Bankruptcy Fraud—Daniel J. Gates

A Zelienople, Pennsylvania, bankruptcy attorney has pleaded guilty to charges of mail fraud, bank fraud, money laundering, and bankruptcy fraud.^[1] As part of his plea agreement, Daniel J. Gates acknowledged that he embezzled more than $2.5 million from clients over a five year span beginning in 1997.^[2] Mr. Gates did this by “receiving and depositing to his trust or operating accounts large sums of money from clients who came to him for a variety of legal needs ranging from bankruptcy issues to matters involving the creation of trusts, personal injury cases and estate matters.”^[3] He then made unauthorized transfers of the client funds from his business accounts to personal bank accounts, spending the money to support his own lifestyle; in one instance, he spent $400,000 on himself that came from one couple to establish a trust for the couple’s minor children.^[4]

The bank fraud charge involved Mr. Gates supplying a loan officer at Skybank with false information to secure a mortgage loan and line of credit worth more than $1.3 million; the $450,000 income that he reported to the bank was actually money he had embezzled from clients.^[5]

The money laundering charge involved money that he embezzled in connection with an estate he was handling. Mr. Gates received a check for more than $740,000 which represented the proceeds of a life insurance policy; instead of forwarding the funds to the widow, he wired $250,000 to his own E-Trade investment account and then used that money for personal purchases.^[6]

The bankruptcy fraud count involved Mr. Gates lying to Bankruptcy Judge Judith Fitzgerald when he told her that he had more than $290,000 in his escrow account for disbursement; he had actually spent the account down to $6,000.^[7]

Mail Fraud
Under 18 U.S.C. § 1341, it is a crime for a person to devise a scheme or artifice to defraud, and then use the nation’s mail system to carry out that scheme. The punishment for a violation of section 1341 is a fine, imprisonment for up to 20 years, or both. If a financial institution is harmed by the scheme, the fine can be as high as $1 million, and the prison sentence can be as long as 30 years.

Bank Fraud
Under 18 U.S.C. § 1344(2), whoever knowingly executes a scheme or artifice to obtain any money from a financial institution by means of false or fraudulent representations, can be punished with a fine not to exceed $1 million, imprisoned for up to 30 years, or both.

Money Laundering
Mr. Gates was charged under 18 U.S.C. § 1957, which makes it a crime for a person to knowingly engage in a monetary transaction in criminally derived property that has a value greater than $10,000 and which is derived from specified unlawful activity.^[8] The specified unlawful activity in this case is mail fraud.^[9] The punishment for a violation of section 1957 is a fine, imprisonment for up to 10 years, or both.^[10] Alternatively, the court may impose an alternate fine of not more than twice the amount of the criminally derived property involved in the transaction.^[11]

Bankruptcy Fraud
Under 18 U.S.C. § 157(3), it is a crime for a person who has devised a scheme or artifice to defraud, and, for the purpose of executing the scheme, make a false or fraudulent representation in relation to a bankruptcy proceeding. A violation of this section can be punished with a fine, imprisonment for you to 5 years, or both.

The plea agreement sets the sentencing range for Mr. Gates at 8 to 10 years in prison.^[12]

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[1] US Attorney’s Office, Former Zelienople Bankruptcy Attorney Admits Embezzling Millions from Clients, Nov. 7, 2005, available here [hereinafter USAO].
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] 18 U.S.C. § 1957(a).
[9] Id. § 1956(c)(7)(A) (incorporating an offense found in 18 U.S.C. § 1961(1)).
[10] Id. § 1957(b)(1).
[11] Id. § 1957(b)(2).
[12] USAO, supra note 1.