Charlotte real estate lawyer Victoria Sprouse pleaded not guilty to eight charges relating to bankruptcy fraud Friday morning, and was ordered to stay in jail until her trial by the judge, who described the charges as “breathtaking acts of deception by a trained lawyer.”
The U.S. Attorney’s office says Sprouse “engaged in a scheme to obstruct and defraud the United States Bankruptcy Court and her creditors,” after filing for bankruptcy protection in March 2009, according to an indictment filed Tuesday in federal court.
Sprouse operated “hidden financial accounts” under the names of two other people and pretended to be those individuals in emails to hide income and expenses from the bankruptcy court, according to the indictment.
Peter Adolf, Sprouse’s attorney, said he will appeal the decision and declined to comment further.
The bankruptcy fraud case is separate from another ongoing case in which Sprouse was convicted of bank fraud, money laundering and conspiracy charges in 2009. Sprouse and others were said to have earned millions from mortgage fraud-related schemes involving more than 200 properties and $15 million in fraudulent loans.
The judge in that case threw out her conviction and granted a motion for a new trial because of a legal precedent set by the U.S. Supreme Court following the Enron meltdown. The motion for a new trial is currently being appealed to the Fourth Circuit Court of Appeals, and Sprouse has been under house confinement during the past three years.
The bankruptcy fraud-related felonies for which Sprouse has been charged occurred between March 2009 and April 2011, while Sprouse was under house confinement, according to court documents and statements made by the prosecution Friday.
The prosecution says Sprouse earned and kept rent from two beachfront properties in Holden Beach while under bankruptcy protection. But under court orders, that income belonged to the bankruptcy estate and should have gone to a court-appointed trustee, documents state.
Between March and September 2009, Sprouse received more than $83,000 in rental income but disclosed roughly $13,000 on her bankruptcy reports, according to court records. Between October 2009 and October 2010, Sprouse received more than $21,000 in rental income and “hid all of this stolen income from the United States Bankruptcy Court, the Court’s Trustee, and her creditors,” according to court records.
Sprouse turned herself in Wednesday morning and has remained in custody since, William Terpening, Sprouse’s lawyer in the mortgage fraud case, told the Observer. Terpening, who did not represent Sprouse on the bankruptcy fraud charges, attended Friday’s hearing.
A trial date has not been set for the new charges.
Adolf, who represented Sprouse on Friday, argued his client could only be detained if there were serious risk of her fleeing, attempting to obstruct justice or posing a threat to a witness or the community. None of these could be proved, he said, since Sprouse has never violated her probation and has not fled even though she has been having legal troubles for years.
Prosecutor Kurt Meyers said there were three factors that led the prosecution to believe she should be detained: her history and character, the weight of the evidence and the circumstances of the offense. He said Sprouse’s alleged crimes demonstrated she could not be trusted to appear at her trial and were compounded by the fact that they occurred while she was already under house confinement.
When U.S. Magistrate Judge David Keesler asked Meyers why he thought Sprouse had not fled, the prosecutor said Sprouse did not understand the severity of the circumstances and was in “la-la land.”
One of the members of the audience stormed out after his comment.
Adolf said whether Sprouse is guilty of the charges is irrelevant to whether she should be detained.
“Her guilt or innocence is exactly not what this court is tasked with,” Adolf said.
Keesler said the court should not put people in jail because it is mad at them, but because they pose a serious risk. He asked Meyers if he was asking the court to punish Sprouse.
“I’m not mad. I’m shocked,” Meyers said of Sprouse’s alleged crimes. “I think she’s going to run. I don’t think she can be trusted.”
While waiting to hear whether she would stay in jail, Sprouse, wearing a red jumpsuit, sat rocking back and forth slowly in her chair.
Ultimately, Keesler said he did not believe Sprouse was a flight risk, since she had not fled previously. But he said he had to take into account that she was convicted of serious crimes, even though she had been granted a new trial. He added that a grand jury had probable cause to believe she committed eight felonies while under restrictive circumstances.
When Keesler said Sprouse must continue to be detained, a few members of the audience began crying. As Sprouse walked out, she looked at her supporters and tears filled her eyes.