Dykstra then purchased NHL superstar Wayne Gretzky's $17 million estate (built at a cost of $14,999,999) hoping to flip it, but was unsuccessful. At one point he owed more than $13 million on the house, and Lake Sherwood security guards were eventually told to keep him away from the property because he had stripped the house of over $51,000 worth of items (countertops, an oven and hardwood flooring) and allowed the homeowners' insurance policy on the property to lapse. The house was eventually sold in January 2011 for "an undisclosed amount". Jeff Smith, the second lien holder on the former Gretzky mansion, said the property was listed on the market for $10.5 million, and sources interviewed by CNBC said that Smith "did very well" with the sale.
On April 13, 2011, Dykstra was arrested for investigation of grand theft by Los Angeles police at his Encino home on suspicion of trying to buy a stolen car, the day after Dykstra, in an unrelated federal complaint, had been charged with embezzling from a bankruptcy estate. He faced up to five years in federal prison if convicted. Federal prosecutors contended that after filing for bankruptcy Dykstra hid, sold or destroyed more than $400,000 worth of items from the $18.5 million mansion in question without permission of a bankruptcy trustee. The items allegedly ranged from sports memorabilia to a $50,000 sink. At one point, he sold "a truckload of furnishing and fixtures" for cash at a consignment store, according to a statement from the U.S. attorney's office.
In May 2011, Dykstra was sentenced to house arrest after his bankruptcy fraud indictment. Under the terms of his plea agreement, he had been allowed to leave the house only to go to work, attend church or be mandatorily drug-tested. On June 13, 2011, Dykstra appeared in Federal bankruptcy court and pleaded not guilty to thirteen charges. He was represented by a public defender. Dykstra faced up to 80 years in prison if convicted of all charges relating to embezzlement, obstruction of justice, bankruptcy fraud, making false statements to bankruptcy court, and concealing property from the bankruptcy court. The bankruptcy fraud trial was set to start on June 5, 2012.
In January 2011, Dykstra was accused of sexual assault by his housekeeper, who alleged that he would force her to give him oral sex on Saturdays. The woman told investigators "she needed the job and the money, so she went along with the suspect's requests rather than lose her job," according to the filing, and "returned to work in the suspect's home with knowledge obtained from the Internet about a claim of sexual assault by another woman."
On April 14, 2011, Dykstra was arrested and charged with bankruptcy fraud. The Los Angeles Police Department Commercial Crimes Division also arrested Dykstra on separate grand theft charges related to the purchase of vehicles. He was held on $500,000 bail.
On June 6, 2011, Dykstra was arrested and charged with 25 misdemeanor and felony counts of grand theft auto, identity theft, filing false financial statements and possession of cocaine, ecstasy and the human growth hormone (HGH) known as Somatropin. He first pleaded not guilty to the charges, but later changed his plea to no contest to grand theft auto and providing false financial statements in exchange for dropping the drug charges. On March 5, 2012, after unsuccessfully trying to withdraw his nolo-contendere plea, he was sentenced to three years in state prison, receiving nearly a year's credit for time already served. According to court records and press reports, Dykstra and confederates had obtained automobiles from various car dealerships using falsified bank statements and stolen identities.
On August 25, 2011, Dykstra was charged with indecent exposure. The Los Angeles City Attorney accused him of placing ads on Craigslist requesting a personal assistant or housekeeping services. The victims alleged that when they arrived, they were informed that the job also required massage service. Dykstra would then disrobe and expose himself. He was given a nine month sentence for lewd conduct.