abi: commercial fraud committee webinar · abi: commercial fraud committee webinar | january 14,...

ABI: Commercial Fraud Committee WebinarP u r s u i n g / P r o v i n g F r a u d W h e n I n d i v i d u a l D e b t o r sH i d e T h e i r A s s e t s

J a n u a r y 1 4 , 2 0 2 0

Presented by:

• Scott Brown – BastAmron LLP• Peter Davis – Simon Consulting, LLC• Grace Robson – MRTH Law (Moderator)• Joe Wielebinski – Winstead PC

ABI: Commercial Fraud Committee Webinar | January 14, 2020 2

Scott Brown, Esq.S c o t t h a s b e e n p r a c t i c i n g i n t h eb a n k r u p t c y / i n s o l v e n c y f i e l d f o ra l m o s t 1 6 y e a r s . H e c o n c e n t r a t e sh i s p r a c t i c e o n f i d u c i a r yr e p r e s e n t a t i o n , c r e d i t o r ’s r i g h t s ,b a n k r u p t c y l i t i g a t i o n a n d b u s i n e s sr e o r g a n i z a t i o n . H e i s a C h a p t e r 7P a n e l Tr u s t e e i n t h e S o u t h e r nD i s t r i c t o f F l o r i d a a n d s e r v e s o nt h e B o a r d o f t h e N A B T.


S c o t t m a y b e r e a c h e d a t ( 3 0 5 ) 3 7 9 - 7 9 0 4 & s b r o w n @ b a s t a m r o n . c o m .

Peter S. DavisCPA, ABV, CFF, CIRA, CTP, CFE

P e t e r h a s n e a r l y 2 0 y e a r s ’ e x p e r i e n c e i nc o m p l e x r e c e i v e r s h i p a n d f o r e n s i ca c c o u n t i n g , f r a u d , a n d b a n k r u p t c ym a t t e r s . H i s a r e a s o f e x p e r t i s e i n c l u d eu n d e r s t a n d i n g a n d i n t e r p r e t i n g c o m p l e xf i n a n c i a l d a t a , f r a u d d e t e c t i o n a n dd e t e r r e n c e , a n d d e t e r m i n a t i o n o fd a m a g e s .


P e t e r m a y b e r e a c h e d a t ( 6 0 2 ) 2 7 9 - 7 5 0 3 & p d a v i s @ s i m o n c o n s u l t i n g . n e t .

Grace Robson, Esq.G r a c e R o b s o n i s a n e x p e r t i nb a n k r u p t c y l a w. S h e i s a B o a r d -C e r t i f i e d B a n k r u p t c y a t t o r n e yw i t h o v e r 1 7 y e a r s o f e x p e r i e n c er e p r e s e n t i n g c o r p o r a t e d e b t o r s ,t r a d e a n d i n s t i t u t i o n a l c r e d i t o r s ,t r u s t e e s , r e c e i v e r s , a n d c r e d i t o r s ’c o m m i t t e e s . S h e f o c u s e s h e rp r a c t i c e o n c o r p o r a t er e o r g a n i z a t i o n a n d b a n k r u p t c y,d e b t o r - c r e d i t o r r e l a t i o n s a n dl i t i g a t i o n .


G r a c e m a y b e r e a c h e d a t ( 9 5 4 ) 7 6 7 - 0 0 3 0 & g r o b s o n @ m r t h l a w . c o m .

Joe Wielebinski, Esq.

J o e Wi e l e b i n s k i h a s o v e r 3 5 y e a r s ’e x p e r i e n c e i n b a n k r u p t c y, c r e d i t o r s ’ r i g h t s ,f i n a n c i a l r e s t r u c t u r i n g a n d r e l a t e dl i t i g a t i o n . H e s e r v e s a s E x e c u t i v e D i r e c t o rE m e r i t u s o f I C C - F r a u d N e t , a L o n d o n -b a s e d , i n v i t a t i o n - o n l y o r g a n i z a t i o n o fl a w y e r s w i t h s i g n i f i c a n t e x p e r t i s e i no f f s h o r e a s s e t r e c o v e r y. J o e a l s o s e r v e s i nm a n y b a n k r u p t c y - r e l a t e d o r g a n i z a t i o n s , a n dh a s c o n s i s t e n t l y b e e n r a n k e d b y C h a m b e r sU S A a s a “ L e a d e r i n T h e i r F i e l d ” s i n c e2 0 0 5 .


J o e m a y b e r e a c h e d a t ( 2 1 4 ) 7 4 5 - 5 2 1 0 & j w i e l e b i n s k i @ w i n s t e a d . c o m .

7

Introduction• While the vast majority of individual debtors are honest

and simply need bankruptcy relief, some debtors are not.

• Fraud arises in various contexts and in varying degrees in bankruptcy.

• No set pattern or established set of facts: each case is different.

• The “smoking gun” does not always exist … and is not always found.

• Cannot possibly consider or evaluate every way debtors might hide assets.

• Every case is fact-specific.ABI: Commercial Fraud Committee Webinar | January 14, 2020

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Our Objective Today:

The focus of our discussion will be to look at bankruptcy fraud holistically and give you some insights from various perspectives of how to identify and establish fraud when assets are hidden.

ABI: Commercial Fraud Committee Webinar | January 14, 2020

From the Trustee’s Perspective.

9ABI: Commercial Fraud Committee Webinar | January 14, 2020


Duties of a Trustee:

• Investigate the financial affairs of the debtor.

• Collect and reduce to money the property of the Estate for which such Trustee serves, and close the Estate as expeditiously as is compatible with the best interests of the parties involved.

• If advisable, oppose the discharge of the debtor.


• Avoidance Powers (11 U.S.C. § 544, 547, 548, 549)• 10-Year Lookback Period if the IRS is a Creditor

• 2004 Examination of Debtor and Third Parties

• Ability to Freeze Bank Accounts

• Intercept Tax Refunds

• Home Inspections

Tools and Powers Available to the Trustee:

FROM THE TRUSTEE’S PERSPECTIVE


• Social Media• Creditors• Disgruntled Spouse, Employee, Partner, Etc.• Web Searches• Public Records (County Recorder, Secretary of State, Case History)• Background Searches (From Lexis-Nexis, Westlaw, Experian, etc.)• 2004 Examination of Debtor and Third Parties

Where else do Trustees (and Creditors) find information?

FROM THE TRUSTEE’S PERSPECTIVE

From the Creditor’s Perspective.



• Financial Statements• Tax Returns• Bank Statements• General Ledger• Loan Application Forms• Appraisals

What Information is Available to Assist the Creditors (and Trustees)?

• Guarantees, Financials of Third Parties and Other Entities• Affidavit of Financial

Information in Divorce Cases• Credit Reports (with release)

FROM THE CREDITOR’S PERSPECTIVE

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Alternative Resources:

• Many of the Same Information Sources as Available to the Trustee

• Banking Relationship Search Tools

• Private Investigators

• Gag and Seal Order

• 28 U.S.C. 1782



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(a) The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. By virtue of his appointment, the person appointed has power to administer any necessary oath and take the testimony or statement. The order may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal, for taking the testimony or statement or producing the document or other thing. To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure.


28 U.S.C. 1782


From the Fraud Examiner’s Perspective.


What are we looking for?

• Diverted income to other accounts: children’s trusts, mortgage payments, and prepaid credit cards• Missing documentation evidencing sale/transfers/transactions• Complex and long-term notes with extended payoffs/early

payment discounts


FROM THE FRAUD EXAMINER’S PERSPECTIVE


Comprehensive Online Resources

• BlackBookOnline.Info• Accurint.com• TLO.com• Henleyglobal.com

FROM THE FRAUD EXAMINER’S PERSPECTIVE


• Effective January 1, 2020

AICPA Statement on Standards for Forensic Services

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AICPA STATEMENT ON STANDARDS FOR FORENSIC SERVICES

Establishes Standards for Forensic Services



Potential Causes of Action to Be Brought When Individuals Hide Business Assets

A. Complaint to Avoid and Recover Actual or Constructive Fraudulent Transfers a.Bankruptcy Code - § 548b.State Law - § 544

B. Substantive Consolidation of Business Entity with Individual DebtorC. Complaint that Business is Debtor’s Alter Ego, Nominee TheoryD. Objection to ExemptionsE. Complaint Objecting to DischargeF. Complaint to Determine Dischargeability of Debt

Defenses a Debtor May Raise.



DEFENSES A DEBTOR MAY RAISE

A. Solvency or Insolvency

• 11 U.S.C. § 101(32)(A)• Balance Sheet Test• Debts: Dealing with Contingent Liabilities• In re Blair, 594 B.R. 712, 754-55 (Citing CB Richard Ellis,

Inc. v. CLGP, LLC, 251 P.3d 533-34 (Colo. Ct. App., Div. VII. 2010)).

• In Re Advanced Telecomm. Network, Inc., 490 F.3d 1325, 1335 (11th Cir. 2007)



(Balance Sheet continued)

• “Fair Valuation” of Assets• In Re Trans World Airlines, Inc., 134 F3d 188, 193-94

(3rd Cir. 1998)• Citing BFP v. Resolution Trust Corp., 511 U.S. 531,

537 (1994); Syracuse Engineering Co. v. Haight, 110 F.2d 468-471-72 (2d Cir. 1940)

• Syracuse Engineering Co. v. Haight, 110 F.2d 468-471-72 (2d Cir. 1940)



• Presumption of Insolvency• Highlighted Exemptions/Exclusions from Recovery

• Tenancy by Entirety (“TBE”)• Six Unities

1. Possession2. Interest3. Title4. Time5. Survivorship6. Marriage

• If any one of the unities is absent, then so is the status as TBE.



Tracing Exempt Funds - Are the funds Eligible? If Yes:• FIFO – First In First Out• LIFO – Last In Last Out• FILO – First In Last Out• LIBT – Lowest Intermediate Balance Test• Straight Percentage• Direct Tracing



• Not Property of the Estate• Legal Title v. Equitable Title• Kapila v. Atlantic Mortgage and Investment Corp. (In

re Halabi)• In re Carballo, 2019 WL 6340220 (Bankr. S.D. Fla.

Nov. 26, 2019)



Assets of Trust /Avoidability of Transfers into Trusts• 11 U.S.C. § 548(e)

Types of Trusts:

• Revocable• Irrevocable• See Rigby v. Mastro (In re Mastro)

• Spendthrift Trust• Qualified Personal Residence Trust (QPRT)

Case in Point. E x a m p l e s o f F r a u d s t e r s F a c i n g J u s t i c e .


31

Example Case #1: A Bankruptcy Attorney Who Went Rogue

An Arizona bankruptcy attorney hid his LLC’s assets from his bankruptcy schedules and used those hidden assets to purchase a luxury home and other property in Arizona – also while using a fake name.


32

Timeline: From the Beginning• April 18, 2002 – Attorney’s wife filed for divorce

• April 22, 2002 – Attorney creates shell LLC in Nevada

• Hidden from public records.

• Not disclosed in his bankruptcy.

• Attorney funds the LLC with diverted client money from his law

firm.

BANKRUPTCY ATTORNEY


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Timeline Continued…• The diverted money was not reported on the law firm’s tax

returns.

• Attorney’s own CPA was not aware of this account.

• July 3, 2002 – LLC purchases a Luxury home.

• September 9, 2002 – Attorney files for bankruptcy.

• July 1, 2004 – Ownership of Luxury property transferred to

Attorney for $1.1MM.ABI: Commercial Fraud Committee Webinar | January 14, 2020

BANKRUPTCY ATTORNEY

34

• May 13, 2008 - Attorney was convicted on 33 counts of false bankruptcy declarations, bankruptcy fraud, and money laundering.

• April 14, 2010 - His appeal was denied.


And in the End…

BANKRUPTCY ATTORNEY

35

Example Case #2: Options Trader Hides His Cash Offshore… Then Pays the Price.

Stephen J. Lawrence was feeling pressure after the collapse of the stock market and rather than face the music, he did the following:


36

Timeline of Events

• Black Monday, 1987 – The market crashed • Lawrence’s firms, clients of Bear Stearns, suffer $20MM

margin deficit on Chicago Board of Trade • Bear Stearns issued a margin call demanding he make a

deposit.

• 1991 – Lawrence transfers approx. $7MM to an offshore protection trust on the island of Mauritius.


37

Timeline of Events Continued…

• 1993 – Bear Stearns obtains a federal judgement against Mr. Lawrence.

• 1995 – Bear Stearns files a motion to establish the Mauritius as a fraudulent conveyance.

• 1997 –Lawrence filed for Chapter 7 bankruptcy in FL, Mr. Alan Goldberg becomes Trustee of Mr. Lawrence’s estate.

STEPHEN J. LAWRENCE


38


• 1998 - Goldberg and trust attorneys accuse Mr. Lawrence of trying to hide assets.

• 1999 – Mr. Lawrence was found to be in contempt of court, was ordered a judgement in the amount of $20.4MM, and jailed .

• 2000 – Mr. Lawrence is jailed for contempt for failing to turn over his offshore assets.

• 2006 – Mr. Lawrence is released from jail.

STEPHEN J. LAWRENCE


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Example Case #3: BlueHippo Capital LLC and Joseph K. Rensin, Its CEO

$13,400,627.60The Crime:


40

Timeline of Events: From the Beginning

• November 2001 –Rensin established the irrevocable offshore “Joren Trust”, funded it with $9MM, and named himself the settlor and primary beneficiary, with spendthrift provisions.

• April 2008 – Judgement against BlueHippo was ordered, but that did not include Mr. Rensin.

• November 2009 – FTC alleges violations against the April 2008 judgement, this time including Mr. Rensin.• BlueHippo filed Chapter 11 Bankruptcy, which was later

converted to Chapter 7.

BLUEHIPPO CAPITAL LLC AND JOSEPH K. RENSIN


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• July 2010 – District Court ruled in favor of the FTC and ordered a judgement against BlueHippo and Mr. Rensin of $609,000.

• During the FTC litigation, Mr. Rensin requested and received 14 distributions from the Joren Trust, totaling $8,679,042.• Some was used for legal fees• Some was used to start a new company that failed.

BLUEHIPPO CAPITAL LLC AND JOSEPH K. RENSIN



Q & A

Thank You.

abi: commercial fraud committee webinar · abi: commercial fraud committee webinar | january 14,...

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