They’re Having A Corruption Summit In South America. South Florida Should Tune In.

By Tim Padgett

Pedro Pablo Kuczynski resigned as president of Peru in March because of a corruption scandal – just a month before he was supposed to host the Summit of the Americas this week in Lima. But here’s the kicker: This time the theme of that gathering of the hemisphere’s heads of state is … corruption.

Pedro Pablo Kuczynski resigned as president of Peru in March because of a corruption scandal – just a month before he was supposed to host the Summit of the Americas this week in Lima. But here’s the kicker: This time the theme of that gathering of the hemisphere’s heads of state is … corruption.

But when Salazar declared his innocence to a Peruvian TV news show by Skype recently, he wasn’t in Peru. He’s living here, in the $1.5-million oceanfront condo he owns in Sunny Isles Beach. A Peruvian judge just issued a preliminary extradition order to bring Salazar back to Peru. But it could be a long time before that ever happens. If it happens.

And that situation bothers corruption experts like Jose Miguel Cruz.

“Miami and South Florida are seen as this paradise for those [allegedly] corrupt officials and executives,” says Cruz, who is director of research at Florida International University’s Latin American and Caribbean Center (LACC).

This Friday the LACC hosts a conference on Latin American corruption to coincide with the corruption summit in Peru. One point Cruz hopes to register is that the U.S. aids Latin American corruption by making it easy for suspects to take refuge in places like Miami with their allegedly dirty cash.

“We don’t seem prepared or willing to handle these corruption cases coming in from Latin America,” says Cruz. “Here in Miami, with the desire to contribute to the growth in real estate and different investments, we have tended to look the other way.”

Cases like Salazar’s are indeed common in South Florida. Among them: former Panamanian President Ricardo Martinelli, who was living in a Coral Gables mansion when he was arrested last year; the U.S. will decide if he should be extradited to Panama on corruption charges involving millions of dollars. (Martinelli denies the accusations.)

For his part, Salazar insists he’s a victim of shoddy investigative work by overzealous Peruvian prosecutors peddling assumptions, not facts. And he points out in Peru there’s no bail system – so if he does return he’ll have to sit in jail until his case is resolved, which could be years.

“We have repeatedly reached out to the prosecutor to explain what happened in this case,” says Salazar’s Miami attorney, Lilly Ann Sanchez.

“But unfortunately they don’t have the due process rights that we have in the United States. So of course [Salazar] is going to take the due process benefit of the country he’s in here.”

LUXURIOUS DIGS

The concern about due process in Latin America is valid. Still, many Peruvians are angry Salazar is enjoying due process in such luxurious digs.

Salazar, a U.S. resident, bought his Jade Beach condo in Sunny Islands Beach six years ago. That’s when Odebrecht arranged the bribe Salazar is accused of expediting. And he acquired the condo anonymously – using a shell company whose officers are his wife and daughter.

“These structures are very commonly set up to hide the assets using family members,” says Annette Escobar, a Miami attorney at the Sequor Law firm specializing in international financial fraud.

Escobar notes federal officials did start a pilot program two years ago to make large property purchases like these more transparent. But she says much more is needed.

“It’s not overnight that you overcome a legacy like the one that Miami unfortunately has developed,” she says. “I think it would take congressional action and probably international cooperation.”

Latin American corruption suspects who take refuge here are under heavier scrutiny now. Former Guatemalan presidential candidate Manuel Baldizón is wanted back home in another massive Odebrecht case; U.S. officials arrested him in January and his extradition is pending.

“It’s very important that Mr. Baldizón return,” says Matías Ponce, spokesman for Guatemala’s International Commission Against Impunity (CICIG). “This is the most important corruption case in Guatemala.”

There may be more cases here to scrutinize – at least underwater. A high-level Odebrecht executive told investigators he had a laptop computer containing all the bribery data. But he said that last year during a visit to Miami he threw it into the ocean in a panic.

Meaning, lots of alleged corruption is probably lying at the bottom of Biscayne Bay.

To view full article, click here.

US Supreme Court Clarifies Standard of Review for Bankruptcy “Insiders”

By Benjamin Clarke

In its second clarificatory ruling in the space of a week, the US Supreme Court has found that appeals courts should apply a “clear error” standard when reviewing bankruptcy court rulings that determine whether an individual is an “insider”.

The unanimous decision handed down by Justice Elena Kagan on 5 March affirmed a Ninth Circuit ruling from February 2016 that federal courts should defer to the factual findings of the bankruptcy courts when hearing challenges over insider relationships, rather than conduct their own de novo reviews – where they would not have to place any weight on the bankruptcy court’s findings.

While the US Bankruptcy Code’s definition of an insider includes directors, officers, general partners and any “person in control” of the debtor entity, the US courts have developed tests to identify non-statutory insiders, which focus on whether transactions with the debtor are carried out “at arm’s-length”.

In the 5 March judgment, Justice Kagan concluded: “Appellate review of the arm’s-length issue – even if conducted de novo – will not much clarify legal principles or provide guidance to other courts resolving other disputes.”

“The issue is therefore one that primarily rests with a bankruptcy court, subject only to review for clear error,” she added.

Lawyers tell GRR that the ruling provides a “clear deference” to the bankruptcy court’s determination of insider status.

Mixed question of law and fact

The seven-year journey to the Supreme Court started in June 2011 when real estate company Village at Lakeridge filed for Chapter 11 protection in Nevada, owing US Bank over US$10 million and its sole owner, MBP equity partners a further US$2.76 million.

US Bank opposed the restructuring plan, which placed the two creditors in separate classes, and a potential cramdown plan – based on MBP’s consent – was prevented from proceeding because insiders cannot provide the agreement needed for cramdowns.

To get around the obstacle, Kathleen Bartlett – a member of the MBP board, and an officer of Lakeridge – offered to sell MBP’s entire claim to a retired surgeon, Robert Rabkin, so he could agree to the cramdown plan as a non-insider.

Following this move US Bank commenced litigation arguing that Rabkin was a “non-statutory insider” because he had a “romantic relationship” with Bartlett, and the purchase of MBP’s debt was therefore not an “arm’s-length transaction”.

The Nevada court rejected US Bank’s arguments and found that while Bartlett and Rabkin were in a romantic relationship, the purchase was made as a “speculative investment” and Rabkin had carried out the necessary due diligence.

When the matter subsequently made its way to the Court of Appeals for the Ninth Circuit, a divided vote affirmed the bankruptcy court’s position. The opinion handed down by Judge Norman Smith on 8 February 2016 said the bankruptcy court’s decision was based on a finding that the transaction was conducted at arm’s length. The decision was entitled to a clear error review, but could not be reversed under such a review, the Ninth Circuit said.

After the split decision the matter was allowed to proceed to the Supreme Court, for the determination of a single question: whether the Ninth circuit was right to review the bankruptcy court’s determination for clear error rather than de novo.

In a unanimous decision the Supreme Court agreed with the Ninth Circuit’s standard.

Justice Kagan said a “’mixed question’ of law and fact” remained at the heart of the case. The bankruptcy court had to determine whether the historical facts found regarding the relationship between Bartlett and Rabkin satisfied the legal test for conferring non-statutory insider status.

The standard of review for dealing with such mixed questions depends on whether answering it “entails primarily legal or factual work,” the court explained.

Using the test identified by the Ninth Circuit for determining Rabkin’s insider status – whether the transaction was carried out at arm’s length – the court decided the “mixed question” was primarily factual: was Rabkin’s purchase of the MBP claim conducted as if the two parties were strangers?

“That is about as factual sounding as any mixed question gets,” the court found.

Justice Kagan concluded that the Ninth Circuit applied the proper standard in reviewing the bankruptcy court’s determination that Rabkin did not qualify as an insider because his transaction was conducted at arm’s length.

“A conclusion of that kind primarily rests with a bankruptcy court, subject only to review for clear error.  We accordingly affirm the judgment below,” Justice Kagan finished.

Reaction

Speaking to GRR after the verdict, retired bankruptcy judge for the Southern District of New York Judge Allan Gropper says the decision was only a narrow one given that the court’s ruling was limited to the standard of review an appellate court should use.

In such circumstances where questions of mixed law and fact are considered, the Supreme Court noted that the standard of review “is often determined on the basis of which judicial actor is better positioned to make the decision,” he says.

In this case, the court held that it was the bankruptcy judge who was best placed to make the decision, as he had heard the evidence and weighed the facts, and applied them to a legal standard that was not at issue, Judge Gropper explains.

In terms of the impact of the decision, Judge Gropper says he predicts losing parties will be less ready to appeal factual decisions made by bankruptcy or other trial courts, as a decision which is primarily factual in nature can only be reversed for clear error.

“Since either a debtor or a creditor can be on the losing end of a factual dispute, I don’t think the impact of the decision will fall more heavily on one or the other,” he adds.

Finally, Judge Gropper says that, as federal court judges are appointed for life under article III of the US constitution, and bankruptcy judges are appointed for 14-year terms under article I, he was “struck” by the Supreme Court’s decision to treat the factual findings of the bankruptcy court “with the same deference it would treat the factual findings of any other trial court”.

“In recent years, the Supreme Court and some other appellate courts have written opinions stressing the limited power of the bankruptcy courts to issue final decisions on certain issues, generally said not to be ‘core’ bankruptcy issues,” he says.

As the issue at play in this case was about the construction of a term defined in the Bankruptcy Code – surely a “core” issue – it is notable that the Supreme Court did not deem it relevant that the bankruptcy judge who made the initial factual findings was a non-article III judge.

“In my view, that aspect of the Supreme Court’s opinion should be important in confirming the role that the bankruptcy courts have in our judicial system,” Judge Gropper adds. 

Annette Escobar, founding shareholder and partner at Sequor Law in Miami, agrees. She says that the specialised nature of the bankruptcy courts and the experienced judges that sit in them put them in the “best position as to facts and evidence presented to them”.

“I think it is a well-deserved recognition of the deference due to bankruptcy courts in matters pertaining to their areas of specialisation,” she tells GRR.

On the likely impact of the decision, Escobar also notes the issue resolved was a “very narrow one” and could vary from case to case in the future.

“The impact it will have on bankruptcy stakeholders or creditors on an individual basis is likely to be minimal,” she says, “but the question resolved might have extensive effects on appeals from bankruptcy courts more generally.

“[I]n all bankruptcy appeals in which mixed questions of law and fact are present, appellate courts will have to engage in the case by case analysis set forth by the Supreme Court,” Escobar adds. “I think we can expect a great deal more haggling about and briefing on the ‘nature’ of the questions on appeal”

Kristopher Aungst, bankruptcy and restructuring partner at Wargo French in Miami agrees that the decision provides a “clear deference” to the determination of insider status provided by the bankruptcy courts, but notes it does not offer any further clarity on the “limited but important” question of who is an insider under the bankruptcy code.

“Insider status, while relatively limited in scope of importance, clearly matters in the context of the look-back period in certain avoidance actions,” Aungst tells GRR. He suggests an expansion of the definition would create greater potential avoidance powers.

Coordinating editor of international for the American Bankruptcy Institute, Tally Wiener says she doesn’t think the Supreme Court missed an opportunity to offer more clarification on the definition of insiders. “[W]e know them when we seem them,” she says.

With regard to the substance of the ruling, Wiener tells GRR there is potential for courts to apply a broad construction. The decision could be cited to try to achieve a deferential standard of review with respect to other mixed issues of law and fact, she suggests.

“This strikes me as unfortunate,” Wiener says, “perhaps because I live in New York and am accustomed to federal appellate courts applying a de novo standard of review to many mixed issues of law and fact arising in bankruptcy appeals”.

The Supreme Court’s decision comes just six days after its landmark “safe harbour” ruling, in which it unanimously found that defendants who are not financial institutions or market participants should not be able to invoke the Bankruptcy Code’s safe harbour clawback.

 

Recoup From A Ponzi Past?

Law: After bankruptcy, lawsuit, Woodbridge tries a turnaround.

By Helen Floersh

Woodbridge Group of Cos. in December made headlines from Southern California to South Florida after it filed for Chapter 11 protection and was subsequently sued by the Securities and Exchange Commission for allegedly running a billion-dollar Ponzi scheme.

Woodbridge founder Robert H. Shapiro is alleged to have squandered investor money, paying big returns to old investors using fresh money from new investors, in classic Ponzi-scheme fashion. He enjoyed a lavish life, too, the SEC claimed, blowing millions on limousine service, fine wine and big parties attended by such prominent Republicans as Karl Rove.

Law: New Board Plans to Restructure Woodbridge

But what’s happened since is unusual. Ponzi schemes usually collapse upon being exposed. But management at the real estate investment firm – situated in a two-story office building on Ventura Boulevard in Sherman Oaks – appear set to overhaul its operations and try to make good with its creditors. The company announced early last month that it had cut all ties with Shapiro (not to be confused with renowned Los Angeles attorney Robert L. Shapiro, cofounder of LegalZoom.com Inc. in Glendale).

As part of a deal reached with federal regulators Jan. 24 in U.S. Bankruptcy Court in Wilmington, Del., the company has appointed a new board of directors to hunt for a chief executive who will spearhead a strategy to recoup the $1.2 billion Woodbridge raised from more than 8,400 investors. Meanwhile, the SEC has called off its request for a receiver.

“This board will guide Woodbridge through a fair and transparent restructuring process focused on maximizing recoveries for investors,” Woodbridge said in an e-mail to the Business Journal. “After conducting a comprehensive review of assets and operations, this board will begin developing a plan of reorganization, which will determine how creditor recoveries are managed and what Woodbridge might look like after the restructuring process is completed.”

Former management

Woodbridge investors in the past were told that the company was putting their money into high-interest loans made to luxury real estate developers. The borrowers were actually shell companies owned and operated by Shapiro, the SEC alleged in its Dec. 22 complaint.

“Shapiro promised investors they would be repaid from the high rates of interest (earned) on loans the companies were purportedly making to third-party borrowers,” the SEC wrote.

He allegedly used teams of internal and external sales agents to sell the securities to investors, at least 2,600 of whom were South Florida-based retirees who invested in Woodbridge using money from their Individual Retirement Accounts, the SEC alleged. They were guaranteed monthly interest and dividends from the so-called “hard money” loans Woodbridge was making.

Woodbridge claimed it generated between 11 and 15 percent annual interest for short-term financing, 5 to 10 percent of which was returned to investors, according to the SEC. In addition, investors were told they would see gains from the sale of real estate properties purchased and developed by the company, the SEC said. In reality, only about $14 million in interest was paid to Woodbridge by third-party borrowers, the SEC claimed. Roughly $103 million of new investors’ money was used to pay monthly interest and dividends to existing investors, with another $265 million paid as principal. At the time of the lawsuit, $961 million in principal remained due, the SEC said.

“The claimed interest payments from the purported third-party ‘property owners’ … did not exist,” the lawsuit stated. “Payments …derived almost exclusively from funds Woodbridge received from other investors.”

However, some purchases were, in fact, made. The real estate to which the Woodbridge loans referred included nearly 200 properties, most of them in Aspen, Colo. and Los Angeles, none of which investors had any say in choosing. The L.A. purchases were conducted through the company’s subsidiary Mercer Vine and included the historic Owlwood estate in Holmby Hills, which once belonged to Sonny Bono and Cher, as well as several other luxury properties, news reports said. Others were vacant lots “that have sat undeveloped for years,” the SEC claimed.

Meanwhile, Shapiro spent upwards of $21 million in investors’ money on himself and his family, the SEC said, including $34,000 on limousine services and $600,000 on political contributions. A local newspaper in Aspen detailed the events he threw with prominent Republican politicians, including former White House Advisor and Deputy Chief of Staff Rove along with current Energy Secretary Rick Perry. Other expenses included $1.4 million on luxury retail items and $1.2 million in alimony, SEC documents said. “Shapiro treated himself to an exorbitant lifestyle, at the investors’ expense,” the SEC said.

Restructuring

Shapiro resigned from Woodbridge Dec. 1, according to company documents. Through a transition services agreement between an LLC Shapiro established in September and Woodbridge, he named himself as a “consultant” to the firm at a monthly fee of $175,000. The agreement was terminated by the start of the year; Woodbridge said in a Jan. 2 press release that it had removed him from all matters involving the company.

Woodbridge had appointed Lawrence Perkins of L.A. management consultancy Sierra-Constellation Partners to steer the company through bankruptcy as its chief restructuring officer, but on Jan. 19 announced that he had resigned as Woodbridge seeks out a new chief executive with “homebuilding experience.”

As part of the agreement reached Jan. 23 in bankruptcy court, the company has appointed a trio of directors – Richard Nevins, M. Freddie Reiss and Michael Goldberg to oversee the search. Nevins is an attorney from Riverside, while Reiss most recently served as senior managing director in the corporate finance division of business advisory firm FTI consulting’s L.A. offices. Goldberg is the co-chair of the fraud and recovery practice group at the Fort Lauderdale, Fla. offices of Akerman, a Nevada-based law firm.

Reorganization: Investors Wait for SEC Inquiry

The company also has formed committees to represent investors’ interests, according to a release from the SEC. In turn, the SEC has withdrawn its request for a court-ordered trustee and a receivership for Woodbridge’s assets.

Investors will have to wait until bankruptcy proceedings are further along to know whether they will be able to recover much of their money. The company’s ability to emerge from the scandal unscathed will depend on both on their willingness to remain patient while the company restructures itself as well as what the SEC finds during its ongoing investigation, explained Arnie Lacayo, a Miami attorney at the firm Sequor Law and who is unconnected to Woodbridge but who reviewed the case at the Business Journal’s request. He noted the fact that the company declared bankruptcy voluntarily before being sued by the SEC may complicate the matter.

“(These kinds of cases) don’t normally involve bankruptcy where the business can be reorganized, though it does happen,” Lacayo said. “You have these very powerful forces that are clashing (the SEC and the federal bankrupt- cy court) as to what should happen next.” An attorney for Shapiro could not be reached, though his legal representative previously told the Wall Street Journal that Shapiro “denies any allegation of wrongdoing and looks forward to defending himself in a court of law.” The SEC declined to comment apart from its remarks in public materials.

For now, it remains to be seen whether Woodbridge will have to sell off its assets or be able to continue operations. Lacayo said the SEC could move to shut down the enterprise if it is proven that it was primarily run as a Ponzi scheme.

“(Woodbridge) will need to show that investments were made over time and that there was independence by the people charged with running the company.” he explained. “Investigators will get at those facts pretty quickly.”

To view full article, click here.

SDFL Adopts Guidelines For Cooperation On Int’l Bankruptcies

By Carolina Bolado

The Southern District of Florida’s bankruptcy court has adopted guidelines for communication and cooperation between courts in cross-border insolvency matters that practitioners say will help courts efficiently handle the increasing number of Chapter 15 cases filed in the region as its ties to Latin America continue to strengthen.

In an order issued Feb. 1, Chief Judge Laurel Myerson Isicoff said the court would adopt the Judicial Insolvency Network’s guidelines for cooperation on Chapter 15 bankruptcies, making the district the third, after Delaware and the Southern District of New York, to implement the toolkit for cross-border cooperation.

“Together with the District of Delaware and the Southern District of New York, we have the vast majority of the Chapter 15 cases filed in the country, so it makes sense that at least in our jurisdictions that we would adopt these guidelines,” Judge Isicoff said.

The guidelines, created by JIN in late 2016, are meant to improve communication and cooperation between courts handling parallel bankruptcy proceedings. Courts that adopt the guidelines agree to accept orders made in proceedings in other jurisdictions, barring an objection by one of the parties. The guidelines also provide frameworks for holding joint hearings and for judge-to-judge communication.

Greg Grossman of Sequor Law, which files a large percentage of the Chapter 15 cases in the Southern District of Florida, called the guidelines a “really large toolkit.”

“In some cases, you’re going to need a wrench; some will need a Phillips-head screwdriver, and some will need a hammer,” he said. “This is an opportunity to encourage more direct communication with each other.”

Under the guidelines, bankruptcy courts should encourage administrators of estates in parallel proceedings to work together. A bankruptcy judge should also share all orders, judgments, opinions, transcripts of proceedings and other court documents with his or her counterpart in a different jurisdiction, according to the guidelines.

The guidelines also lay out procedures for communications between courts by requiring notice of any judge-to-judge communication and allowing the parties to be present. In addition, they allow courts to authorize a party in a foreign proceeding to appear and be heard on a specific matter without making the party subject to that court’s jurisdiction for any other purpose.

After the guidelines were drafted, Singapore and the District of Delaware were the first jurisdictions to adopt them in early February 2017. The Southern District of Florida followed shortly thereafter, as did Bermuda, England, Wales and the British Virgin Islands. New South Wales in Australia agreed to the guidelines in September.

So far, the Southern District of Florida averages about two Chapter 15 cases per month, but it’s a number that is growing as Miami in particular deepens its ties with Latin America, according to Grossman.

This move by the Southern District of Florida’s bankruptcy court could encourage courts in Latin America to get on board, he said.

“Nobody in Latin America has passed it, but it’s coming,” he said. “It took them awhile to get Chapter 15, so baby steps.”

Already they appear to be moving in that direction. Two bankruptcy judges in Latin America, one in Sao Paulo, Brazil, and another in Buenos Aires, Argentina, joined JIN, though Grossman said it is not clear whether they have adopted the guidelines for cooperation. But the action by the judges marked JIN’s first foray into Latin America.

“Our best guess — but we are by no means certain — is that these individual judges would follow the guidelines in their own cases, but they are not able to have their courts adopt the guidelines,” Grossman said.

Judge Isicoff said that these communication and coordination issues have not come up in any Chapter 15 cases she has overseen, and her fellow judges on the bench reported no problems so far when they sat down to discuss whether to adopt the guidelines. But she said that didn’t mean it didn’t make sense for the court to get on board.

“Just because something hasn’t come up yet doesn’t mean it won’t come up, especially as more and more Chapter 15 cases get filed,” Judge Isicoff said. “We just felt it makes sense for us to be consistent with the Southern District of New York and the District of Delaware.”

To view full article, click here.

Sequor Attorneys chosen in Latinvex Latin America’s Top 100 Lawyers

Latinvex recognizes the top foreign lawyers in Latin America

Edward H. Davis, Jr. and Annette Escobar were named among Latin America’s Top 100 Lawyers of 2018 by Latinvex. Those honored were evaluated on criteria such as recent track record on major deals and business, prominence of firm in Latin America, and rankings by third parties such as Chambers and Partners, Legal 500 and Thomson Reuters.

Davis received the distinction for his stellar work and extensive experience in the litigation and fraud areas, and Escobar has been recognized as one of Latin America’s Top 100 Female Lawyers for her continued impactful work in the area of fraud. Congratulations to both of our partners!

      

Chilean liquidator in alleged Ponzi case recognised in Australia

By Douglas Thomson

An Australian court has become the latest to recognise Chilean liquidation proceedings in what is alleged to be the South American state’s first major Ponzi scheme dismantling, following courts in the US, UK and Isle of Man.

Justice Jacqueline Gleeson at the Federal Court of Australia’s New South Wales registry in Sydney recognised CP Legal partner Carlos Parada Abate as liquidator and foreign representative of the estate of Chilean businessman Alberto Chang Rajii, under Australia’s Cross-Border Insolvency Act in a ruling on 29 January.

She also recognised proceedings to liquidate Chang’s assets before the 15th Civil Court of Santiago as a foreign main proceeding under the Australia’s embodiment of the UNCITRAL Model Law. The court followed up with a notice to creditors on 2 February.

The recognitions follow a trio of similar decisions by courts in Florida, London and the Isle of Man over the course of September. The US Bankruptcy Court for the Southern District of Florida has also granted Chapter 15 recognition of separate Chilean proceedings liquidating Chang’s investment vehicle Onix, a company he co-founded with his mother in 2009.

Chang is accused of using Onix to defraud investors through a set of promissory notes guaranteed by what was in fact another Chang company, Grupo Arcano.

The US Securities and Exchange Committee has accused him of manufacturing an identity as an award-winning angel investor, holding himself out as an early Google financier with an MBA from Stanford University, who falsely told investors their money would be put into Silicon Valley companies like Uber and Snapchat.

Liquidator Parada has said in court filings that in fact Chang only invested a small part of the funds, using them to fund a lavish lifestyle for himself instead.

Onix went into compulsory liquidation in May 2016 after it defaulted on its liabilities to a Chilean creditor, with the Santiago court appointing Parada as its liquidator. The company had over US$120 million in liabilities to over 1,000 creditors at the time of its liquidation.

A year later, Chiang’s own estate was placed in compulsory liquidation by the 15th Civil Court of Santiago and Parada was appointed to oversee this case too.

Chang is now facing charges in Chile of fraud, money laundering and operating without a valid licence. He left Chile for Malta the month before Onix’s liquidation and although he was arrested there in December 2016, the Maltese courts have refused Chile’s request for his extradition. Chile has appealed that ruling.

In a service ruling in December, the Australian court described Chang’s current whereabouts as unknown, though he did then appear at a hearing relating to his extradition from Malta on 24 January. The court said he would be served through his personal email address and his Chilean legal counsel.

Parada was represented in the Australian proceedings by Sydney firm Arnold Bloch Leibler, and the hearings were attended by Sequor Law partner Edward Davis from Miami, his US counsel.

Davis says, “We are very happy to have obtained, along with local counsel, additional recognition for Mr Parada in Australia which will allow him to secure real estate, bank accounts and artwork that are believed to be worth more than AU$5 million [US$4 million] in value.”

Chang’s alleged personal spending on properties in Australia, the British Virgin Islands, Miami and London has instigated the global round of recognition proceedings for his Chilean liquidation.

Chang’s property on the territory’s Moskito Island was partially destroyed last year by Hurricane Irma. The asset is nevertheless among those in the territory being pursued by a companion BVI liquidation with Grant Thornton as liquidator and Parada as its largest creditor, as the BVI does not permit the recognition of foreign liquidators.

In the Federal Court of Australia

Bench

  • Justice Jacqueline Gleeson

Counsel to Carlos Parada Abate (liquidator and foreign representative)

  • Arnold Bloch Leibler

In the High Court of Justice of England and Wales, Chancery Division

Counsel to Carlos Abate Parada (liquidator and foreign respresentative)

  • PCB Litigation

Partner Jon Felce in London

 

In the United States Bankruptcy Court for the Southern District of Florida

In re: Alberto Samuel Chang Rajii

  • Judge Laurel Isicoff

Counsel to Carlos Abate Parada (liquidator and foreign representative)

  •  Sequor Law

Founding shareholders Gregory Grossman and Edward Davis with partner Arnoldo Lacayo in Miami

 

In the Isle of Man

Counsel to Carlos Abate Parada (liquidator and foreign representative)

  • Callin Wild

Florida Bankruptcy Court Adopts JIN Guidelines

By Dominic Lawson

The Chief Bankruptcy Judge for the Southern District of Florida has ordered the adoption of the Judicial Insolvency Network’s (JIN) Guidelines on court-to-court communication and cooperation – making Florida the third US state to sign up to them.

Judge Laurel Myerson Isicoff made the administrative order on 1 February. Effective immediately, the order adopts 14 guidelines on communication and cooperation between courts in cross-border insolvency matters drafted by the JIN, a group of international judges who met for the first time in Singapore in October 2016.

The guidelines are designed to improve coordination and cooperation between courts presiding over international insolvency cases in a bid to enhance efficiency and effectiveness.

Gregory Grossman, a founding shareholder at Miami-based firm Sequor Law, which has filed more than two dozen Chapter 15 cases, tells GRR that the Southern District of Florida has the third most Chapter 15 filings in the United States, which “makes sense given Miami’s status as a gateway to Latin America and its significant ties to the Caribbean.”

“These guidelines should foster the continued cooperation between US Bankruptcy Courts and the insolvency courts of the rest of the world by adding a framework for even more direct communications,” Grossman says, adding that his firm welcomes their adoption.

The guidelines allow courts to communicate directly with each other and to give notice of proceedings to parties in other jurisdictions. They also state that courts should encourage cooperation between administrators of parallel proceedings on all aspects of a case.

The JIN Guidelines received the “most important overall development” award at the GRR Charity Awards in June.

On 1 February 2017, Singapore and the District of Delaware became the first jurisdictions to adopt the JIN guidelines. The Southern District of New York adopted the guidelines on 17 February and was followed by Bermuda in March. England and Wales adopted the guidelines in May, as did the BVI. New South Wales followed suit in September.

Argentine Publisher Files for Chapter 15 Recognition in Florida to Access Citibank Account

By Benjamin Clarke

One of the court-appointed liquidators of a “prominent” Argentine publishing company has filed for Chapter 15 recognition in Florida, in an effort to repatriate funds from a bank account held with Citibank in the US.

Co-liquidator Mario Risso, of Argentine firm Risso Plastina y Asociados, filed the petition before Judge Robert Mark in the US Bankruptcy Court for the Southern District of Florida on 24 January, requesting recognition as the foreign representative of Donnelley Argentina (DA).

DA is 98.47% owned by a company in Santiago that is a subsidiary of Chicago-headquartered communications network RR Donnelley.

According to the declaration Risso filed at court, DA filed a bankruptcy petition at the 19th Commercial Court of Buenos Aires in August 2014, claiming it was insolvent due “in part” to the Argentine economic crisis.

Counsel to Risso, Sequor Law partner Arnoldo Lacayo, tells GRR that although the economic crisis was the “primary driver” for the bankruptcy, there were other factors linked to the printing industry that predated the financial crisis.

Shortly after DA started the proceedings, Argentina’s then president Cristina Fernandez de Kirchner accused its US parent company of breaching anti-terrorism laws, according to the Chicago Tribune.

Kirchner allegedly said Donnelley had breached the laws because the shutdown of its Argentine subsidiary “will exacerbate her country’s economic woes”. Argentina’s federal tax authority also called for the arrest and imprisonment of DA’s directors, accusing the company of committing acts of fraud.

The Buenos Aries court appointed Riso’s firm as co-liquidator, together with another Argentine outfit, Rego Saavedra, represented by Ana Rego and Maria Saavedra.

During their investigation into the assets and liabilities of DA, the liquidators discovered that the company held a bank account with Citibank in the US. On 13 October, the Argentine court authorized them to take action in the US to recover any funds.

Risso filed the Chapter 15 petition to enable the liquidators to “communicate with Citibank” regarding the account, and “take steps to repatriate the funds to the foreign proceeding”.

He told the court he had satisfied each of the requirements for recognition under Chapter 15, and requested a stay against any action concerning DA’s estate.

Judge Mark has listed a recognition hearing to take place on 20 February.

In the United Bankruptcy Court for the Southern District of Florida

In re R.R. Donnelley Argentina, S.A.

Judge Robert Mark

Counsel to the foreign representative

• Sequor Law

Partners Arnoldo Lacayo and attorney Cristina Beard in Miami

Foreign representative

• Risso Plastina y Asociados

Mario Risso in Buenos Aires

Marital Asset Recovery: ‘Wealth Managers’ Assist Unscrupulous Men in Defrauding Their Wives

Wealthy men are cheating on their wives—with their accountants and lawyers. They carry on these affairs in exotic locales known for banking secrecy and regulations that make it possible to hide billions of dollars in marital assets.

By Edward H. Davis Jr., John Silbermann and Nyana Miller

Nyana Miller, John Silbermann, and Edward H. Davis Jr.

Wealthy men are cheating on their wives—with their accountants and lawyers. They carry on these affairs in exotic locales known for banking secrecy and regulations that make it possible to hide billions of dollars in marital assets. Even the most financially sophisticated wives and their divorce lawyers are often unable to keep up with the growing asset protection industry and the ruthless men to whom they cater. Combating this trend, divorce lawyers and defrauded ex-wives have turned to lawyers who specialize in piercing the opaque world of offshore companies and trusts to recover assets from high net worth individuals and those who assist them.

The release of the “Panama Papers” and “Paradise Papers” exposed much of the “wealth management” industry and its clientele as co-conspirators in a high-stakes shell game to conceal trillions of dollars of assets from taxing authorities, corrupted government regimes, creditors and, increasingly, the clients’ own spouses. In “Capital Without Borders: Wealth Managers and the One Percent,” Brooke Harrington notes that “through wealth managers’ skillful use of tools such as trusts, foundations and corporations, the game of ‘now you see it, now you don’t’ can go on almost indefinitely …”

Many firms now advertise “pre-divorce planning” services designed to transfer assets out of a spouse’s reach. These schemes may place marital assets into offshore companies and trusts in which the divorcing wife receives a one-half ownership interest, but no right to distributions. Then, while the ex-husband is drawing “consulting fees,” his ex-wife is handed a large year-end tax liability with no ability to pay it. The scheme concludes when the ex-husband disingenuously offers to buy the company interest back and pay the taxes—all at a fraction of what his ex-wife was entitled to receive.

In these divorce cases, trusts, companies and other entities maintained by the husband to hold assets should be primary subjects of inquiry. Legitimate estate and tax planning does exist and most practitioners in the field are honest brokers of a vital service. However, for the unscrupulous, “estate planning” is but a euphemism to describe asset concealment to defraud unsuspecting wives and others. Once the seeds of marital discord have been sown, if the wife has not been involved in these transactions or communications, it is more than likely that the husband enlists the wealth management professionals to divest his wife from marital property. Divorce counsel should therefore explore the husband’s accounting and legal engagements, however brief or seemingly minor.

Individuals Enlisted in the Schemes Are Often Key to Successful Settlements

Men who engage in these schemes often fit a standard profile—narcissistic, with an inflated sense of self-importance and a complete lack of empathy. They are often highly intelligent and believe passionately that they are doing nothing wrong. They do not fight over money, for there is more than enough marital wealth for everyone to live comfortably. They engage in protracted litigation to exercise power over and to punish their ex-wives, to exert control over their children and to secure loyalty from their family members. However, because their schemes require trusted individuals to act as nominees for entities or accounts, these men often enlist friends and family members to carry out their asset concealment activities.

One such husband pursued refused to pay child support and to satisfy a judgment for property division for millions of dollars. He was pursued through two jurisdictions before he settled abroad where his conduct was essentially legally condoned. He showered his children with lavish gifts, and insisted that they come to visit him before he would pay for educational expenses and even regular dental cleanings. He threatened to miss college graduations and other milestones in his children’s lives before he would pay his ex-wife as ordered by the court. He was confident that he and his family had squirreled away the marital wealth in an impenetrable offshore structure. However, by bringing claims against those that facilitated the scheme, which brought these seemingly more rational actors to the bargaining table, a significant global settlement was obtained.

The bottom line is that the world does not end at a country’s borders. There are methods of pursuing offshore assets that are focused on flipping the leverage of the seemingly impenetrable offshore structure and forcing participants in the scheme to essentially “buy the judgment.” Divorce lawyers should reach out to networks of specialized asset recovery lawyers for assistance in navigating the underworld of global asset protection schemes.

Edward H. Davis Jr. is a founding shareholder at Sequor Law who focuses his practice on the representation of individual, corporate and institutional victims of fraud throughout the world and executive director of ICC FraudNet. He may be reached at edavis@sequorlaw.com

John Silbermann, an attorney at Sequor Law, has been a trial attorney since 1996, specializing in civil fraud prosecutions, business insolvencies, and asset- tracing and recovery litigation. He may be reached at jsilbermann@sequorlaw.com

Nyana Miller is an attorney at Sequor Law who focuses her practice on international asset recovery and financial fraud. She may be reached at nmiller@sequorlaw.com

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