Federal prosecutors who have already indicted President Donald Trump's former campaign chairman Paul Manafort on charges of money laundering, bank fraud and covertly lobbying for pro-Russian interests may have additional leverage arising from a loan he received while engaged in the bankruptcies of properties in California, several former law enforcement officials say.
Reuters has found new information about Manafort's handling of the loan and its potential link to the bankruptcies as Special Counsel Robert Mueller seeks to pressure Manafort to cooperate with his investigation into Trump's campaign team and possible collusion with Russian efforts to interfere in the 2016 election.
At issue is whether the failure to disclose a loan from a lender that was also the main creditor in the California bankruptcy cases represented an illegal concealment of material information.
Reuters has also learned that over the past several months Mueller has begun focusing on Jeffrey Yohai, Manafort's former son-in-law and his partner in four California property deals that failed and were placed in bankruptcy, as a potentially valuable witness in his probe.
Last week Mueller filed new criminal charges against Manafort and Rick Gates, a former business partner who served as Trump's deputy campaign manager. The California bankruptcies might be yet another avenue of inquiry for Mueller's team, said Frank Figliuzzi, who was assistant director of counterintelligence for the Federal Bureau of Investigation under Mueller until 2012.
"It's all about increasing pressure on Manafort to cooperate," he said.
A Reuters review of property records and California bankruptcy court filings shows that a Manafort-controlled company secured in early 2017 a loan against a Brooklyn home from Genesis Capital LLC, now owned by Goldman Sachs, which was the top secured creditor in the bankruptcies of the four high-priced properties in the Los Angeles area.
Genesis signed off on the $303,750 loan two days after a judge overseeing the bankruptcies agreed to release from creditor protection one of the properties - a Spanish colonial-style home.
The move, pushed by Manafort's lawyers and requested in court by a lawyer representing the bankrupt properties, allowed Genesis to put the property up for sale, while the loan helped Manafort finalize a $6.8 million refinancing of the Brooklyn home with another lender.
Neither Manafort, Genesis, nor the lawyer representing the bankrupt properties disclosed the Brooklyn loan to the bankruptcy court — and all told Reuters they had no obligation to do so. Yohai was also kept in the dark, his lawyer said.
Under federal law, the knowing concealment of an asset or financial transaction that materially impacts a bankruptcy proceeding constitutes bankruptcy fraud. Four former federal prosecutors who reviewed Reuters' findings said not disclosing the Brooklyn loan could amount to fraud if the loan and the Spanish colonial home's release were connected to each other and deliberately concealed.
"You can't just do things on the side and not tell," said Patrick Cotter, a criminal defense lawyer in Chicago and former assistant U.S. attorney in New York.
Dan Guthrie, a Dallas white-collar defense lawyer and former federal prosecutor, said it would be unlikely that a prosecutor would pursue an indictment without firm evidence of a "quid pro quo"
"As a prosecutor, you are not going to want to go forward with an indictment without solid proof of that connection," he said.
Catherine Bauer, the judge overseeing the bankruptcy cases in California, and Michael Hauser, the U.S. trustee assigned to the cases, both declined to comment.
Matthew Browndorf, a partner at the law firm that represented Manafort, said all of its court filings "followed the required process and disclosures of the California Bankruptcy Court." He declined further comment.
Jeffrey Dulberg, a lawyer for Genesis, said his client was unaware of what was behind the decision to release the Spanish colonial home from bankruptcy. Of the other three properties, Genesis foreclosed on one and two remain in bankruptcy proceedings.
Manafort referred questions to his spokesman, who declined to comment, citing a gag order in the criminal case.
Marc Forsythe, who represented the four limited liability companies that filed for bankruptcy, said he was not required to disclose the loan because he was never told that MC Brooklyn Holdings, the Manafort company that received the loan from Genesis, was a party to or had any interest in the bankruptcies.