By: Donald L Swanson
A new Seventh Circuit Court of Appeals opinion[fn. 1] involves the motion of a federal inmate, who was also a Chapter 7 bankruptcy debtor, for compassionate-release under 18 U.S. § 3582(c)(1)(A). The new Seventh Circuit opinion denies the motion.
Notably, the bankruptcy Debtor/Inmate is serving a 30-year sentence for making false statements during a bankruptcy proceeding The bankruptcy statute is 18 U.S.C. § 152, which declares it is a crime when a person:
- “knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11”; or
- “knowingly and fraudulently makes a false declaration, certificate, verification, or statement under penalty of perjury . . . in or in relation to any case under title 11.”
Does the 30-year sentence seem a little steep for a bankruptcy crime?
- Oh . . . did I fail to mention that the sentence also arises out of convictions on drug and money laundering charges?
Background
Here’s what happened, according to an opinion issued by the same Seventh Circuit Court of Appeals, back in 2019,[fn. 2] on a similar motion by the same Debtor/Inmate—that reached the same denial conclusion.
Debtor/Inmate used his Indianapolis furniture store and a related business as a front to hide his more lucrative enterprise: buying large quantities of cocaine and heroin from Arizona and reselling the drugs to local dealers in Indiana.
Here are more details:
- beginning in 2013, Debtor/Inmate purchased kilogram quantities of cocaine and heroin from a Phoenix-based drug trafficker, who dispatched couriers to deliver the shipments to Debtor/Inmate in Indianapolis, and Debtor/Inmate then resold the drugs at higher prices to local dealers;
- around that same time, Debtor/Inmate also operated a furniture store in a mall in Indianapolis and then (in February 2014) took over the lease of the entire mall, which allowed him to rent space to other vendors;
- Debtor/Inmate formed a new entity to operate the mall and opened a bank account in the name of the new entity; but
- Debtor/Inmate never segregated the mall’s lawful business from the narcotics trafficking—instead, Debtor/Inmate:
- received the Arizona drugs at the mall and sent the drugs out from there; and
- deposited all sources of income—funds from the mall and proceeds from his drug dealing—into the new entity’s business account.
For his role as a middleman in this scheme, a grand jury charges Colon with drug conspiracy, money laundering, and making false statements in a bankruptcy proceeding.
Following two jury trials, Debtor/Inmate is convicted on all counts and, on August 25, 2017, is sentenced to 30 years’ imprisonment.
The Bankruptcy
The bankruptcy crimes arise out of a Chapter 7 bankruptcy proceeding filed by Debtor/Inmate on September 2, 2014, in the Southern District of Indiana (Case No. 14-08217).
In that Chapter 7 case, Debtor/Inmate receives a discharge on February 18, 2015 (Doc. 39).
But then, Debtor has his discharge revoked because:
- on April 10, 2015, the U.S. Trustee moves the Bankruptcy Court for an order directing Debtor/Inmate to “appear for examination pursuant to Fed. R. Bankr. Pro. 2004” and to produce financial documents;
- Debtor/Inmate fails to respond to the U.S. Trustee’s motion and fails to produce any of the requested documents;
- so, on May 7, 2015, the U.S. Trustee files an adversary proceeding against Debtor/Inmate for revocation of his discharge (Adv.Pro.No. 15-50104); and
- after some procedural machinations by Debtor/Inmate, the Bankruptcy Court enters a default judgment against Debtor/Inmate (on October 3, 2017, at Doc. 21) revoking his discharge.
The Criminal Counts
The “Superseding Indictment” against Debtor/Inmate is dated March 15, 2016. It identifies eighteen criminal counts:
- the first six counts involve the distribution of controlled substances;
- the next nine (counts 7 through 15) involve money laundering; and
- the last three (counts 16 through 18) involve false statements in bankruptcy.
Each of the three bankruptcy counts is for “knowingly and fraudulently” making a material false declaration under oath and penalty of perjury. Here are the specifics of the three bankruptcy counts.
–Count 16
Count 16 is for “submitting a Statement of Financial Affairs, in which the defendant fraudulently omitted to disclose all of his income”—i.e., he “failed to disclose income he earned from his drug trafficking activities . . . in violation of 18 U.S.C. § 152(3).”
–Count 17
Count 17 is for “submitting a Chapter 7 Statement of Current Monthly Income and Means-Test Calculation, in which the defendant fraudulently omitted to disclose all income”—i.e., he “failed to disclose income he earned from his drug trafficking activities . . . in violation of 18 U.S.C. § 152(3).”
–Count 18
Count 18 is for “falsely testifying under oath in a proceeding before the case trustee at a meeting of creditors that the documents filed with the court in that case fairly and accurately described his financial condition” when he knew they did not, in violation of 18 U.S.C. § 152(2).
Seventh Circuit Arguments and Opinions
In both Seventh Circuit opinions (one decided March 22, 2019; and the other decided August 29, 2024), Debtor/Inmate had challenged his convictions on the money laundering charges, arguing that the government’s evidence was insufficient.
In both opinions, Debtor/Inmate had also challenged his convictions on the drug charges, insisting that the sentencing court had “attributed an excessive quantity of drugs to him when calculating his sentence.”
Debtor/Inmate made other arguments as well, but the Seventh Circuit rejects all his arguments both times.
And it is no surprise that the the Seventh Circuit opinions barely even mention sentencing for bankruptcy crimes (other than to acknowledge that such convictions exist). The bankruptcy crimes appear to be a small part of the sentencing calculations.
Conclusion
It’s not very often that a person convicted of bankruptcy crimes gets a 30-year sentence.
So, it was the convictions for drug trafficking and money laundering that actually turned the sentencing of Debtor/Inmate into long and hard time.
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Footnote 1. United States v. Colon, Case No. 24-1199, decided August 29, 2024.
Footnote 2. United States v. Colon, 919 F.3d 510 (7th Cir. 2019). The opinion arises out of Case No. 18-1233 and was decided on March 22, 2019.
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