Small Business Owner Sentenced to Prison for Bankruptcy Fraud

Assistant U.S. Attorneys Joseph J.M. Orabona (619)546-7951 or Michael Heyman (619) 546-9615

NEWS RELEASE SUMMARY – December 19, 2016

SAN DIEGO – Phillip E. Southwood, Jr., a 50-year-old former owner of Southwood Industries, Inc., a holding company for Jefferson Liquor in Poway, was sentenced in federal court today to 12 months and one day in prison for multiple bankruptcy-related crimes. Southwood was also ordered to pay $119,000 in restitution.

Following a referral from the U.S. Trustee’s Office and a lengthy investigation by the Federal Bureau of Investigation, Southwood was indicted on six counts of fraud involving his personal Chapter 7 bankruptcy, including bankruptcy fraud, making false oaths in bankruptcy, and making false statements under penalty of perjury in bankruptcy. After a two-week jury trial before U.S. District Judge M. James Lorenz in January 2016, the jury deliberated for several hours and found Southwood guilty on all 6 counts. 

According to the evidence proven at trial and court documents, Southwood devised a scheme to defraud his creditors by voluntarily filing a false and fraudulent bankruptcy petition. From at least December 2007 and continuing up to and including March 5, 2009, Southwood caused a number of acts to be undertaken in furtherance of his fraudulent scheme.

He drafted and executed a fraudulent Fictitious Business Name Statement for Southwood Industries, whereby he admittedly forged his father’s signature. Thereafter, Southwood caused his parents to open a bank account for the purpose of receiving and concealing proceeds from the sale of a liquor store. Southwood was not named on this account.

Then, Southwood caused to be deposited approximately $171,000 in cash from that sale into the account he directed his parents to open. Once the funds were deposited into this account, Southwood directed his parents to use the funds to pay for Southwood’s personal expenses and to give him cash at his request.  When he filed his bankruptcy on March 5, 2008, Southwood concealed the proceeds from the sale of the liquor store and the bank account opened by his parents at Southwood’s direction which was used to receive and disburse these funds.

During the bankruptcy process, Southwood testified falsely about his schedules and financial affairs, including the funds he received from the sale of the liquor store. Southwood made false statements about the amount of cash he had on hand on the date he filed his bankruptcy. Southwood also made false statements about the timing and amount of preferential payments he made to certain creditors, family members, and insiders prior to filing his bankruptcy. 

“The bankruptcy system is intended to provide eligible individuals an opportunity to obtain a fresh financial start. Unfortunately, in this case, the defendant used the bankruptcy system as a means to defraud his creditors by concealing a substantial amount of money that could have been used to pay off most of his debts,” said U.S. Attorney Laura Duffy. “Individuals who are contemplating bankruptcy are reminded that if they intentionally abuse the bankruptcy process, they will be investigated and prosecuted for their crimes.”

“Criminal bankruptcy fraud threatens the integrity of the bankruptcy system, as well as public confidence in that system,” said Tiffany Carroll, Acting U.S. Trustee for Southern California, Hawaii, and Guam (Region 15). “I am grateful to U.S. Attorney Laura Duffy and our law enforcement partners for their commitment to combating bankruptcy-related crimes, as demonstrated by today’s sentencing.”

The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. Region 15 is headquartered in San Diego, with an additional office in Honolulu.

DEFENDANT                                   Criminal Case No. 13CR0785-L

Phillip E. Southwood, Jr.                    Age: 50                       Poway, California 

SUMMARY OF CHARGES:

Count 1 – Bankruptcy Fraud (Title 18, United States Code, Section 157(1))

Maximum Penalties: 5 years in prison and $250,000 fine

Counts 2-3 – False Oath and Account in Bankruptcy (Title 18, United States Code, Section 152(2))

Maximum Penalties: 5 years in prison and $250,000 fine

Counts 4-6 – False Statement in Bankruptcy (Title 18, United States Code, Section 152(3))

Maximum Penalties: 5 years in prison and $250,000 fine

AGENCY

Federal Bureau of Investigation