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Chicago attorney Stephen Garcia has pleaded not guilty to charges handed up in a federal grand jury indictment that accuses him of having committed fraud during his involvement in the Geneva Steel bankruptcy.
The World War II-era steel mill on the eastern shore of Utah Lake filed for Chapter 11 protection in 1999. It emerged from that filing only to seek another bankruptcy court reorganization two years later. It was the second filing that led to the sale of Geneva's assets and the dismantling of the mill.
Garcia was a major player on the legal teams involved in both bankruptcy proceedings.
The charges leveled against him by the grand jury — mail and bankruptcy fraud and making a false bankruptcy oath — stem from his representation of the "successor" companies set up as part of Geneva's 1999 reorganization.
Those companies, which included Geneva Steel Holdings Corp. and several limited-liability companies — including Geneva Steel LLC, Iron Ore Mines LLC and Williams Farm LLC — were set up to operate the mill and hold its assets. They were debtors in Geneva's second bankruptcy.
The indictment alleges that Garcia failed to disclose to the bankruptcy court that he engaged in personal business dealings that worked against Geneva and its creditors.
Garcia's attorney, Paul Moxley, couldn't be reached for comment Wednesday.
"It isn't unusual for federal indictments to be handed down several years later [after the alleged crimes occur], particularly in bankruptcy cases with thousands of documents," said Melody Rydalch, spokeswoman for the U.S. Attorney's Office in Utah. "Often the timing depends upon when the details are brought to prosecutors."
In his initial appearance in federal court late last week, Garcia pleaded not guilty to all three counts. The potential maximum penalty for mail fraud is 20 years. For bankruptcy fraud and making a false bankruptcy oath, it is five years per count.
Garcia has faced similar allegations before.
In 2006, Geneva's Chapter 11 trustee, James T. Markus, filed a civil lawsuit in U.S. Bankruptcy Court in which he contended that the lawyer was dishonest and committed legal malpractice.
Markus asked the court to force Garcia and the Chicago law firm he worked for to return more than $2.4 million in legal fees.
"Garcia breached his duty of undivided loyalty" to Geneva, Markus said at the time.
One of the deals Markus questioned involved the sale of 76 acres of Geneva's property known as Williams Farms. The land across the street from the mill site was a source of sand and clay for Geneva's steel-making operations.
Markus contended that the Williams Farm property had an appraised value of more than $5 million. Yet with Garcia's alleged help, it was transferred to Albert Fried & Co. (AFCO), a major Geneva bondholder and secured creditor, for $74,000.
The trustee argued that Garcia, who had earlier worked for AFCO, continued to work for it during his representation of Geneva. He also alleged that Garcia maintained a personal brokerage account with AFCO and received benefits in that account when key events that were beneficial to AFCO occurred in Geneva's Chapter 11 cases.
Garcia responded by asking the court to levy more than $1 million in sanctions against the trustee for allegedly making baseless allegations.
A year ago, Markus entered into a settlement agreement with Garcia in which they released each other from claims they might have.