LaRouche Criminal Trials - Involuntary Bankruptcy

Involuntary Bankruptcy

In early April 1987, the government charged in court that LaRouche organizations may have been trying to sell properties for cash to more easily conceal their assets and avoid paying $21.4 million in contempt of court fines. The U.S. Department of Justice filed an involuntary bankruptcy petition on April 20, 1987, to collect the debt from Caucus Distributors Inc., Fusion Energy Foundation, and Campaigner Publications Inc. In a rare procedure, the companies were seized before the bankruptcy came to trial. Assistant U.S. Attorney S. David Schiller wrote in a brief that the debtors had a "pattern of transferring or commingling substantial corporate assets to their members and other insiders for little or no consideration and for non-business purposes". The trustees later reported they were only able to locate about $86,000 in assets.

The bankruptcy halted the publication of a weekly newspaper, New Solidarity, and a bi-monthly science magazine, Fusion. At least one publication, Fusion, was reborn with a new name but the same editor and material.

The attorneys who represented the LaRouche entities in the bankruptcy trial filed a brief stating that the action was unprecedented and improper, alleging that it deviated from the standard rules of involuntary bankruptcy, and that members of the Alexandria prosecution team from the second criminal trial were involved in the planning and execution of the bankruptcy.

During the bankruptcy trial in September 1989, an FBI agent destroyed evidence (credit card receipts, cancelled checks, and FEC filings) immediately after he had promised the court he would preserve them. On October 25, 1989, Judge Martin V.B. Bostetter dismissed the government's involuntary bankruptcy petition, finding that two of the entities involved were nonprofit fund-raisers and therefore not subject to involuntary bankruptcy actions. According to the LaRouche movement, Bostetter said the government's actions amounted to bad faith regardless of whether government agents and attorneys had intended this outcome. He found that the government's actions and representations in obtaining the bankruptcy had the effect of misleading the court as to the status of the organization, leading to a "constructive fraud on the court". In 1993, an appeals court decision said that Bostetter had specifically rejected that view, and said that the defendants had "greatly distorted the character of much of the evidence". Appeals that went all the way up to the U.S. Supreme Court found that the matter of the involuntary bankruptcy would not change the outcome of LaRouche's conviction.

The LaRouche organization asserts that it has proof, obtained under the Freedom of Information Act, which shows that the purpose of the bankruptcy was simply to shut down the affected entities rather than to collect fines. The U.S. Attorney said, "Essentially the court holds that we did not abuse the bankruptcy filing, just that we should have filed differently." He also noted that only a minimal amount of money had been collected.