Justia White Collar Crime Opinion Summaries

Plaintiffs delivered artifacts from a famous shipwreck to Debtor for display and, according to Debtor, sale in Debtor’s jewelry store. The store went out of business. When Debtor returned the artifacts, an emerald pendant and musket balls were missing. Plaintiffs filed a complaint alleging breach of fiduciary duty, common law conversion, and statutory conversion or negligence. A Michigan state court found that Debtor’s failure to respond to any written discovery requests, file a response to the Motion for Summary Disposition, and appear at the hearing were sufficient basis for entry of summary disposition and awarded $42,706.10. The judgment did not specify the claim upon which it was based. Debtor filed a voluntary Chapter 7 bankruptcy petition. Plaintiffs filed an adversary complaint seeking to have the debt declared nondischargeable under 11 U.S.C. 523(a)(4), stating that Debtor’s actions constituted “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” The bankruptcy court granted Plaintiffs summary judgment. The Sixth Circuit reversed. The bankruptcy court erred when it held that the issue of fraud was “necessarily determined” by the state court; the state court judgment cannot have issue preclusive effect as to this element for nondischargeability under the embezzlement portion of section 523(a)(4). View "In re: Dantone" on Justia Law

At the behest of the Oklahoma Department of Securities, Oklahoma courts found early investors in a Ponzi scheme carried out by a third party to have been unjustly enriched and required disgorgement. Judgments were entered against those investors. The issue before the Tenth Circuit was whether the judgments entered against Robert Mathews, Marvin Wilcox, and Pamela Wilcox qualified as a nondischargeable debt under 11 U.S.C. 523(a)(19). The bankruptcy court decided the debts were nondischargeable because they were in violation of securities laws. The district court affirmed. Upon review, the Tenth Circuit reversed and remanded: "the Department's position conveniently serves its ends (and in the abstract) a public good. But the language of the statute cannot reasonably be stretched that far." View "Oklahoma Dept. of Securites v. Wilcox, et al" on Justia Law

In 2005, Banks, a construction worker, wanted to flip houses, but did not have capital. John, a mortgage broker, suggested that they purchase homes from distressed owners at inflated prices, with the sellers promising to return money above what they owed their own lenders. Owners cooperated rather than face foreclosure. Banks renovated the houses using funds received from sellers and resold them. Johns collected a broker’s fee. When they purchased a house from owners in bankruptcy, they wanted a mortgage to secure payment from the sellers and informed the trustee of the bankruptcy estate. Despite protestations by the trustee, the sale went through, and Banks used the rinsed equity to pay off sellers’ creditors through the trustee. The sellers’ lawyer discovered the scheme, which led to indictments. Johns was convicted of making false representations to the trustee regarding the second mortgage and for receiving property from a debtor with intent to defeat provisions of the Bankruptcy Code. With enhancements for financial loss and for targeting vulnerable victims, Johns was sentenced to 30 months. The Seventh Circuit affirmed the conviction, rejecting challenges to sufficiency of the evidence and jury instructions, but remanded for clarification of sentencing enhancements. View "United States v. Johns" on Justia Law

As one of the largest developers in Cincinnati, Erpenbeck defrauded buyers and banks out of nearly $34 million. Erpenbeck pled guilty to bank-fraud in 2003, received a 300-month sentence, and was ordered to forfeit proceeds: $33,935,878.02, 18 U.S.C. 982(a). The FBI later learned that Erpenbeck had given a friend more than $250,000 in cash. The friend put the cash in a cooler and buried it on a golf course. Agents unearthed the cooler. The government sought forfeiture of the cash and posted online notice in 2009. Three months later, the trustee of Erpenbeck’s bankruptcy estate contacted an Assistant U.S. Attorney, told her the estate had an interest in the cash and asked about the government's plans. The attorney did not mention the forfeiture proceedings. Because no one asserted an interest, the district court entered an order vesting title to the cash in the government, 21 U.S.C. 853(n)(7). The trustee sought to stay the order in November 2010. The district court denied the motion because the trustee did not file a timely petition. The Sixth Circuit vacated. Even though the trustee’s interest in the cash was "far from a mystery," the government did not take even the "modest step" of sending a certified letter. View "United States v. Erpenbeck" on Justia Law

In the 1990s debtors owned a business that failed and incurred liabilities from unpaid taxes. They had a monthly payment obligation to the IRS. Husband obtained employment; 2003 to 2009, his yearly gross income was between $53,000 and $59,000. In addition, he receives $1,300 per month from a settlement annuity. Wife was employed as a bookkeeper until 1999. In 2000, she pled guilty to felony embezzlement of funds from her former employer and was sentenced to probation and required to pay restitution of $800 per month. Before her indictment wife obtained employment as a bookkeeper for plaintiff, began embezzling, and deposited stolen funds to Debtors’ joint bank accounts. By 2006, she had embezzled $283,391.88 from plaintiff and forged credit card purchases of $2,821.43. In 2007, she embezzled $328,516.10. In 2008, she embezzled $11,230.21. She stole goods valued at $127,156 from her employer. Debtors spent accordingly. The Bankruptcy Court entered an order excepting debt owed to plaintiff from discharge under 11 U.S.C. 523(a)(6), finding that husband conspired with wife to convert embezzled funds and other property. The Sixth Circuit affirmed, holding that Debtors’ conduct constituted willful and malicious injury to plaintiff. View "In re: Cottingham" on Justia Law

Stokes owned 1Point, which managed employee-benefits plans and 401(k) retirement plans as a third-party administrator (TPA). Most were governed by the Employee Retirement Income Security Act, 29 U.S.C. 1002. TPAs generally provide record-keeping and assist in transferring money, but do not handle money or securities. Stokes directed clients to send funds to accounts he had opened in 1Point’s name. Cafeteria plan clients deposited $45 million and 401(k) clients deposited $5.7 million in accounts at Regions. Because the accounts bore 1Point’s name, Stokes was able to transfer money. Between 2002 and 2006, Stokes stole large sums. Regions failed to comply with the Bank Secrecy Act, 31 U.S.C. 3513, requirements to report large currency transactions, file suspicious-activity reports, verify identities for accounts, and maintain automated computer monitoring. In 2004, the U.S. Financial Crimes Enforcement Network assessed a $10 million fine against Regions. In 2006, Stokes and 1Point filed for bankruptcy. The Trustee filed suit against Regions in bankruptcy court on behalf of victimized plans for which he assumed fiduciary status. The suit was consolidated with plaintiffs’ suit. The district court withdrew the Trustee’s case from bankruptcy court, dismissed ERISA claims, and found that ERISA preempted state law claims. The Sixth Circuit affirmed. View "McLemore v. Regions Bank" on Justia Law

In 2002 Bell established mutual funds and raised about $2.5 billion for investment. Most of the firms to which the funds routed money were controlled by Petters. He was running a Ponzi scheme. There was no inventory. New investments paid older debts, with some money siphoned off for personal use. When Petters was caught in 2008, the funds collapsed; about 60% of the money was gone. The funds' bankruptcy trustee filed suit against the funds' auditor, alleging negligence. The district court dismissed without deciding whether the auditor had acted competently, invoking the doctrine of in pari delicto, based on Bell's knowledge of the scheme. The Seventh Circuit vacated, noting that Bell was not stealing funds and that the extent of his knowledge cannot be determined at this stage. An allegation that Bell was negligent but not criminally culpable in 2006 and 2007 makes the claim against the auditor sufficient. View "Peterson v. McGladrey & Pullen, LLP" on Justia Law

Brian and Debra Spurlin were convicted of concealment of bankruptcy estate assets, for knowingly and fraudulently withholding their interests in certain properties from their bankruptcy filings, and false oaths and statements in bankruptcy for a false answer they gave on a bankruptcy questionnaire. Mr. Spurlin was also convicted of bankruptcy fraud for filing bankruptcy to effect and conceal a fraudulent scheme whereby he took money he was supposedly holding in escrow for a company with whom he was doing business. Mr. Spurlin did not appeal his conviction of concealment, but the Spurlins appealed all other convictions. The court affirmed the conviction of Mrs. Spurlin on all counts; affirmed Mr. Spurlin's convictions of concealment of bankruptcy estate assets and of bankruptcy fraud; but reversed Mr. Spurlin's conviction of false oaths and statements in bankruptcy for insufficient evidence. Accordingly, the court vacated Mr. Spurlin's sentence and remanded for resentencing. View "United States v. Spurlin, et al." on Justia Law

The same day that debtor discharged his debts in a Chapter 7 bankruptcy, his mother, died, leaving debtor and his brother equal shares in an estate. Debtor signed a disclaimer of his interest, but never told the trustee about his inheritance. Following a series of transactions between the brothers and various accounts, the U.S. Attorney's office launched an investigation, and the brothers were charged with bankruptcy fraud (18 U.S.C. 157(3)). Debtor was also charged with impeding a bankruptcy trustee in the course of his duties (18 U.S.C. 152(1)) and fraudulently concealing assets. The Seventh Circuit affirmed. The circumstantial evidence was sufficient for a reasonable jury to find that the brothers engaged in a fraudulent scheme. The court also rejected a claim of ineffective assistance of counsel. View "United States v. Persfull" on Justia Law

In January 2009, Defendant-Appellant Robert Blechman and a codefendant, Itsik (Issac) Yass, were tried together in the District of Kansas on charges of mail fraud, aggravated identity theft, and conspiracy to commit mail fraud and aggravated identity theft. Evidence introduced at trial showed that Yass operated a business that he used to temporarily halt home foreclosures by "attaching" foreclosure properties to fraudulent bankruptcy cases in order to take advantage of the Bankruptcy Code’s automatic stay provision. After a two-week trial, the jury found Blechman and Yass guilty of all of the counts charged against them. The district court granted Blechman's motion for judgment of acquittal on the identity theft counts and ultimately sentenced Blechman to a total of eighteen months' imprisonment on the remaining counts. Blechman appealed, challenging the district court’s admission of an America Online (AOL) record that connected him to an e-mail address and three PACER records revealing that he accessed fraudulent bankruptcy cases in Tennessee that were similar to the Kansas bankruptcies identified in the indictment. Blechman argued that these records contained double hearsay and that the district court erroneously admitted them under the business records exception to the hearsay rule. Upon review, the Tenth Circuit held that the district court erred in admitting the challenged AOL and PACER records under Rule 803(6). Nevertheless, because the Court concluded that the error was harmless, it affirmed Blechman's convictions. View "United States v. Blechman" on Justia Law