Justia White Collar Crime Opinion Summaries

Stoller, the beneficiary of a trust that holds title to a house, assigned his beneficial interest to his daughter but reserved a “power of direction” with the right to obtain loans for himself, secured by the property. He directed the trust to rent out the property; he received the income. IStoller filed for bankruptcy. None of his filings mentioned the property. A question specifically asked about “all property owned by another person that [he] [held] or control[led].” Under penalty of perjury, he answered “none.” Stoller was charged with two counts of knowingly and fraudulently concealing property that belonged to a bankruptcy estate, 18 U.S.C. 152(1), and seven counts of knowingly and fraudulently making a false statement in a bankruptcy proceeding, 18 U.S.C. 152(3). Represented by an appointed lawyer, he pled guilty to one count of making a false statement; the government dismissed the remaining counts. Before sentencing, Stoller considered moving to withdraw his plea on the ground that he was not mentally competent. A new lawyer was appointed. Stoller was examined by a board‐certified neuropsychologist, who concluded that Stoller was competent to plead guilty. Stoller’s lawyer then unsuccessfully moved to withdraw the plea based on alleged defects in the plea colloquy. Stoller was sentenced to 20 months’ imprisonment. The Seventh Circuit affirmed. Stoller was competent to plead guilty, his plea was not coerced, the colloquy included most of the basics, and Stoller was not prejudiced by any deficiency. View "United States v. Stoller" on Justia Law

The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law

In 1997, Player and his wife established EAR, purportedly to refurbish high-tech machinery . In 2005-2009, EAR defrauded creditors and the couple obtained $17 million in fraudulent transfers from EAR. Before the fraud was detected, they used funds for their personal benefit and spent large amounts at the Horseshoe Casino, Player was known to “walk with chips,” rather than cashing them in, and giving chips to a third party to cash in. Neither is illegal, but are potentially indicative of “structuring” transactions to avoid triggering the $10,000 reporting requirement, a federal crime, 31 U.S.C. 5324. When the fraud was discovered, EAR filed for Chapter 11 bankruptcy. The plan administrator sought to avoid transfers to Horseshoe, alleging that Horseshoe had reasons to believe that Player’s money came from EAR. Horseshoe objected to a motion to compel under 31 C.F.R. 1021.320(e), which governs Suspicious Activity Reports filed by financial institutions, including casinos, to detect money laundering and other violations of the Bank Secrecy Act. The district court ordered an ex parte filing by Horseshoe, which was inaccessible to EAR. The Seventh Circuit affirmed denial of the motion, finding that Horseshoe accepted the transfers without knowledge of the fraud at EAR and could not have uncovered the fraud if it had investigated. View "Brandt v. Horseshoe Hammond, LLC" on Justia Law

Knight is a licensed attorney, and the charges against him stem from his representation of a Barber in a bankruptcy proceeding, in 2008-2010. Knight was convicted of conspiracy to commit bankruptcy fraud, 18 U.S.C. 371 and 157; aiding and abetting bankruptcy fraud; aiding and abetting the making of a false statement in relation to a bankruptcy case; and five counts of aiding and abetting money laundering, 18 U.S.C. 1957 and 2. The district court granted Knight a new trial on the conspiracy, bankruptcy fraud, and money laundering counts, granted his motion for judgment of acquittal on the false statement count, and conditionally granted him a new trial on the false statement count in the event of reversal on appeal. The Eighth Circuit reversed the acquittal on the false statement charge, but affirmed the decision to grant Knight a new trial on all counts of conviction, noting evidence that Knight and Barber used the IOLTA to keep Barber's creditors from learning that he had money available and evidence concerning a sham entity that was used to divert money to Barber's own pocket. View "United States v. Knight" on Justia Law

The Commodity Futures Trading Commission and the Securities and Exchange Commission concluded that Battoo committed fraud. Battoo and his companies, all located outside the United States, defaulted in the suits. The district judge froze all assets pending a final decision about ownership. The court appointed a Receiver to marshal the remaining assets and try to determine ownership. The Receiver has been recognized as the assets’ legitimate controller in several other nations, including China (Hong Kong), Guernsey, and the Bahamas. Battoo defied the injunction and transferred control of some investment vehicles, located in the British Virgin Islands, to court-appointed Liquidators, who asked the judge to modify the injunction and allow them to distribute assets located in the U.S. or England immediately. The Liquidators maintain that, because Battoo no longer has control, the justification for freezing the assets has lapsed. The court assumed that the Liquidators are now under judicial control, but declined to modify the injunction, ruling that the funds should remain available so that an eventual master plan of distribution can treat all investors equitably. The Seventh Circuit affirmed. It is not clear whether some investment interests can be disentangled reliably from those affected by Battoo’s frauds against U.S. investors; the Liquidators have not argued that any investor is suffering loss as a result of the Receiver’s investment decisions. View "Commodity Futures Trading Comm'n v. Battoo" on Justia Law

Petters orchestrated a $3.65 billion Ponzi scheme, operating a sham business, PCI, which purportedly purchased electronics in bulk and resold them. Ritchie advanced $189 million to PCI, in exchange for promissory notes. Ritchie assigned notes with face values totaling $25 million to VICIS. PCI and Petters made payments to Ritchie, who used part of the funds to pay VICIS $17,703,227.39 toward the assigned notes. After Petters’s scheme ended in 2008, Kelley was appointed as receiver, sought Chapter 11 bankruptcy relief, and was appointed as trustee. Kelley and the bankruptcy trustee for Petter’s wholly-owned company, Polaroid, entered into a coordination agreement. Kelley commenced an adversary proceeding against Ritchie, VICIS, and others, to recover alleged fraudulent and preferential transfers. VICIS held a claim against PCI for amounts outstanding on the promissory notes. The parties reached a settlement: VICIS paid $7.5 million to Kelley for release of all claims. The unsecured creditors’ committee supported the settlement and Kelley’s allocation, but Ritchie objected to the allocation. The bankruptcy court approved the t agreement, finding the allocation reasonable because Kelley applied an objective mathematical calculation, the unsecured creditors committee participated in the process and approved the allocation, and the circumstances in the case dealt with complex issues, unsettled law, and massively complicated factual disputes. The district court and Eighth Circuit affirmed. View "Ritchie Capital Mgmt., LLC v. Kelley" on Justia Law

France had a Chicago dental business and fraudulently billed insurers for city employees. France closed his practice after being injured in an accident and started collecting benefits from a disability income policy. In 1999, he exchanged monthly payments, for a limited time, for a lump sum of $300,000. He transferred this money to other people, including his wife, Duperon, before filing a Chapter 7 bankruptcy petition. He failed to disclose the payment or transfers. He later pleaded guilty to mail fraud, 18 U.S.C. 1341, and to knowingly making a false declaration under penalty of perjury, 18 U.S.C. 152(3). The district court sentenced France to 30 months in prison and ordered him to pay $800,000 in restitution. The bankruptcy trustee obtained title to ongoing disability insurance payments. France and Duperon divorced. A California court approved a settlement with payments for child support from the disability payments. France’s insurance company sued in California to resolve conflicting claims. The parties reached an agreement, which the bankruptcy court approved, purporting to control all other judgments, but did not mention the criminal restitution lien. The government filed Illinois citations to discover assets. France moved to quash, but the insurance company responded and began withholding $9,296 that had been going to France. The government moved to garnish the entire distribution under the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. 3613(a). The Seventh Circuit affirmed a ruling allowing the government to garnish the entire disability payment. View "United States v. France" on Justia Law

Petters purported to purchase and resell electronics. His operations were a Ponzi scheme. In 2005, Petters purchased Polaroid and become Chairman of Polaroid’s board of directors. Polaroid continued to engage in legitimate business. Petters took several million dollars from Polaroid. In 2007-2008, Petters’s companies, including Polaroid, experienced major financial difficulty. Ritchie made short term loans of more than $150 million, with annual interest rates of 80 to 362.1%. Polaroid was not a signatory, although some proceeds were used to repay a Polaroid debt. When the loans were past due, Ritchie demanded collateral. Petters executed a Trademark Security Agreement (TSA) giving Ritchie liens on Polaroid trademarks. Polaroid’s CEO objected to the TSA as impeding Polaroid’s ability to raise needed capital. The TSA did allow Polaroid to grant first-priority trademark liens to secure $75 million in working capital. After the FBI raid, which resulted in Petters’s convictions for mail fraud, wire fraud, and money laundering, and sentence of 50 years in prison, Ritchie accelerated all of the loans. Polaroid filed for bankruptcy and challenged the TSA as an actual fraudulent transfer under federal and Minnesota bankruptcy law, citing the “Ponzi scheme presumption.” The bankruptcy court presumed Petters executed the liens with fraudulent intent, found Ritchie had not received them in good faith and for value, and granted summary judgment. The district court upheld the admission of expert testimony and application of the Ponzi scheme presumption. The Eighth Circuit affirmed. View "Ritchie Capital Mgmt., LLC v. Stoebner" on Justia Law

In 2000 the SEC charged First Choice and others with fraud. The district court appointed a receiver to take charge of the defendants’ assets for victims of the $31 million fraud. The receiver found that some assets had been used to acquire oil and gas leases in Texas and Oklahoma and attempted to sell them and use the proceeds to compensate the victims. Over the next 14 years, third parties sought to establish ownership interests in the leases. In this case, CRM sought to contest the receiver’s proposed sale of oil leases in Osage, Oklahoma, which it claims to have operated since 2002. The district court denied CRM’s motion to intervene and approved the sale. The Seventh Circuit affirmed, noting that CRM knew as early as 2004 that the receiver was claiming the leases, but waited until the protracted and expensive receivership was finally moving toward an end and the receiver’s assets were dwindling to take action. View "Sec. & Exch. Comm'n v. First Choice Mgmt. Servs., Inc." on Justia Law

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law