A month after Mitchell Kossoff was sentenced to prison, the hunt for the millions of dollars he stole from landlords is heating up.
The trustee overseeing the bankruptcy of Kossoff’s law firm has made some troubling findings as he tries to recover nearly $1.5 million of the $15 million the attorney pilfered.
Trustee Albert Togut alleges that Valley National Bank helped the corrupt Kossoff by enabling a bizarre money triangle, according to a federal lawsuit Togut filed in Manhattan Wednesday.
The saga started more than a decade ago when a company started by Kossoff’s parents, Burton Packaging, began to struggle. Togut claims it was insolvent as early as 2011, when its liabilities exceeded its assets by about $2 million.
Burton owed the bank about $1.2 million on loans that were personally guaranteed by Kossoff and his mother, Phyllis. By 2014 the company’s accounts were overdrawn. That’s when a triangular trade began, the lawsuit says.
Valley National started lending Kossoff’s law firm money, which Kossoff then used to pay his parents’ packaging firm’s debts — right back to the same bank. The upshot was the family business’ debt went down and the law firm’s debt went up.
But the firm would never repay it.
According to the lawsuit, Valley National should have realized something was amiss. Kossoff was withdrawing money from his clients’ escrow accounts, some of which were held at Valley National.
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Togut charges that Valley National knew none of the money was benefiting the law firm, Kossoff PLLC, but went along to get repaid on the Burton Packaging loans.
“Given their regular business with law firms, [the bank] understand[s] an attorney’s various fiduciary duties, especially pertaining to the maintenance of an attorney’s clients’ funds,” Togut wrote in his filing. “Accordingly, the [bank was] aware that Kossoff owed fiduciary duties to [his law firm] and its creditors.”
A representative for Valley National Bank did not immediately respond to a request for comment. Kossoff and his mother are also listed as defendants.
Togut is seeking to claw back loan payments the law firm made to Valley National totaling $1.48 million and return it to creditors of Kossoff’s defunct law firm. They include several landlords who had used and trusted Kossoff — an expert on New York’s rent stabilization law — for years, until he and their money suddenly went missing last spring.
The clients eventually forced the firm into bankruptcy in order to get someone in charge of the accounts. But by then, much of the money was gone. Prosecutors said Kossoff spent it on himself in addition to propping up his parents’ failing business.
Kossoff pleaded guilty in December and was sentenced in May to 4.5 to 13.5 years in prison.