Commercial Fraud Task Force Committee

Volume 2, Number 1 / June 2005

In This Issue:

• Identity Theft & Bankruptcy Fraud
• Seward Named New Committee Co-chair
• Minutes from the 2005 Annual Spring Meeting

• Committee Officers
• Upcoming Events
• Contribute to the Newsletter
• ABI World
• Newsletter Home

Identity Theft & Bankruptcy Fraud

by Sandra R. Klein, Bankruptcy Fraud Criminal Coordinator, U.S. Trustee Program, Los Angeles

Recently, newspapers across the country have been filled with stories about personal information being lost, stolen, or compromised.1 Why are these stories getting so much attention and why should we care? What relationship is there between personal information being stolen or compromised and bankruptcy?

Overview of Identity Theft

Stealing or fraudulently using someone else’s personal identifying information, which is commonly referred to as “identity theft,” is a one of the fastest growing crimes in the country.2 It is estimated that approximately 10 million Americans were identity theft victims in 2003.3 Although there is no “one size fits all” definition of identity theft, a common theme is that an identity thief uses someone else’s personal identifying information, such as the victim’s name, Social Security number and/or date of birth, to engage in some type of fraud.4

The consequences for identity theft victims can be devastating:

They can have their credit ratings ruined and be unable to get credit cards, student loans, or mortgages. They can be hounded by creditors or collection agencies to repay debts they never incurred, but were obtained in their name, at their address, with their Social Security number, or driver’s license number. It can take months or even years, and agonizing effort, to clear their good names and correct their credit histories… [I]n some instances, victims of identity theft have even been arrested for crimes they never committed when the actual perpetrators provided law enforcement officials with assumed names.5

Identity theft victims often describe their ordeal as “data rape” that can leave deep scars.6 Frequently, victims expend tremendous amounts of time and effort to remove fraudulent charges and accounts from their credit reports.7 In the meantime, unpaid debts can ruin the victims’ credit scores, often resulting in their being denied mortgages or other types of credit.8 Additionally, the victims are burdened with demonstrating they did not open the fraudulent accounts or incur the fraudulent debts.9

Identity Theft in Bankruptcy Cases

Identity thieves often utilize the bankruptcy system to commit or further their criminal activity. For example, an identity thief might file a bankruptcy case using a victim’s name and/or Social Security number if the thief previously was barred from filing additional bankruptcy cases. Alternatively, the thief might use someone else’s name and/or Social Security number on a bankruptcy petition to obtain the protection of the automatic stay without having a bankruptcy filing associated with his or her name. In some instances, the perpetrator might erroneously believe that providing a minor child’s personal information on a bankruptcy filing will not adversely affect the child’s credit rating. There have been a number of bankruptcy fraud cases prosecuted in which parents have used the names and Social Security numbers of their minor children to file for bankruptcy protection.10 In other cases, the identity thief might have a more nefarious reason for using someone else’s personal information on a bankruptcy petition—the thief might be seeking retaliation against the victim, who is often an ex-spouse, an ex-employee, or an ex-partner.11

Identity thieves may also “wholly co-opt another person’s identity—obtaining driver’s and professional licenses, obtaining employment, applying for apartments, taking out home and automobile loans, applying for credit cards, and even receiving traffic tickets and warrants under [a] false identity.”12 The false name and/or Social Security number initially may be used to obtain employment and to establish credit. If, however, the thief is unable or unwilling to pay the debts incurred, he or she might file a bankruptcy case using the victim’s name and/or Social Security number to postpone eviction or foreclosure, to stop harassing phone calls and letters from collection agencies, and to obtain a discharge of the debts incurred in the victim’s name.

That is exactly what happened to a man in Texas.13 Jerome Joseph Griesmer utilized the victim’s identity for years, holding himself out as the victim and buying a car in the victim’s name.14 After ruining the victim’s credit, Griesmer filed for bankruptcy protection twice in the victim’s name.15

A woman in California also suffered a similar fate. Her Social Security number and driver’s license number were stolen by Carolyn Lynn Robinson, who worked for a college the victim attended.16 Robinson used the victim’s personal identifying information for more than three years, renting an apartment and opening an MCI account in the victim’s name.17 When Robinson defaulted on her rent and all of her other obligations, she filed a bankruptcy case in the victim’s name to postpone eviction and to live a few more months rent free.18

More sophisticated identity thieves might target homeowners facing foreclosure. Typically, the thieves fraudulently represent that they can assist the victims by purportedly negotiating reduced payments or some form of refinancing with the victims’ banks. The thieves might also claim they can provide assistance by locating investors to purchase the victims’ properties. As part of these schemes, the thieves persuade their victims to execute quitclaim deeds transferring their properties to persons or entities controlled by the thieves. These schemes are extremely lucrative for the perpetrators, who often charge their victims an “up-front fee” as well as monthly “rent,” which is typically about one-half of the victims’ mortgage payment.

Contrary to what the victims were led to believe, once the thieves obtain control of the victims’ properties, they do not contact the lenders or attempt to locate investors to purchase the victims’ homes. Instead, to gain the benefit of the automatic stay, the thieves file fraudulent bankruptcy cases using the victims’ or someone else’s personal identifying information.19 After the banks successfully obtain relief from the automatic stay, the perpetrator might alter the deeds and transfer the victims’ properties to other persons or entities controlled by the perpetrator. The thieves will then file additional bankruptcy cases in the names of the persons or entities to which the properties were transferred.20

By continually transferring the properties and filing serial bankruptcies, the thieves can delay foreclosure for months or even years. Although the lenders might eventually foreclose by obtaining in rem relief, this is no consolation to the victims, who may not only have lost their homes and the “rent” that they paid to the thieves, but also have had fraudulent bankruptcy cases filed in their names.

All types of identity theft are serious and have a negative impact on the lives of the unfortunate victims. The fraudulent use of a person’s name and/or Social Security number in a bankruptcy case, however, is particularly troubling because the federal bankruptcy laws and courts are used to perpetrate the fraud.

USTP’s Efforts to Curb Bankruptcy-related Identity Theft

Since 2002, the United States Trustee Program (“USTP”) has aggressively combated bankruptcy-related identity theft through the Debtor Identification Program, which requires that all individual debtors provide proof of identity at their §341(a) meeting of creditors.21 This helps to ensure that the individual whose name appears on the bankruptcy documents is the person who actually filed for bankruptcy protection.

As a neutral party representing the public as a whole, the USTP cannot represent a victim whose personal identifying information has been fraudulently used to file a bankruptcy case.22 The USTP does, however, seek civil enforcement remedies that may be beneficial to identity theft victims. For example, in appropriate cases, the USTP might file motions to:

1. dismiss a pending bankruptcy case in which the “debtor” used a false name and/or Social Security number;
2. expunge the bankruptcy case;
3. correct a Social Security number;
4. revoke a discharge; or
5. vacate an order for relief.23

The Identity Theft Penalty Enhancement Act

To combat the ever-increasing problem of identity theft, on July 15, 2004, President Bush signed into law the Identity Theft Penalty Enhancement Act (the “Act”), which became effective immediately.24 The Act created a new aggravated identity theft offense, 18 U.S.C. §1028A (2004), which imposes a mandatory, consecutive two-year term of imprisonment for persons who engage in identity theft while committing other specified crimes.25 The Act also expanded the scope of the existing identity theft statute, 18 U.S.C. §1028 (2000), by making it applicable to a wider range of conduct and by increasing the maximum penalty for certain identity theft offenses.26

Although the Act does not specifically apply to bankruptcy-related crimes, it could be useful in prosecuting defendants who engage in identity theft as part of a bankruptcy fraud scheme. For example, defendants who commit identity theft and bankruptcy fraud by utilizing a false Social Security number on a bankruptcy petition, committing mail and wire fraud during a bankruptcy case or making false statements during the 341(a) meeting, a 2004 examination, or directly to a representative of the USTP or a panel trustee, could be prosecuted under §1028A.27 If convicted, the perpetrator would be sentenced, at a minimum, to two years’ imprisonment.28

Conclusion

Although identity theft is one of the fastest growing crimes in the country, significant steps are being taken to address and combat this insidious problem. Through the Debtor Identification Program, the United States Trustee Program attempts to ensure that the bankruptcy process is not used to perpetrate or further identity theft. Further, the Identity Theft Penalty Enhancement Act provides federal prosecutors with new tools to attack identity theft. By expanding the types of identity theft crimes that can be prosecuted and by imposing a mandatory two-year term of imprisonment for §1028A convictions, Congress has made clear that identity theft will not be tolerated and that defendants who fraudulently use someone else’s personal information will be severely punished.