Bankruptcy Fraud Continues to Rise

While losses from financial fraud continue to dwarf those from robbery and burglary, 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. White-collar crime associated bankruptcy fraud continues to rise.

Since 1990, on an annual basis, the Chapter 11 bankruptcies have deceased over 64.5%. Yet the known white-collar crime associated with these bankruptcies rises. There is very little in the bankruptcy process to prevent fraud or, more importantly, to identify and prosecute for said offenses.

The United States Trustee Program made 2,131 bankruptcy and bankruptcy-related criminal referrals during Fiscal Year (FY) 2015. This represents a 2.5 percent increase from the 2,080 criminal referrals made during FY 2014. Let us be conservative and state 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 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)” projects that 4.7% of the non-business bankruptcies involved a criminal transaction. Furthermore, this same analysis performed states that 8.6% of the business bankruptcies are inflicted with a criminal transaction as defined by the DOJ. This is an alarming statistic when the number of bankruptcies in the United States are decreasing at a rate of 12% per annum.