Ex-San Antonio attorney Pettit remains in jail pending trial

US Judge Elizabeth “Betsy” Chestney granted prosecutors’ request to arrest him without bail.

During a Tuesday hearing, the judge cited Pettit’s obstructive behavior during his bankruptcy proceedings and ruled to keep him behind bars.

Attorney Matthew T. Allen, representing Pettit, argued his client had been more cooperative in the bankruptcy case recently and, if released with conditions, would assist the Trustee and Chapter 11 authorities in identifying funds to repay clients .

But Assistant US Attorney Robert Almonte Jr. told the judge Pettit should be jailed because he had been obstructive and could escape if he had access to money that the trustee has not recovered. The prosecutor said “$1.5 million in cash withdrawals will not be accounted for,” calling it a “real concern for the government.”

“I don’t think there are any signs that he won’t continue this scam,” Almonte argued. “He’s reckless.”

On ExpressNews.com:

Chris Pettits Forgotten Customers: He settled lawsuits for Latino customers who didn’t get their money

Pettit, 55, was charged last week with five counts of wire fraud and three counts of money laundering related to allegedly stealing millions of dollars from his customers. If convicted, he faces a year in prison.

Allen pleaded not guilty on Pettit’s behalf during an arraignment prior to the bail hearing.

insolvency case

Pettit filed for bankruptcy protection for himself and his law firm on June 1 after several clients sued him for taking their money and commingling accounts. Although he denied the allegations in some complaints, he won over $35 million in settled judgments with a handful of clients. The firm specialized in estate planning and personal injury cases, but he also professed to manage clients’ investments.

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Creditors, many of whom are former Pettit clients, have filed claims totaling $260 million between the two bankruptcies.

Pettit gave up his license to practice law, closed his practice and retired to his mansion at Walt Disney World Resort after the bankruptcy filings.

A bankruptcy judge later ordered Pettit to return to San Antonio to appear in court. The judge found Pettit to be in contempt of court for disobeying court orders and had him jailed on September 8.

Pettit remained incarcerated for three months. On December 7, the bankruptcy judge ordered Pettit’s release after he agreed to relinquish all claims to his $1.8 million in Stone Oak, about $400,000 in retirement accounts and various life insurance policies. These assets will now become part of the bankruptcy estate and will be liquidated in favor of the creditors.

However, on the same day, Pettit was indicted by a grand jury. He was arrested before he could be released.

On ExpressNews.com:

Chris Pettit’s former clients aren’t the only ones who claim to have been scammed by him

Attorney Eric Terry, Pettit’s bankruptcy trustee, and FBI Agent Thomas Sweatt each testified in support of the prosecution’s request to keep Pettit incarcerated.

FBI investigation

The FBI began investigating allegations against Pettit in March, Sweatt said on the witness stand while Pettit looked on. He was handcuffed and shackled, and a light blue disposable mask covered his face.

Sweatt explained how Pettit acted as a “qualified agent” for clients in a real estate transaction known as the 1031 exchange. The transaction, named after a section of the Tax Code, allows investors who park gains from a real estate sale with the agent to defer large capital gains if they reinvest the money within 180 days.

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Money from the transaction went into escrow for the benefit of customers, but Sweatt said the money didn’t stay there.

“This money was used to pay other customers, buy assets and pay other people, including Mr. Pettit,” the agent said, adding it appears to be a Ponzi scheme. Sweatt’s review of financial records shows that Pettit used approximately $800,000 in proceeds from a 1031 exchange to make a down payment on the Florida mansion.

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He also created irrevocable trusts for clients, but Sweat said he found Pettit used some of the money to buy cars and real estate, as well as making distributions to other clients. Some of the money was used to pay the mortgages on the Stone Oak and Disney World homes.

Sweatt said the investigation has identified about 60 victims and $30 million to $70 million in fraud, although he added the investigation is ongoing.

Terry, the Chapter 11 trustee, recounted how Pettit faced civil penalties for failing to comply with previous orders and disclosing all of his assets — including a $100,000 Mercedes-Benz that was stored in Florida.

“What Mr. Pettit did was take other people’s money and use it for his own benefit,” Terry said. “Mr. Pettit is very good at taking large sums of money and spending them very quickly.”

Pettit earned the wrath of the bankruptcy judge by spending approximately $250,000 — without court approval — in the first 40 days of the Chapter 11 filings.

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