San Antonio Express-News (Sunday)
‘God’s Fraud Auditor’ sticks to his convictions
Defiant CPA gives judge devil of a time over $7,500
U.S. marshals escorted Carl N. Merkle, his hands and legs shackled, to the podium in San Antonio’s bankruptcy court.
Chief U.S. Bankruptcy Judge Craig Gargotta had ordered Merkle to appear in court to give the longtime accountant another opportunity to “purge” himself of a civil contempt-of-court charge and get out of jail by paying a $7,500 sanction.
Merkle, 64, had been incarcerated since Dec. 6 — more than 100 days — for refusing to pay the penalty.
At the hearing March 22, the third on the matter, the judge’s threat of a much longer confinement in the Karnes County Detention Facility didn’t persuade Merkle to budge from his defiant stance.
“I obey God, not man,” Merkle said when asked if he was prepared to pay the sanction. “I”m going back to jail. Bye-bye.”
“All right, you go back to jail,” Gargotta replied.
Merkle has routinely tested Gargotta’s patience by questioning his authority, telling him, “You’re not judge” and “God is the judge in this case.”
Merkle calls himself a “prophet” who takes his orders directly from God. He says he has been anointed “God’s Fraud Auditor.”
The contempt of court occurred at a chaotic hearing Oct. 5. A transcript of the proceeding, held by telephone, shows Gargotta and Merkle talked over each other before the judge commanded, “Shut up.”
When Merkle accused the judge of being “hostile,” Gargotta levied a $2,500 sanction.
“I don’t care,” Merkle responded, prompting Gargotta to double the amount of the penalty. Merkle repeated himself, leading Gargotta to raise the sanction to $7,500 and to mute Merkle’s phone line.
For Gargotta, obviously weary of a combative debtor whose bankruptcy case had dragged on for almost six years, it was the final straw. In a written order after the hearing, Gargotta recounted how he had reminded Merkle that many federal judges already had warned him that he may be sanctioned for “arguments disparaging to the judiciary, participants in his case(s), and other frivolous and vexatious matters.”
“I’ve reached the end of my rope,” the judge said in court after imposing the sanction.
Gargotta gave Merkle 45 days to pay the $7,500 to his bankruptcy estate for the benefit of his creditors, a deadline that came and went without payment. The judge then set a hearing for Dec. 6 on whether to hold Merkle in contempt.
Most people acquiesce when faced with the threat of a contempt charge and jail time. But Merkle didn’t, resulting in his arrest.
“It is very rare, if not extremely rare, for a bankruptcy judge to exercise contempt against a party,” said attorney Randall Pulman, a San Antonio bankruptcy court denizen who is not involved in Merkle’s case.
“Bankruptcy judges threaten contempt from time to time,” Pulman added. “But somebody actually going to jail and sitting there for weeks, if not months, I think that’s the first time I’ve ever even heard of it.”
San Antonio bankruptcy trustee John Patrick Lowe recalled a 2001 case involving a debtor who was held in contempt and jailed. He spent about two weeks in jail for failing to turn over financial statements and other paperwork to Lowe. The judge granted the debtor’s release after his lawyer said the incarceration was causing a financial hardship for the debtor and his family.
Merkle’s incarceration likely has already cost taxpayers more than $10,000. The U.S. Marshals Service reported the cost to detain a prisoner averaged $101.30 a day in its last fiscal year.
Foreclosure
Merkle filed for Chapter 11 reorganization on Jan. 4, 2016, but he’s far from the typical debtor who seeks refuge in bankruptcy court.
He’s been licensed as a certified public accountant by the state of California for more than 38 years. He’s been an Internal Revenue Service auditor, an
enforcement accountant with the Securities and Exchange Commission, and a senior manager with Ernst & Young in the 1990s when it ranked as a Big Six accounting firm, his LinkedIn page shows.
“I happen to be one of the nation’ s leading accounting malpractice investigators ,” Mer kl es aid in a video he posted on YouTube in 2020. “I’ve helped the U.S. government recover over $1.1 billion in accounting malpractice claims in my life .”
His LinkedIn profile encourages readers to text him for an “information packed brochure” on the “Study of Success — How to Achieve Your Financial Goals.”
“It is based on proven timetested principles and information that has produced more millionaires and billionaires in the USA than any other cause,” he states.
At the time of his bankruptcy, Merkle worked as an assistant controller making $65,000 a year for a company in the nonprofit housing industry. He started his own accounting practice in 2017.
In his 65-page bankruptcy petition, Merkle listed assets of almost $1.6 million and debts of nearly $1.5 million, giving him a net worth of just under $100,000.
Merkle filed for bankruptcy protection to stop the foreclosure of a San Antonio apartment complex, the 28-unit Northeast Village Apartments at 4535 Schertz Road.
He and his then-wife bought the complex for almost $1.4 million in 2005. They financed the purchase with a $1.1 million loan and $274,000 in equity that came from a line of credit on the couple’s home in Irvine, Calif.
The Merkles divorced in 2012, the same year he moved into a unit in the apartment complex. He had defaulted on the loan several times, the last time in 2015, when he said a fire caused by “tenant negligence” burned two units and caused smoke damage to two others. The fire created cash-flow problems that
led Merkle to miss payments on the loan, according to a court filing.
Merkle’s insurer cut a nearly $105,000 check for repairs. But he alleged in the 2020 YouTube video that the note holder and loan service company “stole” the money and “misapplied it.”
Gargotta approved a reorganization plan that allowed for the sale of the complex. The property sold for about $1.3 million. The lender received $968,000, with the balance placed in an escrow account, court papers show.
Around that time, Merkle’s lawyer withdrew from the case, citing “irreconcilable differences.”
Merkle objected to the lender’s monetary claim, alleging it was “fraudulent.” But Gargotta dismissed Merkle’s claims following a two-day trial in June 2017.
Appeals
Merkle appealed the dismissal and other rulings by Gargotta to the U.S. District Court in San Antonio.
By October 2017, though, a second lawyer representing Merkle had pulled out, saying in court papers they were “at odds with the direction to proceed.”
Merkle began acting as his own attorney.
Thus began a litany of incendiary court filings by Merkle. He accused the lender, note holder and their counsel of carrying out “a very sophisticated tortious fraud.”
“That fraud is theft of Merkle’s equity” in the apartment complex, he wrote. He also accused Gargotta of being a biased jurist.
Senior U.S. District Judge David A. Erza ruled on five appeals, affirming Gargotta’s rulings in four and dismissing the other action.
Merkle filed at least eight more appeals from 2018 through 2020 with the San Antonio federal court, stepping up his attacks.
Judges responded by threatening Merkle with sanctions.
“Despite numerous warnings from Judge Gargotta, Judge Ezra, and Magistrate Judge (Richard) Farrer, Merkle continues to engage in sanctionable conduct,” U.S. District Judge Xavier Rodriguez ruled in November 2019. “While disagreement with court rulings is to be expected, referring to opposing counsel as a ‘criminal street gang’ and asserting that Judges are dupes or are engaged in a criminal conspiracy with opposing litigants and counsel are serious matters.”
The following year, Merkle filed five appeals to the next highest court — the 5th U.S. Circuit Court of Appeals. Each was dismissed because he failed to file briefs with the court.
In March 2021, Chief U.S. District Judge Orlando Garcia ruled Merkle could no longer file any more pleadings with the San Antonio federal court without first getting its permission.
It hasn’t stopped Merkle, however. A 462-page advisory to the court, filed March 24, included a document with the battle cries “REMEMBER THE ALAMO” and “DRAIN THE SWAMP!” It also contained a photo of Gargotta with the caption “Enforcer of Organized Crime.”
‘Order from God’
The Oct. 5 bankruptcy court hearing by telephone was on a motion by the bankruptcy trustee in Merkle’s case to pay a dividend to his creditors. Merkle opposed the request, alleging parties in the case had stolen
$1.5 million.
After sanctioning Merkle and muting his phone, Gargotta said, “Mr. Merkle, you’re done. This has gone on for … five years.
And I’ve had a enough of it. The level of disrespect, the waste of time and energy, the amount of resources that the federal courts have had to employ to address your conspiracy theories that have no basis in law or fact.”
When Merkle failed to pay the $7,500 sanction within the 45day deadline set by Gargotta, the judge ordered him to appear in court Dec. 6 for one last opportunity to purge himself of the contempt charge by paying the penalty.
Olena Ilchenko, who married Merkle in 2014, said he brought $7,500 he had borrowed to court that day.
“Are you prepared to pay $7,500 to your bankruptcy estate for distribution to your creditors? Yes or no?” Gargotta asked Merkle.
“I am prepared to pay $7,500 to creditors that I agree with,” Merkle said, adding he disputed creditor claims filed by the apartment lender and CPS Energy.
Gargotta held Merkle in contempt and directed marshals to take him into custody.
“This is an illegal arrest,” Merkle objected. “This is a fraudulent court.”
Merkle didn’t have the money at the next two court hearings, where he was once again given the opportunity to pay.
“I have a direct order from God, that out of our own pocket, out of our own pocket, we are not to pay the fine,” Merkle said at the Feb. 9 hearing. “However, he did tell me after the last hearing that we can raise money from essentially God’s people.”
Merkle is of sound mind but “under stress,” Ilchenko said. Merkle had told Gargotta he was not on medication at the Dec. 6 hearing.
Merkle doesn’t have the money to pay the $7,500, Illchenko said, adding she returned the money he brought to court Dec. 6. He lives on his Social Security payments, she said.
After the Feb. 9 hearing, Ilchenko started a GoFundMe page to raise $10,000 for her husband. She asked for $7,500 to pay the sanction, which she described on the website as a “ransom fee,” and $2,500 so he can consult with an attorney. She’s raised $675 from nine donors so far.
No mention was made of the fundraising effort on Merkle’s behalf when he returned to court March 22. He also didn’t say anything about not having the financial wherewithal to pay the sanction.
Gargotta warned Merkle that his stay at the detention facility “is not going to be a short one” if he didn’t pay the sanction.
“It might be 60 days, it might be 90 days,” the judge said. “It might even be when the calendar changes.”
Gargotta said he had spoken with other judges who have incarcerated people held in contempt for even longer periods than Merkle’s confinement.
“There is no maximum amount of time that I’m aware of,” said San Antonio attorney Elliott Cappuccio, who is a law partner with Randall Pulman. Merkle “possesses the keys to the jailhouse door.”
That means Merkle can get himself out of jail by either paying the fine or showing he’s unable to pay.
“He can remain in custody until he turns that key,” Cappuccio added.
Peter Steffensen, an attorney with the Texas Civil Rights Project, focuses on the “overuse of incarceration” by courts.
“A hundred days is an incredibly, incredibly long time to hold someone in the hopes that they will come into compliance with the sanctions order,” Steffensen said of Merkle’s incarceration.
When someone is held in contempt, it’s generally to compel them to do something, such as appear before a grand jury, testify, turn over documents or, as in this case, pay a sanction.
“The civil contempt process, in general, is supposed to be coercive,” Steffensen said. “But if at a certain point it doesn’t sound like it’s ever going to coerce him, then the power to use incarceration as a tool to encourage that seems to become completely moot.”
Merkle can file a writ of habeas corpus challenging the legality of his incarceration, said San Antonio criminal defense lawyer Thomas J. McHugh. It likely would be heard by a U.S. District Court judge.
On Dec. 23, Merkle filed a hand-written appeal to the U.S. District Court seeking his release from jail. He asked the court to waive the filing fee because he is “indigent.” The court has yet to respond.