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].

 

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.

For women wondering whether their ex-husband (or soon-to-be ex) is hiding assets on them, rest assured that you are not alone.

According to a new white paper put out by Francis Financial, a wealth-management firm that specializes in advising women, 63 percent of women the firm surveyed “felt strongly that their husband was hiding assets during the divorce process.” The firm says this was among the first such studies focusing on women who have divorced or are in the process of divorcing.

Where to begin if you are one of those women? The study said that many who thought they were being cheated out of assets “had to grapple with the decision of hiring a forensic accountant,” and this may be an advisable step.

But as we often tell our clients, a forensic account is someone you may wish to hire after you are sure you have looked everywhere for the missing assets. As we wrote last year in How Investigation Helps Forensic Accountants, “where we can offer help is to find entire new companies that Wife and her accountants (forensic included) did not know existed.”

Some basics:

  • We don’t start just by looking at what a woman thinks are the places her husband is hiding assets, because if you know where the stuff is, you don’t need us. If assets are hidden you may be surprised at where they turn up.
  • We always like to give our clients a questionnaire that asks for all kinds of information about the person we’re searching. What might he name a secret company? What was the street he grew up on? Many hedge funds and private equity firms turn out to be named for the childhood streets of their founders. I know this because I always ask where these firms get their names.
  • Don’t expect us to come up with lots of hidden cash. People hear “assets” and think “cash” because it’s the first asset listed on any balance sheet and the easiest to use once you get it. The problem is that in the U.S., it’s illegal to get bank account information without a court order. What we can do is find likely hiding places of cash, based on business relationships and other legal sources. One client gave us the home computer she and her husband used, and we found that he had visited about a dozen websites of asset management companies. These were ripe for subpoenas at the appropriate time in the proceedings.
  • You don’t have to find every last penny to get some satisfaction. Once someone knows we have uncovered a significant portion of their hidden assets, their settlement offer can improve quickly. Some women have the means and the drive to litigate for years. Others just want a fair deal and to move on with money sufficient to take care of them and their children. Either way, asset investigations and a good forensic accountant are often worth considering.

According to Bloomberg, the co-founders of Ezra Holdings, Ltd., a Singapore-based offshore marine company, reached a confidential settlement resolving their lengthy legal battle over $164 million in marital assets.  Much of the dispute centered around ex- wife Goh Gaik Choo’s claim that ex-husband Lee Kian Soo had dissipated marital assets.

Goh alleged, that after she filed for divorce in 2008, Lee and the couple’s son Lionel colluded to dispose of Lee’s assets.  Lee transferred a sizable amount of Ezra stock for 45 Singapore cents per share to son Lionel.  The problem was that market value of the shares was nearly triple that at the time.  When called upon to explain the transfer, Lee told the court that he transferred the shares for 45 cents because he was born in 1945.  The court didn’t buy this rationale and ordered that Lee pay Goh a hefty sum but did not award her monthly maintenance as she had requested.  The settlement resolved both sides’ appeals.

We’ve blogged about transferring assets to friends and family here before. This case is an excellent example as to why every asset search should start with a look at the public record.  Many times this look should include a review of records on people close to the debtor.  This includes securities filings, litigation records, real property records, media reports and more.  Reviewing securities filings can be particularly enlightening in cases like this one.  Ezra Holdings is publicly listed on the Singapore Stock Exchange.  The Singapore Stock Exchange tells you the top 5 owners by shares held in a listed company.  Lee’s son Lionel is the top Ezra shareholder at nearly 23%.  A comparison of his ownership stake in given years would probably tip you off that Lionel had been amassing shares of the company, prompting a closer review of his securities transactions.  To the same effect, had Lee been listed as a top 5 owner in one year and disappeared off the list some time later, this would tend to indicate dissipation of assets.

In the US, directors of a public company and its beneficial owners of 5% or greater must file forms with the SEC indicating the number of shares they have and when their ownership stake changes.  We tend to find extremely valuable information in these forms which is why we always make sure to save plenty of time to dig through SEC records when we’re searching for assets.

Of course, not every company is a public company and private companies might require more digging.  But there is still a lot of value to be had in doing a public record search and uncovering all that you can before moving on to latter phase investigative techniques or bringing in forensic accountants to dissect financial records.

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.

Back in January, we posted a story about a Canadian investigative company whose owners, Michael Grontis, Cullen Johnson, and Elaine White, had fleeced their customers out of millions by promising to find assets hidden in offshore accounts.  Instead, they created fraudulent bank records and passed them off as real.  These crooked investigators’ work has surfaced once again, this time in the divorce of a Malaysian tycoon.

Shahnaz Abdul Majid claims that her husband Datuk Seri Mahmud Abu Bekir Abdul Taib, a prominent Malaysian businessman and government official, is worth hundreds of millions of dollars.  She says that much of his wealth is in the form of offshore accounts and investments in foreign companies in Australia, Canada, the U.K., and the U.S.

The problem with Majid’s assertions is that they are based on the “forensic accounting” work of convicted fraudsters Johnson and White.  Taib, of course, maintains that he has far less money than his wife thinks he does, and that Johnson and White fabricated records of fictitious overseas accounts and investments.  Given that Johnson and White are currently serving a five year prison term for doing just that, his allegations just may be true.

The problem is that he still may be hiding money, and he is more likely to get away with it because Majid used investigators who were willing to break the law to give her what she wanted.  Just assume for a moment that the bank records showing foreign accounts were real, she still went about getting them the wrong way.  We’re not experts in Malaysian evidence rules, but in the U.S., what reasonable judge would even glance at bank records that are unauthenticated and illegally obtained by an investigator?

Any investigator or forensic accountant worth their salt should have explained the dangers of illegally obtaining bank records and the advantages of doing things the right way.  As we tell our clients all the time, accessing someone’s bank records without their permission or a court order violates federal and state law, and can lead to criminal prosecution.  Even though we can’t get bank records, we can often find more than enough information through legal means to help you determine a spouse’s net worth.

We can identify real property, stocks, corporate holdings, deferred compensation, pensions, and countless other forms of assets through public record searches.  Interviews with former employees or business partners can also tell you where a debtor or his companies do their banking.  You can then issue appropriate discovery demands or subpoena records directly from the debtor’s bank.

In the end, following the rules will get you more and better information, and it will also ensure that the information you find can be used to your benefit in court.

 

PROBLEM:

You suspect your debtor has interests in a pension plan or trust, but you’re so out of the loop with the family finances, you aren’t sure where to start looking for the money.

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SOLUTIONS:

As we always say, check out your debtor’s tax returns.  For pension income, see if you can find your debtor’s 1099-R statements.  If he’s receiving distributions from his pension plan, this should be reflected in piggy bank, hidden assets, trusts, pensions, secret truststhese statements or on a W-2.  Take a look at our blogpost on finding information on your debtor’s 401(k) or IRA plan for more detail about finding evidence of your debtor’s 401(k) or IRA.

If you think your debtor may have hidden some of his money in trusts, have a look at the miscellaneous deductions on his tax return’s Schedule A.  Did he include expenses for estate planning advice in any given year?  If he did, try giving the estate planner a call.  You should also see our blogpost on finding offshore assets if you think your debtor may have hidden some money abroad.

Even simpler than taxes, try turning to the internet for information.  It’s most likely that you’ll find some detail about your debtor’s pension fund if he is a public employee.  For example, New York has pension projection calculator that will give you an idea how much money is in your debtor’s fund.  If your debtor works in the private sector, try googling the company with the words “pension fund” or something similar.  Although most private-sector companies have switched over to 401(k) plans rather than traditional pension funds, some have not.  You may also find an older news article that indicates that your debtor is grandfathered in to a company’s former pension plan based on the time period he began working for the company.

Finally, think about people you can speak to to gather information.  We already mentioned giving your debtor’s estate planner a call to look into assets that might be hidden in trusts.  For pension information, try calling someone in HR at your debtor’s employer.  Because you’re the debtor’s spouse, HR might not hesitate to give you at least some general information about your debtor’s pension plan.

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PROBLEM:

A debtor hit it big in a poker tournament and promptly squirreled away the prize money.  Now, when the creditor asks about the winnings, the debtor’s response is, “Poker? Sure, I play for fun, but I’ve never won any real money at it.”

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SOLUTIONS:

Like lottery winnings, which we wrote about here, all gambling income must be declared to the IRS.  If you have access to the debtor’s tax returns, gambling winnings should be reported as part of his gross income.  Professional gamblers should report their winnings as business income.  Your debtor is only a professional if his “gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby.”  Commissioner v. Groetzinger, 480 U.S. 23 (1987).

When a gambler wins at a casino, the casino sends him (and the IRS) a W2-G reflecting the amount of the win.  If the gambler does not report the winnings, he may be prosecuted in tax court.  Tax court records, which we always review as part of any asset search, may reveal the amount of his winnings.  The picture is murkier in the case of offshore online gambling sites, which exists in a sort of regulatory limbo.  The IRS will not receive a W2-G from the online gambling site, so, although the gambler is still required to report the income, he is essentially on the honor system.

If you have access to financial records, look for evidence of travel to gambling destinations like Las Vegas or Atlantic City.  Also, pay attention to purchases that the debtor made while on his trip.  A luxury impulse buy or a lavish dinner may be clues that the debtor celebrated a big win, even if he has hidden the winnings.

Litigation searches can also reveal a debtor’s gambling activities.  In the course of one of our investigations, we found court records showing that the COO of a major corporation had tried to avoid his gambling debts at an Atlantic City casino by arguing that he did not have to pay because he was not a New Jersey resident.  Unsurprisingly, he lost the case, but the court records gave us a window into his gambling habits.

Finally, never underestimate the human need to brag.  Chances are, if a casual gambler beat the odds in Vegas, he’ll tell his story to anyone who will listen.  Talk to friends, family, co-workers or, better yet, gambling buddies.  Also check social media outlets to see if the debtor has been boasting to his friends.

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PROBLEM:

A couple had seven different bank accounts when they were married, but the wife never kept close tabs on them. Now the husband is using money from a joint account that the wife doesn’t realize is still open.

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SOLUTIONS:

Bank records are like medical and cell phone records: you can get them without a subpoena, but you could go to jail for doing so. Calling a bank and pretending to be the debtor in search of his bank balance is simply not allowed under federal law. Still, a debtor makes a mistake by underestimating the resourcefulness of a spouse who thinks she’s being robbed. We had a client who was able to go over a list of “old” bank accounts with her bank manager, only to find that joint accounts she thought had been closed (because her husband told her they had been) were in fact still open and active. As a joint holder, she had access to those records. We then went to work looking at payees and other information.

Another client was able to figure out the presence of undisclosed accounts because her husband had backed up his smartphone on the family computer before moving out. As a jointly owned computer, we were allowed to look at it and discover text messages that referred to an account at a particular bank.

Finally, for clients still living with their estranged spouse, valuable information is often lying at the bottom of the drawer. One client discovered an old bank statement that referred to an offshore corporation controlled by her husband, and we then determined that the husband was taking an extra “consulting” fee from his public company without disclosing it.

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COUNSELOR’S PERSPECTIVE

Craig W. Sampson, Esq. of Barnes & Diehl PC in Richmond:

The person hiding the funds does not have to make it factually impossible to locate them; he only needs to make it financially untenable for the opposing party to keep digging.  Sometimes the best way to proceed is not by looking for the money itself, but rather by tracking what money is being spent.  If the person’s expenses for mortgage(s), vehicles, credit cards, private school, etc. greatly exceed the amount of income that the person claims, then it becomes obvious that there is a failure to disclose.

If you are concerned that there may be additional accounts that are not being disclosed by the other side, send a subpoena to all of the banks in the area and request information on all accounts in that person’s name.  With a little luck, not only will you be able to convince a court that the person is lying about his assets and income, you might also be able to uncover where those assets are hidden.

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