Two Lancaster County attorneys have been charged with embezzling money from two clients' bankruptcy estate, according to a federal indictment.
Kenneth G. Reidenbach, 60, Lititz, and Herbert P. Henderson, 46, Elizabethtown, who once shared a legal office at 36 E. King St., each face four charges brought by a grand jury.
Those charges include: embezzlement against a bankruptcy estate; concealing property in bankruptcy; agents who concealed property in a bankruptcy; and conspiracy to conceal property in bankruptcy.
Between August 2003 and January 2006, according to court documents, the two attorneys allegedly advised their clients, a married couple, to hide "more than $50,000 in cash," and then allegedly "conspired to keep the cash for themselves."
The felony offenses were filed earlier this month in federal court by Assistant U.S. Attorney David J. Ignall.
Both defendants, who are still practicing law but are no longer in business together, are scheduled to appear in federal court later this month.
Reidenbach referred all questions to his attorney, Samuel Stretton, of West Chester. Stretton could not be immediately reached for comment.
Henderson, who now practices law in Cumberland County, indicated that he was unaware of the charges.
According to the indictment, the clients — identified in court documents only by the initials J.M. and M.M. — lived in Lancaster and owned a number of rental properties.
They owed debts to a number of creditors, including the holders of the mortgages on their rental properties, holders of liens on automobiles and various credit card companies.
In August 2003, the couple sought legal advice in connection with possible bankruptcy proceedings.
The attorneys suggested $2,200 was a "good faith estimate" of the cost of the law firm's "professional time" in handling the proceedings, according to documents.
The couple hired Reidenbach and Henderson, according to documents, and paid the attorneys a $2,500 retainer.
Between February and June in 2004, at the attorneys' instructions, the couple sold four of their rental properties, netting a total of $51,489 in proceeds.
The attorneys instructed the couple to transfer the proceeds of any sales to a trust account controlled by Reidenbach, according to the court documents.
Authorities said the attorneys falsely told the couple that they would return the funds after the bankruptcy issues were discharged.
Henderson attended the closings on the sale of the rental properties owned by the couple and collected the proceeds of the sales, according to the indictment.
For more than two years after they were hired, the attorneys did not send an accounting of the funds they were allegedly holding for the couple or a bill for their legal services, according to court documents.
When it became clear that the couple could not pay its creditors in August 2005, the attorneys advised them to file a voluntary Chapter 7 bankruptcy petition.
Henderson filed the petition on behalf of the couple, according to the indictment, but "did not list any assets" held in the account controlled by Reidenbach.
At that time, Henderson also filed a notice falsely indicating that the attorneys had received and agreed to accept $1,500 for services rendered in the couple's bankruptcy case, according to the indictment.
Henderson instructed the couple that during the bankruptcy proceedings, they were not to say anything about the money they had made from the sale of the properties — money which had been transferred to an account controlled by Reidenbach, according to the indictment.
In October 2005, Henderson and the couple went to the court hearing.
The court-appointed trustee asked the couple if they had engaged in any real estate transactions in the two years proceeding the bankruptcy filing.
Neither the couple or Henderson disclosed the real estate sales or the proceeds of $51,489 that was transferred to Reidenbach.
In December 2005, the U.S. Bankruptcy Court entered an order discharging the couple's debts.
The attorneys then submitted a fraudulent bill to the couple for legal services rendered, according to documents.
The bill, authorities noted, exceeded "by more than 20 times" the amount that the defendants had agreed to pay for the bankruptcy proceeding.
The statement fraudulently billed the couple $31,633 for professional services and $23,247 for costs associated with their legal representations, according to the indictment.
In addition to the criminal charges, according to the documents, prosecutors are seeking a court order demanding $51,489 from the attorneys.
According to Chapter 7 bankruptcy case law, debtor's assets are liquidated to pay creditors.
Debtors are required to make a list all their assets, including all transfers of assets in the year before filing for bankruptcy.
Federal rules also require any attorney representing a debtor to disclose the amount of compensation he or she has received from a debtor.
