White-Collar Crime

2nd lawyer avoids conviction in case related to developer's bankruptcy

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Initially convicted by a federal jury in a bankruptcy fraud case related to a client real estate developer’s financial collapse, an Arkansas attorney is now in the clear.

After the trial, the district court reversed attorney Kenneth Vaughn Knight’s conviction on a false statement count and granted him a new trial on a charge of aiding and abetting bankruptcy fraud. A divided federal appeals court in September reinstated the false statement conviction but OK’d a new trial on both counts.

Now the government has decided not to retry Knight and filed a motion Tuesday seeking to dismiss the case, Arkansas Online reports.

Knight was accused of conspiring with developer Brandon Barber to commit bankruptcy fraud in the client’s Chapter 7 case and aiding and abetting that fraud by putting client funds in his trust account to keep the money from being fairly distributed among all of Barber’s creditors.

The majority of the St. Louis-based 8th U.S. Circuit Court of Appeals panel agreed with the trial judge (PDF) that, as the appeals court put it, “given the complex legal issues and factual circumstances surrounding Barber’s financial dealings and his bankruptcy filings, as well as Knight’s relative inexperience as a bankruptcy attorney, the disclosures contained in Barber’s filings shed little light on Knight’s state of mind at the time he allowed Barber to transfers [sic] funds into his IOLTA [trust account]. Ultimately, the district court concluded that the government’s evidence ‘largely invited only speculation and conjecture’ and was fraught with gaps that ‘were too large to be reasonably filled by inference without leaving some doubt as to the correctness of the verdict.’ “

Additionally, the jury deliberated for less than a day before reaching its verdict, raising concern for both courts that “given the short amount of time that the jury deliberated, the jury had not adequately weighed the dense factual and legal issues in the case and had instead convicted Knight because he was Barber’s lawyer,” the 8th Circuit majority said.

However, one judge said in a partial dissent that the case wasn’t really all that complex, simply “a close issue” concerning the question of Knight’s guilt, which the jury should have been allowed to decided.

Two other attorneys were among the defendants charged in related cases:

James Van Doren, a business associated of Barber’s, pleaded guilty to money laundering and was sentenced last year to 15 months in prison, Arkansas Business (sub. req.) reported at the time. His conviction and sentence were affirmed (PDF) by the 8th Circuit in September.

David Fisher was accused by the feds of lying to a bank to help Barber get loans that exceeded the value of his property. Fisher testified that he was unaware of any fraud and simply drew up paperwork. He was acquitted after a jury trial.

Related coverage:

ABAJournal.com: “Lawyer accused of hiding real estate client funds in trust account is convicted of bankruptcy fraud”

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