Former Bankruptcy Trustee Pleads Guilty to Embezzling from an Estate
| U.S. Attorney’s Office July 12, 2011 |
David B. Fein, United States Attorney for the District of Connecticut, announced that MICHAEL J. DALY, 54, of West Simsbury, waived his right to indictment and pleaded guilty today before Chief United States District Judge Alvin W. Thompson in Hartford to one count of embezzlement by a court officer.
According to court documents and statements made in court, on May 13, 2004, a voluntary Chapter 11 bankruptcy petition was filed on behalf of Lehman Brothers, Inc., a Connecticut-based print shop. On December 5, 2008, the Lehman Brothers bankruptcy was converted from a chapter 11 to a chapter 7 case. On that same date, DALY was appointed by the United States Bankruptcy Court for the District of Connecticut as the trustee of the Lehman Brothers bankruptcy. As trustee of an estate that converted to chapter 7 from chapter 11, DALY was responsible for closing the company’s “Debtor-in-Possession” account, or “DIP.” The DIP may be maintained as an operating account during a chapter 11 reorganization, but is closed if the company converts to a Chapter 7 liquidation.
Lehman Brothers’ DIP account was left open until June 29, 2009. Over that approximately six-month period, the account was credited with 10 customer deposits for completed print jobs, for a total of $11,584.31. In January and February 2009, DALY made four unauthorized withdrawals from the DIP account in the total amount of $11,100. Each withdrawal was taken in the form of a bank check payable to DALY, which was then deposited into his own business account or converted to cash. DALY then disposed of the proceeds through transfer to his personal bank account and for personal expenses.
As a condition of his plea, DALY will voluntarily surrender his license to practice law.
Chief Judge Thompson has scheduled sentencing for September 28, 2011, at which time DALY faces a maximum term of imprisonment of 10 years and a fine of up to $250,000.
U.S. Attorney Fein acknowledged the substantial efforts of the Federal Bureau of Investigation in investigating this matter, with great assistance from several members of the Office of the United States Trustee.
This matter is being prosecuted by Assistant United States Attorney David E. Novick.
Members of the public can report suspected bankruptcy fraud via e-mail to USTP.Bankruptcy.Fraud@usdoj.gov.