Bankruptcy Judge Rejects Equitable Defenses to Fraudulent Transfer Claim
Madoff trustee racks up two victories in one day.
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Fictitious Profits Are Also Ignored on Inter-Account Transfers, Second Circuit Says
Madoff trustee’s newest appellate victory again disregards fictitious profits.
Madoff Trustee Defeats Appeal over Payouts
A U.S. appeals court yesterday closed another avenue for Bernard Madoff's victims to recoup money they lost, saying the trustee liquidating the swindler's firm can ignore transfers of fake profits between customer accounts when determining payouts, Reuters reported yesterday. The U.S. Court of Appeals for the Second Circuit ruled yesterday against several dozen former customers of Bernard L. Madoff Investment Securities LLC, including onetime New York Mets second baseman Tim Teufel, in endorsing trustee Irving Picard’s methodology. It means that victims still scrambling to recover their money, 8-1/2 years after Madoff's December 2008 arrest, must wait longer. "We recognize that our decision today provides no remedy to appellants, who have undoubtedly suffered along with too many others as a result of Madoff's Ponzi scheme," the three-judge panel wrote. "We continue to refuse, however, to treat fictitious and arbitrarily assigned paper profits as real and to give legal effect to Madoff's machinations," it added. Read more.
For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.
Tilton Rejected by U.S. Supreme Court on SEC Fraud Complaint
The U.S. Supreme Court yesterday rejected an appeal by Lynn Tilton, the Patriarch Partners founder once known as the “Diva of Distressed," refusing to intervene in a Securities and Exchange Commission case that could bar her from the securities industry, Bloomberg News reported. Tilton is fighting an SEC administrative complaint that accuses her of misleading investors about the value of risky pools of corporate loans. A ruling from a judge at the SEC could come any day. Tilton argued in her appeal that the SEC’s use of in-house judges is unconstitutional and gives the agency an unfair advantage. She will have another chance to make that argument — and perhaps seek Supreme Court review — should the SEC judge rule against her. The agency says Tilton overcharged investors almost $200 million on fees she collected on $2.5 billion of collateralized loan obligations she created to help fund her various businesses. Patriarch and Tilton say that the claims are meritless.
Former Vann’s CEO Will Spend Years in Federal Prison
The man who former employees blame for driving a once-vibrant Montana electronics chain into bankruptcy will spend five years in federal prison for stealing hundreds of thousands of dollars for his personal use, KPAX reported on Friday. Three months after he was convicted of 170 counts of theft and fraud for stealing hundreds of thousands of dollars from Vanns, former CEO George Manlove was charged with the complex case in December 2015, years after Vann’s hit the rocks and collapsed in bankruptcy. He fought the charges every step of the way until he was convicted by a federal jury last winter, with the panel accepting the prosecution’s arguments that Manlove had diverted money for trips, jewelry and other personal property. Prosecutors had recommended Judge Dana Christensen send Manlove to prison for 10 years, but his defense attorneys pressed for just one year in a federal detention center. Judge Christensen split the difference, ordering Manlove to spend just over five years in federal custody, followed by three years of supervised release. Manlove will remain free, at least until a restitution hearing for his victims in June. He’s already asked to remain free while he appeals the case.
U.S. Trustees Send Congress Report on Bankruptcy Crime Referrals
The Executive Office for U.S. Trustees (EOUST) has issued a report detailing criminal referrals made during the Fiscal Year ending Sept. 30, 2016. The report is required under the provisions of § 1175 of the Violence Against Women and Department of Justice Reauthorization Act of 2005 (P.L. 109-162). U.S. Trustees have a statutory duty to refer matters to the U.S. Attorneys’ offices for investigations and prosecutions that “relate to the occurrence of any action which may constitute a crime,” and to assist the U.S. Attorney in “carrying out prosecutions based on such action” (28 U.S.C. § 586(a)(3)(F)). During the year, the U.S. Trustees made 2,158 criminal referrals. Despite the declines in bankruptcy filings in recent years, this was the most referrals made in a year in the 11 years that the EOUST has been reporting this information. The five most common allegations contained in the FY 2016 criminal referrals involved tax fraud (47.8 percent), false oath or statement (24.9 percent), concealment of assets (21.5 percent), bankruptcy fraud scheme (19.7 percent) and identity theft or use of false/multiple Social Security numbers (16.1 percent). Some referrals contain more than one allegation. Bankruptcy-related criminal referrals often require significant time and resources to investigate, therefore the majority of referrals made during the year are still under review.
The Giddy Messages Citi Traders Sent While Lehman Died
As U.S. officials and bank executives scrambled to save the global financial system after Lehman Brothers’s bankruptcy in the fall of 2008, Citigroup Inc. traders were doing what traders always try to do, Bloomberg reported today. "Ringing the register, homey,” Thomas Giardi, a trader in the bank’s credit derivatives trading unit, said in a chat message on Sept. 17, two days after Lehman’s bankruptcy. His gleeful boast — along with at least a dozen from others — came as Citigroup’s top traders were furiously trying to deal with thousands of derivatives terminated by Lehman’s collapse. Contained in chat messages and recordings from that turbulent September week, the exchanges are the most colorful, if not potentially damaging, evidence so far in a civil trial on allegations that Citigroup inflated its $2 billion bankruptcy claim related to those derivatives. At the time of bankruptcy, Lehman Brothers Holdings Inc. and Citigroup had entered into more than 30,000 derivatives trades tied to an estimated $1.18 trillion of wagers on everything from interest rates to corporate and sovereign debt. Lehman’s bankruptcy gave Citigroup the right to determine its damages.
South Bay Man Sentenced to 56 Months for Bankruptcy Fraud
A South Bay, Calif., entrepreneur was sentenced to more than 4 years in prison after pleading guilty to concealing a bank account during a 2010 bankruptcy proceeding, The Mercury News reported today. Steve McVay, who regularly acquired real estate through foreclosure auctions, was involved in business ventures that ultimately failed between 2004 and 2009. In 2010, he sought relief for $1.5 million in debts through bankruptcy court. However, prosecutors said McVay knowingly signed documents concealing two bank accounts, including one in his wife’s name but under his exclusive control, totaling more than $45,000. A federal grand jury indicted McVay in April 2016 and charged him with two counts of concealing assets in bankruptcy and one count of presenting false testimony in bankruptcy proceedings. In exchange for him pleading guilty to the first count of concealment, the rest of the charges were dismissed. He was sentenced to 56 months in prison and three years of supervised release. A restitution hearing also was set for June 14.
St. Louis Judge Orders, Then Stays Arrest Warrant for Bankruptcy Firm Owner and Lawyer
A judge in bankruptcy court has issued a bench warrant for the owner of a bankruptcy firm and a suspended lawyer, saying that it was the only way to force them to repay clients whom they had bilked, the St. Louis Post-Dispatch reported on Friday. At the end of the blistering bench warrant, U.S. Bankruptcy Judge Charles Rendlen III stayed the warrant’s effect for a week to give one last chance to Critique Services LLC owner Beverly Holmes Diltz and lawyer James C. Robinson. Judge Rendlen wrote that Diltz and Robinson had ignored an April 21 order to return a $635 fee to former clients. “Monetary sanctions mean nothing to persons who have no intent to ever pay them,” Judge Rendlen said. “Therefore, the Court must find some other mechanism for obtaining obedience.” Judge Rendlen ordered the pair held for 30 days or until the money is paid. But he also said that the U.S. Marshals “have better things to be doing with their valuable time,” and wrote that the warrant would become effective on Friday and be delivered to the marshals for “execution” if Diltz and Robinson didn’t heed his warning. Judge Rendlen has repeatedly blasted the St. Louis company and lawyers who work for it, saying they have targeted “primarily working poor, minority citizens of St. Louis for almost two decades.” Last year, the Missouri Attorney General’s office sued Critique Services to shut it down. In a consent judgment filed in March and amended earlier this month, Diltz admitted that the company did not perform as advertised for some clients, and he agreed to close and agreed to repay $90,504 to 167 people, as well as $25,000 in civil penalties to Missouri and $10,000 to the bankruptcy court.
Bankruptcy Code