According to the Federal Bureau of Investigation, the concealment of bankruptcy estate 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 pp. 59-79 of the United States Trustee Manual too recognize there are many different asset concealment schemes which are considered to be 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? Were a debtor’s assets omitted from bankruptcy schedules, as supposedly occurred in the case described at "Bankruptcy Estate Property Allegedly Concealed By A Cop"? Have insiders depleted business assets long-term during a "bleedout", or has a pyramid scheme / investor fraud occurred? 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 bankruptcy debtor should always ask the foregoing questions while pursuing the kinds of measures mentioned by "An Asset Search In A Chapter 7 Bankruptcy Case". Ordinary measures can however, fail against a determined bankruptcy debtor who might use foreign bank accounts to conceal bankruptcy estate assets, as described at "Bankruptcy Fraud, Money Laundering & Hidden Assets". Said determined debtor may use a nominee bank account and also take advantage of strong foreign bank secrecy laws.
Even where a debtor hides bankruptcy estate assets by using a nominee bank account at a foreign bank, a creditor might still prevail. If a creditor locates such a nominee bank account, the creditor can sometimes seek a court order directing the nominee bank signatory to supply an "authorization form" for the release of the debtor’s foreign bank records. By presenting this "authorization form" to the foreign bank, the creditor would then conceivably gain access to the records for the debtor’s bank account.
When a debtor hides assets in an offshore tax haven, it may also be necessary to seek the issuance of a letter rogatory / legal assistance request. On rare occasions, a defrauded creditor might too file a civil RICO lawsuit against a bankrupt debtor hiding assets and claim "lost debt injury" pursuant to cases like Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105 (2nd Cir 1988).
While some debtors try to hide bankruptcy estate assets in foreign jurisdictions, others may instead rely on domestic bank accounts or businesses to facilitate their asset concealment schemes. 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); fraudulent pre-petition transfers or concealment, (18 U.S.C. § 152 {7}); 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.
Copyright 2007-2011 Fred L. Abrams