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Bankruptcy fraud follow-up

Second part of Summer 2011 review


Last time, we looked at a pair of senators who have cosponsored the Fighting Fraud in Bankruptcy Act and have launched a probe of mortgage servicers in an effort to root out those who violate bankruptcy laws during foreclosure actions.

Former MLB star, Lenny Dykstra

Today we'll survey a cross-section of news stories from around the nation concerning bankruptcy fraud. Probably the most famous subject in these stories is former baseball star Lenny Dykstra, most recently linked to yet another sexscapade (which you can read about), but from the same article, here's the skinny on the bankruptcy charges:
Dykstra was indicted in May on bankruptcy fraud for allegedly selling items from his $18 million mansion in Ventura County, a federal prosecutor said.

In that case, Dykstra was charged with 13 counts: bankruptcy fraud, obstruction of justice, four counts of concealing property from the bankruptcy estate, three counts of embezzlement from the bankruptcy estate, and four counts of making false declarations to bankruptcy court, according to a statement from spokesman Thom Mrozek of the U.S. Attorney's office in Los Angeles.

After filing for bankruptcy protection, Dykstra allegedly "looted" his Sherwood Estates mansion in Thousand Oaks, California, lied about who stripped the mansion, and denied receiving money for having sold items that were owned by the bankruptcy estate, Mrozek said.

According to court documents, an attorney hired by the bankruptcy trustee estimates that Dykstra stole and destroyed more than $400,000 worth of property in the estate.

Couple from 'New Jersey Housewives'

An Aug. 27 piece at RumorFix.com asks the question, "Are Teresa and Joe Giudice Going to Jail For Bankruptcy Fraud?" Apparently the couple is well known to fans of reality TV and a show called "Real Housewives of New Jersey."

Their life together, though, sounds surreal: Similar to Dykstra, the couple seems surrounded in a swirl of legal problems, although not to the same degree; for instance, Joe has been charged with everything from ignoring old tickets, to DWI to forgery. However, in reducing some of Joe's sentences, a judge was quoted as saying, "Certainly you’re not a Boy Scout but I don’t think you’re John Dillinger either."

Following are excerpted highlights of the bankruptcy picture:

  • October 2009 – DLJ Mortgage Capital Inc  filed papers with the Superior Court of New Jersey to repossess the house that Teresa owns with her husband Joe.

  • Joe’s partner won a judgment against Joe for forgery, Joe admitted to the courts that he signed his partner’s signature on loan documents.

  • The Giudice’s filed for Chapter 7 Bankruptcy relief asking the courts to discharge all of their debt: the couple lists $11.8 million in debts. That includes $5.8 million on various business investments made by Joe, $2.6 million in mortgages on three homes, and $12,000 owed to a fertility clinic.  The couple also list $104, 000 in credit card bills, including $20,000 to top-tier department stores like Neiman Marcus and Nordstrom, and $2,300 to the phone company.

  • September 2010 – The Trustee in the Giudice’s bankruptcy case filed a petition in the courts to deny Joe and Teresa’s request for Bankruptcy protection due to the Giudice’s failure to include all of their assets in their original filing.  In essence, Joe and Teresa are being accused of hiding assets so that they wouldn’t lose them in the Bankruptcy and so that they would be able to keep some of their properties and much of the cash on hand yet still qualify for to have their debt discharged.

Among other things the Giudice’s are accused of failure to disclose all of their rental properties, business income, Teresa’s book advance and claiming to have filed their income taxes when according to the IRS, they hadn’t actually  filed the income tax documents that they included in their petition.  The IRS is reportedly investigating this couple.

(The 19-page list of the Giudice’s failure to disclose all of the true and proper information can be found here.)

Bottom line? The bankruptcy court could dismiss their petition, leaving the couple vulnerable to all creditors, including the mortgage lender, which could proceed with foreclosure. Furthermore, criminal charges could be filed, leading not only to penalties but also jail sentences. The case is scheduled to resume in December.

Disgraced ex-attorney found to have combined child porn in bankruptcy/blackmail scheme

In a case that first heard sentencing in March 2007, a former Illinois attorney has been re-sentenced too 144 months, even though one count was dropped. According to a recent press release, Gary E. Peel, a 67-year-old Glen Carbon, IL man whose law license was suspended in March 2007 and who was disbarred in April,  heard the judge dismiss "the obstruction of justice charge"; the judge then "again sentenced Peel to a term of imprisonment of 144 months. Peel received a concurrent sentence of 120 months’ imprisonment on each of the two child pornography counts and a sentence of 24 months on the bankruptcy fraud count to run consecutively to the child pornography counts, for a total of 144 months. 'Those who possess child pornography, prey on the innocence of others, and use the legal system as a weapon for their own personal gain, are deserving of stiff sentences such as this,' said United States Attorney Wigginton. 'My office has, and will continue to pursue those who violate the law, no matter their station in life.' "

According to the PR, the original jury believed Peel had hatched a lame-brain scheme that hinged on using racy photos of his ex-wife's teen-age sister:
On March 23, 2007, a federal jury sitting in East St. Louis, Illinois, found Peel guilty of one count of bankruptcy fraud, one count of obstruction of justice related to the bankruptcy count, and two counts of possession of child pornography. The jury found that Peel had attempted to blackmail his ex-wife in the course of a bankruptcy proceeding by threatening to disclose sexually explicit photographs taken of his ex-wife’s younger sister when she was 16 years old. Peel had previously received a prison sentence of 144 months. On appeal, the Seventh Circuit Court of Appeals ruled that either the bankruptcy fraud or obstruction of justice charge should be dismissed, that the court should recalculate the intended amount of fraud in the bankruptcy proceeding, and that Peel should be re-sentenced.

Next time: More schemes, foiled.

Consumer bankruptcy for yourself

If you're considering filing for consumer-level bankruptcy protection, be aware that legally you can file the petition yourself. You can also hire "advocates" who can point you toward the correct forms and provide a minimal amount of information--although they can not offer legal advice. That being said, bankruptcy experts and legal authorities recommend hiring a trained, experienced attorney who keeps up with changes to the code and is familiar with all the principals in your area's bankruptcy court.

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