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Legal Penalties and Defenses for Fraudulent Asset Transfer

By Los Angeles Criminal Defense Attorney on December 10, 2022

Concealing assets from creditors is the most common form of bankruptcy fraud. Hiding assets during bankruptcy proceedings is a criminal offense under federal and state law in California that carries strict penalties including jail time.

If you are being investigated or facing charges for bankruptcy fraud, contact the experienced Los Angeles federal crime defense attorneys at Werksman Jackson & Quinn LLP right away. We have a proven track record of success defending clients in state and federal prosecutions.

Call (213) 688-0460 to learn more today.

Penalties for Fraudulent Transfer

Bankruptcy is a legal mechanism that allows persons and organizations to get a clean slate when they can no longer pay their debts. The bankruptcy process is designed to ensure that creditors collect as much money as possible.

People who file for bankruptcy are required to provide an honest account of all their assets. Then the court will assign a trustee to negotiate a payment plan with creditors.

According to California Penal Code 154 PC, it is illegal to dispose of assets or property to avoid having to use that property to pay back debt. Unlawfully hiding or giving away assets is called fraudulent conveyance.

Fraudulently conveying assets with the intent to defraud, hinder, or delay creditors of their rights, claims, or demands is a felony under California law which carries heavy fines and up to three years in state prison.

Bankruptcy fraud is also a federal offense that carries up to 5 years in prison and fines up to $250,000.

Any type of property with monetary value that is unlawfully sold, given away, or otherwise transferred may fall under the category of fraudulent conveyance, including:

  • Money
  • Houses
  • Stocks and bonds
  • Boats
  • Clothes
  • Furniture
  • Jewelry and watches

There are several ways that people attempt to hide their assets from creditors during a bankruptcy filing. For example, a person might sell an expensive car to a relative at far below market value, with the understanding that they can buy it back after the bankruptcy process has concluded.

Someone who is about to begin a bankruptcy proceeding may attempt to hide assets by transferring them to a friend, relative, or to another business. Debtors also attempt to hide money by transferring assets to a shell company or an offshore account.

Examples of illegal actions that may be used to hide assets from creditors include:

  • Giving away property
  • Lying about the existence of assets
  • Hiding or erasing proof of assets
  • Transferring assets
  • Devaluing assets
  • Creating fake documentation
  • Depositing business profits in someone else’s account

How Investigators Search for Assets

Creditors and investigators are very diligent about searching for hidden assets. They will scrutinize all the documents filed in a bankruptcy proceeding and look for inconsistencies. Prosecutors can subpoena documents, and public and private investigators will also review the following types of information:

  • Your purchase history
  • Public records
  • An online asset search
  • Payroll, bank, and tax return records
  • Statements from former spouses, coworkers, and friends

Legal Defense Against False Concealment

When it comes to convicting someone for false conveyance, prosecutors have a very high burden for establishing intent. People have the right to give their money away, even when they are in debt. Your creditors cannot fault you if you are supporting your niece who needs money due to a family emergency.

Effective defense arguments in a false conveyance case include:

  • No assets were hidden.
  • There was no intent to hide assets.
  • The recipient was a good faith transferee.
  • Illegal search and seizure took place.
  • Police misconduct occurred.
  • You had a good reason to make the transfer, such as an emergency or to pay off another creditor.

Are You Being Investigated for Bankruptcy Fraud in Los Angeles?

Our world-class team of criminal defense attorneys at Werksman Jackson & Quinn LLP has earned a national reputation for excellence. We’ve been featured on CNN, ABC News, CNBC, Fox New, the BBC, and CBS News.

We’ll find the best strategy to get your charges reduced or dismissed. Call (213) 688-0460 to schedule a consultation today.

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Posted in: Financial Crimes