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A former attorney from Willmar, Minn., has been sentenced to 18 months in prison, followed by one-year of supervised release and required to pay a $20,000 fine for fraudulent concealment of bankruptcy assets, announced United States Attorney Andrew M. Luger, according to a DOJ press release. According to court documents, on November 3, 2015, Gregory Ronald Anderson, a former attorney, prepared and filed a voluntary bankruptcy petition on behalf of his client, James Alan Rothers. Upon the filing of the petition, Anderson knew that Rothers’ assets, wherever located, became property of a “bankruptcy estate” to be used to pay Rothers’ creditors. Anderson also filed a set of Rothers’ bankruptcy schedules in which Rothers was required to disclose, under penalty of perjury, the full extent and value of all Rothers’ assets as of November 3, 2015. As Rothers’ bankruptcy attorney, Anderson had to certify that the petition filed with the bankruptcy court was true and accurate. Prior to the bankruptcy filing, Anderson created fake liabilities to create the appearance that Rothers was insolvent when, in fact, Rothers could easily have paid all his creditors.

U.S. Supreme Court justices yesterday seemed skeptical of whether bankruptcy can be used to wipe out debts incurred through fraud even in cases in which an individual declaring bankruptcy was not the one who committed the fraud, Reuters reported. California resident Kate Bartenwerfer asked the high court to overturn a ruling from the Ninth
U.S. Circuit Court of Appeals that said she could not use bankruptcy to escape liability stemming from fraudulent omissions her husband made in selling a house regardless of whether she knew about it. Bartenwerfer's attorney Sarah Harris told the justices at oral arguments that the entire point of bankruptcy law is to give honest debtors like Bartenwerfer the ability to clear debts and have a "fresh start." If Bartenwerfer is unable to discharge liability for her husband's misstatements, then other innocent debtors could also face a lifetime of debt due to others' fraudulent conduct, Harris said. "That financial death sentence would fall mostly on unsophisticated spouses," Harris said. "Dishonest debtors cannot escape their creditors, but the court does not consign unwitting debtors to the same fate." The attorney for Kieran Buckley, who sued the Bartenwerfers for selling him a house while withholding information about major defects, said that his client should not be left without recourse due to Bartenwerfer's bankruptcy.

Chinese hackers have stolen tens of millions of dollars worth of U.S. COVID relief benefits since 2020, the Secret Service said on Monday, Reuters reported. The Secret Service declined to provide any additional details but confirmed a report by NBC News that said that the Chinese hacking team that is reportedly responsible is known within the security research community as APT41 or Winnti. APT41 is a prolific cybercriminal group that had conducted a mix of government-backed cyber intrusions and financially motivated data breaches, according to experts. Several members of the hacking group were indicted in 2019 and 2020 by the U.S. Justice Department for spying on over 100 companies, including software development companies, telecommunications providers, social media firms, and video game developers.

Disgraced former celebrity lawyer Michael Avenatti was sentenced Monday in a California federal court to 14 years in prison for stealing millions of dollars from four former clients, the Wall Street Journal reported. U.S. District Judge James Selna handed down the sentence to Mr. Avenatti, who earlier this year pleaded guilty to four counts of wire fraud and one count of obstructing the Internal Revenue Service. Federal prosecutors said Mr. Avenatti lied to his former clients about settlement agreements he had negotiated for them and secretly spent some of the proceeds. He also obstructed the IRS’s efforts to collect more than $3 million in payroll taxes from a coffee business he owned, prosecutors said. Judge Selna ordered Mr. Avenatti to pay nearly $11 million in restitution to the former clients and the IRS. Read more. (Subscription required.)

For more information on the Avenatti sentencing, be sure to read DOJ's press release. 

A U.S. Justice Department bankruptcy watchdog called for an independent investigation into FTX’s collapse, comparing the cryptocurrency platform’s sudden failure to the fall of Lehman Brothers, the Wall Street Journal reported. U.S. Trustee Andrew Vara, an official at the Justice Department unit monitoring bankruptcy courts, asked the judge overseeing FTX’s chapter 11 case to appoint an independent examiner to provide a transparent account of FTX’s failure because of the wider implications the exchange’s collapse has on the crypto industry. FTX’s collapse “is likely the fastest big corporate failure in American history,” said Vara, saying the platform suffered an astonishing loss in value from a market high of $32 billion earlier this year to bankruptcy. Vara said that an examiner is necessary to investigate “the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement” at FTX and circumstances around its collapse. Vara also said that an examiner should review whether any viable legal claims exist to remedy losses of FTX customers. He said reports produced by the examiner appointed in the bankruptcies of Lehman and subprime lender New Century Financial “stand as examples of the bankruptcy system serving the public interest in transparency and accountability.”

Financial technology firms abdicated their responsibility to screen out fraud in applications for a federal program designed to help small businesses stay open and keep workers employed during the pandemic, a report by a House investigations panel said yesterday. The House Select Subcommittee on the Coronavirus Crisis launched its investigation of the firms in May 2021 after public reports that the firms were linked to disproportionate numbers of fraudulent loans issued under the Paycheck Protection Program. Former President Donald Trump rolled out the Paycheck Protection Program to help small businesses stay open and keep their workers employed. President Joe Biden maintained the program and directed money to more low-income and minority-owned companies. All told, $800 billion was spent on the program. The financial technology firms reviewed PPP applications for lenders, which would ultimately distribute PPP money to businesses. The report said two start-ups, Blueacorn PPP and Womply Inc. — which reviewed one in every three funded PPP loans in 2021 — were connected to significant percentages of PPP loan applications with indicators of fraud. It said the firms used questionable screening procedures and business practices in reviewing the loans, leading to “the needless loss of taxpayer dollars,” the report said. The firms “took billions in fees from taxpayers while becoming easy targets for those who sought to defraud the PPP.” The report said Womply’s fraud prevention practices were so lax that lenders describe its systems as “put together with duct tape and gum.” It said Womply’s software became a preferred product for criminal enterprises seeking to defraud the government of PPP loans. The firm also received over $5 million in PPP loans for itself, which the Small Business Administration later determined it was ineligible to receive.

The consumer credit-scoring system has long been opaque and confusing. One change intended to help people navigate the system has created a whole new set of problems, the Wall Street Journal reported. In recent years, a government website has made it easier for people to file claims of identity theft so they can remove fraudulent accounts from their credit reports. Those reports are the basis of credit scores sold by Equifax Inc., Experian and TransUnion to banks as they make lending decisions. That has smoothed the claims process for people who have fallen victim to identity theft. But the credit-reporting industry says it is also being hit by illegitimate claims, facilitated by companies that promise to help customers fix low credit scores for a fee. These companies file false identity-theft claims on items that bring down customer’s credit scores, like delinquent credit-card debt, often without that person’s knowledge. The move often removes that information from the consumer’s credit reports while the claim is investigated. The practice is known in the industry as credit washing, since a person’s credit reports can look better than they really are, at least temporarily, and so can their scores. Credit washing has slowed down the process of getting loans at some banks while lenders look for other ways to evaluate potential borrowers. It has added to questions about how useful credit scores really are and eroded banks’ confidence in the credit-reporting system they have relied on for decades. Equifax, Experian and TransUnion get millions of letters each year that allege errors on credit reports, many claiming identity theft, according to people familiar with the matter. It isn’t known how many are illegitimate claims. Sometimes the companies receive batches of similar letters claiming identity theft or other issues at once — mailed from the same ZIP Code on the same date, some with the same typos.

The Justice Department on Tuesday sued five individuals and 11 firms allegedly behind a timeshare fraud scheme that scored more than $90 million from victims, The Hill reported. The suit, filed on behalf of the Federal Trade Commission (FTC) and Wisconsin attorney general, accuses the defendants of pressuring customers into buying timeshare exit services without delivering on their promises. The defendants allegedly promised to help customers cancel their timeshare contracts, claimed fake affiliations with major timeshare companies and warned that potential clients could end up in deep debt without their services. The firms, however, typically failed to cancel the contracts and rarely, if ever, issued promised refunds to customers. “The defendants used scare tactics and high-pressure sales pitches to coerce seniors into forking over thousands of dollars for timeshare exit services they didn’t deliver,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a Tuesday statement.