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7/29/2019 Did Sharrock conceal assets?
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THE UNITED STATES BANKRUPTCY COURTNORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re:
David R. Sharrock Case No. 12-62878 RKDebtor Chapter 7
JUDGE Russ Kendig
Daniel M. McDermott, Adv. Pro. No.United States Trustee, Region 9
Plaintiff
v.
David R. SharrockDefendant
COMPLAINT TO DENY DISCHARGE OF DAVID R. SHARROCK
Now comes Daniel M. McDermott, the United States Trustee for Region 9, and hereby
states the following in support of his complaint to deny the discharge of chapter 7 debtor
David R. Sharrock.
PARTIES
1. Plaintiff, Daniel M. McDermott (“United States Trustee”), is the United States
Trustee appointed for Region 9 and has standing to bring this proceeding to deny the
discharge of David R. Sharrock under 11 U.S.C. Sections 307 and 727(c).
2. Defendant is David R. Sharrock, the debtor in this case.
JURISDICTION
3. This is an adversary proceeding in which the United States Trustee seeks
denial of the discharge of the Defendant under 11 U.S.C. § 727 and Rule 7001(4) of the
Federal Rules of Bankruptcy Procedure.
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4. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and
157(a) and the “Referral of Title 11 Matters in the U.S. Bankruptcy Court for the Northern
District of Ohio,” entered under Order No. 2012-7. It is a core proceeding over which this
court has jurisdiction under 28 U.S.C. § 157(b)(2)(J).
5. Venue is proper in this Court as provided in 28 U.S.C. § 1409.
6. This complaint is timely filed pursuant to Bankruptcy Rules 4004(a) and (b).
BACKGROUND and PROCEDURAL HISTORY
General Background
7.
The Defendant is married with no dependents. Defendant’s spouse is Doris A.
Sharrock. On the date he filed his bankruptcy petition, Defendant owned multiple rental
properties, both individually and through various business entities which he controlled.
Beginning in the late 1990s, the Defendant, individually, and in the name of Equity Lenders
Mortgage Brokers Co., and D & D Rentals, borrowed money from various private investors.
In general, the Defendant agreed to repay the borrowed funds at set terms ranging from one to
six or more years, and to make interest payments over time at interest rates ranging from eight
to twelve percent. An investor typically could elect to leave the funds invested after the
expiration of the original term, in which case the debt would continue to accrue interest and
the investor would receive a monthly payment. In most cases, the investors did not receive
any security for their investment even though Defendant testified that the private investment
funds were used to purchase properties.
8. To date, the documents and testimony provided by the Defendant have not
clearly established that the private investment funds were, in fact, used for real estate
investment purposes.
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9. The documents provided and the Defendant’s testimony suggest that over time,
Defendant repaid some of the private investors. As of October 23, 2012, the Defendant
represented in his bankruptcy schedules that these unsecured loans due to private investors
accumulated to approximately $4.82 million of unsecured debt.
10. It is the understanding and belief of the United States Trustee that the
Defendant, individually, and through various business entities, and with or through his
spouse, periodically purchased and sold rental properties which the Defendant, individually,
and through various business entities managed and rented.
11.
It is the understanding and belief of the United States Trustee that some
properties may have been purchased with private investor money and many properties were
purchased through bank loans. The Defendant, however, testified that he could not trace any
individual investment to any specific parcel of property.
12. The Defendant’s spouse, Doris A. Sharrock, executed a power of attorney in
April, 1993 which authorized the Defendant to take any acts and sign any documents in
connection with real estate. The power of attorney was recorded in Richland County.
According to Defendant, this power was given to him so that his wife would not have to go to
closings. It is the understanding and belief of the United States Trustee that the Defendant
signed paperwork on behalf of his wife at about 70% of the closings for properties which
were placed in her name.
13. On or about February 26, 2004, Doris A. Sharrock, the Defendant’s spouse,
created a trust. The trust, which bears the Defendant’s signature, designates the Defendant as
a successor co-trustee. Under the terms of the trust, the Defendant is also a beneficiary of the
trust.
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Business Entities and Operations
14. It is the understanding and belief of the United States Trustee that the
Defendant originally did business as D & D Rentals. Properties were owned by the
Defendant and/or his spouse individually or by them doing business as D & D Rentals.
Commencing around 2003, the Defendant formed various business entities. Such business
entities which the Debtor owned and/or controlled included: D & D Rentals, LLC; D & D
Rentals (a DBA); D.R.L. Properties, LLC; David Trust Properties, LLC; D & D Charity,
LLC; 92nd West 2nd Street, LLC; and 2701 Crider Road, LLC.
15.
It is the understanding and belief of the United States Trustee that in October,
2003, Doris A. Sharrock, the Defendant’s spouse, formed an entity called Herman Trust
Properties, LLC (“the Herman Trust”). It is the understanding and belief of the United States
Trustee that the Defendant controlled and managed properties owned by the Herman Trust
and in doing so controlled and managed the Herman Trust. Defendant collected rent.
Defendant interviewed prospective tenants. Defendant handled all advertising and paper
work related to the Herman Trust properties.
16. The Defendant testified that by 2003, around the time when these various
business entities were formed, he owed approximately $1 million dollars to individual
investors.
17. The Defendant testified as the business entities were formed, properties owned
by the Defendant and/or his spouse were transferred to the various business entities.
18. The Defendant testified none of the separate business entities which the
Defendant formed ever signed a promissory note in favor of any of the individual investors.
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19. The Defendant testified the Herman Trust never signed any promissory note in
favor of any of the individual investors.
20. It is the understanding and belief of the United States Trustee that,
notwithstanding the formation of the various LLCs and The Herman Trust, the Defendant
directed advertising, rented, determined rent amounts, selected tenants, and leased and
collected rents for the properties owned by him and his various business entities, and by those
of the Herman Trust, without distinction. The Defendant did not distinguish between himself,
the various business entities or the Herman Trust with tenants. Tenants did not differentiate
between the Defendant, his various entities, and the Herman Trust. Rather, the Defendant
handled all advertising for all entities and the Herman Trust; he handled all paper work for all
entities and the Herman Trust; and he handled all tenants of his, the various entities, and the
Herman Trust. According to the Defendant, rents received for properties owned by the
Defendant and his various businesses were deposited into an account in the name of DRL and
rents received for the Herman Trust properties were deposited into a Herman Trust bank
account.
21. It is the understanding and belief of the United States Trustee that an entity
called MPW Trust, LLC was formed on or around May 22, 2006 with David Sharrock as the
original registered agent. It is the understanding and belief of the United States Trustee that
from around June 1, 2006 to approximately August 11, 2010 the Defendant was a member of
MPW Trust, LLC and executed documents as a member of MPW. It is the understanding and
belief of the United States Trustee that around October 15, 2010 the registered agent of MPW
was changed to Elisa Schunatz, a granddaughter of the Defendant. It is the understanding and
belief of the United States Trustee that the initials “MPW” stand for the children of Elisa
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Schunatz, and that MPW Trust was formed to enable Defendant and his granddaughter to
maintain possession and control of properties owned by the granddaughter and her spouse
when they encountered financial difficulties. Elisa Schunatz testified that some of the
properties owned by MPW Trust were subject to mortgages that Defendant had co-signed,
and he did not want their financial difficulties to adversely affect his own creditworthiness.
Prepetition Transfers of Real Estate to the Herman Trust
22. On or about July 8, 2011, David Trust Properties, LLC transferred its interest
in property located at 147 Harvard Avenue, Mansfield, Ohio to the Herman Trust by way of a
quitclaim deed.
23. On or about July 8, 2011, MPW Trust, LLC transferred its interest in property
located at 25-27 State Street, Mansfield, Ohio to Defendant and Doris Sharrock by way of a
quitclaim deed. On the same day, Defendant and Doris Sharrock transferred the property to
the Herman Trust by way of a quitclaim deed.
24. On or about March 22, 2011, Defendant and Doris Sharrock transferred their
joint interest in property located at 3340 Crimson, Road, Mansfield, Ohio to the Herman Trust
by way of a quitclaim deed. Defendant signed the deed on behalf of Doris Sharrock.
25. On or about July 13, 2011, D&D Charities transferred its interest in property
located at 408 Water Street, Caledonia, Marion County, Ohio to the Herman Trust by way of
a quitclaim deed.
26. On or about February 3, 2012, Defendant and Doris Sharrock transferred their
joint interest in property located at 148 Poplar Street, Mansfield, Ohio to the Herman Trust by
way of a general warranty deed. Defendant signed the deed on behalf of Doris Sharrock.
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27. On or about February 3, 2012, Defendant and Doris Sharrock transferred their
joint interest in property located at 501 Lawn Avenue, Galion, Ohio to the Herman Trust by
way of a general warranty deed. Defendant signed the deed on behalf of Doris Sharrock.
28. Defendant testified that his interests in the properties were transferred to the
Herman Trust for an amount equivalent to one half of the county auditor value as of the date
of the transfer, but he has not provided independent documentary evidence substantiating that
testimony.
29. It is the understanding and belief of the United States Trustee that on the
Defendant’s bankruptcy filing date, substantially all of the property owned by the Herman
Trust was unencumbered.
Prepetition Transfer of Real Estate to Residential Fund 118, LLC
30. On or about July 31, 2012 the Defendant individually, jointly with his spouse,
and/or on behalf of various entities which he owned and/or controlled transferred interests in
approximately sixty-four (64) properties to an entity called Residential Fund 118, LLC, which
has an address at 901 Calle Amanecer, Suite 150, San Clemente, California 92673. HUD
statements reflect that the Defendant, his spouse, and various entities which he owned and/or
controlled received a total of $318,157.49 from such transfers.
31. HUD statements show that the Defendant individually transferred the
following properties to Residential Fund, LLC on July 31, 2012:
57 Grand Blvd, Shelby, Ohio
4021 CR 61, Mt. Gilead, Ohio
473 Van Buren, Mansfield, Ohio
1064 S.R. 314, Ontario, Ohio
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2 Diamond St., S., Mansfield, Ohio
3232 Crimson Road, Mansfield, Ohio
32. HUD statements show that Defendant and his spouse Doris Sharrock
transferred their interests in the following properties to Residential Fund 118, LLC on or
about July 31, 2012:
315 Harker Road, Mansfield, Ohio
23/25 Chilton Road, Mansfield, Ohio
203-205 Buckingham Avenue, Mansfield, Ohio
704 Detroit St., S, Kenton, Ohio
321 Greendale Road, Mansfield, Ohio
167 Wood St., Mansfield, Ohio
472 Hammond, Mansfield, Ohio
16983 C.R. 330, Upper Sandusky, Ohio
267 E. Arch, Mansfield, Ohio
197 Buckingham Ave., Mansfield, Ohio
458 Pearl Street, Mansfield, Ohio
293 3rd
Avenue, Mansfield, Ohio
139 Helen Avenue, Mansfield, Ohio
412 Woodland Avenue, Mansfield, Ohio
629 Harding Way E., Mansfield, Ohio
373 Wayne Street, Mansfield, Ohio
652 Bowman, Mansfield, Ohio
154 Blanche W., Mansfield, Ohio
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218 Penn Avenue, Mansfield, Ohio
319 3rd Avenue, Mansfield, Ohio
17 W. Augustine Avenue, Mansfield, Ohio
273 Myers Avenue, Mansfield, Ohio
684 N. State Street, Marion, Ohio
551 Wayne Street, Mansfield, Ohio
36 Sherman Avenue, Shelby, Ohio
316 Wayne Street, Mansfield, Ohio
273 S. Adams, Mansfield, Ohio
33. HUD statements show that David Trust Properties, LLC, an entity owned and
controlled by the Defendant, transferred the following properties to Residential Fund 118,
LLC on or about July 31, 2012:
86 Caledonia Road, North, Caledonia, Ohio
353 Wood Street, Mansfield, Ohio
50 Reba Avenue, Mansfield, Ohio
371 Beryl, Mansfield, Ohio
442 Thompson, Marion, Ohio
1209 Woodville Road, Mansfield, Ohio
4605 Bott Road, Bellville, Ohio
380 Emerald Avenue, Mansfield, Ohio
30 Auburn Avenue, Shelby, Ohio
350 Sturges Avenue, Mansfield, Ohio
6220 Olivesburg-Fitchville Road, Greenwich, Ohio
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205 Elk Street, Marion, Ohio
391 Dale Avenue, Mansfield, Ohio
320 Indiana Avenue, Mansfield, Ohio
152 McWilliams Court, Marion, Ohio
723 Bennett, Marion, Ohio
510 Cottage Street, Marion, Ohio
559 Bonair, Mansfield, Ohio
34. HUD statements show that DRL Properties, LLC, an entity owned and
controlled by the Defendant, transferred the following properties to Residential Fund 118,
LLC on or about July 31, 2012:
419 Waterloo Street, Marion, Ohio
828 Hoover Road, Mansfield, Ohio
918 Harr Road Marion, Ohio
512 Kibler St., S. New Washington, Ohio
252 Pierce Street, S., Galion, Ohio
1087 Woodside Drive, Mansfield, Ohio
585 Garfield Place, Mansfield, Ohio
1021 Elm Street, Bucyrus, Ohio
622 Caldwell Avenue, Mansfield, Ohio
720 Burns Street, Mansfield, Ohio
1875 S.R. 39, Lucas, Ohio
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35. HUD statements show that DD Charity, LLC, an entity owned and controlled
by the Defendant, transferred the following properties to Residential Fund 118, LLC on or
about July 31, 2012:
166 Park Avenue W., Mansfield, Ohio
1401 Ashland Road, Mansfield, Ohio
36. The Defendant testified, under oath, that in 2010, he first commenced
discussions and/or negotiations for the bulk sale of some of the properties he and/or his
entities owned. He testified that after one deal for the bulk sale of properties terminated, he
negotiated for the sale of properties with Northeastern Capital Resources. The Defendant
testified that he negotiated with Northeastern Capital Resources for the sale of his properties
and that ultimately the properties transferred to Residential Funds 118 for $600,000. He
stated that the deal closed on July 31, 2012 and that Northeastern then “sold” to Residential
Funds 118, who closed the deal.
37. The Defendant testified, under oath, that from the proceeds derived from the
bulk sale, approximately $300,000 was paid to Sutton Bank and United Bank; $70,000 was
paid to the title company, Heights Title; $70,000-$80,000 was remitted to pay outstanding
taxes; and the Defendant received the net of $105,000 or $115,000. The Defendant testified
that he received two deposits – one in the amount of $81,000 and one in the amount of
$35,000 and that he placed such funds in the DRL bank account or his personal money market
account. He testified that he subsequently used such funds to pay his criminal and bankruptcy
attorneys.
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Prepetition Transfer of Hummer
38. The Defendant testified, under oath, that in June or July, 2012 he transferred
his interest in a Hummer for $16,000. Ohio Bureau of Motor Vehicle records show that the
Defendant transferred this vehicle to Ontario Motors on December 27, 2011. The Defendant
testified that the proceeds from the sale of the Hummer were deposited into the DRL bank
account. Bank accounts statements reflect that the Defendant deposited $16,000 into a joint
individual account, no x6748, on December 27, 2011.
Bankruptcy Petition and Schedules
39.
On October 23, 2012, the Defendant filed a voluntary petition for relief under
chapter 7 of the Bankruptcy Code. Concurrent with the filing of the petition, the Defendant
filed schedules and a Statement of Financial Affairs under penalty of perjury.
40. On or about October 23, 2012, Defendant signed his bankruptcy schedules. In
signing his schedules, Defendant stated “I declare under penalty of perjury that I have read the
foregoing summary and schedules, consisting of 0 sheets, and that they are true and correct to
the best of my knowledge, information, and belief.” Defendant filed or caused to be filed
these schedules with his electronic signature on October 23, 2013.
41. On or about October 23, 2012, Defendant signed his Statement of Financial
Affairs (SOFA). In signing his Statement of Financial Affairs, Defendant declared that he had
read the answers in the Statement of Financial Affairs, and any attachments thereto, and that
they were true and correct.
42. On or about October 30, 2012, Defendant also filed or caused to be filed a
Declaration re: Electronic Filing of Documents and Statement of Social Security (“ ECF
Declaration”). The ECF Declaration was signed on or about October 26, 2012. In signing
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his ECF Declaration, Defendant swore that the information provided in the electronically
filed petition, statements, and schedules, as well as in any other documents that must contain
signatures, was true, correct and complete.
43. On October 29, 2012, the Defendant filed amended schedules which included
an Amended Summary of Schedule; Amended Schedule C – Property Claimed Exempt;
Amended Schedule D – Creditors Holding Secured Claims; Amended Schedule E – Creditors
Holding Unsecured Priority Claims; and a Declaration Concerning Debtor’s Schedules. The
Declaration, signed under penalty of perjury, and signed by the Defendant stated that the
information contained in the documents was true and correct to the best of the Defendant’s
knowledge, information, and belief.
44. The Defendant filed additional amendments on December 13, 2012 which
included an Amended Summary of Schedules; Amended Schedule A along with attached
exhibits Amended Schedule D, and a Declaration Concerning Debtor’s Schedules in which
the Defendant declared under penalty of perjury that the amendments are true and correct to
the best of the Defendant’s knowledge, information and belief.
45. Defendant’s originally filed Schedule A disclosed his ownership interest in 36
real properties with an aggregate value of $3,995,000.
46. The Amended Schedule A filed by the Defendant scheduled seven real
properties with a total value of $563,000 in which the Defendant had an interest along with 30
other properties owned by entities in which the Defendant has an interest. Such entities
include: David Trust Properties, LLC; D.R.L. Properties, LLC; DD Charities LLC; 92 West
3nd Street, LLC; and, 2701 Crider Road, LLC.
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47. In Schedule B, Defendant stated that he owned $18,210 in personal property,
including but not limited to the following:
Type of Property Description and Location of Property Value of
Debtor’sinterest inProperty,withoutdeducting anysecured claimor exemption
1. Cash on hand. $360
2. Checking, savingsor other financial
accounts, certificatesof deposit, or sharesin banks, savingsand loan, thrift, building and loanand homestead associations, or credit unions, brokerage houses, or cooperatives.
Mechanics Savings971 Lexington Avenue
Mansfield, Ohio 44907
Money MarketAccount #6748Balance $200
DRL AccountAccount #5532Balance $550
$750
4. Household goods
and furnishings . . .
Rooms of furniture located at 1624
Estate Court, Mansfield, Ohio 44906
$7,000
5. Books; picturesand other art objects.. . .
Old Bibles located at 1624 Estate Court,Mansfield, Ohio 44906
$1,500
6. Wearing apparel. Men’s clothing located at 1624 EstateCourt, Mansfield, Ohio 44906
$500
7. Furs and jewelry Jewelry located at 1624 Estate Court,Mansfield, Ohio 44906
$800
8. Firearms and sports . . .
38 handguns located at 1624 EstateCourt, Mansfield, Ohio 44906
$450
14. Interest in
partnerships or jointventures. Itemize.
David Trust Properties, LLC
993 Lexington AvenueMansfield, Ohio 44907100% Membership
D&D Charity, LLC993 Lexington AvenueMansfield, Ohio 4490750% Membership
Unliquidated
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D.R.L. Properties, LLC993 Lexington AvenueMansfield, Ohio 4490750% Membership
92 West 2nd
Street, LLC993 Lexington AvenueMansfield, Ohio 4490750% Membership
2701 Crider Road, LLC993 Lexington AvenueMansfield, Ohio 4490750% Membership
15.AccountsReceivables Rent from Rental Properties $1,850
19. Equitable or future interests, lifeestates, and rights or powers exercisablefor the benefit of thedebtor other thanthose listed inSchedule A – RealProperty
None.
20. Contingent and noncontingentinterest in estate of adecedent, death benefit plan, lifeinsurance policy, or trust.
None.
25. Automobiles,trucks, trailers, . . . .
1999 Dodge Durango 4 x 4 located at1624 Estate Court, Mansfield, Ohio44906.
28.Office
equipment,furnishings, and supplies.
Desk, table, 9 chairs, filing cabinets,
copy/fax machines993 Lexington Road Mansfield, Ohio
$2,500
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48. In Schedule D and Amended Schedule D, Defendant lists secured claims
totaling $1,825,343.66. The secured claims consist of a number of mortgages on various
properties in which the Debtor has an interest.
49. In Amended Schedule E , Defendant listed $44,327.80 in unsecured priority
claims consisting of deposits from individuals and taxes and other debts owed to
governmental units.
50. Defendant’s Schedule F lists unsecured claims totaling $4,934,083.96
consisting primarily of unsecured loans from various individuals. It is the understanding and
belief of the United States Trustee that such individuals invested funds with the Defendant in
exchange for notes in which the Defendant promised to repay over time at interest rates as
high as 12% interest.
51. Schedule I discloses that Defendant is self-employed/retired. Defendant stated
in Schedule I that his monthly income consists of $32,687 from real property; $1,245 from
Social Security; and $300 from insurance renewals.
52. Schedule I states the Defendant’s spouse is retired and earns monthly income
from real property in the amount of $15,000 and social security benefits of $520. Schedule I
makes no disclosure as to the Herman Trust Properties, LLC.
Statement of Financial Affairs
53. Defendant’s Statement of Financial Affairs, item 1, disclosed that the
Defendant had 2010 earnings of $100,000 income from business operations and $14,900 from
Social Security. The Defendant reported 2011 earnings of $100,000 from business operations
and $14,940 from Social Security. He did not disclose any income earned by his spouse.
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54. Defendant’s Statement of Financial Affairs, item 2, disclosed that he received
income, other than from employment, in 2011 in the amount of $6,000 from the sale of United
American Insurance Company policies. No other income from the sale of real estate or other
sources was disclosed.
55. In his Statement of Financial Affairs, item 3b, the Defendant answered the
following regarding all payments, where debts are not primarily consumer debts, made within
the 90 days before the bankruptcy filing if the aggregate value is $5,850: First Federal of
Ohio, payment of $7,914.15 on August 28, 2012; Halligan & Lang Co., LPA, $49,000 on
August 15, 2012.
56. In the Defendant’s answer to the Statement of Financial Affairs, question 3c
regarding payments made within one year preceding the commencement of the case to or for
the benefit of creditors who are insiders, the Defendant responded “None.”
57. The Defendant disclosed payments related to debt counseling or bankruptcy in
response to the Statement of Financial Affairs, question 9 that he paid McDonald Hopkins
$25,000 on August 25, 2012 and $10,000 on October 10, 2012. He disclosed he paid BBP
Partners $7,500 on August 25, 2012.
58. In his Statement of Financial Affairs, Item 10a, Defendant answered “None” in
response to the question which requires him to disclose all property, other than property
transferred in the ordinary course of his business or financial affairs, either absolutely or as
security within the two years preceding the commencement of his case.
59. In his Statement of Financial Affairs, Item 14, Defendant answered “None” in
response to the question directing disclosure of all property owned by another person that the
debtor holds or controls.
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341 Meeting of Creditors
60. On December 13, 2012, Defendant appeared for the meeting of creditors
required by 11 U.S.C. § 341. Under oath, Defendant affirmed that the information contained
in his petition, schedules, statements, related documents and all amendments to such
documents were true and correct, after amendments were filed. When asked if there were any
other corrections or additions or errors that the Defendant found, the Defendant replied “no.”
Bankruptcy Administration
61. On November 9, 2012, Mr. DeGirolamo, the chapter 7 trustee, filed a motion
to operate the Defendant’s business. The motion was granted by way of an order entered on
December 21, 2012. Since that time, the chapter 7 trustee has been operating the Defendant’s
real estate business and liquidating estate assets.
62. On December 26, 2012, Mr. DeGirolomo filed Trustee, Anthony J.
Degirolamo’s, Ex Parte, Motion for Substantive Consolidation, or Alternatively, to Pierce the
Corporate Veil (“Motion to Consolidate”), in which he asked this Court to consolidate the
assets of the Defendant’s bankruptcy estate with the assets of his business entities or, in the
alternative, to find the entities alter egos of the Defendant and to deem their assets property of
the Defendant, subject to administration in this bankruptcy proceeding. The Motion to
Consolidate alleged, in part, that the Defendant failed to observe corporate formalities for the
business entities, commingled funds, and treated all properties as if they were owned by him
individually.
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63. The Defendant did not object to or otherwise challenge any of the allegations
in the Motion to Consolidate. Rather, on or about December 26, 2012 he entered into the
Agreed Interim Order Granting Ex Parte Motion of Trustee, Anthony J. DeGirolamo, for
Substantive Consolidation (“Interim Order”) in which the Defendant and the chapter 7 trustee
deemed the assets of the business entities, D.D. Charity, LLC; David Trust LLC; DRL
Properties Trust LLC; and 92 W. 2nd Street LLC to be assets of the bankruptcy estate “subject
to the rights of any joint owners of those assets and the rights of non-debtor members of the
Related Companies (if any) to prove their respective interests in the properties, companies, or
proceeds from the sales of the properties.” The Interim Order further clarified that the
properties listed on Schedule “A” attached to the Interim Order would be deemed property of
the estate subject to administration by the chapter 7 trustee.
64. The Interim Order was followed by a Judgment Entry Granting Motion of
Trustee, Anthony J. DeGirolamo, for Substantive Consolidation (“Judgment Entry”). The
Judgment Entry, entered on March 5, 2013, is substantially identical to the Interim Order.
65. The United States Trustee secured an order directing the Defendant to appear
for his examination pursuant to Fed. R. Bankr. P. 2004 and produce requested documents.
Over the course of two days, on March 21, 2013 and April 16, 2013 the United States Trustee
and chapter 7 trustee examined the Defendant.
66. The Defendant also produced numerous documents in response to document
requests by the United States Trustee and chapter 7 trustee.
67. Bank statements from a Mechanics Savings individual joint money market
account in the name of the Defendant and his spouse ending in account number x6748 reflect,
in part, the following deposits from December 27, 2011 through October 25, 2012.
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Date Description of Deposits Amount
12/27/2011 Deposit Southside $16,000
01/25/2012 Deposit Southside $30,000
02/21/2012 Deposit Southside $25,000
08/08/2012 FIA CSNA Direct Dep 120807 CIE $5,000
08/15/2012 Wire from Heights Title IOTA Heig $86,218.06
08/22/2012 Deposit Southside $25,000
08/28/12 Wire from Heights Title IOTA Heig $32,000
10/09/2012 Deposit Southside $9,500
Total $228,718.06
68. Bank statements from a Mechanics Savings individual joint money market
account in the name of the Defendant and his spouse ending in account number x6748 reflect,
in part, the following withdraws from December 27, 2011 through October 25, 2012.
Date Description of Withdrawal Amount
01/13/2012 Withdrawal Southside $8,000
01/18/2012 Withdrawal Southside $4,000
01/20/2012 Withdrawal Southside $1,500
01/24/2012 Withdrawal Southside $1,000
01/30/2012 Check Number 1035 Ref #914806731 $25,000
02/10/2012 Withdrawal Southside $6,100
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02/16/2012 Withdrawal Southside $5,900
02/24/2012 Check Number 1036 Ref #97129128 $25,000
08/15/2012 Withdrawal Southside $11,000
08/15/2012 Check Number 1037 Ref #700050203 $26,000
08/17/2012 Check Number 1038 Ref #910405373 $49,000
08/23/2012 Check Number 1039 Ref #911414024 $15,200
08/24/2012 Withdrawal Southside $14,500
08/28/2012 Withdrawal Southside $5,000
09/05/2012 Withdrawal Southside $2,000
09/10/2012 Check Number 1040 Ref #912321379 $25,000
10/11/2012 Check Number 1041 Ref #913438034 $10,000
Total $234,200
Books, Records and Postpetition Conduct of the Defendant
69. The Defendant has provided significant amounts of financial records
requested by the United States Trustee and chapter 7 trustee. However, the documents
provided do not fully account for the Defendant’s financial condition and business
transactions.
70. Specifically, the documentation provided does not fully account for the private
investment funds secured by the Defendant and the repayments to such investors.
71. The documentation does not fully account for the transfer of properties to the
Herman Trust LLC during the two year prepetition period.
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72. The documentation does not fully account for the dissipation of over $200,000
deposited into the Defendant’s joint bank account from December 27, 2011 until his
bankruptcy filing date.
73. As of the date of this Complaint, the Defendant continues to provide material,
when requested, however, documents and records are insufficient to ascertain the Defendant’s
financial condition or business transactions.
74. As of the date of the filing of this Complaint, the Defendant has failed to
explain satisfactorily his transfer of assets during the two year prepetition period of time and
he has failed to fully account for funds received as consideration for the transfer of such
assets.
75. It is the understanding and belief of the United States Trustee that postpetition
the Defendant has sent several e-mails to the chapter 7 trustee regarding the amount of equity
in properties owned by his wife and regarding property owned by the Herman Trust that was
sold postpetition.
COUNT I
Violation of 11 U.S.C. § 727(a)(4)(A)(False Oath – Schedule B Interest in Trust Agreement)
76. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
77. Defendant made a false oath and statement under penalty of perjury as to
material matters, knowingly and fraudulently, in and in connection with his bankruptcy case
when he stated that his bankruptcy schedules were correct.
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78. Bankruptcy Code Section 727(a)(4)(A) provides that the Court shall deny the
debtor a discharge if it is found that the debtor knowingly and fraudulently made a false oath
or account in or in connection with the case made a false.
79. The Defendant signed his bankruptcy petition, schedules, and all amendments
to such schedules under penalty of perjury.
80. The Defendant testified at his 341 meeting of creditors on December 13, 2012,
under oath, that his bankruptcy schedules and statements as amended were accurate and
complete and that nothing was omitted.
81.
The Defendant failed to disclose on Schedule B in response to Item 20,
requiring disclosure of “contingent and noncontingent interests in estate of a decedent, death
benefit plan, life insurance policy, or trust” that he is a beneficiary as well as a successor co-
trustee of the trust agreement executed on February 26, 2004 by his wife Doris Sharrock,
grantor, along with Doris Sharrock, trustee, and Rhonda J. McElroy and the Defendant, as
successor co-trustees.
82. On Schedule B, Defendant also stated “None” as a response to Item 35, which
requires him to disclose other personal property of any kind not already listed and to itemize
that property. Defendant failed to disclose that he is a beneficiary of his wife’s trust as well as
a successor co-trustee in response to Item 35.
83. The Defendant made a false oath and statement, under penalty of perjury, as to
material matters, knowingly and fraudulently, in and in connection with his bankruptcy case
when he stated “none” as a response to Item 20 and 35 of Schedule B. The Defendant’s
statement that he had no such property was made at least recklessly or with gross disregard
for the truth.
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84. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(4)(A).
COUNT II
Violation of 11 U.S.C. Section 727 (a)(4)(A)(False Oath – Statement of Financial Affairs - #1 and #2 Income)
85. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
86. Bankruptcy Code Section 727(a)(4)(A) provides that the Court shall deny the
debtor a discharge if it is found that the debtor knowingly and fraudulently in or in connection
with the case made a false oath or account.
87. On or about October 23, 2012, the Defendant signed his bankruptcy Statement
of Financial Affairs. In signing the Statement of Financial Affairs, he declared under penalty
of perjury that he read the answers in the Statement of Financial Affairs and that they were
true and correct to the best of his knowledge.
88. The Defendant testified, under oath, at his 341 meeting of creditors on
December 13, 2012, that his Statement of Financial Affairs was accurate and complete and
that no further corrections needed to be made and that he had not discovered any further
errors.
89. The Statement of Financial Affairs, Item #1 requires the disclosure of gross
income the debtor received from employment, trade, or profession, or from operation of the
debtor’s business from the beginning of the calendar year to the bankruptcy filing date and
during the two calendar years prior to filing the bankruptcy petition.
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90. The Statement of Financial Affairs, Item #2 requires the disclosure of all other
income received by the debtor other than from employment, trade, profession or operation of
the debtor’s business during the two years before the filing of the bankruptcy petition.
91. On his Statement of Financial Affairs, Item #1, the Defendant disclosed
income from the “Operation of Business” during the years 2010 and 2011 and Social Security
received during 2010 and 2011. The Defendant failed to disclose any income from any
source whatsoever from January 1, 2012 until the bankruptcy petition filing date of October
23, 2012.
92.
On his Statement of Financial Affairs, Item #2, the Defendant disclosed
income received of $6,000 from United American Insurance Company policies sold in 2011.
The Defendant failed to disclose any other source of income derived in the year 2012 from
January 1, 2012 until the bankruptcy petition filing date of October 23, 2012.
93. The Defendant, in fact, omitted disclosure in response to items #1 and #2 of all
income received during the calendar year of 2012 from January 1, 2012 to the bankruptcy
filing date of October 23, 2012.
94. The Defendant failed to disclose income received from the sale of a Hummer
for $16,000 on or about December 27, 2011 in item #2 of the Statement of Financial Affairs.
95. The Defendant failed to disclose on item #1 or #2 of the Statement of Financial
Affairs the gross income received from the sale of approximately 64 properties to Residential
Fund LLC, 118 on or about July 31, 2012, in an amount exceeding $600,000.
96. The Defendant failed to disclose the gross income received on item #1 or item
#2 of the Statement of Financial Affairs from the transfer of real estate during the two year
prepetition period which he owned individually, through entities he wholly owned or
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controlled, or which he owned jointly with his spouse, to the Herman Properties Trust, LLC,
including but not limited to properties located at: 147 Harvard Avenue, Mansfield, Ohio; 25-
27 State Street, Mansfield, Ohio; 3340 Crimson Road, Mansfield, Ohio; 408 Water Street,
Caledonia, Marion County, Ohio; 148 Poplar Street, Mansfield, Ohio; and 501 Lawn Avenue,
Galion, Ohio.
97. The United States Trustee alleges that the Defendant knowingly and
fraudulently made a false oath or account on his Statement of Financial Affairs, items #1 and
#2, by failing to disclose his receipt of income from the sale of a Hummer, the bulk sale of
approximately 64 properties to Residential Fund LLC 118 and the transfer of properties he
owned jointly with his wife or individually to the Herman Trust Properties, LLC during the
two years prior to the filing of his bankruptcy petition.
98. The United States Trustee alleges that pursuant to 11 U.S.C. Section 727(a)(4),
the Court shall not grant the Defendant a chapter 7 discharge.
COUNT III
Violation of 11 U.S.C. Section 727(a)(4)(A)(False Oath – Statement of Financial Affairs - #10a Other Transfers)
99. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
100. Bankruptcy Code Section 727 (a)(4)(A) provides that the Court shall deny the
debtor a discharge if it is found that the debtor knowingly and fraudulently in or in connection
with the case made a false oath or account.
101. On or about October 23, 2012, the Defendant signed his bankruptcy Statement
of Financial Affairs. In signing the Statement of Financial Affairs, he declared under penalty
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of perjury that he read the answers in the Statement of Financial Affairs and that they were
true and correct to the best of his knowledge.
102. The Defendant testified, under oath, at his 341 meeting of creditors on
December 13, 2012, that his Statement of Financial Affairs was accurate and complete and
that no further corrections needed to be made and that he had not discovered any further
errors.
103. The Statement of Financial Affairs, item #10a requires the disclosure of other
transfers during the two years immediately before the commencement of the bankruptcy case
including transfers of “all other property, other than property transferred in the ordinary
course of the business of financial affairs of the debtor,….” The Defendant marked the box
“none” in response to this question.
104. The United States Trustee alleges that the Defendant knowingly and
fraudulently made a false oath on his Statement of Financial Affairs, response to #10 by
failing to disclose his transfers of property during the two year prepetition period including
his transfer of a Hummer; his transfer of approximately 64 properties to Residential Fund
LLC 118, and his transfer of certain properties he owned jointly with his wife or individually
to the Herman Trust Properties, LLC.
105. The United States Trustee alleges that pursuant to 11 U.S.C. Section
727(a)(4)(A), the Court shall not grant the Defendant a chapter 7 discharge.
COUNT IV
Violation of 11 U.S.C. § 727(a)(4)(A)(False Oath – Statement of Financial Affairs #14 Property Held for Another Person)
106. The allegations contained in paragraphs 1 thorough 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
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107. Bankruptcy Code Section 727(a)(4)(A) provides that the Court shall deny the
debtor a discharge if it is found that the debtor knowingly and fraudulently in or in connection
with the case made a false oath or account.
108. On or about October 23, 2012, the Defendant signed his signed his bankruptcy
Statement of Financial Affairs. In signing the Statement of Financial Affairs, he declared
under penalty of perjury that he read the answers in the Statement of Financial Affairs and
that they were true and correct to the best of his knowledge.
109. The Defendant testified, under penalty of perjury at his 341 meeting of
creditors on December 13, 2012 that his Statement of Financial Affairs was accurate and
complete. He testified that he had no further corrections to make and no further errors were
found.
110. The Statement of Financial Affairs, Item 14, Property held for another person,
requires the disclosure of “all property owned by another person that the debtor holds or
controls.” The Defendant responded “none” to this question.
111. In fact, the Defendant was in control of the Herman Properties Trust LLC
and/or in control of the assets that the Herman Properties Trust LLC owns.
112. It is the understanding and belief of the United States Trustee that the
Defendant managed real estate owned by the Herman Properties Trust LLC, leased properties
owned by the Herman Properties Trust LLC, collected rents, deposited rents, and handled
most if not all aspects of the Herman Properties Trust LLC business.
113. The United States Trustee alleges that the Defendant knowingly and
fraudulently made a false oath in connection with the Statement of Financial Affairs, item 14
when he responded “none” regarding the disclosure of “all property owned by another person
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that the debtor holds or controls.” The Defendant’s omission regarding his control of the
Herman Properties Trust, LLC was made at least recklessly or with gross disregard for the
truth.
114. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(4)(A).
COUNT V
Violation of Section 727(a)(2)(Concealment of Assets –Schedule B interest in Trust Agreement)
115.
The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
116. Defendant concealed his interest as a beneficiary and successor co-trustee of
his wife’s Trust Agreement with the intent to hinder, delay, or defraud a creditor or an officer
of the estate.
117. Bankruptcy Code Section 727(a)(2) provides that the Court shall deny the
debtor a discharge it is found that the debtor, “with the intent to hinder, delay, or defraud a
creditor or an officer of the estate… concealed property of the debtor . . . .”
118. The Defendant signed his bankruptcy petition, schedules and all amendments
to such schedules under penalty of perjury.
119. The Defendant testified at his 341 meeting of creditors on December 13, 2012,
under oath, that his bankruptcy schedules and statements as amended were accurate and
complete and that nothing was omitted.
120. The Defendant failed to disclose on Schedule B in response to Item 20,
requiring disclosure of “contingent and noncontingent interests in estate of a decedent, death
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benefit plan, life insurance policy, or trust” that he is a beneficiary as well as a successor co-
trustee of the trust agreement executed on February 26, 2004 by his wife Doris Sharrock,
grantor, along with Doris Sharrock, trustee; and Rhonda J. McElroy and the Defendant, as
successor co-trustees.
121. On Schedule B, Defendant also stated “None” as a response to Item 35, which
requires him to disclose other personal property of any kind not already listed and to itemize
that property. Defendant failed to disclose that he is a beneficiary of his wife’s trust as well as
a successor co-trustee in response to Item 35.
122.
The United States Trustee alleges that the Defendant with the intent to hinder,
delay, or defraud a creditor or an officer of the estate concealed his beneficiary interest in the
Trust Agreement created by his wife in which he is a beneficiary and successor co-trustee
when he failed to disclose such interest on Schedule B.
123. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(2).
COUNT VI
Violation of 11 U.S.C. Section 727 (a)(2)(A)(Concealment – Statement of Financial Affairs - #1 and #2 Income)
124. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
125. Bankruptcy Code Section 727(a)(2)(A) provides that Court shall deny the
debtor a discharge if it is found that the debtor with the intent to hinder, delay or defraud a
creditor or an officer of the estate transferred or concealed property of the debtor within one
year before the commencement of the bankruptcy case or concealed property of the estate
after the bankruptcy filing date.
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126. On or about October 23, 2012, the Defendant signed his bankruptcy Statement
of Financial Affairs. In signing the Statement of Financial Affairs, he declared under penalty
of perjury that he read the answers in the Statement of Financial Affairs and that they were
true and correct to the best of his knowledge.
127. The Defendant testified, under oath, at his 341 meeting of creditors on
December 13, 2012, that his Statement of Financial Affairs was accurate and complete and
that no further corrections needed to be made and that he had not discovered any further
errors.
128.
The Statement of Financial Affairs, Item # 1 requires the disclosure of gross
income the debtor received from employment, trade, or profession, or from operation of the
debtor’s business from the beginning of the calendar year to the bankruptcy filing date and
during the two calendar years prior to filing the bankruptcy petition.
129. The Statement of Financial Affairs, Item #2 requires the disclosure of all other
income received by the debtor other than from employment, trade, profession or operating of
the debtor’s business during the two years before the filing of the bankruptcy petition.
130. On his Statement of Financial Affairs, Item #1, the Defendant disclosed
income from the “Operation of Business” during the years 2010 and 2011 and Social Security
received during 2010 and 2011. The Defendant failed to disclose any income from any
source whatsoever from January 1, 2012 until the bankruptcy petition filing date of October
23, 2012.
131. On his Statement of Financial Affairs, Item #2, the Defendant disclosed
income received of $6,000 from United American Insurance Company policies sold in 2011.
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The Defendant failed to disclose any other source of income derived in the year 2012 from
January 1, 2012 until the bankruptcy petition filing date of October 23, 2012.
132. The Defendant, in fact, in response to items #1 and #2 requiring disclosure of
all income received during the calendar year of 2012 from January 1, 2012 to the bankruptcy
filing date of October 23, 2012 concealed income received from the sale of assets in which he
had an interest during the two years prior to filing his bankruptcy petition.
133. The Defendant failed to disclose income received from the sale of a Hummer
for $16,000 on or about December 27, 2011 in item #2 of the Statement of Financial Affairs.
134.
The Defendant failed to disclose on item #1 or #2 of the Statement of Financial
Affairs gross income received from the sale of approximately 64 properties to Residential
Fund LLC, 118 on or about July 31, 2012 exceeding $600,000.
135. The Defendant failed to disclose income received on item #1 or item #2 of the
Statement of Financial Affairs from the transfer of real estate during the two year prepetition
period which he owned individually, through entities he wholly owned or controlled, or which
he owned jointly with his spouse, to the Herman Properties Trust, LLC, including but not
limited to properties located at: 147 Harvard Avenue, Mansfield, Ohio; 25-27 State Street,
Mansfield, Ohio; 3340 Crimson Road, Mansfield, Ohio; 408 Water Street, Caledonia, Marion
County, Ohio; 148 Poplar Street, Mansfield, Ohio; and 501 Lawn Avenue, Galion, Ohio.
136. The United States Trustee alleges that the Defendant with the intent to hinder,
delay, or defraud a creditor or officer of the estate concealed income derived from the sale of
assets in which he had an interest during the one year prepetition period, by omitting on his
Statement of Financial Affairs, items #1 and #2, his receipt of income from the sale of a
Hummer, the bulk sale of approximately 64 properties to Residential Fund LLC 118 and the
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transfer of properties he owned jointly with his wife or individually to the Herman Trust
Properties, LLC during the two years prior to the filing of his bankruptcy petition. As a result
of such conduct, the Defendant should be denied a discharge under 11 U.S.C. Section
727(a)(2)(A).
COUNT VII
Violation of 11 U.S.C. Section 727(a)(2)(A)(Transfer and Concealment of Assets – Statement of Financial Affairs - #10a Other
Transfers)
137. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
138. Bankruptcy Code Section 727(a)(2)(A) provides that the Court shall deny the
debtor a discharge if the debtor, with intent to hinder, delay, or defraud a creditor or an officer
of the estate charged with custody of property under the estate transferred or concealed
property of the estate within one year before the date of the filing of the petition.
139. On or about October 23, 2012, the Defendant signed his bankruptcy Statement
of Financial Affairs. In signing the Statement of Financial Affairs, he declared under penalty
of perjury that he read the answers in the Statement of Financial Affairs and that they were
true and correct to the best of his knowledge.
140. The Defendant testified, under oath, at his 341 meeting of creditors on
December 13, 2012, that his Statement of Financial Affairs was accurate and complete and
that no further corrections needed to be made and that he had not discovered any further
errors.
141. The Statement of Financial Affairs, item #10a requires the disclosure of other
transfers during the two year immediately before the commencement of the bankruptcy case
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including transfers of “all other property, other than property transferred in the ordinary
course of the business of financial affairs of the debtor,….” The Defendant marked the box
“none” in response to this question.
142. The United States Trustee alleges that the Defendant with the intent to hinder,
delay, or defraud a creditor or an officer of the estate transferred property of the debtor, within
one year before he filed bankruptcy when he transferred his interest in a Hummer, sold
through a bulk sale interests in approximately 64 parcels of property in which he had an
interest, and transferred his interest in six parcels of property that he owned jointly with his
spouse, to the Herman Properties Trust, LLC, including but not limited to properties located
at: 147 Harvard Avenue, Mansfield, Ohio; 25-27 State Street, Mansfield, Ohio; 3340
Crimson Road, Mansfield, Ohio; 408 Water Street, Caledonia, Marion County, Ohio; 148
Poplar Street, Mansfield, Ohio; and 501 Lawn Avenue, Galion, Ohio.
143. The United States Trustee alleges that the Defendant with the intent to hinder,
delay or defraud a creditor or an officer of the estate concealed property of the debtor within
the one year before the bankruptcy filing date when he failed to disclose on his Statement of
Financial Affairs, response to #10 consideration received for his transfers of property during
the two year prepetition period including his transfer of a Hummer; his transfer of
approximately 64 properties to Residential Fund LLC 118 and his transfer of six certain
properties he owned individually, through an entity he controlled, or jointly with his wife, to
the Herman Trust Properties, LLC.
144. The United States Trustee alleges that pursuant to 11 U.S.C. Section
727(a)(2)(A), the Court shall not grant the Defendant a chapter 7 discharge.
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COUNT VIII
Violation of 11 U.S.C. § 727(a)(2)(A)
(Concealment – Statement of Financial Affairs #14 Property Held for AnotherPerson)
145. The allegations contained in paragraphs 1 thorough 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein.
146. Bankruptcy Code Section 727(a)(2)(A) provides that the Court shall deny the
debtor a discharge if it is finds that the debtor with the intent to hinder, delay, or defraud a
creditor or an officer of the estate charged with custody concealed property of the debtor,
within one year before the commencement of the bankruptcy case.
147. On or about October 23, 2012, the Defendant signed his bankruptcy Statement
of Financial Affairs. In signing the Statement of Financial Affairs, he declared under penalty
of perjury that he read the answers in the Statement of Financial Affairs and that they were
true and correct to the best of his knowledge.
148. The Defendant testified, under penalty of perjury at his 341 meeting of
creditors on December 13, 2012 that his Statement of Financial Affairs were accurate and
complete. He testified that he had no further corrections to make and no further errors were
found.
149. The Statement of Financial Affairs, Item 14, Property held for another person,
requires the disclosure of “all property owned by another person that the debtor holds or
controls.” The Defendant responded “none” to this question.
150. In fact, the Defendant was in control of the Herman Properties Trust LLC
and/or in control of the assets that the Herman Properties Trust LLC owns.
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151. It is the understanding and belief of the United States Trustee that the
Defendant managed real estate owned by the Herman Properties Trust LLC, leased properties
owned by the Herman Properties Trust LLC, determined rent amounts, collected rents,
deposited rents, and handled most, if not all, aspects of the Herman Properties Trust LLC
business.
152. The United States Trustee alleges that the Defendant with the intent to hinder,
delay, or defraud a creditor or officer of the estate concealed his interest in property of the
debtor, within the one year prepetition period when he responded “none” regarding the
disclosure of “all property owned by another person that the debtor holds or controls.”
153. The United States Trustee alleges that the Defendant’s control over the
Herman Properties Trust amounted to a de facto interest in the Herman Properties Trust, LLC
and his omission regarding his control of the Herman Properties Trust, LLC constitutes a
concealment made with the intent to hinder, delay or defraud a creditor of the estate at least
recklessly or with gross disregard for the truth of property of the estate within the one year
prepetition period.
154. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(2)(A).
COUNT IX
Violation of 11 U.S.C. § 727(a)(4)(A) (False Oath – Declaration Regarding BankruptcySchedules)
155. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein. On or about
September 24, 2012, the Defendant signed his bankruptcy schedules. In signing his
schedules, Defendant stated “I declare under penalty of perjury that I have read the foregoing
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summary and schedules, consisting of 21 sheets, and that they are true and correct to the best
of my knowledge, information, and belief.” Defendant filed or caused to be filed these
schedules with his electronic signature on April 20, 2012.
156. In fact, Defendant had made false statements in Schedule B when he failed to
disclose his beneficiary interest in the Trust Agreement executed on February 26, 2004.
157. Defendant made a false oath and statement under penalty of perjury as to
material matters, knowingly and fraudulently, in and in connection with his bankruptcy case
when he declared that his bankruptcy schedules and summary were true and correct to the best
of his knowledge, information, and belief. Defendant’s statements were made at least
recklessly or with gross disregard for the truth.
158. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(4)(A).
COUNT X
Violation of 11 U.S.C. § 727(a)(4)(A) (False Oath – Declaration Under Penalty of Perjury – Statement of Financial Affairs
159. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein. At the conclusion of
his Statement of Financial Affairs, Defendant signed it under penalty of perjury. In signing
the Statement of Financial Affairs, Defendant declared that he had read the answers contained
in the Statement of Financial Affairs and any attachments thereto and that they were true and
correct.
160. Defendant made a false oath and statement under penalty of perjury as to
material matters, knowingly and fraudulently, in and in connection with his bankruptcy case
when declared that Statement of Financial Affairs was true and correct, because Defendant
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had issued false oaths as to one or more material facts in items 3c, 6b, and 10a of his
Statement of Financial Affairs. Defendant’s declaration that his Statement of Financial
Affairs was true and correct was made at least recklessly or with gross disregard for the truth.
161. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727 (a)(4)(A).
COUNT XI
Violation of 11 U.S.C. § 727(a)(4)(A) (False Oath: ECF Declaration)
162. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein. In his ECF
Declaration, Defendant declared under penalty of perjury that the information provided in his
electronically filed petition, statements, and schedules, as well as any other document
containing an original signature, was true, correct, and complete.
163. In fact, Defendant had uttered false statements in Schedule B, and in items 1,
10a, and 14 of his Statement of Financial Affairs. Defendant failed to disclose income
derived from the sale of assets, failed to disclose his transfer of assets during the two year
prepetition period, and failed to disclose that he was in control of the Herman Properties Trust
LLC or that he was the de facto owner of such entity on his Statement of Financial Affairs.
164. Defendant made the false oath and statement in his ECF Declaration under
penalty of perjury as to material matters, knowingly and fraudulently, in and in connection
with his bankruptcy case when he declared that his bankruptcy Statement of Financial Affairs
was true and correct to the best of his knowledge, information, and belief.” Defendant’s
statements were made at least recklessly or with gross disregard for the truth.
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165. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(4)(A).
COUNT XII
Violation of 11 U.S.C. § 727(a)(3) (Concealed or Failed to Keep Records)
166. The allegations contained in paragraphs 1 through 75 are hereby incorporated
by reference with the same force and effect as if set forth in full herein. On October 23, 2012,
Defendant filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code.
167. On February 11, 2013, the Defendant was ordered to appear for his
examination pursuant to Fed. R. Bankr. P. 2004 and produce documents listed on Exhibit A
attached to the Motion for Authority to Conduct 2004 Examination and Request for
Production of Documents, including but not limited to tax returns filed by the Herman trust
from 2008 to 2012; copies of monthly bank account statements for any account for which
debtor had signing authority or into which he deposited and withdrew funds from January 1,
201 through December 31, 2012; copies of any solicitation letters sent to individual creditors
listed on Schedule F , copies of each and every promissory note for each individual unsecured
letter listed on Schedule F along with accounting for proceeds of amount borrowed, ledger of
interest and principal payment; post-note correspondence, copy of any financial statement
given to any bank or individual investor during 2010 or 2011; among other documents. The
chapter 7 trustee made an independent request for documents.
168. Since the initial request for documents by the United States Trustee and
Chapter 7 trustee, the Defendant has turned over significant amounts of documents.
However, such documents are insufficient to ascertain the Defendant’s financial condition or
business transactions. In fact, the United States Trustee avers that the Defendant failed to
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keep or preserve recorded information, including books, documents, records, and papers, from
which the debtor’s financial condition or business transactions might be ascertained and such
act or failure to act was not justified under the circumstances of the case.
169. The United States Trustee avers that the documents provided fail to
substantiate the Defendant’s financial condition on the bankruptcy filing date, fail to
substantiate the source of the Defendant’s deposits in excess of $228,000 from the end of
December, 2011 to his bankruptcy filing date and withdrawals of more than $234,000 from
January, 2012 to his bankruptcy filing date; and fail to substantiate his use of private investor
funds, payments to private investors and/or how he determined the amounts and dates of
payments to private investors.
170. Defendant’s failure or failure to act is not justified under the circumstances of
his case.
171. As a result, Defendant’s discharge should be denied pursuant to 11 U.S.C. §
727(a)(3).
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WHEREFORE, the United States Trustee asks this Court to deny Defendant’s
discharge under 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4), and (c) and for such further relief as
this Court deems just and proper.
Respectfully submitted,
Daniel M. McDermottUnited States Trustee Region 9
/s/ Amy L. Good
Amy L. Good (0055572)U.S. Department of JusticeOffice of the United States Trustee
H.M. Metzenbaum U.S. Courthouse201 E. Superior Ave., Suite 441Cleveland, OH 44114-1240(216) 522-7800, ext. 236(216) 522-7193 [email protected]