Ed Okun Victim Cautions LandAmerica Victims, Challenges Government, Admonishes 1031 Exchange Industry

Note of Disclaimer: The following comment, story, and opinion(s) are that of the commenter Elizabeth Callanan and not that of deansguide or the author of deansguide Dean Guadagni. Those of you who have read this blog in the past know where I stand. I am a victim’s advocate and simply creating a place for victims or industry pro’s to communicate.

The following are opinions, experiences and stories of the trials and tribulations of the 1031 exchange industry from long time contributor and commenter Elizabeth Callanan one of the 350 “Trainwreck Victims” of the Ed Okun 1031 Tax Group Ponzi scheme. This is a warning, it is a plea, and it is her argument for the complete overhaul of the 1031 exchange industry–or it’s outright Abolishment.

Note: Not all of the 1031 exchange companies are bad, fradulent, or subversive. There are well respected, honest, and worthwhile 1031 exchange companies doing business.

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To Daniel Lowe and the other victims of the LandAmerica debacle,

You have my most heartfelt empathy.
Having been myself a victim of Ed Okun’s embezzlement of exchangers funds on deposit with the 1031 Tax Group, I truly feel your pain. I’m not an attorney, an accountant, and have no expertise apart from what comes of painful firsthand experience. It was in the hopes of warning other potential exchanger/victims that I started posting on Dean’s List and elsewhere.

At the end of the day, though, I agree totally with Yaco Tiamo, who has posted here. The entire 1031 industry is superfluous and that aspect of the IRS’ 1031 regulations should be expunged. It is a wildly unregulated industry that answers to no government oversight at any level (apart from some half-hearted oversight incorporated in a couple of recently enacted regs by a handful of states (Nevada, California?) and, as evidenced, by the recent spate of embezzlements or gross mismanagement puts all exchangers at great risk for no good reason. Doing a 1031 isn’t brain surgery. The forms are pretty standard and the process pretty simple, really.

Since the IRS has shown no interest in overseeing, licensing, demanding accountability from, providing meaningful insurance for (as the SEC does) or otherwise regulating the industry it created, it should kill it – NOW!

As to the LandAmerica victims, my (personal, not professional!!) advice in terms of investing in legal help is two-fold and in both cases I would act only collectively (except for those whose funds were held in traceable segregated accounts, who will no doubt make a serious (and perhaps successful) run at retrieving those funds, I see little point in acting individually — certainly not in bankruptcy, a self-funding and self-perpetuating legal and financial train wreck for everyone involved except the court appointed functionaries. (If you want to see the extent to which such a process can drag on ad nauseam with many billable hours just check out the history of the 1031 Tax Group case on either of these sites: http://www.committeeinfo.com/1031/index.htm (the official website for our Creditors Committee) or http://trustee1031taxgroup.com/component/option,com_frontpage/Itemid,1/ (the Trustee’s website).)

However, I WOULD hire a legal firm (on contingency if you can – since, by definition, you no longer have any money!) to:

1) GET YOUR CASE OUT OF BANKRUPTCY COURT!! That is a deep dark hole that will suck up every dime of funding available until there’s nothing but dust left. In the 19 months since Ed Okun put the 1031 Tax Group into “bankruptcy” (it was a criminal embezzlement plain and simple now being tried in a US Federal Court in Richmond which was known at the time the bankruptcy was filed in May 07 — the Feds having raided the offices in April 07 — and should never have been accepted as a legitimate bankruptcy to start with!) all of the various court-appointed functionaries have claimed MORE THAN $30 MILLION IN SO-CALLED “ADMINISTRATIVE FEES” and victims have received not one penny of their escrow funds. In fact, in an amazingly brazen and twisted miscarriage of justice, the Bankruptcy Court authorized attorneys for the so-Called “Debtors” (ironically the Dreier firm whose owner embezzled millions in escrow funds himself) to pursue a legal action to retrieve the only escrow funds that Okun himself had not been able to steal and the settlement cozily agreed to by the attorneys on both sides (and approved by the Court) provided for payment as well to the attorneys DEFENDING the bank where those funds were on deposit — the end result of which is that the costs of BOTH SIDES of that court case will be paid by Okun’s victims. (So, to our point of view we were mugged first by Okun and then by the Bankruptcy Court!) The only way to get that Bankruptcy action derailed is to get the Committee itself on board (not easy since the Committee’s attorneys will understandably vehemently argue against the prospect of losing their cash cow), but I’d consider that a first priority.

2) Get a class action going to pursue all the parties involved, including especially LandAmerica to force them to use the proceeds from the sale of its other two arms to repay the exchange funds it squandered on worthless investments.

I sincerely hope you are more successful than we’ve been to date in retrieving even a dime of our life savings. The key is acting collectively and getting a junkyard dog of an attorney who is willing to work on a contingency (which means you’ll get 25% less than you otherwise might, but most of Okun’s victims would happily settle for that today!). Unfortunately in bankruptcy there is absolutely NO incentive for settling anything quickly. It’s all about billable hours — for attorneys, for management companies, for accounting firms, and all the other hangers-on who can get their licks in. If I were you, I’d follow the lead of the creditors in the Southwest Exchange Case – which happened just a few months prior to our’s and in which there’s been a settlement of $92 million of the $97 million lost (minus the contingency and other costs incurred by the attorney) while WE HAVE NOTHING and dismal prospects ahead.

You’ve gotten off to a better start than we did, it appears. You have a website (noted above by one of your fellow victims), your Committee seems to communicate with you (our’s has maintained a nearly absolute silence and shares NO information whatsoever for reasons none of us can fathom), and I understand you’re collectively discussing a civil class action which I encourage you to pursue.

Good luck to you all — sincerely.

New $330 Million Class Action Suit Targets LandAmerica 1031 Exchange Services and Sun Trust Bank

Chicago Sun-Times news service published this deansguide article 1-21-09

In what must be the most frustrating of 1031 exchange collapses, clients of title insurance mainstay LandAmerica have filed a $330 million class action suit against  the failed LandAmerica Exchange Services, part of LandAmerica title, and Sun Trust Bank. According to the Richmond Times-Dispatch story the charges specifically focus on actions of “defrauding clients by using their money to pay off other clients.” That would sound like an old fashion ponzi scheme and have we not heard this story before in the Ed Okun 1031 Tax Group travasty?

Two Principles Named

According to the Richmond Times-Dispatch’s Emily C. Dooley, two top executives for LandAmerica 1031 Exchange Services were named in the suit a Stephen Connor and G.William Evans. “Evans is also the chief financial officer for LandAmerica Financial Group” according to the story.

The Final Final

According to Dooley’s report “The lawsuit claims that LandAmerica used money from new customers to pay off older customers whose money had become inaccessible because it was invested in auction-rate securities, a type of credit that froze in February.”

Remarked Robert L. “Rusty” Brace  California attorney for one of the victims: “Once that market failed, [LandAmerica Exchange Services] should have shut down.  .  . Our money was used to pay those other exchangers.”

LandAmerica Exchange Services Victim: “Any Class Action Lawsuits Yet?”

Reuters.com published this deansguide article 12-12-08

Another deansguide readers, in the growing line of LandAmerica exchange victims, has spoken out. The message from Cathy is loud and clear. How do victims, who have lost their entire or majority life savings, pay for legal assistance in pursuing their “stolen” monies?

The Conundrum

1. Spend Money: pursue “lost” life savings by using what little money you have left or going into debt to attempt to pay for legal representation.

2. Chalk It Up: chalk it up to experience. Do not pursue recovery by spending money. Hope for the best but do not chase your money with more money. Allow LandAmerica to skate free of charge.

3. Legal Action: hope for a class action lawsuit where no investor’s money is required to possibly recover lost monies.

Cathy’s Comment

“I, too, have a big chunk of change stuck in LES. Now, I know I have to file my proof of claim, but who can afford a lawyer, now? Are there any class action lawsuits going on yet against LES? Hate to give what little I have left to an attorney.

thanks for anything.”
Cathy

Warning Restitution Registration Deadline For Okun-Coleman Victims December 29, 2008

Chicago Sun-Times published this deansguide article 12-07-08

The following email notice was sent to all Okun-Coleman victims of the 1031 Tax Group scandal by the US Department of Justice. If you were one of the 1031 Tax Group victims of Ed Okun and Lara Coleman, you MUST register your financial loss as described in the letter copied below.

Warning: Are You On US Department of Justice Mailing List?

If you do not receive a hard copy in the mail, the CRIMINAL court doesn’t have your correct address. It is imperative that you alert Kim Ulmet, with the US Department of Justice, so she can update or correct the victims’ mailing list she is developing/maintaining to ensure you receive other official court documents. Her information is below. If you fail to follow the steps below, you could miss out on the opportunity to recieve any restitution via the criminal court process (which is totally different from the ongoing bankruptcy mess).

Kim Ulmet Contact Information:

U.S. Department of Justice,
United States Attorney’s Office Eastern District of Virginia in Richmond
600 East Main Street, Suite 1800,
Main Street Centre,
Richmond, VA 23219
Phone: 866-287-5410
Fax: 804-771-2316

The Letter:

December 01, 2008

RE: United States v. Defendant(s)

Case Number 2007R01837 and Court Docket Number 3:08CR132
United States v. Edward H. Okun

Important Notice: Victim Verification of Financial Losses
Enclosed you will find a form entitled, “Important Notice: Victim Verification of Financial Loss,” which requests information and supporting documentation concerning your financial loss associated with Edward H. Okun, d/b/a 1031 Tax Group and Investment Properties of America (IPA). The Qualified Intermediaries relevant to this case include: 1031 Advance; 1031 Security Services; Atlantic Exchange Company; Investment Exchange Group; National Exchange Services; and Real Estate Exchange Services. It is imperative that the enclosed form and your supporting documentation be completed and submitted to the United States Attorney’s Office, Attn: Kim Ulmet, Victim/Witness Specialist, 600 East Main Street, Suite 1800, Richmond, VA 23219 and be postmarked no later than Monday, December 29, 2008. You must submit the form with your original signature, however, your supporting documents may be copies. If your Victim Verification of Financial Loss form and supporting documentation outlining your financial loss are not postmarked by December 29, 2008, your name may not be included in the list of victims that will be submitted to the Court for restitution purposes.
Although you may have received and completed a survey from the United States Postal Service and/or filed a claim with the Bankruptcy Trustee, you must complete the enclosed form to be considered for restitution. In addition, you must sign the declaration under Penalty of Perjury and attach all requested supporting documentation. The restitution process is entirely separate from the pending bankruptcy proceedings. As you will see from the attached form, the relevant inquiries are different and require specific documentation. We appreciate your patience and cooperation with this process.

This notification will be sent through email and regular mail. If you do not receive this notification in the U.S. mail within two weeks, please log in to the VNS website, update your address, and call me at 866-287-5410 to ensure we have your updated contact information.

Okun Victim Speaks Out on LandAmerica: 1031 Exchanger’s Warning A Must Read

Due Diligence Warning: The following article is in it’s entirety a comment from a deansguide reader. I am neither an attorney or practicing investment professional. I support the victims of any 1031 exchange debacle yet the following are the opinions and thoughts of Beth Callanan solely and not necessarily supported in it’s entirety by dean guadagni or deansguide–but if you have read this blog you understand my thoughts on the 1031 industry. When considering any investment, always perform your due diligence first and protect yourself at all times.

Important Note: I assume and have seen some evidence that many 1031 exchange companies are viable, honest, and worthy companies. Not all 1031 exchangers or Qualified Intermediaries are suspect. Many people have built their life and reputation in this industry. It is the sleaze bags like Ed Okun that crush the good name of these other hard working business people.

*President elect Obama please pay attention while you are trying to fix Wall Street consider fixing this industry too.

My #1 Question: While reading this incredible comment sent to deansguide consider the one question I have asked but has never been answered. Why are many exchange companies allowed to invest exchanger monies when their sole purpose as a Qualified Intermediary is purportedly to simply execute the process of an exchange?

What is easily the longest, most detailed and greatest comment in the history of this blog, Beth Callanan one of the 350 Ed Okun 1031 Tax Group Victims, provides a MUST READ for any investor currently in a 1031 exchange or anyone consider this instrument.

What you are about to read will shock you, it will sadden you, it will anger you, and it will have your head shaking in disbelief. Normally I edit such long comments. But in this case I want to give Beth’s comment the full benefit. The only editing of this text was to underline, bold, or change font colors to bring out information.

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Beth Callanan’s comment:

“When will the IRS and the US Department of Justice (which, I understand, oversees bankruptcy courts) step up to the plate and rectify through regulation and reform the ongoing pillaging of innocent 1031 exchange victims first by unscrupulous 1031’s (or hilariously misnamed “qualified” intermediaries) and then by the bankruptcy courts wherein they all seek refuge once they have absconded with (Southwest Exchange, the 1031 Tax Group) or squandered (LandAmerica, the most recent case) the exchange funds entrusted to them? The following excerpts from documents filed in relation to the “bankruptcy” of LandAmerica’s 1031 are all too familiar and the fate of those exchangers all to painfully obvious to those of us who have already been there.

1031 Exchangers should beware:

1) Not to be lulled into assuming that the 1031 business of a corporation or entity whose other functions (title company, insurance, banking) are otherwise subject to federal regulation is also subject to regulation or oversight. Like LandAmerica, the corporate structure is such that the 1031 aspect is sufficiently separated to NOT be subject to such regulation.

2) Not to expect that any so-called “fidelity bonds” (endorsed by the FEA) presented to unsuspecting exchangers as assurance of the security of their funds in the event of “error or ommission” or criminal malfeasance, even where the face value greatly exceeds the amount of their exchange fund deposits, will be available to them to cover any loss of their funds since policies pay the 1031 (and become part of the “estate” in any bankruptcy), not the exchanger, and in any case the insurers will insist that the “per occurrence” terminology refers to the total loss of funds, not just their individual funds. (Since exchangers can’t possibly know the total amount of funds on deposit with the 1031, they can’t possibly know if the face value of coverage is adequate to cover them and, if the funds go to a bankruptcy estate, they can expect that the total will go to cover “administrative fees” of that court in any case.)

3) that even a segregated account may not protect them. While posters to this site have discussed the advisability of insisting that your exchange funds be deposited in a segregated (NEVER COMMINGLED!) account associated with your name and Tax ID number, and suggested that any transfers require the signature of your attorney or a bank officer (to implicate the bank in the liability for any improper transfers), as is clear from LandAmerica’s filings (and the bankruptcy court’s track record in the Okun 1031 embezzlement), the court may nevertheless insist that your exchange funds are property of the bankruptcy estate and thus available to pay its own “adminstrative fees.”)

4) that their funds are deposited in secure bank accounts and not invested at the discretion of the 1031 in any other money making scheme (the supposed benefit of which the exchanger will never see in any case).

5) even deposit in a banking institution is problematic since the FDIC coverage limit, were the bank to go under (an increasingly likely possibility in this economic climate), is $250,000 per depositor. If the 1031 is the “depositor” then any exchange funds in their name are clearly at risk since they’d be expected to have millions on deposit at any given time — and if the exchanger is considered the depositor anything over the FDIC limit is at risk. How does the FEA propose to protect exchangers given that scenario?

6) bankruptcy court will almost certainly guarantee the absolute loss of their funds. Rather than construing exchangers of 1031’s in bankruptcy as victims of negligence, malfeasance or criminal activity or their exchange funds as “held in trust” and therefore exempt from inclusion in debtors’ estates (as the exchange agreements in the case of Okun’s 1031 Tax Group explicitly stated), they have so far relegated exchangers to the status of “unsecured creditors” or investors and thus the last in line to receive any of the funds actually retrieved from the increasing number of 1031 failures.

The bankruptcy process is beyond broken and in need of reform. So far (18 months into it), the costs of Okun’s having put his 1031’s into bankruptcy are $24 million against which less than $2 million has been retrieved from the liquidation of his various “assets.” (The court will claim that it has “retrieved” $10 million, but nearly $8 million of that amount were exchange funds held by a bank in Colorado that Okun had not managed to steal – the costs of the court action to seize those being among the “admin fees” exchangers funds have already been used to partially offset adding the grossest insult to that injury!)

Excerpts from recently filed LandAmerica documents:
(anything in italics are my notes — boldfacing was added by me for emphasis)

From the affadavit of G. WILLIAM EVANS, CHIEF FINANCIAL OFFICER OF LANDAMERICA FINANCIAL GROUP, INC. AND VICE PRESIDENT
OF LANDAMERICA 1031 EXCHANGE SERVICES, INC., IN
SUPPORT OF CHAPTER 11 PETITIONS AND FIRST DAY PLEADINGS

Footnote page 10 (of 17):
3 LES expects that there may be competing claims made against and disputes regarding the Exchange Funds (especially those that have been commingled), including whether such funds constitute property of the estate. LES intends to seek a determination from the Court as to the appropriate characterization of such funds.

(Note to potential exchangers – be sure your funds are in SEGREGATED ACCOUNTS, and not allowed to be commingled, but also note that even those are segregated are not assured protection unless some signature other than the 1031 is required to transfer them — ideally a bank officer’s, so if they are moved improperly the bank’s assets are liable to cover your loss. However, in another cautionary development the outcome of which may put ALL exchange funds at risk, even those in traceable segregated accounts, LES in its bankruptcy petition has apparently already made the claim that even the segregated account funds are their property and not the property of the exchangers (see the Adversary Motion below.) )

(ii) Unregulated Operations (footnote “2″)

(Note: LES, LandAmerica’s 1031, “LES”, appears correctly under “Unregulated Operations”)

(Footnote “2″ reads as follows:
“2. Although not regulated by a State Department of Insurance, many of LandAmerica’s “unregulated” subsidiaries are in fact regulated by different types of State or Federal agencies.”)

Unfortunately, as we’ve all discovered, the 1031 industry is TOTALLY UNREGULATED by any federal government entity, least of all the IRS whose regulations created this monster, and hardly regulated by the few states (Nevada and California?) that have made even a feeble attempt to promulgate regulations that would demand licensing, accountability, transparency, criminal or civil penalties or other meaningful oversight.

9. In addition to underwriting title insurance, LFG subsidiaries provide, among other things, appraisals, home inspections, and warranties for residential real estate transactions and perform specialized services primarily to its national and regional mortgage lending customers, such as real estate tax processing, flood zone determinations, consumer mortgage credit reporting, default management services, and mortgage loan subservicing.

10. LES, one of the Debtors, is one of these subsidiaries. Prior to the Petition Date, LES operated as a “qualified intermediary” under section 1031 of the Internal Revenue Code (the “Tax Code”). Generally, the Tax Code imposes taxes when property is sold or transferred and a gain is realized. Pursuant to section 1031 of the Tax Code, if a taxpayer adheres to certain guidelines, then all or a portion of the gains from the disposition of business or investment property can be deferred or reinvested into a new replacement property. These deferred gains, as well as the gains from the new property, are not taxed unless and until the new property is transferred and fails to qualify for tax deferral. To qualify for such tax deferral, the taxpayer must structure the transaction as an exchange of one property for another of “like kind.” 1031 exchanges typically are facilitated by a qualified intermediary, like LES.

11. During the course of its operations, LES entered into agreements (“Exchange Agreements”) with its customers whereby it would acquire the net proceeds of the sales of relinquished properties (the “Exchange Funds”) in accordance with requirements of the Tax Code in order to facilitate a like-kind exchange. Pursuant to the Exchange Agreement, LES takes sole and exclusive possession, dominion, control and use of all Exchange Funds, including interest, if any, earned on the Exchange Funds until the earlier of the consummation of a like-kind exchange or such other date or event as provided in the Exchange Agreement (as applicable, the “Termination Date”). The Exchange Agreements further provide that a Customer shall have no right, title, or interest in or to the Exchange Funds or any earnings thereon and that a Customer shall have no right, power or option to demand, call for, receive, pledge, borrow or otherwise obtain the benefits of any Exchange Funds, including interest, if any, earned on the Exchange Funds except that the balance of Exchange Funds, if any, held by LES after applying such Exchange Funds in accordance with the Exchange Agreement shall be paid to the Customer on the applicable Termination Date. As of the Petition Date, the Exchange Funds maintained by LES included funds acquired from approximately 450 customers pursuant to separate Exchange Agreements. While not the norm, approximately 50 of the Exchange Agreements (each, a “Segregated Exchange Agreement”) required LES to segregate the applicable Exchange Funds (the “Segregated Exchange Funds”). The remaining approximately 400 Exchange Agreements have no segregation requirement.

Segregated accounts SHOULD be “the norm!”

400 new innocent exchangers are about to enter bankruptcy hell wherein they will find the lifesavings they entrusted to their 1031, to the extent they weren’t already squandered on bad investments by LES, dissipated over months/years of self-perpetuating litigation the real point of which appears to be to tally up billable hours and “administrative fees” of court appointed functionaries to the point that they quickly outstrip any potential recoupment of their exchange funds. Case in point: as of September 2008, nearly 18 months after the 1031 Tax Group (Ed Okun’s grand embezzlement scheme) filed for bankruptcy, his 350 victims have received nothing, the court has retrieved less than $2 million from liquidating Okun’s assets but has toted up and filed claims for $24 million in “administrative fees” and they stand first in line with their hands out before any of Okun’s (or LES’ )victims will receive a dime!)

(ii) LES

16. As of the Petition Date, approximately $138.6 million in Segregated Exchange Funds were maintained in segregated LES accounts. These funds equal or exceed the claims of customers that are a party to one or more Segregated Exchange Agreements. In addition, as of the Petition Date, LES maintained approximately $46 million backed by investments in government treasury bonds and approximately $201.7 million (par value) in auction rate securities. These assets, which represent Exchange Funds acquired from approximately 400 customers (the “Commingled Customers”), are commingled. In the aggregate, Commingled Customers hold claims equal to approximately $191.7 million against LES.

If I’m reading the foregoing accurately, 50 exchangers had deposited $138.6 million with LES in segregated accounts which miraculously LES still has on deposit so they may actually see their funds again if they don’t get sucked into bankruptcy court and that court doesn’t acquiece to LES’ claims that even the segregated accounts are their property, not the exchangers’, as claimed in LES’ bankruptcy petition. In the Okun case, the bankruptcy court actually authorized the attorneys for the Debtors to pursue the exchange funds still held by the Colorado Capital Bank arguing that those funds were the property of the 1031, not the exchangers — some of which have since been used to pay adminstrative fees of the bankruptcy proceeding! The cozy “settlement” negotiated by the debtors attorneys with those of the bank provided for the bank and its attorneys to receive more than $800,000 in fees and an additional quarter million to cover future cost that might arise — all of which will come out of exchangers’ own funds — effectively including the costs of both sides of that litigation! Only in bankruptcy court would this not seem a huge step “Through the Looking Glass”!).

Of the $191.7 million LES owes its other 400 exchangers whose funds were “commingled,, it seems to have on deposit only $46 million (about 24% of what it owes those exchangers) having effectively blown the balance ($145.7 million) on a get rich quick scheme for its own benefit (does anyone seriously believe this investment of exchanger funds was intended to benefit the exchangers as LES will no doubt try to argue? — aka the Okun argument, which his defense attorneys appear poised to make in criminal court — “I was trying to get my clients a better return on their exchange funds, Your Honor…!” — pulleez!) Since those investments effectively have no monetary value today (see their sad, sad tale below), the bankruptcy court functionaries will certainly file motions to seize the $46 million because it represents “commingled accounts” and is thus considered easy pickins with which to pay their administrative fees…
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Page 8
Since 2002, LES invested a portion of the Exchange Funds transferred to it in investment grade securities rated A or stronger at the time of the investment, including auction rate securities (“ARS’s”) backed by federally guaranteed student loans. An ARS typically is a debt instrument with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. Until earlier this year, banks pitched ARS’s to corporations and wealthy individuals as highly-liquid and safe alternatives to cash, and LES’s investment goals on the Exchange Funds were to maintain the full liquidity necessary to meet customer claims.

19. The ARS’s purchased by LES, which were sold to it by certain financial institutions, were highly liquid for many years. Unfortunately, as has been widely publicized, the ARS market froze earlier this year and LES has been unable to liquidate the ARS’s previously purchased at any price near their par value. Indeed, although the aggregate amount of the cash and par value of the ARS’s held by LES exceeds the value of all funds received from LES’s customers, LES’s inability to sell, or borrow against, these securities ultimately precipitated its decision to cease additional customer transactions and terminate operations.

The boldfaced lawyerly-crafted sentence above is one of my favorites — a carefully parsed deliberately obtuse way of saying “Through greed and stupidity, we lost nearly $147 million of exchangers’ funds entrusted to us.” (Not to mention “…and what we didn’t lose, we’re now claiming belongs to us”!)

The following is excerpted from an Adversary Motion filed by Lubexpress, a company, which apparently had $9 million in what it thought was a segregated exchange account with LES that it is trying to get returned (good luck to them…As a non-lawyer myself, but based on the judicial abuse to which we Okun bankruptcy victims have been subjected, seems to me other LES segregated account holders would be well advised to join this motion as a class to minimize their individual costs, lend strength and expedite their own claims. Time is of the essence, you poor things…!):

15. On the Petition Date, counsel for LES stated on the record at the first day hearing
that LES (i) does not intend to consummate the Section 1031 exchanges that are the subject of its executory exchange agreements, and (ii) believes that the funds it is holding in both segregated and commingled bank accounts constitute property of LES’s estate. Further, the Court has entered an order prohibiting LES from, among other things, transferring funds from such bank accounts. These events constitute a breach of the Exchange Agreement.

19. LES is holding the Funds in trust for the Plaintiffs. LES and the Plaintiffs had the
capacity and intent to enter a trust agreement and the Exchange Agreement constitutes such agreement. The relinquished properties first constituted the res of the trust, which were then substituted by the Funds. The Funds are segregated in the Accounts and are clearly identifiable. LES is the trustee and the Plaintiffs are the beneficiaries of the trust.

20. Under the Exchange Agreements, the Plaintiffs and LES affirmatively agreed that
the Funds would be held for the benefit of the Plaintiffs. Section 6(b) of the Exchange
Agreement states that “LES IS ENTERING THIS EXCHANGE AGREEMENT SOLELY FOR THE PURPOSE OF FACILITATING TAXPAYER’S EXCHANGE OF THE RELINQUISHED PROPERTY FOR THE REPLACEMENT PROPERTY.”

21. Section 6(d) of the Exchange Agreement states that “LES shall only be obligated
to act as an intermediary in accordance with the terms and conditions of th[e] Exchange Agreement and shall not be bound by any other contract or agreement, whether or not LES has knowledge of any such contract or agreement or of its terms or conditions.”

22. Section 3(a) of the Exchange Agreement sets forth the requirement that LES hold
the Funds in the Accounts associated with the Plaintiffs’ names and taxpayer identification numbers.

23. Section 3(b) of the Exchange Agreement provides that the Plaintiffs get the
benefit of the accrued interest and assume the responsibility to pay any income tax on the interest.

24. Nothing in the Exchange Agreement confers to LES any beneficial interest in, or
risks associated with ownership of, the properties or the Funds. Rather, the Exchange
Agreement requires LES to accept the relinquished properties, transfer them to the buyers, hold the proceeds for 180 days or less, accept title to the acquired properties, and then transfer them to the Plaintiffs.

25. Section 7 provides that LES’s compensation for this trustee service is limited to a
$1,200 plus reimbursement of expenses. In contrast, the Funds exceed $9 million.

26. By reason of the foregoing, the Plaintiffs seek a declaratory judgment under
section 541 of the Bankruptcy Code that LES is holding the Funds in trust for the Plaintiffs and are thus not property of LES’s estate.

If I had any money left with which to bet (no longer a temptation thanks to Ed Okun and the Bankruptcy Court of New York’s Eastern District), I’d lay odds that the bankruptcy court will deny the motion since by LES’ own admission, the lion’s share ($138.6 million) of the exchange funds it currently holds are in those segregated accounts (plus a pitiable 24% ($46 million) of what it owes the poor exchangers whose funds were “commingled.”) Since bankruptcy court is a self-financing enterprise, all the court appointed functionaries will fight valiantly to make sure that $138.6 million is construed as assets of the “estate” and available to pay their salaries and expenses over the next several years thus fully insulating them from the nation’s current economic woes while plunging the innocent exchangers, whose funds they rightfully are, into financial ruin.

Ed Okun Denied Freedom: Judge Payne Hammers Defense Attorney’s Explanation

Courtesy Gordon Gecko Wiki

Sensing his fleeting chances at freedom, 1031 Tax Group investment criminal Ed Okun made what looks to be his last feable attempt for release yesterday–he was denied! Okun’s attempt centered around a defense motion for release based on a 3rd party custodian (required terms for his release) a Mr. Alex Carrera. The defense attorney in the case, one of a long line who have come and gone no doubt at either taxpayer’s expense or that of Okun’s victims, originally proposed that Mr. Carrera would be present at the November 5 hearing: Carrera was a no show.

The following is the tip from ever present and well informed Okun victim Elizabeth Callanan. Elizabeth has been a huge source of information and guidance in my 1 1/2 years of coverage on the Ed Okun rip off and eventual prosecution. The following comment will give all involved a much clearer picture of what has just transpired. This comment came in the last 24 hours. Certain passages were highlighted for reader convenience:

“Judge Payne DENIED Okun’s motion for release. The 3rd party custodian (required for Okun’s release) originally proposed in the defense’s motion, an Alex Carrera, was a no-show at the hearing, despite the Defense’s new attorney (a private attorney with an office in Washington, DC, named Barry Pollack — so Okun now has THREE attorneys, including the two from the public defender’s office, at US taxpayer expense!)telling the Judge he’d spoken to Carrera the previous afternoon and had every reason to believe he would be there and couldn’t explain why he wasn’t. Interestingly, his absence could not have been a surprise to Simone Bolani (Okun’s Brazilian bride), since she’d recruited a substitute, Edwin Escobar, the night before the hearing (odd she wouldn’t have shared that information with her husband’s attorney, isn’t it?) who did appear in the courtroom. However, under questioning by the US Attorney, Escobar had to admit that he was apparently guilty of one of the same offenses with which Okun was originally indicted, namely asking Okun to pay him $10,000 he was owed for some reason in increments of less than that to avoid IRS reporting limits! Judge Payne must have thought that wasn’t the most stellar qualification for a third party custodian and denied the motion. He also expressed chagrin that Carrera, described in the defense motion as a “family friend,” had in fact only met Okun once, at Simone’s Feb 2008 birthday party, and had not seen Okun since. He cautioned the defense not to bring any further such motions unless they’d personally interviewed the proposed custodian and assured themselves of the facts being claimed and that they were in fact suitably qualified to serve in that capacity. Thanks to Judge Payne and the US Attorney (Michael Dry), it looks like Okun’s appearance at his criminal trial which begins Jan 19 has been assured.”

U.S. Trustee McHale “Continuation of Bankruptcy-Criminal Proceedings Collectively Serving The Interests of Justice”

United States Trustee Gerald McHale recently brought suit against Wachovia Bank, and affiliates, for the recovery of “$43 million of conveyances allegedly made to Wachovia in the form of cash and mortgage liens, and the imposition of equitable liens and constructive trusts on several properties in which Wachovia continues to hold liens, or the proceeds therefrom.” Allegations abound that Wachovia not only helped Ed Okun in his scheme but perpetuated it’s continuation despite their (Wachovia’s) knowledge that Okun was violating many banking laws in his business practices.

Today Gerald McHale announced that he has filed a “Statement of Position and Response” to judge Payne’s order in the Ed Okun criminal case. The statement was filed in regards “to the effect of the pending bankruptcy cases of the 1031 Debtors on the likely availability of funds for the purpose of restitution in the criminal case.” The statement was filed October 15, 2008.

3 Key Points

1. McHale agrees “concurs” with the presentation set forth in the Government Statement filed September 12, 2008. See US vs Okun (Government Position) pdf bottom of article.

2. McHale submits that the continuation of the bankruptcy proceedings and the criminal proceedings “are collectively serving the interests of justice and judiciary effciency.”

3. McHale asserts that “Victims of the criminal case are better served by the bankruptcy process which is well underway and has already resulted in the liquidation of many tangible assets and other recoveries.”

Sad But True

The saddest but most likely true statement is the one McHale uttered at the end of his announcement:

“Victims could see some recovery through the bankruptcy process sooner than the time that would be required for the defendant’s convictions in the criminal case will be final.”

Ed Okun Tax Group Scandal Reaching Climax: Is Recovery of Monies in The Cards?

Reuters.com published this deansguide article September 26, 2008

United States Trustee Gerald McHale’s 9th newsletter briefing of the status of the Ed Okun 1031 Tax Group case highlights the difficulty and frustration of trying to “get blood from a stone.” The proverbial stone being Okun and the assets which seem to either be non existent or hiding.

Highlights or Lowlights?

The people waiting for some type of settlement must be getting very restless and asking questions non stop. I am sure Mr. McHale is doing his best to get as much money back as possible but the following plea says it all:

McHale in an open plea to the “Train Wreck Victims”

“Trust me when I say that it goes against my open nature and I know how frustrating it must be not to have your questions answered in detail. . . “

Major Points

1. Supplemental Proof of Loss was filed by McHale July 30, 2008 “containing extensive analysis”

Analysis: What effect this supplement will have on recovery is anyone’s guess. At least McHale is working as much information into the mix as possible in regards to proving further damages and seeking compensation. The frustration for victims is they are often kept in the dark

2. JPS Capital, our old friends (Mr. Shapiro) who decided to set the record straight with deansguide but never delivered on that promise, are now a target of litigation or as McHale so clinically puts it “we have commenced an action against JPS and other parties asserting an interest in the New Hampshire lakeside mansion.” The goal is to recover $5.1 million in debtor monies

3. Richard Simring and David Field Plead guilty. For more information see Julie Kay’s article in it’s entirety on McHale’s site here

4. Ed Okun and Laura Coleman trial dates set for January of 2009

The saga continues as more money is being recovered, fewer players are left standing, and the victims remain holding the bag!

Okun promises
Monies disappear

Mystery caller

Okun Indicted On 27 Counts: Is Okun On Suicide Watch?

Ed Okun and accomplice Lara Coleman, somebody the mystery caller mentioned months ago as “going down”, face a 27 count indictment as handed down and reported by Gerald McHale this past week. The indictment laundry list of counts:

1. Wire and Mail Fraud Conspiracy: Count 1
2. Money Laundering Conspiracy: Count 2
3. Wire Fraud: Counts: 3-15 (1343)
4. Mail Fraud: Counts: 16-18 (1341)
5. Money Laundering: Counts 19-21 18 USC & (1956 (a) (1) (A) (i))
6. Money Laundering: Count 22 18 USC & (1956 (a) (1) (B) (i))
7. Money Laundering: Counts 23-25 USC & (1957)
8. Bulk Cash Smuggling: Count 26 31 USC & 5332
9. False Declaration: 18 USC & 1623

In the face of this indictment, the fact reported by Mark Heschmeyer that one of his buildings (Shreveport) has natural gas deposits valued at $30-60million-something he can’t touch, and the possible collapse of his marriage and network of friends, it is rumored that Ed Okun has been placed on suicide watch.

Here is one of the only pictures available on the internet of Ed Okun (far right) during a press conference announcing the sponsorship agreement with Foyt Racing. Photo courtesy of Foyt Racing.

Note: This conference was in 2006 long before it was public news that Ed Okun’s wealth was derived from the ponzi scheme known as 1031 Tax Group and affiliates:

//www.foytracing.com/IndyCar/2006_reports/photos/IMG_1458.JPG” cannot be displayed, because it contains errors.

1031 Tax Group Okun Swindle “Mantra”: “The plaintiffs’ money has ‘disappeared’ and recovery is unlikely”

Reuters.com published this deansguide article July 9, 2008

What has become an all to familiar phrase in the Ed Okun 1031 Tax Group (IXG) ponzi scandal, seems to be the dreaded mantra: “The plaintiffs’ money has disappeared and recovery is unlikely.Those were the words recorded in court hearings in Colorado this past month in regards to the embezzlement of funds through the Ed Okun held IXG exchange in Denver.

Exhibit 1: Sergio S. Alvarez v. Daniel E. McCabe

In “Sergio S. Alvarez v. Daniel E. McCabe et al, eight former clients are suing all three McCabes and Simring (Richard) for losses totaling more than $4.5 million” according to the latest from the Denver Business Journal’s Renee McGaw.

Eight clients were in the midst of their tax deferred exchanges with cash assets between $280,629-$1.9 million dollars lost when the 1031 Tax Group filed bankruptcy

Exhibit 2: Ward Enterprises LLC v. Daniel E. McCabe

The Plaintiff (Wade LLC) wired $3,300,000 in proceeds from a real estate transaction to IXG’s account held at the United Western Bank in Denver. Proceeds were for the purpose of performing a 1031 exchange

In the meantime IXG had been sold to Okun and his 1031 Tax Group-something Ward LLC did not know at the time. Consequently Ward expected it’s millions to be deposited in a separate, stand alone, account. Unfortunately for Ward, their monies were “pooled with other exchangers’ money and later moved out of United Western Bank”, according to allegations of the Ward suit.

The Beat Goes On

As usual nobody is taking responsibility for these illegal transactions. The McCabes are stating that they are innocent and victims of Okun’s dirty dealing. So the beat goes on, victim’s monies disappear and nobody is left holding the bag–except the victims