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Copyright 1999 Robert L. Sommers, all rights reserved.

September, 1999 Hot Topics - part 2 of a 2-part series

The Off-Shore Asset Protection Trust Industry

An Expensive and Wasteful Exercise in Wishful Thinking


The Ninth Circuit Weighs In

In Federal Trade Commission v Affordable Media, LLC and Linda and Michael Anderson (CV-98-00669-LDG, decided June 15, 1999), Judge Wiggins, upheld the district court's order of contempt against the Andersons. It is noteworthy that the Anderson's were represented on appeal by the international heavyweight law firm of Baker and McKenzie, so there is little doubt that the best arguments that could be made for asset protection were before the court. In other words, the asset protection crowd took its best shot with top-notch legal representation and still came up completely empty-handed.

The court found the Andersons were involved in a classic Ponzi scheme, in which earlier investors were paid off from later investors, until the whole scheme collapsed. The following are the salient facts:

While the investors' money was lost in the fraudulent scheme, the Andersons' profits from their commissions remained safely tucked away across the sea in a Cook Islands trust. When the Commission brought a civil action to recover as much money as possible for the defrauded investors, the Anderson's advanced two incredible propositions. First, they claimed that they should retain the 45 percent commissions they received for their role in the fraud, even though they acknowledged that the investors were defrauded. They claimed this entitlement because they merely sold the toxic investments that fueled the scheme and propped up the duplicitous house of cards. Second, the Anderson's claimed that they were unable to repatriate the assets in the Cook Islands trust because they had willingly relinquished all control over the millions of dollars of commissions in order to place this money overseas in the benevolent hands of unaccountable overseers, just on the off chance that a law suit might result from their business activities. The learned district court was skeptical of both arguments and chose to grant the Commission its requested preliminary relief.

An old adage warns that a fool and his money are easily parted. This case shows that the same is not true of a district court judge and his common sense. After the Anderson's refused to comply with the preliminary injunction by refusing to return their illicit proceeds, the district court found the Anderson's in civil contempt of court. (emphasis added)

The asset protection trust operated as follows:

In response to the preliminary injunction, the Andersons faxed a letter to AsiaCiti on May 12, 1998, instructing AsiaCiti to provide an accounting of the assets held in the trust and to repatriate the assets to the United States to be held under the control of the district court. AsiaCiti thereupon notified the Andersons that the temporary restraining order was an event of duress under the trust, removed the Andersons as cotrustees under the trust because of the event of duress, and refused to provide an accounting or repatriation of the assets. The trust assets were therefore not repatriated to the United States and the Andersons have provided only limited information to the district court and the Commission regarding the trust assets. (emphasis added)

However, the district court believed the Andersons remained in control of their trust and rejected their argument that they could not comply with the court's order because repatriation of the trust assets was impossible. On appeal, the Andersons argued that the refusal of AsiaCiti to repatriate the trust assets to the U.S., made compliance with the court's order impossible.

The Ninth Circuit, however, found that the very goal of the trust was to make repatriation impossible and such a "self-induced" impossibility was --

the intended result of their own conduct -- their inability to comply and the foreign trustee's refusal to comply appears to be the precise goal of the Andersons’ trust.

NOTE: The balance of this article has been incorporated into the Tax Prophet's Action Guide entitled, "The Off-Shore Asset Protection Trust Industry - An Expensive and Wasteful Exercise in Wishful Thinking" described below:

The Off-Shore Asset Protection Trust Industry - An Expensive
and Wasteful Exercise in Wishful Thinking

This Action Guide contains a scathing critique of the dubious off-shore asset protection industry. In contrast to the concepts discussed in the Wealth Preservation Action Guide, off-shore asset protection clearly does not work. This Action Guide is a must read for anyone who has an off-shore trust or entity or is considering placing their assets off-shore. The Action Guide is also helpful to creditors and their attorneys seeking to pierce through an off-shore asset protection schemes.


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