If a receiver discovers possible criminal wrongdoing, are they required to report it to authorities?

QUESTION:   If I discover possible criminal wrongdoing, am I, as receiver, required to report it to authorities?

 ANSWER:

The answer depends on whether you are a federal receiver or state court receiver. 18 U.S.C. § 3057(a) provides: “Any judge, receiver, or trustee having reasonable grounds for believing that any violation under chapter 9 of this title or other laws of the United States relating to insolvent debtors, receiverships or reorganization plans has been committed, or that an investigation should be had in connection therewith, shall report to the appropriate United States attorney all the facts and circumstances of the case, the names of the witnesses and offense believed to have been committed. Where one such officer has made such report, the others need not do so.” One of the few cases interpreting the statute, In Re Barkal, 397 B.R. 905, 906 (Bankr. N.D. Ind. 2008), held “the term ‘receiver’ in the statute clearly delineates a receiver appointed under federal law, not a state court appointed receiver as is the case here. Therefore, if you are a state court receiver you do not have to comply with 18 U.S.C. § 3057 but, if you are a federal receiver, you are required to report any criminal activity discovered to the United States attorney because the statute provides that the receiver, judge or trustee “shall report” any such possible criminal violations. The reference to Chapter 9 in the statute is to bankruptcy crimes. That would likely not be something a receiver would have to concern himself or herself with. However, the statute requires the reporting of not only bankruptcy crimes but any “other laws of the United States relating to solvent debtors, receiverships or reorganization plans.” Irrespective, of whether a receiver is required by statute to report possible criminal activity that is discovered, because a receiver is an officer of the court, the discovery of criminal activity by a receiver should be reported to the court, and the receiver should seek instructions from the court as to whether the receiver or the court should make a criminal referral to the appropriate authorities.

This alert is intended to note current legal trends in commercial lending and risk management issues. No alert should be construed as representing advice on specific, individual legal matters, but rather as an overview of the subject discussed. Your questions and comments are always welcome. Please do not hesitate to contact me at pdavidson@ecjlaw.com or (310) 281-6363 to further discuss this alert or to answer any questions.