2/29/2024
His crimes have had devastating consequences, upending dozens of his former clients’ lives while destroying their retirements and, in some cases, depleting fortunes they planned to pass on to heirs. Some victims have said family members died from the stress.
Pettit: ‘Heartbroken’
The ramifications for Pettit have been severe, as well. Not only was he locked up, his only living brother — an employee of the law firm — died by suicide amid the mounting scrutiny into Pettit’s actions. And Pettit’s young son, for whom he was the sole parent, went to live with his nanny in a mobile home because Pettit had no immediate surviving family members to care for the boy.
HOW IT BEGAN: San Antonio attorney faces multiple lawsuits for allegedly stealing millions of dollars from clients
Pettit specialized in estate planning, handled trust and probate matters, and provided financial advice to clients. In some instances, he had recommended they invest in municipal bonds that apparently didn’t even exist.
Garcia had a gaunt-looking Pettit, shackled and dressed in navy blue prison garb, turn around at the podium to face his victims.
“To each and every one of the victims in this room, first of all, I want to apologize to you,” Pettit said. “I want to let you know that I am heartbroken by what you’ve gone through. Most of you were friends of mine. I really meant that. I know most of you don’t believe that now.”
He vowed to them that he would do everything “within my power” to help them get their money back. Many of the victims have heard that before but they have yet to see much, if any, of the money they lost.
Assistant U.S. Attorney Kelly Stephenson said Pettit has not cooperated in his criminal case or in the bankruptcy cases for himself and his defunct law firm.
“In my mind, unless he gave the money back to each and every victim, there is no cooperation,” Garcia said.
‘Pray for death’
The judge heard from nine of the victims before handing down the sentence.
Many of them owned farm or ranch land that had been passed down from generation to generation. Among them was Loretta Persyn, whose family had been Pettit clients for nearly 20 years.
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“He stole from our family basically three generations of farming,” she told the judge. “That would be 120 years and that’s what he should get for his crime, and it should not be concurrent.”
She added, “Personally, I pray for his death … and let this be the end.”
Robert Kintigh said Pettit’s actions contributed to his elderly mother’s death.
“It just wiped our family completely out,” he said. “He just totally destroyed us, completely and utterly destroyed us. I just hope the court realizes just how much damage he’s done. It’s just evil.”
Mounting claims
Some of Pettit’s clients suspected something was amiss in 2021 and early 2022, prompting many of them to sue him and his law firm. The San Antonio Express-News was first to report on a slew of lawsuits against Pettit in May 2022. In the earliest case, a judge in San Antonio ruled a physician who was a Pettit client could recover almost $2.9 million in actual damages and nearly $8.7 million in punitive damages from the lawyer.
Less than two weeks after the story appeared, Pettit filed for bankruptcy protection for himself and his law firm. He listed $27.8 million in assets and $115.2 million in debts in his personal case — making it one of the largest individual bankruptcies ever in San Antonio.
Days later, the Texas Supreme Court accepted Pettit’s resignation from the State Bar of Texas. He had surrendered his law license in lieu of discipline.
As his bankruptcy case unfolded over the next several months, Pettit earned a reputation as an uncooperative debtor who obfuscated when asked direct questions. He was unwilling or unable to say where his former clients’ money went, saying repeatedly that he was looking into it.
At least some of the money went to purchase multimillion-dollar homes in San Antonio and Orlando and a collection of high-end automobiles and to pay household expenses, but most of the missing money has yet to be accounted for.
Creditors in the bankruptcy cases submitted roughly 200 claims totaling $259 million, far more than the liabilities Pettit listed. His bankruptcy lawyer has questioned the authenticity of some claims, saying creditors may be seeking more than they’re owed to the detriment of honest creditors. The bankruptcy court has yet to consider the claims.
The criminal charges against Pettit relate to about $60 million in losses, a prosecutor told Garcia in October.
In return for Pettit’s guilty plea, prosecutors agreed to drop two wire fraud charges. He could have received a maximum of 20 years on each of the wire fraud counts and 10 years on each of the money laundering charges.
Behind bars
Chief U.S. Bankruptcy Judge Craig Gargotta sent Pettit to jail in September 2022 after finding him in civil contempt for violating a court order prohibiting him from transferring or disposing of any personal property.
A few months later, Gargotta ordered Pettit’s release after finding he had cleared himself of the contempt charge.
But he never regained his freedom. The day of the order, a federal grand jury indicted him on five counts of wire fraud and three counts of money laundering. He pleaded not guilty. A judge granted prosecutors’ request that Pettit remained locked up at the Karnes County Detention Facility.
Rather than stand trial, though, Pettit cut a deal with prosecutors in September and pleaded guilty in October.
He admitted running his law practice as a Ponzi-type scheme, making false promises to induce clients to entrust him with their money. He used a portion of it to enrich himself and other portions to hide his scheme by making “payouts” to some clients, prosecutors said.
Restitution question
How much he’ll have to return to his victims is an open question.
Two weeks ago, prosecutors filed a motion to separate the punishment phase of Pettit’s sentencing from the restitution phase, citing the intricacies and difficulties in calculating “with sufficient precision” how much is owed. That’s due in part to “Pettit’s own lack of recordkeeping, and the complexity of the scheme,” prosecutors said.
Pettit and his criminal defense lawyer said they preferred both matters be handled together or moved to another day. Garcia granted prosecutors’ request and kept Wednesday’s punishment phase in place, possibly because the U.S. Attorney’s Office had sent letters to victims alerting them of the sentencing date.
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The Mandatory Victims Restitution Act requires defendants who commit crimes “by fraud or deceit” to make restitution. It isn’t the only avenue of recovery for victims, however. They’ve already filed proofs of claim in the bankruptcy and many have filed a breach of fiduciary duty lawsuit against various banks where Pettit’s firm kept accounts while in business.
Gargotta, the bankruptcy judge, though, cautioned those in attendance at a Feb. 7 hearing about the “three rails” of recovery.
“I just think it’s important that everyone understand — one recovery,” the judge said, reminding lawyers that if their clients get their money back from one source they can’t seek it from another.
About 40 former Pettit clients have applied for recovery from the State Bar of Texas’ client security fund. A bar committee has yet to review those applications so no payments have been made, said Claire Reynolds, the bar’s public affairs counsel. The payments are capped at $40,000 for each applicant, however.