Ex-attorney Chris Pettit now faces possible contempt of court offense

Former San Antonio lawyer Christopher “Chris” Pettit, who allegedly swindled millions from his clients, is in hot water with the trustee overseeing his bankruptcy case.

Pettit, 55, last week liquidated a retirement account and took $125,000 from it despite the money being part of the bankruptcy estate, the trustee alleged.

Eric Terry, the Chapter 11 trustee, filed an emergency motion late Friday with the bankruptcy court asking it to order Pettit to show why he shouldn’t be held in contempt for withdrawing the funds.

“It’s a big no-no,” San Antonio attorney Martin Seidler, who represents some of Pettit’s creditors, said of the alleged withdrawals. “You can’t use this money without court consent, or unless it’s set aside.”

Terry wants the court to order Pettit to return the funds taken from the Fidelity Investments retirement account, along with any money he may have taken from other accounts. The trustee also is seeking to prevent Pettit from withdrawing funds or other assets going forward.

A hearing on the trustee’s motion is set for Wednesday.

Pettit’s troubles began when multiple clients sued him for allegedly absconding with their money. One lawyer has alleged he may have looted $50 million or more from clients. Pettit subsequently filed bankruptcy protection for both himself and his law firm. He listed $27.8 million in assets and $115.2 million in liabilities his individual case, making it one of the largest ever in San Antonio. He also surrendered his law license and closed his practice, which specialized in estate-planning and personal-injury cases.

The FBI has been investigating.

Since his appointment as Chapter 11 trustee, Terry has changed the locks on Pettit’s law offices and received court authority to collect all monies owed Pettit and his firm.

In his court filing, Terry said he learned Friday that since July, 1 Pettit has “apparently liquidated approximately $137,000 of holdings in his Fidelity account and withdrew, it appears, at least $125,000 from this account.”

Included with the filing were screenshots reflecting the activity in a Pettit retirement account at Fidelity. They show Pettit received an early distribution of $50,000 on July 5 and another for about $75,000 on Thursday.

On Wednesday, two days before learning about the alleged withdrawals, Terry sent a letter to Fidelity regarding Pettit’s account.

“Unless I expressly indicate otherwise in writing, no one except me is permitted to alter, discontinue, close, or request transactions regarding the Debtors’ account(s) with Fidelity,” he wrote in bold letters.

Neither Terry nore Michael Colvard, Pettit’s bankruptcy lawyer, immediately responded Monday to requests for comment.

In his bankruptcy, Pettit reported holding about $95,000 in a Fidelity individual retirement account. He also reported having almost $635,000 in a 401(k) retirement account with Fidelity.

Pettit is claiming both accounts are “exempt” from the bankruptcy estate — meaning he wants to keep the money for himself rather than it going to pay creditors.

“The bankruptcy code basically says you get to claim what you think is exempt and then creditors and parties in interest, including the trustee, have an opportunity to object to whether or not it’s exempt,” said Ray Battaglia, a San Antonio attorney representing a creditor in the case.

Whether Pettit’s claim of exemption is allowed hasn’t been decided. The issue is taken up about a month after the first meeting of creditors, which hasn’t happened.

“So, right now everything is property of the estate, including the allegedly exempt property,” Battaglia said.

It’s possible some creditors may oppose the funds being classified as exempt, alleging money stolen from them funded the accounts. That hasn’t been proven.

In regards to Terry’s motion Friday, Pettit will have to show that his alleged withdrawal was not in violation of a court order.

Holding a debtor in contempt is one of the most powerful sanctions a bankruptcy judge can wield. Chief U.S. Bankruptcy Judge Craig Gargotta, who is presiding in Pettit’s case, has done it before.

In December, he found a San Antonio debtor in contempt for refusing to pay a $7,500 fine. Gargotta sent the man to jail, where he has remained for more than six months.

Pettit and related entities already have been under scrutiny for transferring at least seven properties worth millions of dollars to the same buyer less than two months before the June 1 bankruptcy.

The buyer was Sin Reposo LLC, whose sole member and manager is Garrett Glass. He also serves as chief financial officer of EF EnergyFunders Inc., an oil and gas investment company that’s based in Calgary but maintains its executive offices in San Antonio. It appointed him to the post in March.

Pettit served as an EnergyFunders director. On May 20, a day after the Express-News first reported on his legal troubles, Pettit resigned from the board of EnergyFunders, a penny-stock firm that trades on the TSX Venture Exchange in Canada.

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