Tuesday July 26 2022
Ex-San Antonio attorney Christopher “Chris” Pettit — accused of looting clients’ money — narrowly avoided being held in contempt of court for withdrawing more than $186,000 from his retirement accounts after filing for bankruptcy.
Also Monday, Chief U.S. Bankruptcy Judge Craig Gargotta awarded Pettit $100 a day to cover living expenses pending a hearing on the former lawyer’s motion to receive a personal budget of more than $10,000 a month.
The Chapter 11 trustee overseeing the assets in Pettit’s bankruptcy wanted him held in contempt for withdrawing the money from his retirement accounts and then going on a spending spree.
Calling it a “very close” ruling, Gargotta said he was “not ready to find Mr. Pettit in contempt” after a hearing that stretched over three days. The evidence was “mixed” on whether Pettit has cooperated with the trustee, he said.
“I want to make clear for the benefit of everyone here, I don’t condone what he’s done,” the judge said. About a dozen of Pettit’s former clients attended the hearing in a downtown courthouse.
Trustee Eric Terry determined that Pettit spent more than $260,000 in the nearly 50 days immediately after his June 1 bankruptcy filing. Much of it went for “unnecessary and improper” expenses, Terry alleged, including $20,000 at Disney World and almost $5,000 at the Four Seasons Resort Orlando.
Pettit, 55, has said the retirement money is exempt from the bankruptcy estate — and out of the reach of his creditors — because the accounts were funded with legitimate earnings under federal laws. He says he’s thus free to use the money as he wishes. Terry has countered that no decision has been made on whether the money is exempt.
Gargotta, citing case law, said property entitled to be exempt is initially regarded as property of the bankruptcy estate until it’s “claimed and distributed as exempt.”
Instead of holding Pettit in contempt, Gargotta said he would “put a little bit more teeth” in the trustee’s other requests. If Pettit doesn’t comply with those, the trustee can file papers with the court indicating Pettit is in contempt.
If Pettit doesn’t “purge” himself of the contempt charge, he may be incarcerated, the judge said.
“To my way of thinking, the only stick that the court has is … to put Mr. Pettit in jail,” Gargotta said.
“I don’t know that monetary sanctions at this point in time are going to be sufficient,” the judge added. “So I’ll have to provide an incentive, if you will, to make sure Mr. Pettit is cooperative with the trustee and any other parties in interest.”
In his ruling, the judge prohibited Pettit from spending any more from the retirement accounts or any others. He can’t transfer any personal property and must turn over any jewelry and artwork to the trustee. He also must allow the trustee to inspect a Florida mansion Pettit says is owned by an entity for the benefit of his 10-year-old son’s trust. The property has been valued at more than $6 million.
Pettit filed bankruptcy for himself and his law firm after about a dozen lawsuits were filed against him alleging he had stolen clients’ funds. He personally listed about $40 million in assets and $112 million in debts. At least $50 million of client money is missing, a lawyer for one creditor has estimated.
Pettit also surrendered his law license. He had been practicing since 1991, specializing in estate planning and personal injury cases. But he also handled trust and probate matters, prepared tax returns and provided financial advice.
The FBI has been investigating the clients’ allegations. An assistant U.S. attorney attended the first day of the hearing Wednesday.
The judge set an Aug. 4 hearing on Pettit’s emergency motion allowing him to use cash and to approve a “limited” budget.
Until then, Pettit and his son will have to live on $100 a day.
Michael Colvard, Pettit’s bankruptcy lawyer, was seeking more. Colvard said Pettit doesn’t have a car and that a Lyft from his home in a gated community in Stone Oak to downtown is at least $20 each way. Pettit is claiming a 2021 Porsche Macan, valued at $46,000, as exempt from his bankruptcy estate.
“I’m going to stick to $100 a day right now,” the judge said. “I’m not changing my mind on that.”
On Sunday, Colvard submitted to the court a proposed budget that calls for Pettit to receive about $10,300 a month for expenses. Almost half of the money is allocated to child care costs and school tuition. The next largest expense is $850 for mental health services.
Some creditors are likely to object to the budget.
Pettit has landed a job in an “art store” in Florida, selling art on a commissioned basis, Colvard told the judge. It’s unclear if he will be able to begin work, given his per diem and the order that he cooperate with the trustee.
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