The New York Times was half right and half wrong when it reported that the boom in “trophy homes in the sky” is over. The right part:  It turns out that there is not an inexhaustible supply of people willing to spend $50 million or more on a condominium they may rarely visit.The Good Life: Limousine & Mansion

The wrong part of the story is that many of these apartments were anything but trophies: they were means to conceal the wealth of the apartment’s beneficial owner. Many were bought by limited liability companies with difficult-to-trace ownership, often using limited liability companies formed in Delaware.

In some cases, the demand for this real estate was the product of capital flight from overseas, but in others it was money from inside the United States.

In January of this year, federal authorities said they would more closely scrutinize large all-cash transactions in New York and Miami.

As we predicted at that time on our other blog The Ethical Investigator, in a post called Four Ways to Evade the New Rules on Luxury Property, the government’s extra scrutiny appears to have driven the buyers into some of the more than 3,000 remaining counties in the United States.

Nobody looking to hide $1 billion puts it all in one bank account. They spread it around to hedge their risk. In the days that I was a financial reporter interviewing private bankers in Hong Kong, they all had the same comment to questions about loyal customers. The clients usually claimed that all their money was with the banker being interviewed, but the bankers didn’t believe it.

As it goes with money in the bank it now goes with pricey real estate in New York. Why put $80 million into one apartment in one of only a dozen or so buildings when you have your pick of thousands of $2 million homes anywhere in the country?

We have been writing about tracking down real estate since this blog was founded, and nothing has changed since our original House Hunting: Tracking Down Real Estate in the U.S.

As we explained, figuring out the name of a shell company that holds real estate is a challenge that can sometimes be cracked, but all-cash transactions don’t have valuable information divulged in mortgages.

However, litigation does. Even very rich people fail to pay gardeners, movers and others who come back and sue them. Newspaper articles are useful too. If a Russian billionaire shows up in a well to do neighborhood, that’s often newsworthy. We can then work backwards from the address to find the name of the company that owns the property.

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.

This week, the U.K. Supreme Court is reviewing the cases of Alison Sharland and Varsha Gohil to determine whether a spouse can reopen a divorce case in instances of fraud or misrepresentation after the parties have reached a settlement agreement.

Reopening divorce cases in instances of fraudSharland contends that her husband misled her into believing that his software company was worth a fraction of its actual value.  Gohil accepted a modest settlement from her husband in 2004, only to find out years later that her husband had been hiding tens of millions of dollars from her.  This all came to light as part of a criminal trial against Gohil’s ex-husband in which he was convicted of fraud and money laundering to the tune of £37 million.

Here in the U.S., it can be extremely difficult to reopen a divorce action once the parties have reached a settlement agreement.  The degree of difficulty varies from state to state, but in general, most state courts will only set aside a divorce settlement in a few limited circumstances.  Some states will allow a party a second bite at the apple if he or she can show deceit or fraud by their spouse, as in Sharland and Gohil’s cases.

This is where we come in.  Our clients or their lawyers hire us to help find assets that their spouses either under-valued or omitted from their statement of net worth altogether.  For example, a client might accidentally receive a bank statement for an account with her ex-husband’s name on it that he did not disclose during their divorce.  If he hid that account from her, what else did he keep secret?  We have found millions of dollars’ worth of undisclosed assets in divorce cases, assets like real estate, stock options, and ownership interests in companies or partnerships.  This information may help form the basis of an argument to reopen a divorce case on the grounds of fraud.

While it is certainly best to start looking for assets while a divorce is ongoing, all is not necessarily lost if you have already signed a settlement agreement when you find out about hidden assets.  Your lawyer can advise you on your chances of success, and can help you decide when the right time might be to stop relying on that net worth statement and start digging for what he didn’t tell you.

© 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.

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.

According to several media reports, former Anglo Irish Bank chief executive, David Drumm was recently denied a bankruptcy discharge by a judge in Boston.  Drumm appealed the ruling on Friday.  Not only did the judge keep Drumm on the hook for $10.5 million euros in debt, but he released a 122-page judgment with damning findings about Drumm’s attempts to defraud creditors by hiding assets in his wife’s name.

Drumm was the CEO of Anglo Irish Bank in September 2008 when its finances fell apart in the global crash.  He left his post later that year, following disclosures that the bank’s chairman had received $115 million in hidden loans from the bank.  Drumm ultimately fled to Massachusetts and purchased a $5 million Cape Cod estate before moving to a $2 million home in the suburbs of Boston.

At trial, the bank claimed that Drumm had secretly transferred his interest in his homes to his wife to shield them from creditors, in addition to making $1.2 million in cash transfers to his wife.  Drumm was also accused of hiding proceeds of sales of property in Ireland and luxury vehicles.

Drumm tried to chalk up his failure to disclose these asset transfers to poor record keeping, memory lapses and harmless accounting differences, but the judge didn’t buy it.  According to the judge’s opinion, the fact that Drumm misunderstood what he was supposed to have disclosed as to some of the transfers and “simply forgot several others” was “exceedingly implausible” and Drumm was “not remotely credible.”

Transferring assets into a spouse or other family member’s name is common.  We see it frequently in a number of contexts, including divorce, which is why we always propose to look at recently obtained assets of people close to the debtor.  Real property is a typical asset to transfer to someone else, but it’s not the only thing to watch out for.  We recently found that a debtor in Nebraska transferred a tractor and a boat out of his name and into his aunt’s to keep those assets out of his divorce proceedings.

There is no simple formula when approaching an asset search.  Often, a successful search turns on factors such as how much information our client gives us, the comprehensiveness of the search and our intuition.  The intuition comes into play when we see something that, for whatever reason, just seems a little off.   A small bit of information that others might gloss over, often leads us down a path to finding hidden assets that would not have otherwise been uncovered.

In a country in which people can form a company in minutes over the internet, it’s amazing to us how many asset searches proceed on the basis that you only need to look for property owned directly by a person.

So often, we find that someone can truthfully state at a deposition that he owns no real estate personally. But unless he’s asked about ownership beneficially or ownership of shares in companies or membership interests in limited liability companies, you could be missing out on lots of wonderful assets.

How to figure out the name of a person’s company, through which he may own all kinds of valuable property, is a good part of what our asset searches are for.

One place we always like to start is the search for licenses.  As The Economist highlighted earlier this year, U.S. businesses in many sectors face a blizzard of licensing requirements before they can get up and running.

Licenses can be a pain, but for asset hunters they are a gift: an on-line record of names, addresses, and often trade names that link the public name of a business with the name of the company behind that business.

Take the New York State Liquor Authority: If you enter the name of an establishment you know into the Authority’s website, chances are the name of the company that owns it won’t be the same as the name by which you know the establishment.

Because most bars and restaurants in New York don’t operate with their legal names on the outside, lit up in neon, any proper asset search will proceed based on the company’s real name.  As it is with restaurants, so it is with lots of retail establishments.

The other thing we love to do when we find the name of a new company is to look for other companies with closely similar names. That’s because many people just don’t put a lot of time into naming companies for the purposes of making them hard to find.

If someone who owns’ “Bill’s Tavern” names the holding company “Jeffersonville Restaurant LLC,” his next establishment could be owned by “Jeffersonville Restaurant II, LLC.”  What does company II own? Instead of starting with the business and finding the name of the owner, this time you find the owner and figure out the name of the business.

A little bit of playing around with name indexes kept by licensing authorities or the Secretary of State can pay big dividends.

A London judge has ordered oil trader Michael Prest to pay his wife over $600,000 in support and alimony payments or face jail time.  Prest’s case gained attention last year for a landmark U.K. Supreme Court ruling permitting Yasmin Prest to pierce the corporate veil to reach assets that Michael had placed in trusts held by his various offshore companies.  The ruling represented the first time the British courts pierced the corporate veil in a divorce case, and ultimately led to Yasmin obtaining a 17.5 million pound divorce award.

Prest claims that he does not have sufficient funds to pay the award because his company, Petrodel Resources Ltd., is no longer operational.  Yasmin asserts that, despite his claims of poverty, Michael still lives a lavish lifestyle, spending hundreds of thousands of pounds per year on luxury travel.

As we wrote here, when conducting matrimonial asset investigations, especially those involving self-employed spouses like Michael Prest, our first step is to look for companies owned by the spouse, his family, and his close associates.  If the spouse makes no mention of income from these companies in his net worth statement or if he has not disclosed his interest in them during the discovery process, then their mere existence can be a sign that the spouse is using his companies to hide money.

Once we find the spouse’s companies, we can then search for assets owned by those companies, not just by the spouse.  We may find real property, stock holdings, aircraft, boats, or any of a wide range of assets that can be uncovered in a public record search.

We were once able to find a side company owned by a lawyer husband in which he had stashed an entire thoroughbred horse farm.  We also found the value of the horses, the trucks, the barns, and even the tractors on the property, all through searching the public record.  In addition to what we uncovered, our client was also able to request broad discovery of all of the husband’s hidden companies and their assets, including trusts and bank accounts.

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.

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.