Art Dealer Convicted of Bankruptcy Fraud On Run for 5 Years for Bankruptcy Finally Apprehended

A bankruptcy Art dealer who plead guilty to 1 count of bankruptcy fraud was apprehended after 5 years on the run. His crime involved transferring ownership of an oil painting to another person to sell and conceal the sale proceeds. First he failed to report to jail in 2004. Then he fled abroad while the U.S. Marshals were tracking him through 14 countries including China. Ultimately he was arrested in Rome in 2009. Released on house arrest he fled Italy to Mexico and was deported back to the United States (Consumer Bankruptcy News August 18, 2011, v 21, iss18).

It’s important to note how diligent the U.S. Marshals were in apprehending him. Bankruptcy fraud is a federal offense and taken very seriously by law enforcement. People filing bankruptcy often think they can get away with transferring assets on the eve of Bankruptcy. People often ask can they transfer their house to their son or daughter or give away assets and then file bankruptcy. The obvious answer is no and taking such action can make a difficult situation much worse and turn a civil action into a criminal one. So for those contemplating bankruptcy, the advice is not to transfer any assets. Leave things the way they are and get competent legal advice. Do no turn a civil matter into a criminal one.

Several Congressmen have been receiving inquiries from their constituents about the legality of deducting expenses incurred when selling marijuana for medical purposes. (See Practitioners TaxAction Bulletin No. 2011-18 p4.) The IRS has responded with a series of informational letters. Under the Internal Revenue Code Sec 280E disallows deductions incurred in the trade or business of controlled substances of which marijuana of course falls into. There is no exception for medical marijuana neither under either the code nor under Controlled Substances Act. In order for the IRS to publish formal guidance would necessitate Congress to change the Controlled Substance Act or Internal Revenue Code.

It doesn’t seem likely given the current political atmosphere and public attitude that Congress will make the necessary changes. I believe that is too bad, because if it were allowed into the code it would be one further step to full legalization and taxation of marijuana and surely would help take the criminal element out of the trade and of course generate additional revenue to bridge the current large and getting larger budget deficit.

Sun Capital Partners the parent company of big name chains such as Chevy’s, Friendly’s and Boston Market and El Torito filed for bankruptcy on October 4th., as reported by the New York Post (October 5, 2011, p 32.) Also, Sun also owns the Friendly ‘s chain which is expected to file later this month. This is just one of many recent filings for the restaurant industry as 5 chains with at least 100 locations have filed for bankruptcy.

Despite these woes, the principal of the company Marc Leder was reported to be throwing wild parties in the Hamptons with a pool full of nude guests performing sex acts.

Is the start of more chains and major national brands to go into bankruptcy? I would not be surprised with this economy. There is talk that American Airlines maybe on the verge of bankruptcy. However, it is not necessarily the end of these companies and may serve to strengthen them. For instance General Motors and Chrysler were able to reduce debt, renegotiate labor contracts, and close unprofitable plants. They had been unprofitable for several years prior to the bankruptcy. General Motors continue to make cars and has reported profits and new increased labor contracts for its workers. So Chapter 11 for large companies is not necessarily a bad thing if they are able to restructure and come out of the process more streamlined

In an interesting case recently reported in (Consumer Bankruptcy News, vol.21, iss19, p, 3) involving both the bankruptcy and criminal laws , a person who had been first granted a Chapter 7 discharge claiming to be unemployed and having no income was  arrested 5 months later. and charged with possession of and trafficking in crack cocaine.

The Office of the US. Trustee which oversees the bankruptcy process tried to reopen her case and have her discharge revoked based on fraud.  The debtor was subsequently found guilty on several criminal counts including delivery of a controlled substance, criminal conspiracy, and child endangerment.

Despite the US Trustee  introducing  the criminal evidence into the bankruptcy proceeding, the Court found that the US Trustee hand not proved that the debtor actually derived income from these transactions during the pre-bankruptcy period and allowed the discharge to stand. U.S. Trustee v. Shiloh (In re: Lisa L. Shilo), 21 CBN 1025, 2011 W. 3204915 (Bankr. M.D. PA 7/26/11)