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According to an article by the Bloomberg News service, U.S. authorities prosecuted the fewest number of people and companies for criminal bankruptcy fraud this year since at least 1986. That happened as filings rose to new heights amid the worst economic crisis since the Great Depression. The FBI, which is the primary agency that probes such cases, says it is putting more emphasis on other white-collar crimes, including securities and mortgage fraud, but there is precious little in the way of action backing up those words. The bureau now considers itself primarily concerned with terrorism and everything else is a secondary concern.
The problem is that unlike ordinary criminals, the perpetrators of financial fraud are educated and politically sophisticated enough to know that the odds of getting caught are slim to none. Fewer prosecutions have emboldened criminals, said Juval Aviv, the president and chief executive officer of Interfor Inc., a New York-based investigation and security firm that helps find money hidden from creditors, in an interview with Bloomberg reporter Justin Blum.
“It’s open season for fraudsters,” Aviv told Blum in a recent interview. “You’re really not taking a chance committing a bankruptcy fraud.” Aviv said his company, which has worked with victims of Bernard Madoff’s $65 billion Ponzi scheme, investigates 100 to 150 cases of bankruptcy-related frauds each year and alerts authorities to possible crimes. He says law enforcement doesn’t follow up in about half the cases.
Speaking on condition of anonymity, a former U.S. attorney who left office this year echoed Aviv’s assessment and said the reduction in FBI white-collar investigators meant fewer cases could be investigated. Federal prosecutors classified cases involving 82 companies or individuals as bankruptcy fraud in the fiscal year ended Sept. 30, the fewest since at least 1986, according to the Justice Department. Bankruptcy frauds involve concealing money or property from creditors, falsely claiming bankruptcy, or hiding documents.
Individuals and corporations filing for bankruptcy must provide lists of assets so they can be sold and apportioned to creditors. Cases that raise suspicion of fraud often are referred to law enforcement by creditors, judges or trustees who administer the bankruptcies. The problem is that those committing fraud are often politically connected and the investigations themselves are costly and exhaustive in terms of resources.
There were 1.4 million bankruptcy filings in the year ended Sept. 30, up 35 percent from the previous year, according to the Administrative Office of the U.S. Courts. Bankruptcy filings dropped in the 2006 and 2007 fiscal years after Congress passed a law making it harder for consumers to wipe out their debts through bankruptcy. Bankruptcy judges sometimes seek criminal investigations but they can’t force law enforcement to act.
In an Oklahoma City bankruptcy court last summer, federal Judge Richard Bohanon said he was “extremely suspicious” that a medical-supply company may have committed financial crimes by hiding assets. The judge tried to get a court-appointed trustee, attorney Robert Garrett, to get the FBI or U.S. attorney to look into the case of Medical Technologies LLC, a closely held company in Duncan, Oklahoma, that sold medical supplies.
Garrett said he did his best to get the bureau interested but his pleas were ignored based on the new counter-terror focus of the FBI. “Go see them, talk to them, tell them I want you to do something about it, because this smells of criminal activity and trying to hide assets,” Bohanon told Garrett in court, according to a transcript.
In an interview, Garrett said the FBI took down the information he provided, though he was told the agents “were now having to concentrate on national-security issues.” Add this page to your favorite Social Bookmarking websites        
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