Bankruptcy fraud nets ex-Montgomery business owner 6 years in prison
Former president and CEO of Southeastern Stud & Components guilty of lying to bankruptcy court about how he paid off a $100K gambling debt
Kennon Whaley will spend six years in prison for lying to the bankruptcy court about how he paid off a $100,000 gambling debt.
Whaley’s company, Southeastern Stud & Components. Inc., grossed more than $34 million in 2005 and employed about 125 full-time workers. But business had decreased substantially by 2009, so Whaley filed for Chapter 11 bankruptcy protection and remained in bankruptcy until 2011.
“Our nation’s bankruptcy laws are a fundamental aspect of our economic system. They’re among some of the most powerful financial protections that exist in the world,” said Assistant U.S. Attorney Brandon Essig during Whaley’s trial.
Essig explained to the jury that those who file for bankruptcy are provided protection from debt collectors, but they must disclose ongoing financial information to the court.
About a year after filing bankruptcy, Whaley walked out of a Las Vegas casino with about $100,000 in debt.
A few months later Whaley purportedly acquired about $260,000 in insurance claims, used that money to pay off his gambling debt and spent the remainder on a new gambling trip — all without disclosing those transactions to the court.
“That’s the textbook definition of bankruptcy fraud,” Essig said at trial.
Business owner on trial for bankruptcy fraud
According to a release from the U.S. Attorney’s Office, casino records also showed that once his debt was paid off, Whaley made a return trip to Las Vegas where he spent over $20,000 at the casino and sent a limousine to pick up his wife at the airport.
“At that time, Southeastern Stud was still in bankruptcy and approximately 70 percent of its employees had lost their jobs,” the release states.
Susan James, who represented Whaley, argued during trial that Whaley was an “absentee owner” of the business, who left daily operations of the company to a small group of trusted employees.
She asserted that Nancy Thornton, who was in charge of accounting at the business, was also responsible for filing the bankruptcy forms.
“There’s no evidence that (Whaley) knew for sure what (Thornton) was doing,” James said.
However, the release also states the sentencing judge found that Whaley had directed employees to falsify documents they submitted to the bankruptcy court “in order to conceal the diverted insurance proceeds used for his gambling debts.”
Whaley was convicted in May by a federal jury on two counts of concealment of bankruptcy assets.
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