A judge has approved a plan to recover funds for victims of jailed ex-lawyer Chris Pettit, marking a significant step in the bankruptcy cases he filed nearly three years ago. The plan aims to maximize recoveries for creditors, but the process has been challenging, with the trustee and his team facing criticism and threats.
A plan to recover money for victims of jailed ex-lawyer Chris Pettit has been confirmed by a judge, marking a significant step in the bankruptcy cases he filed nearly three years ago. Victims and other creditors have lodged claims totaling $270 million. Chief U.S. Bankruptcy Judge Craig Gargotta gave his approval to the plan on Wednesday, paving the way for the remaining assets of the bankruptcy estates to be transferred to two trusts overseen by San Antonio attorney Eric Terry.
Terry has served as the trustee managing the bankruptcy cases since shortly after they were filed on June 1, 2022. The plan is designed to minimize costs and maximize recoveries for creditors, Terry informed the judge. 'Getting the plan confirmed is another important step for me in this process, but our work is far from over,' he stated. 'I'm confident there will be recovery for creditor-victims.'The journey to this point hasn't been without its challenges for Terry. He and the legal and accounting teams representing him have endured 'harsh criticism' and 'occasional threats to their physical safety,' according to Dallas attorney Scott Lawrence, who represents the trustee, in court without elaborating. Lawrence did not respond to an email seeking further details. Pettit was a well-established probate, estate planning, and personal injury lawyer who pleaded guilty to three counts each of wire fraud and money laundering related to the theft of millions of dollars from his clients. He is currently serving a 50-year prison sentence and has been ordered to pay $106.3 million in restitution to his victims. As Pettit's world crumbled in spring 2022, he sought bankruptcy protection for himself and his firm and surrendered his law license.'Frittered away' So far, Pettit's former clients have recovered very little, if anything, through the bankruptcy process. The most significant assets remaining are potential recoveries from pending litigation against banks that conducted business with Pettit, although there is no guarantee Terry will be successful in those cases. 'Has the bankruptcy process done what it's supposed to do? In the court's judgment it has,' Gargotta said before confirming the plan. 'Has it been expensive? Absolutely. A lot of this, again, is attributable to the primary actor (Pettit). 'I still today wonder — and I know you've vetted this many times, Mr. Terry — where all the money went,' the judge said. 'I am astounded at how much money was frittered away. And there may be an answer some way, somehow down the road. But it is just staggering the amount of malfeasance that Mr. Pettit committed.' Fees and expenses generated by the professionals involved in the bankruptcy cases are approaching a combined $6 million. Of the roughly 100 ballots cast by victims and creditors on whether to accept the plan, all but two were in favor. Creditor James Noble, a former Pettit client, voted on two ballots to reject it. 'It is our position that the case should be a Chapter 7 and not have the unnecessary Chapter 11 expenses,' Martin Seidler, a bankruptcy lawyer representing Noble, said in an email. Seidler also objected to how Noble's claims were classified.'Breaks my heart' Terry stated he viewed the overwhelming support for the plan as a 'further mandate to do all that we can do to accelerate the process and distribute funds as quickly as possible.' He also took time to address Pettit's victims. 'I really understand the devastating impact that this sinister scheme by Mr. Pettit and others has had on you and your families,' Terry said. 'Every one of your stories breaks my heart.' He also promised to continue working for their benefit. 'I wish I could … take away the substantial emotional wreckage that you’ve experienced, but I can’t. But I promise we will do everything in our power to get you a meaningful monetary recovery as soon as possible,' he said. 'And this plan will help us do that.' Terry also expressed confidence that victims will see a recovery from the restitution Pettit was ordered to pay despite the fact a federal prosecutor told a judge last month there’s 'no reason to believe there is a pot of money hidden anywhere.' Lawrence, the lawyer for Terry, said the trustee has worked 'tirelessly' to collect Pettit and his firm’s assets and convert them to cash to distribute to creditors. Most of the distributions have gone to creditors holding secured claims. 'Upon his appointment, Mr. Terry received no cash — no significant cash — and voluminous sloppy records of questionable reliability scattered across multiple San Antonio offices and storage units,' Lawrence said. 'Pettit continued to steal, even after Mr. Terry’s appointment.
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