Judge: Let's Bust Bradley's Trust
Bankruptcy ruling opens up developer's assets to creditors
In the end, a federal case built almost entirely on circumstantial evidence proved far more credible than the sworn testimony of Gary Bradley and his business cronies, a U.S. bankruptcy judge determined in a ruling handed down last week. The judgment is a major victory for creditors, whose lawyers have spent the last two years arguing that Bradley, aided by a small inner ring of associates, went to elaborate lengths to hide multimillion-dollar assets in a trust to avoid paying the nearly $100 million debt he owes to taxpayers and other creditors.
Bradley owes his biggest debt to the federal government for unpaid loans he took out in the Eighties to build the Circle C Ranch subdivision his signature project that touched off a firestorm of environmental wars that lasted more than a decade. Though Bradley's case is far from over, the ruling, giving creditors control over most of his trust's assets, surprised supporters and detractors alike, given the flamboyant developer's uncanny knack for slithering out of sticky situations.
The court's judgment holds that Lazarus Exempt Trust, which Bradley's sister established in 2000, naming him as its primary beneficiary, is nothing more than a "sham" and an "illusory" vehicle designed to serve both as a piggy bank and a shelter for valuable assets. The court allowed that Bradley's sister, Kaye Bradley, may have established the trust with good intentions, but it nevertheless came to represent a "fraudulent" way of doing business for the developer and other key players. Bradley claimed he had no control or ownership of the trust's various real estate entities, and his cousin, Bradley Beutel, who managed the trust, offered supporting testimony on the witness stand, as did Bradley associates James Gressett, Jimmy Evans, and others.
But U.S. Bankruptcy Judge Frank Monroe rejected their testimony in the face of reams and reams of documents submitted by lawyers for creditors that piece together a series of curiously complex maneuvers and backdated financial transactions. As Monroe wrote, "The paper trail left by these people speaks much louder than their words at trial."
The court found that most of the trust's assets should go to creditors, including the big daddy of the bunch, Phoenix Holdings, a real estate entity that controls hundreds of acres of undeveloped property in Southwest Austin. A good portion of the property has recently been sold, which presents just one more hurdle for creditors to clear before they can claim victory. The legal team that brought the case against Bradley knows that gaining control of the assets could take several years and will be as time-consuming and complicated as the case itself.
Bradley is expected to appeal the case to the U.S. 5th Circuit Court of Appeals in New Orleans, and creditors' lawyers will likely ask the higher court's permission to take control of those remaining assets in the trust that the judge did not release. "We think it's a wonderful opinion but we still have a long road to travel to get to the cash," said Ronald Ingalls, the court-assigned bankruptcy trustee representing creditors. Ingalls argued his case at trial through lead bankruptcy attorney Frank Ikard. "But we're in for the long haul on this case," Ingalls added. "We're not finished."
Bradley filed for Chapter 7 bankruptcy protection in July 2002, claiming he was flat broke and seeking relief from a mountain of debt. But a closer look of his bankruptcy filing reflected a man with a taste for luxury and expensive jewelry. Monroe made a point of mentioning that lifestyle in his ruling, too. The 145-page opinion is in fact a highly opinionated, entertaining piece of work from a judge who had maintained a poker face throughout the two-week trial in April.
The ruling is written for both legal minds and, as Monroe points out, "the average reader," and is broken down into 16 "chapters," the first of which is titled "How It All Started." The ending carries a poignant Epilogue that ponders Bradley's choice for naming the trust Lazarus, after the biblical character who rose from the dead. "It should be pointed out, however," Monroe wrote, "that Lazarus ultimately died." He then moves on to 1 Timothy 6:10 "For the love of money is root for all kinds of evil from which some have strayed from the faith in their greediness, and have pierced themselves through with many sorrows" before landing on the brass tacks of 5th Circuit Judge Edith Jones, who simplified things: "When a pig becomes a hog, it is slaughtered."
The phrasing of Monroe's ruling, peppered with words like "fraud" and "conspiracy," and suggesting that some of the witnesses committed perjury under oath, raises questions of whether a criminal investigation might follow. The opinion notes that one witness' repeated use of the Fifth Amendment "supports the conclusion that backdating documents was the way Bradley/Beutel/Gressett routinely did business." Overall, Monroe surmised, "none of the testimony makes sense. The documents do."