Penal Code 154 PC – Fraudulent Conveyance – California Law

In Penal Code 154 PC, California law defines the crime of fraudulent conveyance as unlawfully disposing of one’s assets or property in order to avoid having to use that property to pay back a debt. The offense is a misdemeanor punishable by up to one year in jail.

The language of the code section reads that:

154. (a) Every debtor who fraudulently removes his or her property or effects out of this state, or who fraudulently sells, conveys, assigns or conceals his or her property with intent to defraud, hinder or delay his or her creditors of their rights, claims, or demands, is punishable by imprisonment in the county jail not exceeding one year, or by fine not exceeding one thousand dollars ($1,000), or by both that fine and imprisonment.

(b) Where the property so removed, sold, conveyed, assigned, or concealed consists of a stock in trade, or a part thereof, of a value exceeding two hundred fifty dollars ($250), the offense shall be a felony and punishable as such.

Fraudulent conveyance is a type of white-collar crime that is sometimes referred to as “concealing assets from creditors.”

Examples

• Knowing that he owes Cathy $500, Dave gives his watch with an equivalent value to his niece (free of charge), rather than selling it and paying his debt to Cathy.
• Although Andres could sell his car with a high valuation and use the profits to pay down his credit card debt, he gives it to a family member as a gift and claims insolvency.
• Frustrated with having to pay child support to his ex-wife, Barry arranges for all the profits of his small business to get deposited into his girlfriend’s bank account to make it appear he is insolvent.

Defenses

Luckily, there are several legal defenses that a person can raise if accused of engaging in a fraudulent conveyance. These include showing that an accused party:

• had no intent to avoid paying the creditor’s claim;
• acted out of necessity; and/or,
• was arrested after an unlawful search and seizure uncovered badges of fraud

Penalties

A violation of Penal Code 154 PC is charged as a misdemeanor (as opposed to a California infraction) under state law. The crime is punishable by:

• imprisonment in the county jail for not more than one year; and/or,
• a maximum fine of $1,000.

If the fraudulent conveyance involves stock in trade valued at more than $250, the crime will be charged as a felony. As such, it is punishable by imprisonment in the California state prison for:

• 16 months,
• two years, or
• three years.

Our California criminal defense attorneys will highlight the following in this article:

• 1. What is the legal definition of a fraudulent conveyance?
• 2. What are the legal defenses?
  • 2.1. Lack of intent
  • 2.2. Necessity
  • 2.3. Unlawful search and seizure
• 3. What are the penalties for a fraudulent conveyance?
• 4. Are there civil remedies for a fraudulent conveyance?
• 5. What are some related offenses?
  • 5.1. Fraudulent conveyance by a judgment debtor – PC 155
  • 5.2. Participation in a fraudulent conveyance – PC 531
  • 5.3. Mail fraud

1. What is the legal definition of a fraudulent conveyance?

Under California Penal Code 154 PC, a fraudulent conveyance is what happens when someone

• sells,
• gives away, or
• otherwise transfers any kind of property.

The transferor does so with the goal of preventing his creditors from getting at that property and using it to pay off the debt.¹

Please note that a creditor of the debtor is a person to whom a party owes money. A debtor, in contrast, is the party that owes money to the creditor.

In a fraudulent conveyance, a defendant can only get convicted of the crime if he gives away property to a transferee with the actual intent to either:

• prevent a creditor from getting paid by the debtor’s assets;
• make it more difficult for the creditor to get paid; or,
• delay the creditor from getting paid as a result of the transfer.²

The “property” involved in a violation of fraudulent transfer law can include such things as:

• money;
• cars, boats, or recreational vehicles;
• homes or condominiums (real property);
• stock;
• watches or jewelry;
• clothes or furniture; or,
• any other property that can be used to pay a debt.

Please note that fraudulent conveyances can also lead to federal criminal charges. In addition, under the Uniform Fraudulent Transfer Act (UFTA), a creditor can bring a civil cause of action (sue the debtor) to get the property that a debtor fraudulently conveyed – even if the debtor no longer owns it. Under applicable law, the four-year statute of limitations/lookback period begins running once the judgment against the debtor is secured. An appointment of a receiver may be necessary.³

2. What are the legal defenses?

A person accused under PC 154 can challenge the accusation by raising a legal defense. A good defense can often get a charge reduced or even dismissed if prosecutors fail to meet their burden of proof. Please note, though, that it is critical for an accused to hire an attorney to get the most effective defense.

Three common defenses are that the accused:

1. lacked fraudulent intent at the time of the transfer;
2. acted out of necessity; and/or,
3. is a victim of an unlawful search and seizure.

2.1. Lack of intent

Recall that a defendant is only guilty under Penal Code 154 if he transfers property with the specific intent of the debtor to avoid, or delay, making a payment to a creditor. Therefore, it is a solid defense for an accused to fight a fraudulent conveyance charge by showing that he was a good faith transferee and did not have this requisite intent for avoidance of the transfer.

For example, it is quite possible that a defendant transferred property to help a relative in need, as opposed to hiding it from a creditor.

2.2. Necessity

Under a necessity defense, a defendant essentially tries to avoid guilt by showing that he had a sufficiently good reason to commit the crime. People sometimes refer to this defense as “guilty with an explanation.” In the context of a fraudulent conveyance, an accused could attempt to show that he committed the crime since he had no other choice (e.g., because of an emergency or to pay off some other creditor).

2.3 Unlawful search and seizure

The Fourth Amendment to the U.S. Constitution declares that we have the right to be free from unreasonable “searches and seizures” by law enforcement. If authorities obtain evidence from an unreasonable, or unlawful search and seizure, then that evidence can get excluded from a criminal case. This means that any charges in the case could get reduced or even dismissed.

The Fourth Amendment’s rule against unreasonable search and seizures means that police may not search a person or his property unless one of the following is true:

1. they have obtained a valid search warrant from a judge, OR
2. the search falls within one of a number of exceptions to the warrant requirement recognized by federal and California courts.⁴

3. What are the penalties for a fraudulent conveyance?

A violation of Penal Code 154 PC is charged as a misdemeanor (as opposed to a California infraction), no matter the market value of the assets. The crime is punishable by:

• imprisonment in the county jail for not more than one year; and/or,
• a maximum fine of $1,000.⁵

If the fraudulent conveyance involves stock in trade, valued at more than $250, the crime will be charged as a felony. As such, it is punishable by imprisonment in the California state prison for:

• 16 months,
• two years, or
• three years.⁶

4. Are there civil remedies for fraudulent conveyance?

There are civil remedies for fraudulent conveyance. Note that these remedies are in addition to any criminal penalties imposed for a conveyance.

In short, a creditor can bring a lawsuit against the debtor to void the conveyance. If successful, a judge will freeze the transfer of the debtor’s property or assets and use them to satisfy the creditor’s claim against the debtor.

Civil remedies are authorized under the California Uniform Voidable Transactions Act (formerly the California Uniform Fraudulent Transfer Act (UFTA)), as set forth in Civil Code 3439.

The UFTA prohibits debtors from transferring property or assets so that they are outside the reach of creditors and unavailable to satisfy that creditor’s legitimate claim.

A transfer under this act is defined as:

“every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset…and includes payment of money, release, lease, and creation of a lien or other encumbrance.”

Under the UFTA, a creditor can file a lawsuit against the debtor and ask a court to:

• cancel the transfer of property or assets and use them to satisfy the creditor’s claim,
• prevent the debtor from any further transferring of property or assets, and/or
• appoint a person to receive or take charge of the transferred property or assets.

Note that in some cases a judge will not void a transfer if the transferee, or person that received the property or assets, acted in good faith and with no knowledge of any fraudulent activity.

But a transferee will not benefit from this good faith defense if he/she:

• had fraudulent intent,

• colluded with the person engaged in the fraudulent conveyance,

• actively participated in the fraudulent conveyance, or

• had actual knowledge of facts showing the knowledge of the transferor’s fraudulent intent.

5. What are some related offenses?

There are three crimes related to fraudulent conveyances, under Penal Code 154. These are:

1. fraudulent conveyance by a judgment debtor – PC 155;
2. participation in a fraudulent conveyance – PC 531; and,
3. mail fraud.

5.1. Fraudulent conveyance by a judgment debtor – PC 155

California Penal Code 155 PC applies to people who are defendants or losing parties in a court case.

The code section makes it illegal for a person to conceal or transfer property, or to move property to a different county, in order to avoid paying damages owed as a result of a lawsuit.⁷

A person can violate Penal Code 155 by transferring property after he has already been ordered to pay money in a court case. In addition, a party can violate the code section by transferring property while a lawsuit is still pending, before the party has even been ordered to pay anything.⁸

The penalties for violating PC 155 are the same as those for violating PC 154.

A violation of Penal Code 154 PC is charged as a misdemeanor (as opposed to a California infraction). The crime is punishable by:

• imprisonment in the county jail for not more than one year; and/or,
• a maximum fine of $1,000.⁹

If the fraudulent conveyance involves stock in trade, valued at more than $250, the crime will be charged as a felony. As such, it is punishable by imprisonment in the California state prison for:

• 16 months,
• two years, or
• three years.¹⁰

5.2. Participation in a fraudulent conveyance – PC 531

California Penal Code 531 PC makes it a crime for persons to participate in fraudulent conveyances.

Under PC 531, a person participates in a fraudulent conveyance if he:

• is a party to the conveyance (this typically means the person to whom the property is transferred or given to);
• willingly and knowingly defends the conveyance as not being fraudulent; and,
• gives away or sells the property that had already been fraudulently conveyed.¹¹

A person that violates PC 531 is guilty of a misdemeanor.¹² The offense is punishable by:

• imprisonment in the county jail for not more than six months; and/or,
• a maximum fine of $1,000.¹³

5.3. Mail fraud

Mail fraud is a crime under federal law. A person can be charged with mail fraud if the authorities believe he used a United States post office, or even a private mail carrier, to send or receive any materials related to a scheme to commit fraud.¹⁴

A prosecutor must prove three elements in order to successfully convict a defendant of mail fraud. These are:

1. the defendant created a scheme to commit fraud;
2. the defendant used the mail to further that scheme; and
3. the defendant intended to commit actual fraud or constructive fraud.¹⁵

For the purposes of the federal crime of mail fraud, fraud means the knowing or reckless misrepresentation of a material fact in order to deprive someone else of something valuable.¹⁶ In other words, fraud is lying to someone in order to get them to give up something they value (usually money).

A party guilty of mail fraud is charged with a felony. The offense is punishable by a:

• substantial fine; and/or,
• imprisonment in federal prison for not more than 20 years.¹⁷

For additional help…

If you or someone you know has been accused of a crime, under California Penal Code 154, we invite you to contact us for a free consultation. We can be reached 24/7. We have offices throughout the state, including Los Angeles, San Diego, Orange County, and more.

(For accusations or charges involving fraudulent conveyances in Nevada, please see our article on Nevada “Fraudulent Conveyance” Laws (NRS 205.330, NRS 205.355, NRS 205.360)).

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