The Divorce Asset Hunter

The Divorce Asset Hunter

Crooked Investigators Resurface in Divorce of Malaysian Millionaire

Posted in Celebrity Divorce, Ethics, Finances, Legal issues

Back in January, we posted a story about a Canadian investigative company whose owners, Michael Grontis, Cullen Johnson, and Elaine White, had fleeced their customers out of millions by promising to find assets hidden in offshore accounts.  Instead, they created fraudulent bank records and passed them off as real.  These crooked investigators’ work has surfaced once again, this time in the divorce of a Malaysian tycoon.

Shahnaz Abdul Majid claims that her husband Datuk Seri Mahmud Abu Bekir Abdul Taib, a prominent Malaysian businessman and government official, is worth hundreds of millions of dollars.  She says that much of his wealth is in the form of offshore accounts and investments in foreign companies in Australia, Canada, the U.K., and the U.S.

The problem with Majid’s assertions is that they are based on the “forensic accounting” work of convicted fraudsters Johnson and White.  Taib, of course, maintains that he has far less money than his wife thinks he does, and that Johnson and White fabricated records of fictitious overseas accounts and investments.  Given that Johnson and White are currently serving a five year prison term for doing just that, his allegations just may be true.

The problem is that he still may be hiding money, and he is more likely to get away with it because Majid used investigators who were willing to break the law to give her what she wanted.  Just assume for a moment that the bank records showing foreign accounts were real, she still went about getting them the wrong way.  We’re not experts in Malaysian evidence rules, but in the U.S., what reasonable judge would even glance at bank records that are unauthenticated and illegally obtained by an investigator?

Any investigator or forensic accountant worth their salt should have explained the dangers of illegally obtaining bank records and the advantages of doing things the right way.  As we tell our clients all the time, accessing someone’s bank records without their permission or a court order violates federal and state law, and can lead to criminal prosecution.  Even though we can’t get bank records, we can often find more than enough information through legal means to help you determine a spouse’s net worth.

We can identify real property, stocks, corporate holdings, deferred compensation, pensions, and countless other forms of assets through public record searches.  Interviews with former employees or business partners can also tell you where a debtor or his companies do their banking.  You can then issue appropriate discovery demands or subpoena records directly from the debtor’s bank.

In the end, following the rules will get you more and better information, and it will also ensure that the information you find can be used to your benefit in court.

Produce Company’s Owner Accused of Hiding Assets and Swindling Strawberry Company out of Millions

Posted in Banking and Investments, Business, Finances, Fine Living, Property, Small Business

Last week, Curtis Harold DeBerry, owner of the Texas-based Progreso Produce Company, was arrested and accused of cheating investors, business partners and banks out of millions of dollars over the past few years.  He now faces up to 30 years in prison.

According to the criminal complaint, DeBerry hid assets by transferring money to his children, and diverted assets meant for creditors to pay for his own luxury items (including a yacht).  One of the more egregious allegations in the complaint is that he bilked a fruit wholesaler out of over $8 million.

We regularly come across people that are hiding assets in their family members’ names or in secret companies.  We recently found that a debtor had placed all of his North Carolina companies in his nephew’s name, and then used those companies to buy up loads of property.  We always think outside of the box when we’re doing an asset search.  We’re well equipped to look for assets in the names of people close to the debtor using our proprietary commercial databases and by scouring the public record.

On the flip side, in many cases, our clients would not have needed an asset search if they’d done some more diligence prior to entering into the bad business deal.  This looks to be the situation here with the fruit wholesaler.  Sure, it costs money to do diligence, but a few thousand dollars to save $8 million seems more than worth it.

In this case, Fruit wholesaler, Eclipse Berry Farms, LLC, and Progreso entered an agreement to grow and sell strawberries together.  According to a civil complaint, to induce Eclipse to sign the agreement, Progreso showed Eclipse 42 leases with strawberry growers in Zamora, Mexico where the strawberries for the joint venture were to be harvested.  Eclipse then sent over $8 million to Progreso for growing, producing and packaging the strawberries.

According to the complaint, after the contract had been signed and money advanced, Eclipse sent a quality control person to Mexico to actually take a look at the strawberry harvesting land and operations.  It was then that Eclipse learned that Progreso did not have any leases with strawberry growers in Mexico and had instead been haggling with local strawberry growers to buy strawberries at a very low price.  Ultimately, Progreso used about $2 million of Eclipse’s funds to purchase strawberries in Mexico, but kept the balance of the $8 million for itself.

Though it was prudent for Eclipse to eventually send a quality control person to Mexico to check on the strawberries, it would have been wiser to send someone down prior to investing $8 million in the first place.  A few phone calls to the counterparties on the strawberry leases might have even been enough to put Eclipse on notice of Progreso’s alleged fraud.  Had they discovered that Progreso did not have any leased strawberry land, they would have never advanced the money, and wouldn’t now be stuck duking it out with other creditors to get pennies on their dollars back from Progreso.

Socialite Husband and Wife Accuse Each Other of Hiding Jewelry in Bitter Divorce

Posted in Celebrity, Celebrity Divorce, Chattel, Fine Living, Property, Vehicles

Whitney St. John and James B. Fairchild’s acrimonious divorce began in 2011, and the couple has been fighting over how to divide their fabulous collection of art and antiques ever since.  With no amicable resolution in sight, last week, a Suffolk County judge ordered the couple to liquidate their possessions and equally divide the proceeds.  The sale took place over Memorial Day weekend at the couple’s Hamptons home.

According to Fairchild, the sale brought in far less than it should have because St. John squirreled away over $300,000 worth of jewelry that she was required to sell.  The couple had purchased the jewels as inventory for a boutique they planned to open together before their marriage went off the rails.  St. John lobbed identical accusations at Fairchild.  Her lawyer told the press that Fairchild “intercept[ed] valuable store inventory.”  She also accused Fairchild of selling a 1955 Jaguar for $175,000 and keeping the proceeds of the sale for himself.

As we wrote here and here, valuables like jewelry and cash can be extremely difficult, but not impossible, to track down.  If we were conducting an investigation for either party in this case, we would first suggest subpoenaing the opposing side’s bank records.  Each side knows when and where the jewels were bought, so they would not look for a large cash purchase.  Instead, we would recommend looking for payments to jewelry appraisers, insurers, or payments to a bank for a safe deposit box.  They should also subpoena the other side’s insurance policies and look for an itemized schedule of the items covered or evidence that the coverage amount of the policy was recently increased.

Determining whether Fairchild sold his car is far easier than finding hidden jewelry.  As we wrote here, antique cars must be registered with the DMV just like any other vehicle.  A vehicle registration search would thus reveal whether Fairchild recently transferred the car’s title to another owner.  Some states’ DMV records are private, but we still might be able to find evidence of the sale in the form of a UCC filing if the buyer financed the purchase of the car.

To hunt down cash resulting from the sale, we would first look for companies, trusts, or other entities where Fairchild may have stashed the cash.  Then, we would recommend getting the bank records for those entities.  As we have written many times, this can only be done with a court order.  At that point, it is just a question of looking for suspicious deposits or cash purchases that correspond to the car’s value.

Divorce Records Uncover Former Malaysian Ruler’s Family Fortune

Posted in Business, Finances

Recently, Bloomberg reported that Abdul Taib Mahmud, the former ruler of the Malaysian state of Sarawak, retired in February with a billion-dollar family fortune.  Although not much has been known about Mahumud’s family fortune, some details have recently surfaced as a result of Mahmud’s son’s divorce.  The court handling the divorce was presented with a forensic accounting of the son’s assets, which included stakes in 49 companies.  His ex-wife also claims he may have interests in 85 additional companies abroad.

We usually blog here about how to find assets during your divorce.  Today, we’re writing about how looking at divorce (and other) records can provide a picture of financial wealth outside of the divorce context.  Abdul Taib Mahmud’s case is a great example as to why, for most all of our clients, we propose to conduct fairly extensive litigation searches.   This does not mean a search conducted solely online.  Sure, litigation records are sometimes available online, but most times, you have to look for them in person in order to do a thorough search.

Divorce records are rarely available online and are sometimes fully or partially sealed.  That said, when you do hit upon them, they can have very probative information about a person’s finances and character and are, more times than not, worth retrieving.

In addition, housing court records are usually not available online.  Our clients are sometimes hesitant to retrieve records pertaining to landlord/tenant disputes thinking they won’t be relevant to their case.  However, we’ve fetched housing court records in the past and have found that, on occasion, exhibits to filings include photocopies of personal checks used to pay rent.  Our clients may not care that their adversary wound up in housing court, but, in an asset search, knowing where your subject banks is invaluable.

Finally, while litigation records themselves tend to have a lot of useful information, you should also view them as gateways to further information.  Some of our favorite people to interview are our subject’s past litigation opponents.  They often tell you information that is not in the court records and know what it is like to have been through a lawsuit against that person.   If they obtained a judgment, they might even have important information regarding your opponent’s assets.

The Sterling Tapes: Don’t Try This at Home

Posted in Celebrity, Celebrity Divorce, Ethics, Legal issues

Revenge is a dish best served cold, so if you’re going to tape a spouse or significant other, be cool about how you do it.

Donald Sterling may yet hang on to his basketball team, and his (probably now former) girlfriend V. Stiviano may owe him $7.5 million in damages when this is all over.

The message for people in rotten relationships regardless of what Stiviano did: check your state law about secret recording of conversations before you push the “record” button.

Now the lead for most news broadcasts in this country is the lifetime ban and $2.5 million fine imposed by the NBA against Los Angeles Clippers owner Donald Sterling, whose racist words appear to have been captured on a recording. The substance of the words aside (vile and indefensible), a major question remains: if Sterling didn’t know he was being taped, then this was an illegal recording. His girlfriend claimed that Sterling knew about the recording, according to website TMZ.

She had better be able to prove it.

Under California law, both parties to a secretly recorded conversation need to know that the recording is taking place. This places California among a group of jurisdictions in this country known as “two-party” states. In other states, what Stiviano did would have been legal whether or not Sterling knew about the recording.

We’ve written about the laws and ethics surrounding recording conversations, here, in Taping Phone Calls Is Not Worth the Risk.

Not only could Stiviano go to jail for what she did, but under the California statute Sterling could recover three times the damage he suffered as a result of the illegal recording. Excluding any damages he can show from his lifetime ban, that’s $7.5 million he could recover from Stiviano.

Won’t happen? Maybe not if Sterling is persuaded through commercial pressure to suck up his punishment or sell his team, but consider the risks of doing your own illicit recording operation.

In addition to the money, remember that illegal evidence gets excluded from trials. Most people aren’t governed by the quasi-monopolistic regime of a professional sports league. Sterling doesn’t have the same rights before his Commissioner the way he would in court. Who recorded this conversation? What happened to the tape after the recording? Was it doctored? Did he give his consent to the recording? Both sides in a real trial fight it out even if it’s admitted into evidence.

And if it’s excluded as evidence? It’s like a tree that falls in the forest with nobody around. It may make a sound, but you know for sure the judge or jury won’t get to consider it.

Happy Tax Day: How to Find Assets Using Tax Returns

Posted in Banking and Investments, Common, Finances

It’s everyone’s favorite or least favorite day of the year—tax day.  While some people are rejoicing about their anticipated refund check, others are reluctantly handing money over to the government.  Here, we’re thinking about the wealth of information tax returns hold and how we regularly use them in our asset searches.

We often blog about the situations in which tax returns would be helpful to identify hidden assets.   For example, see our posts on finding royalties and tracking down trusts and pensions.  At a certain point, we advise that you hire an investigator and/or forensic accountant to really dig down deep into potential hidden assets, but there is no reason you can’t do some preliminary research on your own by looking at tax returns.

What should you look for?  For starters, make sure that the tax return you’re reviewing is actually the one that your debtor sent to the IRS.  It’s possible that your debtor provided you with a doctored return to conceal assets from you.  The best way to ensure you’re looking at the true return is to request it from the IRS.  If you filed jointly with the debtor, you have to right to access this material.  If you filed separately, you may have to wait until discovery.  Request tax returns going back 5 years to get a fuller picture of your debtor’s finances.

Take a close look at information about your debtor’s wages on both the 1040 and any attached W-2s.  Does it match up with the information he’s provided you on his statement of net worth?  Does it look like there have been any unexplained significant changes year to year?  You should also look for deferred compensation and unexercised options to see what kind of income may come in the future.

Review any retirement account distributions on the 1040 (lines 15a and 16a).  Did your debtor take any significant distributions from his retirement accounts in any given year, perhaps in order to appear to have less money set aside for retirement?

To see if your debtor has any foreign investments, check 1040 line 47 in addition to Form 1116 (Foreign Tax Credit) and Form 8938 (Statement of Specified Foreign Financial Assets).

There is certainly more information you can gather by looking at tax returns, but these are some basic check points to get started.  Tax returns aren’t 100% trustworthy.  People do lie.  However, it seems that most people are sufficiently deterred from doing so by the harsh penalties that await tax evaders. As a result, tax returns can uncover much unknown information about your debtor’s finances.

When You’re Allowed to Look Through Your Debtor’s Computers and Phones

Posted in Ethics

PROBLEM: 

You want to know what your debtor is hiding from you but you’re not sure if it’s okay for you to secretly look through your debtor’s phones and computers.

SOLUTION:

Although privacy laws vary state by state, as a general rule, you should be more cautious than not in this territory.  In New York, for instance, you could be convicted of a Class A Misdemeanor if you access or use a computer without authorization.  You might even risk running up against federal law.

Say you want to take a look through your debtor’s files on the family computer–the issue boils down to whether or not you are authorized to access the computer.  If the computer is a shared computer, the answer is probably going to be yes.   If we’re talking about password protected files and computers, things get a little murkier.

If the computer or file was password protected, did your debtor willingly give you the password at some point?  If he did, you probably have authority.  If not, steer clear.

If you’re thinking about trying to crack your debtor’s work blackberry or work computer, don’t.  You are not authorized to view information on devices paid for by your debtor’s employer and you do not want to risk accessing his employer’s proprietary business information.  Be careful.  Judges do not hesitate to exclude evidence that was improperly obtained.  What’s the point of gathering information if you’re not going to be able to then use that information in court?

We like to take a cautious approach here.  If you’re authorized to use the computer or phone, take a copy of the hard drive, preserve chain of custody by properly bagging and tagging it, and then let the judge decide what you can look at.  Patience pays off.  This approach may take longer, but it will be worth it to avoid the potential exclusion of probative evidence, ethics inquiries and possible criminal penalties.

Hidden Assets and the Gray Divorce Revolution

Posted in Common, Finances, Property, Uncategorized

A recent study has shown that divorce rates for people over 50 has skyrocketed during the last 20 years in what has been dubbed the “gray divorce revolution.”  This has two implications for people like us who are tasked with finding hidden assets in divorces.  First, couples nearing the end of their careers are more likely to have more and more sophisticated assets than they had when they got married at 23.

Over the course of a 30-year marriage, people have time to buy a vacation home, amass a sizeable 401k, build an antique car collection, or start several companies.  They also may have time to funnel money into those companies little by little, or to transfer the condo they secretly own to a relative or close friend.  Asset searches in long-term, high net worth marriages can be extremely complicated, and our clients are often astonished to find that the husband they thought they knew so well had actually been adding marital assets to his divorce emergency fund for the last 15 years.

That said, the second implication of gray divorces is that long-term spouses have time to learn a lot of information about one another and often have good clues that can help us find hidden money.  All of our matrimonial clients complete a detailed asset search questionnaire before we begin our investigations.  We ask our clients to tell us about their spouse’s relationships, employers, hobbies, and favorite vacation spots, among other information.

This can help us find companies where the spouse may have hidden money, properties the spouse may have transferred to a friend or family member, stock holdings, and other income sources that may not have otherwise been readily ascertainable. We would usually be able find the same information the spouse gives us in our questionnaire if given enough time and budget, but it avoids lots of false starts and wasted client money searching for assets she already knows about.  The questionnaire allows us to focus our investigations in a way that saves our clients money while providing the most thorough results possible.

Former Brooklyn Prosecutor Convicted of Fraud on NYC Transit Authority

Posted in Business, Finances, Small Business

According to the New York Law Journal, yesterday, a Brooklyn jury convicted former Brooklyn prosecutor, John Headley, of fraud and misconduct over his misuse of New York City Transit Authority funds.  Headley’s company, Advance I.M.E. Co., was hired by the transit authority to obtain medical records and expert witnesses for the authority.  However, Headley did not reveal that he was the principal in Advance I.M.E. Co.  Rather, he used the name James Douglas to get around inevitable conflicts of interest he had in taking on the work–he was dfraud, nyc transit, John Headley, money trainating the transit authority employee responsible for selecting and paying vendors and he also worked as outside counsel to the transit authority on other matters.

So what was Headley’s defense?  He claimed that he masked his ownership in the company to hide assets from his wife in their then-imminent divorce proceedings rather than to bilk the transit authority out of money.  We haven’t seen this type of defense before—usually people don’t want to admit to hiding assets from their spouse.  Given his conviction on six counts, the jury may not have bought it.

If, indeed, Headley was hiding assets from his wife at the time of their divorce, hopefully she was hip enough to his tricks to hire an investigator.  We frequently help our married clients uncover hidden assets and it is not uncommon for one spouse to hide money in a secret company as Headley claims he did.  Using proprietary databases and other resources, we regularly find secret companies, unknown to one spouse, and position our clients to get all the information they need in discovery.

We also help clients find company affiliation information by using databases and individual secretary of state records, among other means.  In this case, it does not appear that “Advance I.M.E. Co.” is registered to do business in New York, however, the indictment indicates that “Advance I.M.E. Co.” may be a fictitious name for Headley’s company.  It states that Headley opened a business checking account at Bank of America in the name of “DBA Advance I.M.E., Co.”  We often find evidence of fictitious names in our databases and run searches at the county level to determine a company’s true legal name.  Had there been some form of vendor verification or approval process, outside of the purview of Headley’s transit authority girlfriend, a few quick searches might have revealed that Headley was the principal of the company.

Man Who Faked Bankruptcy to Avoid Child Support Gets 17 Years

Posted in Uncategorized

California businessman Steven Zinnel was sentenced to a 17 year prison term last week for defrauding the bankruptcy court in an effort to avoid paying child support and alimony to his ex-wife.  The prosecutors on the case believe this to be the longest sentence for bankruptcy fraud ever handed down in the Eastern District of California.

In 1999, Zinnel and his wife initiated what later turned into an acrimonious, drawn-out divorce.  In 2001, Zinnel threatened to file for bankruptcy to keep his ex from accessing their marital assets.  Zinnel followed through on his threat in 2005, claiming that he was millions of dollars in debt.

All the while, Zinnel was in fact a successful business owner with a substantial income.  Zinnel’s attorney, Derian Eidson, helped him hide his money from his wife and the bankruptcy court by funneling cash into shell companies held in relatives’ names.  Eidson also laundered money through her attorney-client trust account, companies she owned, and her personal bank account.  Eidson will soon face sentencing for her role in Zinnel’s crimes.

Schemes like Zinnel’s are precisely why we have all of our matrimonial clients complete a detailed asset search questionnaire before we begin our investigations.  As we wrote here, it is important to remember when starting an asset search that you should look for clues that lead to assets, not just the assets themselves.  Looking at Zinnel’s bank accounts would probably have given you little or no information about his hidden money.  Instead, you would have needed to look at companies and property owned by his attorney and family members.

Our clients often know more than they think when it comes to tracking down hidden marital assets.  We ask our clients to tell us about their spouse’s relatives, hobbies, and favorite vacation spots, among other information.  While these questions may seem irrelevant at first blush, we often find that debtors hide money in companies named after something dear to them, like the street they grew up on.  We once had a client whose husband had cached assets in a series of shell companies named after his favorite movies.

We can also look for companies or real property that the debtor’s relatives acquired under suspicious circumstances.  For example, it might raise some eyebrows if your spouse’s favorite unemployed cousin purchased a $2 million home in cash or suddenly became the president of four companies the month after you filed for divorce.  If you are thorough, keep an open mind, and think creatively, then you will have a much better chance of finding hidden money.