U.S. Launches Fraud Crackdown

The Justice Department is expected to announce today a surge in prosecutions for bankruptcy fraud, including 31 cases involving 35 defendants in the Los Angeles area, a leading trouble spot in the country.

The Los Angeles area accounts for nearly a third of the more than 100 cases brought under a stepped-up prosecution effort, dubbed Operation Total Disclosure, that Attorney General Janet Reno ordered earlier this year, according to Justice Department officials.

Reno took the action after U.S. trustees said they were concerned that increased fraud could undermine faith in the system, an official said. The fraud included illegally hiding assets, filing falsified petitions and otherwise abusing the system.

In a Palmdale, Calif., case, a sporting goods merchant claimed to have no remaining inventory when filing for bankruptcy, but was found to have $70,000 of inventory in his garage, car trunk and a storage locker, a department official said.

In a Los Angeles case, defendants allegedly secretly transferred more than $1 million from a troubled gas station into other accounts they controlled but did not disclose to the bankruptcy court, according to a report prepared for Reno.

Elsewhere in the country, a Pennsylvania man filed to clear his debts five times in five years, each time allegedly concealing his previous difficulty.

A Chicago attorney declared personal bankruptcy, allegedly concealing at least two bank accounts, several real estate parcels, a Jeep Cherokee and a BMW.

A Seattle case involved a woman who solicited $1.5 million from 15 elderly investors. She allegedly diverted the money to buy condominiums and luxury automobiles, but concealed those assets from the court when she declared bankruptcy.

While declining to discuss individual cases, Maureen Tighe, head of the bankruptcy fraud task force in the U.S. attorney’s office in Los Angeles, noted that the area accounted for nearly 10 percent of the bankruptcies filed annually in the country.

“We have the largest number of prosecutions in part because we have led the nation in bankruptcy filings,” she said.