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Originally published June 17, 2013 at 9:43 AM | Page modified June 18, 2013 at 12:17 PM

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Mastros defend their actions, plan to ‘retire in peace’

French court’s ruling won’t be appealed, allowing fugitive real estate developer Michael Mastro and his wife to stay in France.

Seattle Times business reporter

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Michael Mastro, the former Seattle real-estate magnate who fled with his wife to France and left behind the biggest personal bankruptcy in Washington state history, has a new bucket list:

“Retire in peace” and enjoy France.

Maybe write a book.

And try to reach a final agreement with creditors back in the States.

So said the Mastros on Monday through their attorney in France, Thomas Terrier, upon learning that the deadline had passed for authorities there to appeal a recent French court ruling barring their extradition to face more than 40 counts of bankruptcy fraud and money laundering in the U.S.

“We feel sorry about what happened, but most of the loss — if not all of it — has been caused by panic,” the Mastros said in a statement. “Our panic and that of others. We all lose in this story. Now we are planning to turn the page.”

On June 5, four days after Michael Mastro turned 88, a French appellate court ruled the Mastros would not be extradited to the U.S. because of his age, poor health and need for daily assistance from his wife, Linda.

Emily Langlie, a spokeswoman for the U.S. Attorney’s Office in Seattle, said the United States requested that the case be taken to the French Supreme Court but French prosecutors saw no grounds on which to base a successful appeal.

“At some point you have to accept that the decision is disappointing and move on,” Langlie said.

Mastro was a prolific Seattle developer and lender for 40 years until his empire unraveled amid the real-estate meltdown and he was pushed by three banks into bankruptcy in 2009.

His debts to unsecured creditors were estimated at $250 million.

Authorities believe it to be the largest personal bankruptcy case in the state’s history.

The couple disappeared in June 2011 after failing to comply with a bankruptcy judge’s order that they turn over two giant diamond rings valued at $1.4 million. The next month an arrest warrant was issued for contempt of court, a civil violation.

Then in August 2011, the U.S. Attorney’s Office filed a sealed criminal complaint charging them with bankruptcy fraud. The complaint was unsealed last October when the Mastros were arrested in a village near Lake Annecy in the French Alps.

Couple’s statement

On Monday, the Mastros issued a statement through Terrier in which they thanked “their most loyal friends” for paying for their French attorney.

“Mike has always been a patriot, charitable, and loyal businessman and great husband,” the statement said. “We suffered a lot, but we don’t blame anyone, but ourselves. Since God gave us the force to get out of this nightmare, no doubt he will go on helping us to recover.”

The couple took issue with how they’ve been portrayed.

“We were not fugitives,” they stated. “We just tried to take a step back to breath[e] and think. When we left, we were not considered criminals.”

The couple said they were dealing with several setbacks before they decided to flee. Michael Mastro was recovering from serious head injuries sustained in a fall, and a court had decided that Linda Mastro’s two giant diamond rings belonged to their common estate instead of her alone.

Bankruptcy trustee James Rigby has alleged Michael Mastro hid assets, and he was pursuing those assets to make payments to unsecured creditors.

“Since the Trustee did make a personal affair of this case, we had to hurry to find a safety exit just to survive,” the Mastros said.

“Mike was unable to make fully coherent decisions, and since no other option for any safe future seemed available at the time, we agreed to leave, once Mike had somewhat recovered.”

Indictment

The indictment handed down by a federal grand jury last November paints a more sinister portrait.

For instance, prosecutors alleged that during the civil bankruptcy proceeding, the Mastros fraudulently concealed the existence of a JPMorgan Chase bank account.

From the date of Mastro’s involuntary bankruptcy to July 2010, when the account was closed, prosecutors charged, the couple withdrew more than $760,000 and used some of the funds to pay for car loans for a 2006 Range Rover, a 2007 Bentley Continental and a 2008 Rolls-Royce Phantom Coupe, legal expenses and a bulk purchase of gold coins.

Prosecutors also alleged that in an effort to shelter assets from his creditors, Michael Mastro caused phony liens to be recorded against the couple’s mansion in Medina, and Linda Mastro lied in sworn declarations about when she acquired a 15.93-carat diamond ring.

The Mastros also didn’t disclose the true location of significant assets including a Steinway and Sons grand piano and Chihuly glass artwork, prosecutors charged.

Jim Frush, Michael Mastro’s attorney in Seattle, disputed how prosecutors portrayed his client.

For one thing, Frush said, Mastro’s lawyers had originally advised the real-estate magnate to set up the Chase bank account and told him it was not the property of the bankruptcy estate.

“They’ve gone back and rewritten history to say he hid all these assets,” Frush said. “That was not a laid-down case for the government by any means.”

Legal rights

In response to criticism that France interfered with the U.S. justice system by refusing extradition, the Mastros said the French court only granted them their legal rights under the treaty between the two nations.

“We have in fact already been deprived of our freedom for more than seven months,” first confined to a jail and later at home under electronic surveillance, they said. They’ve been to numerous hearings, with three armed gendarmes guarding each.

The French appellate court’s June 5 ruling, a translated version of which Terrier provided to media, shows the judges weren’t persuaded by the French prosecutor who conveyed American officials’ assurances the Mastros would be treated appropriately.

Under a proposed December 2012 plea bargain that expired Feb. 28, Michael Mastro would have received a maximum two years in prison, and Linda, a maximum one year in exchange for their returning voluntarily to the United States, according to the French court’s order. The medical director of the Bureau of Prisons assured the court in a report that the agency could handle the Mastros’ frailty.

The French judges criticized the “total ambiguity” in the communications from the U.S. Attorney’s Office and concluded that handing over the Mastros would “inevitably result in their prolonged detention in a prison environment.”

Given Michael Mastro’s age and poor health, the judges ruled the couple qualified for protection from extradition under the treaty between France and the United States.

“It appears this is the end,” Frush said Monday. “The Mastros don’t intend to leave France.”

Jewelry battle

But it’s not the end of the bankruptcy case and the fight over Linda Mastro’s jewelry, including the two giant diamond rings seized after their arrest. The Mastros said they are trying to recover the jewelry, which the bankruptcy trustee has valued at more than $3 million.

The couple also took the opportunity to lash out at Rigby, the bankruptcy trustee, calling him “the only winner in this whole story.”

They said the amount spent by the trustee “must be pretty astronomical by now. With another trustee, we believe that the outcome could have been quite different for the creditors, and for us.”

Rigby acknowledged he’d spent about $10 million on legal and accounting fees from the $20 million the estate has received from liquidating Mastro’s assets.

The estate has distributed only about $5 million to secured creditors and about $2.5 million — about 1 percent of what’s owed — to unsecured creditors, he said.

The estate’s expenses would have been far less, Rigby said, if Mastro hadn’t hired lawyers to battle the trustee and hadn’t tried to hide assets from creditors.

“Most of the money I’ve spent on legal fees has been chasing the house, chasing the jewelry, and trying to recover property he put beyond the reach of creditors,” he said.

“If he’s got any problems with the way I’ve managed the case, I’m sure the bankruptcy judge would be interested in hearing that,” Rigby said. “I’d be more than happy to meet him in court and do that.”

Material from Seattle Times archives is included in this story.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

On Twitter @sbhatt

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