A Westport, Connecticut, man has been sentenced to 30 months in jail for bankruptcy fraud crimes of nearly $1 million. Following his time behind bars, Daniel Steinberg will remain under the court’s supervision for three years, according to the Westport Patch.
Here’s a look at Steinberg’s crime and how fraud works in bankruptcy court.
The fraud reportedly involved the business bankruptcy case of Reservoir Corporate Group, LLC, which filed a Chapter 11 case in 2009. Over the course of a year during the company’s bankruptcy, it seems that Steinberg transferred more than $700,000 from the company’s coffers to his own.
That money was apparently used to fund personal expenses as well as those of other businesses that Steinberg had a financial stake in. Because part of the Chapter 11 bankruptcy required that Steinberg, as debtor-in-possession of the company, file reports with the bankruptcy court, he also falsified the financial records of the company to cover up his fraudulent activity.
In August 2010, the bankruptcy court discovered Steinberg’s illegal transfers, and also found out that he had begun making such transfers before the company officially filed for bankruptcy.
protection. All told, it seems Steinberg embezzled $968,973 from the company.
Bankruptcy Court Takeover
Once evidence of Steinberg’s fraud came to light, a Chapter 11 bankruptcy trustee took over control of the accounts in question. In addition to his jail time, Steinberg has been ordered to pay full restitution for the funds he embezzled, which might be difficult for someone who was shuffling money from a company in bankruptcy in order to cover his expenses.
But the penalties in Steinberg’s case are not unusual. In personal bankruptcy cases (Chapter 7 or Chapter 13), bankruptcy fraud can lead to penalties that include:
- Fines of up to $500,000, which usually align with the amount of money or value of property involved in the fraudulent transactions; and
- Up to five years in prison.
Because bankruptcy is handled at the federal level, bankruptcy fraud is a federal offense. While Steinberg’s case represents a blatant flouting of the rules of bankruptcy court, not all bankruptcy fraud is so glaringly obvious.
One reason the U.S. Court system recommends that individual bankruptcy filers work with an attorney is so that they can avoid accidental fraudulent behavior. In many cases, transferring ownership of property to a friend or family member in the months immediately preceding a bankruptcy filing can be construed as fraudulent by the bankruptcy court.
If you have questions regarding the potentially fraudulent appearance of your plans for a personal bankruptcy case, be sure to consult with a bankruptcy lawyer who practices in your state.