Bankruptcy Fraud—Brunnings

Terry and Susan Brunning, a married couple, have pleaded guilty to federal bankruptcy fraud and money laundering charges in San Diego.^[1] The Brunnings were “arrested in July 2003, in Puerto Vallarta, Mexico,” where they contested their extradition; they were returned in December 2005 to face the charges against them.^[2]

The couple filed for bankruptcy in August, 2002, and they have admitted that “prior to filing bankruptcy, they transferred approximately $1,000,000 to an offshore financial institution located in the Isle of Man, Great Britain.”^[3] The Isle of Man, incidentally, has come under increasing scrutiny of late for allegedly acting as a tax haven which is partly responsible for costing the United States roughly $40 billion in lost revenue.^[4]

After transferring the million dollars to the Isle of Man, the Brunnings “stated that they only had between $0 and $50,000 in assets,” which was inaccurate: they had “over $1 million in domestic and offshore financial accounts (including the account in the Isle of Man), a Rolls Royce, a Jaguar, a 57-foot sailing yacht, and a promissory note worth $155,000.”^[5] When the Bankruptcy Trustee discovered these concealed assets, Terry Brunning “created a fictitious claim against the bankruptcy estate in order to obtain all or part of the proceeds from the sale of the note by the Bankruptcy Trustee.”^[6]

Sentencing is scheduled to occur on November 13, 2006. Like other fraud crimes, bankruptcy fraud is controlled by section 2B1.1 of the Sentencing Guidelines. The base offense level is a 6, and, because the loss exceeded $1 million (based on the government’s press release), 16 points will be added to the offense level.^[7] At 22, the Guidelines range is 41-51 months in prison. Because the activity involved “a misrepresentation or other fraudulent action during the course of a bankruptcy proceeding,” 2 more points are added to the offense level, bringing it to 24 (51-63 months).^[8] Furthermore, because the defendants relocated, or participated in relocating, “a fraudulent scheme to another jurisdiction to evade law enforcement or regulatory officials,” and additional 2 points can be added, bringing the offense level to 26 (63-78 months).^[9] Bankruptcy fraud, however, has a statutory maximum of five years imprisonment,^[10] and there will likely be some downward revisions based on their guilty pleas and any substantial assistance they may have given the government.

---

[1] US Attorneys Office, News Release 1, Aug. 22, 2006.
[2] Id.
[3] Id.
[4] See, e.g., Permanent Subcommittee on Investigations, Tax Haven Abuses: The Enablers, The Tools, and Secrecy US Senate, Aug. 1, 2006.
[5] USAO, supra note 1.
[6] Id. at 1-2.
[7] US Sentencing Guidelines § 2B1.1(b)(1)(I).
[8] Id. § 2B1.1(b)(8)(B).
[9] Id. § 2B1.1(b)(9)(A).
[10] See 18 U.S.C. §§ 152, 157.