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Possible Slash in U.S. Trustee Funding

posted by Bob Lawless

There have been a few postings at Credit Slips about the U.S. Trustee system such as here and here and here and here. But we never said this:

The Committee is concerned that excessive resources are being expended on efforts by the United States Trustee Program to dismiss cases for insignificant filing defects (thereby creating added burdens on the court and debtors associated with refilings); on the unnecessary use of U.S. Trustee personnel to participate in creditors' meetings that are already handled and conducted by private trustees; and on making burdensome requests of debtors to provide documentation that has no material effect on the outcome of bankruptcy cases. Such actions by the U.S. Trustee Program are making the bankruptcy process more costly and therefore less available for those who need it. The Committee directs the U.S. Trustees to immediately examine these problems and report back two months after enactment of this Act on efforts to remedy them as soon as possible.

Who said this? It was none other than the Committee on Appropriations of the U.S. House of Representatives as it recommended a cut in funding for the U.S. Trustee program from $223 million in this fiscal year to $189 million in the next fiscal year. At the moment I write these words, the full House is debating the appropriations measure (H.R. 3093) so it remains to be seen whether the slash in funding will still be in place after the bill wends its way through Congress.


Perhaps Congress might consider that BAPCPA opened the door, inviting the UST's efforts to seek case dismissals for "insignificant" filing defects and to make "burdensome" requests for information, thus making bankruptcy "more costly and therefore less available" to those who need it. Will the Congress, having put the UST up to doing exactly what it now criticizes it for, consider substantive legislation addressing the burdensomeness and inefficiency (let alone the incomprehensibility)of its 2005 product?

I'd like to invite our practitioner readers to share their recent experiences with the U.S. Trustee. Is the House report an accurate description of what U.S. Trustee employees are doing?

I can think of one legitimate reason for a UST to visit a creditors' meeting and that is to monitor and evaluate the performance of the panel trustee. When I was the Project Director of the Consumer Bankruptcy Project, I visited creditors' meetings in several districts, and I did observe a moderate amount of variation in the questions asked by different trustees. Perhaps the UST is studying this very issue? If so, I would be very interested to learn its findings. Visits for the purpose of employee evaluation or research study would be occasional and not routine, however, and I think Congress is suggesting something else may be going on.

The US Trustee Program is getting a warning, by a sidenote. To do their job. Washington does not wish to paint the USTP into a corner, (mostly because the USTP is doing such a good job of painting themselves into one).

We have documented that the USTP and the DE Dept of Justice personnel and Region 3 Trustee's office are engaged in large "overt" acts of Obstruction and "nolle prosequi" for the benefit of cronyism [or worse] in the DE Bankr case of eToys 01-706 (DE Bankr. 2001).

Recently we discovered that the DE Dept of Justice and UST office refuse to prosecute 34 acts of perjury and confessed deceptive acts. Including the action that warrants prosecution of the Debtor (MNAT) and Creditor's (TBF) counsel collaboratively and deceptively placing a paid associate of the Creditor's counsel within the Debtor as CEO and then Confirmed Plan Administrator.

Making the issue more morose is the fact that the Asst US Trustee testified in the Motion to Disgorge TBF for $1.6 million, that the US Trustee had discussions [forewarned] the parties not to replace key personnel of the Debtor with anyone connected to the retained professionals of the Debtor. (please see eToys Docket Item 2195).

The Dept of Justice trial attorney for the USTP Region 3 office then made the Disgorge Motion moot, despite the fact of the obvious premeditated mendacity that destroyed the Constitutional disametrically opposed lines of Creditor v Debtor. Where the Region 3 Trustee office issued the following bogus willful circumvention of the Code and implied, blanket, immunity.

"WHEREAS the United States Trustee shall not seek to compel TBF to make additional disclosures".

After receiving that impunity, the parties then engaged in another $100 million dollar cash fraud in another case. Where the USTP then Obstructed Justice again by successfully petitioning that court to strike n expunge our proofs of perjury n fraud. (MNAT & TBF never responded to the MisPrison document as they could not deny the proof, so the UST was their only way out)(KB Toys case DE Bankr 04-10120)(Docket item 2228).

After EOUST Director Friedman had promised remedy, a large campaign to the SEC, FBI, OIG, OSC, OPR, US Marshall, Pres Bush Corp Fraud Task Force, etc etc began.

Director Friedman and the Asst US Trustee Perch resigned.

All the entities of the Government stated the protocol was to refer the matter to the EOUST GC in Washington DC and the local US Attorney.

Problem is, the removed Region 3 Trustee, DeAngelis, was speciously and quietly promoted to the post of Acting General Counsel of the EOUST thereby in charge of investigating her own case.

While at the same time the DE US Attorney was also bitten by the Non disclosure bug, failing to inform the Court appointed consultant who referred the matter to the US Attorney that the DE US Attorney (Colm Connolly) was a partner with the MNAT law firm in 2001, when the fraud n perjury began.

There are many cases now citing eToys such as Baron's in Florida (that used eToys as the precedent to reopen a closed case due to Fraud on the Court) and the NY Court case of Balco Estis, that cited eToys to disgorge 100% and disqualify.

Amazing how ancillary cases can do what the origin case cannot.

When the Ethics and Model Rule issue of Connolly was reported to the US Attorney in CA (eToys home base). That US Attorney immediately shut down the Public Corruption Unit and threatened career prosecutors with retaliations if they dared to speak to the press about why.

The USTP has gotten out of hand and it is higly unlikely they will get the message from this Bill.

MeThinks the U.S. Trustee doth protest too much. Echoes of Eliot Spitzer's peculiar reign as Attorney General. Remember how Spitzer went overboard making wild accusations under laws never before considered the domain of a state Attorney General against an odd selection of targes? (Spitzer badgered companies into paying settlements, scant few real prosecutions) Only now in retrospect do we understand that Spitzer could not prosecute those who held on him, and their associated organized crime ventures. Spitzer needed to draw attention away from the NY crime rings he had business with. Same situation over at the EOUST. These lawyers within the DOJ view their job as either a springboard to leapfrog hard working junior associates into lucrative > $2Million per year partnerships at BigLaw law firms; or they are merely on reduced pay "neo-sabbatical" as a law enforcement Mole having the ability to protect their BigLaw former and future partners. The U.S. Trustee's are under a self imposed pressure to look like they are doing something. The sad truth is that they struggle to ignore the blatant criminal acts of their BigLaw brothers because they dare not kill the goose which lays the golden eggs for their profession. It's hard to be a pimp, it's harder to be an unconflicted lawyer if you want to compete with your children's private schoolmate's i-banker and hedge fund parents. They don't feel that guilty with their crimes because they are only making 25% or less of what the big dogs make. These self-serving lawyers are masquerading as public servants. Their only true oath is to their "underpaid" profession. Please people, stop being so selfish when you demand that the U.S. Trustee's office stops abusing the genuinely poor and stops protecting the bankruptcy rings of false declaration filing lawyers. They only want to be as wealthy as some other overpaid professions. Let's indict Barry Bonds, he told a lie. Let's put Martha Stewart in jail, she told a lie. Let's put L'il Kim in jail, she told a lie. Let's ignore the blatant successive false declarations by MNAT, HBD and other BigLaw firms - lawyers need to get rich too and every U.S. Trustee needs to continue his career after his short revolving door stint within the DOJ. Click on my link to read how a Federal judge found that the U.S. Trustee aided fraud.

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