Former Baseball Star Lenny Dykstra Busted in Bankruptcy Scam

Posted July 9, 2012 in Bankruptcy by

Former baseball star Lenny Dykstra agreed to a plea deal on federal bankruptcy fraud charges last month, following accusations that he sold or removed up to $400,000 worth of memorabilia and household goods from his home and office during bankruptcy proceedings.

  • Dykstra ran up debts in investment magazine for athletes
  • Already in prison for grand theft auto
  • Faces an additional 20 years behind bars


Dozens of Lawsuits

Lenny Dykstra  (nicknamed “Nails” for his gritty play and non-stop hustle on the field) was a superstar in the 1980’s and 90’s, but since then his life has taken a dramatic turn for the worse.

Dykstra, 49, who won a World Series title with the 1986 New York Mets and led the Philadelphia Phillies to the brink of another in 1993, has had a checkered career off the field since his retirement from baseball in 1996. He marketed himself as an investment guru, creating Players Club magazine to dole out advice to professional athletes.

It was all a sham. As dozens of lawsuits piled up for unpaid bills, Dykstra rushed from one scheme to another to maintain the appearance of a successful investor even as reports of his bizarre behavior and highly questionable business practices began to come out. The facade was crumbling.


Crashing Down

In 2009 his affairs came crashing down around him when he filed for bankruptcy, owing over $25 million and claiming assets of only $500,000. His $18.5 million dollar house, located north of Los Angeles, was taken and sold by creditors. The bankruptcy case was already tainted by 2010, when the trustee managing his estate alleged that the former ballplayer had repeatedly lied, stolen assets and acted in a “fraudulent and deceitful manner.

According to prosecutors, Dykstra allegedly removed, hid or sold a $50,000 sink, mirrors, art, fixtures, a grandfather clock, a stove and various sports memorabilia. Much of it was sold to a consignment shop in Los Angeles.

The bankruptcy fraud plea could cost the former superstar up to 20 years behind bars, proving that trying to lie and steal during bankruptcy proceedings is a great way to make a bad situation much, much worse.


Honesty is the Best Policy

Erik Clark

For consumers seeking to escape their debts through bankruptcy, honesty is the most important policy. “[Dykstra] made some poor decisions,” says Erik Clark, a bankruptcy attorney in Southern California. “One of the most important things when you seek relief under the bankruptcy code is that you disclose all assets that you owned at the time of the filing. You sign papers at the time under penalty of perjury that you disclosed everything.”

It’s no good to sell a bunch of goods just before filing, either– the court will still want to know. “Some of the questions refer to the transfer of assets prior to filing,” Clark explains. “When you do that it gives the court the ability to go back and retrieve those assets so they can be liquidated for the benefit of your creditors.”

Once the bankruptcy filing is in place, selling or taking anything from the estate is a definite no-no. “An important thing that people seeking protection need to understand is that their assets become the property of the bankruptcy estate, overseen by a bank trustee,” Clark says. “They are not free to transfer or liquidate any assets without permission from the court.”


Indecent Exposure

For Dykstra’s situation, “there are several different problems with what took place,” the attorney says. “He allegedly took assets that had value and were going to be liquidated by his creditors, and allegedly those assets were liquidated and the money was not distributed to creditors, and it was not done with the court’s knowledge.”

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Dykstra found himself up a creek– not only did the trustee of his bankruptcy estate tell the judge not to discharge Dykstra’s debts due to the fraud, the former player had to face a federal trial and will now face even more time in prison.

Dykstra is already serving a three-year sentence for grand theft auto and other charges after he pleaded no contest to trying to steal cars by giving false credit information to dealerships. He also ran up an additional nine month sentence for indecent exposure charges after allegedly exposing himself to women answering an ad for housekeeping services.

For Dykstra, it’s a long fall from baseball’s biggest stage. “He was a great center fielder,” Clark says. “I enjoyed watching him for years. It’s unfortunate to see what’s happened.”

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