O.C. Lawyer Accused of Enabling Credit-Card Fraud

An Orange County lawyer has been accused of ignoring discrepancies in his clients’ bankruptcy claims--discrepancies that enabled them to engage in a widespread credit-card scheme centered in Westminster’s Vietnamese community.

Timothy J. McCandless, a previously disciplined Costa Mesa lawyer, is awaiting word on whether he will be sanctioned by a U.S. Bankruptcy Court judge. Sanctions can range from a reprimand to a stiff fine or a ban from practicing before the court.

Some of his clients were arrested last month in one of the nation’s largest crackdowns on credit-card fraud, a move that made a significant dent in a so-called bust-out scheme that has cost banks nationwide more than $100 million.

The U.S. trustee’s office, which oversees bankruptcies, accuses McCandless of preparing sloppy petitions and failing to investigate his clients’ claims before seeking Bankruptcy Court protection for them.

The 38-year-old McCandless, who has been a licensed lawyer since July 1990, denied in court papers that he did anything wrong or knew of any wrongdoing by his clients. He did not return telephone calls to his office.

“While some of the petitions filed may not have been prepared in a manner to which the U.S. trustee would like to see . . . such documents were not filed with any attempt to defraud creditors or to further some manner of criminal activities,” he said in a sworn statement.

McCandless’ attorney, Bruce R. Fink of Santa Ana, accused the U.S. trustee’s office of trying to make him a scapegoat.

“There’s no question that there was an abuse of the system,” he said, but McCandless was not the cause of it.

More important, Fink said, McCandless is accused of violating a bankruptcy law provision that relates to documents signed by an attorney, but the documents that are alleged to be false were based on information provided by debtors and were not signed by the lawyer.

Bankruptcy Judge Lynne Riddle, who heard arguments on the U.S. trustee’s request for sanctions, is expected to rule soon.

McCandless was the most active bankruptcy attorney for a number of debtors who had little or no income but accumulated tens of thousands of dollars--some more than $100,000--in credit-card purchases, according to court officials.

In raids last month, U.S. Secret Service and FBI agents arrested 37 people and shut down two rings that authorities believe had bilked 120 banks nationwide of $40 million. Eight other defendants named in indictments are now considered fugitives.

The scheme took advantage of temporary credit established when large overpayments--$20,000 or more--were made to credit-card accounts. Account holders then went on shopping sprees, sometimes traveling as far as Asia on binges, and took out large cash advances before their checks were returned several days later due to insufficient funds.

When banks demanded payment, the cardholders turned to lawyers like McCandless to seek protection from creditors in U.S. Bankruptcy Court and to erase their debts.

Arthur N. Marquis, the assistant U.S. trustee in charge of the Santa Ana office, said that McCandless handled a number of the cases, which all showed a pattern of inconsistencies, including the omission of such essential facts as current income and gambling debts.

Marquis charges in court papers that McCandless should have known that his clients were up to something.

“It does not take a genius or even [a] particularly astute attorney to determine that there was something ‘odorous’ ” about the cases, Marquis said in documents seeking sanctions. “Indeed, the information contained in [any] one set of bankruptcy documents would have put most attorneys on notice that something was wrong.”

For instance, McCandless’ clients, all with connections to Little Saigon, the nation’s largest Vietnamese community, typically did not disclose any gambling debts in their petitions. Yet in later hearings, they acknowledged that they sold merchandise they bought on credit to pay off gambling debts.

Fink asserts that there was a language and cultural barrier that hindered his client, even though McCandless had hired a paralegal who spoke Vietnamese. She helped gather information for the petitions and the various schedules that list assets and debts.

McCandless, who worked in Vista before moving to Costa Mesa last year, had targeted Little Saigon clients. He conducted free seminars in the Vietnamese community on “immigration, proper use of credit and bankruptcy,” according to his sworn statement, and ended up with a “disproportionate amount of Vietnamese-heritage clients.”

He maintained an office in Westminster near the storefront operation known as VNK Professional Services. Indictments and criminal complaints charge that VNK was a front for a ring that helped credit-card holders defraud banks. VNK also advertised that it could provide legal help for customers.

A graduate of Western State University College of Law, McCandless has been sanctioned three times, according to State Bar of California records. Judges found that he filed legal actions that were frivolous or in bad faith and ordered him to pay fines totaling $13,513.

In addition, last July the state Supreme Court placed him on probation for a year and suspended him from practice for a month as a result of one of those sanctions as well as two separate instances of misconduct, the State Bar said.

The high court’s discipline was based on the following:

* In a 1993 bankruptcy case, creditors had won the right to foreclose on property held by his clients, the debtors in the case. But the day before the scheduled foreclosure, McCandless filed a new petition for bankruptcy, an act the judge deemed frivolous. He was fined $2,000 but failed to report the sanction, as required, to the State Bar.

* In a 1991 case, he received two settlement checks totaling $6,990 for his clients and a health center to pay off a medical lien. The clients switched lawyers, but McCandless failed to pay the lien until he was sued.

* In January 1993, his client trust account--which contains money he holds in trust for clients--dropped below the amount he owed his clients. A State Bar lawyer said that such a situation usually means a lawyer is using client money for some other purpose.