Examples of Bankruptcy Fraud Investigations - Fiscal Year 2012
The following examples of bankruptcy fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Minister Sentenced in Scheme to Obstruct Bankruptcy Proceedings
On July 30, 2012, in Greenbelt, Md., Robert J. Freeman, aka “Dr. Shine,” of Indian Head, Md., was sentenced to 27 months in prison, three years of supervised release and ordered to pay $631,050 in restitution for obstructing bankruptcy court proceedings. According to his plea agreement, Freeman served as pastor and leader of Save the Seed Ministry, Inc., Save the Seed International Church, and Seed Faith International Church. Shortly after February 2001, Freeman used funds from church members to accumulate substantial assets, including luxury cars and a residence, which he concealed from the bankruptcy court when he sought a discharge of his debts in 2005. More specifically, from 2002 to 2006, Freeman purchased several luxury vehicles and a $1.75 million residence on the Potomac River in the names of church members. Freeman also caused a luxury vehicle to be leased in a church member’s name. By October 2005, Freeman and his then-spouse owed over $1.3 million in debts, including $846,000 in back rent; more than $87,000 in lease payments on a jet airplane; over $160,000 for payments on musical instruments; and $220,000 in loan payments on a bus. On October 14, 2005, Freeman filed a bankruptcy petition seeking to adjust or discharge his debts. Freeman lied to the bankruptcy court and obstructed its proceedings by not fully reporting his real or personal property, or property owned by another that Freeman controlled, including the home and luxury vehicles purchased with church funds. Freeman also falsely reported his occupation as a consultant of a maintenance company and failed to report any income from his ministry. Additionally, at a court proceeding, Freeman falsely stated that his ministry business went out of business and that he was renting a residence in Waldorf from friends, and he provided false pay stubs from a maintenance company that in fact did not employ him. Relying on the false information, on March 8, 2006 the bankruptcy court discharged hundreds of thousands of dollars in debts owed by Freeman. In the weeks following the discharge of his debts, Freeman caused two Mercedes Benz vehicles and a Lincoln Navigator to be purchased or leased for more than $430,000 in a church member’s name.
California Man Sentenced in Bankruptcy Fraud Case
On July 3, 2012, in Las Vegas, Nev., James Dennis Territo, of Tiburon, Calif., was sentenced to 24 months in prison and three years of supervised release. Territo pleaded guilty in January 2012 to income tax evasion. According to the plea agreement, Territo was in the real estate mortgage business in California. He established two “nominee” corporations in Nevada, Titan Investments and Pacific Financial Services, through APG, a company owned and operated by William S. Reed and Richard C. Neiswonger. Reed and Neiswonger have pleaded guilty in an investment fraud case in Nevada and are awaiting sentencing. APG provided services that allowed Territo to open bank accounts in his corporations' names for which Reed was the only signatory on the accounts. Using this scheme, Territo was able to use and control the bank accounts and corporations without the deposits being traced back to him. The IRS had assessed a tax liability against Territo of over $370,000 for tax years 1987 through 2002. In September 2005, Territo filed for bankruptcy and failed to disclose to the bankruptcy court that he possessed and controlled approximately $122,000 in the Pacific Financial Services' bank account. Territo’s bankruptcy was finalized in December 2005, and his debts with the IRS, totaling almost $290,000, were discharged, resulting in a loss to the IRS of approximately $372,875.
Indiana Man Sentenced in Tax Fraud Case
On May 17, 2012, in South Bend, Ind., Kenneth Gaipa was sentenced to 24 months in prison, two years of supervised release, and ordered to pay $62,019 in fines and restitution for tax evasion, social security fraud and bankruptcy fraud. According to court documents, Gaipa, owner of Kenneth G Rare Coins and Estate Jewelry, admitted that he willfully evaded federal income taxes for the years 2008 through 2010 by using business accounts to pay for personal expenses and having all of these expenses reported as if they were business expenses. He submitted false records to his tax return preparer knowing that the records would significantly under-report his income to the Internal Revenue Service in order to minimize taxes due and allow him to continue to receive social security disability payments to which he was not entitled. Gaipa also made false statements to the Social Security Administration in order to continue to receive benefits to which he was not entitled. Gaipa submitted a “Work Activity Report” in June 2011 that indicated he had not worked since February 2006, and that he had no income when in fact he had substantial income as the owner of Kenneth G Rare Coins and Estate Jewelry. Gaipa committed bankruptcy fraud from November 2008 through February 2009 by signing a false petition for bankruptcy and misrepresenting his true financial affairs and assets to the U.S. Trustee and his creditors, allowing his debts to be discharged in the bankruptcy proceedings. He falsely under-reported his income and stated that he had only lent his name to the Kenneth G Rare Coins and Estate Jewelry business, concealing that he was the true owner and had significant assets and earned income from the business.
Las Vegas Real Estate Agent Sentenced for Tax and Bankruptcy Fraud
On April 9, 2012, in Las Vegas, Nev., German A. Posada was sentenced to 18 months in prison and ordered to pay $212,016 in restitution to the IRS and $24,628 in restitution to victims of the bankruptcy fraud. According to court documents and statements made in court, Posada admitted to filing a false individual income tax return for 2004 that under-reported the income from his business as a real estate agent. Between 2003 and 2005, Posada earned commission income from International Realty and another realtor. He asked that International Realty issue some of his commission checks in the name of his then-girlfriend and deposited those checks into a bank account in her name. Posada also admitted under-reporting his business income on his 2003 tax return, failing to file a timely 2005 tax return and failing to report the approximately $557,212 in income that he received in 2005. In addition, court records establish that in 2005, Posada filed for bankruptcy in the U.S. Bankruptcy Court for the District of Nevada. In his May 13, 2005, and August 2, 2005, bankruptcy petitions, he made false statements, including that he had no current income, he had received no income during the two years immediately preceding 2005, and 17 creditors held unsecured non-priority claims totaling $466,885 against him. Then, on September 2, 2005, at a meeting of creditors, Posada falsely testified under oath before the bankruptcy trustee that he had received “one or two” and “probably two” commissions since May 13, 2005, when in fact he knew that he had received at least 19 commission checks totaling $130,575 during that time period.
Maine Man Sentenced for Bankruptcy Fraud
On March 13, 2012, in Bangor, Maine, George F. Rayner, of Baileyville, Maine, was sentenced to one year and a day of in prison and one year of supervised release for bankruptcy fraud. On December 7, 2011, a jury found Rayner guilty of the offense. According to evidence introduced at trial, Rayner and his wife filed for bankruptcy reorganization in May 2006. In his bankruptcy filings and testimony, he concealed from the Office of the United States Trustee and his creditors a savings bank account; a deferred compensation retirement account worth $150,000; and the fact that he was entitled to reimbursement for accrued, but unused, sick leave and vacation time benefits. He also failed to report a $97,000 lump-sum distribution from his retirement account and the payment of about $12,000 for his unused benefits. Rayner was required to report these amounts to the Office of the United States Trustee in monthly operating reports.
Former Loan Officer Sentenced on Mortgage Fraud and Bankruptcy Fraud Charges
On March 7, 2012, in Phoenix, Ariz., Paige Kinney, aka JamieLee Lawler, was sentenced to 180 months in prison and ordered to pay $22,000,000 in restitution. Kinney pleaded guilty in May 2011 to various charges related to a mortgage fraud scheme and to charges of bankruptcy fraud, wire fraud, mail fraud, and bank fraud in two separate indictments. According to court documents related to the first indictment, Kinney played a leadership role in a $40 million mortgage fraud scheme that targeted Countrywide Home Loans and other lenders. According to Kinney’s plea, from January 2005 through December 2007, Kinney and others used unqualified straw buyers to purchase properties, knowing that the straw buyers did not intend to live in the homes or be responsible for the loan payments. Kinney would obtain mortgage financing to purchase homes in the names of the straw buyers by submitting fraudulent mortgage loan applications and altering documents, such as bank statements, to misrepresent the straw buyers’ assets, income, and employment status. Based on these misrepresentations regarding the buyers’ ability to qualify for loans, lenders issued loans that exceeded the homes’ sales prices. Once the funds were obtained from the lenders, the extra proceeds, known as “cash-back,” were directed to bank accounts that Kinney controlled. In total, Kinney caused lending institutions to issue $38,745,215 in fraudulent loans. According to her plea agreement on the second indictment, Kinney declared bankruptcy and then attempted to hide assets and liabilities from the Bankruptcy Court by falsifying her name and social security number. Kinney also committed additional financial fraud by arranging for friends to fraudulently obtain a loan to purchase a Mercedes. In addition, she committed insurance fraud by staging a phony burglary of her residence and then collecting $130,000 from Allstate Insurance Company.
Optometrist Sentenced for Tax Evasion and Bankruptcy Fraud
On February 9, 2012, in Springfield, Mo., Leslie MacLaren was sentenced to 39 months in prison and ordered to pay $334,003 in restitution for evading income taxes and filing a false tax return. According to court documents, MacLaren claimed a $40 million refund. MacLaren, an optometrist, attempted to evade obligations of approximately $161,773 in various ways, including concealing income and hiding assets. Hidden assets included a three story house on more than six acres, which he titled in his mother’s name, and three vehicles, which he purchased and titled under the name of a fictitious company. Further, he filed a fraudulent bankruptcy petition, resulting in the discharge of back tax liability for the years 1993 and 1995 to 1998. MacLaren also attempted to evade income taxes for the years 2003 through 2006 by failing to file returns, avoiding the use of banks – dealing mostly in cash – and by listing eight dependents and claiming exemption from withholding on an IRS Form W 4 that he provided to a former employer. In addition to the tax evasion counts, MacLaren was found guilty of two counts of bankruptcy fraud, one count of submitting a false claim to the United States and one count of obstructing the administration of internal revenue laws.
Washington Man Sentenced for Ponzi Scheme and Bankruptcy Fraud
On February 9, 2012, in Seattle, Wash., Fredrick Darren Berg, of Mercer Island, Wash., was sentenced to 216 months in prison and three years of supervised release for wire fraud, money laundering and bankruptcy fraud. The amount of restitution is yet to be determined. Berg is the founder of the Meridian Group of investment funds. The funds represented that $245 million in investor money was invested in real estate contracts and real estate; however, the funds were actually elaborate Ponzi schemes. Berg used investor money for a luxurious lifestyle. According to records in the case, between 2001 and 2009, Berg used more than $100 million from over 800 investors for his own expenses and to keep his investment fraud going. Between 2003 and 2010, Berg diverted approximately $45 million from his investment funds without his victim’s knowledge or permission. In 2010, Berg claimed he was cooperating with bankruptcy trustees in his personal and corporate bankruptcies in an effort to help unravel his fraud schemes. Federal investigators learned that he had concealed approximately $400,000 from the trustees and later lied about the source of these funds when confronted by the trustee in his personal bankruptcy. Further investigation revealed the funds came from the sale of a home he had failed to disclose in his bankruptcy proceedings and the funds were deposited into a series of bank accounts he concealed from the trustee.