San Antonio Express-News (Sunday)
Was fraud a job for just one man?
In the case of ex-lawyer sent to prison for $65M theft, some say he had to have help
At ex-lawyer Chris Pettit’s sentencing last month, Lorraine Steubing scoffed at the notion his massive theft of client funds amounted to just the $65 million detailed in his plea agreement.
“It’s a lot more,” Steubing told U.S. District Judge Orlando Garcia in a victim impact statement ahead of him sentencing Pettit to 50 years in federal prison. “Our family alone lost a third of that. So I’m just letting you know that that’s a very small number compared to what he’s done.”
Steubing then offered her thoughts on how Pettit should go about paying back his 100-plus victims.
“He didn’t do this alone,” she said, the judge later concurring. “He paid people. He needs to make restitution on listing the names of the people that helped him and what he paid them.”
Steubing was echoing what others have said throughout the nearly two-year saga: that there’s no way Pettit could have pulled off such an enormous swindle without help.
They’re convinced that’s the case based on the amount of assets recovered, which pales in comparison with the loss outlined in his plea agreement or the more than $250 million in claims his victims and creditors submitted in his personal and his law firm’s bankruptcy case. His personal bankruptcy lawyer, though, has questioned the authenticity of some of the claims.
Despite the victims’ belief, no one besides Pettit has been criminally charged. And it doesn’t appear anyone else will be.
Pettit, 56, a longtime San Antonio probate, estate planning and personal injury attorney and financial adviser, pleaded guilty
to three counts each of wire fraud and money laundering rather than stand trial for his crimes. Sentencing guidelines called for a prison term from 191⁄2 to 241⁄2 years, but Garcia didn’t see that range as severe enough.
The judge described it as the “absolute worst white-collar fraud case” he’d seen in his 30 years on the bench.
‘Answer is greed’
Assistant U.S. Attorney Kelly Stephenson said Pettit’s scheme dates back to 2017, though some of his victims suspect it began much earlier.
“Why did Chris Pettit do this?” the prosecutor said at the sentencing hearing. “I spent a lot of time with (FBI) agents, a lot of time with documents, trying to understand that, as well. Unfortunately, the only real answer is greed. That’s what jumps out to me.”
Pettit bought mansions in Stone Oak and Alamo Heights, as well as at Disney World — where he contemplated retiring one day — and expensive vehicles. Money stolen from clients also went to support what Stephenson said “can only be described as an extravagant lifestyle.”
Yet the liquidation of Pettit’s various residential and office properties has produced only about $16 million in gross proceeds, while the sale of his personal property has generated about $420,000 from seven auctions.
The Alamo Heights house at 555 Argyle Ave. had been on the market at a reduced asking price of $2.8 million until receiving a $2.3 million bid Wednesday and heading to a possible April 1 auction. It’s the last real estate holding to be sold from the bankruptcy estate.
Will he help?
Garcia let Pettit know he can return to court to seek a reduced sentence. But it will depend on his willingness to cooperate with efforts to recover the stolen money.
“I have the authority to put you in the cellblock,” Garcia said before issuing his sentence. “You have the ability to open that door so you spend less time. Your call.”
He made clear what Pettit will have to do for the judge to consider it.
“Short of returning the money, there is no cooperation,” the judge declared.
Pettit is expected back in Garcia’s court this spring for the restitution phase of the sentencing.
Prosecutors sometimes make recommendations to judges to give defendants reductions for “substantial assistance” in investigations. The assistance can be against co-defendants or accomplices in the same case or even in unrelated investigations.
Such post-sentence recommendations are rare, however.
Plus, Stephenson argued during sentencing that Pettit hadn’t cooperated in the criminal case and had been jailed for contempt of court for his unwillingness to cooperate in his bankruptcy case.
It’s ‘complicated’
Garcia wondered aloud during the Feb. 21 sentencing hearing whether the stolen money is in the country or has been moved elsewhere. He also agreed with Steubing’s assessment that Pettit didn’t act alone.
“I cannot believe that you did this all by yourself,” he told Pettit. “You don’t have to answer that today, but hopefully with the sentence I assess … that’ll give you some time to think about it.”
Pettit briefly responded but spoke so softly that the few words couldn’t be heard in the back of the courtroom.
He answered that it was “somewhat complicated” when the judge wanted to know what possessed him to commit the crimes.
“What’s complicated?” the judge replied. “You either steal or you don’t steal.”
Pettit agreed and said he takes responsibility for his actions. He then alluded to money that had gone missing at his law firm.
“I did the wrong thing,” he explained. “Rather than trying to immediately get to the bottom of it and going to authorities, I tried to fix things. And that didn’t work, obviously.”
He never elaborated on how the money disappeared, who may have been involved or how he tried to address it.
‘Fled the country’
Facing his victims in the courtroom, Pettit said he’s committed to helping the lawyers representing the trustee overseeing his bankruptcy estate in litigation against Wells Fargo Bank, where he had an Interest on Lawyers’ Trust Account in New Mexico. Such an account is intended as a repository of funds that attorneys hold in trust for their clients. Pettit wasn’t licensed to practice law in New Mexico, so he shouldn’t have been able to open such an account there.
He took money out of it for his personal use and to pay other clients, though, leading prosecutors to call his actions a Ponzi scheme.
About 130 Pettit clients also have sued Wells Fargo and four other banks where he had IOLTA accounts. Lawyers for the trustee also are exploring possible litigation against the four banks.
While discussing his willingness to help in that litigation, Pettit said something odd.
“There’s also litigation against individuals who fled the country with money,” he said, without giving any details. The judge didn’t question Pettit about it to learn more.
Matthew T. Allen, Pettit’s criminal defense lawyer, and Ronald Smeberg, Pettit’s bankruptcy attorney, didn’t return multiple calls, so it couldn’t be determined what Pettit meant. There’s no such litigation currently pending against any individuals in the bankruptcy court proceedings.
Maximizing recoveries
Eric Terry, a San Antonio attorney who was appointed trustee to oversee Pettit’s bankruptcy estate, is as familiar as anyone with what unfolded at Pettit’s law firm.
Terry referred questions about whether Pettit had any accomplices or has hidden money to Scott Lawrence, a Dallas attorney who is representing the trustee. Lawrence declined to answer the questions or say why he wouldn’t answer them.
“The Trustee believes that (last month’s) sentencing was an important component of justice for Pettit’s victims,” Lawrence said in an emailed statement. “The Trustee will continue doing his part to pursue justice for Pettit’s victims in the form of maximizing financial recoveries to distribute to those that lost money to Pettit’s fraud.”
But the victims have seen very little to no recovery to date.
Amid mounting allegations that he had ripped off clients, Pettit filed for bankruptcy protection for himself and his law firm June 1, 2022. He also surrendered his law license in lieu of discipline, and he shuttered his law firm.
The month of the bankruptcy filings, Terry hired forensic accounting firm Forvis LLP to analyze Pettit’s and his law firm’s bank statements, accounting records and other financial data to trace and locate the estates’ assets.
Forvis has been paid more than $1.5 million for its services so far, a particularly large sum for professionals involved in a San Antonio bankruptcy case. Lawrence wouldn’t address what Forvis has learned.
Others’ complicity
San Antonio bankruptcy attorney Leslie Luttrell represents former Pettit clients whose money he looted and serves as special litigation counsel for the trustee in his lawsuit against Wells Fargo.
In an interview, Luttrell emphasized she was speaking only for herself and not her clients before saying she believes Pettit had help in committing his crimes.
“I find it difficult to believe that there aren’t others based upon the sophistication of his activities,” she said. “And I do think that Judge Garcia is absolutely on the right track in making that supposition.”
Luttrell couldn’t say what others’ involvement may have entailed because she’s not privy to any documents other than those relating to the litigation against Wells Fargo.
“But there is bound to be additional information out there somewhere in communications between Chris Pettit and others,” she said. “It would be a matter of whether or not those communications are recoverable.”
Luttrell said she’s held the belief “all along” throughout the court proceedings that Pettit has money hidden somewhere.
“No one can spend that much money that quickly,” she said. “It certainly is not reflected in the assets, nor is it all accounted for even in the conspicuousness and opulence of his lifestyle prior to incarceration.”
Nor does it add up for David McQuade Leibowitz, a San Antonio lawyer representing the approximately 130 Pettit victims who are suing the five banks.
“It’s almost like what we haven’t seen or haven’t discovered that leads us to believe that he didn’t act alone,” he said. “The pieces don’t fit. How does somebody spend $250 million? How do they blow it?
Get-rich investment?
Pettit has placed blame on attorney Robert “Bobby” Walsh and others who worked in the law practice. Walsh was employed at the firm for six or seven years before he departed a few months before its demise.
Walsh said he knows Pettit has fingered him but had no involvement in the wrongdoing. He recalled a story he heard secondhand about Pettit telling his barber in Stone Oak that he had a “get-rich investment.”
“It was going to be a walkaway investment,” Walsh said in an interview. “He was going to make enough money to walk away for the rest of his life.”
The story goes that Pettit invested the money in a COVID vaccine, Walsh said, adding that fits because that’s around the time that “everything went bad.”
He then added, “I think somebody scammed him. It’s just complete surmise on my part. Because, where did all the money go? The only thing that fits is he lost it all in a bad investment. That’s just my opinion.”
If Pettit had money stashed away, Walsh said, Pettit would have “kept playing the game until he ran out. I think he lost everybody’s money. I don’t think he put in in his pocket.”
All gone
Robert Almonte II, a former assistant U.S. attorney who led the prosecution of Pettit before resigning to go into private practice, said he hadn’t heard about a COVID scheme involving Pettit.
Almonte is skeptical that others will be charged in the case now that 15 months have passed since a federal grand jury indicted Pettit.
“I’ve never had, in my experience, too many investigations related to the same conduct (as Pettit) continuing post-sentencing,” Almonte said. “It doesn’t mean people can’t be charged in the future if new evidence comes to light. But … that’s very uncommon.”
While he’s heard the rumors that Pettit has hidden money somewhere such as in an offshore account, Almonte believes the money has simply been spent.
“It’s one of the situations where the greed became too much,” he said. “Ultimately, it resulted in his demise, really.”