How to Stay Out of Jail for Protecting Your Assets

Back in the 1990s, in the go-go days of the Internet stock boom, Stephan Lawrence was a day trader who made millions using other people's money.  But, the market turned against him, and in 1999, he found himself staring at a US$20 million margin call from Bear-Stearns.

Lawrence didn't have the money to pay up, so Bear-Stearns won an arbitration judgment for US$20 million dollars. 

However, Lawrence thought he had a plan to protect himself.  Shortly before the judgment was rendered, he transferred most of his wealth to an offshore trust, and then declared bankruptcy. 

Not surprisingly, the bankruptcy judge wasn’t amused.  He ordered Lawrence to repatriate the assets in his offshore trust.  When Lawrence failed to do so, in 2000, the judge incarcerated him for "civil contempt" of the court order.

Lawrence apparently tried to get the foreign trustee of his trust to repatriate the assets so he could get out of jail.  But the trustee wouldn't cooperate.  After numerous appeals, based on the argument that he didn't have the ability to repatriate the assets in the trust, he finally was released from jail last month—SEVEN YEARS LATER.

Offshore trust promoters once claimed that anyone ordered to repatriate the assets in an offshore trust could plead an "impossibility" defense to stay out of jail.  In Lawrence's case, you could say that the impossibility defense "worked," but again, only after seven years in jail.

The problem in Lawrence's case was that the bankruptcy judge found that Lawrence had created the impossibility that made him unable to comply with the court order.  What Lawrence did wrong was to wait until the eleventh hour to try to protect his assets.  He knew that a judgment against him was about to be rendered.  By making his assets unavailable to Bear-Sterns, thereby hindering collection of its judgment, he engaged in what the law calls a "fraudulent conveyance." 

However, those assets were—and apparently remain—protected.  Lawrence placed at least US$6 million in his offshore trust, perhaps more.  Even earning only 5% interest, those assets are now worth at least US$8 million.  Looking at it another way, Lawrence was paid very well for staying in jail.

It's not common to have to go to jail to protect your assets, but it can happen, particularly if you thumb your knows at a pissed-off bankruptcy judge like Lawrence did.  To make sure that you don't follow his example, make certain that your asset protection plan doesn’t "hinder, delay or defraud" known or reasonably foreseeable creditors.  As I've said before, this determination is best made after consultation with an experienced attorney.

Even if you do engage in a fraudulent conveyance, your assets may remain protected, as Lawrence's did.  But for most people, seven years in jail is a terrible price to pay for asset protection.

Learn how to legally protect your assets, both domestically and offshore—click here.

Copyright © by Mark Nestmann