In a deposition in aid of enforcement of a judgment, a creditor may compel testimony under oath, obtain documents and keep that information confidential for its own benefit. If there are assets to be recovered a creditor may pursue them to pay down their own debt and not share the assets with other creditors.

Once the debtor is in bankruptcy, however, the appointed trustee will pursue recovery of assets for the benefit of all creditors. While creditors will be able to obtain information about the debtor from a number of sources, no single creditor moves to the front of the line but must stand shoulder to shoulder with other creditors.

For this reason, the logic is not immediately apparent behind the Bank’s decision to force the debtor into bankruptcy. If the point of the action was to obtain information under oath, mechanisms exist under both state law and bankruptcy law for the purpose. Of course, if other creditors are further ahead in their efforts to locate assets from this failed development then the Bank may prefer to put all creditors on equal footing.

Perhaps the real motivation behind the involuntary bankruptcy lies in the creditors’ collective mistrust of the debtor’s management. The debtor’s principals include Ronald LeGrand and Ken Gwynn. LeGrand and Gwynn are well known for promoting expensive seminars called “Fast Track to Wealth”. The seminars promised that investors could make millions from buying and selling flipped properties.

Another aggrieved lender, Flagstar Bank, claims in a separate lawsuit that LeGrand and Gwynn used the seminars to recruit straw purchasers to buy Legacy’s lots by “obtaining loans based on inflated appraisals and misleading financial statements. When the loans went into foreclosure, [Flagstar] claims LeGrand repurchased the lots in short sales for a fraction of the mortgage amount.” Flagstar says it lost $4.1 million on the loans.

Forcing the debtor to disclose financial information under oath may be the stated reason behind this involuntary bankruptcy, but given creditor distrust of debtor’s management it seems more likely that Horry County State Bank and the other petitioning creditors hope the bankruptcy trustee will unveil secret transfers, hidden assets and other possible sources of recovery to pay their claims.

The post Forced Response: Creditors Use Involuntary Bankruptcy To Expose Developer’s Fraud appeared first on Baltimore Bankruptcy Lawyer.

In a story of high finance and international intrigue, former billion dollar real estate tycoons Michael and Linda Mastro will return to the US to face 43 counts of bankruptcy fraud including scheming to defraud, concealment of assets, monely laundering, making false oaths or accounts, making false declaration under penalty of perjury, and unlawfully receiving bankruptcy estate assets.

The Mastros’ international game of cat and mouse with the FBI began in June, 2011, after they were ordered by a Washington state bankruptcy court to turn over two diamond rings. Instead of cooperating, the Mastros fled the country. The diamonds are valued at over $1.4 million.

The Mastros were forced into an involuntary bankruptcy by three lenders in 2009. Involuntary bankruptcies are rare and sometimes risky legal maneuvers where at least three creditors join together to petition a bankruptcy court to take jurisdiction over a debtor’s assets. For the petition to succeed, the debts cannot be the subject of legitimate disputes and the debtor must not be paying his debts as they become due. The procedure carries significant risks: if the bankruptcy court declines jurisdiction the petitioning creditors may be forced to compensate the debtor for actual damages, including attorneys’ fees, resulting from the creditors’ action.

For creditors of the Mastros, the involuntary gambit was well founded. The Mastros had put together billions of dollars worth of real estate deals, but their empire began to crumble in 2008 when the market tanked. To defeat the claims of their creditors, the Mastros began to transfer assets, such as luxury homes including a $15 million Medina Washington home, into an irrevocable trust. The Mastros kept these transfers secret from their investors, many of whom were family and friends. By the time of the bankruptcy, the Mastros owed over $100 million.

According to court papers, during the 2009 bankruptcy proceedings Mastro did not disclose the existence of a bank account they controlled under the name LCY LLC. Mastro and his wife used the LCY LLC bank accounts for two years, paying for about $285,000 in expenses, including car loan payments for a Bentley and a Rolls Royce, more than $100,000 in gold, and purchases from Macy’s, Barney’s and Nordstrom. Linda Mastro received checks from the LCY LLC bank account that totaled $18,000.

In a classic case of greed and criminal stupidity, the arrests were made possible when the FBI told French authorities Michael Mastro had sought reimbursement from his U.S. insurance provider for medical care he received in France. Discovery of the reimbursement request led authorities to the Mastros’ most recent address in the French Alps. Perhaps 007 will break open his next case after a super villain trips international alarms by seeking coverage above his co-pay.

The post Bankruptcy Net Closes On James Bond Style International Fugitives appeared first on Baltimore Bankruptcy Lawyer.