After cutting a deal with his biggest creditor, developer Michael Rose is hoping his trip through personal bankruptcy will be a short one.
Mr. Rose, president of Mokena-based Location Finders International Inc., asked U.
S. Bankruptcy Judge Carol Doyle to dismiss the Chapter 11 case he initiated last month, saying in a court filing that he and U.
S. Bank N.
A. have negotiated a settlement that permits him to maintain control of his businesses. Mr. Rose has just $33.6 million in assets, but owes the Minneapolis-based lender U.
S. Bank $68 million, the largest…
BRUSSELS – The global financial crisis that erupted in full force in 2008 affected Europe and the United States in a very similar way – at least at the start. On both sides of the Atlantic, economic performance tanked in 2009 and started to recover in 2010.
But, as the financial crisis mutated into the euro crisis, an economic gulf opened between the US and the eurozone. Over the last three years (2011-2013), the US economy grew by about six percentage points more. Even taking into account the increasing demographic differential, which now amounts to about half a percentage point per year, the US economy has grown by about 4.5 percentage points more over these three years on a per capita basis.
The main reason for the gap is the difference in private consumption, which grew in the US, but fell in the eurozone, especially in its periphery. A retrenchment of public consumption actually subtracted more demand in the US (0.8 percentage points) than in the European Union (0.1 points). This might appear to be somewhat surprising in light of all of the talk about Brussels imposed austerity.
In fact, public consumption in the eurozone has de facto remained fairly constant over the last three years, whereas it has declined substantially in the US. (The same is true of public investment, though this constitutes such a small proportion of GDP that transatlantic differences could not have had a large impact on growth over a three-year horizon.)
The contraction of private investment in Europe accounts for only a small part (one-third) of the growth gap. Though the financial-market tensions that accompanied the euro crisis had a strong negative impact on investment in the eurozone periphery, investment demand has also remained weak in the US, minimizing the overall difference.
The resilience of private consumption in the US, the key to the growth gap, is not surprising, given that American households have reduced their debt burden considerably from the peak of more than 90% of GDP reached just before the crisis. The lower debt burden is also a key reason why consumption is expected to continue to grow much faster in the US than in the eurozone this year and next.
But the crucial question – and one that is rarely asked – is how US households were able to reduce their debt burden during a period of high unemployment and almost no wage gains while sustaining consumption growth. The answer lies in a combination of “no recourse” mortgages and fast bankruptcy procedures.
Millions of American homes that were purchased with subprime mortgages have been foreclosed in recent years, forcing their owners, unable to service their debt, to leave. But, as a result of no-recourse mortgages in many US states, the entire mortgage debt was then extinguished, even if the value of the home was too low to cover the balance still due.
Moreover, even in those states where there is full recourse, so that the homeowner remains liable for the full amount of the mortgage loan (that is, the difference between the balance due and the value recovered by selling the home), America’s procedures for personal bankruptcy offer a relatively quick solution. Millions of Americans have filed for personal bankruptcy since 2008 , thereby extinguishing their personal debt. The same applies to hundreds of thousands of small businesses.
Of course, there has also been a surge of bankruptcies in the eurozone’s periphery. But in countries like Italy, Spain, and Greece, the length of a bankruptcy proceeding is measured in years, not months or weeks, as in the US. Moreover, in most of continental Europe a person can be discharged of his or her debt only after a lengthy period, often 5-7 years, during which almost all income must be devoted to debt service.
In the US, by contrast, the corresponding period lasts less than one year in most cases. Moreover, the terms of discharge tend to be much stricter in Europe. An extreme case is Spain, where mortgage debt is never extinguished, not even after a personal bankruptcy.
This key difference between the US and (continental) Europe explains the resilience of the US economy to the collapse of its credit boom. The excessive debt accumulated by households has been worked off much more rapidly; and, once losses have been recognized, people can start again.
The cause of the transatlantic growth gap thus should not be sought in excessive eurozone austerity or the excessive prudence of the European Central Bank. There are structural reasons for the eurozone economy’s slow recovery from the financial meltdown in its periphery. Most important, compared to the US, the excess debt created during the boom years has been much more difficult to work off.
European officials are right to promote structural reforms of EU countries’ labor and product markets. But they should also focus on overhauling and accelerating bankruptcy procedures, so that losses can be recognized more quickly and over-indebted households can start afresh, rather than being shackled for years.
PORTLAND, Maine — The Owls Head-based solar technology company Ascendant Energy has filed for Chapter 7 bankruptcy, seeking to eliminate more than $780,000 in debt including grants and loans from the Maine Technology Institute and investment from the Wiscasset-based Coastal Enterprises Inc.
The company had received nearly $1 million in loans or grants through the Maine Technology Institute, a nonprofit supported with state money, to develop its proprietary solar panel technology and to launch a manufacturing facility it projected in 2009 could provide up to 40 jobs. At that time, the company was pursuing a $5 million manufacturing operation in Rockland that it planned to finance through a mix of private investment and state and federal grants.
The company was also supposed to install solar panels on the Wells Conference Center at the University of Maine by the end of 2010 to provide electricity and hot water for a portion of the building. Dan Demeritt, spokesman for the university system, said those units were never installed. The filings indicate the company owes the university $12,500.
The company also owes $40,000 to Oakhurst Dairy. In 2008, the company had reached a deal with the dairy to provide solar energy systems at 16 of its farms. Plumbers, roofers and law firms are also among the company’s creditors.
Company founder and CEO Chris Straka secured a patent in 2006 for his invention, a device to concentrate and amplify solar energy that is thinner than earlier devices performing the same task. At a 2006 energy conference, the company touted its invention was 37 percent efficient at converting solar energy to electricity, compared with an industry standard of 14 percent.
Researchers in Germany last year reported setting a world record for solar power efficiency using a concentrator system that achieved 44.7 percent efficiency.
Straka did not return a phone call Friday. As the 100 percent shareholder in the company, Straka has declared bankruptcy separately under Chapter 13, allowing reorganization of his debt that will allow him to keep his home in Owl’s Head.
The filing entered in US bankruptcy court Thursday shows the company has $781,957 in liabilities and $1,610 in assets with no property. Most of its debt is to the Maine Technology Institute, which it owes $327,948, and to Coastal Enterprises Inc., which it owes $231,105.
A spokesperson from CEI did not respond to a request for comment Friday.
The debt to MTI is primarily from a $324,300 development loan granted in 2006 for development of the company’s solar electric and thermal energy concentrator, according to a tally of awards from the state-supported nonprofit.
Jeffrey White, attorney for the company and Straka, said that there’s unlikely to be any funds distributed from the company.
Scott Burnett, spokesperson for MTI, wrote in an email that the loan was executed and is in progress, but a $575,408 award from the Maine Technology Asset Fund in 2009 was never issued. That award was to support construction of the company’s proposed $5 million production facility. According to the program’s website, it requires award recipients to raise required matching funds within six months to receive the award.
A team from the University of Maine also helped the company research its solar technology.
Burnett wrote that he could not share much information beyond the specific amounts of the awards and project titles because much of the information is confidential.
“I can say that it is very rare that MTI portfolio companies go out of business,” Burnett wrote.
The company also received three grants from MTI, totalling $24,920 to prove its concept, secure a patent and build and certify its product.
For startup companies, the period of time between research and development and getting to mass production and sales is referred as the “valley of death.” Bloomberg reported in 2010 that the recession left many startups in the lurch, particularly in clean-technology industries like solar energy. At that time, Bloomberg data showed venture capital and private equity firms had put about $49.3 billion into solar, wind and other alternative energy investments from 2000 to 2010, with investors pushing back timelines for recovering their investments by more than a year.
Ascendant last made news in 2010, when it faced a number of lawsuits from creditors. Straka at the time said the company’s troubles were in part because of a bad economy. The company was listed as a property taxpayer in Rockland in 2011, in an office at 313 Main St., but not listed in 2012 or 2013.
State records show the company was current on annual filings until this year. It missed a June filing deadline.
According to the bankruptcy filings, the company owes tens of thousands of dollars to area contractors, including $52,286 to Jim Godbout Plumbing amp; Heating Inc. in Biddeford and $28,402 to Gamp;E Roofing Co. Inc. in Augusta.
The company lists its assets as one laptop and one printer valued at $500, 6-year-old solar modules valued at $600, and hand tools and battery tools valued at $500.
In the related personal bankruptcy case, Straka and his attorney submitted Thursday a payment plan for the mortgage and a lien Coastal Enterprises Inc. has on the home he owns jointly with his wife. That plan calls for Straka to pay out $600 per month for 54 months to a bankruptcy trustee, who would then make payments on a car loan, lenders holding the home mortgage and Coastal Enterprises Inc.
A bankruptcy discharge hearing is the forum for the Courts determination of a bankrupts application for discharge which has been opposed by one or more of: a creditor, the Trustee, or the Superintendent of Bankruptcy. This paper will aim to provide practical advice on preparing for and arguing an opposed discharge, whether from the perspective of the bankrupt, an opposing creditor, or the Trustee.1
A discharge from bankruptcy releases the bankrupt from all claims provable in bankruptcy, pursuant to section 178(2) of the Bankruptcy and Insolvency Act, RSC. 1985, c. B-3, as amended (the BIA).2 Claims which are not released by an order of discharge, are prescribed by section 178(1), and include eight classes of debts.3
The timelines concerning an automatic discharge of a bankrupt are prescribed by s. 168.1 of the BIA. As a result of the BIA amendments in September, 2009, these are now as follows:
- 9 months for a first-time bankrupt with no surplus income obligations
- 21 months for a first time bankrupt with surplus income obligations
- 24 months for a second time bankrupt who does not owe surplus income obligations
- 36 months for a second time bankrupt with surplus income obligations4
Oppositions to the automatic discharge of a bankrupt are prescribed by s. 168.2(1) of the BIA, which requires a creditor, the Trustee or the OSB to provide notice of opposition in the prescribed form and manner prior to the automatic discharge date.Once a creditor, the Trustee or the OSB opposes the automatic discharge of a bankrupt, the Trustee is required to apply for an appointment for the discharge hearing.5
Other procedural requirements imposed upon the Trustee include:
- giving 5 days notice to the bankrupt that the Trustee intends to apply for an appointment for the discharge hearing
- preparation of an application to Court to fix a date for the discharge hearing
- once the date is fixed by the Court, the Trustee is required to send out a notice, not less than 15 days prior to the scheduled hearing date to the OSB, the bankrupt, and every proven creditor.6
The Trustee is further required to prepare a Report of Trustee on the Bankrupts Application for Discharge pursuant to s. 170(1) of the BIA, which must be filed at least 2 days prior to the discharge hearing with a copy forwarded to the OSB, the bankrupt and every creditor who has requested a copy at least 10 days prior to the scheduled hearing date.It is ordinary practice for the Trustee to send its s. 170(1) Report to any opposing creditor.The Trustees s. 170(1) Report indicates inter alia, the Trustees recommendation concerning the bankrupts discharge.7
The OSB may also file a Report, as may be deemed expedient or necessary for the hearing.8In respect of bankruptcy discharges, the OSBs primary mandate concerns debtor compliance with the BIA, and with the integrity of the Bankruptcy system.The OSB may not necessarily oppose a bankrupts discharge, but may direct or indicate expectations of the Trustee to oppose a bankrupts discharge.This commonly occurs following findings made on examination of the bankrupt by the Official Receiver,9 which are reported upon and contained in a Report prepared by the OSB.
For most regions in Ontario, a discharge hearing is usually conducted before a Registrar in Bankruptcy of the Bankruptcy Court, which falls within a Registrars jurisdiction pursuant to s. 192(1) of the BIA. In other jurisdictions in Ontario, a discharge hearing may be held before a Judge of the Superior Court of Justice.10A Registrar may refer any matter within its jurisdiction including a discharge hearing to a Judge, which may occur in the rare case.
Power of the Court
Pursuant to s. 172 of the BIA, the Court may:
- grant or refuse an absolute order of discharge
- suspend a bankrupts discharge
- grant an order of discharge subject to terms or conditions (make a conditional order of discharge)
If any facts referred to in section 173 of the BIA are proven, the Court may include in any conditional order, payment terms or such other terms as the Court may direct. If no s. 173 BIA facts are proven, the Court may nonetheless impose a conditional order which includes terms concerning a bankrupts earnings or income, or after-acquired property.11
Suspending the Bankrupts discharge and making a conditional order may be made concurrently.
In certain circumstances the Court may refuse a discharge. A refusal may be ordered with or without conditions required prior to a bankrupt being able to seek leave to re-apply for a discharge.
In the case of high personal income tax debtors (over $200,000 of personal income tax debt, which represents over 75% of the bankrupts total unsecured proven claims), a discharge hearing must be held after any of the ordinarily prescribed periods for an automatic discharge prescribed by s. 172.1 of the BIA (ie after 9 months; 21 months; 24 months; or 36 months as discussed prior).12 lsquo;Personal income tax debt does not include GST or an income tax debt that arose from an assessment for directors liability.
The Court may also adjourn a scheduled discharge hearing whether prior to commencement or after commencement of a hearing and direct the parties accordingly in respect of further disclosure, or the obtaining of an interpreter, etc. In the Toronto Bankruptcy Court, if a discharge hearing is anticipated to be longer than 30 minutes, the Court will ordinarily adjourn the hearing to a special long matter date, which is coordinated through the Bankruptcy Court office.
Preparation for a Discharge Hearing
From a Trustees perspective.
The Trustee is an officer of the court and represents the body of creditors as a whole.Aside from its statutory duties prior to the discharge hearing date, the Trustee will ordinarily have its file available at the discharge hearing and often assists the Court with factual information obtained during its administration.The majority of Trustee oppositions are the result of an omission or failure by the bankrupt to adequately perform his/her duties as set out in s. 158 of the BIA, including the obligation to attend mandatory counselling.13 If the Trustee is satisfied that the bankrupt has subsequently complied with his/her duties, and if there are no further substantial grounds for opposition, then the Trustee will ordinarily withdraw its opposition prior to or at the discharge hearing. The Trustee may also have opposed the bankrupts discharge in connection with lsquo;property issues as they relate to the bankrupts duties, given the Trustees mandate to realize upon all property of the bankrupt. While the discharge of a bankrupt and realization upon property of the bankrupt are not mutually exclusive, the Trustee will ordinarily aim to resolve all property issues prior to the discharge hearing if possible.
The Trustee may also share the same concerns and grounds for opposition as an opposing creditor, and a creditors opposition itself may provide the Trustee with new information and areas/avenues for review concerning the bankrupt. The Trustee also seeks to assist the bankrupt generally, by providing information to the bankrupt as to procedure, and also the potential advisability of retaining counsel.It is important to recognize however, that the Trustee does not legally represent the bankrupt, and the Trustee cannot advocate for the bankrupt or lsquo;prepare the bankrupt for a discharge hearing.Nonetheless, the Trustee often acts as a conduit between the bankrupt and an opposing creditor and/or the OSB, to promote a settlement or resolution of the issues. The Trustee may also retain its own counsel in respect of a discharge hearing.
From an opposing creditors perspective.
Critical information is gleaned from the Bankrupts sworn Statement of Affairs; the Trustees Report; any s. 161 BIA examination conducted by the Official Receiver; any s. 163(1) BIA examination conducted by the Trustee; and any s. 163(2) BIA examination conducted by the creditor.
Written questions may also be posed to the Bankrupt prior to the discharge hearing which the Bankrupt is obliged to answer in accordance with the Bankrupts duties under the BIA.
The opposing creditor seeks to establish s. 173 BIA facts and other grounds for opposing the bankrupts discharge, as set out in the opposing creditors notice of opposition.The notice of opposition should be sufficiently clear as to the grounds for opposition and should not contain frivolous or unfounded allegations (for example, alleging s. 173(1)(k) where here has been no criminal conviction of fraud or fraudulent breach of trust).14
Organization of documents and evidence relied upon is important in conducting an efficient cross-examination and presenting an opposing creditors position a document brief is often useful to both counsel and to the Court.
It is important to ascertain whether an appropriate notice of opposition has been filed in a timely manner.If another creditor or the Trustee or Superintendent has already filed an opposition to discharge and a hearing date is obtained, a notice of opposition may be filed by any other creditor, so long as it is prior to the discharge hearing date.15Notwithstanding, the Court may question optics and propriety if a creditor suddenly opposes at the eleventh hour.
There is a danger in lsquo;sheltering behind the Trustees or another creditors opposition, given for example, the Trustee may withdraw its opposition prior to the hearing date, or at the hearing. Alternatively, the grounds set forth in another creditors opposition may be materially different.
A creditor should also assess costs versus benefits in proceeding with an opposed hearing versus seeking a resolution or even a withdrawal of opposition.16Although a creditor may seek costs if any conditional order for payment is made by the Court,17 actual recovery is dependent upon what proceeds are actually paid under any conditional order, together with what dividends may be received based on the value of a creditors claim in the estate.
From the Bankrupts perspective.
A bankrupts goal is obviously an absolute discharge from bankruptcy, or alternatively a conditional discharge on as favorable terms as possible.Most bankrupts are self-represented at their discharge hearing, and at times may be unaware that they may require representation.
If representing a bankrupt, counsel should seek to obtain clarity in respect of any notice of opposition.Prior to the discharge hearing, particulars may be requested concerning grounds for opposition raised by an opposing creditor, the Trustee, or the OSB.Counsel should also review whether there are any inaccuracies in respect of any report,18 or in respect of the bankrupts Statement of Affairs or any other document which the bankrupt has signed or provided to the Trustee, which should either be corrected or addressed.19
Counsel will also wish to obtain copies of any documentary or affidavit evidence to be relied upon by an opposing creditor or the Trustee, and may also wish to know the identity of any witnesses.
Counsel should also ascertain if there are any unfulfilled duties by a bankrupt (for example, providing outstanding income tax information) or outstanding surplus income payments required.Addressing and resolving these with the Trustee prior to the scheduled discharge hearing is highly desirable, and may result in a resolution (for example, a consent conditional order for payment of outstanding surplus income), or alternatively in narrowing the issues. Resolution of unfulfilled duties prior to the discharge hearing will also present your client in a more favorable light if there are other issues concerning s. 173 of the BIA.
As with any trial, potential resolution prior to the hearing with the Trustee, an opposing creditor (and the OSB if applicable) should be weighed against the risk of a contested discharge hearing.
If an interpreter is required, a Ministry of the Attorney General (MAG) certified interpreter may be required, as is the case in Toronto. It is best to seek a MAG certified interpreter at an early date given there may be difficulty retaining one for certain languages.
If the bankrupt does not attend, then the Court may grant a lsquo;No Order; this will permit the Trustee to seek its own discharge, following which the rights of creditors will be revived if the bankrupt remains un-discharged. In these instances, the bankrupt may later seek to make a fresh application for a discharge, although this will no doubt remain subject to un-fulfilled duties or outstanding issues.
The Superintendent of Bankruptcy may be in attendance in circumstances where the OSB has opposed the discharge, or alternatively where the OSB has directed the Trustee to oppose the discharge. As mentioned, pursuant to s. 170(3) of the BIA, the Superintendent is also at liberty to make a Report to Court, and if in attendance, the OSBs position is informed by policy concerning lsquo;debtor compliance and the overall integrity of the Bankruptcy system.
Conducting the Hearing, Evidence, and Evidentiary Burden
The discharge hearing is a trial; all rules of evidence applicable to civil trials and the Rules of Civil Procedure apply where the BIA or BIA Rules do not specifically apply.
The Court will consider the Trustees Report;20 any OSB Report; notices of opposition from creditors; affidavit and other documentary material; evidence from any examination under s. 163(1) or s. 163(2) BIA;21 and viva voce evidence called at the hearing.For discharge hearings there is no strict requirement for documentary or evidentiary disclosure prior to the hearing prescribed under the BIA.In practice it is also generally not required to admit the authenticity of documents, although it is desirable for opposing counsel to exchange documents and agree upon a common brief and/or undisputed facts.22There is no benefit to ambushing any party and the Court will often grant an adjournment if the evidentiary record is not agreed upon or is incomplete.
The evidentiary burden is upon the bankrupt to satisfy the Court that an order of discharge should be granted.
Because the discharge hearing operates as the bankrupts application for discharge, it is common procedure for the bankrupt first to give viva voce evidence before the Court.The bankrupt is provided opportunity to describe the circumstances leading to his/her bankruptcy and factors to be considered by the Court concerning the Bankrupts application for discharge.Opportunity is then given to an opposing creditor, the Trustee and the OSB (if in attendance) to cross-examine the bankrupt.The bankrupt may also present witnesses who are also subject to cross examination by opposing parties.
An opposing party may submit affidavit evidence and also introduce witnesses to give viva voce evidence.23Witnesses produced by an opposing party may be cross-examined by the bankrupt. Expert evidence may also be introduced in accordance with the Rules of Civil Procedure.
The presiding judicial officer (Registrar or Judge) may and typically asks questions during the discharge hearing and will receive submissions as to disposition following the completion of testimony and cross examinations. As with any proceeding, good submissions are a succinct summation of the evidence and applicable law together with a realistic recommendation/submission as to outcome.It is advisable for counsel to review and become familiar with what outcomes might be anticipated for particular situations and s. 173 BIA facts proved or not proved.
An appeal from an Order of a Registrar in Bankruptcy lies to a Judge of the Superior Court of Justice pursuant to s. 192(4) of the BIA.24 An appeal of a Registrars order or conditional order made on a bankruptcy discharge hearing is not a trial de novo.25
A Registrars or Judges determination on a discharge hearing is an exercise of judicial discretion. An appeal court may modify or moderate conditions imposed on a discharge hearing.However, the standard for appeal is whether there was any omission of the consideration or the misconstruing of some fact, or violation of some principle of law.26
Aside from understanding the procedural intricacies associated with a bankruptcy discharge hearing, it is important and often beneficial to consider the perspectives of each of the participants, whether it be the bankrupt, the Trustee, or an opposing creditor, together with what ends may be achieved by proceeding with a contested hearing.As with any trial, preparation and understanding are key elements to success or resolution concerning a bankrupts discharge hearing.
Edmund C. Scarborough, who owned the biggest and most public individual surety business in the US, once claimed that his guarantees were backed by solid assets comprised of valuable coal waste.
In federal bankruptcy court in Tampa July 17, Scarborough and his wife, Yvonne, filed for protection from their creditors, listing assets of $4.5 million and liabilities of $16.2 million.
The 70-page filing states that the main business asset held by the debtors is IBCS Mining, a Charlottesville, Va., based company that Scarborough said mined the coal waste in Kentucky used to back surety bonds written by Scarboroughs IBCS Fidelity. Scarborough also filed for bankruptcy protection for IBCS Mining.
Virtually all of the amounts owed by Scarborough in his personal bankruptcy filing are listed as disputed, a term that could also characterize his legally entangled style of business.
Individual surety bonds, which have been plagued by fraud over the years, were created by federal regulations so that small contractors have an alternative to the harder-to-qualify-for corporate surety bonds. Those bonds are generally offered by insurance companies that must comply with state and federal regulations and which list their surety businesses with the US Treasury Dept.
Corporate sureties and surety brokers have been trying to tighten the asset rules in the federal regulations in a way that is likely to eliminate fraud in individual surety. The sureties and brokers are currently waiting to see if measures approved in the House of Representatives can make it through the Senate.
Lynn Schubert, president of The Surety Fidelity Association of America, an industry group, said in a statement that the recent bankruptcy filings by Edmund C. Scarborough and two related corporations again demonstrate the importance of verifying that the surety on a proposed bond is an admitted insurer in the state involved and therefore has been subjected to rigorous financial evaluation and oversight by the state insurance department.
Scarborough started his individual surety business in 2003 after operating a contracting company in Florida that eventually filed for bankruptcy protection. He built his surety business into a network that included at least one licensed broker and an attorney.
Scarborough initially used trust receipts, an asset employed in some fraudulent surety bonds, and later switched the asset backing his bonds to coal waste.
As he prospered, Scarborough hired lawyers and lobbyists and held himself out as an enabler of minority contractors who otherwise faced difficulties in winning surety bonds to perform work
Except for a felony involving worthless checks committed when he was in his 20s, Scarborough has not been charged or convicted of any financial crime.
He, did, however, fill court dockets with lawsuits, as both defendant and plaintiff. One was a lawsuit against the US Army, now apparently settled, for circulating warnings about Scarborough, and the National Association of Surety Bond Producers, which also reached a settlement.
Lawyers and Lobbyists
Now some of Scarboroughs lawyers and lobbyists are listed among his creditors and include law firms Holland Knight ($435,000) and Howrey ($1 million).
Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Springfield, Mo., businessman has been indicted by a federal grand jury for additional bankruptcy fraud, after being indicted last year for a series of bank fraud and wire fraud schemes that totaled more than $3.3 million in losses.
Richard Thomas Gregg, 59, of Springfield, was charged in a 25-count indictment returned by a federal grand jury on Wednesday, July 24, 2014. This superseding indictment replaces the original indictment returned on Feb. 28, 2013, and adds eight additional counts of bankruptcy fraud.
Gregg is charged with four counts of bank fraud, 10 counts of money laundering, two counts of wire fraud and nine counts of bankruptcy fraud.
Gregg was the principal shareholder and director of Southwest Community Bank in Springfield, which failed in May 2010. He and his wife were majority shareholders in Glasgow Savings Bank in Glasgow, Mo., which failed in 2012. Prior to Glasgow Savings Bank’s failure, it was one of the oldest operating banks west of the Mississippi River. Gregg was also a real estate developer, an investor and a licensed insurance agent for the Shelter Mutual Insurance Company. Gregg had ownership interest in and controlled a number of business entities.
More Than $180 Million in Debt
According to the indictment, Gregg and his business entities accumulated substantial debt. On the May 14, 2013, statement of financial affairs Gregg filed in his personal bankruptcy case, he reported owning assets valued at $145,030,779 and total debts of $325,512,798, reflecting a deficiency of $180,482,019. As of Feb. 28, 2013, the indictment says, approximately $14.6 million of the known debt attributable to Gregg and his business entities had been “charged off” by the creditor financial institutions, meaning they had defaulted and the financial institution had “written off” part or all of the loan because it determined the debt was not collectable.
Gregg was a managing member of and decision maker for 1717 Market Place, LLC. He was also designated as the tax matter partner for 1717 Market Place and provided the information to accountants who prepared tax returns for 1717 Market Place. On July 17, 2012, 1717 Market Place filed a Chapter 11 voluntary bankruptcy petition, which was dismissed on March 12, 2013.
Gregg was charged in the original indictment with one count of bankruptcy fraud. On Aug. 14, 2012, Gregg allegedly made false declarations by submitting false Schedules of Assets and Liabilities and a false Statement of Financial Affairs (SOFA) in his bankruptcy proceedings. Gregg stated that the bankruptcy debtor, 1717 Marketplace, LLC, owed him $868,000 for a “personal loan,” and owed another person $801,000 for a “personal loan.” In fact, as Gregg knew, neither he nor the other person had lent 1717 Marketplace, LLC funds in those amounts.
Four of the additional eight counts of bankruptcy fraud also relate to the false statements made by Gregg in the same bankruptcy proceedings.
In submitting the company’s schedules and SOFA, Gregg allegedly omitted any reference to substantial amounts (in excess of $9 million) that he and others owed to 1717 Marketplace. He also allegedly omitted any reference to the company’s payments, totaling approximately $151,000, to himself and another person within the year immediately preceding the date of the bankruptcy filing. Gregg allegedly omitted any reference to his transfer by warranty deed of his interest in two parcels of real estate, a 97.2-acre tract and a 6.4-acre tract, both in Nixa, Mo.
Four of the additional counts of bankruptcy fraud relate to the allegedly fraudulent transfer of property in Gregg’s personal bankruptcy case, which he filed after having been indicted last year for, among other crimes, bankruptcy fraud.
The indictment alleges that Gregg, in contemplation of his bankruptcy case and with the intent to defeat the provisions of Title 11, transferred his interest in two parcels of real estate, the 97.2-acre tract and the 6.4-acre tract in Nixa. The indictment also alleges that Gregg, with the intent to defeat the provisions of Title 11, fraudulently transferred property of the bankruptcy estate when he filed a document with the Christian County Recorder of Deeds that purported to place $250 million in liens on the real and personal property of Gregg and the entities he owned and controlled.
The indictment also alleges that Gregg, with the intent to defeat the provisions of Title 11, fraudulently transferred property of the bankruptcy estate when he signed an offer that purported to place liens on the real and personal property of Gregg and the entities he owned and controlled. On May 24, 2013, after his personal Chapter 11 bankruptcy case was converted to Chapter 7 and a trustee was appointed, Gregg accepted an offer on behalf of FRS, LLC, and 1717 Market Place, of $40 million “in the form of Property Tax Abatement based on a certain lien recording against this subject property.” According to the indictment, however, Gregg’s interests in those companies and in his personal property had become the property of the bankruptcy estate upon the commencement of his personal case on March 19, 2013.
The remaining charges contained in the superseding indictment remain unchanged from the original indictment.
The federal indictment alleges that Gregg engaged in a scheme to defraud Southwest Community Bank in 2008. As a part of this bank fraud scheme, the indictment says, Gregg sold the bank a piece of commercial real estate at 2814 S. Fremont in Springfield for $1,551,944. Gregg allegedly knew that amount was significantly above fair market value.
Gregg, who was Southwest Community Bank’s principal shareholder and was on its Board of Directors, did not disclose to the bank that he had purchased that property for $775,000 a few months earlier, the indictment says, nor did he disclose to the bank that two appraisals had been conducted on the property in recent months. One appraisal valued the property at $762,000. The second appraisal was cancelled when Gregg disagreed with the preliminary work. After Gregg cancelled the appraisal, the indictment says, his son (who worked at Southwest Community Bank) ordered an appraisal of the Fremont property by another appraiser, who valued the property at $1,580,000. Gregg allegedly did not disclose to the bank that this appraisal was not an independent valuation of the property, but rather was something Gregg had, in essence, directed.
The indictment charges Gregg with four counts of money laundering related to this bank fraud scheme.
In February 2009 Gregg borrowed $2 million from Great Southern Bank, using 160,000 shares of stock for First Bancshares, Inc. (FBSI), the holding company for First Homes Savings Bank, as collateral. Gregg physically deposited the stock certificate with Great Southern Bank.
According to the indictment, on May 6, 2009, with a $1.5 million balance remaining on the loan from Great Southern Bank, Gregg checked out the original FBSI stock certificate from Great Southern Bank, using as a pretext the stated purpose of separating the large certificate into multiple smaller certificates. He signed a trust receipt promising to return to the certificate to the bank within 30 days. Instead, the indictment says, Gregg deposited the collateralized FBSI shares into his account at Scottrade, a privately-owned retail brokerage firm located in St. Louis, Mo. On May 28, 2009, Gregg allegedly borrowed $440,000 from Scottrade, from the margin account on which the defendant used the FBSI stock as collateral. Gregg chose not to return the FBSI certificate or any proceeds he received to Great Southern Bank, according to the indictment, and instead used the funds for other purposes.
The federal indictment charges Gregg with two counts of bank fraud related to schemes to use collectible automobiles as collateral to obtain loans, then sell the automobiles without paying back the loans. In January and February 2010 Gregg allegedly executed separate but related schemes to defraud Great Southern Bank, Metropolitan National Bank and People’s Bank of the Ozarks. As a part of these schemes, the indictment says, Gregg sold seven collectible automobiles at the Barrett-Jackson Auto Auction in Scottsdale, Ariz. Five of the automobiles were encumbered at the three banks.
According to the indictment, Gregg borrowed $400,000 from Great Southern Bank in October 2007, which he secured with four collectible automobiles, including a 2006 Ford GT. Gregg consigned the 2006 Ford GT with the Barrett-Jackson Auto Auction in Scottsdale, Ariz., where on Jan. 23, 2010, the vehicle was sold at auction for approximately $150,000. Gregg allegedly chose to not return the proceeds of the sale of the Ford GT ($138,000 after deducting the auctioneer’s fee) to Great Southern Bank and instead used the funds for other purposes. When Gregg defaulted on the loan, Great Southern Bank realized a $129,644 loss.
According to the indictment, Gregg borrowed $400,000 from Metropolitan National Bank in 2005. He secured this loan with a “floor plan” financing, meaning the loan was a revolving line of credit made against specific pieces of collateral, in this case automobiles. When each vehicle on the floor plan was sold, the loan advanced against that piece of collateral was to be repaid. This loan was renewed in December 2009. In January 2010, the collateral included a 1971 Chevy Cheyenne Pickup. The portion of the loan’s balance collateralized by the 1971 Chevy Cheyenne Pickup was $17,221. Gregg also consigned the 1971 Chevy Cheyenne Pickup with the Barrett-Jackson Auto Auction, the indictment says, and it was sold for approximately $29,000. Gregg allegedly chose to not return the proceeds of the sale ($26,680 after deducting the auctioneer’s fees) to Metropolitan National Bank and instead used the funds for other purposes. When Gregg defaulted on the loan, Metropolitan National Bank realized a $17,221 loss.
The indictment charges Gregg with six counts of money laundering related to these bank fraud schemes.
The federal indictment charges Gregg with two counts of wire fraud related to bounced checks at two Oklahoma casinos.
On Jan. 3,2012 Gregg allegedly presented five checks, payable to Buffalo Run Casino in Miami, Okla., each in the amount of $10,000. Gregg allegedly knew his credit union account contained insufficient funds to cover those checks.
Between Feb. 16 and March 1, 2012, Gregg allegedly presented five checks payable to Downstream Casino and Resort in Quapaw, Okla., in the total amount of $60,000. Gregg allegedly knew his bank account contained insufficient funds to cover those checks.
This case is being prosecuted by Assistant US Attorney Steven M. Mohlhenrich. It was investigated by the FDIC Office of Inspector General and IRS-Criminal Investigation.
Photo by jtuason
Almost precisely three years from the date he went bankrupt, self-proclaimed troubleshooting consumer advocate Tom Martinos case is about to be settled and closed.
With more than $3.2 million distributed to creditors and the federal bankruptcy trustee who presided over the estate, Martinos financial crumble spurred by a collapsed real estate market comes to a close nearly to the day he filed for personal bankruptcy.
Trustee Simon Rodriguez filed his final report last week, giving creditors until Aug. 26 to object before funds are distributed.
The report shows Martino settled a wrongful termination lawsuit he filed last year against former employer Fox 31-TV for at least $16,000, after attorney and court costs were paid. Under an agreement with the bankruptcy estate, Martino was to pay 20 percent of any settlement funds to the estate after those expenses were covered.
Although terms of the settlement were not disclosed in the lawsuit, Rodriguezs report shows that the estate received $3,244.33 from the case.
In all, the report shows Martino, 60, shelled out nearly $1.5 million in cash to settle the bankruptcy, another $436,000 from bank accounts, and forfeited nearly $700,000 in federal and state tax refunds. Discounts were given for paying early, reducing the original $3.6 million figure.
Martino was discharged in April 2013 from the bankruptcy he filed Sept. 2, 2011, following lengthy court battles over how he handled his finances, some of which included unproven allegations he moved money into his wifes name to avoid seizure.
Martino was heavily invested in real estate, deals that eventually collapsed with the financial meltdown.
Martino accused Rodriguez of unfairly running up his legal tab, which amounted to more than $120,000, according to the final report.
Eight months after he was discharged in the bankruptcy, Martino was arrested in Denver for allegedly punching his wife, Holly, during a Christmas-time altercation in their car near the Auraria Campus downtown.
He pleaded guilty to disturbing the peace in May, and a domestic violence assault charge was dismissed in return for a deferred sentence.
David Migoya: 303-954-1506, firstname.lastname@example.org or twitter.com/davidmigoya
Ascendant Energy, a solar technology company based in Owls Head, has filed for Chapter 7 bankruptcy, citing $780,000 in debt and nominal assets.
The Bangor Daily News reported the companys creditors include Maine Technology Institute, CEI, the University of Maine, Oakhurst Dairy, Jim Godbout Plumbing Heating Inc. and GE Roofing Co.
The filing entered in US bankruptcy court Thursday shows the company has $781,957 in liabilities and $1,610 in assets with no property, the newspaper reported, noting that $327,948 is owed to the Maine Technology Institute and $231,105 is owed to CEI.
Jeffrey White, attorney for the company and its founder, CEO and owner, Chris Straka, said that theres unlikely to be any funds distributed from the company.
In the related personal bankruptcy case, Straka and his attorney submitted Thursday a payment plan for the mortgage and a lien CEI has on the home he owns jointly with his wife.