United States Trustee ProgramAnnual Report of Significant accomplishments

Fiscal Year 2002

U.S. Department of JusticeU.S. Trustee Program

United States Trustee ProgramAnnual Report of Significant accomplishments

Fiscal Year 2002

Mission Statement . . . . . . . . . . . . . . . . . . . . . 0iv

Message From the Attorney General . . . . . . . . . . . . . . . 0v

Message From the Director . . . . . . . . . . . . . . . . . . 0vi

Executive Summary. . . . . . . . . . . . . . . . . . . . . 0vii

Chapter 1. U.S. Trustee Programs Mission and ResponsibilitiesServing the Public Interest . . . . . . . . . . . . . . . . 01Major Functions. . . . . . . . . . . . . . . . . . . 01

Chapter 2. Administrative Matters and FundingOrganization and Management . . . . . . . . . . . . . . 03

Executive Office for U.S. Trustees . . . . . . . . . . . . . 03Regional Structure and Field Offices . . . . . . . . . . . . 03

Budget and Appropriations . . . . . . . . . . . . . . . . 04Government Performance and Results Act . . . . . . . . . . . 05

Chapter 3. National Civil Enforcement InitiativeCivil Enforcement Actions . . . . . . . . . . . . . . . . 07

Dismissal for Substantial Abuse . . . . . . . . . . . . . 08Denial or Revocation of Discharge . . . . . . . . . . . . . 09Identity Fraud . . . . . . . . . . . . . . . . . . 12Serial Filings . . . . . . . . . . . . . . . . . . . 14Attorney Misconduct . . . . . . . . . . . . . . . . 14Bankruptcy Petition Preparers . . . . . . . . . . . . . . 16

Chapter 4. Criminal EnforcementCriminal Enforcement Actions . . . . . . . . . . . . . . . 21

Concealment of Assets . . . . . . . . . . . . . . . . 21Identity Fraud and/or Social Security Fraud . . . . . . . . . . 24Credit Card Bust-Outs . . . . . . . . . . . . . . . . 25Crimes by Bankruptcy Professionals . . . . . . . . . . . . 26Mortgage Foreclosure Scams . . . . . . . . . . . . . . 27Other Crimes . . . . . . . . . . . . . . . . . . . 28

Multi-Agency Working Groups. . . . . . . . . . . . . . . 29

Chapter 5. Litigation in Chapter 11 Business ReorganizationsU.S. Trustees Duties in Chapter 11 Cases . . . . . . . . . . . . 31Appointment of Trustee or Examiner . . . . . . . . . . . . . 33Employment and Compensation of Professionals . . . . . . . . . 34Preventing Delay and Preserving Assets . . . . . . . . . . . . 36

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Table of Contents

Chapter 6. Trustee OversightChapter 7 Trustees . . . . . . . . . . . . . . . . . . 39

Oversight Duties . . . . . . . . . . . . . . . . . . 39Streamlining Efforts . . . . . . . . . . . . . . . . . 40

Chapter 12 and Chapter 13 Trustees . . . . . . . . . . . . . 40Oversight Duties . . . . . . . . . . . . . . . . . . 41Embezzlements From Trust Operations . . . . . . . . . . . 42Computer Security . . . . . . . . . . . . . . . . . 42

Chapter 7. Training and OutreachEmployee Training . . . . . . . . . . . . . . . . . . 45Other Training . . . . . . . . . . . . . . . . . . . 45Public Outreach . . . . . . . . . . . . . . . . . . . 46

Web Site . . . . . . . . . . . . . . . . . . . . 46Articles . . . . . . . . . . . . . . . . . . . . 47Events and Public Appearances . . . . . . . . . . . . . . 47

Chapter 8. Information Technology and Data CollectionSignificant Accomplishments Reporting System . . . . . . . . . . 51Automated Case Management System . . . . . . . . . . . . . 51Electronic Case Filing . . . . . . . . . . . . . . . . . 52Automated Fee Application Review Program . . . . . . . . . . . 52Chapter 7 Trustee Electronic Exchange . . . . . . . . . . . . 53

Chapter 9. AppendixUnited States Trustee Program Map of Regions and Offices . . . . . . . . . . . . . . . . . . . . . 55United States Trustee Program Nationwide Office Locator . . . . . . . . . . . . . . . . . . . . . . 56Civil Enforcement Actions FY 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Total Bankruptcy Filings Nationwide FY 1993-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Total Bankruptcy Filings by Chapter FY 1993-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Chapter 11 Filings Nationwide FY 1993-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Chapter 11 Quarterly Fee Collections FY 1993-2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Chapter 7 Asset Cases Closed FY 1994-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Chapter 7 Cases, Total Disbursements FY 1994-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Chapter 13 Cases, Total Disbursements FY 1994-2002. . . . . . . . . . . . . . . . . . . . . . . . . . 61Bankruptcy Filings Relative to Population by State FY 2002 . . . . . . . . . . . . . . . . . . . . . 62Peak Fiscal Years for Bankruptcy Filings by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Standing Trustee Pledge of Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

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Mission Statement:

The United States Trustee Program acts in the public interest to promote the efficiency and to pro-

tect and preserve the integrity of the bankruptcy system. It works to secure the just, speedy, and eco-

nomical resolution of bankruptcy cases; monitors the conduct of parties and takes action to ensure

compliance with applicable laws and procedures; identifies and investigates bankruptcy fraud and

abuse; and oversees administrative functions in bankruptcy cases to promote and defend the integrity

of the federal bankruptcy system.

Message from Attorney General John Ashcroft

This is a time of great challenge for the Justice Department. Our responsibility is nothing less than thedefense of freedom from all those who threaten it. Be it terrorists who threaten the security of our nation,or corporate criminals who threaten the integrity of our markets, our challenge is to defend freedomthrough the law, including the nations bankruptcy laws.

The bankruptcy system is an integral part of our free market economic system. With 1.5 million con-sumer and business bankruptcy cases filed last year, the bankruptcy system touches all facets of our econo-my. And it is the job of the United States Trustee Program to police our bankruptcy system, to enforce thebankruptcy laws, and to seek redress where necessary.

Too often, our bankruptcy system is used as a vehicle to perpetuate a myriad of fraudulent schemes,including tax fraud, health care fraud, federally-insured mortgage fraud, credit card fraud, identity theft, andother crimes. Combating this fraud and abuse is the first priority of the United States Trustee Program. Icommend the Program for vigorously implementing the National Civil Enforcement Initiative. Throughthis Initiative, the Program not only promotes the integrity of the bankruptcy system for honest debtors andcreditors alike, but also helps uncover criminal schemes and enterprises.

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John Ashcroft

Message from the Director

I am pleased to present the United States Trustee Programs Annual Report of Significant Accomplishments for Fiscal Year 2002, which details our activities and achievements from October 1,2001 through September 30, 2002. Fiscal Year 2002 marked a turning point for the U.S. TrusteeProgram, as we systematically devoted our attention and resources to combating fraud and abuse in thebankruptcy system.

Through our National Civil Enforcement Initiative, in FY 2002 we prevented an estimated $100 mil-lion in unsecured debt from being discharged through Chapter 7 liquidations. Our civil enforcementactions also resulted in the disgorgement of over $1.3 million in attorneys fees in bankruptcy cases andthe issuance of more than 160 injunctions against non-lawyer bankruptcy petition preparers.

Attorney General John Ashcroft has expressed his strong support for the U.S. Trustee Programsefforts to protect the integrity of the bankruptcy system, and I could not be more grateful to him. I amalso extremely proud of our Programs employees, whose skill, dedication, and professionalism havemade our civil enforcement successes possible.

I invite you to read our annual report and to learn more about how the U.S. Trustee Program isworking to ensure that the bankruptcy system is efficient, effective, and free from fraud and abuse.

Lawrence A. Friedman, DirectorExecutive Office for United States Trustees

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Lawrence A. Friedman

Executive Summary

Executive Summary

The U.S. Trustee Program launched its National Civil Enforcement Initiative in October 2001 andsystematically redirected Program resources to combat fraud and abuse in the bankruptcy system.Throughout the fiscal year the Program expanded and fine-tuned the Initiative.

Top priorities were to civilly prosecute debtors who commit fraud or abuse the bankruptcy systemand to protect consumer debtors, creditors, and others victimized by those who mislead or misinformdebtors, make false representations in connection with a bankruptcy case, or otherwise abuse the bank-ruptcy process. To those ends, the Program successfully pursued more than 5,000 Chapter 7 debtorsthrough investigations and formal actions to dismiss for substantial abuse, preventing Chapter 7 dis-charge of an estimated $59 million of general unsecured debt. Actions filed by the Program to deny orrevoke Chapter 7 discharge prevented debtors from discharging approximately $41 million in unse-cured debt. The Program obtained disgorgement of more than $1.3 million in attorneys fees in con-sumer and business cases, as well as the imposition of almost $534,000 in sanctions against attorneys.

These and other statistics contained in this annual report are derived from a new tracking system theProgram developed in FY 2002 to better capture its work efforts and assess performance under theNational Civil Enforcement Initiative and other operations. As such, the annual report reflects a snap-shot in time, and the statistics on numbers of actions during FY 2002 may not balance because someactions were filed before the reporting period and some were resolved afterward.

The emphasis on civil enforcement was reflected in all major aspects of the Programs operations inFY 2002, including private trustee supervision, training, and public outreach. The Program continuedits oversight of private trustees who administer cases under Chapters 7, 12, and 13 of the BankruptcyCode, while reviewing processes for cost- and time-saving opportunities. It provided civil enforcementtraining for employees and engaged in outreach activities that emphasized working with others to com-bat fraud and abuse in the bankruptcy system.

Even as the Program increased its civil enforcement actions, it continued to refer criminal activity tothe U.S. Attorneys and other law enforcement agencies and to assist in prosecuting criminal violationsof the bankruptcy laws. Program personnel assisted law enforcement authorities in their investigationof bankruptcy crimes, provided information and training about bankruptcy crimes, and prosecutedsome cases as Special Assistant U.S. Attorneys.

The Program also carried out its responsibility to ensure that Chapter 11 business reorganizationsmove through the bankruptcy system in a timely and efficient manner. FY 2002 witnessed the filing ofan unprecedented number of complex business reorganizations. The Program handled its duties inthese cases as it continued to exercise oversight in the more typical small and medium-sized cases, withthe goal of adding transparency to the bankruptcy process and thereby helping to build public confi-dence in the bankruptcy system.

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Chapter 1U.S. Trustee Programs Mission and Responsibilities

Photo 1: United States Court House, Indianapolis

Photo 2: Lawrence Friedman, Director, EOUST

Photo 3: Judy Hotze, Antonia Darling, and Laurie Luther, Sacramento

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Serving the Public Interest

Each year, more than one million individualsand businesses file bankruptcy, making thebankruptcy caseload the largest in the federalcourt system. In FY 2002, U.S. Trustees processed1,470,430 new bankruptcy case filings. More than70 percent of those cases were filed as Chapter 7liquidations (1,047,969); approximately 28 per-cent were Chapter 13 repayment plans (410,686);and just under one percent were Chapter 11 reor-ganizations (11,380). The remaining cases werefiled under Chapter 9, Chapter 12, or ancillary toa foreign proceeding.

Federal bankruptcy law offers a fresh start tothe honest but unfortunate debtor. By filing abankruptcy case, the debtor is immediately pro-tected from creditor collection efforts and canobtain a discharge from most debts and/or areadjustment of certain liabilities. In return, thedebtor is required to disclose information volun-tarily and truthfully regarding all assets and lia-bilities as well as any pre-bankruptcy transactionsto which the debtor may have been a party. If thecase is filed under Chapter 7, the debtor is alsorequired to surrender assets to the trustee for liq-uidation and distribution to creditors, except forassets that are exempt under state or federal law.Chapter 11 and Chapter 13 debtors retain posses-sion of their assets, but pay all or a portion oftheir debts through plans approved by the court.Once a bankruptcy case is filed, it is critical that itproceed through the system quickly and efficient-ly to minimize costs of administration and maxi-mize the return to creditors. The U.S. Trustee par-ticipates in every case either directly or throughtrustee oversight.

The U.S. Trustee is a neutral party who liti-gates issues and provides administrative and reg-ulatory supervision of bankruptcy cases. Whenthe Program was first created in 1978 as a pilot in 18 judicial districts, Congressional leaders

described the Program as a watchdog to pre-vent fraud and abuse, enhance compliance withfiduciary standards, eliminate conflicts of interestamong attorneys and other professionals, andpromote efficient case administration.

Congress expanded the U.S. Trustee Programnationwide in 1986. The Program oversees bank-ruptcy case administration in 88 federal judicialdistricts. By statute, judicial districts in Alabamaand North Carolina do not participate in theProgram; instead, bankruptcy cases in those dis-tricts are overseen by administrators appointed bythe federal judiciary. The U.S. Trustee Program isorganized into 21 regions, with each region headedby a U.S. Trustee who is appointed by the AttorneyGeneral. There are 95 regional and field offices.

Major Functions

The U.S. Trustee Program has broad authorityin bankruptcy cases, including the legal right toappear and be heard in all matters pertaining to abankruptcy case.

The Programs primary functions are to:

Identify fraud and abuse in the bankruptcysystem and litigate against debtors, creditors,attorneys, and other professionals who violate theBankruptcy Code and the Rules of BankruptcyProcedure.

Identify and refer federal crimes to the UnitedStates Attorney and assist in prosecuting such cases.

Supervise case administration to ensure thatcases proceed without delay, parties adhere to thebankruptcy laws, assets are appropriately distrib-uted to creditors, and only honest debtors havetheir debts discharged.

Appoint and supervise private trustees whoadminister bankruptcy estates.

Chapter 1

Chapter 2Administrative Matters and Funding

Photo 1: Duane Currie, EOUST

Photo 2: Jean Kopp and Janet Smith, Columbus

Photo 3: Frank Bove, Ilene Perry, and Dan Johnson, Alexandria

Organization and Management

Executive Office for U.S. Trustees

The Executive Office for U.S. Trustees (EOUST)provides comprehensive policy and managementdirection to the U.S. Trustees and their staff, aswell as administrative support and central coor-dination to the regional and field offices. TheEOUST is headed by Director LawrenceFriedman, who reports to the Associate AttorneyGeneral in the Justice Department. There areapproximately 70 employees in the EOUST infive operational units.

The Office of General Counsel coordinates thePrograms litigation activities and provides legalcounsel to the Program. It advises U.S. Trusteesand Assistant U.S. Trustees to ensure consistencyin the Programs legal positions, coordinatesresponses on significant legal issues, decideswhether to take appeals of court decisions, andcoordinates with the Justice Departments CivilDivision and Solicitor General where necessary.

The Office of Review and Oversight coordi-nates the supervision of private trustees whoadminister cases under Chapters 7, 12, and 13. Itensures that trustees satisfy fiduciary standardsthrough the regulation and auditing of trusteefinancial and administrative operations.

The Office of Research and Planning conductsresearch and analyzes management and case data.It also contains the Programs information tech-nology unit, which supports the automationactivities of the EOUST and the field offices.

The Office of Administration provides a widerange of services for the Program, includingbudget, personnel, procurement, facilities, travel,and security. It provides administrative guidanceand support to the U.S. Trustees and their staffs.

The National Bankruptcy Training Institutedevelops and provides comprehensive trainingprograms for all Program staff. It is housed with-in the Justice Departments National AdvocacyCenter in Columbia, S.C.

Regional Structure and Field Offices

The Program operates through a system of 21regions defined pursuant to 28 U.S.C. 581(a).Each region is led by a U.S. Trustee who isappointed by the Attorney General and whosebasic authority is conferred under 28 U.S.C. 586. The U.S. Trustees supervise a cadre ofAssistant U.S. Trustees who head 95 field officeslocated in 46 states. By statute, the six judicial dis-tricts in Alabama and North Carolina do not par-ticipate in the Program; in those districts, bank-ruptcy case administration is overseen by a courtofficial called a Bankruptcy Administrator. Allstates within the jurisdiction of the Program haveat least one Program office except for NorthDakota and Vermont.

The U.S. Trustees serve under the Director ofthe EOUST to ensure national uniformity in poli-cies and procedures, while allowing for necessaryvariances due to local case precedent, practices,and rules. They also represent the Program locallyin dealing with other participants in the bank-ruptcy system, including bankruptcy judges, pri-vate trustees, and bankruptcy practitioners.

The role of the U.S. Trustee Program in bank-ruptcy case administration melds aspects of bothlaw and financial analysis. U.S. Trustees are rou-tinely represented in court by Program trialattorneys and by Assistant U.S. Trustees. Becauseof the U.S. Trustees responsibility to prescribeand monitor financial accountability standardsfor private trustees and Chapter 11 debtors, manyProgram bankruptcy analysts are Certified PublicAccountants. Some are also Certified Fraud

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Chapter 2

Examiners. At the conclusion of FY 2002, theProgram field offices were staffed by 95 AssistantU.S. Trustees, 197 trial attorneys, 202 bankruptcyanalysts, 227 paralegals, and 245 administrative,technical, and support staff.

The number of Program offices per regionvaries, and there are significant differences in thenumber of employees per office. Approximately25 percent of the offices have six or feweremployees. The largest office is in Los Angeleswith 47 employees in FY 2002, followed by NewYork City with 29 employees.

The difference in staffing levels reflects the widevariance in caseload among the regions and offices,as well as the types of cases that are filed. Forexample, Region 21 had responsibility for 179,332cases filed during FY 2002, while Region 15 hadresponsibility for 17,955 cases filed during thesame period. The Chicago office handled 50,117cases filed during this period, whereas theAnchorage office was responsible for 1,432 cases.The character of the caseload also differs widely byoffice. During FY 2002, the Manhattan officehandled the largest number of Chapter 11 filings,followed by Wilmington and Chicago; Chicagohad the largest number of Chapter 7 filings, fol-lowed by Cleveland and Los Angeles; and Atlantaand Memphis had the largest number of Chapter13 filings.

Budget and Appropriations

The U.S. Trustee Program is funded primarilythrough fees assessed against debtors who filebankruptcy. No general revenues are appropriatedto support the Program.

Within this funding structure, the Programhas two principal sources of revenue. First, eachdebtor pays a filing fee in an amount set under 28U.S.C. 1930(a)(1)-(5). Pursuant to a statutoryformula, the fees are allocated among theProgram, the U.S. Treasury, the court system, andthe Chapter 7 trustees. Second, the Programreceives quarterly fees from each Chapter 11debtor throughout the life of the Chapter 11 case,as set forth in 28 U.S.C. 1930(a)(6). In additionto these principal sources of revenue, smalleramounts of revenue are generated from intereston U.S. Trustee System Fund balances and invest-ments in Treasury notes and bills, Chapter 7 caseadministration receipts, and excess operatingreserves of Chapters 12 and 13 trustees.

Funds allocated to the Program are depositedinto the U.S. Trustee System Fund, which is a gov-ernment trust fund. Congress makes annualappropriations for the Program from this fund,and revenues in excess of the amount appropriat-ed by Congress remain in the fund. If fee collec-tions fall short of the amount Congress appropri-ated, the Program may withdraw monies fromthe U.S. Trustee System Fund.

The Programs appropriation for FY 2002totaled $147 million, with 1,198 authorized posi-tions. Approximately 84 percent of the budgetwas needed to cover costs relating to personneland facilities. Costs associated with facilitiesinclude rent for the offices and for approximately450 meeting rooms where the first meetings ofthe debtors and creditors are held as requiredunder 11 U.S.C. 341.

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Government Performance andResults Act

At the Department of Justice, performanceplanning and reporting is incorporated into thebudget process. Performance information is vitalto making resource allocation decisions. This is theheart of the Government Performance and ResultsAct of 1993 (GPRA). To comply with GPRA, theProgram established four strategic goals:

Provide administrative support to move caseseffectively and efficiently through the bank-ruptcy process.

Ensure that parties adhere to the standards ofthe law by policing for embezzlement, fraud,and other abuses.

Maximize the return of estate assets to creditors.

Provide accurate and thorough informationabout the operations of the bankruptcy system.

These goals are stated and further explained inthe Department of Justices FY 2001-2006 StrategicPlan, which sets forth as Goal Seven: Protect theFederal Judiciary and Provide Critical Support tothe Federal Justice System to Ensure It OperatesEffectively. Objective 7.4 of the Strategic Plan is toprotect the integrity and ensure the effective oper-ation of the nations bankruptcy system.

Consistent with the Presidents ManagementAgenda, and as part of the Departments strate-gic planning process, the Program is activelyworking to revise the GPRA measures to reflectour emerging initiatives, including the NationalCivil Enforcement Initiative that commenced on October 1, 2001. Through the Initiative, theProgram is making a concerted national effort touse existing enforcement tools to accomplishtangible results and improvements in bankruptcy

case administration. The Program has developedsystems to measure Program performance in theseareas. By focusing resources on these priorities, theProgram is able to address many of the concernsthat have been at the forefront of debate beforeCongress and in other public venues, and quantifythe impact of the Programs efforts upon the bank-ruptcy system.

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Chapter 3National Civil Enforcement Initiative

Photo 1: B. Amon James, Alexandria

Photo 2: Antonia Darling, Sacramento and Mark Redmiles, EOUST

Photo 3: Donna Tamanaha, Sacramento

One of the U.S. Trustee Programs most criti-cal responsibilities is to combat fraud and abusein the bankruptcy system. In October 2001 theProgram launched a National Civil EnforcementInitiative to focus its resources more specificallyupon combating fraud and abuse in the bank-ruptcy system. This effort was undertaken torespond to mounting public concern that thebankruptcy system was being abused and thatmore should be done to protect the system byidentifying and taking action against wrongdoers.The effort was a natural outgrowth of thePrograms longstanding commitment to tacklingfraud and abuse, improving the effectiveness ofbankruptcy administration, and bolstering publicconfidence in the bankruptcy system.

Top priorities of the Civil EnforcementInitiative are to:

Civilly prosecute debtors who commit fraud orabuse the bankruptcy system.

Protect consumer debtors, creditors, and otherswho are victimized by those who mislead or mis-inform debtors, make false representations inconnection with a bankruptcy case, or otherwiseabuse the bankruptcy process.

Director Friedman appointed two experiencedProgram litigators as National Civil EnforcementCoordinators to take the lead in civil enforcementactivities. Antonia Darling, Assistant U.S. Trusteefor the Sacramento office, and Mark Redmiles,Trial Attorney in the EOUSTs Office of GeneralCounsel, direct the Programs national effort toidentify, investigate, and seek civil remedies forbankruptcy fraud and abuse. They also leadworking groups that focus upon multi-jurisdic-tional civil enforcement concerns, as well as theCivil Enforcement Resource Team, a group ofexperienced Program attorneys, bankruptcy ana-lysts, and paralegals from across the country whoprovide guidance and direction on best practices in

individual cases. Resource Team members areavailable to offer advice, training, and samplepleadings or other documents; assist with discov-ery and drafting issues; and act as second chairduring trial.

As part of its civil enforcement activities, dur-ing FY 2002 the Program also field-tested debtoraudit procedures it developed to determine theaccuracy and veracity of debtors bankruptcyschedules and statements. Six Program officesparticipated in this mini-pilot test.

The mini-pilot teams reviewed more than4,000 Chapter 7 petitions filed during a two-weekperiod in August 2002. To test the proposed auditprocedures, cases were selected both randomlyand based on certain criteria. Twenty-four auditswere conducted. The range of material findingsincluded a debtor who listed her non-debtorspouses debts and failed to disclose his priorbankruptcies; a debtor who allegedly used multi-ple names and Social Security numbers; anddebtors who failed to report or under-reportedtheir assets and income. Based on these results,the Program plans to conduct a full pilot test inFY 2003 using outside contractors.

Civil Enforcement Actions

The U.S. Trustee Programs broad statutorypowers to combat bankruptcy fraud and abuseare carried out through a variety of civil enforce-ment actions, including actions to:

Dismiss abusive filings.

Deny discharges sought by dishonest and ineligible debtors.

Limit improper refilings by debtors.

Deter identity fraud in bankruptcy.

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Chapter 3

Curb unfair practices by attorneys and creditors.

Sanction unscrupulous bankruptcy petitionpreparers and scam operators.

Dismissal for Substantial Abuse

Chapter 7 is designed to give a fresh start tothe honest but unfortunate debtor by grantingthe debtor a bankruptcy discharge. The bank-ruptcy discharge releases the debtor from person-al liability for payment of certain debts and pre-vents creditors from taking any action to collectthose debts.

However, a Chapter 7 consumer case may bedismissed under 11 U.S.C. 707(b) for substan-tial abuse. The term substantial abuse is notdefined, but under case law it is generally deter-mined based upon a consideration of the totalityof a debtors circumstances including, mostoften, the debtors financial ability to repay cred-itors. For example, a high income Chapter 7debtor who spends large sums on luxury goodsand services may be subject to a motion to dis-miss for substantial abuse under Section 707(b) ifthe debtor can otherwise repay creditors outsideof bankruptcy or through a Chapter 13 repay-ment plan. The U.S. Trustee is the only party whocan file a substantial abuse motion; in addition,the court can do so on its own motion.

In FY 2002, U.S. Trustees filed approximately2,750 substantial abuse motions. During FY2002, approximately 1,400 substantial abusemotions were either granted by bankruptcycourts or resulted in the voluntary conversion ofChapter 7 debtors to Chapter 13. Further, as aresult of U.S. Trustee informal investigations,debtors either voluntarily converted to Chapter13 or provided additional information to supporttheir Chapter 7 filings in more than 3,800 cases,without the necessity of formal motions or litiga-tion. These figures reflect a snapshot in time; for

example, the numbers of motions filed andmotions decided during FY 2002 may not matchbecause some were filed before the reportingperiod and some were decided afterward.

In the aggregate, U.S. Trustees successfully pur-sued over 5,000 debtors through investigationsand formal actions, and prevented the immediatedischarge in Chapter 7 of more than $59 million ofgeneral unsecured debt. This amount was calculat-ed by multiplying the average amount of unse-cured debt in Chapter 7 no-asset cases (caseswhere no assets are collected and distributed) bythe number of motions granted.

Examples of actions by the Program includethe following:

A Directors Award for Civil Enforcement wasawarded to the Santa Ana office of the U.S.Trustee for the Section 707(b) means-testingproject it developed and conducted after the CivilEnforcement Initiative was announced. The pro-jects goals were to: focus Section 707(b) actionsupon high income debtors with excessive expens-es; familiarize the office and the local practition-ers and judges with the concept of means-testingand the Internal Revenue Services financial col-lection standards; develop objective criteria fordetermining whether debtors expenses are rea-sonable; and establish review procedures thatwould dovetail with the requirements of pendingbankruptcy reform legislation. For example, theU.S. Trustees motion to dismiss for substantialabuse was granted by the Bankruptcy Court forthe Central District of California in a case wherethe debtor sought to discharge $188,000 in unse-cured debt while spending more than $10,000 amonth on expenses. The debtor paid $4,500 permonth on the mortgage for her house in San JuanCapistrano, and $2,500 per month on the rent forher apartment in Silicon Valley. The U.S. Trusteeargued it was neither reasonable nor necessary tothe debtors maintenance or support for her to

8

A collateral effect of our

Section 707(b) project was

the cleaning up of inac-

curate bankruptcy filings,

which have been a major

problem in our district.

When we became more

aggressive with our

Section 707(b) motions,

typical responses were

Oh, I forgot to put down

this expense, or Well, I

dont really earn that

much. Even in cases

where we did not prevail

on the Section 707(b)

motion, we were often

able to address the inac-

curate filings by obtaining

sanctions against the

debtors or their counsel.

Art Marquis,

Assistant U.S. Trustee,

Santa Ana

Art Marquis

spend $7,000 a month for two homes. The courtfound that if the debtor surrendered her OrangeCounty house she could fund a Chapter 13 plan.

A Chapter 7 debtor in Dallas agreed to dismissher case, preventing discharge of $122,527 in con-sumer credit card debt, after the U.S. Trustee fileda motion to dismiss for substantial abuse andcompleted discovery. The debtor, a commercialairline pilot, earned $11,500 per month and paid$3,100 per month on the mortgage for her$385,000 home. Just before filing, she bought a$50,000 Mercedes to replace her repossessed$90,000 Mercedes.

The Bankruptcy Court for the SouthernDistrict of California granted the San Diegooffices motion to dismiss for substantial abusewhere the debtors understated their monthlyincome by approximately $2,500 and listed exces-sive expenses. Subtracting adjusted monthlyexpenses from actual monthly income revealed thedebtors could fund a Chapter 13 plan resulting in100 percent payment to unsecured creditors with-in 36 months.

The Woodland Hills office successfully soughtdismissal of a Chapter 7 case filed by a debtor inthe Central District of California who accumulat-ed at least $283,075 in credit card debt through theuse of 36 credit cards, when he had no means torepay the debt.

Responding to an inquiry by the Tampa office,Chapter 7 debtor spouses converted their case toChapter 13. The debtors had a combined monthlyincome of $7,000, and a $6,756 monthly budgetthat included $965 for an automobile. Theirschedules listed secured debt of $157,000 andunsecured debt of $350,000, which consisted of$200,000 in credit card debt and $150,000 owedto individuals for personal loans. Their bankingrecords showed that one spouse regularly with-drew hundreds of dollars a month from AutomaticTeller Machines at local casinos.

The Brooklyn office received a Directors Awardfor its increased efforts to address abuse in Chapter7. In October 2001 the office was one of the first toimplement new civil enforcement methods. Atthat time it began reviewing every Chapter 7 peti-tion for abuse, using a simple set of criteria involv-ing the amount of debts and assets. In addition,based on this enhanced review the office referred anumber of cases to the U.S. Attorney for criminalinvestigation and potential prosecution.

The Tulsa offices motion to dismiss for sub-stantial abuse was granted by the BankruptcyCourt for the Eastern District of Oklahoma in acase where the debtors had almost $550 per monthin excess income and could repay more than 57percent of their unsecured debt in a 36-monthChapter 13 plan.

Based on the actions of the Miami office, aChapter 7 debtor consented to dismiss his casepending in the Southern District of Florida. Thedebtor sought to discharge $163,744 in unsecureddebt while making pension contributions andmaintaining excessive monthly expenses, includ-ing $232 in lottery tickets per month.

Denial or Revocation of Discharge

The primary reason an individual files forbankruptcy is to obtain a discharge of his or herdebts. In a Chapter 7 case, the discharge is usuallyissued 60 days after the first date set for a meetingof creditors, unless a complaint objecting to thedebtors discharge has been filed.

A bankruptcy discharge may be denied if thedebtor concealed assets or engaged in otherimproper conduct, including withholding infor-mation on the debtors bankruptcy petition, sched-ules, or statement of financial affairs. In addition, apreviously granted discharge may be revoked as aresult of information discovered after the dischargewas entered. These actions are time-consuming

9

Once you begin looking

closely at a case, you never

know what you might

find. For example, the

review of petitions and

documents that have been

produced in response to

discovery requests has led

to the discovery of sub-

stantial undisclosed assets

that can be liquidated by

trustees for the benefit of

creditors. In some cases

this review has also led to

the discovery of attorney

misconduct.

Diana Adams, Assistant

U.S. Trustee, Brooklyn

Diana Adams

and require significant office resources, but pro-vide one of the most potent remedies availableagainst debtors who undermine the integrity ofthe bankruptcy system. Most often, U.S. Trusteesfile complaints seeking denial or revocation of dis-charge under 11 U.S.C. 727 to address egregiousactions such as destroying, mutilating, or conceal-ing property to hinder or defraud a creditor or atrustee; knowingly making a false oath; or refusingto obey a court order.

In FY 2002, 524 actions seeking denial or revo-cation of the debtors discharge were filed.Discharges were denied in 308 cases, or 93.6 per-cent of the cases that were resolved either by judi-cial determination or by the debtors voluntarywaiver of discharge after the action was filed.Discharges were granted in 21 cases. In addition, insome cases criminal proceedings were institutedagainst the debtors based on the same conductthat led to denial or revocation of discharge. Aswith Section 707(b), the numbers of Section 727actions filed and decided during FY 2002 may notmatch because some were filed before the report-ing period and some were decided afterward.

As a result of U.S. Trustee actions pursuant toSection 727, debtors were prevented from dis-charging around $41 million in unsecured debtin FY 2002. Discharge actions brought by theProgram include the following:

In a Chapter 7 case, the Bankruptcy Court forthe Eastern District of Texas granted the Tyleroffices objection to a proposed settlement of a dis-charge action filed by the Chapter 7 trustee. Thedebtor listed $3.29 million in debts and no assetson his bankruptcy schedules, but the trusteealleged that he failed to disclose several corpora-tions and bank accounts, provide a satisfactoryexplanation for the loss of assets, and preserve hisfinancial information. After the court deniedapproval of the proposed settlement, the debtorwaived discharge in lieu of proceeding to trial.

In Providence, the U.S. Trustee entered into astipulation for judgment with a debtor in theDistrict of Rhode Island to deny discharge of$330,000 in unsecured debt, most of which relatedto a grocery store the debtor operated for 10months. The U.S. Trustees investigation revealedthe debtors pattern of submitting false creditapplications to vendors to get his business up andrunning, and then stopping payments on checksafter products were delivered to his store. A reviewof bank and credit card records subpoenaed dur-ing the investigation revealed over $23,000 in cashadvances received during a six-month period,along with thousands of dollars in charges for fur-niture, clothing, jewelry, household goods, travelexpenses, and restaurant dining.

The U.S. Trustee, a Chapter 7 trustee, and adebtor entered into an agreement denying dis-charge after the debtor failed to disclose significantinformation in his case pending in the WesternDistrict of Kentucky. In their complaint to denydischarge, the Louisville office and the privatetrustee alleged that the debtor failed to disclosethat he transferred his one-half interest in aFlorida house to his son approximately seven daysbefore filing bankruptcy; failed to list the transferof his stock in a closely held telecommunicationscompany to his daughter within one year beforefiling; and failed to account for the disappearanceof $1.125 million in assets, including $300,000 inpersonal property, $425,000 in notes receivable,and $400,000 in equine holdings. The debtorsought to discharge almost $1.8 million in unse-cured debt, along with $795,175 in secured debt.

In Cleveland the U.S. Trustee obtained denial ofdischarge after a trial in the Bankruptcy Court forthe Northern District of Ohio. The debtor soughtto discharge approximately $105,000 in debt in hisChapter 7 case, but he failed to reveal that he had$20,000 in cash hidden in a drawer at home. TheChapter 7 trustee learned about the concealed cashjust before the debtors Section 341 meeting.

This was by far the most

complicated bankruptcy

investigation I had con-

ducted for the Program,

which I joined after work-

ing as a U.S. Postal

Inspector and a criminal

investigator for the U.S.

Attorneys office in New

York City. We started by

interviewing the debtor

and moved on to inter-

viewing his vendors. Later,

using information

obtained via subpoena, I

developed spreadsheets

showing over 3,000 bank

account entries and 600

credit card entries. We

used these to track the

debtors purchases and

finances and create a time

line of his activities.

David Quinn, Bankruptcy

Analyst, Providence

10

David Quinn

Based on a complaint filed by the Sioux Fallsoffice, the Bankruptcy Court for the District ofNorth Dakota denied discharge to a debtor whoprepared his petition using advice set forth on anInternet site, omitting his legal name and his SocialSecurity number from the petition. He lateramended the petition to include his name andSocial Security number, but the court held that hemade a false oath when he signed the original peti-tion knowing it was incomplete. The court statedthat the Debtors falsity cannot be condoned,regardless of whether his false oath caused any spe-cific monetary harm. The courts order resulted innon-discharge of $47,469 in unsecured debt.

The Bankruptcy Court for the Central Districtof California entered a default judgment denyingdischarge to a debtor who listed $1,625 of person-al property and $617,267 of credit card debt on hisbankruptcy schedules. When an attorney from theSanta Ana office examined the debtor at theSection 341 meeting, he said he lost over $100,000through gambling; the credit card expenditureswere for living expenses, gifts, and calls to his homecountry; and his former roommate took morethan $60,000 in appliances and furniture from hisapartment without authorization. The U.S. Trusteesubpoenaed credit card records and learned that inone 30-day period the debtor went to a differentwarehouse store almost every day, spending$62,347. Based on the debtors false oaths, inabilityto explain the disposition of estate property, andfailure to keep records, the U.S. Trustee filed thecomplaint seeking to deny discharge.

The Bankruptcy Court for the SouthernDistrict of Indiana approved a debtors consent torevocation of his discharge, based on actions bythe Indianapolis office. Almost one year after thedebtors discharge, his former spouse informed theU.S. Trustee that he had failed to disclose assets.The U.S. Trustee obtained an extension of time tofile a complaint to revoke discharge, conducted

discovery, and filed a denial of discharge complaintthat cited the debtors numerous false oaths andother misconduct, including his failure to disclosepart ownership of two airplanes as well as a pre-bankruptcy transfer of real estate to his daughter.

A debtor attempting to discharge more than$1.2 million in debt was denied discharge follow-ing a trial before the Bankruptcy Court for theDistrict of Nevada. The debtor failed to disclose arevocable trust into which he had transferred hisresidence, personal property, and summer home.After the trustee discovered the transfers, thedebtor finally disclosed the trust in his fourthamended schedules. The Las Vegas office filed thecomplaint to deny discharge, and the Chapter 7trustee ultimately realized $392,000 for the estatefrom the sale of the summer home.

In Portland, Ore., a debtor who allegedly sent$6 million of his customers money to Nigeria overseveral years agreed to the entry of a judgmentdenying discharge of more than $4.2 million inunsecured debt, based on a complaint filed by theU.S. Trustee. The U.S. Trustees investigation sug-gested that the cattle feedlot operator used adetailed set of duplicate books to hide losses, dou-ble billed his customers, and moved moniesamong their accounts. The debtor continued tosend funds to Nigeria even after he had filed bank-ruptcy and had been repeatedly informed that theNigerian investment opportunity was a hoax.The U.S. Trustee objected to his discharge on sev-eral grounds, including transferring estate fundswith intent to hinder, delay, or defraud creditors;failing to disclose pre-petition transfers in hisbankruptcy schedules; making a false oath at hisSection 341 meeting; failing to disclose post-peti-tion transfers on his monthly operating reports;and concealing and falsifying the records of hisrelated corporations.

11

We receive a considerable

amount of information

about debtors from ex-

spouses, ex-business part-

ners, and other individuals

having some relationship

to the debtor. Often, as in

this case, information from

these sources helps us

obtain results such as

denial or revocation of the

bankruptcy discharge. By

revealing assets, such

information can also result

in significant distributions

to creditors when it origi-

nally appeared they would

receive nothing.

Kevin Dempsey,

Assistant U.S. Trustee,

Indianapolis

Kevin Dempsey

Identity Fraud

Bankruptcy-related identity fraud can take var-ious forms. One of the least complex methods ofengaging in bankruptcy-related identity fraud is toincur debt under an assumed identity and then filebankruptcy under the false name and/or SocialSecurity number. Sometimes the name or numberis chosen at random; other times it is the name ornumber of someone known to the filer, such as aparent, sibling, child, spouse, ex-spouse, co-employee, fellow student, or neighbor.

More complicated types of bankruptcy-relatedidentity fraud include: transferring real propertyinto the name of another person and then, to avoidforeclosure on the property, filing for bankruptcyusing that persons identity; transferring a partialinterest in real property into the name of anotherperson whose bankruptcy case is pending, therebystaying foreclosure on the real property; and usinga false Social Security number when identifyingoneself as a bankruptcy petition preparer. Inextreme cases of identity fraud, a perpetrator maywholly co-opt another persons identityobtainingdrivers and professional licenses, obtainingemployment, applying for apartments, taking outhome and automobile loans, applying for creditcards, and even receiving traffic tickets and war-rants under the false identity. The false identity isinitially used to obtain employment and subse-quently to establish credit; ultimately, the perpe-trator files for bankruptcy using the false name andnumber to discharge the debts he or she incurred.

If a false name or Social Security number on abankruptcy petition matches another persons,that person may have a bankruptcy filing placedon his or her credit record, with damaging conse-quences. Even if the name or number does notmatch anyone elses, the bankruptcy court recordwill be inaccurate and the true filers credit recordwill not reflect the bankruptcy filing. Similarly, thedebtor may have received a prior bankruptcy dis-charge under another identity and therefore maynot be eligible for a discharge. Depending uponthe circumstances, the U.S. Trustee Program maypursue one or more civil remedies for identityfraud, including dismissal of the case, denial of dis-charge, and a court finding that the named persondid not file the case or authorize the filing.

FY 2002 marked the nationwide rollout of thePrograms Debtor Identity Initiative, following apilot project conducted in the first half of 2001that required all debtors in 18 judicial districts toproduce documents at the Section 341 meeting toconfirm their names and Social Security numbers.Statistics for FY 2002which included a periodbefore the national rollout was completedbearout the findings of the pilot project, which detect-ed errors in approximately 1 percent of filed cases.In FY 2002, approximately 8,000 problems relatingto debtor name or Social Security number werefound through the debtor identification require-ment. As a result, more than 6,200 debtors filedamended petitions to correct problems withdebtor identification. In addition, U.S. Trusteesfiled over 1,300 formal actions relating to debtoridentification problems, including motions to dis-miss, complaints objecting to discharge, andobjections to confirmation of Chapter 13 plans.

12

When honest, hard-

working individuals who

have been wronged by

unscrupulous and illegal

activity present themselves

to our office, I take a spe-

cial interest in trying to

help them. I guess you

might say I dont like to

see bad things happen to

good people. In this case,

the victim was able to get

his credit status restored,

after advising the credit

reporting services that his

identity had been stolen

and providing them with

copies of the court order

we obtained for him.

Marion Joe Mack,

Assistant U.S. Trustee,

Detroit

Joe Mack

Cases of identity fraud include the following:

The Detroit office assisted an identity theft vic-tim whose name was falsely used on a Chapter 13bankruptcy petition. The U.S. Trustee informedthe Bankruptcy Court for the Eastern District ofMichigan that the bankruptcy case was filed fraud-ulently, and successfully argued that it should bedeclared a nullity, as if it were never filed. The U.S.Trustee then provided the victim with a verifiedcopy of the court order to send to the creditreporting services to clear the bankruptcy from hiscredit record.

The Sacramento office obtained an injunc-tion barring a debtor from filing bankruptcy forthe next 10 years absent prior court approval.The Bankruptcy Court for the Eastern Districtof California issued the injunction based on theU.S. Trustees showing that, over a 25-year peri-od, the debtor filed at least 15 prior bankruptcycases in the Eastern and Northern Districts ofCalifornia, using four names and two SocialSecurity numbers.

After a Philadelphia debtor placed her eight-year-old daughter into bankruptcy to delay fore-closure on a property, the U.S. Trustee obtained anorder from the Bankruptcy Court for the EasternDistrict of Pennsylvania barring anyone from refil-ing a bankruptcy case involving that property. Thechilds mother had transferred the property to thechild and filed bankruptcy in the childs name,using a false Social Security number, after a courtin a different jurisdiction barred the mother fromrefiling for bankruptcy in that district. In the orderobtained by the Philadelphia office, the courtordered the mother to correct the false number onthe bankruptcy petition and notify the three cred-it reporting agencies about the false filing.

The Bankruptcy Court for the NorthernDistrict of Georgia denied the Chapter 7 dischargeof a debtor, based on the Atlanta offices allegationsthat she used eight or more incorrect SocialSecurity numbers and nine different names in atleast six bankruptcy cases filed since 1992. Thedebtor also provided false, incomplete, and mis-leading information in her petition, schedules, andstatement of financial affairs, and at her Section341 meeting of creditors.

In Newark, the U.S. Trustee helped an identitytheft victim remove a false bankruptcy filing fromhis credit report. The North Carolina resident con-tacted the Bankruptcy Court for the District ofNew Jersey to report that a Chapter 13 petitionhad been filed in that district under his name andSocial Security number. After the bankruptcycourt referred the matter to the U.S. Trustee, aninvestigation revealed that the victims father stolehis identity to file the petition without his knowl-edge or consent. Because the victim was awaitingapproval of a mortgage, the U.S. Trustee helpedhim by obtaining court records and speaking withhis lender and various credit reporting agencies.

In addition to pursuing civil and criminalremedies in bankruptcy, the U.S. Trustee Programis working with other components in theDepartment of Justice to explore new and creativeways to combat identity theft. In FY 2002, the LosAngeles offices of the U.S. Trustee and the U.S.Attorney joined forces to develop a free communi-ty outreach program to educate consumers onhow to recognize, avoid, and redress identity theft.The project was initiated by Special Assistant U.S.Attorney Sandy Klein, who works closely withboth offices prosecuting bankruptcy crimes. Withencouragement from Region 16 U.S. TrusteeMaureen Tighe, she developed a 25-minute pro-gram that includes a slide show and resource guide

13

My grandmother often

received calls and letters

congratulating her as a

prize winner and asking

for her Social Security

number and birth date to

confirm her winnings.

She was so disappointed

when I explained these

were scams to obtain her

personal information. I

developed this presenta-

tion to help senior citizens

like her, who might not

understand how easily

their identities could be

stolen. Then U.S. Trustee

Maureen Tighe suggested

that the program could

benefit many other groups,

so I expanded it to help

anyone who wants to learn

about identity theft.

Sandy Klein,

Special Assistant

U.S. Attorney,

Los Angeles

Sandy Klein

containing information about federal resourcesavailable nationwide for identity theft victims. Theprogram is also available as a videotape to beshown by organizations such as schools, seniorsgroups, business groups, and churches. Free copiesare available from the U.S. Attorney for the CentralDistrict of California.

Serial Filings

Some debtors abuse the bankruptcy laws byrepeatedly filing bankruptcy solely for the purposeof frustrating creditors attempts to obtain pay-ment or to foreclose on real property. Usually thesedebtors do not complete their cases, but remain inbankruptcy just long enough to obtain the auto-matic stays temporary protection from collectionactivity by creditors. The Bankruptcy Code pro-hibits a debtor from refiling within 180 days if thebankruptcy court dismissed the prior case becausethe debtor failed to abide by court orders, failed toappear before the court, or requested voluntarydismissal after seeking relief from stay.

Some serial filings are made as part of a largerscheme, such as a rent-skimming operation run bya perpetrator who acquires title to multiple prop-erties with no intention of paying the mortgages.The perpetrator collects the rents and then repeat-edly files bankruptcy to stall foreclosure and allowthe scheme to continue.

The U.S. Trustee monitors its own data bases aswell as court records for evidence of abusive refil-ing, and seeks dismissal of the case or denial of dis-charge. Examples of cases include the following:

On motion by the U.S. Trustee in Denver, theBankruptcy Court for the District of Colorado dis-missed the debtors 11th bankruptcy case in 10years, ordering all existing debts non-discharge-able in any future case. The debtor followed a pat-tern of filing cases with inadequate disclosure and

seeking to pay the filing fees in installments, thenfailing to augment her filing or pay the delinquentfee installments. Repeatedly, her cases were auto-matically dismissed for these deficiencies, but notuntil she enjoyed the benefit of the automatic stay.The U.S. Trustee filed a motion seeking to avoidthe automatic dismissal of the latest case and com-pelling the debtor to appear at a hearing. The U.S.Trustee also obtained an order for her apprehen-sion under the Rules of Bankruptcy Procedureafter she failed to appear for the hearing. When shevoluntarily appeared in lieu of being apprehendedby the U.S. Marshal, she admitted that her conducthad abused the bankruptcy system.

In Boston the U.S. Trustee successfully soughtto deny the Chapter 7 discharge of a homeimprovement contractor, who, with his familymembers, had filed at least 15 consumer bank-ruptcy cases since 1991. The Bankruptcy Courtfor the District of Massachusetts prevented thedebtor from discharging approximately $281,793in debts, pursuant to a Bankruptcy Code provisionthat addresses the failure to preserve financialrecords. The bankruptcy cases were apparentlyfiled to use the automatic stay to evade claims fromhomeowners, many of them senior citizens, whowere dissatisfied with the contractors work.Separately, the debtor was indicted and ultimatelypleaded guilty to 36 violations of the Massachusettslaw governing home improvement contractors.

Attorney Misconduct

Lawyers who engage in unethical conduct orprovide substandard representation harm theirclients and undermine the integrity of the bank-ruptcy system. The U.S. Trustee monitors attorneyconduct and adherence to professional standards,and takes action against inadequate representationand unlawful activity by counsel. Civil enforce-ment actions by the U.S. Trustee include asking the

14

It was tremendously sat-

isfying to see justice done

in this case. One of the

most personally rewarding

moments was when I

observed the gratitude on

one debtors face as we

gave him the check for the

profit on the sale of his

home. He had been living

in a hotel with his son

because he did not even

have enough money to pay

a security deposit on an

apartment. It was as if we

had given him a million

dollars.

Kelly Sweeney,

Trial Attorney,

Denver

Kelly Sweeney

court to temporarily or permanently bar the attor-ney from appearing in bankruptcy cases and coor-dinating with state bar associations as they pursueattorney disciplinary proceedings. Enforcementactions also include requesting disgorgement ofdebtors attorneys fees under 11 U.S.C. 329 andseeking sanctions or similar remedies.

In FY 2002, U.S. Trustees pursued 653 actionsseeking disgorgement of debtors attorneys fees,resulting in disgorgement of more than $1.3 mil-lion in both consumer and business cases. Duringthe same period, U.S. Trustees pursued 243 otheractions for attorney misconduct, resulting in theimposition of $533,813 in sanctions, and referredapproximately 75 attorneys to state bar associa-tions or other disciplinary boards. These are exam-ples of Program actions:

A trial attorney in the U.S. Trustees Denveroffice received a Directors Special Commendationfor Exceptional Achievement in Civil Enforcementfor her work resulting in a $20,000 sanctionagainst an attorney for his misconduct in a seriesof Chapter 7 and Chapter 13 cases. The U.S. Trusteereceived a referral from a Chapter 7 trustee afterthe attorney appeared at a Section 341 meetingand claimed a lien on his former clients televi-sion set as security for his fees. Through furtherinvestigation and discovery, it was determinedthat in more than 90 cases the attorney hadrequired his debtor clients to sign a statementgranting him an attorneys lien that he recordedto secure fee payment. In five cases, after hisclients filed bankruptcy he redeemed their prop-erty from foreclosure, obtained title to it, andsold it for a profit in excess of his feesin one case,more than a $50,000 profit. The attorney failed todisclose these liens or the fee arrangement in anydocuments filed with the court. The BankruptcyCourt for the District of Colorado found that,by taking the liens and not disclosing them, heviolated the Bankruptcy Code and forfeited any

right to compensation. The court ordered himto pay the $20,000 sanction to the U.S. Trusteeand the bankruptcy court, disgorge to the debtorsand trustee more than $19,000 in fees received invarious cases, and disgorge to two debtors the netproceeds from the sales of their homes.

In Pittsburgh, the U.S. Trustee sought sanctionsagainst a Chapter 7 debtors attorney whoseactions included delaying the filing of numerouscases and using the filing fees for other purposes,significantly overcharging clients, and operating asa front for a law practice run by a non-attorney.The U.S. Trustee obtained an order from theBankruptcy Court for the Western District ofPennsylvania directing the attorney to disgorgeover $200,000 in fees paid by more than 200 clientswhose cases he did not file. The U.S. Trustee alsoobtained a court order barring the attorney fromfiling new bankruptcy cases, and referred the mat-ter to the Pennsylvania Disciplinary Board, whichresulted in the attorneys disbarment.

The Philadelphia office received a DirectorsAward for Civil Enforcement for its efforts toaddress inadequate performance by attorneys forChapter 7 debtors in the Eastern District ofPennsylvania. The U.S. Trustees review focusedupon three problems with debtors schedules:boilerplate information entered without regardto the individual debtors circumstances; internal-ly inconsistent information; and missing financialinformation. The U.S. Trustees heightened scruti-ny yielded noticeable improvements in the qualityof filings.

On motion by the U.S. Trustee in Los Angeles,the Bankruptcy Court for the Central District ofCalifornia referred an attorney to the bankruptcycourts disciplinary panel for his conduct in aChapter 7 case. The court found numerous viola-tions of the California Rules of ProfessionalConduct, such as forming a partnership with a

15

Far too often, debtors

attorneys fail to spend

the time and effort to

ensure that proper dis-

closure is made in the

initial filings with the

bankruptcy court. As a

result, the court, the U.S.

Trustee, creditors, and

even the debtor must

expend additional

resources to determine

whether the debtor may

receive a bankruptcy dis-

charge. Our civil enforce-

ment efforts are aimed at

educating all partici-

pants in the bankruptcy

process about the costs

associated with this lack

of care and attention to

detail.

Fred Baker,

Senior Assistant

U.S. Trustee,

Philadelphia

Fred Baker

non-attorney for the practice of law, sharing legalfees with a non-attorney, failing to deposit trustfunds into his account, allowing his name to beused in a way that permitted a non-attorney tocharge an unconscionable fee, and misrepresent-ing his compensation arrangement to the court.The courts findings showed that the attorneynever met with the debtor; allowed a non-attorneyto collect money and deposit it in the non-attor-neys account; and, in essence, allowed the non-attorney to use his license with no supervision orclient contact. The disciplinary panel suspendedthe attorney from practicing before the bankrupt-cy courts in the district for one year.

Between 1994 and 2002, an attorney was thesubject of nine sanctions orders, two judgments ofdisgorgement, a judgment of contempt, a dis-gorgement order, two disqualification orders, anda conditional disbarment order in the BankruptcyCourt for the Northern District of California. Heinitially violated all of the disgorgement judg-ments and orders, totaling over $190,000, althoughhe ultimately paid the ordered amounts. On theeve of a disbarment trial prosecuted by theOakland office, the attorney agreed to an orderprohibiting him from appearing before theBankruptcy Court for the Northern District ofCalifornia. The U.S. Trustee helped the CaliforniaState Bar bring charges against the attorney, whosubsequently resigned from the bar.

The Oklahoma Supreme Court issued a publiccensure to an Oklahoma City bankruptcy practi-tioner, based on his practice of sending his clientsto loan companies where they would borrow thefunds to pay his fee for bankruptcy services. TheOklahoma City office discovered this practice, aswell as the fact that the attorney did not always dis-close the fee, list the loans on his clients bankrupt-cy schedules, or explain to his clients that the loanwas a pre-bankruptcy dischargeable debt. Beforehis censure, the attorney had agreed with the U.S.

Trustee that he would disgorge approximately$9,000 in around 19 bankruptcy cases, stop theloan referral practice, and refrain from practicingbankruptcy law in any court for five years.

Acting on a motion filed by the U.S. Trustee inSioux Falls, the Bankruptcy Court for the Districtof South Dakota required a Chicago law firmthat sells bankruptcy services over the Internetnationwide to disgorge all fees received for itsinvolvement in a South Dakota Chapter 7 case.The firm used an Internet connection to elicitinformation from the debtors; prepared their peti-tion, schedules, and statement of affairs; and sentthe documents to a local attorney, who met withthe debtors, obtained their signatures on the doc-uments, and accompanied them to the Section 341meeting. The court found that the firms servicesdid not benefit the debtors, and that the only ben-efit conferred was by local counsel. In response tothe firms claim that it performed legal services forthe debtors, the court found that its lawyers couldnot represent debtors in South Dakota becausethey were not authorized to practice law there.

Bankruptcy Petition Preparers

A bankruptcy petition preparer is a non-attor-ney who prepares debtors bankruptcy documentsfor a fee. Petition preparers are regulated under 11U.S.C. 110, which requires, among other things,that they disclose in court filings their identitiesand the fees they receive. Section 110 also limitsthe practices that petition preparers may engagein, barring them from activities such as advertisinglegal services, charging excessive fees, collectingclients payments for court filing fees, or engagingin the unauthorized practice of law. Nonetheless,some petition preparers charge exorbitant rates,fail to make necessary disclosures, and engage inthe unauthorized practice of law and other unlaw-ful activities.

The outcome of this case

was particularly satisfying

because the law firm took

the debtors $1,000 fee in

November but didnt file

their case until the follow-

ing March. The firm has

since contacted other

South Dakota attorneys to

represent it locally, but

they have all turned it

down.

Bruce Gering,

Assistant U.S. Trustee,

Sioux Falls

16

Bruce Gering

To curb such conduct, U.S. Trustees bring civilactions to obtain orders to disgorge fees paid byclients, impose fines, and prohibit the petitionpreparers from future activities. In some cases,the U.S. Trustees enforcement activities areenhanced through the use of a national data basedeveloped in FY 2001 to track bankruptcy petitionpreparers who are under investigation or havebeen enjoined or found to engage in unauthorizedpractices. The data base is particularly importantbecause these individuals often cross state linesto evade detection.

Many of the most egregious abuses in the bank-ruptcy system are perpetrated by those who preyupon debtors who are in dire financial straits andare not well equipped to scrutinize offers of assis-tance. Fraudulent schemes take advantage of peo-ple facing foreclosure, as well as the lenders towhom they owe their house payments, and canculminate in the preparation and filing of a bank-ruptcy petition. The scam operator typically solic-its clients whose homes are listed in the foreclosurenotices and falsely promises to work out theclients mortgage problems for a sizable fee.Instead, the operator either persuades the client tofile bankruptcy or places the client in bankruptcywithout the clients knowledge. The bankruptcyfiling temporarily stops the foreclosure action, butif the client does not proceed with the bankruptcycase, the foreclosure goes forward. As a result ofthe scam operators activities, debtors may paytheir last dollar, receive worthless services, and stilllose their homes. Because mortgage foreclosurescam operators often fill out bankruptcy docu-ments to place their clients in bankruptcy, theProgram pursues them through 11 U.S.C. 110,seeking orders to repay the defrauded debtors,impose substantial fines, and enjoin furtherunlawful actions.

In FY 2002, U.S. Trustees initiated over 1,150actions against petition preparers. During the sameperiod, bankruptcy courts granted relief in 732actions which, in the aggregate, resulted in theimposition of nearly $360,000 in fines and thereturn of approximately $186,000 in client fees.Over 160 injunctions were issued as a result ofactions filed by U.S. Trustee offices during FY 2002.

Examples of Program actions against petitionpreparers include:

In a matter pursued by the Alexandria office,the Bankruptcy Court for the District of Columbiaenjoined an individual in the District of Columbiafrom serving as a bankruptcy petition preparerthroughout the United States, either personally orthrough any entity. The court also fined the indi-vidual $12,000 for multiple violations of Section110; ordered him to disgorge more than $4,000 infees received from debtors; and ordered him to payfees to the U.S. Trustee. The individual held him-self out as a foreclosure specialist and assistedothers with filing bankruptcy petitions underChapter 13, but his assistance was not disclosed onthe petitions. He often charged exorbitant feesranging from $1,000 to $3,500 for his assistance; inaddition, he frequently attempted to purchaseclients homes for below market value and thenrent the homes back to the clients.

In a series of actions against a bankruptcypetition mill, the Woodland Hills office obtained apermanent injunction and order for fines and dis-gorgement against the petition mill, its principal,and petition preparers who worked there. BetweenFebruary 2002 and June 2002, the U.S. Trusteefiled 34 actions against the petition mill, with theWoodland Hills office alone obtaining over$25,000 in fines and over $6,000 in disgorgement

17

We performed two

Bankruptcy Rule 2004

examinations of the indi-

vidual to determine more

accurately the extent and

scope of his involvement

in several bankruptcy

cases. I assisted the Trial

Attorney by preparing

most of the questions. In

the first Rule 2004 exam

the individual pleaded

ignorance of the require-

ments of Section 110. At

the end of the exam I

gave him a copy of the

statute, so it didnt play

very well when he again

pleaded ignorance during

his second Rule 2004

exam.

Peter Orens,

Paralegal Specialist,

Alexandria

Peter Orens

orders against the entity. The petition mill adver-tised $99 bankruptcy filings, but used high pres-sure sales tactics to charge up to $650 per petitionto low income debtors, many of whom were eld-erly or disabled. Its petition preparers also failedto disclose their Social Security numbers on thepetitions, apparently forged an attorneys nameon petitions, improperly collected cash fromdebtors for court filing fees, falsely representedthere was an attorney on the premises, engaged inthe unlawful practice of law by giving legaladvice, and failed to comply with prior courtorders for violations of Section 110.

The Bankruptcy Court for the SouthernDistrict of Florida awarded at least 225 debtors atotal of more than $52,200 in fees charged by anentity that prepared bankruptcy petitions. Alongwith two Chapter 7 trustees, the Miami officeargued that the entity engaged in a variety of vio-lations of Section 110, including overcharging forservices and failing to give debtors a copy of thedocuments presented for their signature.

The Fresno office obtained a judgment againsttwo bankruptcy petition preparers in theBankruptcy Court for the Eastern District ofCalifornia, permanently enjoining them from act-ing as petition preparers or giving legal advice; fin-ing them $11,000 and ordering fee disgorgement;and ordering them to provide the U.S. Trustee withan accounting of income derived from bankrupt-cy-related services, including fees received orshared with attorneys. The U.S. Trustee filed acomplaint in response to misconduct by the peti-tion preparers in at least 64 bankruptcy cases. In 41cases, they shared fees with two attorneys, pur-suant to undisclosed agreements whereby theattorneys solicited clients, gave legal advice regard-ing bankruptcy, and prepared bankruptcy docu-ments. In 22 cases, they prepared bankruptcy doc-uments but gave false preparer names, false SocialSecurity numbers, and false fee disclosures.

A bankruptcy petition preparer who operatedan Internet service was held in civil contempt ofcourt and sanctioned $10,000 by the BankruptcyCourt for the Western District of Texas after theSan Antonio office investigated her fees and prac-tices. The investigation revealed that the petitionpreparer engaged in the unauthorized practice oflaw by choosing debtors property exemptions,completing their bankruptcy schedules, andpreparing court pleadings and Chapter 13 plans.She also charged six times the amount that peti-tion preparers were allowed to charge in theWestern District. The contempt and sanctionsorders arose from her continued failure to obey aprior bankruptcy court order that enjoined herfrom petition preparation and directed her torepay debtors fees. The U.S. Trustees offices inCleveland and Peoria also obtained orders againstthe petition preparer in their judicial districts.

The Boise office obtained a judgment against abankruptcy petition preparer who was the localfranchisee for a national business entity. TheBankruptcy Court for the District of Idaho ruledthat the petition preparer had violated Section 110in several ways. Her use of the national entitys 20-page pamphlet outlining the Chapter 7 bankrupt-cy procedure constituted the unauthorized prac-tice of law and amounted to a deceptive and unfairpractice. In addition, her practice of advertisingthat, through the national entity, a supervisingattorney was available to chat about general ques-tions was unfair and deceptive because the attor-ney could provide little benefit to the prospectivedebtor without providing legal advice. In additionto sanctioning the petition preparer, the courtwarned the national entity that its method ofdoing business likely placed it within the definitionof a bankruptcy petition preparer and that it wasviolating Section 110.

Our efforts regarding the

bankruptcy petition pre-

parer demonstrate how, as

a nationwide Program, we

use tools such as our peti-

tion preparer data base to

gather information from

offices around the country.

A Trial Attorney in our

Peoria office immediately

provided us with pleadings

and other useful informa-

tion relating to that offices

actions against the petition

preparer, which we were

able to show the court and

use to stop her activities in

our jurisdiction.

Ann Killian,

Paralegal Specialist,

San Antonio

18

Ann Killian

The Bankruptcy Court for the Central Districtof California approved a stipulation under whichan individual was permanently barred from actingas a bankruptcy petition preparer, sanctioned, andordered to disgorge fees, after the Santa Ana officediscovered she had used her three-year-old daugh-ters name (here referred to as Jane Doe) on peti-tions she prepared. Previously, on motion of theU.S. Trustee, bankruptcy petition preparer JaneDoe had been sanctioned and enjoined from peti-tion preparation in a particular case. At that time,however, the U.S. Trustee continued its investiga-tion because there was some question whetherJane Doe was a real person. After searching pub-lic records, including county birth records, the U.S.Trustee linked the case listing petition preparerJane Doe to the individual, who was a law schoolgraduate and a previously sanctioned preparer.The U.S. Trustee discovered that the individual wasusing her daughters name instead of her ownname on documents she prepared.

The Tampa office obtained a permanentinjunction barring an individual and an entityfrom acting as bankruptcy petition preparers,based on allegations that they conducted a fraud-ulent home sale scheme. Under the scheme, thepetition preparers directed homeowners facingforeclosure to vacate their homes and quit-claimthe homes to investors located by the petitionpreparers. The investorswho had paid severalthousand dollars to the petition preparerstookover the homeowners mortgage payments, withthe homeowners thinking they were relieved oftheir mortgage debt. Integral to the scheme was thefiling of a Chapter 13 bankruptcy case on behalf ofthe homeowner, which automatically stayed anyforeclosure sale. By taking advantage of thedebtors right to make up late mortgage payments,the petition preparers used the bankruptcy cases asa source of home financing for the investors.

19

The petition preparers

scheme was discovered as

investors failed to make

mortgage payments,

homes were lost, and

investors realized not only

that they had defective

title to the properties, but

also that the preparer had

quit-claimed some proper-

ties to several investors at

once. Both the original

homeowners and the

investors were defrauded

by this abuse of Chapter

13 bankruptcy.

Pat Tinker,

Trial Attorney,

Tampa

Patrick Tinker

Chapter 4Criminal Enforcement

Photo 1: Patrick Donley, DOJ Criminal Division; Sandra Rasnak, Chicago; and Robertson Park, DOJ Criminal Division

Photo 2: Arlene Tolbert, Philadelphia

In addition to granting civil enforcement pow-ers to the Program, federal law directs the Programto refer criminal activity to the U.S. Attorneys andother law enforcement agencies and to assist inprosecuting criminal violations of the bankrupt-cy laws. Just like civil fraud and abuse, criminalbankruptcy fraud undermines the integrity of thebankruptcy system as well as public confidence inthat system. Experience shows that bankruptcyfraud often is linked to other crimes, such ascredit card fraud, tax fraud, identity fraud, feder-al benefits fraud, and money laundering. In addi-tion, the bankruptcy system is susceptible tofraud perpetrated by those who prey upon unso-phisticated consumers in deep financial distress.

The U.S. Trustees role in criminal enforcementis multi-faceted. Program staff help investigatecases of suspected bankruptcy fraud, often pre-senting comprehensive packages of documentaryevidence in conjunction with their referrals to theU.S. Attorneys. In some districts, Program attor-neys designated as Special Assistant U.S.Attorneys act as lead or assistant prosecutors inbankruptcy fraud cases. Further, Program staffare key members of a number of inter-agencyworking groups, providing information on howbankruptcy may fit into various crimes includingfederal benefits fraud, identity theft, and healthcare fraud. They also conduct training and out-reach programs, where they teach law enforcementpersonnel and others how to recognize and pursuecases of potential criminal bankruptcy fraud.

Criminal Enforcement Actions

Criminal enforcement actions include prosecu-tions of:

Concealment of assets by debtors and officersof debtor companies.

Identity fraud and/or Social Security fraud.

Credit card bust-outs.

Crimes by bankruptcy professionals.

Mortgage foreclosure scams.

Various other crimes including tax fraud, bankfraud, mail fraud, and perjury.

Concealment of Assets

Some debtors try to hide property from credi-tors and from the bankruptcy trustee by failing tolist that property on the bankruptcy documentsand by lying about the property at the Section341 meeting or in bankruptcy court. Sometimes,concealment of assets is only one part of a com-plex fraudulent scheme that includes otheroffenses such as wire fraud, mail fraud, securitiesfraud, and tax fraud. Concealment cases that wereresolved in FY 2002 included the following:

Thomas A. Warmus of Lighthouse Point, Fla.,was sentenced to 97 months in prison followinghis bankruptcy fraud conviction in the SouthernDistrict of Florida for concealing more than $2million in assets in bankruptcy cases he filed forhimself and American Way Service Corp., agroup of insurance companies that operated inseveral states. Warmus was found guilty oforchestrating a complex scheme to conceal assetsthat included high-end collectible automobiles,such as Ferraris and a Lamborghini; a 42-footyacht; and a collectible World War II fighter air-craft. Before filing for bankruptcy, Warmus had anet worth of $50 million and his insurance com-panies were valued at more than $100 million.His scheme to defraud creditors began severalmonths pre-petition, when he diverted revenuesfrom American Way Service Corp. to companies

21

Chapter 4

in the name of his wife and diverted his personalincome to companies in the name of his businessassociates, wife, and mother-in-law. While inbankruptcy, Warmus continued to sell undis-closed assets and use the proceeds for his person-al benefit. During the criminal trial, a trial attor-ney from the Miami office of the U.S. Trusteeserved as Special Assistant U.S. Attorney and theU.S. Trustee Programs National BankruptcyFraud Coordinator testified as an expert onbankruptcy matters.

A 97-month prison sentence was imposed inthe Western District of New York upon SamuelMiceli of Penfield, N.Y., after he pleaded guilty tobankruptcy fraud, money laundering, bail jump-ing, and illegal possession of a firearm. WhenMiceli filed bankruptcy he failed to disclose thathe was the owner and president of a corporationwith approximately $600,000 in assets, and heconcealed his ownership of approximately$675,000 in government bearer bonds and a$40,000 loan receivable. Miceli subsequentlyengaged in unlawful monetary transactions total-ing over $870,000. The plea agreement directedMiceli to forfeit more than $870,000 plus hisinterest in other specified property. The AssistantU.S. Trustee in Rochester and the private trusteeassisted with the investigation and prosecution,and were scheduled to testify at trial.

Larry Henderson of Manassas, Va., was sen-tenced in the Eastern District of Virginia to nineyears in prison for bilking three elderly clients ofmore than $250,000 each. Henderson, who plead-ed guilty to bank fraud, was already serving a six-year state sentence for similar frauds. Hendersonfiled his third Chapter 7 case in 1999, listingnumerous debts to elderly persons. Based on theChapter 7 trustees referral, the Alexandria officediscovered that Henderson failed to schedule assetsand disclose numerous creditors. Accordingly, theU.S. Trustee objected to discharge. During discov-ery, the U.S. Trustee learned that Henderson had

defrauded elderly customers out of thousands ofdollars by charging them exorbitant rates for homerepair and yard work. When the money ran out,Henderson drove his clients to banks and causedthem to take out home equity loans. The U.S.Trustee referred the matter to the U.S. Attorneyand assisted with the prosecution by providingdocuments and other evidence.

Joel Katz of Ruxton, Md., received a 97-monthsentence for money laundering; concurrent 60-month sentences for conspiracy, mail fraud, andwire fraud; a concurrent 37-month sentence forbankruptcy fraud; and a concurrent 19-monthsentence for being a felon in possession of a gun.After a four-week trial, Katz and a co-defendantwere convicted of defrauding more than 16,000customers by stealing more than $1.6 million in atelemarketing scheme. Katzs bankruptcy fraudconviction arose from his failure to list assets inhis Chapter 7 bankruptcy case, including hisinterest in a $1.3 million home he shared with hisgirlfriend and a $340,000 Bentley he purchasedfor her. The Baltimore office assisted in the pros-ecution of the case.

James Florence of Houston was sentenced inthe Western District of Louisiana to 30 months inprison and three years supervised probation andordered to pay restitution of $2.1 million, basedon his guilty plea to concealing $2.5 million bytransferring bankruptcy assets to offshore bankaccounts. Florence, the vice president of Chapter11 debtor WRT Inc., set up a shell corporation towhich he sold oil and gas proceeds during WRTsbankruptcy. He transferred the sales proceeds tooff-shore bank accounts in the Turks and CaicosIslands. The bankruptcy analyst for the Shreveportoffice helped the U.S. Attorney and FBI by ana-lyzing corporate documents and bank documents,and by testifying as an expert witness before thegrand jury.

As a Special Assistant

U.S. Attorney, I helped

the prosecuting attorneys

by serving as a resource

for specialized informa-

tion about bankruptcy

law and procedure. For

example, I explained

what must be included in

various bankruptcy doc-

uments filed with the

court. In essence, the

prosecutors needed me to

show them all the ways

Mr. Warmus was

required to disclose infor-

mation but didnt do so.

This helped them formu-

late accurate and specific

questions to elicit the

information the jury

needed in order to

understand the bank-

ruptcy fraud counts.

Heidi Feinman,

Trial Attorney,

Miami

22

Heidi Feinman

Indonesian defendant Sukamto Sia was sen-tenced in the District of Hawaii to three years inprison for bankruptcy fraud and wire fraud, andordered to pay $3 million in restitution. Siapleaded guilty to defrauding the Bank ofHonolulu, in which he was a controlling share-holder, and to concealing bankruptcy estateproperty in the form of tax refund checks totalingmore than $700,000. Sia engaged in a scheme toobtain millions of dollars in loans in the names ofother individuals without their knowledge, withthe loan proceeds going to entities controlled bySia. The Bank of Honolulu failed, and was seizedby the Federal Deposit Insurance Corp. in 2000.The case was referred to the U.S. Attorney by theHonolulu office of the U.S. Trustee. Sia wasarrested by the FBI at his Section 341 meeting.

Stephen Solesbee of Dallas was sentenced inthe Northern District of Texas to 97 monthsimprisonment after he was convicted on chargesof bankruptcy fraud, wire fraud, money launder-ing, and bank fraud. After Solesbee filed bank-ruptcy on behalf of Stephens Communications,employees complained to the Dallas office thatthey had not received their wages and that a per-son claiming to be the bankruptcy judge hadcalled the office to tell them what to do. The U.S.Trustee investigated and referred the matter tothe FBI, which discovered a pattern of criminalactivity by Solesbee, including the purchase ofoperating companies, subsequent non-paymentof employees, and removal of all company assets.The two counts of bankruptcy fraud were forSolesbees intentional omission of creditors fromthe schedules in his own Chapter 13 case, and theknowing and fraudulent transfer and conceal-ment of property post-petition. At Solesbeestrial, a trial attorney for the U.S. Trustee testifiedregarding bankruptcy practice, procedure, andthe criminal referral of the case.

After a nine-day trial, a jury in the District ofIdaho found Bruce E. Minter, a former commer-cial airline pilot who maintained residences inBoise and McCall, guilty of fraudulently conceal-ing assets in his bankruptcy case. The concealedassets included stock options and profit sharingbenefits Minter held through ContinentalAirlines; an interest in his personal Cessna 185;and an interest in an air courier service businesshe purchased five weeks before filing bankruptcy.Minter was also convicted of