Able Investigations

The lengths to which some debtors will go to hide their assets from creditors is astounding. But not far behind is the equally wily investigators, unearthing them.

Here’s how it works. Before a case is heard in bankruptcy court, debtors are responsible for turning over a host of paperwork toees, including a comprehensive financial statement and a detailed list of assets. Assets can include anything from high-dollar real estate to hefty tax refunds to expensive aircraft.

It is then the Chapter 7ee’s duty to administer bankruptcy cases in court, liquidate any non-exempt property and distribute the proceeds to creditors rightfully as indicated in the Bankruptcy Code. Theee may also bring a motion to deny the debtor a discharge of debts if he or she finds evidence of fraud, perjury or ineligibility.

“That list [of assets] is the first thing we look at,” said Chicago-area Chapter 7ee Joseph Cohen. “But we never believe it. Everybody lies to some degree.”

Depending on the complexity of the case in question, someees pass off the investigative work to staffers. Others hire investigative services to do the digging for them. The search for hidden assets can take them around the world.

Attorney Elizabeth O’Brien is based in Ireland. She has served as in-house counsel to Interclaim Recovery Limited, an asset location and recovery company. Her experience includes working with legal and investigative professionals on high-profile fraud cases spanning the globe. She also worked in tandem with Martin Kenney & Co., a solicitor’s firm that specializes in asset-tracing and fraud.

“Just as the opportunities for hiding assets are endless, the opportunities for finding them are endless,” she said, noting that finding assets is much more difficult these days because there are so many places to hide them.

O’Brien deals primarily with white-collar criminals who have committed crimes that could be played out in a Hollywood movie. “Some of them have defrauded banks and actually stolen huge amounts of money,” she said. “They’re not going to hide it where they think it’ll be found.”

One of O’Brien’s biggest concerns, she said, lies with the information-gathering process and whether or not it’s being done ethically. That is why, she added, companies who offer investigative services should be vigilant when doing background checks on their own people.

“You spend a lot of time researching the people you’re employing,” she said. “Ingenuity is the mother of invention. As more people come up with new schemes to hide their money, there are more companies specializing in forensic accounting and asset tracing. It’s opening up a whole new industry.”

Websites like www.knowx.com, www.4collectionsolutions.com and www.assetsearches.com provide searching services to anyone looking for assets — for a price. Though advertised on websites for as little as $99.95 per search, a quick phone call to the companies reveals many searches will cost upward of about $300. Some services will go as far as running birth certificate, license plate, criminal records and bank account searches.

And for those exploring uncharted territory — no need to worry. There are now companies that offer Forensic Accounting classes online. Forensic accounting professionals assist with investigating financial and business-related fraud. Many of the courses are self-taught and require you to purchase a DVD and manual. The companies claim to teach everything you need to know about detecting fraudulent financial reporting and conducting hidden asset investigations. A certificate of completion can cost as little as $100.

More established companies in the field of tracing assets are offering package services which include a private investigator, a forensic accountant and an attorney wrapped into one.

“Rather than going to each separately, you hire one person to lead the whole process,” said O’Brien.

The list goes on and on. It proves that the business of poking and prodding is in higher demand now more than ever.

Even paralegals are being trained to do some of the investigative work forees. Many of them, like Cristina Reyes, find the art of forensic accounting nothing short of riveting. Reyes is a college student and full-time paralegal for Marc DeGiacomo, a Chapter 7 Trustee in Massachusetts.

DeGiacomo will argue a concealed assets case before the Supreme Court next term.

The case involves Robert Marrama, the owner of a flooring company that went bankrupt in 2002. Trustees accused Marrama of failing to disclose two assets when he filed for Chapter 7 bankruptcy, including a summer home in Maine, valued at $85,000 and an $11,000 tax refund. The Bankruptcy Appellate Panel and First Circuit court both denied Marrama the right to convert his Chapter 7 case to a Chapter 13 case, citing bad faith.

The conversion would allow Marrama to salvage his assets rather than liquidate and repay creditors over a three-to-five year period of time.

Marrama’s attorney, David Baker, has assumed responsibility for his client’s failure to disclose the assets, calling the two instances “oversites that didn’t get listed” in the paperwork.

“And the judge misinterpreted that as we were trying to conceal assets,” Baker said.

According to bankruptcy experts, most debtors are honest people who cross paths with misfortune. And most Chapter 7 cases are no-asset cases, meaning that the debtor has nothing of value to his or her name that would interest a creditor.

“Out of the 48 cases I heard [yesterday],” said Cohen, “I’m following up on seven or eight of them.” Additionally, he postponed hearing 18 cases because of attorneys’ failure to follow guidelines under the new bankruptcy law which took effect in October 2005. “When I continue [cases], I start looking, too,” he said. “It gives me more motivation to look.”

Cohen said most of the hidden assets he finds are insignificant and invaluable belongings. He cited a 1995 Toyota Camry as an example.

And for Cohen, digging up concealed assets is often as simple as running searches on Google or Yahoo!

“I plug in the debtor’s name and see what I find out,” he said. More mundane forms of P.I. work byees or investigators include searching public databases to find copies of mortgages and car titles or taking a quick trip to the county treasurer’s or recorder’s office for details to unanswered questions.

Once an investigator oree finds an asset, the case goes to the U.S. Office of Trustees for review and creditors will be given notice of the assets and additional time to file proofs of claim. In the typical no-asset Chapter 7 case, there is no need for creditors to file proofs of claim.

So how does one know which cases to look at under a microscope? Of fourees interviewed, each said he or she follows a sixth sense.

But acting on every gut instinct can lead to sifting through a large volume of documents and can be a time-consuming hassle. A search on one case, Cohen said, may take between two to three months if done without assistance.

“Many times in business situations, we’re looking specifically to see if [the owner] has flipped the business,” he said, meaning unlawfully transferring the ownership.

Creditors are often another good source of information, said Cohen.

But make no mistake: all the digging pays off. For Cohen and otherees, uncovering concealed assets is like striking gold.

“I get $60 per case to hear a no-asset case,” he said. “If we find assets, we get paid significantly more.” According to the National Association of Bankruptcy Trustees, the commission rate is 25 percent on the first $5,000 distributed; 10 percent on the next $45,000 distributed, five percent on the next $955,000 and three percent for every dollar distributed in excess of $1 million.

“So, it’s a win win,” he said, referring to the benefits for both theees and the creditors.