By then, hundreds of billions of dollars in toxic mortgages had been dumped into the financial system like polluters dumping poison into a river. The toxic mortgages polluted the river of commerce upstream. Downstream, Wall Street bottled the polluted water, and ratings agencies slapped an attractive label on each bottle promising safe drinking water. Wall Street sold the bottles to investors. Regulators observed the whole sordid process but did little to stop it, while profits poured into the participating banks and securities firms. Investors the world over—pension funds, universities, municipalities, and more—not to mention millions of homeowners, small businesses, and U.S. taxpayers—are still paying the price and footing the cleanup bill.
At the time, we couldn’t anticipate the hell these idiots would put us through. Who would have thought that bankers would be out to bankrupt their own customers? Who knew they were willing to bankrupt themselves and the country in the process?
Looking back, I can say with honesty that I never should have agreed to do this deal. All the warning signs were there. Even the owner of First Credit Bank told me as much. To his credit, and I give credit where credit is due, he did try to warn me.
“Listen to me,” he said. He was serious and I respected him. “I like you. But I want you to know, this is business. When you sign those papers in front of you, I’m going to loan you this money, but it’s a bad loan.”
He wanted to make sure I knew I was risking everything by taking the deal.
But I wanted the Gretzky house badly enough, and, ever the optimist, I signed the papers.
I became insolvent the instant I signed that deal all on a promise from a Washington Mutual broker who knew he was going to make some big numbers for the month. All my life I wanted to come in first. Well, I now had the number one most predatory residential home loan in the country, but I didn’t feel the bite yet.
After the loan closed, for the next couple of weeks I called the loan broker to get an update on my new loan and find out when it would be papered. Each time I called, he assured me it was in the works. And then one day he didn’t return my calls. He also stopped responding to e-mail.
And the next day. And the next.
Escrow had closed on August 31, 2007, and before a month was up, my friendly loan broker had disappeared without a trace.
At this point I knew I would have to scramble to keep my head above water. One of the first things I did was put the Gretzky house on the market. There were no takers.
I made the Washington Mutual payments for a year and the First Credit payments for ten months as the world slowly collapsed in on me.
It was the beginning of the perfect storm from hell. I had no choice, given the monthly payment, but to liquidate my nest egg, the $38 million note from the sale of my car washes at a fraction of their value. This transaction, in turn, caused a cascade of financial cataclysms when the buyers of the note failed to perform as agreed.
There was no one to fix the nightmare I was in.
The bottom line: the loan on the Gretzky house was the end of me.
28
I FOUGHT THE LAW AND THE LAW WON
Government’s first duty is to protect the people, not run their lives.
—RONALD REAGAN
On July 7, 2009, I was forced to file an emergency Chapter 11 bankruptcy petition to stop the trustee sale of my $17.5 million “Gretzky mansion” that was scheduled to be sold at auction the following morning.
According to In Plain English by attorney Salene Kraemer, “Chapter 11 bankruptcy is a worthwhile option and a financially prudent decision for certain businesses or individuals wishing to reorganize, restructure their debts, reject undesirable contracts, and/or orderly liquidate certain assets under the jurisdiction and protection of the bankruptcy court.”
Unfortunately, the very nature of the bankruptcy system places people in situations where seduction abounds. Unequivocally, lawyers, like doctors, are and should be held to a higher standard than the rest of us. After all, lawyers are “agents of the court.” Therefore, ethics should always trump financial gain for lawyers. The two do not need to be mutually exclusive.
However, there are times that unethical behavior can have a dramatic effect on financial gain. As we all know, money can be a blinding intoxicant that can cause even those held to a higher standard to compromise their ethical obligations. Ultimately, when this occurs, the entire system fails, and we all suffer as a result.
In an effort to minimize systemic failures, a trustee must sign an affidavit under penalty of perjury that discloses their relationships, past and present, with any of the parties that have an interest in the outcome of the bankruptcy proceedings. The expectation is this will be an honest disclosure so that ethics prevail and the result is fair and just. In legal terms, the ethical obligation of the court, and by extension the “agents of the court” (trustees and lawyers), is to eliminate “conflicts of interest.” What follows are the professional and ethical obligations of an appointed trustee, as defined by the United States Bankruptcy Code.
TRUSTEE PROFESSIONALISM AND ETHICS
CONFLICTS OF INTEREST
A trustee must be knowledgeable of sections 701(a)(1), 101(14), and 101(31), as well as any other applicable law or rules, and must decline any appointment in which the trustee has a conflict of interest or lacks disinterestedness. The trustee must have in place a procedure to screen new cases for possible conflicts of interest or lack of disinterestedness upon being appointed. 28 U.S.C. § 586.
If a trustee discovers a conflict of interest or a lack of disinterestedness after accepting the appointment, the trustee shall immediately resign from the case. Conflict waivers by either the debtor or creditor do not obviate the trustee’s duty to resign.
The trustee must advise the United States Trustee upon the discovery of any potential conflict or lack of disinterestedness so that a determination can be made as to whether the appointment of a successor trustee is necessary. In addition, the trustee must disclose any potential conflicts on the court record or at the meeting of creditors, or both. The trustee also must advise the United States Trustee upon discovery of any circumstances which might give rise to the appearance of impropriety. 28 U.S.C. § 586.
The following is a copy of the verified Statement of Disinterestedness, executed on September 4, 2009, by the trustee, Arturo Cisneros, Esq., in my Chapter 11 bankruptcy case, signed under penalty of perjury, as an “agent of the court.”
Item 4(B) states that Mr. Cisneros’s law corporation
. . . has represented certain secured lenders, including Countrywide Bank, Bank of America, Washington Mutual Bank, and Wachovia Mortgage in unrelated matters. However, Malcolm Cisneros (Mr. Cisneros’s law corporation) does not and will not in the future represent said lenders with regard to the within matter.
Of note, Countrywide Bank had a first-priority mortgage on my Ladbrook residence in the approximate amount of $4 million; Wachovia Bank had a second-priority lien in the approximate amount of $750,000.
Moreover, astoundingly, there is absolutely no mention by Mr. Cisneros that he was representing JPMorgan Chase in fifty-two cases prior to becoming trustee in my case, all of which were in the U.S. Bankruptcy Court for the Central District of California, the very same court where my case was being heard.
On the very same day he signed his Statement of Disinterestedness in my case, he also filed appearances as counsel for JPMorgan Chase in three other cases in that very same court.
What’s more, JPMorgan Chase—the largest creditor of my estate, with a claim of more than $13 million—hired Arturo Cisneros in more than two hundred new cases subsequent to the court’s approval of Mr. Cisneros’s appointment as trustee for my bankruptcy proceeding on September 8, 2009. This new surge of business from JPMorgan Chase likely took Cisneros’s law firm to levels it had never experienced before.
Armed with this overwhelming information and the documentation to support our claim, we challenged Mr. Cisneros’s ability to act a
s the trustee in my bankruptcy case by filing a motion with the court. Mr. Cisneros’s attorneys, Shulman and Huttenhoff, opposed our motion, insisting that Cisneros did not have any conflicts of interest. Furthermore, Judge Geraldine Mund allowed Cisneros to continue as the trustee.
After legal wrangling back and forth, we arrived at Judge Mund’s courtroom on the morning of the hearing, August 3, 2010. My attorney Moshe Mortner said to me as we were walking into the courtroom, “Isn’t it a good feeling knowing that you’re going to win one for a change?” Imagine our surprise when Judge Mund promptly announced that by request of the Office of the United States Trustee, Mr. Cisneros was asked to resign, and he had complied.
“The trustee overseeing Dykstra’s estate abruptly resigned last night,” CNBC reported. “The trustee’s office says that ‘the appearance of impropriety rose to a level’ that they requested his resignation. The impropriety was not revealed, but Dykstra’s attorneys claim the trustee, Art Cisneros, was colluding with JPMorgan Chase, which holds the first mortgage on Dykstra’s former mansion.”
“Trust me, he didn’t resign because he wanted a vacation,” I was quoted in the Wall Street Journal.
After this debacle in the bankruptcy court, I called my attorney Moshe Mortner and I told him I wanted to sue Mr. Cisneros. I refused to let that guy walk away without being held accountable. I wanted to believe the system would correct itself, but I couldn’t let it go. Ultimately, after several discussions with Moshe, we agreed that he would write a letter to Mr. Cisneros, outlining his egregious misconduct and offering to resolve the matter out of court. Indeed, the law takes misconduct by trustees so seriously that if a trustee acts improperly, he can be personally liable for damages and the plaintiff doesn’t even have to prove he was damaged. That worked for me, so I said, “Moshe, make it happen now!”
Moshe sent a beautifully crafted letter to Mr. Cisneros. It clearly and methodically detailed his egregious misconduct, citing case law to back up my claims. Furthermore, the potential legal consequences of his actions were delineated. The appointee of the United States Trustee, Mr. Arturo M. Cisneros, was in my crosshairs, and I had him dead to rights. Or so I thought.
Less than twenty-four hours after Mr. Cisneros received that letter, the seemingly limitless resources of the federal government were mobilized in the blink of an eye, and federal agents handcuffed me, arrested me, and ultimately transported me to where I would be detained. Why would the feds need to act so quickly? What threat did I pose? Regardless of the answers to those questions, I was scooped up in a massive display of force and escorted into oblivion. In essence, I was forced to go dark.
That was a fastball I couldn’t catch up to!
29
DETAINED
Everyone wants to ride with you in the limo, but what you want is someone who will take the bus with you when the limo breaks down.
—OPRAH WINFREY
The United States Constitution guarantees every American certain rights when accused of a crime. That was not the case when it came to my particular situation. I was thrown in a jail cell and locked up for six straight days. In California, they must bring you before a judge “without unnecessary delay” within forty-eight hours of being arrested. Failure to do that is a violation of your rights. This is the law, or was supposed to be the law.
On April 14, 2010, I walked out my front door and was Pearl Harbored by what seemed to be an army of undercover cops. It was almost like a movie; they came out of nowhere. I was stunned and completely at a loss as to why I was being handcuffed and treated like a criminal. But it didn’t take me long to realize it wasn’t a movie, it was as real as real gets. You would have thought that they’d just captured Osama bin Laden. I’m serious.
After they handcuffed me, they threw me in the back of an unmarked police car. I kept asking them, “Why are you doing this to me? What is going on? What did I do? Where are we going?” They wouldn’t answer, so I snapped and shouted, “What the fuck is going on! Where are you people taking me?”
Finally, one of the wannabe tough guys said, “You are going to see the big man.”
“Who the fuck is that?” I was losing it. I kept shouting, “What is this? Who in the fuck are you? Are you arresting me for something?”
They would not answer me, only telling me that I was being taken to see “the big man” and that “the big man” would explain what was going on.
They then took me to some underground location and stuck me in what I could only guess was an interrogation room. It looked like it was right out of Law & Order. I still had no fucking clue why I was in this dark, dirty room being treated like a fucking murderer. I was losing my mind, as nobody would tell me anything.
Then two people wearing suits walked in and said they were with the FBI as they showed me their badges.
I was going fucking crazy at this point and started screaming at them, “Why am I being treated like a murderer?” One of the FBI agents responded by saying very calmly, “We are here to talk to you about your bankruptcy.” I immediately fired back, screaming, “What in the fuck do you want to know about my bankruptcy that’s not on the docket? You mean to tell me that you treat me like a fucking murderer and drag me down to this hellhole to talk to me about my fucking bankruptcy?”
The FBI agent then said, “We can’t talk to you until you sign this.” I started reading the piece of paper and got to the last line, which said, You have the right to an attorney.
I looked up and said, “Well, since I am being held hostage in a fucking interrogation room with two FBI agents and being asked to sign my rights away, and still have not been told what the fuck is going on, I think I will choose that option—the right to an attorney.”
They immediately put away the papers they brought in with them and started to head toward the door. I once again started screaming at them, “What the fuck is going on? Why are you doing this to me?” They didn’t even look back, and then they were gone.
After the FBI agents left, I was waiting for someone to come in and tell me what the hell was going on, but nobody showed up. I then looked around the room and could see that I was indeed in an interrogation room. I started yelling at the cameras, “Why are you doing this to me? What did I do?” I was close to losing it when finally a man walked in and I immediately screamed at the top of my lungs, “Listen, motherfucker, either take me home or put me in jail!” His response was “Okay, come on, follow me.” I noticed he was walking me toward what looked like a big jail when I said, “Where are you taking me? What is this place?”
I will never forget the smirk that little cocksucker had on his face. The next thing I knew, I was being manhandled by two deputies, telling me that they were booking me. I was so spent, so exhausted, and so confused as to why this was all happening, I just went numb. The next thing I remember, the cops were taking my mug shot.
I was then thrown into a jail cell. At that point it didn’t matter where I was. I passed out cold.
The night they let me out, I was free for less than a minute, as the same two FBI agents were waiting for me. I saw them and said, “You two again?” I asked them what was going on. They told me that I was being indicted in the morning. I responded by saying, “What’s that mean?” They answered, “Your attorney will explain.” They then took me to the Metropolitan Detention Center (MDC), also in downtown LA.
On April 20, I went in front of the federal magistrate, where I was charged with bankruptcy fraud. The US attorney was dead set on me not getting bail. This guy wanted me locked up in the worst way; it was obvious there was a whole lot more to my situation than met the eye. He was given orders by somebody way up the food chain to do whatever he could to keep me locked up.
In the courtroom, Dorothy signed a $75,000 signature bond against her home to bail me out. You can’t put a price on loyalty, and Dorothy’s loyalty has been unwavering since I hired her in 2006.
30
IN CUSTODY
That which does not kill us, make
s us stronger.
—FRIEDRICH NIETZSCHE
When I appeared in court on June 6, 2011, I was taken away in handcuffs before I knew what hit me. I had been informed by my attorney Mark Wersksmen that a few days before, Deputy District Attorney Alex Karkanen, a very senior and experienced DDA who is normally assigned to a Special Auto Theft and Auto Fraud unit, was going to file felony charges against me for car leases from Galpin Ford. Mr. Wersksmen stated that Mr. Karkanen’s charges were based on me presenting false documentation about the new company my attorney had formed for me, Home-Free Systems. Mr. Karkanen told my attorney that Home-Free Systems was just a “shell company.”
I was incarcerated at the Los Angeles County Men’s Central Jail for almost five months. Due to my celebrity status, I was placed in the so-called high power unit, where extremely dangerous inmates were held. I was placed there supposedly for my own protection, as they felt I would be at significant risk if I commingled with the general population. They told me they didn’t want me to get killed under their watch. Nonetheless, I was placed in solitary confinement for leasing a car.
To make matters worse, visitation protocols were so arduous that most people were not willing to go through everything that was involved in order to visit their loved one in the high-power unit. However, Dorothy, as she always does, persevered, doing everything necessary to be allowed to communicate with me. I was able to call Dorothy once or twice a month. While I was incarcerated at LA County Men’s Central Jail, Dorothy was essentially my only contact to the outside world and my only visitor other than my lawyers.
House of Nails Page 20