Moriarty Creditors Seek to Block Wife’s Renouncement of Inheritance

The tangled financial affairs of political corruption figure W. Patrick Moriarty have taken an additional twist, with creditors seeking to block his wife from renouncing an inheritance that could potentially be worth millions of dollars.

Creditors have filed a court petition to force Mrs. Moriarty into bankruptcy, fearing that she may have turned down the $1.5-million to $10-million inheritance to thwart them from seizing her husband’s cash assets.

Moriarty, who was ordered into bankruptcy by a federal judge last December, faces creditor claims from several banks and individuals of more than $20 million.

His banking and political activities have also touched off a statewide corruption probe. Moriarty, the former head of an Anaheim fireworks company, allegedly funneled laundered cash to state and local politicians to gain passage of laws allowing him to sell his products throughout California.

The controversial businessman has also been accused of providing prostitutes and other gifts to elected officials. Moriarty pleaded guilty in March to seven counts of fraud and has agreed to testify against politicians he purportedly bribed.

One of Moriarty’s largest creditors, California Canadian Bank of San Francisco, says the Anaheim businessman owes it $20 million stemming from bad real estate and personal loans.

The bank, which is owned by a Toronto holding company, was instrumental in forcing Moriarty into Chapter 7 bankruptcy, a federal proceeding that can lead to the liquidation of an individual’s estate.

California Canadian also filed a petition Tuesday to force Moriarty’s wife, Dorene M. Moriarty, into the same involuntary Chapter 7 bankruptcy position, noting that Mrs. Moriarty had signed guarantees on some of her husband’s bank loans.

The bank filed the petition after Mrs. Moriarty refused to accept an inheritance that could be as much as $10 million from the estate of her brother, Donald E. Kettleberg, a Portland, Ore., attorney who died in May. Bank officials feared that she declined the inheritance in an attempt to block her husband’s creditors.

If Dorene Moriarty’s renouncement is left unchallenged, an Oregon probate judge could allow the inheritance to go to the Moriartys’ children, because her late brother left no will, said James Stang, attorney for the bankruptcy trustee in the W. Patrick Moriarty case.

By filing the involuntary bankruptcy petition in Los Angeles federal court, he said, creditors hope to reach the inheritance in their scramble for her husband’s assets. It will be up to a federal judge whether to grant the petition placing Dorene Moriarty in bankruptcy.

“(The inheritance) would supplement the asset pool” for creditors, Stang said in a telephone interview.

Thus far, Moriarty has refused to disclose his assets, invoking his constitutional Fifth Amendment protection against self-incrimination.

According to Stang, the hiding of assets behind the Fifth Amendment during a bankruptcy proceeding is not unusual “when people have criminal problems.”

Stang added that Richard M. Pachulski, the trustee in the Moriarty bankruptcy case, may soon file a court motion to also become Dorene Moriarty’s trustee. He may also institute an Oregon probate proceeding to prevent distribution of the inheritance to the Moriartys’ children.

Asked whether an Oregon judge was likely to go along with the strategy of California creditors, Stang said, “Yes, because it’s right. Oregon doesn’t care if (the inheritance) goes to her kids, they just want to make sure it’s going to the right person.”