Ok ...
PICHARDO said:
Show me proof of the last one done or shall I say the first one???
:
In Federal Trade Commission v Affordable Media, LLC and Linda and Michael Anderson (CV-98-00669-LDG), 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.
The court found the Andersons did not satisfy their burden of proving "categorically and in detail" that compliance was impossible. The court then skewered the asset protection industry by stating:
In the asset protection trust context, moreover, the burden on the party asserting an impossibility defense will be particularly high because of the likelihood that any attempted compliance with the court's orders will be merely a charade rather than a good faith effort to comply. Foreign trusts are often designed to assist the settlor in avoiding being held in contempt of a domestic court while only feigning compliance with the court's orders. (emphasis added)
The court then upheld the district court's finding that the Andersons remained in control of the trust. The standard of review for the appeals court was whether this finding was in "clear error" and the appeals court found it was not.
The court noted:
The Andersons had previously been able to obtain in excess of $1 million from the trust in order to pay their taxes. Given their ability to obtain, with ease, such large sums from the trust, we share the district court's skepticism regarding the Andersons' claim that they cannot make the trust assets subject to the court's jurisdiction.
Moreover, beyond this general skepticism concerning the Andersons' lack of control over their trust, the specifics of the Andersons' trust indicate that they retained control over the trust assets. These offshore trusts allow settlors, such as the Andersons, significant control over the trust assets by allowing the settlor to act as a co-trustee or "protector" of the trust.
What this means to the off-shore asset protection advocates is simple: Unless a defendant can demonstrate categorically and in detail that it was impossible to repatriate assets -- a burden of proof that is particularly high with respect to asset protection trusts -- a district court's finding that the defendant failed to meet his burden will be upheld by the appellate courts, unless there was clear error. In short, with respect to an asset protection trust, a defendant stands virtually no chance of meeting his burden of proof and a district court's contempt order, likewise, stands almost no chance of being overturned.
The court dealt another body-blow to the asset protection industry by stating that acting as "protectors" of the trust demonstrated control. The concept of a protector stems from English law in which a person advises the trustee with respect to the trust. The protector does not legally control the assets but trustees will invariably follow the directions of the protector anyway; because, as a practical matter, if they did not, they could not remain in the trust business for long. The court stated:
The district court's finding that the Andersons were in control of their trust is well supported by the record given that the Andersons were the protectors of their trust. A protector has significant powers to control an offshore trust. ? A protector can be compelled to exercise control over a trust to repatriate assets if the protector's powers are not drafted solely as the negative powers to veto trustee decisions or if the protector's powers are not subject to the anti-duress provisions of the trust. ? The Andersons' trust gives them affirmative powers to appoint new trustees and makes the anti-duress provisions subject to the protectors' powers, therefore, they can force the foreign trustee to repatriate the trust assets to the United States. (emphasis added)
Perhaps the most telling evidence of the Andersons' control over the trust was their conduct after the district court issued its temporary restraining order ordering the repatriation of the trust funds. The Anderson's sent a notice to the foreign trustee, ordering it to repatriate the trust assets because the district court had issued a temporary restraining order. The foreign trustee removed the Andersons from their positions as co-trustees and refused to comply with the repatriation order. After the Andersons claimed that compliance with the repatriation provisions of the temporary restraining order was impossible, the Commission revealed to the court that the Andersons were the protectors of the trust. The Andersons immediately attempted to resign as protectors of the trust. This attempted resignation indicates that the Andersons knew that, as the protectors of the trust, they remained in control of the trust and could force the foreign trustee to repatriate the assets.
The court noted that even if the Andersons were not protectors, they still could have been in control of the trust. In all probability, if the Andersons had successfully resigned as protectors, but had the ability to appoint a friendly (i.e. non-independent) protector, they would be considered in control of the trust. The court did not reach this issue because it expressly found that the Andersons were the protectors of the trust.
In conclusion, to make it clear that the very concept of an asset protection trust is under attack by the courts, the courts noted:
Given the nature of the Andersons' so-called "asset protection" trust, which was designed to frustrate the power of United States' courts to enforce judgments, there may be little else that a district court judge can do besides exercise its contempt powers to coerce people like the Anderson's into removing the obstacles they placed in the way of a court. Given that the Andersons' trust is operating precisely as they intended, we are not overly sympathetic to their claims and would be hesitant to overly-restrict the district court's discretion, and thus legitimize what the Anderson's have done.
The court left no doubt that the asset protection trust, in its attempt to oust a U.S. court of jurisdiction, failed miserably. All a court has to do is issue an order directing the defendants to repatriate the assets to the U.S. If the defendant fails to comply, the court will hold him in contempt of court and throw him in jail. As a practical matter, the defendant will never meet the particularly high burden of proving categorically and in specific detail that it was impossible to repatriate the trust assets. For that to happen, the defendant would have to sever all direct and indirect control over his assets and those who control them, and no rational person would do that.
