Recent Developments in Asset Protection Law - August 2011

Misik v. D'Arco, ___ Cal.Rptr.3d ____, 2011 WL 3131021 (Cal.App. 2 Dist., July 27, 2011).

California does not require that a creditor seeking to add a defendant on alter ego grounds bring a new lawsuit, but rather the creditor can seek to add the defendant to the existing judgment under CCP 187.

Here, the original judgment was issued against an LLC, and the Rule 187 procedure was used to add the LLC's Owner to the judgment on alter ego grounds. Nothing new so far, as the Rule 187 Motion to Amend procedure is very well-established by about a dozen on-point cases under California law.

What was interesting was that the judgment found the Owner to be innocent of actual fraud, but the Rule 187 procedure was allowed simply because to not allow the addition of the Owner would allow the LLC to avoid paying its debts.

One might thus argue that this Opinion also stands for the proposition that the shell of an LLC, if solely-owned, gives its sole owner very little protection against the liabilities of the business. For that reason, this Opinion is a very interesting read.

Note that the Appellate Court did not actually add the Owner as a defendant, but merely remanded back to the trial court for consideration whether this should be done, so we may hear more of this case.

Nelson v. Walnut Investment Partners, LP, 2011 WL 2711318 (S.D.Ohio, July 13, 2011) ("In re Petro Acquisitions, Inc.").

Petro Acquisitions entered into a redemption agreement to repurchase its stock held by an investment, Walnut, over a series of years. The agreement was subsequently modified, but at some point Petro started making payments to Walnut, eventually totaling $2,750,000.

The Court concluded after a lengthy analysis, which included an excellent discussion of the expert witness standards for a valuation expert, that Petro's first payment of $1,000,000 to Walnut rendered Petro insolvent, and that Petro was insolvent for all subsequent payments.

Therefore, the Court avoided the transfers to Walnut for a total of $2,750,000.

This Opinion is a good read about the hazards that an investor faces in trying to get money back out of a distressed business.

Full Opinion at http://www.goo.gl/4viIT

In re SK Foods, LP, 2010 WL 6896448 (Bkrtcy.E.D.Cal., Unpublished, July 14, 2010).

After two companies filed for bankruptcy, the Trustee attempted to collect nearly $8 million that the private owner of the company had paid to the IRS for the accounts of himself and his daughters, none of whom owed any taxes at the time.

The idea was obviously to use the IRS to "hide" assets by overpaying taxes and then seeking refunds -- an old trick, and often not a bad idea since suing the IRS to get back money from Uncle Sam is not a particularly easy thing for creditors to do.

Indeed, here the IRS put up a fight and alleged that the IRS had sovereign immunity to such suits and that there could be no fraudulent transfer for a "voluntary" payment of taxes.

The Court shoots down all these arguments and denies the IRS's Motion to Dismiss, but requires the Trustee to plead a few more claims more clearly.

Notably, creditors' seminars are now often talking about how to deal with this debtor's tactic and this Opinion will doubtless make it easier to claw money back from the IRS.

Full Opinion at http://www.goo.gl/pp40j

In re Financial Resources Mortgage, Inc., 2011 WL 2680878, 2011 BNH 007 ((Bkrtcy.D.N.H., Slip Opinion, July 8, 2011).

This Opinion -- well worth reading -- arises from a Trustee's attempt in an adversary action to collect assets that were transferred to certain investors in a Ponzi scheme involving mortgages and notes.

The first part of the Opinion deals with the Trustee's quest for the imposition of a constructive trust, which is denied because of the Trustee's failure to plead that the defendants still held the specific property transferred to them from the scheme. For bankruptcy trustees, there is a lot of juicy discussion in this case as to what must be plead to establish a claim for imposition of a constructive trust.

The second part of the Opinion deals with the Trustee's fraudulent transfer claims in the Ponzi scheme context, which avoid dismissal. Basically, the return to investors of alleged profits, i.e., amounts received over the amount invested, are easy pickings for a Trustee in a Ponzi scheme case since there was no reasonably conceivable justification for the transfers. But the Court notes that the Trustee's recovery against the investor's original investment is much less certain, because the investors have a restitution claim as to those funds that may take priority over the Trustee's claims (which is why trustee's rarely attempt to recover the amount originally invested but instead focus on the fake "profits" received).

Full Opinion at http://www.goo.gl/03jXl

In re Bolze, 2011 WL 2747377 (Bkrtcy.E.D.Tenn., June 13, 2011).

This is another in what undoubtedly will be a sizeable wave of cases dealing with the moneys paid to investors in Ponzi schemes. Here, a number of investors moved for partial summary judgment to dismiss the trustee's claims for fraudulent transfer as to the amounts they received which were equal or less than their investment into the scheme.

In an excellent summary of the law in this area, the Court ruled as follows:

= = =

The sole issue for partial summary judgment is whether the Defendants' total investments paid to the Debtor were an equal exchange of value for the payments they received up to the amount of their initial investments. With respect to this question, the case law is clear: "established principles of Ponzi scheme jurisprudence [state that] when facing fraudulent conveyance actions, investors may keep the principal amount of their investments, but they may not keep any profits from the scheme." In re First Commercial Mgmt. Group, Inc., 279 B.R. 230, 236 (Bankr.N.D.Ill.2002). Accordingly, in cases involving a Ponzi scheme, "the general rule is that to the extent innocent investors have received payments in excess of the amounts of principal that they originally invested, those payments are avoidable as fraudulent transfers[.]" Donell v. Kowell, 533 F.3d 762, 770 (9th Cir.2008); see also Scholes v. Lehmann, 56 F .3d 750, 757-58 (7th Cir.1995) (stating that the investor was only being asked to "return the net profits of his investment--the difference between what he put in at the beginning and what he had at the end."); Merrill v. Abbott ( In re Indep. Clearing House Co.), 77 B.R. 843, 857 (D.Utah 1987) (concluding that "to the extent the debtors' payments to a defendant merely repaid his principal undertaking, the payments satisfied an antecedent 'debt' of the debtors, and the debtors received 'value' in exchange for the transfers. Moreover, to the extent a transfer merely repaid a defendant's undertaking, the debtor received not only a 'reasonably equivalent value' but the exact same value--dollar for dollar."). "The policy justification is ratable distribution of remaining assets among all the defrauded investors. The 'winners' in the Ponzi scheme, even if innocent of any fraud themselves, should not be permitted to 'enjoy an advantage over later investors sucked into the Ponzi scheme who were not so lucky.' " Donell, 533 F.3d at 770 (quoting In re United Energy Corp., 944 F.2d 589, 596 (9th Cir.1991)).

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What planners need to understand here is this: Moneys that Ponzi scheme investors get from the scheme that exceed the amount of their original investment IS NOT THEIR MONEY and so therefore attempts to protect it from creditors -- other than just fleeing the country with the money -- are very likely to fail. The remedies available to a creditor in a fraudulent transfer case are so broad and can involve theories like constructive trust that will allow a creditor to defeat most ordinary asset protection mechanisms, such as statutory exemptions. And it is no defense that to pay the money back to the Trustee will leave the investors destitute and living in a cardboard box, since (again) it was simply not their money to begin with.

Full Opinion at http://www.goo.gl/ybdDr

Jecker v. Hidden Valley, Inc., ___ A.3d ____, 2011 WL 3047686 (N.J.Super.A.D., July 26, 2011).

This Opinion involves a creditor's allegations that a bankruptcy mortgage sale of a corporation's main asset, which foreclosure was by the corporation's owner, left the corporation without any assets to pay claims.

But the Opinion goes into considerable detail to explain that an asset that is subject to a bona fide lien is not an "asset" for purposes of the Uniform Fraudulent Transfers Act (UFTA), and so therefore the transfer of such an asset -- through a foreclosure sale or otherwise -- could not technically be a fraudulent transfer even if the various "badges of fraud" are present.

This is a very good read on how secured assets are treated by the fraudulent transfer laws in highly suspicious circumstances, but noting that, of course, the lien needs to be a bona fide lien and not some dummied up lien to receive favorable treatment.

Full Opinion at http://www.goo.gl/aYmxp

In re Syntax-Brillian Corp., 2011 WL 3101809 (Bkrtcy.D.Del., Slip Copy, July 25, 2011).

This case involved the manufacturer of HDTVs and a business line of credit issued by a bank pursuant to a complex financing arrangement. At some point, the bank transferred funds to one of the company's officer as the extension of a loan to the officer, who was also providing "Price Protection Rebates" for his company.

As the market for HDTVs became saturated the price fell, the company lost its shirt, the officer quit providing the Price Protection Rebates, and the company slid into bankruptcy.

Whereupon, the company's liquidation trust sued the bank for its transfers to the officer, pointing to the "irregular nature" of the officer's relationship with the bank and hinting around that the officer had basically suborned bank officers into transferring the money to the officer and not pursuing its recovery. These allegations then bootstrapped to claims that the bank knew or should have known that the transfers to the officer were improper, and thus were fraudulent transfers to cheat the creditors of the company.

In an extensive analysis, the Court holds that the bank has no duty to inquire about the propriety of transactions so long as the person making the transfer had signatory authority over the account, and that the various transactions taken as a whole did not amount to a fraudulent transfer, even under the "collapsing fraudulent transfer" theory that is now quickly evolving for dealing with complex financial arrangements.

If you are a hardcore fraudulent transfers junkie, this opinion is eye candy; but if not, you'll likely get a serious headache trying to figure it all out, and so just take my word for it and have a nice day.

Full Opinion at http://www.goo.gl/y0bXL

In re SOL LLC, 2011 WL 2652155 (Bkrtcy.S.D.Fla., Slip Copy, July 5, 2011).

A $17 million sale on a Fort Lauderdale property closed and generated a total $1,020,000 commission, which was split between the debtor, which was a real estate brokerage firm, and the defendant, who was not a real estate agent. Thereafter, the brokerage firm went into bankruptcy, and the appointed Trustee sought to recover the $510,000 split from the defendant.

Under the laws of preferential transfer, the only issue for the Trustee to prove was whether the debtor brokerage firm was insolvent at the time that the commission split was made, and the evidence was undisputed that the debtor brokerage firm was indeed insolvent.

The lesson here is that when dealing with a financially troubled company, one is at risk that the company may go BK and all moneys received from the company will be subject to preferential transfer claims -- and this seems to be particularly true with regarding to splitting arrangements such as was involved in this case.

Full Opinion at http://www.goo.gl/lgOcL

In re Patel, 2011 WL 2924906 (Bkrtcy.S.D.Tex., Slip Copy, July 18, 2011).

Husband and wife debtors ran into financial trouble and only then started to try to protect their remaining assets by various transfers and liens, etc.

Then, having done all they could to protect their assets they then filed for Chapter 7 to try to get their creditors off their back -- which had all the legal effect of exploding a nuclear weapon on themselves. This is because:

(1) Property title records do not magically disappear after transfers or liens are made, but instead are there to document what property the debtors owned on certain dates; and

(2) Financial statements provided by the debtors to financial institutions likewise give a pretty accurate inventory of what assets the debtors had on the date the statement was given (or puts the debtors into the sad position of having to claim that they lied when they gave those statements).

In both events, it was very easy for creditors to simply track down these records and start asking "Where did the assets go?" From there, it was quite easy to reveal the debtors' fraudulent transfers and unscheduled assets.

But even from there it gets worse, since the debtors were slapped with a bunch of requests for admissions that they could not answer truthfully without incriminating themselves, and so there they did not and the requests for admissions were deemed admitted. All of which lead to the Court's finding that:

* * *

Defendants have admitted that they purposely concealed assets of value and sources of income in an attempt to defraud their creditors. Defendants also admitted that they have transferred real and personal property to others in order to defraud and hinder their creditors and the Trustee. Defendants filed, under penalty of perjury, materially false schedules and statements in their chapter 7 bankruptcy proceeding. Defendants knowingly and fraudulently withheld information from the Trustee.

Defendants admitted that Praful Patel submitted a materially false financial statement to Plaintiffs in order to induce Plaintiffs to execute the documents and contracts forming the sale and purchase of MVP Aero, including a loan to Praful Patel, Sheela Patel and Bharat Shah, Inc. in the amount of $190,000. Defendants caused the financial statement to be issued with false information with an intent to deceive the Plaintiffs in connection with the sale of MVP Aero Academy. Plaintiffs reasonably relied on the false financial statements in extending Defendants credit in connection with the sale.

Pursuant to the admissions by Defendants, the court finds that there is no genuine dispute as to any material fact and Plaintiffs are entitled to judgment as a matter of law denying Defendants a discharge under section 727 and declaring that the debt owed to Plaintiffs by Debtors is non-dischargeable pursuant to section 523.

* * *

Here, not only has the debtors' planning failed, but they have now been denied a discharge and their debt has been determined to be non-dischargeable which practically means that they can never discharge it and their creditors will be hovering over them for ever after until ever last cent is paid.

The lesson here is that you must engage in asset protection planning well before any indebtedness is incurred, and especially before you start giving financial statements -- for once you have given your financial statements you have placed those assets on the table, and the law does not allow you to start taking them off the table if the cards become unfriendly. In fact, the law will treat you pretty much like a casino would treat a gamble who tried to grab his chips off the table and run for the door .... the end result will be grim.

Beware the promises of some professionals, including attorneys claiming to be experienced in asset protection planning, that they can help you take your chips off the table while the bet is still in progress, because the most likely thing to happen will be that you will have made your situation worse, and probably much worse.

Full Opinion at http://goo.gl/HfVDn

In re Sarafoglou, 2011 WL 2893109 (Bkrtcy.D.Mass., Slip Copy, July 15, 2011).

This Opinion stands for the proposition that a debtor in bankruptcy must disclose all assets, even those of dubious value, or else risk losing a discharge.

After five bankruptcy filings in five years, this debtor got into further financial trouble when her son's restaurant failed. But her instant bankruptcy schedules of assets did not reveal some low- or no-dollar bank accounts and a lender liability lawsuit against a bank.

Nonetheless, the bankruptcy court held the debtor's failure to disclose these assets to be willful and denied her discharge. Sayeth the Court:

*5 While the statutory right to a discharge is to be liberally construed in favor of the debtor, the Tully court underscored that the reason for sec. 727 is to ensure that those who seek protection under the Bankruptcy Code do not play "fast and loose" with their assets or with the reality of their affairs. Tully at 110. "The statutes are designed to insure that complete, truthful, and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on the facts rather than fiction." Id. "Neither the trustee nor the creditors should be required to engage in a laborious tug of war to drag the simple truth into the glare of daylight." Id. (citations omitted).

Full Opinion at http://www.goo.gl/RPGOG

Matter of Irrevocable Asset Protection Trust of Henry C. Rohlf, 2011 WL 3201798 (Del.Ch., Unpublished, July 12, 2011).

Henry created a self-settled Delaware Domestic Asset Protection Trust (DAPT) for himself, with BNY Mellon as a Trustee and his lawyer as a co-Trustee. Footnote 1 of the Court's Opinion states "As will become clear, as an 'asset protection trust,' Henry's trust was a notable failure."

Coincidentally, BNY Mellon held a Note from Rohlf which was secured by the assets in his mother's trust. When Rohlf's mother died, the assets in her trust was rolled over to Rohlf's DAPT. Later, Rohlf increased the size of the loan from BNY Mellon, now secured by the assets in Rohlf's DAPT.

All the while, BNY Mellon continuing to serve as a trustee of the DAPT.

When the economy tanked, the DAPT's income was insufficient to keep the BNY Mellon loan current, and so BNY called the Note and petitioned for instructions from the Delaware Chancery Court allowing it to invade the DAPT and take out assets sufficient to satisfy the loan.

Rohlf, apparently for the first time figuring out that maybe it wasn't such a hot idea for his lender to be his trustee, counter-petitioned against BNY Mellon for breach of fiduciary duty.

Nor was it a particularly good idea for Rohlf to specify in his trust that "self-interested transactions were permitted in the discretion of the trustees, who would not be liable for their exercise of discretion made in good faith," as Delaware law allowed him to do, although otherwise such transactions (including presumably BNY Mellon's loan secured by the trust assets) would not have been permitted.

But Rohlf did put this provision in his trust; probably sounded like a good idea at the time.

Another argument that Rohlf made was that BNY Mellon intentionally kept the trust assets liquid to intentionally reduce the value of the Trust and thus hasten the calling of the Note. That Rohlf argued that BNY Mellon was wrong to keep the Trust assets liquid in the middle of a global financial meltdown didn't help his argument.

But the argument was good enough to convince the Court to allow Rohlf to amend his counter-petition to specify with more particularity the self-dealing by Mellon BNY, so presumably we will hear more of this case in the coming months.

Although the result of the Opinion is small -- Rohlf gets leave to amend -- the lessons of this Opinion are very substantial. Among these are:

First, and although it would seem obvious, never make a creditor or even a potential creditor the trustee of your trust. While this is an extreme case, I see cases all the time where yesterday's trusted spouse is today's hated ex-spouse, or where trusted friend is now hated enemy. And don't believe that the "Chinese Walls" between say, a bank and a trust company that are owned by the same holding company, will protect you.

Second, use trust protectors. Here, if Rohlf or another person friendly to Rohlf was the trust protector, BNY Mellon could have been terminated as a trustee before it reached its hand into the cookie jar. I usually recommend the appointment of protectors (i.e., someone who has the power to fire the trustee) for even the most simple trusts.

Third, the entire purpose of an asset protection trust is to take chips off the table -- but don't take the chips off the table and then immediately re-bet them. In other words, don't use the assets in an asset protection trust as collateral for loans, and especially for loans for assets outside the trust (I'm sure this will fall on deaf ears for real estate investors, whose last dime would burn a hole in their pocket if was not leveraged to the hilt). Otherwise stated: The entire purpose of asset protection trusts is to keep creditors out, so don't voluntarily let them back in.

While this case did involve a Delaware Domestic Asset Protection Trust, this was not anything like a test or "failure" of that structure -- it is still effectively untested -- since this case did not involve a true "outside" creditor of the type that such trusts are designed against. So please don't take either this Opinion or this article as a criticism of Delaware DAPTs or DAPTs in general, because it isn't.

Full Opinion at http://goo.gl/VEvMs

Henry v. Rizzolo, 2011 WL 2975539 (D.Nev., Slip Copy, July 21, 2011).

What planners are so hard up for business that they accept cases like these?

This case involves an apparently mob-run strip club in Las Vegas known as "Crazy Horse Too" and run owned and run by convicted racketeer Rick Rizzolo. After a patron of the club was beat up and rendered a quadriplegic, the patron and his wife sued Rizzolo and his wife and their family trusts, and also named the Rizzolo's scummy-but-unnamed planners as "John Doe" defendants, but did not name the Trustee of the Rizzolo's Cook Islands' Trust as a party.

The Rizzolos then sought to dismiss the case for failure to add an indispensible party, being the Cook Islands Trustee, but the Court quickly rejected that argument and denied their motion:

"[T]he courts and the public have an interest in the complete, consistent, and efficient settlement of controversies, which would be frustrated if a defendant could defeat a fraudulent joinder action by moving fraudulently conveyed assets to an offshore trust administered by a trustee not subject to jurisdiction in United States courts, and then claim that failure to join the trustee mandates dismissal under Rule 19. See Nastro v. D'Onofrio, 263 F.Supp.2d 446, 455-56 (D.Conn.2003) (holding trustee of foreign asset protection trust was not an indispensable party where trust beneficiaries were parties to the action and adequately would represent the absent trustee's interests). Such a result would not comport with Rule 19's direction that the Court consider whether in equity and good conscious the matter ought to proceed in the non-joined party's absence."

The Court also hinted that it was prepared to take action against Rizzolos to compel action by their Cook Islands Trustee, so another Anderson-type case may be brewing -- stay tuned.

Full Opinion at http://www.goo.gl/H0oSP

In re Dixie Mgt. & Invest., LP, ___ B.R. ____, 2011 WL 1753971 (Bkrtcy.W.D.Ark., Slip Copy, May 9, 2011).

Since a Bankruptcy Court has all sorts of powers to really mess with a Limited Partnership or LLC that is being used for asset protection, why not just have a provision in the Partnership Agreement that a Partner that files for bankruptcy will at that moment simply be disassociated?

While that may sound like a good idea, it doesn't work because the Bankruptcy Code voids any clause that terminates a contract or relationship simply because the debtor became insolvent or filed for bankruptcy. (See sections 365 or 541, depending on the time of day).

Thus, it was easy for the Court to hold:

The Court holds that the OA's language regarding the alleged disassociation of a member based on the filing of its bankruptcy petition is in contravention of the bankruptcy code, specifically, sec. 541(c)(1), and, therefore, is ineffective. Additionally, under the Supremacy Clause of the United States Constitution, the Court holds that the Arkansas statute that recognizes the disassociation of a member upon the filing of a voluntary petition in bankruptcy is not enforceable because it is in conflict with federal law.

Full Opinion at http://www.goo.gl/iSIJS

Petro Acquisitions entered into a redemption agreement to repurchase its stock held by an investment, Walnut, over a series of years. The agreement was subsequently modified, but at some point Petro started making payments to Walnut, eventually totaling $2,750,000.

The Court concluded after a lengthy analysis, which included an excellent discussion of the expert witness standards for a valuation expert, that Petro's first payment of $1,000,000 to Walnut rendered Petro insolvent, and that Petro was insolvent for all subsequent payments.

Therefore, the Court avoided the transfers to Walnut for a total of $2,750,000.

This Opinion is a good read about the hazards that an investor faces in trying to get money back out of a distressed business.

Full Opinion at http://www.goo.gl/4viIT

In re SK Foods, LP, 2010 WL 6896448 (Bkrtcy.E.D.Cal., Unpublished, July 14, 2010).

After two companies filed for bankruptcy, the Trustee attempted to collect nearly $8 million that the private owner of the company had paid to the IRS for the accounts of himself and his daughters, none of whom owed any taxes at the time.

The idea was obviously to use the IRS to "hide" assets by overpaying taxes and then seeking refunds -- an old trick, and often not a bad idea since suing the IRS to get back money from Uncle Sam is not a particularly easy thing for creditors to do.

Indeed, here the IRS put up a fight and alleged that the IRS had sovereign immunity to such suits and that there could be no fraudulent transfer for a "voluntary" payment of taxes.

The Court shoots down all these arguments and denies the IRS's Motion to Dismiss, but requires the Trustee to plead a few more claims more clearly.

Notably, creditors' seminars are now often talking about how to deal with this debtor's tactic and this Opinion will doubtless make it easier to claw money back from the IRS.

Full Opinion at http://www.goo.gl/pp40j

In re Financial Resources Mortgage, Inc., 2011 WL 2680878, 2011 BNH 007 ((Bkrtcy.D.N.H., Slip Opinion, July 8, 2011).

This Opinion -- well worth reading -- arises from a Trustee's attempt in an adversary action to collect assets that were transferred to certain investors in a Ponzi scheme involving mortgages and notes.

The first part of the Opinion deals with the Trustee's quest for the imposition of a constructive trust, which is denied because of the Trustee's failure to plead that the defendants still held the specific property transferred to them from the scheme. For bankruptcy trustees, there is a lot of juicy discussion in this case as to what must be plead to establish a claim for imposition of a constructive trust.

The second part of the Opinion deals with the Trustee's fraudulent transfer claims in the Ponzi scheme context, which avoid dismissal. Basically, the return to investors of alleged profits, i.e., amounts received over the amount invested, are easy pickings for a Trustee in a Ponzi scheme case since there was no reasonably conceivable justification for the transfers. But the Court notes that the Trustee's recovery against the investor's original investment is much less certain, because the investors have a restitution claim as to those funds that may take priority over the Trustee's claims (which is why trustee's rarely attempt to recover the amount originally invested but instead focus on the fake "profits" received).

Full Opinion at http://www.goo.gl/03jXl

Larson v. U.S., 2011 WL 2682991 (N.D.Cal., Slip Opinion, July 11, 2011).

John Larson was a defendant in the KPMG tax shelter prosecutions, which started out with indictments against 18 defendants, but the charges against most were dropped for prosecution overreaching (blocking KPMG from paying their criminal defense fees), and after a jury trial one was acquitted and a handful were convicted, including Mr. Larson.

Larson was originally hit with a fine of $6 million, but this was later remanded to $3 million, and the IRS successfully moved for a jeopardy assessment and levy on the $3 million difference that was about to be refunded to him.

----- From the Opinion -----

Here, the circumstances justified a determination that Mr. Larson appeared to be designing to place the expected three-million-dollar refund beyond the government's reach. It bears repeating that Mr. Larson has been convicted of tax evasion. He made a profitable business out of designing, implementing, and marketing complex tax-evasion schemes, and he used foreign entities to shelter his profits. .... After the IRS examined and disallowed one of Mr. Larson's tax-evasion strategies, Mr. Larson transferred millions of dollars to his trusts in the Bailiwick of Guernsey, where the money could not be reached by the United States government. The district judge who heard Mr. Larson's criminal case found this transfer to be "a brazen act" justifying an increase in his sentence .... That judge also found the trial evidence to show that Mr. Larson had continuing relationships with foreign nationals who helped him hide funds abroad .... Mr. Larson recently admitted that he still owns foreign trusts .... In short, the record shows that Mr. Larson has the resources, the know-how, and the gall to continue hiding his money from the United States or placing it beyond the government's reach. The determination by the IRS that Mr. Larson's expected three-million-dollar refund might well disappear as soon as it is remitted to him was reasonable under these circumstances.

*3 The fact that Mr. Larson currently is incarcerated does not alter this analysis. Even from prison, he can communicate instructions to loyal confederates with control over his assets. Mr. Larson's other arguments are unavailing as well. For example, he argues that "[t]he majority" of his dispute with the IRS relates only to "the appropriate timing for him to have reported certain income; not whether he failed to report the income at all" .... This argument candy-coats Mr. Larson's crimes. Finagling the timing for recognizing gains so that they could be off-set by bogus losses was a key feature of his deliberate tax-evasion schemes. Similarly, Mr. Larson argues that the assessment "include[s] partnership adjustments that are currently (and appropriately) being litigated in the Court of Federal Claims" .... The assessment and levy, however, do not impair his ability to challenge and resolve that portion of his tax liability through litigation.

Mr. Larson also claims that he has been forthright with the government concerning his assets, supposedly having turned over a new leaf after he was caught .... The record contradicts this assertion. For example, his response to a document request issued by the IRS in conjunction with its continuing investigation is several months overdue .... Similarly, during the administrative review of the jeopardy assessment and levy, he did not provide requested documentation regarding his assets within the reach of the United States government .... Mr. Larson's net worth exceeded $21 million in January 2000, but only a small fraction of that wealth is accounted for in the present assets he has disclosed to the government .... In sum, this order finds that the jeopardy assessment and the jeopardy levy were reasonable procedural measures under the circumstances.

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Full Opinion at http://www.goo.gl/v3Hp9