Braten and Soifer executed a sham document which they later claimed was a valid shareholders’ agreement. The document required BAC or Braten to lend Brookfield $250,000 by a specified date, in default of which BAC’s ownership of Brookfield would be transferred to Soifer. Soifer and Braten never intended that the loan be made, but expected that the bankruptcy court and BAC’s creditors, upon being shown the sham document and being informed that the condition had not been met, would believe that BAC no longer had any ownership interest in Brookfield. Braten and Soifer agreed that Soifer would hold Brookfield in a secret trust during the pendency of BAC’s Chapter 11 proceedings, and would return it only after BAC had achieved a substantial reduction in its debts through a confirmed reorganization plan.
After completing this fraudulent transfer, BAC filed a petition in bankruptcy on September 5, 1974. Rhoades acted as attorney for BAC and, along with Braten and Soifer, misrepresented to the court, to Bankers, and to other creditors that, because BAC had failed to issue the loan as required under the shareholders’ agreement, it no longer had any ownership interest in Brookfield.
Relying on these misrepresentations, Bankers agreed to, and the bankruptcy court confirmed, a plan of arrangement for BAC under which Bankers agreed to receive only 17.5% of its allowed claim. This plan relieved BAC of more than $4.3 million in debts, and permitted it to continue operating with Rhoades, Braten, and Soifer retaining control. Critical to Bankers’ acceptance of the plan was its belief that all BAC assets were being made available to the Chapter 11 proceeding. Had it known of the fraudulent transfer of Brookfield, Bankers never would have consented to the reorganization plan.
Shortly after confirmation of the plan and termination of the bankruptcy proceedings, Soifer, through a complicated series of transactions, returned ownership and control of Brookfield to BAC. At that time, Brookfield anticipated sales of $18 million in the coming year, had an annual net income in excess of $1.4 million, and had assets valued at well over $10 million.
In a further attempt to delay Bankers from collecting its debt, Rhoades, Braten and Soifer initiated frivolous lawsuits against Bankers in both New York and South Carolina state courts. In connection with the South Carolina action, in late 1978 Rhoades acquired, through a South Carolina corporation which he formed and which Soifer and Braten owned, a mortgage on which the judge presiding over the South Carolina action was personally obligated. Through an illegal agreement with the South Carolina judge, defendants then paid the judge’s debt as the mortgage installments came due. In return, the judge rendered two decisions favorable to BAC: on November 9, 1978, he denied Bankers’ motion to dismiss the action; and on January 18, 1979, he appointed a special referee who had ties to BAC and its counsel. These two bribed decisions caused Bankers to expend over $100,000 in legal fees.
In September 1976, upon learning of the transfer of Brookfield back to BAC, Bankers moved in the bankruptcy court to revoke BAC’s confirmation plan, alleging that it had been procured by fraud. The record is unclear as to why the bankruptcy court did not act on this motion immediately; but whatever the reason, in 1981-82, over five years after Bankers moved to revoke but while that motion was still pending, Rhoades, Braten and Soifer, in a continuing attempt to prevent Bankers and other creditors from collecting their debts, conspired to and did in fact fraudulently conceal and deplete BAC assets through a wide variety of methods, including fraudulent stock transfers, transfers of corporate assets to other companies and individuals without fair consideration, and transfers of monies in corporate accounts to satisfy defendants’ personal debts. Finally, on June 30, 1982, the bankruptcy court, holding that BAC had obtained its Chapter 11 reorganization by fraudulent means, revoked its confirmation plan and reinstated the bankruptcy proceedings. Those proceedings are still pending in the bankruptcy court.
Bankers commenced this action against defendants in the district court on August 24, 1982. It alleged that the continuing actions of Rhoades, Braten and Soifer — the common-law fraud and bankruptcy fraud in 1974-76, the frivolous lawsuits and bribery of the South Carolina judge in 1978-79, and the fraudulent conveyances in 1981-82 — constituted a “pattern of racketeering activity” in violation of 18 U.S.C. § 1962(a)-(d).
After completing this fraudulent transfer, BAC filed a petition in bankruptcy on September 5, 1974. Rhoades acted as attorney for BAC and, along with Braten and Soifer, misrepresented to the court, to Bankers, and to other creditors that, because BAC had failed to issue the loan as required under the shareholders’ agreement, it no longer had any ownership interest in Brookfield.
Relying on these misrepresentations, Bankers agreed to, and the bankruptcy court confirmed, a plan of arrangement for BAC under which Bankers agreed to receive only 17.5% of its allowed claim. This plan relieved BAC of more than $4.3 million in debts, and permitted it to continue operating with Rhoades, Braten, and Soifer retaining control. Critical to Bankers’ acceptance of the plan was its belief that all BAC assets were being made available to the Chapter 11 proceeding. Had it known of the fraudulent transfer of Brookfield, Bankers never would have consented to the reorganization plan.
Shortly after confirmation of the plan and termination of the bankruptcy proceedings, Soifer, through a complicated series of transactions, returned ownership and control of Brookfield to BAC. At that time, Brookfield anticipated sales of $18 million in the coming year, had an annual net income in excess of $1.4 million, and had assets valued at well over $10 million.
In a further attempt to delay Bankers from collecting its debt, Rhoades, Braten and Soifer initiated frivolous lawsuits against Bankers in both New York and South Carolina state courts. In connection with the South Carolina action, in late 1978 Rhoades acquired, through a South Carolina corporation which he formed and which Soifer and Braten owned, a mortgage on which the judge presiding over the South Carolina action was personally obligated. Through an illegal agreement with the South Carolina judge, defendants then paid the judge’s debt as the mortgage installments came due. In return, the judge rendered two decisions favorable to BAC: on November 9, 1978, he denied Bankers’ motion to dismiss the action; and on January 18, 1979, he appointed a special referee who had ties to BAC and its counsel. These two bribed decisions caused Bankers to expend over $100,000 in legal fees.
In September 1976, upon learning of the transfer of Brookfield back to BAC, Bankers moved in the bankruptcy court to revoke BAC’s confirmation plan, alleging that it had been procured by fraud. The record is unclear as to why the bankruptcy court did not act on this motion immediately; but whatever the reason, in 1981-82, over five years after Bankers moved to revoke but while that motion was still pending, Rhoades, Braten and Soifer, in a continuing attempt to prevent Bankers and other creditors from collecting their debts, conspired to and did in fact fraudulently conceal and deplete BAC assets through a wide variety of methods, including fraudulent stock transfers, transfers of corporate assets to other companies and individuals without fair consideration, and transfers of monies in corporate accounts to satisfy defendants’ personal debts. Finally, on June 30, 1982, the bankruptcy court, holding that BAC had obtained its Chapter 11 reorganization by fraudulent means, revoked its confirmation plan and reinstated the bankruptcy proceedings. Those proceedings are still pending in the bankruptcy court.
Bankers commenced this action against defendants in the district court on August 24, 1982. It alleged that the continuing actions of Rhoades, Braten and Soifer — the common-law fraud and bankruptcy fraud in 1974-76, the frivolous lawsuits and bribery of the South Carolina judge in 1978-79, and the fraudulent conveyances in 1981-82 — constituted a “pattern of racketeering activity” in violation of 18 U.S.C. § 1962(a)-(d).
Bankers Trust Co. v. Rhoades, 859 F. 2d 1096, 1098-99 (2d Cir. 1988).
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