By Daniel Hart, Paralegal and Salene Mazur Kraemer, Esquire.
In October 2015, every Pittsburgh local news outlet and national entertainment magazine reported on the bankruptcy fraud story of Abby Lee Miller. We have previously written here about her Chapter 11 Case: “Dance Mom” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts: Abby is the controversial star of the reality television show, “Dance Moms”. Her often abrasive personality is in contrast to the glitter of dance and beauty of her young dancers. She is quick to throw scathing insults at any of the children and their sometimes overly zealous Dance mothers.
Abby Lee filed for Chapter 11 bankruptcy in 2010, in Bankruptcy Court here in Pittsburgh. After some television surfing by a local bankruptcy judge and a subsequent investigation by local authorities, Abby may have committed bankruptcy fraud.
What is bankruptcy fraud? It is a white-collar crime that generally has taken four general forms:
- Debtors conceal assets to avoid having to forfeit them;
- Individuals intentionally file false or incomplete forms (underreporting income, overstating liabilities);
- Individuals file multiple times using false information or real information in several states;
- Debtors bribe a court-appointed trustee.
Nearly 70% of all bankruptcy fraud involves the first form, the concealment of assets. At the 341 meeting of creditors in each bankruptcy case, a debtor is required to testify under oath as to the accuracy of his or her bankruptcy petition and schedules. A bankruptcy trustee appointed by the United States Department of Justice probes each debtor about the facts and circumstances surrounding each case.
A bankruptcy trustee can only liquidate unexempt assets that are a part of the debtor’s “bankruptcy estate”. If the asset is not listed on the debtor’s schedules or the debtor does not reveal the asset, it can fly under the radar.
I tell each of my bankruptcy clients always to “tell the truth, reveal everything, err on the side of caution.” “You don’t want to end up in jail over this filing.”
The effects of bankruptcy fraud are often passed on to businesses, financial institutions, and the general consumer in the form of higher interest rates, greater loan fees, and higher taxes.
Bankruptcy fraud is a criminal offense. When a bankruptcy trustee suspects fraud but does not have enough evidence, he/she can compel testimony and document production from just about anyone through a Bankruptcy Rule 2004 examination. If fraud is suspected, the trustee refers the case to the Federal Bureau of Investigation (FBI). The agency will undergo its own investigation. A debtor guilty of bankruptcy fraud faces stiff penalties as outlined at 18 U.S.C. §152 which can result in a fine up to $250,000 for each count of fraud, or up to a five-year prison sentence, or both.
A federal grand jury indicted Abby Miller on 20 counts of bankruptcy fraud, alleging she concealed about $755,000 in assets and made false bankruptcy declarations. Federal Bankruptcy Judge Thomas Agresti nearly approve Miller’s Chapter 11 reorganization plan but then he was channel surfing one night and saw commercials for the new season of “Dance Moms”. Miller claimed in her bankruptcy reorganization plan that she did not have a signed contract for a new season and that her income from the show was “volatile.”
It is alleged that Abby did in fact, have a signed contract and steady income. During the past three years while the the bankruptcy proceeding was pending, as required by the Department of Justice for all debtors, Miller was required to deposit her income into a special DIP (Debtor in Possession) account and report that income to the court on a monthly basis. Instead, it is alleged that she set up other bank accounts and funneled her income from the TV show and other ventures into those accounts.
If found guilty, Abby Lee faces up to five years in prison, not to mention outrageous fines given 20 counts. The surprising twist in this case is that Abby’s bankruptcy plan, we believe, provided for a 100% payout to unsecured creditors (a rarity); it appears that she would have had no need to hide assets; she was obligated to pay unsecured creditors 100% anyway! We shall see!
The Riverhounds Event Center, L.P. and Riverhounds Acquisition Group, L.P., the limited partnerships that own and operate Highmark Stadium and the Pittsburgh Riverhounds Professional Soccer Club respectively, jointly declared voluntary Chapter 11 bankruptcy on March 26, 2014. Debtors filed in the United States Bankruptcy Court for the Western District of Pennsylvania, assigned case numbers 2:14-bk-21180 and 2:14-bk-21181 respectively. Both cases have been assigned to the Honorable Jeffery A. Deller.
The Riverhounds Event Center, L.P. owns and operates the newly constructed Highmark Stadium located in the South Side area of Pittsburgh and claims assets ranging from $1 million to $10 million with liabilities between $10 million and $50 million. Of those liabilities, $7.2 million is mortgage debt and $1.5 million in bank loans.
The Riverhounds Acquisition Group, L.P. is the limited partnership that owns the Pittsburgh Riverhounds minor league soccer team and claims assets ranging from $500,000 to $1 million with liabilities between $1 million and $10 million. The Pittsburgh Riverhounds was founded in 1999 and currently plays in the United Soccer Leagues. Much of the debt leading up to the bankruptcy was incurred in 2012-2013 during the construction of Highmark Stadium. The bankruptcy is not expected to affect the 2014 season.
Debtors share some creditors such as Shallenberger Construction, Inc., First National Bank of Pennsylvania, and Urban Redevelopment Association of Pittsburgh. Both debtors are represented by John M. Steiner of Leech Tishman Fuscaldo & Lampl, LLC.
The University of Pittsburgh Institute for Entrepreneurial Excellence Celebrates 20 Years of Empowering Local Entrepreneurs!
Founded in 1993 and run out of the University of Pittsburgh Joseph M. Katz Graduate School of Business, the University of Pittsburgh Institute for Entrepreneurial Excellence (IEE) began with a $300,000 grant and the mission of being the “innovative leader of economic renewal and growth serving enterprising people and businesses in the region.” In pursuit of this mission the IEE utilizes a dynamic approach of programs and services including monthly workshops, customized consulting, social initiatives, educational programs, professionally-led peer forums, and social events.
This dynamic program has led the IEE to grow to $3 million in annual revenue and the annual serving of hundreds of businesses through its seminars, customized consulting, and millions of dollars in raised capital and revenue. Last year alone the IEE served 824 businesses, helped create 39 startups, raised $10.7 million in capital, increased $14.4 million in revenue for clients, and educated more than 1,400 business leaders through 56 programs and seminars. (according to its 2012 Community Impact Report)
The IEE provides its services through its 8 institute centers and programs. These centers/programs consist of Agricultural Entrepreneurship, a 12-month Entrepreneurial Fellows Program, the Family Enterprise Center, the Information Technology Program, PantherlabWorks, the Small Business Development Center, Student Entrepreneurship program in conjunction with Katz School of Business, and the Urban Entrepreneurship Program. For more information about these programs please click here. To take advantage of one or more of these programs an individual or firm must become an IEE member. Membership includes benefits in addition to participation in IEE programs. For more information about membership please see the IEE’s membership brochure or contact the IEE’s membership director Shelley Taylor.
For more information about the IEE please visit their website at http://www.entrepreneur.pitt.edu.
The following case is of particular interest to Salene since she is originally from Weirton, West Virginia and attended West Virginia University.
Freedom Industries, Inc. filed a voluntary petition for Chapter 11 bankruptcy on January 17, 2014 in the United States Bankruptcy Court for the Southern District of West Virginia. The case has been assigned to the Honorable Ronald G. Pearson. Both assets and liabilities are estimated to be between $1 and $10 million. Approximately 700 creditors are listed in the petition including multiple WV state agencies, service companies, and private individuals. Multiple motions were filed along with the petition including motions to allow payments to essential trade vendors and to pay $2.4 million in unpaid taxes to the IRS. A summary of debtor’s filings can be found here.
Debtor is a specialty chemicals manufacturer founded in 1986 and located in Charleston, WV. It manufactures chemicals for the mining, steel, and cement industries and is wholly-owned by Chemstream Holdings, Inc. The Charleston chemical plant is located along the Elk River and has recently been widely publicized as the cause of a chemical spill that contaminated the Elk River on January 9th, 2014 which led to state and federal states of emergency being declared. The spill left 300,000 residents without running water for several days. The chemical that leaked into the river is used in coal processing. The local water supply is currently said to be safe for residents in the nine affected counties except for residents in certain towns. Additionally, pregnant women in the affected areas are advised to drink only bottled water at this time.
Debtor is represented by Mark E. Freedlander of McGuire Woods LLP and Stephen L. Thompson from Barth & Thompson. Debtor also filed a motion to Employ Pietragallo, Gordon, Alfano, Bosick, and Raspanti, LLP as Special Litigation Counsel.
DragonFire, Inc. filed a voluntary petition for Chapter 11 bankruptcy in October 25th, 2013. The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania and has been assigned case number 2:13-bk-24517. Debtor’s Disclosure Statement, Balance Sheet, Declaration of Schedules, and other documents were due by November 8th, 2013. For a complete list of the documents due please refer to the document summary.
Debtor is the corporate entity for DragonFire Japanese Steakhouse and Sushi Bar located at 1500 Washington Rd. in the Gallery Mall in Mt. Lebanon, Pennsylvania. As the name suggests, DragonFire specializes in hibachi and sushi. For those unfamiliar with hibachi, it is a rectangular Japanese style barbecue grill. Customers often sit at a counter that spans three sides of the grill. The chef stands at the fourth side and prepares the meal (which typically consists of fried rice, vegetables, and various meats) with much fanfare. DragonFire also boasts a robata grill, a traditional Japanese slow grilling method. For more information about DragonFire, you can visit their website here.
Debtor has declared between $50k and $100k in assets with between $500k and $1 million in liabilities with approximately 20 creditors listed in the petition. Debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C.
“Dance Moms” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts
Salene’s Preface: I was in Bankruptcy Court last week in Pittsburgh and noticed Abby walking into Court. (She is a stunning woman by the way and you can understand why she is on TV). I had to ask myself, “How do I know her?” I did figure it out pretty quickly. I was surprised to see her on my turf (that is in the world of commercial bankruptcy) and was not aware that Abby had filed for Ch. 11. My daughter is a dancer and I watch the show!
Abigale Lee Miller filed for Chapter 11 relief on January 3rd, 2011. The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania under petition number: 10-28606 TPA and has been overseen by the Honorable Judge Thomas P. Agresti.
Debtor is better known as Abby Lee Miller, the host and instructor for the popular Lifetime reality television show Dance Moms. The show follows a group mothers and their young daughters who are participating in the world of young competitive dance. The show takes place in Pittsburgh, PA at the debtor’s studio, the Abby Lee Dance Company, and follows the ladies as they travel across the country to various competitions. Dance Moms is currently holding open casting calls for its 4th season.
The Abby Lee Dance Company was formed 27 years ago as a not-for-profit organization and is an audition only program. It is located at 7123 Saltsburg Road, Pittsburgh, PA, 15235. Debtor is also the owner of Reign Dance Productions, which shares the building with The Abby Lee Dance Company.
Debtor has declared approximately $325,500 in assets with approximately $356,500 in liabilities. Thirty-four creditors are listed in the petition, with Chase Mortgage holding the largest unsecured claim in the amount of $50,000. This debt is the unsecured portion of what appears to be a $200,000 undersecured mortgage on a home of Ms. Miller’s in Florida valued at $150k. Ms. Miller’s dance studio has a $96,000 mortgage on it; the studio is valued at around $150,000 Ms. Miller owes about $27,000 in back taxes (which are unsecured priority claims). Her unsecured debt only totals $32,000, many of whom are vendors for her business.
The Second Amended Disclosure Statement was approved on January 18th, 2013 and the Order Approving Disclosure Statement and Scheduling Hearing on Plan Confirmation was entered into on October 21st, 2013. Please click here to for a copy of the order. The debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C. The Confirmation Hearing to approve her Plan of Reorganization is set for December 12, 2013 at 1:30 p.m. EST. Please click here for a copy of the Disclosure Statement. A summary of the Chapter 11 plan can be found here.
Salene’s comment: We purposefully do not often write blog posts about individual Chapter 11 cases (usually filed by very wealth individuals. Most folks file a Chapter 7 or Chapter 13). When a company or person files for bankruptcy, I warn my clients that you are subjecting yourselves to a “financial autopsy”; you are making a public filing of all of your assets and liabilities. So, information seekers can look up what your home is worth, what kind of car you drive, how much credit card debt you have, whether you own a fur coat, how much your wedding ring costs, and whether you have any money in an IRA/401k. Anyone can see how much money you have made in the last three years and they get to read what your monthly budget is for expenses. While there are certainly benefits to the privilege of filing for bankruptcy, public disclosure of private facts is certainly one of the drawbacks.
New York City Opera, Inc. filed a petition for Chapter 11 bankruptcy protection on October 3rd, 2013. The petition was filed in the United States Bankruptcy Court for the Southern District of New York. The case was assigned to the Honorable Judge Stuart M. Bernstein under case # 1:13-bk-13240. Among the motions filed with the petition was a motion to authorize debtor to refund pre-paid tickets. Please click here for a docket summary.
New York City Opera, Inc. was dubbed “The People’s Opera” by former NYC Mayor Fiorello LaGuardia. It has hosted and performed traditional and contemporary operas since its founding in 1943. Debtor filed for Chapter 11 protection due to a projected $44.1 million deficit for 2012 and a combination of a troubled economy, decreased donations, and increasing pension obligations. The debtor raised approximately $1.5 million from an online fund-raising campaign (Kickstarter), but required $7 million by the end of September in order to fund itself through the end of the year. The board and management have begun necessary financial and operational steps to wind down the company with no plans to borrow in order to fund the 2014 season.
Debtor claims assets and liabilities of between $1 and $10 million and 93 creditors including New York City Ballet, Inc. and the New York City Dept. of Finance. Please refer to the docket summary for a complete list of creditors. The debtor is represented by Kenneth A. Rosen and Nicole Stefanelli of Lowenstein Sandler LLP.
Salene had the privilege of hanging out with Nicole over the weekend in NYC. Nicole and Salene had met at the American Bankruptcy Institute this past Spring. They were also friends via Twitter. Nicole said that this Chapter 11 filing has been published in newspapers all over the world. She also said that her firm was doing the representation PRO BONO. She will be handling first day motions on Thursday!
This will definitely be an interesting case to watch.
Founded in 2005, the Chatham University: Center for Women Entrepreneurship was founded in 2005 with the mission is to educate, create economic opportunities, and foster entrepreneurial thinking for women entrepreneurs and business managers in all stages of business and students. Through the Center for Women Entrepreneurship (CWE), women entrepreneurs and business managers can take advantage of Chatham University’s resources and its more than 120 years of experience in education.
The CWE’s programs and services include the Small Business Basics Workshop, the Women Business Leaders Breakfast Series, and the Annual Think Big Forum, and consulting services.
The Small Business Basics Workshops are geared towards women interested in starting their own business or expanding their current business. At the workshops, industry experts discuss business planning, financing, bookkeeping, marketing, and legal issues pertaining to small business.
The Women Business Leaders Breakfast Series features prominent regional women business leaders speaking on a variety of progressive business topics. Casual networking and a continental breakfast is followed by interactive presentations on topics essential for women in business such as innovative entrepreneurship, strategic business growth, unique marketing strategies, and logistical business planning.
The Annual Think Big Forum has been hosted by the CWE every year since its founding and has been growing every year. Think Big hosts leading women business leaders and entrepreneurs such as CEOs and other executives from startups and established companies as speakers and panelists.
For more information about the Chatham University: Center for Women Entrepreneurship and its programs please visit http://www.chatham.edu/cwe/.
On September 10th, 2013 Prithvi Catalytic, Inc. filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the Western District of Pennsylvania, which was incomplete. Statements A-J, Statement of Operations, Summary of Schedules, and Tax Information are due by September 24th, 2013 and a Chapter 11 Plan is due by January 8th, 2014. Debtor claimed assets between $1 million to $10 million with liabilities ranging from $10 million to $50 million.
The Debtor is a multi-national IT Consulting and Engineering solutions company that began operations in 1998 with its registered office in Hyderabad, India and opened its first U.S. office near Seattle, WA in 2000. The Debtor expanded operations with new development centers and sales offices in the U.S., Canada, Brazil, India, South Africa, and the Middle East. Debtor focuses its strategic business in the healthcare, retail, BFSI (banking, financial services, and insurance), and telecom markets and provides services in Europe in addition to the regions where it maintains offices.
A total of fifty-four creditors are listed on the Debtor’s petition including the District of Columbia, various Departments from 22 different U.S. states, the federal government, and several private companies. Click here for Complete list of Creditors and summary of docket.
Debtor is represented by Louis P. Vitti of Vitti & Vitti & Associates, PC located at 215 Fourth Avenue Pittsburgh, PA 15222. The Office of the United States Trustee Liberty Center shall be represented by Kathleen Robb located at Suite 970 1001 Liberty Avenue Pittsburgh, PA 15222.
The first 30 days of a Chapter 11 bankruptcy case often are like water spewing violently out of a fire hydrant. Fast. Furious. Urgent. Many issues being thrown at the Debtor, its employees, and its lawyers at one time.
According to the Pre-Bankruptcy Planning for the Commercial Reorganization: A Brief Guide for the CEO, CFO/COO, General Counsel and Tax Advisor, written by the Reorganization and Restructuring Group of Squire, Sanders & Dempsey, LLP (2nd edition, 2008), a whopping 83 percent of chapter 11 reorganizations that are filed generally “die on the vine” and are never confirmed.
I purchased this Brief Guide at the American Bankruptcy Institute that I attended this past Spring and I thought I would write a few blog posts integrating my experience with the concise content of the book. As set forth on Appendix A to the Guide, generally certain matters must be addressed within the first 30 days of a case.
- Petition filed
- Filing of list of 20 largest creditors
- Applications for retention of professionals (attorneys, accountants, turnaround professionals, valuation specialists, real estate brokers). A Debtor cannot pay a professional unless the retention of the firm is first approved by the Judge and the professional files a fee application on the docket, to which parties may review and/or object.
- Filing of ”first day” motions (seeking authority to pay wages, use pre-petition bank accounts, pay deposits for utilities, use of cash collateral, payment of interim compensation to professionals)
- Filing of schedules of assets and liabilities and statement of financial affairs. Getting correct addresses and dollar amounts owed for every single creditor often is a daunting task. Once the Schedules are filed, a creditor matrix is generated. The Bankruptcy Court and parties in interest use this address list to mail or “serve” important pleadings in the case. If the matrix is enormous, certain limited servicing lists can be authorized by the Court. In mega-cases, servicing agents are employed by the Debtor to handle only this aspect of the case, i.e., proper service.
- Filing of Corporate Resolution authorizing the Chapter 11 filing
- Negotiation of debtor in possession financing
- Hearing on use of cash collateral and adequate protection
- Negotiation with trade creditors regarding reclamation claims and/or reestablishment of trade terms.
The first few weeks of a case can be exhausting and dramatic. Often, by the time a petition is filed, a debtor runs out of money and payroll has not been paid (therefore employees are angry and morale is low), bank accounts frozen, the utilities have been shut off, and/or the front doors have been padlocked by a creditor. Once a case is filed, a creditor may immediately file a motion to dismiss the case.
The filing of the petition and related schedules requires a financial autopsy of a business and all of its related entities. In order to avoid confusion down the road, Debtor’s counsel should try to obtain as much factually accurate information as possible during this time. The process requires persistence, diligence and coordination with the Debtor’s employees, who basically become your co-workers for as long as the case is open, which could be 18 months or longer.
During this critical time, management and key employees must be counseled regarding what to do and not do, now that the actions of the Debtor are under close scrutiny by not only a Judge but also a U.S. Trustee as well as the creditor body. Employees should be clear regarding what transfers may or may not be made without court approval. Also, at the same time, the U.S. Trustee’s Office dictates that a debtor comply with its financial reporting requirements (hence the required “Monthly Operating Report”), and the filing of insurance and bank account information. Lack of compliance may lead to a dismissal of the case or a conversion to a Chapter 7. Often the debtor must close pre-petition bank accounts and open new ones.
Keeping all constituencies informed is an important part of the role of Debtor’s counsel. Creditors may include key lenders and critical vendors who will want to know what the turnaround strategy is for the company. Once creditors receive the “Notice of Suggestion of Bankruptcy”, they too will be scurrying around to hire bankruptcy lawyers if the size of their claims warrants such an expense.