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Friday, March 25, 2011

Satmar Hasidic Civil-Fraud Suit Moves Toward Trial.

A civil-fraud lawsuit against a school in Brooklyn’s Williamsburg neighborhood that serves as the educational arm of the Satmar Hasidic community, and that was caught up in the massive fraud involving Allou Health Care Inc., is moving closer to trial.

Judge Elizabeth Strong of the U.S. Bankruptcy Court in Brooklyn denied the United Talmudical Academy’s bid to dismiss a suit filed by a bankruptcy trustee for allegedly aiding and abetting Allou management’s fraud. In a recent decision, Strong granted UTA partial summary on a number of other claims involving almost $30 million in scores of transactions over a six-year period among Allou, UTAand other entities. Read the ruling here.

Kenneth P. Silverman, the bankruptcy trustee who’s been running Allou since 2003, and lender Congress Financial allege that UTA and some of its senior leaders knew of and actively participated in the massive fraud perpetrated by Allou’s former management, namely members of the Jacobs (aka Jacobwitz) family.

UTA attorney Thomas Kissane told Bankruptcy Beat his client had no knowledge about the Allou fraud.

“The judge confirmed that plaintiffs will have to establish that UTA knew about the fraud and fiduciary misconduct at Allou in order to prevail,” said Kissane, of New York law firm Schlam Stone & Dolan. “UTA had no such knowledge and is confident that the ultimate resolution will reflect that.”

UTA was founded in 1949 and operates religious schools in Brooklyn and elsewhere for the Satmar community, which, with more than 100,000 adherents, is one of the largest and fastest-growing sects of Hasidic Judaism in the world. About 7,500 students from prekindergarten through high school attend UTA’s schools. To pay the bills, UTA solicits and accepts donations and interest-free loans and holds an annual fundraising dinner.

According to the trustee’s suit, that structure provided Arthur Meisels, one of UTA’s leaders, with cover to let Allou and the Jacobses “park” money with UTA and launder funds through UTA. The government claimed the brothers siphoned millions of dollars from Allou for their own enrichment by laundering funds through affiliated companies controlled by the family and Meisels.

Those activities advanced not only the personal financial interests of the Jacobses, the suit claims, but also the common interests of the Jacobses and Meiselses in the hotly contested succession dispute that split the Satmar Hasidic communities in Williamsburg and Kiryas Joel, a Satmar enclave located about 60 miles away in Monroe, N.Y.

That succession fight involved the competing supporters of two sons of Grand Rebbe Moshe Teitelbaum, who died in 2006. The Jacobs-Meisels faction backed Zalman Teitelbaum, while the competing faction supported Aaron Teitelbaum.

In order to curry favor for its choice, the suit alleges, the Jacobs-Meisels faction looted Allou by transferring substantial sums to UTA with the active participation of Meisels. Today, Zalman Teitelbaum leads a still-divided Satmar community in Williamsburg, while Aaron Teitelbaum has control of Kiryas Joel.

In 2005, Allou’s one-time chief executive, Herman Jacobs, pleaded guilty to fraud charges that resulted in $160 million in losses to creditors and investors and its collapse into bankruptcy. His brother also pleaded guilty to criminal charges.

In 2007, Herman Jacobs was sentenced to 15 years in prison and was ordered to pay more than $176 million in restitution. Jacob Jacobs was sentenced to seven years and was ordered to repay $30 million in restitution.

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