KANSAS BANKRUPTCY COURT HOLDS WICHITA MAN IN CONTEMPT OF COURT

WASHINGTON, D.C. - A federal bankruptcy court in Wichita, Kansas has found bankruptcy debtor, Gary E. Krause, of Wichita, in contempt of court, the Justice Department announced today. The court’s order followed a three-day hearing in which the government and the bankruptcy trustee presented evidence showing that Krause intentionally destroyed evidence on his computers and violated a court order that barred Krause from transferring assets.

The Justice Department sued Krause to block his federal tax debt of more than $3 million from being excused, and to set aside his alleged fraudulent conveyances of property. The government also sought to have numerous trusts and entities declared to be Krause’s nominees and made subject to federal tax liens.

Federal bankruptcy law allows debtors in bankruptcy to have certain debts excused. But if the bankruptcy court finds that the debtor engaged in certain types of misconduct, the court can decline to excuse the debt.

As a sanction for contempt, the court entered partial default judgment against Krause and held that six entities, including the “Gary E. Krause Trust,” “PHR,” “LLC,” “FIMCO,” and “Federal Gasohol Corporation,” are Krause’s alter egos or nominees and are property of his bankruptcy estate, available for satisfying creditor claims.

The court ordered Krause to turn over two additional computers and backup computer files to the bankruptcy trustee. Krause must also sign documents to allow the government to obtain records and information about Krause’s foreign bank accounts.

The order provides that if Krause fails to comply with these directives by June 18, 2007, the court will incarcerate him and enter default judgment against him with respect to the government’s remaining claims.

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07-424