August 2, 2004

The United States Attorney's Office for the Northern District of California announced that Arnold C. Stewart, age 54, of Danville, California, and Gregory S. Lyons, age 49, of Orinda, California, were indicted last week by a federal grand jury on one count of mail fraud, in violation of 18 U.S.C. § 1341, one count of conspiracy, in violation of 18 U.S.C. § 371, one count of bankruptcy fraud, in violation of 18 U.S.C. § 157(2), and one count of concealment of assets, in violation of 18 U.S.C. § 152(1).

According to the indictment, Mr. Stewart and Mr. Lyons are alleged to have engaged in a scheme to defraud whereby they used the bankruptcy process to prevent certain creditors from obtaining and recording a judgment lien on Mr. Stewart's property in Mendota, California.  Mr. Lyons was Mr. Stewart's bankruptcy attorney.  While Mr. Stewart was in bankruptcy, Mr. Stewart and Mr. Lyons are alleged to have entered into a coal-mining investment encumbering Mr. Stewart's Mendota property.  Mr. Stewart and Mr. Lyons never disclosed to the creditors, the bankruptcy court, or the trustee that they had secretly encumbered the property or that they had entered into the coal-mining investment.  Rather, they concealed the fraud and lulled creditors into believing that they were following the order of the bankruptcy court to sell the Mendota property and pay the proceeds to the creditors.  When it appeared that certain creditors had learned about Mr. Stewart's and Mr. Lyons' scheme to defraud, the defendants attempted to conceal the fraud by dismissing the bankruptcy case.

The maximum statutory penalty for each count in the indictment is five years in prison and a fine of $250,000, plus restitution if appropriate.  However, any sentence following conviction would be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and would be imposed at the discretion of the Court.  An indictment simply contains allegations against an individual and, as with all defendants, Mr. Stewart and Mr. Lyons must be presumed innocent unless and until convicted.

Mr. Stewart and Mr. Lyons made their initial appearances in federal court in Oakland on July 29, 2004.  The defendants' next scheduled appearance is at 10:00 a.m. on August 23, 2004, for Identification of Counsel before Judge Wayne D. Brazil and 2:00 p.m. on August 23, 2004, for Trial Setting before Judge Claudia Wilken.

The prosecution is the result of a six-month investigation by the United States Postal Inspection Service.  Assistant U.S. Attorney Christina Hua and Special Assistant United States Attorney Celeste K. Miller prosecuted the case with the assistance of Ana Guerra.