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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.

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.

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 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.

You wouldn’t think old bankruptcies are a place worth checking when hunting for assets. If someone’s bankrupt, it means they are essentially out of money, right?

Wrong, at least sometimes.

We have found all kinds of wonderful material when looking at bankruptcies. Some of it leads right to assets, and some leads to a non-financial asset known as leverage: good information you can use to extract a better settlement.

Financial assets and information. What kind of asset can you find in a bankruptcy? The exempt kind. When people go bankrupt they don’t have to hand everything over to their creditors. Some states allow an entire main residence to remain in the hands of the debtor after discharge. The other day, we found a large pension fund in an old bankruptcy. Just check the schedule of exempt property in the petition. Of course, the fact that someone had an asset ten years ago doesn’t mean they have it now, but what if that person turns out to have misled his wife about the kind of money he had access to during the marriage? Chances are that if the pension money is something an estranged spouse is just finding out about, that money could have been moved into other accounts, taken out, invested or used in some other way that could be reachable.

Suppose the married couple did all of their banking at Bank of America, and the accounts there are nearly empty. Then, it turns out that the husband had a large IRA on deposit at JPMorgan Chase just before marriage. Wouldn’t the records of that account be of interest during the time of the marriage? What happened to the money?

Leverage. Compare what the debtor presented as his financial situation with what you know about the debtor. Did he leave out assets you know that he owned at the time? Misleading a bankruptcy court is a serious offense. There is no statute of limitations on re-opening a bankruptcy, and knowledge that could get a spouse into major trouble with a court could help move negotiations along on a settlement.

The takeaway point about bankruptcies is the same for most other information in an asset search: Keep your search as broad and general as you can. You are searching for assets, but also information that will lead to assets. That could be anywhere, which is why a good asset search is not that different from a thorough background check.

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.

Although a no-brainer when it comes to contemplating divorce, it’s remarkable how often couples forget about old bank accounts they thought had been emptied and closed, but turn out to be active and full of money.

This happened recently to one of our clients, who discovered a major cash purchase made by his wife when the store mistakenly sent her some correspondence about the purchase to their home address.

Less well known by couples but increasingly important is the need to take an inventory of email accounts. Just as bank accounts contain money you may want to get at, email accounts can reveal the location of money you want to protect, as well as financial information you may not be ready to divulge.

This issue came up in a New York courtroom this month: the wife and major breadwinner thought she had closed her husband’s email account when he moved out, but the account remained open.

Worse for her, the husband had set up both email accounts so that the wife’s account forwarded all her outgoing email to the husband. That setting remained in place long after the husband moved out. The only way she discovered the forwarding setting was that after closing her husband’s account for good, she began receiving notices that messages she sent could not be delivered.

She first ignored these, but when they continued appearing week after week, she carefully read one of the notices and saw that her email account had been trying to forward her outgoing messages to her husband’s now-dead account.

The result was that the wife brought an action against the husband for violations of the Federal Wiretap Act and the Stored Communications Act. The lessons here are pretty clear:

  1. Getting access to someone else’s email is under most circumstances illegal without their knowledge. In the case above, the wife originally may have consented to the forwarding arrangement but the judge has ruled that under the Wiretap Act the scope of her consent (whether it extended to post-separation forwarding) is a question for the jury.
  2. Reading the fine print on the internet is well worth your time. We’ve written before on our companion blog, The Ethical Investigator, about email headers in Digital Assets: Worth Money, but Also Great Providers of Information. But here, the consistent attempts by her account to forward email to a place she had not specified were there for her to see as long as she didn’t just erase the relevant message from the service provider.
  3. Email accounts are things of value, not so much for what they cost to maintain but what kind of information is held in them. If your account is jointly owned, the other owner can claim he has the right to the messages you have sent but not copied that other owner on. It should be commonplace when asking about the other side’s assets in discovery to ask about ownership of electronic assets.

Grandchildren of the late Judge Leander Perez, a segregationist political boss who ruled Plaquemines Parish, Louisiana from the twenties until his death in 1968, recently filed a so-called “legacy lawsuit” against several large oil companies for allegedly polluting land on which the family held mineral rights.  The glaring problem with the plaintiffs’ case is that Perez stole the mineral rights in question from the Parish he controlled for over 40 years.

Although it was no secret that Perez was crooked, exactly how Perez and his family amassed their $80 million fortune remained a mystery until 1987.   Suspecting Perez’s misdeeds, Plaquemines Parish later brought a lawsuit against him and his family.

The Parish could prove nothing until one of their lawyers decided to try sifting through the records from Perez’s son’s divorce.  In the file, the Parish lawyer found a scrap of paper that referred to a company called Delta Development Inc.  Delta Development Inc. turned out to be the company the Perez family had used to receive their oil royalties for decades.

Our big break in a case often comes from the unlikeliest of places.  We always tell our clients to try to think outside the box when developing an asset search strategy because you don’t know what you don’t know.  It just might be worth getting that old case out of archives or interviewing that former secretary.

In fact, much like in the Perez case, we rcently uncovered offshore companies holding assets at issue in a commercial litigation by reading through the public divorce filings of one of the defendant company’s executives.  Our clients, who previously had no reason to suspect that their adversaries were conducting business through offshore companies, can now craft discovery demands that could reveal what we suspect may be a much larger network of hidden offshore companies and assets.

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.

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.