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Comment by dthal | Hacker News Reader

"We imagine they siphoned off any remaining cash to investors, so they can declare bankruptcy and not pay the court-ordered legal fees." Is that a crime? If it isn't, it seems like it should be. The creditor already has a legal claim to the funds at that point. That's at least economically equivalent to stealing their money.

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If its a "fraudulent transfer" its a crime (or at least a "civil wrong").

- http://en.wikipedia.org/wiki/Fraudulent_conveyance

- http://www.law.cornell.edu/uscode/text/11/548

If a company pays its investors in an attempt to avoid a debt, the investors may have to return the cash in bankruptcy court. "Piercing the corporate veil" isn't necessary. (Caveat: I am a lawyer, but not a bankruptcy lawyer, and I don't really know what I'm talking about here).

edit: dragonwriter nailed it with "unfair preference"... "fraudulent conveyance" must be something else.

> edit: dragonwriter nailed it with "unfair preference"... "fraudulent conveyance" must be something else.

Well, "fraudulent conveyance" would seem to be the right tort if it is a tort; "unfair preference" would be a possible grounds for disgorgement even if the elements of fraudulent conveyance weren't met. Either would seem possible in the scenario described.

> Is that a crime?

It doesn't seem likely to be any crime that I am aware of (though it might be), it's more likely to be a tort, and even if its neither a crime nor a tort it may still be, in the context of bankruptcy, subject to disgorgement as a preference [1].

[1] http://en.wikipedia.org/wiki/Unfair_preference

Sadly no, it is not a crime. And it is nearly entirely the reason that one creates a legal entity (and LLC in this case) to "hold" the liability. The flip side is that it is also not a crime for someone to take a million dollars of someone elses money and spend it paying themselves and some friends a salary while building a web site devoted to cat pictures while buying a bunch of hardware on credit. Only to have the web site go bust. In both situations, monetary judgements can be levied only to have the entity "die" and take with it the liability it was holding.

The "win" here is that "do it on a computer" patents are being invalidated left and right by the courts and that is crimping the revenue stream of trolls and having them re-evaluate their portfolios.

> Sadly no, it is not a crime.

That depends; it can be, if the owners of the LLC act in sufficiently bad faith. That's what "piercing the corporate veil" is about: when the owners of a company abuse the liability shield badly enough that they should be personally liable. Pulling money out in anticipation of a bankruptcy (as opposed to spending it in good faith as part of doing business) could potentially qualify for that.

That only applies if they still do something illegal. This generally applies to cases of money-laundering, drugs, criminal intentions. There would have to be a separate case initiated by the legal system.

Not the case. Piercing the corporate veil depends on a number of factors that do not involve grossly illegal actions like you describe.

https://en.wikipedia.org/wiki/Piercing_the_corporate_veil#Un...

But LLC's can be pierced under some circumstances. Why isn't this one of those circumstances?

Depends on how the alleged siphoning occurred. Something like a dividend payout is most likely not a crime and in my humble opinion it should not be a crime, because it may set a very dangerous presidence.

Not saying that the panent troll may have not been in the wrong. The correct legal way of doing this would be to get an injunction and get the court to freeze the companies assets. Then if the patent troll did what the OP says, it would be a crime.

> The creditor already has a legal claim to the funds at that point.

You don't think they did this on the eve of the judgement when they realized the outcome? I imagine most people would plan for various outcomes even if in this case those people are patent terrori...i mean, patent trolls.

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