Bankruptcy Fraud
According to the Federal Bureau of Investigation, the concealment of assets is "[t]he most committed offense in relationship to bankruptcy fraud investigations. Fraudulent filers understate the value of their assets so they can keep more of what they have amassed." As the United States Trustee Manual further recognizes, there are often a number of red flags when the white-collar crime of bankruptcy fraud occurs. There are also many different kinds of common bankruptcy frauds. For example, was a bankruptcy used as part of a bustout in which a business acquired goods on credit without the intent of ever paying for them? Have insiders depleted business assets long-term as in the case of a bleedout or has a pyramid scheme/investor fraud occurred? Did the debtor fail to list assets on bankruptcy schedules in order to cheat creditors out of their fair share of the bankruptcy estate? Was a sham creditor concocted to file a proof of claim in the bankruptcy? Could the debtor have fabricated other kinds of debt to make him / herself appear penniless throughout a bankruptcy proceeding?
A creditor trying to recover assets from a bankrupt debtor should always ask the foregoing kinds of questions while pursuing all available legal remedies in the bankruptcy court. Ordinary legal remedies however can often fail against a determined debtor who for instance might take advantage of strong bank secrecy laws by using a nominee as the bank signatory on an offshore bank account. Even in such a situation, a creditor can still prevail over the debtor. This is true because once the offshore bank account was located, the creditor could seek a court order directing the nominee to execute and supply an authorization form for the release of the offshore bank records. The creditor would then conceivably gain access to the debtor's offshore bank account records by presenting the executed authorization form to the bank.
It may also be advisable to seek a "Request For Legal Assistance", (i.e. a court ordered asset search prosecuted in a foreign country), where a debtor has hidden assets in an offshore tax haven. Furthermore, on rare occasions a defrauded creditor might prevail against a bankrupt debtor by filing a civil RICO lawsuit for "lost debt injury" pursuant to Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105 (2nd Cir 1988).
Sometimes at the time of a bankruptcy, a debtor will cheat his/her creditors by concealing assets in domestic bank accounts or businesses. Such was the case of Mr. Jimmy Quan, convicted May 23, 2007 of: conspiracy to conceal assets, 18 U.S.C. § 371; bankruptcy fraud, 18 U.S.C. § 157; concealment of assets, 18 U.S.C. § 152(7); making false declarations, 18 U.S.C. § 152(3); and money laundering, 18 U.S.C. § 1956(a)(1)(B)(i). According to the Department of Justice, Mr. Quan's bankruptcy creditors lost over $5 million because he had: diverted revenue from one of his companies to a business controlled by a family member; diverted revenue from yet another of his companies to businesses controlled by both he and his wife; and also laundered money through his child's personal bank account.
Finally, every bankruptcy matter should be carefully scrutinized to insure that a creditor receives his/her due. This is especially important because assets can be concealed in such a wide variety of ways during a bankruptcy.
Copyright 2007 Fred L. Abrams
A creditor trying to recover assets from a bankrupt debtor should always ask the foregoing kinds of questions while pursuing all available legal remedies in the bankruptcy court. Ordinary legal remedies however can often fail against a determined debtor who for instance might take advantage of strong bank secrecy laws by using a nominee as the bank signatory on an offshore bank account. Even in such a situation, a creditor can still prevail over the debtor. This is true because once the offshore bank account was located, the creditor could seek a court order directing the nominee to execute and supply an authorization form for the release of the offshore bank records. The creditor would then conceivably gain access to the debtor's offshore bank account records by presenting the executed authorization form to the bank.
It may also be advisable to seek a "Request For Legal Assistance", (i.e. a court ordered asset search prosecuted in a foreign country), where a debtor has hidden assets in an offshore tax haven. Furthermore, on rare occasions a defrauded creditor might prevail against a bankrupt debtor by filing a civil RICO lawsuit for "lost debt injury" pursuant to Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105 (2nd Cir 1988).
Sometimes at the time of a bankruptcy, a debtor will cheat his/her creditors by concealing assets in domestic bank accounts or businesses. Such was the case of Mr. Jimmy Quan, convicted May 23, 2007 of: conspiracy to conceal assets, 18 U.S.C. § 371; bankruptcy fraud, 18 U.S.C. § 157; concealment of assets, 18 U.S.C. § 152(7); making false declarations, 18 U.S.C. § 152(3); and money laundering, 18 U.S.C. § 1956(a)(1)(B)(i). According to the Department of Justice, Mr. Quan's bankruptcy creditors lost over $5 million because he had: diverted revenue from one of his companies to a business controlled by a family member; diverted revenue from yet another of his companies to businesses controlled by both he and his wife; and also laundered money through his child's personal bank account.
Finally, every bankruptcy matter should be carefully scrutinized to insure that a creditor receives his/her due. This is especially important because assets can be concealed in such a wide variety of ways during a bankruptcy.
Copyright 2007 Fred L. Abrams
