This is the fifth entry in my series on foreign asset protection trust failures. It shares a number of facts with the other cases. These are:
- A less than savory character. Bilzerian was convicted of securities fraud.
- A lengthy legal process. This August 2000 decision was the last in a series of hearings and trials that started in the early 1990s.
- An offshore asset protection scheme: The taxpayer had a Cook Island trust.
- Fraudulent Transfer issues: Bilzerian established and funded the trust during the trial.
- The taxpayer argued the court couldn’t hold him in contempt because it was impossible to comply with the court’s disgorgement order.
After being convicted of fraud, the SEC sought restitution for Bilzerian’s victims by asking the court to force Bilzerian to disgorge assets. Bilzerian, who established a complex asset protection structure, raised the impossibility defense. Once again, a court ruled that the impossibility defense is moot when the taxpayer creates the impossible-to-comply-with situation.
Bilzerian claims he no longer has any assets. As noted above, the Court does not believe this claim. However, even if the claim were true, Bilzerian has not established an inability defense, as he admittedly created his alleged inability himself. With full knowledge of the existence of the Court’s disgorgement judgment, he voluntarily chose to transfer his assets to the Family Trust and the Children’s Trust. If he cannot convince the trustees or Trust protector to return his assets to him, it is a problem of his own making. See. e.g., Piambino v. Bestline Products, Inc., 645 F.Supp. 1210, 1215 (S.D.Fla.1986) (finding that attorneys who had dissipated disputed funds rather than set them aside pending resolution of the dispute had created their own inability to comply and therefore had not established an inability defense); United States v. Lay, 779 F.2d 319, 320 (6th Cir.1985) (upholding district court’s contempt finding where defendant consciously induced his purported inability to comply by divesting himself of assets through property conveyances to family members). To allow Bilzerian to avoid the Court’s disgorgement Orders through his contumacious conduct would render both the Court’s Orders and the SEC’s enforcement power meaningless. See SEC v. AMX Int’l, Inc., 872 F.Supp. 1541, 1545 (N.D.Tex.1994).
The one potential saving grace for asset protection planners is that here, as is the case with most of the other FAPT trust failures, the taxpayer established the trust when a potential creditor existed. This is clearly in violation of the fraudulent transfer doctrine. That fact, combined with the unsavory character of this and other defendants in the FAPT failure cases, likely prejudiced the judge against the grantor.
But there are now multiple cases standing for the proposition that a self-created structure preventing payment to creditors disallows the impossibility defense in response to a contempt charge. This greatly limits one of the primary drafting tools to create a foreign asset protection structure.
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