. 152(3)) does not expressly say so but for years courts have held or assumed that a false statement in a bankruptcy case must relate to a material matter to constitute a crime.  At the same time, the settled definitions of materiality were stated so broadly ("capable of influencing the result of the proceeding;" "pertinent to the debtor's financial transactions;" "related to possible discovery of an asset or area for inquiry") that the additional element seldom (if ever) provided an obstacle to prosecution - or conviction.  But just when we thought the law was static, suddently it appears to be moving again, albeit slowly - and in opposite directions.  

Previously we reported on the Eighth Circuit's decision in United States v. Mitchell, No. 07-3136 (8th Cir. June 10, 2008) holding that the terms "knowingly and fraudulently" in 18 USC 152(3)) sufficiently limit the reach of the statute that an additional element of "materiality" should not be implied.  (The Mitchell decision is also fully discussed in the cover feature of this month's edition of The Bankruptcy Fraud Reporter available here).  Mitchell thus makes easier the prosecution task of prosecuting false statements in bankruptcy cases - at least in the Eighth Circuit.

In the Eastern District of Michigan, however, U.S. District Judge Thomas L. Ludington's decision in United States v. Kalahar, No. 06-20514-BC, Slip op. (E.D. Mich. May 23, 2007) on the same question may produce the opposite effect by giving effect to a materiality element in the bankruptcy false declaration statute.

Among other charges, Kalahar was convicted of making a false declaration by falsely failing to disclose in his filed Statement of Financial Affairs the closing of two personal bank accounts in the year preceding his bankruptcy filing.  One account reflected a balance of $51; the other had a balance of approximately $87.  At trial Kalahar explained that they were old accounts about which he had forgotten which he prepared his bankruptcy filing.  Unpersuaded, a jury convicted the debtor of violating 18 U.S.C. 152(3)); the defendant in turn moved for judgment of acquittal, which Judge Ludington granted.  According to the court: "An essential element of bankruptcy fraud is that the failure to disclose be material.  As the jury instructions explained,'[a] matter is 'material' if it has a natural tendency to influence, or is capable of influencing, the outcome of the bankruptcy proceeding.' . . .  In light of the entire bankruptcy case, inlcuding the fact that Kalahar's liabilities exceeded his assets by well over $1,000,000, these two accounts cannot be said to be material." 

Kalahar undoubtedly opens the door to a new defense at least in the Eastern District of Michigan - to false declaration charges in bankruptcy criminal cases.

Debtor charged with making false statements by submitting false tax returns to U.S. Trustee

Now that debtors must produce copies of their tax returns in bankruptcy cases as part of the bankruptcy laws' already numerous disclosure requirements it was only a matter of time before we began to see some criminal cases built on debtors' making or using false writings (or documents containing false statements) within an executive branch matter in violation of 18 U.S.C. 1001.

Don W. Reinhard, whose indictment in the Northern District of Florida we first commented on here, is  charged with 2 counts of violating 18 U.S.C. 1001 by allegedly submitting to the Assistant U.S. Trustee 2002 and 2005 U.S. Individual Income Tax Returns knowing that each contained false entries.  The 2002 return (filed in January 2007) allegedly falsely claimed a net operating loss carry back from Reinhard's 2005 return that enabled him to avoid paying $385,064 in taxes.  The 2005 return allegedly falsely overstated Reinhard's basis in real property that he sold by approximately $1.9 million.

The United States Trustees' broad authority to act and be heard in bankruptcy cases translates into extensive executive agency jurisdiction under 18 U.S.C. 1001.  Consequently, nearly any false statement made or false writing submitted to the U.S. Trustee's Office in a bankruptcy case could be prosecuted under the false statement statute, subject to proof that it was done "knowingly and willfully."

New Jersey man convicted and sentenced for lying in bankruptcy case about closed bank accounts

Updating a case we reported on earlier (here) Moty Rosenkrantz a/k/a Michael Rosenkrantz, the owner of B&W Motor Cars, pled guilty to structuring banking transactions to avoid reporting requirements and making a false oath in a bankruptcy case.  The defendant admitted in his guilty plea that in July 2003 he filed a bankruptcy petition in which he falsely reported that no financial accounts in his name had been closed in the preceding year when in fact he had closed at least 7 bank accounts in March 2003.

Rosenkrantz was sentenced in the District of New Jersey to 48 months in prison, three years of supervised release and a fine of $10,000.