Target of Probe in Rent Fraud Fined for Sham Bankruptcy

Calling it the worst case of bankruptcy abuse he has ever seen, a federal judge in Santa Ana on Tuesday imposed a stiff fine on a controversial real estate entrepreneur who is the focus of a long-running fraud investigation by the FBI and U.S. attorney in Los Angeles.

Bankruptcy Court Judge John E. Ryan ordered Bernard Gross to pay more than $85,000 in sanctions for filing a sham bankruptcy petition in August--the 15th bankruptcy filing by Gross since the early 1980s.

In an affidavit filed in U.S. District Court in Los Angeles in 1995, federal authorities described Gross as the central figure in a massive rent-skimming scheme that they say has duped homeowners, cheated lenders of millions of dollars and clogged the bankruptcy courts with bogus petitions. Nonetheless, they have not charged him with a crime, and he is still driving bankruptcy judges and lender attorneys to distraction.

Gross, 51, a bearded, rotund immigrant from Chile whose parents fled to South America to escape the Holocaust, showed up without an attorney for the Tuesday afternoon hearing in a blue hooded sweatshirt, gray sweatpants and a Pep Boys cap.

“I don’t have any money, your honor,” Gross said after Ryan announced his ruling.

“You should have thought of that before you involved yourself in these kinds of activities, Mr. Gross,” Ryan replied.

Bankruptcy and law enforcement officials have described Gross, who currently lives in Laguna Hills, as a kingpin of rent-skimming, a type of real estate scam that has flourished in Southern California, bloating bankruptcy dockets that are already by far the most crowded in the country.

Over the years, Gross has controlled a vast but constantly changing portfolio of rental properties by getting owners who faced foreclosure to deed him their homes for free.

According to court papers and interviews, Gross’ agents have obtained the properties by promising owners to prevent foreclosure and renegotiate their loans, while allowing them to remain as renters for less than their monthly house payments.

But authorities say that after obtaining title, Gross has failed to pay lenders and instead has run the properties through dozens of bankruptcies to delay foreclosure and squeeze out the maximum rent.

A Times investigation in 1995 found that Gross during a four-year period had used about 30 separate bankruptcies--some his, some other peoples’--to protect hundreds of properties from foreclosure.

Ryan had announced Jan. 14 that he intended to impose sanctions, but set Tuesday for a final hearing on the amount.

“I do not think I’ve ever seen a situation as bad as this,” Ryan had said at the January hearing. “The pattern of abuse here of the bankruptcy court is almost beyond imagination.”

Ryan added that he believed Gross had perjured himself when he declared, during a previous bankruptcy in San Diego in 1995, that he had not filed a bankruptcy petition since the early 1980s.

The judge also had wondered aloud why criminal authorities had not acted in the Gross case. “I am just amazed that he’s been allowed to persist along this track as long as he has without somebody really stopping him,” Ryan said.

Los Angeles bankruptcy Judge Lisa Hill Fenning had expressed similar frustrations about Gross in 1994, saying she had urged that his activities “be dealt with criminally.”

Federal investigators have not dropped the probe, but declined this week to discuss the case. “Department of Justice policy prohibits me from providing any comment,” said Maureen Tighe, deputy chief of the major fraud section at the U.S. Attorney’s office in Los Angeles.

Gross, who is often given to tearful outbursts at court proceedings and extravagant claims about his own good intentions, remained composed on Tuesday--insisting, as he usually does, that he is the victim of a government conspiracy and has made no money from his activities.

He claimed that he has been unable to defend himself because government investigators, armed with a search warrant, seized boxes of his records nearly three years ago from his former home in Chatsworth. And he said any money he got he plowed back into repairs of the properties.

“I never took a penny and put it in my pocket,” he said.

Michael J. Hauser, attorney for the Office of the U.S. Trustee, a branch of the Justice Department, had asked Ryan to impose sanctions of about $118,000 to cover costs he said were borne by the Trustee and lenders in the latest bankruptcy case.

Ryan rejected one category of costs, paring the total to $85,035.40. He called on the Trustee to “aggressively pursue the collection of these amounts.”

Gross said he will appeal the sanctions.