CHARLESTON, W.Va. — A well-known Charleston business developer could now face up to 20 years in federal prison for bankruptcy fraud.
John Wellford III, 73, pleaded guilty Wednesday to falsification of bankruptcy records.
United States Attorney for the Southern District of West Virginia, Will Thompson joined officials from the U.S. Trustee Program, the FBI, and the WV State Police Bureau of Criminal Investigation, who all worked on the now six-year-old case in some capacity, for a news conference Wednesday.
According to court documents, Wellford filed for bankruptcy on March 29, 2019 on behalf his real estate company, Corotoman Inc.
Thompson said Corotoman had received a large influx of money approximately 10 months prior to filing for bankruptcy while the business was struggling financially and while one of its creditors was trying to collect an outstanding debt. Thompson said Wellfords’ crime was not making the transfers of this money known.
“As part of the bankruptcy, he was required to do a statement of financial affairs, which required him to disclose all monetary transfers from Corotoman outside the ordinary course of business that had occurred in the two years prior to filing for bankruptcy, that’s just a typical bankruptcy filing requirement,” Thompson said.
Despite the requirement to disclose all monetary transfers, Wellford admitted that he did not inform officials of the more than $925,000 that he had transferred from Corotoman on or around May 2, 2018 to another of Wellford’s businesses, Marsh Fork Development.
Prior to that transfer, on April 30, 2018, Wellford deposited a close to $2 million check from American Electric Power in Corotoman’s account.
From the over $920,000 that went into Marsh Fork’s account, however, Wellford transferred $680,000 to his lawyer’s client trust account, causing his lawyer to transfer all of those funds back into various businesses of Wellford’s over the next five months.
Thompson said that Wellford admitted to wanting to keep the money for himself and his companies and not make it available to creditors.
“He was given multiple opportunities even after the initial bankruptcy filing to correct this error,” Thompson said. “The filing of the bankruptcy is done in the penalty of perjury, there was a meeting of creditors where he was placed under oath, and he failed to disclose this.”
Wellfords’ sentencing date is set for Aug. 7. He faces a maximum penalty of 20 years in prison, three years of supervised release, and a $250,000 fine.
In addition, Wellford also owes approximately $925,326 in restitution, the same amount that was transferred to Corotoman in which he failed to report.
Working closely on the case, Keven Rojek, Special Agent in Charge for the FBI of Pittsburgh said financial crimes undermine the conviction of the system’s economic integrity, and he was proud of the FBIs’ investigative work in the case.
“This conviction should send a clear message that our economy is not a marketplace for manipulation, theft, or criminal activity,” said Rojek. “No one is above the law, and our resolve to uphold the law remains resolute.”
Thompson said people need bankruptcy in the event they are unable to pay their debts, so when someone commits bankruptcy fraud, especially in this magnitude, it’s a huge discredit to the U.S. Trustees, the FBI and everyone working towards a fair financial system.
“When people are doing this and gaming the system, it undermines everyone’s trust in the economy, in the court system, in whether or not I pay my credit card bill or not, so I think it’s very important that we do look at cases like this and we do prosecute it when we can,” he said.
Thompson said so far this year, there have been eight bankruptcy fraud convictions across the country, and three of those came out of the Southern District of West Virginia.
He said while there’s always been fraud and sloppiness, U.S. attorneys and those working against fraud are now trying to put a bigger spotlight on the issue than ever before.
Thompson said if someone thinks they can commit fraud without any consequences, that will only encourage others to commit the crime.
“So, I’m hoping I’m sending the exact opposite message that we’re not discouraging anyone from filing for bankruptcy, in fact, there are situations that warrant it every single day, but when you do, make sure you tell the truth,” said Thompson.
The West Virginia State Auditor’s Office Public Integrity and Fraud Unit (PIFU), along with the U.S. Offices of the Insurance Commissioner-Special Investigations Division also had involvement with investigations into the case.