Lawyer for Chris Pettit raises concerns about 'authenticity' of $270 … – San Antonio Express-News

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A lawyer for former San Antonio attorney Christopher Pettit wrote a letter to a bankruptcy judge raising concerns about the “authenticity” of creditor claims in Pettit’s bankruptcy case
A lawyer for Chris Pettit, in a letter to the judge presiding over the ex-attorney’s bankruptcies, has raised questions about the “authenticity” of the $270 million in claims submitted by creditors in the cases.
The “obvious concern is that some creditors may take substantially more dividend than they are entitled to the detriment of honest creditors,” San Antonio bankruptcy lawyer Ron Smeberg wrote.
Pettit is in jail awaiting trial in connection with the alleged theft of millions of dollars from his former legal clients. He pleaded not guilty after his indictment on five counts of wire fraud and three counts of money laundering last week.
On ExpressNews.com: Judge denies Chris Pettit’s release on bond, will remain jailed until his criminal trial
Pettit filed for bankruptcy protection for himself and his law firm June 1 amid mounting lawsuits that alleged he had defrauded clients. He subsequently surrendered his law license and shuttered his offices.
Smeberg said questions about the creditors’ claims “developed” during a detention hearing Tuesday in federal court in which prosecutors argued Pettit should remain incarcerated pending trial.
FBI agent Thomas Sweatt testified the “current claims” against Pettit were in the range of $30 (million) to $70 million, Smeberg wrote in his letter Wednesday to Chief U.S. Bankruptcy Judge Craig Gargotta.
“There appears to be a $200 million dollar disconnect between the FBI investigation and filed claims,” Smeberg added.
Sweatt, while on the witness stand, said the ongoing investigation had identified about 60 victims but said the number was increasing and their losses could exceed $70 million.
“Every week almost we identify new potential victims,” he said. “As we get further and further, we see where victim funds have been misappropriated.”
Pettit reported about $112 million in liabilities in each of the bankruptcy cases.
On ExpressNews.com: The fraud allegedly pulled off by ex- attorney Chris Pettit may be larger than originally reported
That was far less than was reported by creditors. A review by the Express-News found roughly 200 claims totaling almost $260 million had been filed by an Oct. 5 deadline. That didn’t include duplicates or an $8 million claim apparently filed in error.
“It is commonplace in bankruptcy cases that the claims as filed exceed the amounts that are actually owed,” said San Antonio lawyer Raymond Battaglia, who represents a creditor.
The largest was for $55 million, submitted by an elderly San Antonio couple. The attorney who handled the claim for them previously told the Express-News the amount was based on information Pettit had provided the couple.
Eric Terry, the Chapter 11 trustee representing the bankruptcy estates, didn’t immediately respond to a request for comment so it couldn’t be determined if he shares Smeberg’s concern about the authenticity of claims.
When a creditor files a proof of claim, it is deemed allowed unless there’s an objection. The trustee, or any party in interest, can object to any claim — including for lack of documentation to support the claim. It doesn’t appear any objections have been filed thus far.
In his letter, Smeberg said Pettit lacks the means to fund objection litigation.
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But Pettit “will do his best under the circumstances to provide the trustee (and other creditors as requested) with information regarding claims he believes are fraudulent or overstated,” Smeberg added.
The “honest creditors” probably hold smaller claims and lack the wherewithal to challenge other claims, he said. He didn’t immediately respond to a request for comment, so it’s not clear why he chose to address the letter to the judge rather than the trustee.
Separately, Smeberg said a friend of Pettit’s raised a “$30,000 defense fund” for the criminal case but “those funds are no longer available.” He didn’t offer an explanation about what happened to the money.
Last month, Smeberg agreed to accept a $25,000 retainer to represent Pettit in his personal bankruptcy. He said he’s only been paid $5,000, and has agreed to lower the retainer to $15,000 so the remaining $10,000 can go to pay Pettit’s criminal defense lawyer.
Staff writer Guillermo Contreras contributed to this report.
pdanner@express-news.net
Patrick Danner is a business reporter for the San Antonio Express-News.

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