Former President and CEO of Montgomery-Based Steel Company Convicted of Bankruptcy Fraud
Montgomery, Alabama – On Tuesday, May 17, 2016, a federal jury in Montgomery convicted Kennon W. Whaley, 51, from Auburn, Alabama on two counts of bankruptcy fraud for concealing assets of his business from the Bankruptcy Court and his creditors, announced George Beck Jr., U.S. Attorney for the Middle District of Alabama.
Whaley had been the president and CEO of Southeastern Stud & Components from the time the company was created in 1999. Southeastern Stud was located in Montgomery and was in the business of manufacturing light steel framing components to be used in commercial and industrial construction. At its peak in 2005, Southeastern Stud grossed over $34,000,000, had 125 full-time employees and distributed steel to customers throughout the United States.
By 2009, the company’s revenue had decreased substantially, so Whaley, on behalf of Southeastern Stud, filed for Chapter 11 bankruptcy protection in March of that year and the company remained in bankruptcy until October of 2011. Because Southeastern Stud was allowed to continue its operation during the bankruptcy, Whaley was required under the law to disclose all assets and property of the company to the Bankruptcy Court each month.
However, the evidence at trial showed that despite this requirement Whaley diverted the proceeds from a $260,000 insurance payment to the company in 2010 to pay off a personal gambling debt. The evidence showed that in January of 2010 Mr. Whaley traveled to the Wynn Las Vegas Casino where he incurred a $100,000 gambling debt during a trip of just four days. The evidence also showed that Wynn Las Vegas began to put pressure on Whaley to pay the debt beginning in February of 2010. Casino records from Wynn Las Vegas, and the bank records of the account where the insurance proceeds were deposited, showed that Whaley used the company’s insurance money pay off his gambling debt and to pay himself over $30,000 in cash. None of these transactions were ever disclosed by Whaley to the Bankruptcy Court as required.
The casino records also show that once his debt was paid off in October of 2010, Whaley made a return trip to Wynn Las Vegas during which he spent over $20,000 at the casino and sent a limousine to pick up his wife at the airport. At that time, Southeastern Stud was still in bankruptcy and approximately 70% of its employees had lost their jobs.
“Our bankruptcy laws are designed to provide financial protection for both creditors and debtors alike,” stated U.S. Attorney Beck. “When debtors attempt to illegally thwart the very laws that provide them protection and take advantage of this fraud in bankruptcy court, they will be punished.”
Whaley faces a maximum sentence of 5 years in prison on each count of Bankruptcy Fraud.
The case was investigated by the FBI after they received a tip from one of Whaley’s former employees. The case was prosecuted by Assistant United States Attorneys Brandon Essig and John Geer.