Charleston Developer Sentenced to Prison for Bankruptcy Fraud (2024)

CHARLESTON, W.Va. – John H. Wellford III, 73, of Charleston, was sentenced today to one year and one day in prison, to be followed by three years of supervised release, and ordered to pay $730,326.43 in restitution for falsification of bankruptcy records.

According to court documents and statements made in court, on March 29, 2019, Wellford filed for bankruptcy on behalf of Corotoman Inc., a real estate development company he owned and operated. As part of the bankruptcy, Corotoman’s Statement of Financial Affairs required Wellford to disclose all monetary transfers from Corotoman outside the ordinary course of business that had occurred in the two years prior to filing for bankruptcy. Wellford admitted that, despite this requirement, he did not disclose that he had transferred $925,326.43 from Corotoman on or around May 2, 2018 to another of Wellford’s businesses, Marsh Fork Development.

Approximately 10 months prior to the bankruptcy filing, Corotoman received a large influx of cash while it was struggling financially and while one of its creditors was actively trying to collect on an outstanding debt. Wellford deposited a $1,978,101.40 check from American Electric Power in Corotoman’s bank account on or around April 30, 2018. Wellford then transferred $925,326.43 of the funds to Marsh Fork Development on or around May 2, 2018. From that money, Wellford transferred $680,000 to his lawyer’s client trust account. Over the next five months, Wellford caused his lawyer to transfer the entire $680,000 back to various businesses that Wellford owned, primarily Marsh Fork Development.

Wellford admitted that all of these transactions were to ensure that he maintained possession and control over the money so that he could use the money for his businesses. Additionally, when Wellford attended a May 28, 2019 meeting of creditors, he testified that Corotoman had not made any payments to creditors outside the ordinary course of business in the year prior. When Wellford twice amended Corotoman’s bankruptcy filings to account for other undisclosed transactions that took place at the same time as the transfer, he failed to disclose the transfer.

“Today’s sentence is at the upper range of the advisory guideline range and reflects the nature and seriousness of Mr. Wellford’s offense. It is also appropriate given his background. Simply put, he should have known better and he should have done better,” said United States Attorney Will Thompson. “Mr. Wellford went to great lengths to carry out this crime of deception. Each transfer was a deliberate act of duplicity, and there are more than thirty of them. Each failure to disclose was an act of dishonesty.”

Thompson made the announcement and commended the investigative work of the Federal Bureau of Investigation (FBI), the West Virginia State Police, the West Virginia State Auditor’s Office (WVSAO) Public Integrity and Fraud Unit (PIFU) and the West Virginia Offices of the Insurance Commissioner-Special Investigations Division. The United States Trustee’s Charleston field office, which serves West Virginia, made the criminal referral of this case to the U.S. Attorney’s Office. The United States Trustee Program is a component of the Department of Justice whose mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders — debtors, creditors and the public.

“This sentencing sends a clear message: the FBI and our partners will continue to go to great lengths to root out those who think fraud and deception mean more money in their own pocket,” said FBI Pittsburgh Special Agent in Charge Kevin Rojek. “Bankruptcy fraud not only impacts financial institutions and creditors, but it also impacts the everyday person with higher fees and higher taxes. We stand committed to ensuring financial fairness at all levels.”

“Debtors’ responsibility to provide truthful, accurate, and complete information is essential to the proper function of the bankruptcy system,” said Acting United States Trustee Gerard Vetter of Region 4, which includes West Virginia. “This case demonstrates the dedication of the United States Trustee Program and the Justice Department to enforce the statutes imposing that responsibility and to ensure a fair process for debtors, creditors and other stakeholders. We thank U.S. Attorney Thompson and our law enforcement partners for their commitment to protecting the integrity of the bankruptcy system.”

Senior United States District Judge John T. Copenhaver, Jr. imposed the sentence. Assistant United States Attorney Holly Wilson prosecuted the case.

A copy of this press release is located on the website of theU.S. Attorney’s Officefor the Southern District of West Virginia.Related court documents and information can be found onPACERby searching for Case No. 2:24-cr-63.

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Charleston Developer Sentenced to Prison for Bankruptcy Fraud (2024)

FAQs

Charleston Developer Sentenced to Prison for Bankruptcy Fraud? ›

CHARLESTON, W.Va. – John H. Wellford III, 73, of Charleston, was sentenced today to one year and one day in prison, to be followed by three years of supervised release, and ordered to pay $730,326.43 in restitution for falsification of bankruptcy records.

What is the sentence for bankruptcy fraud? ›

Legal Consequences

Proof of fraud requires a showing that the defendant knowingly and fraudulently misrepresented a material fact. Bankruptcy fraud carries a sentence of up to five years in prison, or a fine of up to $250,000, or both. Even just intending to commit bankruptcy fraud may be punishable.

How many people commit bankruptcy fraud? ›

The Federal Bureau of Investigation (FBI) estimates that 10 percent of all bankruptcy filings involve fraud, especially evasion by debtors to fully disclose their assets.

What is the famous bankruptcy fraud case? ›

Enron used special-purpose vehicles to hide its debt and toxic assets from investors and creditors. The price of Enron's shares went from $90.75 at its peak to $0.26 at bankruptcy. The company paid its creditors over $21.8 billion from 2004 to 2012.

Is bankruptcy fraud a federal crime? ›

Bankruptcy fraud is an extremely serious offense; a conviction could leave you facing consequences which include up to five years in prison, and/or fines of as much as $250,000. Because it is considered a federal offense, prosecutors often pursue the maximum penalties allowed under the law.

What happens if you lie during bankruptcy? ›

The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order. You can only receive a chapter 7 discharge once every eight years.

Why is bankruptcy fraud bad? ›

While bankruptcy frees you from debt, it comes at a cost to your creditors. To minimize this loss, you're allowed to keep essential assets only. Your creditors are entitled to receive the value of your nonessential assets, and depriving your creditors of what they're owed is considered fraud in bankruptcy.

What is the largest bankruptcy in history? ›

Largest bankruptcies
CompanyBankruptcy dateTotal assets pre-bankruptcy
Lehman Brothers Holdings, Inc.September 15, 2008$691,063,000,000
Washington MutualSeptember 26, 2008$327,913,000,000
Worldcom, Inc.July 21, 2002$103,914,000,000
General MotorsJune 1, 2009$82,290,000,000
16 more rows

What happens if you lie on bankruptcy? ›

While no one likes to have their property liquidated in a bankruptcy, more often than not, it's a small price to pay for the discharge of all one's debt. To put it in perspective, lying and getting caught could get all your property sold, leaving you with all your former debt, and even prison time.

What are the elements of bankruptcy fraud? ›

§ 157 prohibits devising or intending to devise a scheme or artifice to defraud and, for purposes of executing or concealing the scheme either (1) filing a bankruptcy petition; (2) filing a document in a bankruptcy proceeding; or (3) making a false statement, claim, or promise (a) in relationship to a bankruptcy ...

Is fraud protected by bankruptcy? ›

Filing for bankruptcy does not necessarily discharge every type of debt. Criminal fines and penalties based on a theft crime like embezzlement will stay on a debtor's record whether they file under Chapter 7 or Chapter 13, even if they have no assets.

What is a false proof of claim in bankruptcy? ›

The elements of a false claim violation are: that bankruptcy proceedings had been commenced; that defendant presented or caused to be presented a proof of claim in the bankruptcy; that the proof of claim was false as to a material matter; and.

References

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