Finding assets can be satisfying work, but frustration sometimes comes in realizing that a client’s lawyers haven’t been asking the right questions in their depositions.

We have written repeatedly that getting bank account information without a court order is illegal (other than discovering it on a shared computer or in records lying around). When we are looking for assets before a lawsuit has been filed, getting at bank records is a long shot, and what we look for are banks and brokerage accounts our clients’ lawyers can ask about when the time comes for discovery.

But how unfortunate it is when a client has been through discovery, or perhaps has a divorce agreement the former spouse is cheating on, and we find out that the lawyers never asked the right question.

The right question involves not just what someone makes, but what a company may be paying a company that employs that person or that beneficially owned by that person. The right question might be: “we see that your Oklahoma company paid taxes in seven other states. Why? What activities has the company had there?”

Not long ago, a woman came to us and asked us to find out where her ex-husband is working. We found convincing evidence that he was still employed at the same company as he had been during the divorce. At the time, his boss had been deposed and told our client’s lawyer that the ex-husband was making a paltry amount of money.

This seemed unlikely given his title and his history of high compensation. When we looked at the deposition transcript, it turned out that the boss had never been asked about beneficial ownership of companies.

It can work this way: instead of paying Mr. Jones his full salary, it pays Mr. Jones a small amount of money so that Mr. Jones can look as if there’s not much money to go after. The real money goes to Alpha LLC, a company Mr. Jones controls. Alpha LLC may have an agreement with the company that it will supply Mr. Jones’ services, for instance.

Companies don’t care how they pay you as long as they account for all of their payments and withhold the right amount of taxes and other government payments. If they are public and Mr. Jones is a major executive, they may have to disclose the compensation arrangement in securities filings. But if they are private, they don’t have to tell you about those payments to Mr. Jones’ side companies, trusts, or other vehicles.

Unless of course they are under oath and you ask them.

GPS trackers are among the hottest topics in ethics discussions today. At least, that is my impression after a series of ethics lectures I’ve given around the country based on my book, The Art of Fact Investigation.

Map pin flat above city scape and network connection concept

We wrote three years ago about the need for caution before using one of these devices on someone else’s car, here.

They are powerful devices that gather up a ton of information that it would take thousands of dollars and round-the-clock surveillance to duplicate. Today, the trackers are probably among the fastest-changing areas of privacy law, and for good reason.

We know it’s illegal to get someone’s cell phone records, though many people still offer this service. (It’s still illegal. If they offered you drugs or contraband, would you buy it anyway?) Banking and medical records, similarly, are off-limits without the other person’s consent or a court order. Yet, in many states it was only recently that placing a GPS tracker on someone else’s vehicle was not seen as an invasion of privacy.

Times are changing fast. In 2011, the Supreme Court held in U.S. v. Jones that placement by the government of a GPS tracker on anyone’s car amounted to a Fourth Amendment Search that required a warrant. The court split over the reasoning, but gradually the concurrence by Justice Alito (joined by Justices Ginsburg, Breyer and Kagan) seems to be taking hold. They concurred that GPS trackers by the government need court supervision, but not because this amounted to trespassing but because people have a reasonable expectation of privacy that their every movement won’t be monitored that easily.

The Jones case didn’t address the issue of private parties slapping these devices on the vehicles of others, but the states seem to be following suit with respect to the “reasonable expectation” theory.

Among the milder restrictions is New York’s, which  added GPS trackers to its anti-stalking law. If you tell your estranged husband to leave any trackers off your car, he’s got to abide by that or face misdemeanor charges. As his lawyer who ratifies that illegal conduct, you could be up on before an ethics panel.

California and Texas have gone further: you just can’t put these trackers on someone else’s car – period.

In my view, that’s the way the rest of the states are probably going. Laws that restrict the placement of trackers to those that don’t drain the car’s battery miss the privacy point and people just won’t put up with this forever.

So, to be safe, put these trackers on a car only if the person authorizing the placement is the owner of the vehicle.

There are plenty of workable alternatives to using GPS trackers. Not as cheap, not as comprehensive, but still legal. We will go over some of those in the next posting.

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.

One of the most powerful tools a spouse had to monitor assets or other activities is to look at the shared computer of the spouse under investigation. We have written before in When You’re Allowed to Look Through Your Debtor’s Computers and Phones that as long as a person can show ownership of the computer, anything on that computer is probably fair game to look at, subject to some exceptions.

Hacker in old warehouse.

Sending the contents of what you find to the cloud (a remote server controlled by someone else) is another question. A new case in the Sixth Circuit this month held that software that monitors keystrokes and content amounts to illegal wiretapping under both federal and Ohio statutes. You can read the case, Luis v. Zang here.

This case involved a technology called WebWatcher, which allows a person to monitor a computer’s activity. Where it got the company and the husband in trouble was that WebWatcher allows you to look at the material in nearly real time once the content of the computer activity is stored on the company’s server. The fact that WebWatcher appears captures the information contemporaneously is what turns this into wiretapping, the court held.

The critical distinction in wiretapping jurisprudence is between instantaneous access and access to information that’s stored. If all WebWatcher did was to store a record of the emails sent and received on the computer, that would not have been wiretapping.

The decision applies to the Sixth Circuit, although all the circuits agree that to have wiretapping you need contemporaneous capture of the information. Depending on the kind of software you use to log keystrokes and the transmission (if any) of that information, you could end up with what the Sixth Circuit calls wiretapping or just storage of information you have a right to see.

What’s certain is that it’s incumbent on any lawyer using such information to know how the program works. Just because it comes out of a small box you buy at a big box store doesn’t mean it will produce admissible evidence.

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.

 

The debate so far over whether Apple should help the U.S. government execute a warrant to see what is on one of its phones has focused on the information of a dead terrorist and the prospective data breach (according to Apple) of millions of law abiding citizens.

The stakes are high, but lost in the discussion is the future of data retrieval to fight another kind of wrongdoing: deadbeat parents who won’t pay child support or greedy spouses who hide assets during and after divorce.prenups if apple wins

We spend a lot of time looking for such assets, and while we have generated lots of good leads, nailing the case often requires the production of bank accounts.

Imagine this: Husband handles all the finances of his businesses and gives Wife an allowance to run the home, pay the school fees and taxes. When Husband decides to end the marriage, he begins to divert cash taken out of the business to bank accounts held in the names of limited liability companies he has set up around the country. Some of the accounts are in Caribbean tax havens.

The court orders Husband to produce all financial records. He does, but they seem “light.” Husband is ordered to produce his phone as evidence, since some of his banking may be paperless. He hands over the phone but not the password. “If a dead terrorist has rights, so have I,” he proclaims.

Recall that Apple co-operated with law enforcement in handing over everything the terrorist had backed up on the i-cloud. It was just the material not backed up that Apple decided it should not have to help uncover.

What should wives like the woman in our example do to protect themselves against super-encrypted, paperless financial records available for the price of a smartphone?

One idea we had in our office was this: draft a prenuptial agreement that shifts financial burdens in the event that the entire contents of the phone are not backed up once a week. In the event of a divorce, once Husband can be shown to have stopped uploading the records to the cloud, he automatically surrenders his share of tangible assets the wife can find: homes, cars, shares of businesses.

Some states may frown on such an approach, but we will have to figure something out if millions of us (in a world in which Apple prevails) can go dark as to our financial records at the drop of a hat.

Side note: would we back Apple if the facts and company involved were a little different? What if Goldman Sachs built a super-secure bank vault miles underground in the desert? Hedge fund billionaires and Russian oligarchs use the vault to keep records that could prove tax evasion, insider trading, market rigging and a host of other financial crimes. The vault is booby-trapped to explode if anyone tries to break into it. Even if you get past that system, each individual box is rigged so that if anyone dries to drill into it, acid is released and destroys the contents.

When presented with a court order to open the vault, Goldman says, “No. If we break into one bad guy’s vault, the secret of how to disable it would leak out and someone else could break in. Our customers find this offensive.”

You wouldn’t want to ask anyone to steal bank account information about your client’s spouse. You would never ask for the theft of that person’s medical records. You would not try to break into his office to take the computer on his desk to see his work email.

So why would you delight in using information stolen from Ashley Madison? Why would you even endorse it, as many have, because it somehow gives wrongdoers what they deserve?

Where adultery is legal, disapproving of the activity is no reason to commit a crime. If the Ashley Madison break-in was OK, so was Watergate.

Of course, using information that is in the public domain is different from using information that you yourself have stolen. Newspapers in the U.S. routinely report the products of illegal leaks, but even journalists in countries outside the U.S. who do not enjoy First Amendment protections need to be careful about possessing stolen information.

The next time a newspaper (even in the U.S.) reports on a leak and writes that its reporters have reviewed (but not obtained) documents, you might ask why they didn’t make a copy. It could be because possession is worse in the eyes of law enforcement than a quick look at what someone else obtained.

With Canadian police saying that they intend to prosecute the leak of Ashley Madison’s information as a theft, just as they would go after a bank robber or a credit card hacker, we should ask ourselves what to do with the information that comes from the theft.

Is it admissible into evidence? Lots of information that is reported in the newspapers or on the internet every day would not be admissible, because it is hearsay and doesn’t fall into one of the many hearsay exceptions, or maybe because it violates the no-contact rule. Or, it was procured legally but in a way that bar associations would view to be unethical. For instance, recording a phone conversation is legal in many states if just one of the two people on the call knows about the recording, but many bar associations say lawyers should not record conversations unless someone’s liberty is at stake.

The search for assets would not likely take us toward the Ashley Madison database to begin with. But if one day a client asked about it, my preference would be to warn my client that this is stolen property and to let them look if they want (how can you stop them?) If my client were outside the U.S., I would warn them to proceed with even greater caution.

 

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.

In an unusual move for a divorce case, a Queens judge added Benny Tal’s business partners as defendants in Benny’s divorce action because the three men had colluded to hide Benny’s assets from his wife Michal.  As Michal told the New York Post, “It’s like a dirty soap opera. There’s so much fraud going on, we now have a divorce proceeding involving a husband, wife and his two business partners.”

Hidden Assets DivorceBenny, along with his two business partners, owned a lucrative parking garage in Manhattan through a company called Kura River Management, Ltd.  As part of the Tals’ divorce proceeding, the judge ordered a valuation of Kura River.  Benny’s business partners obstructed the valuation after the appraiser discovered that Kura River had hidden at least $100,000 in cash from Michal and from the tax authorities.

In the meantime, Benny and his partners met with an attorney whose license had been suspended to discuss ways to hide Benny’s money.  They decided that the partners would buy Benny’s $1.6 million stake in the company for $250,000, in violation of the court’s restraining order.  Benny then promptly took the cash and ran.  When the judge had him arrested and dragged back into court, Benny claimed that he had squandered all of the money on bad investments.

We have seen countless cases in which the non-moneyed spouse (in our experience, this is often the wife) thinks that her husband runs a fairly straightforward, lucrative business.  Come divorce time, the husband says he’s destitute and the business is hemorrhaging money.  With some digging, you can often find out whether the husband may have taken steps to make his company look less profitable on paper.

In this case, we would have started by investigating whether Benny had any other companies he could have used to hide income from his parking garage business.  We would also have interviewed former employees, litigation opponents, or others who had done business with Benny and Kura River to ascertain how much cash business the company did, how diligently they managed the company’s books, and whether they had side companies or accounts that they used to hide cash.  Then, we would have taken a close look at the finances and lifestyles of his business partners.  We would also look for any real property, vehicles, aircraft, or other purchases Benny might have made so that he could plausibly claim that he spent all of his money on bad investments.   A good divorce lawyer can then use that information to send targeted subpoenas and recover Benny’s and Kura River’s hidden assets.