Interim suspension for bankruptcy fraud conviction

An Oakland attorney who pleaded guilty earlier this year to fraud charges relating to a bankruptcy he filed for his client was placed on interim suspension last month. GREGORY LYONS [#114037], 51, lost his license Nov. 21 and was ordered to comply with rule 955 of the California Rules of Court.

Lyons and his client, Arnold Stewart of Danville, pleaded guilty in September to concealing assets from the bankruptcy court after they secretly invested in a coal mining business while Stewart was in the middle of a Chapter 13 bankruptcy proceeding.

The two men were indicted by a federal grand jury last year on one count each of mail fraud, conspiracy, bankruptcy fraud and concealment of assets. According to the indictment, the two were accused of engaging in a scheme to prevent creditors from obtaining a lien on Stewart’s property in Mendota in Fresno County.

Although the bankruptcy court required the sale of the Mendota property to pay Stewart’s creditors, Stewart, with Lyons’ assistance, encumbered the property in order to invest in the coal mining venture, federal prosecutors in San Francisco charged. They never disclosed the investment or the encumbrance to the bankruptcy court, any creditors or the trustee, but instead “concealed the fraud and lulled creditors into believing that they were following the order of the bankruptcy court to sell the Mendota property,” the indictment charged.

When it appeared that some creditors learned about the scheme, the indictment alleged, Lyons and Stewart attempted to conceal the fraud by dismissing the bankruptcy case.

The men admitted they intentionally concealed Stewart’s 16 percent interest in the coal mining venture.

According to court records, Stewart owed $185,850 to two creditors in March 1998. After he filed for bankruptcy with Lyons’ help, a federal judge ordered Stewart to sell a 15-acre property he owned in Mendota to help pay his debts. Instead, he and Lyons used the property as collateral for the stake in the coal mining operation.

However, Lyons and Stewart told the bankruptcy court that the property was in escrow and provided a fake purchase agreement to creditors.

In a written statement, U.S. Attorney Kevin Ryan said, “The bankruptcy process depends on the truthful and complete disclosure of financial transactions. Prosecuting those who fraudulently conceal assets and financial transactions maintains the integrity of the system for debtors who truly need it.”

Lyons, a sole practitioner, agreed to serve four months in a halfway house, four months of home detention and three years of supervised release. The maximum penalty for conviction of bankruptcy fraud-concealment of assets is five years in prison and a $250,000 fine. A federal judge was expected to impose final sentencing this month.