A US bankruptcy trustee who spots possible criminal conduct like tax fraud or concealment of assets is required by law to refer it to law enforcement agencies.
That’s often the last anyone hears of it.
“We make a lot of referrals, and we never really know what happens,” said Greg Hays, a trustee in Atlanta with a background in forensic accounting and fraud investigation. “I have submitted referrals that I really would have liked to know what happened. I’m cognizant that the US Trustee passes referrals on to the Department of Justice, but that is the last we hear.”
The US Trustee—the Justice Department’s bankruptcy watchdog—made an average of 2,271 referrals annually over the past six years, according to agency reports. Yet only about 40 people were charged with bankruptcy crimes on average annually during that period, and it’s unclear how many of those cases stemmed from a referral by a trustee, judge, or court receiver.
“Unless a bankruptcy criminal case has some kind of sex appeal, where there are so many innocent victims somehow being affected by this and there is some kind of fraud that they feel they can prove, I don’t think they see bankruptcy crimes as high on their list of cases that they want to take on,” said Schlam Stone & Dolan LLP partner Brad Simon, a former assistant US attorney for the Eastern District of New York and former trial attorney with the DOJ’s criminal division.
Bankruptcy criminal referrals can take two to four years to result in prosecution, if they ever do. Many never reach that stage, often due to limited resources, investigators finding bankruptcy law difficult to navigate, or shifting enforcement priorities within agencies that handle white-collar crime.
This article was originally published by Bloomberg Law.
Photographer: Al Drago/Bloomberg
Angélica Serrano Román 