Despite the decrease of 12% in bankruptcies over the past fiscal year, bankruptcy fraud continues to increase. The increase of bankruptcy matters referred to the Department of Justice was 2.5% in the prior fiscal year. While losses from financial fraud continue, white-collar crime prosecutions are at their lowest level in a generation. White-collar crime is one of the most destructive—and most under-policed—types of criminal activity in the United States today. And white-collar crimes associated bankruptcy fraud continues to rise. The Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization process is not availing itself to financial forensics or white-collar crime investigations.

The United States Trustee Program made 2,131 bankruptcy and bankruptcy-related criminal referrals to the Department of Justice during Fiscal Year (FY) 2015. This represents a 2.5 percent increase from the 2,080 criminal referrals made during FY 2014. Based upon our detailed analysis, LFFG estimates that only 5% of these criminal acts were referrals to the Department of Justice. The primary reasons for the non-referrals was due to lack of resources, ability to prove beyond a reasonable doubt, the bankruptcy party inability to pay, complexity of the transactions, no meaningful deterrents, and, more importantly, the fraud was not dedicated in the bankruptcy process.

 

Our analysis based upon the “Report to Congress: Criminal Referrals by the United States Trustee Program - Fiscal Year 2015 (Dated April 2016)” estimates that 4.7% of the non-business bankruptcies involved a criminal transaction.  Furthermore, this same analysis preformed estimates that 8.6% of the business bankruptcies are inflicted with a criminal transaction as defined by the DOJ. This is an alarming statistic - given the number of bankruptcies in the United States are decreasing at a rate of 12% per annum.

Our collective experience confronting bankruptcies (Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization) and white-collar crime investigations allows Lakelet Financial Forensics Group to resolve the most complex bankruptcies and white-collar crime investigations.