Docket: Bankruptcy Initiative Gets 152 Convictions

The Justice Department's crackdown on consumer bankruptcy fraud has started to produce results. In the first 10 months of 1997, the Justice Department won 152 bankruptcy fraud convictions and reaped nearly $22 million in restitution and fines.

"It is important to have it understood that the bankruptcy laws will be enforced and fraud pursued," Attorney General Janet Reno said in an interview. "It has been one effective initiative."

To combat fraud, Ms. Reno kicked off "Operation Total Disclosure" in February 1996.

It targets filers who abuse the system by concealing assets or filing fraudulent bankruptcy petitions.

Recent convictions include the April 7 guilty plea by Gilfert W. Jackson, 52, of Los Angeles, who admitted making false statements to the bankruptcy court and faces up to 10 years in jail.

Also, the department convicted Terri Gail Memenway of Gilbert, Ariz., of bankruptcy fraud for filing 12 bankruptcy petitions from 1989 to 1996. She was sentenced in March to 21 months in jail.

Maureen Tighe, a U.S. trustee in Los Angeles and the former deputy chief of major fraud in the U.S. Attorney Office there, said bankruptcy fraud has gotten out of hand.

"We need to send a message to people committing bankruptcy fraud that they cannot get away with it," Ms. Tighe said. "There had been a lackadaisical attitude toward fraud. That has to change."

Part of the crackdown in Los Angeles-which has the most aggressive anti- bankruptcy fraud operation in the country-targets debtors who lie on their petitions.

"Perjury is serious," she said. "People think they can lie on these petitions but it is not that way. We prosecute even small cases where people lie about Social Security numbers."

The U.S. Trustee's Office also is pursuing debtors who try to hide assets from creditors. "Creditors should get paid as much as they can get paid," she said. "If people are hiding assets, then we have an obligation to prosecute them."

Since the crackdown began, prosecutors in Los Angeles alone received more than 300 tips on potential abuses in 1997, up from an average of 50 in previous years, Ms. Tighe said.

Penalties for fraud range from probation to five years in prison, though longer terms often are sought because bankruptcy fraud is usually connected with other crimes, such as bank fraud. (Because of this, the government did not start tracking bankruptcy prosecutions separately until last year.)

"It is important to prosecute both the big and the small crime," she said. "This is so people don't think they can get away with it."

William P. Binzel, vice president of government affairs at MasterCard International, said the government needs to get even more aggressive.

"The number of prosecutions and restitutions they have done in a relatively short period of time indicates there is a significant problem out there," Mr. Binzel said. "More resources should be devoted to solving it."

Still, he said more prosecutions alone will not eliminate bankruptcy abuse.

"Increasing DOJ enforcement will not solve the fundamental flaw in the current system, which is that it allows debtors who could afford to repay a significant portion of their debts to walk away," he said. "That needs to be corrected by legislation."

Bankruptcy reform bills are pending in the House and Senate.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER