The Jamie Solow Case: Counsel Discusses “What Really Happened”

In Asset Protection Planning Newsletter #151, LISI Commentator Team member Gideon Rothschild provided members with his analysis of Securities and Exchange Commission vs. Jamie Solow. We promised that Gideon’s commentary would be followed by the commentary of Howard Rosen, counsel for Mrs. Solow, and Jeffrey M. Verdon, Esq.

Now, Howard D. Rosen, Esq., of Donlevy-Rosen & Rosen, P.A., Coral Gables, Florida, joins Jeffrey M. Verdon, Esq. of Jeffrey M. Verdon Law Group, LLP, Irvine, California and Las Vegas, NV, and together they provide members with their unique perspective on Solow.

EDITOR’S NOTE: The commentary below is another interpretation of the important Solow case. As one of the authors is Mrs. Solow’s attorney, some members might find this commentary less then totally objective. Nevertheless, we have chosen to share it because it makes points that some members may wish to explore further.

Now, here is Howard and Jeff’s commentary:

EXECUTIVE SUMMARY:

On January 15, 2010, Florida District Court Judge Donald M. Middlebrooks found Jamie Solow in contempt of the Court’s Final Judgment (“Final Judgment”), dated May 14, 2008. Mr. Solow was liable for $2,646,485.99 plus prejudgment interest of $778,302.91 (for a total of $3,424,788.90), and a civil penalty of $2,646,485.99.

In coming to this decision, the Court held that Mr. Solow did not establish that he made, in good faith, all reasonable efforts to meet the terms of the Final Judgment. In addition, the Court found that Mr. Solow created the legal impossibility that made it impossible to comply with the Final Judgment.

FACTS:

BACKGROUND

On January 31, 2008, a jury found Mr. Solow guilty of violations under the Securities Exchange Act of 1934. Under the Final Judgment dated May 14, 2008, Mr. Solow was required to pay a disgorgement judgment of $3,242,788.90 within ten business days to the Clerk of the Court.

In early February 2008, Mrs. Solow retained the law firm of DONLEVY-ROSEN & ROSEN, P.A. (“DRR”), a firm which concentrates its practice in asset protection planning, to protect her assets (and only assets which had been owned by her for a period beyond the statute of limitations on fraudulent transfers). She wanted to protect those assets because a jury had just returned an adverse verdict against Mr. Solow a few days earlier.

Her concern was that if she predeceased Mr. Solow, all TBE assets, in particular their homestead property valued at almost $6 million, would pass outright to Mr. Solow, and to his creditors. It was explained to the court that this was Mrs. Solow’s main concern – she wanted that value to pass to her children.

To accomplish this goal, DRR helped Mrs. Solow implement an offshore trust and arrange a mortgage loan on the homestead property. The proceeds of that loan, in the form of a certificate of deposit issued by an offshore bank, were transferred to Mrs. Solow’s trust. Mrs. Donlevy-Rosen testified that those proceeds could not have been spent, but rather, under the terms of the loan agreement, were required to be transferred to Mrs. Solow’s trust.

Mr. Solow argued that he did not have any control over these, or any other jointly held TBE assets. Furthermore, Mr. Solow argued that this transaction in no way put the SEC in a worse position than they would have been in if the transaction had not been undertaken, because the subject property was long-term (acquired in 2002) TBE property, and it was not reachable in any event by the SEC.

CREDITOR’S OBJECTION TO DEBTOR’S SPOUSE’S PLANNING

The SEC argued that Mr. Solow violated the terms of the Final Judgment by failing to pay within the time period required. The SEC alleged that Mr. Solow did not meet his burden to show that he has an inability to pay. Relying on In re Lawrence, the SEC argued that Mr. Solow created the legal impossibility and therefore should be held in contempt.

THE COURT’S OPINION

The Court found that it incredible to believe that Mr. Solow no longer had any control over his assets through Mrs. Solow’s creation of the offshore trust. The Court also determined that Mr. Solow had to agree to mortgage the property, since Mrs. Solow could not place such a mortgage on the property with out his consent. Therefore, the Court reasoned, Mr. Solow created a legal impossibility to comply with the Court’s Final Judgment.

The Court also found that Mr. Solow failed to make a good faith and reasonable effort to retrieve his assets in order to comply with the Court’s Final Judgment.

COMMENT:

Instance after instance of the foregoing can be found in the court’s January 15, 2010 opinion holding Mr. Solow in contempt and ordering his incarceration. Here are a few examples:

1. The term “POD” describing one or more financial accounts was used throughout the opinion, and it was stated that “the SEC believes that “POD” means “pay on demand,” and is an authorization for a person other than an account owner to withdraw funds from the account.” Of course, the court bought this as if it were a fact. The SEC “belief” came from thin air, based on nothing. If the SEC had taken the time to contact any financial institution, they would have learned that the designation “POD” means “pay on death”, and is merely an ambulatory probate avoidance technique – a “do-it-yourself” method of transferring assets outside of probate on death.

2. The court stated: “There is no evidence before the Court that this joint bank account was held as tenants by the entireties (“TBE”).” The Solow court then proceeded to cite the Florida Supreme Court Beal Bank case which held (creating law in Florida – not evidence, LAW) that “many financial institutions do not provide married couples with the opportunity to declare their intent to establish a tenancy by the entireties,” however, there is a presumption in favor of a tenancy by the entireties when a married couple jointly owns personal property.” Emphasis supplied.

The Beal Bank court then stated that it would take an affirmative act of the account holders to counter that presumption. Translation: Even though the Florida Supreme Court (the highest arbiter of Florida law) has supplied a presumption that spousal joint accounts are tenancy by the entireties accounts, the Solow Court found “no evidence” to that effect. How about law? The court’s attitude toward state law TBE protection is clearly evidenced by this statement: “This Court does not have to recognize the protections of tenancy by the entirety created by State law.” In fact, it is well settled that state law creates and defines property rights, not federal law. Result oriented?

3. Statutes of limitations were consistently ignored by the SEC and by the Solow court. For example, the couples’ most valuable asset, their Florida homestead, was acquired by Mr. and Mrs. Solow as tenants by the entireties in 2002 (prior to any wrongdoing in Mr. Solow’s case). The 2002 acquisition date, well beyond any statute of limitations, was conveniently ignored by both the Solow court and by the SEC.

4. Both the SEC and the court cast an evil implication on transfers that Mr. Solow had made to Mrs. Solow at numerous times beyond the statute of limitations in his case. Any married person knows that spouses routinely transfer assets between themselves with no evil intent.

The court found that, by making these transfers (again, beyond the statute of limitations – which was ignored), Mr. Solow created the impossibility which he claimed now prevented him from satisfying the judgment. In so doing, the court ignored the law of civil contempt (See excellent article on contempt at: http://www.protectyou.com/newsletters/apn17-1.html ), and used its contempt power to punish Mr. Solow (several times in open court the judge indicated his disdain for Mr. Solow, even to the point where the judge stated that he wanted to incarcerate Mr. Solow). The US Supreme Court, in Maggio, stated “…but no such acts (referring to acts of the contemnor which made compliance with the instant court order impossible), however reprehensible, warrant issuance of an order which creates a duty impossible of performance, so that punishment can follow.

It should not be necessary to say that it would be a flagrant abuse of process to issue such an order to exert pressure on friends and relatives to ransom the accused party from being jailed.” Emphasis supplied. By the way, this is exactly what the judge did: he forced Mrs. Solow (by incarcerating Mr. Solow) to join in the sale of the couples’ homestead property.

5. Mr. Solow was ordered to show why he was unable to comply with the court payment order. Mr. Solow in fact did show, in great detail, why he was unable to comply with the court order including, disclosing transfers made to Mrs. Solow, many years earlier – beyond the statute of limitations on fraudulent transfers, and properties owned as tenants by the entireties, also so owned for many years beyond the statute of limitations (which would require Mrs. Solow to execute a deed together with Mr. Solow in order to transfer the properties). It was surreal the way the SEC ignored Mr. Solow’s TBE argument (yes, ignored – the SEC did not offer a counter legal argument), and, offered as its response a non sequitur argument citing the inapposite Lawrence case – a case with facts so different that a realistic comparison could not be made in good faith by a competent lawyer.

Enough examples of the chaos and comedy of errors which are this case. Now for the real facts (no attorney client privilege is broken here – only those matters testified to in open court by Howard Rosen, Esq. and Patricia Donlevy-Rosen, Esq. are discussed).

As noted above, DRR helped Mrs. Solow implement an offshore trust and arrange a mortgage loan on the homestead property. The proceeds of that loan, in the form of a certificate of deposit issued by an offshore bank, were transferred to Mrs. Solow’s trust. This transaction infuriated both the SEC and the court.

Howard Rosen testified that this transaction in no way put the SEC in a worse position than they would have been in if the transaction had not been undertaken, because the subject property was long-term (acquired in 2002) TBE property, and it was not reachable in any event by the SEC. Mr. Rosen testified that the loan transaction would only impair the SEC’s ability to collect Mr. Solow’s judgment if Mrs. Solow died – and, since she was still very much alive, the issue was moot.

Example: the court stated: “Like the defendant in Lawrence, Mr. Solow divested himself of his assets in anticipation of the judgment that was about to be entered against him.” Remember, the homestead was acquired in 2002, and other significant assets had also been transferred to Mrs. Solow well beyond the statute of limitations!

The court misunderstood (or did not care) what the U.S. Supreme court said in Maggio when it stated: “..an inability defense is unavailable where the inability was created by the defendant himself.” This is exactly the opposite of what the Supreme Court said (see above).

The court constantly made an effort to distinguish between a mere money judgment and a disgorgement order (as in the Solow case). The court stated that the latter brought the court’s equity jurisdiction into play. Presumably this means that the court can ignore all prior law, ignore all the facts, and do whatever it wants to do.

Important facts to consider:

1. Mr. Solow did not create an offshore trust; this was not an offshore trust case.

2. Mr. Solow routinely transferred assets to Mrs. Solow during their marriage as many husbands do. Most sizable transfers were made prior to the existence of the facts giving rise to Mr. Solow’s SEC case.

3. Mrs. Solow created an offshore trust funded with assets owned by her for many years beyond the statute of limitations on fraudulent transfers (yes, received from Mr. Solow).

4. Neither Mr. Solow nor Mrs. Solow had any power over the offshore trust.

5. Mr. and Mrs. Solow did execute a mortgage on their TBE homestead property, which would have only impeded the SEC’s ability to collect its judgment against Mr. Solow if Mrs. Solow predeceased him (still alive).

6. Statutes of limitations exist to provide certainty to parties’ transactions, regardless of how offensive those transactions are to a court. Even a bank robber can eventually escape prosecution if the statute runs.

7. State law creates exemptions and defines property rights. While a federal court may ignore exemptions, it cannot ignore the very nature of a property right. Even where the “creditor” is the United States in a criminal forfeiture proceeding. See, U.S. v. One Single Family Residence With Out Buildings Located At 15621 S.W. 209 Avenue, Miami, Florida, 894 F.2d 1511 (11th Cir. 1990).

8. The judge stated in open court that he wanted to incarcerate Mr. Solow. Query: Has debtor’s prison returned to the United States?

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Howard D. Rosen

Jeffrey M. Verdon

Technical Editor – Duncan Osborne

CITE AS:

LISI Asset Protection Planning Newsletter #152 (April 28, 2010) at http://www.leimbergservices.com Copyright 2010 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

CITES:

SEC v. Jamie Solow, 2010 WL303959 (S.D. Fla. 2010); In re Beal Bank v. Almand and Associates, 780 So.2d 45 (Fla. Supreme Court, 2001); The Asset Protection News, “Contempt of Court: Will I Go to Jail if I Establish an Offshore Trust?”January 2008, Volume XVII, Number 1, available from www.protectyou.com; In re Maggio v. Zeitz, 333 U.S. 56, 69, 92 L.Ed. 476, 68 S.Ct. 401 (1948); In re Lawrence, 279 F. 3d 1294 (11th Cir. 2002); In re U.S. v. One Single Family Residence Without Buildings, 894 F.2d 1511 (11th Cir. 1990).

For more information about any of the information discussed in this Client Alert, or any other income or estate tax planning or asset protection planning assistance, please contact Jeffrey M. Verdon Law Group,LLP at jeff@jmvlaw.com or (949) 263-1133.