Landlord Gross Guilty of Fraud in Bankruptcy

A real estate whiz long accused of running an immense foreclosure and rent-skimming scheme was convicted Wednesday in Los Angeles of bankruptcy fraud, capping a lengthy battle with federal authorities who had pursued him for more than six years.

Bernard Gross, 54, who had run bank lawyers ragged through the bankruptcy courts of Southern California, was found guilty of three felony charges after a two-week trial. The jury in U.S. District Court deliberated about five hours before handing down the verdict.

Although Gross had dramatically scaled back his activities under pressure from the government, he at one point controlled an ever-shifting portfolio of as many as 800 rental properties by using serial bankruptcies to delay foreclosure by lenders holding delinquent loans.

Gross has been “one of the most abusive bankruptcy fraud artists we’ve ever seen,” said Maureen Tighe, U.S. trustee for the central district of California, whose office serves as watchdog over the bankruptcy courts. “We are very thankful he has finally been brought to justice.”

Gross was allowed to remain on bail pending sentencing May 15. The maximum sentence is five years on each count, but under federal sentencing guidelines the penalty is likely to be much lighter.

Defense lawyer David A. Katz said he expects Gross to be granted a new trial because he believes prosecutors made improper arguments to the jury. He said the government made a “mountain out of a molehill” while “picking on a very sick, disabled man to say they’re cracking down on bankruptcy fraud.”

Indeed, the government had narrowed its case to a single bankruptcy petition Gross filed in August 1996 and false statements he had made concerning the number of prior bankruptcies he had filed and the number of business entities and properties he controlled.

He was originally charged in a 17-count indictment that outlined the sweep of his operations.

A rotund, eccentric immigrant from Chile, Gross has repeatedly said he never did anything out of a selfish motive. “Everything I do is to help somebody else,” he once said in an interview with The Times. “Every single penny I’ve ever earned in my life, I’ve given away.”

In lengthy closing arguments Tuesday, Katz said Gross had simply made inadvertent errors on his bankruptcy petition--a result, Katz said, of the government seizing Gross’ business records, and a litany of medical ailments, including a concussion that caused Gross to suffer memory loss.

Although the charges focused on inaccuracies in a single bankruptcy petition, Gross was targeted for his skill at tying up delinquent properties in bankruptcy, allowing him to collect rent while keeping lenders from foreclosing.

As detailed in a 1995 report in The Times, Gross’ agents would contact people facing foreclosure and offer to keep them in their homes for a reduced monthly rental payment if they would deed over their homes.

Once in control of the properties, Gross would deed fractional shares to a string of entities that were little more than mail drops. One by one, the entities would file for bankruptcy, listing their fractional shares of numerous properties.

The bankruptcy petitions automatically halted foreclosure proceedings. And though bank lawyers would eventually get each stay lifted, another entity with fractional shares in the same properties would then petition for bankruptcy protection, starting the process over again.

Other petitions were filed on behalf of Gross associates or employees, including two non-English-speaking maintenance workers, Giai T. Lam and Peng F. Li, whose petitions stated they were each part owners of about 300 properties.

In drawn-out clashes with the government, Katz argued that Gross had not committed crimes, but had simply taken advantage of loopholes in the bankruptcy system.

As if in agreement, prosecutors last year substituted charges that were more cut-and-dried.

An acquittal would have been seen as a setback in federal efforts to fight bankruptcy abuse in Los Angeles, where the volume of bankruptcy filings is the highest in the nation.