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Bankruptcy Code
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Ethics
Fraud

Former 'Dance Moms' Star Abby Lee Miller Sentenced to Prison for Bankruptcy Fraud

Submitted by ckanon@abi.org on
Abby Lee Miller, the Pennsylvania dance instructor who rose to prominence on Lifetime's "Dance Moms," was sentenced yesterday after pleading guilty to charges of bankruptcy fraud in June, the Los Angeles Times reported yesterday. The reality television star was sentenced to one year and one day in federal prison, followed by two years of supervised release, in addition to being fined $40,000 and ordered to pay a $120,000 judgment. Miller's saga began in October 2015 when she was charged with hiding nearly $800,000 of income while going through chapter 11 bankruptcy proceedings between 2012 and 2013. She was also accused of smuggling $120,000 in Australian currency into the country without declaring it at customs as is mandated. Miller left the show in March, with "Dancing with the Stars" alum Cheryl Burke taking her place for the conclusion of Season 7.
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A Verdict on Dewey & LeBoeuf

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It has been five years and one mistrial in the making, but a jury has come to a decision about the collapse of Dewey & LeBoeuf, and it was a split verdict, The New York Times reported today. Joel Sanders, the law firm’s former chief financial officer, was convicted on three criminal counts arising from what prosecutors said was a scheme to hide the firm’s failing finances from its backers. He could be sentenced to up to four years in prison. Stephen DiCarmine, the former executive director, was acquitted of the same charges. Dewey & LeBoeuf, created from the merger of two-storied law firms, once employed more than 1,300 lawyers, but it ran into trouble during the financial crisis. Manhattan prosecutors said that DiCarmine and Sanders had plotted to manipulate the firm’s financial records to defraud banks and insurance companies that had invested in a bond offering. The decision gives Cyrus R. Vance Jr., the Manhattan district attorney, some vindication: His office had plowed resources into the case, but the first proceeding was declared a mistrial.
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Fraud
Practice and Procedure
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Two South Florida Firms Face Allegations of Wrongdoing in Bankruptcy of Property Owners' Group

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Two South Florida law firms face allegations of wrongdoing in adversary proceedings filed in a bankruptcy case for a property owners’ association, the Daily Business Review reported yesterday. Boca Raton-based Jay Steven Levine P.A. and Kaye Bender Rembaum in Pompano Beach once represented Spanish Isles Property Owners Association Inc. in Saddlebrook. But Chapter 11 Trustee Margaret J. Smith claimed that the firms allowed the association's governing documents to lapse, leaving it with no valid declaration and bylaws to direct its operations, enforce its rights or levy liens for unpaid homeowner dues. Her complaints claim "constructively fraudulent transfers of estate property and … professional negligence" against both firms, which allegedly overlooked the association's governing documents until after it was too late, and the group had already filed for bankruptcy. The association's documents date back to its incorporation in 1979 and needed to be renewed or preserved in 2009 under Florida law. Without valid documents, the nonprofit lacked legal authority to collect homeowner fees or govern itself under its bylaws, but it continued to assess about $350 per home for annual revenue of about $100,000, according to Smith.
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Lehman Suit Seeks Return of $2 Billion in 'Phantom' Citi Fees

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Almost a decade after the global financial crisis, the fate of another $2 billion from the wreckage of Lehman Brothers Holdings Inc. is about to be determined, Bloomberg reported on Friday. The failed  investment bank is seeking to recoup the cash from Citigroup Inc. Lehman alleges Citigroup created “phantom transaction costs” in order to justify a bankruptcy claim that would allow it to keep $2 billion in cash Lehman had deposited on the trades. Citigroup contends it did nothing wrong and used reasonable practices. The trial opens a rare window into the frenzied weekend before Lehman’s bankruptcy filing on Sept. 15, 2008. Lehman, which first sued over the $2 billion in 2012, claims that Citigroup efficiently hedged its risks, but went on to inflate its claim by marking its books to its benefit. The adversary suit is Lehman Brothers Holdings Inc., et al. v. Citibank NA, 12-01044, U.S. Bankruptcy Court, Southern District of New York.
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Finance and Banking
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Journal Issue
July 2017
Bankruptcy Code
first impression
Bankruptcy Rule
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Bankruptcy Litigation
Fraud
Consumer Bankruptcy
Discharge/Dischargeability
Commercial Fraud

Utah’s Formerly Fastest-Growing Company Files for Bankruptcy after Federal Raid

Submitted by jhartgen@abi.org on

High-flying Alliance Health of South Jordan has filed for bankruptcy in the aftermath of a raid by federal agents seeking evidence of possible fraud related to the sale of products to government health plans, the Salt Lake Tribune reported on Saturday. CEO Jeffrey Smith resigned April 14 after the bankruptcy filing in Texas earlier this month, company spokesman Brian Watkins said in an email, which noted its board of directors was now overseeing operations as it seeks to reorganize and emerge from bankruptcy. The filing came after Zions Bank closed the company's line of credit in the wake of the Feb. 23 federal raid, said bankruptcy attorney Elizabeth Green. The U.S. attorney's office for Utah declined to comment on the investigation. But a previous search warrant application filed in federal court said the case involves "a scheme to defraud health care benefit programs, resulting in payments for mail-order diabetic test strips under false and fraudulent pretenses."

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Corporate Governance
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Creditors' Committee
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Bankruptcy Code
548
550
Topics
Bankruptcy Litigation
Fraud

Second Circuit Revives Fraud Suit Against K&L Gates, Ex-Partners

Submitted by jhartgen@abi.org on
A federal appeals court has reinstated a fraud lawsuit against K&L Gates and two of its former partners alleging that the attorneys exploited their past representation of a publishing executive to undermine his efforts to acquire assets from a bankruptcy sale, the <em>New York Law Journal</em> reported today. Roy Brown, CEO of Brown Publishing Co., retained K&L while making a bid to take control of the company's assets by chapter 11 through another company, Brown Media. Edward Fox and Eric Moser, then partners at K&L, represented Brown in the lead up to the bankruptcy, but the firm told Brown to obtain new counsel before the sale, according to court papers. Brown Media submitted a stalking-horse bid for Brown Publishing's assets, but the bid was beat out by PNC Bank Group, which included a bank that provided financing to Brown Publishing that was also a "sometimes" client of K&L. In 2013, Brown filed a suit against K&L and the partners alleging breach of fiduciary duty, tortious interference and common law fraud. Eastern District Judge Arthur D. Spatt granted K&L's motion to dismiss based on <em>res judicata</em> grounds, writing that the suit was a "thinly disguised collateral attack" on the bankruptcy orders. But a panel of the U.S. Court of Appeals for the Second Circuit disagreed with Spatt and remanded <em>Brown v. K&L Gates</em>, 15-4185-cv, for further proceedings. Writing for the court, Judge Peter Hall said the panel disagreed with Spatt's view that the plaintiffs should have addressed their claims in the bankruptcy proceedings.
 
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HSBC to Pay $2 Million to Resolve U.S. Civil Loan Fraud Lawsuit

Submitted by jhartgen@abi.org on

HSBC Holdings Plc has agreed to pay about $2 million to settle a civil fraud lawsuit that alleged the bank improperly attempted to get reimbursement from the federally backed U.S. Small Business Administration (SBA) on bad loans it knew were based on fraudulent or potentially fraudulent information, Reuters reported on Friday. Under the SBAExpress loan program, designed to help startups and small businesses, the SBA guarantees up to half the value of loans made to companies by lenders such as HSBC. According to a complaint made by the U.S. government in federal court in Manhattan, HSBC sought reimbursement for 42 defaulted loans without revealing that borrowers may have submitted false information to the bank to obtain many of the loans, or that the bank had included them on an internal list of fraudulent or potentially fraudulent loans. As part of the settlement, HSBC admitted and accepted responsibility for not informing the SBA of all of the facts indicating that borrowers may have submitted false information on the loans, or that it had identified these loans as fraudulent or potentially fraudulent.

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