Monday, September 15, 2014

Indictment for Bankruptcy Crime in Palm Beach County

An indictment was filed a few days ago against former chapter 7 debtors in Palm Beach County. It provides an occasion to review the bankruptcy crimes provisions of title 18 of the United States Code.  

Recent Indictment

The indictment for a bankruptcy crime against the former chapter 7 debtors alleged that they "did knowingly and fraudulently conceal and cause to be concealed property belonging to the bankruptcy estate" in violation of 18 U.S.C §152.  First on the list of undisclosed property - a Rolex watch.

18 U.S.C. §152

Section 152 of 18 U.S.C. provides 

A person who—(1) knowingly and fraudulently conceals from a custodian, trustee, marshal, or other officer of the court charged with the control or custody of property, or, in connection with a case under title 11, from creditors or the United States Trustee, any property belonging to the estate of a debtor; (2) knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11; . . .shall be fined under this title, imprisoned not more than 5 years, or both.

Elements

The U.S. Attorney Manual  explains that the elements of the proof for the offense of "concealment" under 18 U.S.C. § 152(1) are

1. the bankruptcy proceeding was in existence
2. the defendant fraudulently concealed the property from the custodian (such as the bankruptcy trustee)
3. the property belong to the estate

The manual makes reference to the cases of United States v. Guiliano, 644 F.2nd 85, 87 (2nd Cir., 1981). 

Jury Determination 

The U.S. Attorney's manual sets forth that it is a question for a jury to determine whether the assets are property of the debtor and belong to the bankruptcy estate.   It appears that the determination of whether the asset is part of the "estate" under the "technical rules" of the Bankruptcy Code, is not co-determinative of whether it is property of the estate for purposes of this criminal bankruptcy statute. (See footnote 10 in law review  article on bankruptcy crimes was written by Nevin M. Gewertz.) One commentator states that Interestingly enough, the manual makes reference to the bankuptcy judge testifying in the criminal case, but that the bankruptcy judges testimony "that property is an asset of the estate is inadmissible to prove that the assets in question belong to the bankruptcy estate."

"Might Be" Property of the Estate

The U.S. Attorney's  refers to the case of United States v. Cherek, 734 F.2d 1248, 1254 (7th Cir. 1984), cert. denied,  and takes the position that the all-encompassing definition of "estate" in section 541 of the Bankruptcy Code, even requires the debtor to disclose information about all property that "might be" property of the bankruptcy estate and to disclose "the existence of assets whose immediate status is uncertain."  The manual takes the position that even if the asset is not ultimately determined to be property of the estate under the Bankruptcy Code, section 152 of title 11 "properly imposes sanctions on those who pre-empt a court's determination by failing to report the asset."

Concealment  

The U.S. Attorney's manual also sets forth its position on the definition of "concealment." It states that conceal "does not mean merely to secrete or hide away" but concealment also means to "prevent the discovery of the asset or to withhold knowledge of the asset."   United States v. Schireson, 116 F.2d 881, 884 (3d Cir. 1941); Burchinal v. United States, 342 F.2d 982, 985 (10th Cir.).  It further explains that the concealment may take prior to the filing of the bankruptcy as well as after the filing of the bankruptcy. Concealment prior to the filing of a bankruptcy constitutes a single offense as there is only a single duty to disclose the existence of all assets but that each asset concealed after the filing of the bankruptcy petition constitutes a separate offense because each concealment represents a separate act with intent.

Further References

Outlines on the topic of bankruptcy and related crimes is available here  and here. 
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