Lawyer accused of fraud might get out of jail
Ex-san Antonio lawyer Christopher “Chris” Pettit, who has been locked up for almost three months, may soon be a free man under a deal to be considered by a judge this week.
Pettit has agreed to give up any claims to his $1.8 million Stone Oak home, retirement accounts worth about $500,000 and life insurance policies as part of the compromise with the trustee who’s administering the disgraced former lawyer’s bankruptcy.
If approved, Pettit could be released from the lockup where he’s being held for failing to comply with court orders in the bankruptcies he filed in the wake of lawsuits by former clients. They allege that he defrauded them of millions of dollars.
The proposed agreement also calls for Pettit to waive any interest in a Florida mansion where he had lived and a small apartment complex in New Orleans, according to a court document filed Thursday by lawyers for Pettit and the trustee.
In return, Chapter 11 trustee Eric Terry has agreed not to oppose Pettit’s release
from jail on a contempt of court charge. Terry had requested the charge after finding evidence that Pettit had not been truthful and may be hiding information about his former clients.
Terry would also relinquish his claim to a mobile home where Pettit’s minor son and his nanny live. In addition, Terry would allow Pettit to use a vehicle that’s among the property included in the bankruptcy estate “while he is not incarcerated” and let him keep clothing and certain furniture and household goods.
“Chris really wants to help bring as much money back to creditors as possible,” San Antonio lawyer Ron Smeberg, who represents Pettit, said in an email Friday. “He had legitimate claims to at least part of his homestead, retirement and insurance proceeds. But he gladly surrendered it all to the estate.”
Allowing the nanny to keep the mobile home ensures that Pettit’s son “will have a roof over his head,” Smeberg said.
“And for what it’s worth, this is the deal Chris proposed,” Smeberg added.
Pettit filed for bankruptcy protection for himself and his law firm June 1 amid a slew of lawsuits that alleged he had stolen millions of dollars from clients. Pettit’s creditors submitted about $260 million in claims between the two cases.
He surrendered his law license and closed his law offices, which specialized in estate planning and personal injury cases.
The FBI has been investigating the allegations against Pettit, who has been in jail since Sept. 8, when Chief U.S. Bankruptcy Judge Craig Gargotta held him in contempt.
The judge had set 17 conditions that Pettit must meet before he can be released from jail. Among them, Pettit must turn over to the trustee a business laptop thought to contain client information.
The compromise outlined in court papers filed last week requires Gargotta’s approval. A hearing on the agreement is set for Wednesday.
Prior to the settlement, a battle appeared to be shaping up on a related issue set to be heard by Gargotta on Wednesday.
Terry and some creditors objected to Pettit’s assertion that certain property in the bankruptcy estate — including the Stone Oak home on Champions Run — was his to keep and couldn’t be sold or liquidated for the benefit of creditors. Debtors in bankruptcy can claim certain property as “exempt.”
The property Pettit claims as exempt was “acquired with money misappropriated from his former clients and affiliates in violation of his fiduciary duties,” Terry said in an October court filing.
“Given the enormity and duration of his fraud and fiduciary breaches, the burden should shift to Pettit to establish that the property he claims as exempt was paid for with his own clean personal funds rather than those belonging to his former clients and affiliates,” Terry said.
Even if Pettit could show that he used “clean” money to buy the Stone Oak property, he abandoned any homestead interest by living in the Florida mansion, the trustee said. And even if the Stone Oak home were Pettit’s homestead, Terry said the homestead exemption is limited to $189,050.
While Terry said he believes he’d prevail in a legal battle over the exemptions, “a settlement is preferable to litigation.”
Another property owned by Pettit, an Alamo Heights mansion on a hillside overlooking Olmos Dam, was listed for sale last week by Terry, who is liquidating assets of the estate. The 5,790-square-foot home at 555 Argyle Ave. is on the market for $3.9 million.
One of the more valuable assets in the estate, Pettit valued the property at $3.6 million in his bankruptcy, with Wells Fargo Home Mortgage owed about $2 million.