Monday, April 14, 2008
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Ninth Circuit Upholds Lawyer’s Conviction for Bankruptcy Fraud
By KENNETH OFGANG, Staff Writer
The Ninth U.S. Circuit Court of Appeals Friday affirmed the conviction of a former Glendale attorney and two of his former clients on charges of mail, wire, and bankruptcy fraud, money laundering, and conspiracy.
The panel said there was sufficient evidence to convict Geoffrey C. Mousseau—who resigned from the State Bar rather than face disciplinary charges following his 2006 conviction—along with Thomas E. Rubin and Thomas P. Sullivan, in connection with a scheme to conceal assets from creditors.
The case arose out of the collapse of Focus Media, a Santa Monica-based media buying firm whose clients included Sears Roebuck and Company, Twentieth Centrury Fox, Universal Studios, and DreamWorks.
Evidence presented at the trial suggested that the company was successful in the 1990s, but declined as major clients left, in part over performance issues such as inability to produce promised savings.
The company would bill clients after their television and radio commercials aired, charging them the cost of the ads plus a fee for services, which included relieving the client of the burden of having to pay hundreds of individual advertising bills as well as negotiating rebates when the ads failed to air or to reach the promised audience.
Company’s Practice
The company’s practice, according to testimony, was to require payment from the client within 30 days of billing, but pay the stations 90 days after broadcast, enabling Focus to collect the “float” in addition to its fee.
By the end of 1999, the company was insolvent and Sears, which had insisted on a reduction in fees, was its only customer. Sears terminated its relationship with the company in March 2000 and filed suit for breach of contract and conversion after discovering the company had not paid for air time booked in late 1999.
Sears and Universal Studios, which filed a similar suit, obtained injunctions barring disbursement of corporate funds. They also initiated involuntary bankruptcy proceedings.
Focus retained a leading bankruptcy firm, Stutman, Treister, & Glatt, to handle the bankruptcy proceedings. The firm agreed to represent the company for a $500,000 retainer, but insisted that the money not come from corporate funds, which would have violated the injunctions.
Theodore Stolman, a Stutman partner, testified at the criminal trial that his firm accepted the retainer, paid with checks from Mousseau’s trust account, after Mousseau, who had been representing the company and Rubin in other matters, assured him that he had received the money from Rubin personally.
The creditors moved for appointment of an interim trustee to take control of the business. Stutman withdrew from the case, Stolman said, once it learned that Focus had disbursed large sums of money to Rubin, Sullivan, and their personal creditors prior to the interim trustee’s appointment.
Multiple Counts
Rubin, now 59, and Sullivan, 65, were convicted on multiple counts of mail and wire fraud, money laundering, and conspiracy to defraud the media outlets and Focus clients. All three defendants were convicted of disbursing corporate funds during the bankruptcy proceedings and lying about it.
Published estimates suggest that the company may have been looted of as much as $40 million.
Rubin was sentenced to 66 months in prison, Sullivan to 42 months, and Mousseau to 21 months by U.S. District Judge Gary Feess of the Central District of California.
The Ninth Circuit, in Friday’s per curiam opinion by Senior Judge Jerome Farris, Judge Milan D. Smith Jr., and visiting Senior District Judge H. Russel Holland of the District of Alaska, rejected Mousseau’s claim of insufficient evidence.
Mousseau, who was convicted of five counts of bankruptcy fraud and one count of conspiracy to commit that offense, lied to Stolman about the source of his firm’s retainer and concealed from the interim trustee the fact that the retainer was paid with corporate funds, the panel said.
The judges rejected Mousseau’s argument that he made innocent mistakes based on his lack of experience in bankruptcy.
“Even an inexperienced attorney should have known to report the $500,000 transfers to the interim trustee,” the court said. “Mousseau knowingly involved himself in Rubin and Sullivan’s scheme and assisted in the concealment of Focus’ assets. His lack of experience in bankruptcy law is not a shield from criminal liability.”
Attorneys on appeal were Vicki I. Podberesky of Nasatir, Hirsch, Podberesky & Genego for Rubin and Sullivan, Michael D. Rounds and Cassandra P. Joseph of the Reno, Nev. Firm of Watson Rounds for Mousseau, and Assistant U.S. Attorneys Ranee A. Katzenstein and Paul G. Stern for the government.
The case is United States v. Sullivan, 06-50710.
Copyright 2008, Metropolitan News Company