Jury hears bankruptcy fraud case

Ruxton man accused of failing to disclose assets in court filing

Gun possession conviction

Telemarketer also charged in credit card scheme

October 22, 2001|By Dennis O'Brien | Dennis O'Brien,SUN STAFF

Clarification

An article in some editions yesterday reported on the fraud case of Joel Katz, a Ruxton telemarketer. The defendant is not Annapolis attorney Joel L. Katz.

A federal jury will decide this week whether a Ruxton man who lived in a million-dollar house, drove a $300,000 Bentley and had a dozen employees in his Timonium telemarketing office tried to mislead a bankruptcy court last year.

Joel Katz, 62, is being tried on fraud charges after he filed a petition in U.S. Bankruptcy Court that prosecutors say failed to mention his ownership of the Bentley, a 2000 Audi and the $1 million home in Ruxton that he shared with his girlfriend.

Assistant U.S. Attorney Joyce K. McDonald argued last week that Katz's claim of poverty in his bankruptcy petition was "an illusion," telling jurors Wednesday that he routinely paid the mortgage on the house and made payments on the Audi and the Bentley, which she said was worth $300,000.

"It was an illusion created for the purpose of cheating his creditors," McDonald said.

Katz's lawyer maintains that no fraud was committed, arguing that the case stems from a dispute between Katz and a firm that financed his telemarketing business -- an operation that federal authorities also have targeted.

The bankruptcy fraud case is the second of three criminal trials in U.S. District Court this year for Katz.

Early last week he was convicted of being a felon in possession of a firearm because of a 1974 mail fraud conviction. And in the third trial, scheduled for December, he faces telephone and mail fraud charges.

In that case, prosecutors allege that Katz took $1.5 million from up to 15,000 people by offering them "instant access" to cash and a new credit card if they paid membership fees of up to $149 and joined his clubs.

The clubs had names like "The Smart Savers Club" and "The Cash Card Club" and membership fees were deducted automatically from customer bank accounts.

But court papers show that FBI raids on Katz's home and office uncovered facts he never disclosed in his sales pitch -- that he was $6 million in debt, facing bankruptcy and was so worried about creditors that he bought a shotgun for protection.

Jurors convicted Katz on the gun charge Tuesday, after FBI Special Agent Jeffrey R. Williams testified that agents found a .12-gauge Mossberg shotgun in Katz's bedroom closet in April while searching his home for evidence in the telephone fraud case. The FBI had searched Katz's office the year before, Williams said.

In pretrial testimony before U.S. District Judge Frederic N. Smalkin, Williams said Katz seemed surprised when he learned federal agents were confiscating the weapon.

"What are we going to use for protection?" Williams quoted Katz as saying that day.

Katz told authorities after his arrest July 23 that he had spent "the majority of his adult life" as a telemarketer.

He declined to comment last week, as did his lawyer, Francis J. Gorman.

But Gorman argued in court last week that the weapon belonged to Katz's girlfriend, Martha Tuxford.

Tuxford, 46, who lives with Katz in the first block of Ruxton Green Court, is also charged with fraud in the bankruptcy case.

In that case, which began last week after Katz was convicted of the gun charge, prosecutors have used his tax returns to show that in 1995 he had an income of more than $500,000 and paid Tuxford another $400,000. But by the time Katz filed for bankruptcy April 14, 2000, he claimed to be broke.

In attempting to prove the bankruptcy fraud, McDonald and Assistant U.S. Attorney Robert R. Harding have given jurors a look into the tactics Katz used in his telemarketing operation.

Jeffrey Augen, a former lawyer who moved to Maryland to serve as Katz's chief assistant after being disbarred in Florida, testified that Katz frequently set up corporations that had no directors and never conducted any business. He and Katz would often "make up" minutes of board meetings to help Katz secure loans, according to Augen's testimony in the bankruptcy case.

"We made up minutes to satisfy [loan] requirements," Augen told jurors last week. "There were no board meetings per se."

In Katz's defense, Gorman is trying to portray the case as a dispute between Katz and Four Star Financial Services, the San Francisco firm that financed his operation and is owed $6 million.

Gorman declined to make an opening statement last week. But in questioning witnesses, he has suggested that Four Star officials knew about Katz's cars and his $1 million home and had taken steps to seize them by filing suits and recouping their losses.

"They knew about the Bentley, they knew about the house, didn't they?" Gorman asked Augen.

The bankruptcy fraud case is expected to go to the jury early this week.

Katz also is scheduled to be tried before Smalkin in December on fraud and money-laundering charges for allegedly operating the telephone scheme.

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