Thrills and Chills in the Search for Bankruptcy Cheats

The case of the bankrupt borrower had come full circle for private detective Robert D. Carey.

The paper trail left by developer Philip J. Crosier Jr. had led to upstate New York, to Florida, to St. Croix - and now back to New Hampshire. Mr. Carey was wrapping up a late-night interrogation with Mr. Crosier's development manager when the employee finally uttered the words a private eye lives to hear:

"I don't know if I should say anything about this, but...."

The manager, Wilbur Boudreau, then told an unlikely tale of an errand for Mr. Crosier during which he found his bankrupt employer's home strewn with wads of $100 bills, cash-stuffed wallets, and enough jewelry and rare coins to fill seven cardboard cartons.

"I thought Wilbur was just trying to tell a good story," the operative from LCF Associates, Braintree, Mass., said last week.

Gumshoes for the '90s

Mr. Carey is one of a new breed of investigators who combine high-tech financial skills with low-tech pavement pounding to track down hidden assets of delinquent real estate borrowers for banks.

Like others who ply the same murky waters, Mr. Carey describes work that can be numblingly dull.

But with real estate projects everywhere going belly up and developers trying to cut their losses, conducting asset searches for banks has become a growth industry for the private eyes.

Bank Behavior on the Fringes

And more and more, these detectives are being rewarded with evidence of behavior that seems more suited to a cheap detective novel than the staid world of commercial banking.

Indeed, the potential for best-sellerdom of his predicament apparently occurred even to Mr. Crosier.

The outline for a novel - possibly a roman a clef - about a developer whose creditors are closing in, was seized along with other valuables when real-life authorities finally closed in on Mr. Crosier.

|Twas a Day ...

It all started early in 1990 with a call from Robert J. Eisenberg, then the president of New England Financial Resources in Boston. "He was feeling a little queasy about one of his loans," Mr. Carey recalled, referring to a $3.7 million credit New England Financial had arranged with some local banks.

Mr. Crosier and his wife, Mary, owned several apartment projects in southern New Hampshire along with a chain of six hardware stores. They were also involved in a major project converting a schoolhouse in Glens Falls, N.Y., to apartments, within nearly $5 million in financing from Citizen's Financial Group, Providence, R.I.

In addition, the Crosiers controlled two hardware stores in St. Croix through a company that also held title to a $800,000 home there. When they filed for reorganization under Chapter 11 of the federal bankruptcy code in June, 1990, the Crosiers would claim that the stock in those stores was held in trust for their 13-year-old daughter, and was not part of the bankrupt business.

A quick preliminary investigation by LCF confirmed that Mr. Eisenberg probably had a problem. Then, in quick succession, the loans went into monetary default, the banks foreclosed, and the Crosiers filed for bankruptcy.

Bankruptcy by the Numbers

In the following months, continued investigations on behalf of New England Financial and Citizen's Financial revealed what Mr. Carey and his boss, Lee Blais, are calling a textbook example of a "bankruptcy bustout."

More than 300 creditors filed claims on the bankruptcy estate. But, according to Mr. Carey, the Crosiers "had packaged it so [the hardware business on St. Croix] owned everything - including the lifestyle."

The detective agency compiled a stack of shipping invoices, eyewitness accounts, and other documents. These proved that inventory and other assets from the Crosiers' moribund business in the northeastern United States had been shipped south to Florida - where the Crosiers had a warehouse, a rented home and several bank accounts - and on to St. Croix.

Treasure Trove Uncovered

What's more, everything Mr. Boudreau had hurriedly removed from the Crosier home in New Hampshire turned up in St. Croix and Florida when agents of the bankruptcy court raided the Crosiers' properties there in April.

The investigation ultimately enabled the court to increase the size of the estate to be divided among the Crosier creditors by as much as $4 million. That's one estimate of worth of stock in the St. Croix business, which produces $12 million a year in sales.

The Crosiers say they were the victims of bad legal advice. Neither they nor their counsel could be reached.

Mr. Eisenberg, now a consultant with Broadwater Financial Inc., having sold New England Financial, said the Crosier case illustrates the value of monitoring a loan and taking quick action to gather facts at the first sign of trouble.

Unearthing Hidden Assets

In a bankruptcy, he said, creditors must present a convincing case to spur the court to go after assets that may be illegitimately shielded from the proceeding.

The idea of placing their assets in trust to their daughter bears a close resemblance to a ripoff that Edmund J. Pankau, a Houston detective, said is becoming pervasive nowadays.

"They'll file for divorce, put all their assets in the wife's name, and then file for bankruptcy," Mr. Pankau said. Strangely, these developers all seem to reconcile with their former wives shortly afterwards, he said, apparently choosing to live in sin - and wealth.

The move to St. Croix suggests another concern that arises in asset searches: Has the borrower moved assets offshore?

Richard C. Ross, who retired from the Federal Bureau of Investigation last fall to start Ross Security Consultants, Lynwood, N.J., said his work for banks in his region has led to eight foreign countries.

Convoluted Rentals

As real estate problems afflict more and more markets, bankrupt borrowers aren't the only people these detectives are checking out. Mr. Pankau also noted that overbuilt markets leave banks vulnerable to leasing scams.

Anxious to get tenants into their properties, managers (including banks and their representatives) grant generous cash payments for tenant improvements and a one-year period rent-free. A form of fraud that is all too common today, he said, is for the tenant to use only part of the money and desert the premises just before the first rent check is due.

"Whey they go to collect the rent, they open the door and find an empty office with the phone sitting on the floor."

Most often, in a real estate bankruptcy, the assets are hidden close by. That is why the detectives spend most of their time hunched over computer terminals or, in some jurisdictions, thumbing through dusty land records, searching for links between various limited partnerships and projects in which the bankrupt developer may have a stake.

But one thing the bankrupt borrowers seem to have in common is a taste for extravagance. And that gives detectives like Mr. Carey plenty of hot trails to follow.

PHOTO : Detective Bob Carey tracked two bankrupt developers from New England to this sunny St. Croix beach ...

PHOTO : ... where they lived in an $800,000 beachfront home that had been kept off the list of assets submitted to bankruptcy court.

PHOTO : Inventory from their bankrupt stores turned up at this thriving outlet on the Virgin Islands resort ...

PHOTO : ... And rare coins last seen in the developers' New Hampshire home spilled out of a safe in Florida.

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