Philip Segal’s lengthy interview about asset searching with divorce journalist Ilyssa Panitz is here:
It appeared on line in Authority Magazine.
Philip Segal’s lengthy interview about asset searching with divorce journalist Ilyssa Panitz is here:
It appeared on line in Authority Magazine.
Some people just like privacy, but others form companies with a view to concealing any link between that company and themselves. If you are hiding assets from creditors, that’s a plus (for you, not the creditors).
Picking a company name can be more difficult than many think. A lot of the obvious company names are taken since you can’t have the same name as an existing company in your state. So people often follow rules that make it easier to pick a name quickly, a lot like the lazy way many choose passwords.
If you want to hide your company from an asset searcher’s prying eyes, don’t do the following.
The hardest companies to find are those that followed these rules:
Now and again a client comes to us for information on a spouse’s assets. But if the client has already signed a power of attorney, the search could involve both spouses’ assets.
A power of attorney between married people could work like this: Wife grants Husband the power to buy and sell things on Wife’s behalf. This could result in more than just not being upfront about money Husband has put away or the value of Husband’s business interests. This could be Husband selling or mortgaging things Wife owns (or jointly owns).
If you are calling us about asset identification, you already may have questions about what’s going on behind your back. But if you have signed away your right to have a say over sales of your own joint property, then any doubt you have about getting a second look should evaporate.
We have nothing against powers of attorney. They are useful documents. But if a marriage is disintegrating and you can no longer trust the person granted the power of attorney, that person’s actions become especially suspect when he can take your property and do what he wants with it, without having to tell you about his actions.
These POA documents vary by state, and you can assign just one or many powers over your financial affairs. The New York form looks like this.
One story we like to tell is about a former client who had been pressured into giving not a power of attorney, but simply a signature sample to be notarized. She didn’t understand why her husband and his family were adamant that she provide the signature, but she provided it anyway.
Without even a power of attorney, the husband was able to sell their jointly-held property by convincing a lazy county clerk that the year-old signature from a different state was sufficient proof that she wanted to sell their property to his brother.
More recently, a client had signed a power of attorney because she was on an extended assignment overseas, but was unaware that her husband had sold their home. The funds he realized were somewhere, but he had a few months head start to hide them.
A Tough Question: When Did the Trust End?
Divorce asset hunting is an emotionally draining procedure for many, in part because it’s an acknowledgement that someone our client once loved may have deceived them. The big question is, when did the deceit start?
Sometimes an odd action in 2017, for example, could lead to the assumption that actions before 2017 are above suspicion. That’s a mistake, but it could be very difficult to some people to admit to themselves that they’ve been deceived not for four years, but perhaps for 10 years or longer.
Whenever anyone tells us they signed a power of attorney, we must assume that as of that date (and usually earlier), the other spouse’s actions need to be investigated.
Fine print doesn’t mean print that’s illegible or incomprehensible, but it’s there for a good reason.
The fine print is where you will often find an important potential marital asset that can easily slip off the net-worth statement divorcing parties need to provide: Restricted stock units (RSU’s).
These are not the same thing as restricted stock or stock options, and are offered to employees mostly at publicly listed (but also at some private) companies.
What RSU’s Are
An RSU is simply a promise to pay someone later on with stock in a company (or money to buy the stock at the price on the day the promise is granted). Sometimes RSU’s expire if an employee leaves the company before they’re useable, but could be swapped for RSU’s in a new company the employee is moving to.
The time an RSU can be used is called the vesting date. RSU’s held but not yet vested won’t show up on a tax form because they are simply promises to pay (usually conditional on continued employment). Whether they are found to be incentive or bonus payments will often weigh heavily into the calculation of whether they are marital property.
An RSU is different from restricted stock, which is a share in a company that the person gets, but can’t sell until a certain future vesting date. Restricted stock has some value from day one because it confers voting rights, but you can’t sell it.
Stock options are something yet again. They are the right to buy a stock at a certain price at a future vesting date. Their value depends on what price you get to the buy the stock for later on. They can be very valuable if you have the right to buy a $60 share for $30, but if the shares plunge to $20, the right to buy them at $30 is worth nothing when you finally get the right to use the option. Options nearly always have some value before vesting.
How to Find RSU’s
If Husband works for a public company but says he has not been given any RSU’s, how could you find out that he is lying?
One quick way to find out if more investigation is required is to check the securities filings of Husband’s public company. It’s very straightforward if Husband is senior enough to be considered an insider (whether on the board or as a senior executive). The Securities and Exchange Commission filings contain details of compensation granted to such people. We check the annual reports, proxy filings and reports known as Form 4 filings.
But what if Husband is not senior enough to appear among the top few executives? You can still get a notion of the existence of RSUs. Say he works for Atento, S.A., a Luxembourg-domiciled, Brazil-based provider of customer relationship software all over Latin America. Even though Atento is based outside the U.S. it sells shares here and so has to file certain forms with the SEC.
According to an Atento filing last week, in 2017 the company granted RSU’s to “directors, officers and other employees” in 2017. Those RSU’s vested in January of this year.
If Husband insists he never got any RSU’s, the company (via subpoena if necessary) will back him up on it. Many times, a third-party benefits administrator is the one to go see for information.
Once you are going to the company, your lawyer will need other information. The plan document, for one thing, will tell you how to classify the compensation (incentive or bonus). Ask also for award letters, grant agreements, the employee manual and all amendment letters,
And if the company is private? There can still be stock-based incentives against the day the company goes public. You still go back to the company and ask.
As it happens, as I was writing this article a forensic accountant called to ask if I could assist a potential client who said her husband was “hiding stock options in his name or his sister’s name” in a Caribbean tax haven.
My answer: the company is the place to start to see if he got the options or if they were issued to his sister (who may also have worked there). Without knowledge that he had concealed assets, it would be tossing good money out the door to pay an expensive Caribbean lawyer to try to get records from a brokerage account overseas.
[For more on Offshore Asset searches, see our Offshore Asset Search Starter Kit].
[For more on how we approach our work, see our companion blog, The Ethical Investigator].
If asked to describe the attributes of a good investigator, “empathetic” is not the first word that would come to mind for most people.
For anyone looking for hidden assets, though, empathy is a must.
Empathy means “the ability to understand and share the feelings of another,” and it’s a critical tool for any professional who deals a lot with people. I realized recently that I’ve been recommending empathy for years without using the word. But I’m part of a wonderful chapter of the National Association of Divorce Professionals, and during a recent meeting one of the therapists in my Manhattan-based group pointed out the now-obvious about empathy. Our group has been together a long time, and the meetings feel like get-togethers will old friends. Out of relaxed discussions come some wonderful insights.
We’ve written many times here about the techniques we use to narrow the scope of an asset search. There are not magic databases that spit out the answer, and since you can’t look everywhere and under all keywords imaginable, you have to make some guesses to render the search manageable.
What might someone name his secret company? Which trusted friends might he use to put assets temporarily in their name? We always ask these questions of our clients because we want to think as much like our subject as we can. That’s empathy. We wrote about this in The Divorce Asset Questionnaire.
Empathy is not sympathy, or “agreement in feeling as between persons.” I don’t agree that someone refusing to pay child support is acting properly. But I empathize with him in understanding his feelings, and by putting myself in his shoes I might be able to guess what he would be doing to hide his money.
When do you want sympathy? If we can sympathize with our clients, that’s certainly helpful for client management, although a lawyer trying to keep a confessed murderer from being executed can’t be faulted for failing to sympathize very much with his client. That lawyer may have more sympathy for his client’s victims. But empathy is always called for when you want to represent your client as zealously as possible or to understand the motivations of your opposition.
Imagine fighting this virus without the internet or electricity.
The Covid-19 pandemic is one of two catastrophes we’ve read about from time to time over the past few years. The risk of a deadly virus has been discussed by the likes of Bill Gates and Nassim Nicholas Taleb. Most of us read, and then hope the authorities know what they’re doing and go back to sleep.
The other catastrophe is a successful attack on our electrical grid.
Russian hacking, as detailed in the Wall Street Journal last year, involved an attempt to infiltrate the power grid by targeting companies in 24 states, Canada and the United Kingdom.The previous year, Nextgov.com had reported on the Pentagon’s test of a worst-case scenario attack on the U.S. power grid.
The Defense Advanced Research Projects Agency exercise … was fictional, but it was designed to mimic all the hurdles and uncertainty of a real-world cyberattack that took out power across the nation for weeks on end–a scenario known as a “black start.”
A lot of what we call “money” wouldn’t work without power. Credit card machines would be dead, as would the websites that take credit. Generators run on gasoline, but the pumps for that don’t work without electricity.
If our banks had no power, how would we withdraw money?
Probably, we wouldn’t. Which is why it’s a good idea to do two things when you can:
What is all of this doing on a divorce asset blog? The New York Post reported this week that “cooped-up New Yorkers are flooding lawyer phone lines with divorce inquiries — with an avalanche of filings expected once the courts re-open.” Bloomberg News said the same thing is happening in Corona virus-wracked China.
Whether you are planning for divorce proceedings or weeks/months of no electricity, it makes sense to have hard evidence of what you and your spouse have in the bank. In the rush to go paperless, many of us have decided not to keep piles of printed bank statements at home, confident that if we need them, we can get them.
Backing up a pdf of your bank statement in the cloud may not cut it. Without electricity, how would you get to Dropbox? Instead, back up the statement on a laptop or external drive.
And even if you don’t buy the electric grid apocalypse, if contemplating divorce you will need those records sooner or later. If you need to show evidence of money disappearing, get the statements now and keep downloading them. It will be much cheaper than getting them in discovery later on.
For more on the kinds of information you will need in a divorce asset search, see our article here on the Divorce Asset Questionnaire.
A frequent problem when taking in a new asset search in divorce is figuring out how far back to look.
Clients in divorce usually know a lot more about their spouse than anyone else, at least when it comes to daily habits, close friends, and other bits of information that can inform our asset search. What might a secretive husband name a secret company? Which lawyer would he have used to set it up? Who would be holding assets for him until the divorce is finalized? We’ve written about this in Your Client Knows More than She Thinks.
We’ve also written many times about the questionnaire we insist new clients fill in for us, such as in The Divorce Asset Hunter Questionnaire. It can provide invaluable leads, and save clients money by not having us research and report on something they already know about.
But one blind spot some spouses carry with them is the time when the secretive behavior may have started. Wife thinks everything was fine in the marriage until 2015, because that is when she noticed strange behavior, odd withdrawals, more “business trips” to Europe for unclear purposes.
What we urge clients to remember is that things could have gone bad a lot earlier than that, but they – for a variety of reasons – could have failed to notice. By restricting a search to 2015 forward, we could miss formation of the Delaware company in 2011 that could be a great lead. We could decide not to call the former employee of the husband’s company who left in 2013, and who could have had insight into what went on during business trips that may have been just like the ones the wife noticed two years later.
It’s a balancing act. Your client knows a lot, but after all, if your client knew everything there would be no need to hire out for help with an asset search.
Our firm works on large corporate issues in which hundreds of millions of dollars or more are a stake, but emotions never run higher than in family law matters.
In the case of how far back to look for assets, you are raising the prospect of an even larger, longer-lived betrayal than the client already suspects. They trusted someone when perhaps they should not have, and that is never a pleasant thought to introduce.
Half the time when someone calls our office about asset identification they tell us, “I need bank account information.”
When told that without a court order there is nearly no legal way to get that kind of information from a bank without the account holder’s consent, many ask: “If it’s illegal, why did an investigator [or lawyer] get it for me last year?”
We’ve written about this before in Can You Get Me Bank Accounts and Some Cocaine, Please? But a refresher is always useful because the data robbers are still at it.
This blog takes no pleasure in calling anyone a criminal, but let us be clear: Most of those services on the web that promise “Bank account information – no hit no fee” are advertising a service that is almost certainly illegal.
Some say they are “Gramm Leach Bliley Act-compliant,” but when you press them on it, their reasoning crumbles. We called three of these outfits and did just that – pushed them until they were back-tracking or spouting nonsense.
First things first: The Gramm Leach Bliley Act (15 USC sec. 6801-6809 and 6821 – 6827) is the main piece of federal legislation that protects your bank account confidentiality. Most of us would not like the idea that competitors or nosey neighbors could pay a small fee and find out how much money we have in the bank. That is why banks are not allowed to hand over your account information unless they receive a subpoena, and even then, there may need to be a judgment or court order behind that subpoena.
What do some of these supposedly legal companies say when you ask them how they do it legally? Remember, by law you are not allowed to call up and trick the banks into thinking you are the account holder when you are not. That’s usually the way these companies do it, but they will never tell you that – it could get them arrested.
So how do they just walk in the front door, ask for the information and get it?
One place told the Atlanta Journal Constitution that they had access to the SWIFT system, an international messaging system between banks. That’s nonsense. SWIFT doesn’t have access to account data.
One place told us they use the “permissible uses” of Gramm Leach Bliley, and suggested we Google GLB permissible uses to see for ourselves that everything was legal. But doing so brings you to the page at Lexis Nexis that needs permissible uses (such as fraud prevention or witness location) to run data against Gramm-Leach-Bliley-regulated information. This means credit-header information – the stuff at the top of your credit report such as name, address, date of birth – but nothing like the contents of your credit report.
Yes, there are exceptions relating to matters of public safety or enforcing a child support order, but the average divorcing spouse who just wants to know if it’s worth continuing with an action rather than settling does not qualify.
In the end, if you have an investigator who tells you they can legally get bank accounts but will not show you the part of the law that permits this, find yourself another investigator.
If your lawyer insists that it’s all OK because the investigator has a license and knows what he’s doing, fire the lawyer too.
We’ve written here many times about how tough (i.e. slow and expensive) it can be to track down overseas assets. In short, you need to be going after serious money to make it worthwhile, and you can often get clues to the location of offshore money right here in the U.S. That’s helpful if you have no idea where to begin looking abroad.
But as the Jeffrey Epstein case illustrates, even when you know where to look, it’s a daunting task.
So far, several hundred million Epstein dollars remain unaccounted for. What we know is that he had money in this or that company or account, but that money is long gone. We know he had associates who helped him, but they are either not keen to cooperate as they contemplate cutting their own deals, or else they were not doing anything illegal in helping Epstein minimize his tax bill.
And what we do know of Epstein’s overseas activity came with some extra help: some documents relating to Epstein’s activities were part of a massive leak to a German newspaper which sent them to the International Consortium of Investigative Journalists, which maintains a very helpful search engine.
A recent Miami Herald story laid it out: “…a more detailed – but still very limited – look at Epstein’s wealth,” which included this: “From at least 2000 to 2007 Epstein was chairman of a company called Liquid Funding Ltd., which was initially 40 percent owned by the Wall Street investment bank Bear Stearns.”
So, the information is now 12 years old. The story continued: “Coupled with the fact that many of his businesses were operated in or with help from Caribbean offshore tax havens, the documents raise the likelihood that Epstein’s wealth is spread secretly across the globe.”
Epstein had as much as $3.46 million in some of the accounts long ago, but “this pales in comparison to his net worth — reported by his attorneys in court as $559 million — but suggests he had the ability to keep money in far-flung places. A check of the bank coding in the profile suggests that Epstein banked at the time with HSBC Private Bank (Suisse) SA in Geneva.”
You can see Epstein’s entry in the ICIJ database as well as the one for Liquid Funding. The ICIJ doesn’t release all the documents it has to the public, but journalists got a look at the 541 pages of Liquid Funding documents, and this is the best they came up with.
The New York Times reported recently that in 2011, billionaire Leslie Wexner’s foundation got a $56 million contribution from a trust linked to Epstein. But while the trust was listed as being under Epstein’s control in a Swiss bank account (again leaked via a French newspaper to the ICIJ), “it is not clear from public records who controlled Community Interest in 2011.”
Good start, long way to go. It seems safe to say that in the near future, any money Epstein’s victims can get will come from onshore assets.
This blog has been pretty clear over the years that an offshore asset search is not for the faint of heart or anyone on a tight budget.
We have recommended that even if you think there are assets outside the U.S., you could get a better idea of where they may be by searching U.S. public records first (The Offshore Assets Play Book).
Assume you want to do a little digging on your own for low-hanging fruit – signs of foreign assets that you could hand an investigator. You wouldn’t necessarily find the assets themselves, but you could provide useful leads that save you money if you eventually hire someone to do a fuller search. Some tips:
Will any of this replace what an experienced investigator can do? Not usually, because as I explain in my book, The Art of Fact Investigation, the real challenge of fact finding is in knitting together the output of various databases. More importantly, it’s playing smart hunches about which search terms to use and filing in the blanks the databases always leave. “John Smith and hidden assets and bank account” as a search term will never get you very far.
Still, if you run down some of these leads your investigator shouldn’t charge you for work you’ve already done, and you may get farther than you would have before.
In any search, that’s called progress.