A federal appeals court ruled on Wednesday that payments individuals owe to the Internal Revenue Service for failing to obtain health insurance under the Affordable Care Act should be given priority in bankruptcy, Reuters reported. The U.S. Court of Appeals for the Third Circuit affirmed a lower court's ruling that payments owed to the IRS are entitled to be paid off before other debts in a Chapter 13 bankruptcy because they qualify as taxes. The decision came in the case of a Pennsylvania couple who filed for bankruptcy in 2019 owing $927 to the IRS for failing to obtain health insurance as required by the ACA. The individual mandate of the landmark healthcare law had required Americans to obtain health insurance or make a so-called "shared responsibility payment," but that requirement was eliminated for individuals in late 2018. Wednesday's decision was the first precedential opinion on the issue from an appeals court, but mirrors findings from a similar ruling from the Bankruptcy Appellate Panel of the 6th Circuit in March.
McKinsey & Co. is in the spotlight as the consulting giant faces a deadline to disclose potential conflicts of interest in advising Puerto Rico’s $120 billion restructuring, Bloomberg Law reported. A new law signed by President Biden on Jan. 20 — the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA) — requires certain key professionals who worked on the island’s bankruptcy-like case to disclose if they have any previously hidden investments or business connections that could be considered a conflict of interest. The May 16 deadline was set by a federal judge who also recently batted down efforts to limit the scope of disclosure requirements. McKinsey, a market leader in bankruptcy consulting, in particular faces scrutiny as one of the case’s top billers with over $100 million in fees. Revelations that a McKinsey subsidiary held millions in Puerto Rico bonds provided the impetus to Congress’ push to enact PRRADA — a process in which McKinsey also engaged as a lobbyist to shape certain technicalities in the legislation. The events highlight McKinsey’s penchant for confidentiality and multiyear fight against accusations that it intentionally conceals conflicts of interest from federal overseers. Congress and the people of Puerto Rico now wait to see whether the law actually reveals any troubling relationships among the island’s restructuring advisers and some of Wall Street’s biggest names.
A Kalamazoo, Mich., cannabis company’s recent chapter 11 filing will test some particularly murky legal waters and could potentially set a legal precedent for other cannabis-related businesses facing insolvency, MiBiz.com reported. Master Equity Group LLC on April 20 filed with the U.S. Bankruptcy Court in the Western District of Michigan under subchapter V of the federal bankruptcy code, a relatively new but frequently used measure designed to expedite the bankruptcy process for small- to mid-sized companies. In court filings, Master Equity CEO Adam Tucker described Master Equity as a “holding and management company for several related-entity businesses operating in the cannabis industry.” In this role, Master Equity Group buys or leases property to sublease to cannabis businesses along with providing accounting, payroll and other centralized functions. Kalamazoo-based Cannamazoo Recreational Weed Dispensary is one such brand. Represented by Mark Shapiro of Southfield, Mich.-based Steinberg Shapiro & Clark, Master Equity Group faces between $100,001 and $500,000 in total liabilities. The company owes its top 18 creditors a total of $176,255, per the filing. Master Equity Group profits from its involvement — albeit indirectly — in the production, marketing, sale and distribution of marijuana, which is still illegal at the federal level. As part of the Controlled Substances Act, marijuana is listed as a Schedule I controlled substance, which is deemed to have no accepted medical use in the United States, a lack of accepted safety for use under medical supervision, and a high potential for abuse. U.S. Trustees generally do not allow businesses affiliated with cannabis to seek protection under the bankruptcy process, leaving the fate of the Master Equity Group case hanging in the balance.
Disbarred lawyer Mitchell Kossoff — who represented many multifamily landlords in New York City — was sentenced to up to 13.5 years behind bars after he pleaded guilty to bilking his clients out of more than $14.6 million, Commercial Observer reported. A judge sentenced Kossoff to between 4 and 1/2 to 13 and 1/2 years in prison on Friday morning for three counts of grand larceny and one count of scheme to defraud after he used funds stolen from his clients’ escrow accounts to fund his lifestyle expenses, according to Manhattan District Attorney Alvin Bragg. In addition to his prison sentence, Kossoff will be required to pay back the $14.6 million and surrender a condominium in Highlands, N.J.
A former Chicago-based paralegal for Saul Ewing Arnstein & Lehr pleaded not guilty Thursday to charges that she illegally transferred funds intended for bankruptcy creditors to her own account and used them to pay off expenses such as a mortgage and student loans, Reuters reported. The indictment dated April 20 did not include the name of Becky Louise Sutton's law firm, but a spokesperson for Saul Ewing confirmed that she had worked there. "We have cooperated with law enforcement and ensured that any impacted client did not suffer any losses," the spokesperson said in an April 21 statement. In an arraignment in Chicago federal court before Magistrate Judge Maria Valdez, prosecutors said Sutton is charged with multiple counts of embezzlement and wire fraud for siphoning off $682,980 from bankruptcy estate accounts. Sutton worked with a Saul Ewing partner, assisting them with chapter 7 and chapter 11 bankruptcy cases from 2009 to 2018, according to the indictment. The partner's name has not been disclosed in the filings nor by the firm. The indictment said Sutton did not pay creditors that were owed money from bankruptcy estate accounts and instead transferred the funds to credit card and personal bank accounts, paid her mortgage and student loan payments, and sent money to a PayPal account. Sutton agreed to post $5,000 for bond. Each count of wire fraud could result in 20 years in prison and each count of embezzlement could result in five, according to a U.S. Department of Justice statement.
When New York City was on the brink of bankruptcy in 1975, George D. Gould got a phone call at 1 a.m. from Mayor Abraham Beame, who invited the financier to a breakfast a few hours later. The meeting resulted in Mr. Gould’s appointment as one of the original board members of Municipal Assistance Corp., or MAC, which monitored the city’s spending and issued bonds to keep it solvent, the Wall Street Journal reported. Mr. Gould briefly served as chairman of MAC in 1979. A graduate of the Phillips Academy, Yale and Harvard, Mr. Gould mixed a Wall Street career with a heavy dose of public-service jobs involving financial messes. Part of his motivation, he said, was to defend New York amid “unending abuse” from people living in other parts of the country who were eager to kick the city while it was down. That abuse “raised my competitive hackles,” he said. New York Gov. Hugh Carey, a Democrat, appointed Mr. Gould in 1976 to serve in another role, chairman of the state’s Housing Finance Agency. In 1985, the Reagan administration appointed him as an undersecretary of the Treasury. In that job, he dealt with failing savings-and-loan associations, or S&Ls, and with the aftermath of the October 1987 stock-market crash. Mr. Gould died April 26 at his home in Palm Beach, Fla. He was 94. His role in New York’s financial crisis was educational, Mr. Gould told the New York Times in 1979: “It has made me realize how many erroneous, snap opinions I held and how unsimple the solutions are. It isn’t quite as easy as it looked when I was having a drink with a few friends and said, ‘Gee, they really ought to get with it.’”