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The Bankruptcy Hotline

By ALM Staff | Law Journal Newsletters |
November 01, 2003

Creditors May Seek Recovery of Criminal Fine from District Attorney

The Bankruptcy Court for the Southern District of New York has ruled that the creditors of a bankrupt construction company can sue the Manhattan District Attorney's Office to recover $3 million that they claim was fraudulently used to pay a criminal fine. In Re: AJ Contracting Company, Inc., No. 00 B 14842 (Nov. 14).

A principal and his company pleaded guilty to commercial bribery. The principal avoided jail time but agreed to resign from the company within a year and guarantied the company's payment of $3.3 million in fines. Under the plea, $1 million was paid immediately, with the balance to be paid in equal installments over 4 years. But under the principal's direction, the company paid the entire fine early. He later died, and the company filed for bankruptcy. The creditor's committee claimed the principal, knowing he was in poor health, ordered the payments during the time he still controlled the company to limit his exposure on the guarantee. The committee also argued that the fine was paid with money that was to be held in trust for the benefit of subcontractors hired for construction jobs. These actions amounted to fraud and sent the company into bankruptcy.

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