Banking and Investments

Clients always want to know what’s involved in searching offshore for hidden assets. Our usual answer is, “time and a lot more money than it’s probably worth, unless you’re looking for millions of dollars.”Woman Telescope IN MONEY SEA

Suddeutsche Zeitung, one of the recipients of the leaked Panama Papers reported that one lawyer “represented a female client in a divorce case, and it cost $2 to $3 million to uncover and disentangle the web of front companies into which the assets had been poured by her husband. That is a lawyer’s fee not many are able to pay.”

While not every divorce case involves many millions, even an onshore search follows the same principles: look not just for money in the name of the person but in the name of secret companies that person created.

As I wrote in my just published book, The Art of Fact Investigation, “Given how quickly and cheaply people can set up limited liability companies (and even ordinary corporations) it is folly to assume that a person who may be concealing assets would not have availed him or herself of this simple mechanism.”

Unless there is hard evidence that a person has hidden assets offshore, we like to start onshore for a few simple reasons:

  1. It’s a lot cheaper, and if you find a good haul of assets you may find your way to a reasonable settlement. The extra money offshore could still be there, but it may not make financial sense to go after it because of the fees and the length of time it could take to litigate in Caribbean and other tax havens.
  2. It’s easier to find onshore side companies because of the much larger store of public information in the U.S. compared with most overseas jurisdictions.
  3. The onshore records may provide good leads to the offshore companies. You may find a property deed notarized in the Cayman Islands or Isle of Man, for example. If you get the tax returns in discovery to a new onshore company, you could see payments from an offshore company that could end up being the subject’s secret company.

Wherever you look for secret companies, a few similar search rules apply. These include the propensity to use the same name in multiple companies. We’ve seen net worth statements with Alpha I and Alpha II listed, but the person has omitted Alphas III, IV and V. Other common names include streets the subject grew up on, names of summer camps, favorite pets, or combinations of children’s names or initials.

Offshore or Onshore, people are people and tend to behave the same way the world over when it comes to stashing their cash.

Want to know more?

  • Visit charlesgriffinllc.com and see our two blogs, The Ethical Investigator and the Divorce Asset Hunter;
  • Look at my book, The Art of Fact Investigation (available in free preview for Kindle at Amazon);
  • Watch me speak about Helping Lawyers with Fact Finding, here.

In a dramatic divorce case unfolding in Southern California this week, Hydee Feldstein, a retired partner at a large law firm, accused her ex-husband Peter Gregora of stealing $20 million of the couple’s money over the course of their marriage.  Feldstein claims Gregora hid the money in secret offshore companies, investment funds, and, in by far the most straightforward method, stuffing cash into envelopes and leaving the money off of the couple’s tax returns.

hidden money divorceBefore she retired, Feldstein’s practice focused on finance and bankruptcy law.  She was the primary breadwinner in the family, and she stated in divorce documents that she entrusted her husband to handle their financial affairs.  She claimed that Gregora used this as an opportunity to drain the couple’s joint accounts.

Commentators have been incredulous that a partner who specialized in finance law at a major law firm could be so out of touch with her own finances that she lost track of $20 million of her own money.  As it turns out, research shows that Feldstein is not so unusual.

As we wrote about here, a study by Prudential explained that most women, including primary breadwinners, lack confidence in investing and tend to shy away from managing the family finances.  No matter how successful women are, they still often leave the big financial decisions up to their husbands.  In fact, 73% of men report being the primary financial decision-makers in their families.  A dishonest husband combined with a lack of oversight can open the door to mismanagement and, as is alleged in this case, fraud.

We have seen this first-hand in countless cases.  Smart, accomplished women come to us looking for money they earned, but which their husbands have magically made disappear.  These women often admit to us that they left all of their financial decisions to their husbands, and have never so much as glanced at a bank statement or tax return.

Even in these cases, all hope is not lost.  Our clients often have far more valuable information than they realize when it comes to tracking down hidden assets, even if they did not control the family finances.  For example, a client may tell us that her husband loves skiing in Colorado, which would lead us to look for a vacation property in that state.  Or she may know the name and address of one of her husband’s companies, which could lead us to a dozen other LLC’s that he kept hidden from her.  We are often able to find hidden companies, real property, stock holdings, and other assets through in-depth client interviews and our meticulous investigation process.

© Sbukley | Ne-Yo Photo Dreamstime.com
© Sbukley | Ne-Yo Photo Dreamstime.com

Grammy award winner Ne-Yo and several professional athletes are among those set to testify in federal court against the principals of Ohio-based sports drink company Imperial Integrative Health Research & Development. Preston Harrison and Thomas Jackson are charged with defrauding investors out of $9.5 million. Harrison’s wife, Lovena Harrison, was hit with related tax fraud charges.

Imperial Integrative Health Research & Development made OXYwater, a drink they claimed was highly-oxygenated and would improve energy and mental clarity. Jackson and Harrison allegedly misled investors about the expertise of the company’s staff, as well as the company’s sales and profits. Federal prosecutors claim that, all the while, Jackson and Harrison were diverting company funds into their own accounts, and Lovena Harrison was hiding their ill-gotten income from the IRS.

Due diligence is always an essential first step before investing in a company. Just because the company is private does not mean that you need accept the information they give you at face value. While independently verifying information about sales and profits is difficult, it is not impossible. Former employees, investors, or people who had disputes with the company are often willing to share information. A few well-crafted interview questions posed to a disgruntled ex-employee or former litigation opponent might supply you with all the information you need.

You can also find out crucial information about the company’s principals and employees by searching the public record. In this case, had investors done even a cursory public record search, they would have seen that both of the Harrisons and Jackson all had multiple lawsuits (many involving nonpayment of debts), judgments, and tax liens against them in the past. This information may or may not have influenced the investors’ decision to put money into the company, but I, for one, would think twice about handing over my savings to someone whose financial choices had repeatedly landed them in hot water.

We usually blog here about how to find hidden assets in the context of a divorce, however, we recently came across a story that serves to caution those entering a marriage not to relinquish all control over the family finances.

Housing market collapseAccording to media reports, accused fraudster, Steven Wessel, is currently trying to seek a plea deal in a federal case alleging that he used a sham investment company to dupe investors out of money. What we found particularly interesting about Wessel from a Divorce Asset Hunter standpoint, is that, in a separate action, he has also been accused of scamming his wife, Mary Margaret Butler, and causing her Upper West Side home to go into foreclosure behind her back. While we haven’t seen this particular scenario before, we did have one client in Pennsylvania whose husband secretly conveyed her interest in a shared property to her husband’s cousin right under her nose.

So how does that happen? Wouldn’t you know if your home went into foreclosure? Butler claims that when she married Wessel in 2003, she turned over all of her finances to him, despite the fact that she was the sole owner of her apartment. She says she did this because she was under the impression that he had “extensive expertise” in investment banking. Wessel told Butler that he had paid off the mortgage on the apartment and showed her falsified letters purportedly from the bank evidencing the payoff. When Wessel was arrested for his investment scheme in June 2014, Butler went to bail him out of jail using her apartment as collateral, but instead learned that her lender had foreclosed on the apartment back in April. She also found out that she was a party to an eviction action brought against her by the bank. Wessel had accepted service of the lawsuit but did not notify Butler.

Although we think this level of fraud between spouses is uncommon, we do think it’s prudent to at least keep your finger on the pulse of the family finances. Most times, we see smaller financial secrets, like a spouse taking secret vacations with a mistress or mister, but it can’t hurt to take a peek at your monthly bank account and mortgage statements. You don’t have to be an expert in finance to know that your mortgage payments aren’t being paid, and the more you know about the family finances during the marriage, the better chance you’ll be able to find hidden assets if the marriage ever breaks down.

According to media reports, Former Apple CEO John Sculley is currently being sued by his ex-wife, of 32 years, Carol “Leezy” Sculley, for allegedly hiding more than $25 million in assets from her at the time of their divorce.  Sculley and Leezy settled their divorce in 2011, but Leezy claims that Sculley hid more than $25 million from her at that time.  According to Leezy’s petition to the Florida Circuit Court, Sculley failed to disclose “substantial private equity investments and investments in privately held companies and ventures around the globe.”

Leezy claims Sculley hid his assets by transferring them to and placing them in the name of family members. Leezy alleges that Sculley’s stakes in several startup companies were actually held in his brothers’ names.  We see this all the time and we blog about it over and over (here, here and here).  People from the ultra-rich to those with modest incomes tend to hide their assets with family members and close friends.  That’s why, to do a thorough asset search, you generally have to look into the assets of close friends and family members as well.

It’s unfortunate that Leezy didn’t do a little due diligence while the divorce proceedings were ongoing.  It would have been better to uncover the assets at that time rather than try to undo a divorce settlement agreement years later.  Chances are, if we’d done a search on Sculley and his brothers, we may have come across something that might have led us to the names of at least some of the companies Sculley was involved with.

We’re skilled at identifying debtor’s stakes in secret companies through extensive public record research and through interviewing people.  Given more information about some of Sculley’s company investments, Leezy’s attorney would have been able to seek discovery of those companies and may have learned what Sculley’s stakes were.  This might have entitled Leezy to millions of dollars in assets she did not otherwise know about.  As we often say, it’s worth spending a few thousand bucks up front on due diligence to save millions of dollars down the road.

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.