Bankruptcy Crimes
| Publication year | 1993 |
| Pages | 1231 |
1993, June, Pg. 1231. Bankruptcy Crimes
Although a bankruptcy case and its related proceedings are civil actions, actions by the debtor or by creditors related to the bankruptcy case may cross the line into criminal activity. One illustration is the case of United States v. Levine,(fn1) which generated significant publicity in the District of Colorado. While some bankruptcy attorneys have expressed concern that bankruptcy crimes are given low priority by the U.S. Attorney, who is responsible for such criminal prosecutions, informal conversations with a former representative of Denver's Office of the United States Attorney reveal that bankruptcy fraud actions have not been de-emphasized and that several bankruptcy prosecutions currently are proceeding to trial.(fn2)
This article discusses the elements of bankruptcy fraud prosecution, particularly offenses based on concealment under 11 U.S.C. § 152. Also addressed are practical concerns relating to the Fifth Amendment and the immunity conferred by § 344 of the Bankruptcy Code.
Under Chapter 9 of Title 18 of the U.S. Code, the U.S. Attorney may bring federal criminal charges against any person who commits bankruptcy fraud. Actions brought under federal bankruptcy fraud statutes are formal criminal prosecutions that can result in monetary penalties and incarceration. A bankruptcy fraud case is not a mere adjunct to a pending bankruptcy case as is, for example, an adversary proceeding objecting to a debtor's discharge for fraudulent conduct, which can result only in civil liability.(fn3)
There are five bankruptcy statutes in Title 18, and four of those impose criminal sanctions.(fn4) Of those four, §§ 153 (embezzlement by trustee or officer), 154 (adverse interest and conduct of officers) and 155 (fee agreements in cases under Title 11 and receiverships) have generated few noteworthy cases.(fn5)
Section 152 of Title 18 is the heart of federal bankruptcy criminal law. Section 152 defines nine separate, punishable offenses, when done knowingly or fraudulently:
1) concealment of property of the estate;
2) making a false oath or account in or in relation to a bankruptcy case;
3) making a false declaration or statement in or in relation to a bankruptcy case;(fn6)
4) presentation or use of a false proof of claim;
5) receipt of any property from a debtor with intent to defeat the provisions of the Bankruptcy Code;
6) giving or receiving of property for acting or forbearing to act in any bankruptcy case;
7) concealment or transfer of property in contemplation of a bankruptcy case;
8) concealment, falsification or alteration of a debtor's financial records; and
9) withholding of financial records from a trustee or other officer.
Each offense imposes a penalty of not more than $5,000, imprisonment for five years or less, or both.
The U.S. attorney may charge an accused under one or more of the separate offenses that make up § 152. However, a debtor may not be charged with two or more different crimes that share a single nexus of facts. For example, the court in U.S. v. Montilla Ambrosiani(fn7) derided an indictment that charged "one crime to conceal a receipt, and another to file a report that is false because the receipt is omitted."
Counsel should not confuse this issue with indictments for identical offenses. An accused may be charged with only one act of concealment arising out of pre-bankruptcy activities, even if several acts of concealment occurred, because the operative concealment under § 152 is the debtor's failure to disclose the activities on his or her bankruptcy schedules.
This rule is explained in a string of federal appellate cases beginning with Edward v. U.S.(fn8) In Edward, the Ninth Circuit ruled that a debtor's failure to list numerous items in his bankruptcy petition should not spawn an equally large number of separate crimes:
Surely, if any accused should conceal a dining room set, a china set, or 1,000 silver dollars belonging to the estate of the bankrupt, his offense of failure to reveal or disclose would not be multiplied by the number of separate items concealed. The fact that several different items of property belonging to the estate of a bankrupt were concealed
does not multiply the number of offenses, even though the concealment of any one of the items standing alone would constitute the offense denounced by the statute. The offense... does not arise until there is a duty to reveal or disclose.(fn9)
Once a debtor files a bankruptcy petition, however, each act of post-petition concealment is a separate, punishable offense under § 152.(fn10)
A debtor also may be prosecuted under § 152 for withholding information from the trustee or for falsifying information. Courts have imposed an additional requirement...
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