A family of two brothers and a father failed to pay millions they owed, claiming that they had no money. One of the family’s creditors believed that they had artificially reduced their reported income to avoid making any payments of their debts. We were retained by this lender to opine on the amount of compensation that should have been earned by the family from their real estate development business.
Our very own Sam Rosenfarb testified at a hearing before Judicial Hearing Officer Ira Gammerman of the Supreme Court of the State of New York. Testimony on behalf of the plaintiff lender went very smoothly, with Sam testifying that the two brothers and their father would have earned millions and millions of dollars had they been fairly compensated, as opposed to the miniscule amount of compensation they had actually reported. Cross examination, however, did not go well for the defense. The cross examining attorney lost his way, so to speak, and by asking questions he did not know the answer to, he opened the gate for testimony about the family’s alleged frauds.
Sam testified that he had suspicions that the family was diverting income and hiding assets. Without knowing the answer, the lawyer for the family asked Sam the basis for his suspicions. This opened the floodgates for Sam to identify the badges of fraud displayed by the family – evidence not previously presented – and evidence that surely influenced the judge’s decision in favor of the lender and against the family.
Read below from the actual transcript. It is remarkable that this lawyer kept digging a deeper and deeper hole for his clients. Read the actual decision by clicking the link at the end of this article. The judge clearly accepted Rosenfarb’s testimony, including the veracity of the badges of fraud, which ultimately destroyed the defendant’s position.
From the transcript:
Q (Cross Examining Attorney): You’re aware of the property they own, correct?
A (Sam Rosenfarb): I’m aware of the property that’s been identified. I’m not aware of the property they own. I suspect they own property that hasn’t been identified.
Q: What’s the basis for your suspicions?
A: All of the badges of fraud that are evident in this case; the lack of responsiveness, the lack of forth rightfulness with respect to discovery, the changing numbers, the changing amounts of income, the fact that the reported income is insignificant to pay for the expenses that have been disclosed, the fact that the expenses that are disclosed vary dramatically from month to month and week to week, the fact that in response to deposition questions the individuals don’t know where their money comes from, don’t know who pays for the expenses and don’t know whether or not the funds are paid from the Trust, from inheritances, from in-laws who provide help. It’s all been obfuscated. And those badges of fraud lead me to believe that there are sources of income and sources of assets, like property. That’s what I believe.
Q: And you believe, based upon some level of unforthrightness, that that means somebody owns property?
A: Based upon my experience as a certified fraud examiner for the last 25 years and the badges of fraud that are indicated in this case, I believe that assets and sources of income have not been disclosed.
Q: Okay. Mr. Rosenfarb, do most of the frauds that you’re aware of allow their homes to go into foreclosure?
A: Most of the fraudsters that I’m aware of get caught and their homes do go into foreclosure.
Q: Is it your understanding that the (Defendant Clients) had any income other than what you’ve seen on their tax return?
A: My understanding based on what?
Q: Based on whatever data and evidence that you would use as a real estate appraiser.
A: I just testified that it is my belief and opinion that there are sources of income and assets that have not been disclosed.
Q: And that opinion is based upon what?
A: Again, all of the badges of fraud that I testified to; the failure to identify clear, unequivocal sources of funds with which to pay the living expenses that have been testified to or incurred.
Q: Were you aware —
A: And further, it’s evidenced by the failure to file bankruptcy. And the failure to file bankruptcy, in my opinion, is based on the significant exposure to bankruptcy fraud which results — which the U.S. Bankruptcy trustee, of which I’m aware, is significantly enthusiastic about aggressively pursuing bankruptcy fraud as opposed to the failure to pay judgments.
Q: It’s your belief that because the (Defendant Clients) haven’t filed personal bankruptcy, that means that they’ve been committing fraud; is that your testimony?
A: That was not the only reason. I gave my opinion as to all of the badges of fraud with which I believe, including the failure to file bankruptcy, that gives rise to my belief that sources of income and sources of assets have not been disclosed.
It is truly remarkable that he didn’t stop the bleeding when there may have been a chance; another reminder that you should never ask a question in cross when you do not know the answer. Below is an excerpt from Judge Gammerman’s decision proving, once again, why that is so true:
“It’s interesting and this was pointed out by the expert witness (Sam Rosenfarb) that although the [Family] is seriously in debt owing substantial money to the judgment creditors in this case and many millions of other dollars to other creditors, none of them have applied for individual bankruptcy protection and it seems to me that this wouldn’t ordinarily be difficult to understand in view of the fact that their reluctance to expose their finances to the oversight and scrutiny that would accompany the appointment of a bankruptcy trustee.” (emphasis added)
You can read Judge Gammerman’s entire decision here.