Sunday, October 28, 2007

Justice Dept silence aided fraud

Associated Press
Judge: Justice Dept Silence Aided FraudAssociated Press
10.25.07, 6:58 PM ET

A judge on Thursday accused the U.S. Justice Department of contributing to fraud by failing to notify her of a yearlong investigation into a consulting firm suspected of making millions by padding fees in bankruptcy cases.

Judge Judith Fitzgerald of the U.S. Bankruptcy Court in Pittsburgh said at a court hearing that she and other bankruptcy judges in several states are "very upset" they weren't informed of the Justice Department's probe into the billing practices of L. Tersigni Consulting.

The Stamford, Conn.-based firm played a role in more than a dozen big asbestos-related bankruptcy cases.

"Literally millions of dollars went out of debtors' estates that should not have gone out," Fitzgerald said. She said "there was a fraud on this court, and the Department of Justice participated."

A spokesman for the U.S. Attorney in Newark, N.J. who launched the investigation denied there was a ban on communication with the bankruptcy court about the investigation.

"At no time did the U.S. Attorney's Office instruct anyone to withhold information from the bankruptcy court. That simply did not occur," Michael Drewniak said in an e-mailed statement.

Drewniak said the office is "precluded by law and policy not to disclose the existence of a criminal investigation," citing the need to protect the presumption of innocence.

No criminal charges have resulted from the Tersigni investigation, which began in April 2006 and is believed to have ended in May after the death of the man suspected of padding the firm's bills, Loreto Tersigni. But bankruptcy judges in Delaware, Pittsburgh, New Jersey and New York are being asked to appoint examiners to assess the damage.

An employee of the Tersigni firm, Bradley Rapp, discovered discrepancies in Tersigni's billing records in the spring of 2006. He found time records pumped up by 5 percent to 15 percent before being submitted to the court for payment. Within 48 hours, he reported his suspicions to the Office of the U.S. Trustee, his attorney said Thursday.

U.S. Trustee Kelly Beaudin Stapleton, who monitors the bankruptcy court, referred the matter to Christopher Christie, the U.S. Attorney in Newark, N.J. Rapp's attorney said Christie's office called in the FBI and began an investigation.

"Everyone was told to stand down, including the U.S. Trustee," said the attorney, Robert K. Malone.

Malone said Rapp was instructed to stay on the job at the Tersigni firm and supply documents to the U.S. Attorney and FBI, which he did.

"He acted on the advisement of the assistant U.S. Attorney not to breathe a word of this investigation," Malone said, adding, "It was killing him - for this man to go to work every day and not talk about it."

After Tersigni died, Rapp revealed his suspicions to the firm's direct clients, the official committees representing asbestos claimants in major bankruptcy cases. They in turn reported it to the lawyers for the bankrupt companies and later the courts.

Malone said there was evidence that Tersigni in some cases underbilled bankrupt companies.

Judge Fitzgerald on Thursday said the Justice Department was bound by ethical rules that require attorneys who suspect fraud in court proceedings to call it to the attention of the judge.

"What on earth was going on in the Department of Justice?" she asked.

Stapleton, the U.S. Trustee, told the judge that Department of Justice rules bar attorneys involved in a criminal investigation from feeding information to attorneys who work on the civil side, such as the U.S. Trustee. She said she could not say whether the criminal investigation was still under way or whether the matter had been submitted to a grand jury.

Lawyers representing the Tersigni interests could not be reached for comment.


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