Kessler’s investigation broadened last week after the bankrupt debtor testified before a US Bankruptcy Trustee that he filed false Federal and State Income tax returns and provided false information in his bankruptcy declarations. The Trustee also warned the debtor that unless he began to tell the truth about the bankruptcy the matter will be turned over to the FBI for criminal investigation.

The admissions the debtor made during the first five and a half hour cross-examination by the trustee and the creditors and other information that Kessler collected during its investigation has expanded the investigation to co- conspirators in Israel, India, Ohio, Florida, New Jersey and New York.

Michael G. Kessler, President & CEO of Kessler International, the world’s leading certified forensic accounting and investigative consulting firm, headquartered in New York City stated after the bankruptcy hearing that “a number of individuals and their co-conspirators have used the bankruptcy system to systematically defraud hardworking legitimate businessman by committing a bustout.” Kessler further stated that the scheme which takes advantage of the very basis of the jewelry industry …trust…has recently become a routine practice perpetrated against jewelers by fraudsters accepting merchandise on memos which they have no intention of paying or returning. 

What is a Bustout?

A bustout is conducted by a company that is set up to fail from the outset. The operator obtains merchandise from creditors, disposes of the goods (usually for cash), and does not pay suppliers. A bustout can also be conducted using an existing company's credit to obtain goods available on credit, without the intent to pay, and then disposing of the goods immediately for cash.

Kessler’s clients stated that they are willing to commit resources to this investigation and are determined to take this matter to the end to help clean up the industry so that “Trust” returns. Rajesh Dugar of Rosy Star, Inc. the individual who organized the creditors stated, “It is time for the industry to be united against these kind of bustout bankruptcies and make serious efforts to expose these schemes and investigate and prosecute those responsible to deter future problems.” He further stated, “Bankruptcy fraud is a form of terrorism that has stolen a sense of security from hard working individuals. We must fight vigorously for our very survival in these economic challenged times.” 

Ashok Maharish of Unique Enterprises, Inc. stated that he was “very happy to see that the Trustee has taken this matter very seriously” and that the creditor’s committee is sending a message to the industry that they “will no longer allow unscrupulous individuals to take advantage of their trust.” The creditors also retained Zachary Goldberg of Goldberg, Corwin & Greenberg, LLP to commence a legal suit to recover the funds.  The suit was filed last week in State Supreme Court.

In an anonymous nationwide survey of bankruptcy judges, administrators, trustee, and lawyers conducted by Kessler International last month they found that 31 percent of those polled, knew of "flagrant abuses" of bankruptcy laws in cases they have handled, 63 percent stated they knew of some abuse and only six percent stated that they thought bankruptcy laws were followed and each filing was honest.

For more information contact Michael G. Kessler CFE, CrFA at 212-286-9100 or visit their website at www.investigation.com or contact Zachary Goldberg, Esq. at 212-986-1000.