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The wide variety of bankrutcy fraud

Third and final part of Summer 2011 review


Ex-Police officer popped, sentencing set for November

In Part 2, we looked at what might be termed "celebrity bankruptcy." Today we'll look at current cases more in the norm of "just regular folks," although the first case does involve a a former police officer.

Short and sweet, WHAS11.com says in a Aug. 15 post that a 53-year-old Louisville Metro officer, Jerry Lee Coulter, pleaded guilty on charges of altering a bankruptcy judge's order regarding a credit for Coulter to get a new vehicle while in bankruptcy.

"Coulter filed for bankruptcy in July of last year and a judge authorized him to get just over $18,000 in credit to buy a car.

"But authorities say he changed the order to show he could get $48,000 in credit.

"He will be sentenced in November."

According to the Courier-Journal, Coulter had placed on "paid administrative leave pending the outcome of the criminal case and an internal investigation" but retired in May, which ended the internal investigation.

What's notable about this case is that a police officer forged a judge's order. I'm not sure how the specific charge will read, but it's a safe bet the bankruptcy judge will not be happy with the officer's behavior--especially after indulging the officer with that much credit in the first place. The CJ says he faces "a maximum sentence of five years in prison, a fine and a one-year period of supervised release."

Ponzi-scheme turned bankruptcy fraud nets two perps

In what seems to a well-known case in the Tampa Bay-St. Petersburg area, the second of two wisenheimers alleged to have been running a Ponzi scheme has pleaded guilty to bankruptcy fraud.

An Aug. 11 piece at TBO.com says:
The second of two partners in a now-shuttered Pasco County investment firm pleaded guilty today to bankruptcy fraud.

As part of the plea deal, Jon Hammill, 40, faces up to five years in federal prison, although likely less under sentencing guidelines.

Hammill, of St. Petersburg, had been set to stand trial Aug. 22.

His former partner, David R. Lewalski, 48, pleaded guilty last month to mail fraud and faces up to 20 years behind bars.

Lewalski and Hammill committed the fraud in connection with their operation of Botfly LLC, a purported foreign currency trading venture in Bayonet Point that authorities say was a Ponzi scheme.

Authorities say the duo roped in "at least 500 investors" to the tune of $130 million, only a fraction of which was ever used actually trading foreign currencies--and they lost most of what they did trade.

According to the story, Hammill neglected to mention his connection to Botfly in his 2009 bankruptcy filing then "arranged for his payments from Botfly to be directed to a shell company to conceal his income."

Real estate agent mixes income tax violations with BK fraud

Fox 5 News in Las Vegas provides the next tale of another bankruptcy brainiac; from an Aug. 4 story:
Las Vegas real estate agent German Posada pleaded guilty in District Court Thursday to charges of filing a false income tax return and making false statements in a bankruptcy proceeding.

Posada is accused of filing a false return in 2004 that underreported income. He earned income from two realtors and had some of his commission checks issued in his girlfriend's name and put into an account bearing her name as well. He underreported in 2005 as well, despite earning over $500,000 that year.

Further, Posada filed for bankruptcy in 2005 and made false statements concerning his income to a bankruptcy trustee.

Posada, described as free on bail until a Dec. 5 sentencing hearing, "will pay the IRS $212,016 in restitution as well as restitution to any victims of bankruptcy fraud." He could get three years on tax beef and another five for the BK charge.

Numbskull award: manager of company in Chapter 11

The prize for biggest bonehead in this group, however, has to go to a Westport, CT man who "was the agent and manager of Reservoir Corporate Group, LLC, a limited liability company that owns a commercial office building in Shelton, and which is involved in chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court in the District of Connecticut," according to an Aug. 11 account at Minuteman News Center:
David B. Fein, United States Attorney for the District of Connecticut, announced that Daniel Steinberg, 42, of Westport, waived his right to indictment and pleaded guilty this week before United States Magistrate Judge Holly B. Fitzsimmons in Bridgeport to one count of bankruptcy fraud.

According to court documents and statements made in court, Steinberg was the agent and manager of Reservoir Corporate Group, LLC, a limited liability company that owns a commercial office building in Shelton, and which is involved in chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court in the District of Connecticut.

As a chapter 11 bankruptcy debtor, the LLC was required to file monthly operating reports with the Bankruptcy Court to disclose, among other things, the amount of cash held each month in debtor-in-possession bank accounts belonging to the bankruptcy debtor. The LLC also was required to provide periodic financial information to the Office of the United States Trustee.

The Connecticut Post says, "Federal bankruptcy laws require that as a debtor, the LLC was required to file monthly operating reports with the court to disclose the cash held each month in bank accounts and to provide financial information to the Office of the U.S. Trustee.

"Between August 2009 and August 2010, Steinberg admitted to transferring about $700,000 without authorization from the court and used the money for personal expenses, and to pay the expenses of other businesses he owned or controlled at the time.

"Authorities said Steinberg falsified the books and records of the company during bankruptcy proceedings and provided false information to the trustee so that his fraud would not be uncovered."

Unbelievable. The company owes nearly $50 million, but the manager thinks he'll just squirrel away about a million--and nobody will notice. Oh, well. Sentencing is set for Oct. 11, when Steinberg learns how much he'll pull on a possible five-year stretch and $250,000 in fines.

Hew the straight and narrow

The lesson is: don't risk getting crosswise with the bankruptcy court. Even if your intentions are honest, there's plenty of ways to make mistakes, and the court is on the lookout for schemers and scammers. So an honest mistake could easily lead to a dismissal. Yes, you can amend filings and re-file, etc., but every time you do so costs more money in fees. Why chance it?

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