New York Times Article Puts Spotlight on Cook Island Trusts
Offshore trusts are receiving far more media attention than they did in the past. And much of the media attention is negative. Floyd Norris, writing in the January 22, 2010 New York Times, shines the spotlight very brightly on the Cook Islands. The Cook Islands (in the South Pacific) have a population of about 20,000 (which, as Mr. Norris points out, is less than some apartment complexes in New York City). The islands are known mostly for tourism. They contract their national defense to New Zealand, which is four hours away by plane. Yet the Cook Islands have a thriving international trust business.
Mr. Norris acknowledges that a Cook Islands trust can provide some significant asset protection. He notes that under Cook Islands law foreign court orders are frequently disregarded, which can be very helpful for someone trying to keep assets away from creditors. There must be a local trustee, so anyone setting up a Cook Islands trust for asset protection purposes must surrender at least some control over the assets in the trust.
Mr. Norris notes, however, that over the years a number of "less than upstanding Americans" have taken advantage of the protection offered by Cook Islands law. He explains that the latest among them is Jamie L. Solow. Mr. Solow was recently convicted by a jury in West Palm Beach, Florida of securities fraud. U.S. District Judge Donald M. Middlebrooks of the United States District Court for the Southern District of Florida has ordered Mr. Solow to prison for failing to turn over assets from a Cook Islands trust. This case is yet another reminder that offshore trusts will not automatically result in foolproof asset protection. Judge Middlebrooks is not the first federal judge to order a defendant incarcerated for failure to turn over funds from an offshore trust. It is important to note that nearly all of the asset-moving activities in this particular case came after the Securities and Exchange Commission notified Mr. Solow that it intended to file suit. Many of the asset transfers occurred after the jury rendered its verdict. As I have explained in other posts, moving assets after you have a problem with creditors will usually be considered a fraudulent transfer.
An offshore trust can be an appropriate part of an asset protection plan. But the use of such trusts by "less than upstanding Americans" is putting these trusts in an increasingly unfavorable spotlight.
SEE CORRECTION COMMENT FOLLOWING THIS POST.
CORRECTION -- Mr. Jamie Solow (who is referenced in this post) recently contacted me and pointed out that he was never convicted of anything. The term "convicted" may imply a judgement in a criminal action; and the case involving Mr. Solow was a civil suit. The Securities and Exchange Commission sued him in a civil action alleging securities fraud, and the jury found for the SEC. I also want to note that Mr. Solow did not transfer any funds to an offshore trust. His wife did. Mr. Solow was later found in civil contempt by a federal judge. Again, this was not a criminal action.
Much has been written about Mr. Solow's case -- but it was really not intended to be the focal point of my blog post. One may or may not agree with the judge and the jury in Mr' Solow's situation. For another side to the story, I rcommend you go to http://www.protectyou.com/newsletters/apn19-1.htm. Howard Rosen, a recognized asset protection specialist, provides a very different view from that of the federal judge who presided over Mr. Solow's case.
My blog post was not intended to pass personal judgment on Mr. Solow's situation. The main points of my blog post (as should be clear from the title and the first two paragraphs) were (i) that Cook Islands trusts were receiving some media attention, and it was not all favorable; and (ii) as I have frequently mentioned, the sooner you take proper steps to protect your assets, the more likely your asset protection actions will ultimately withstand scrutiny. In the New York Times article, Mr. Norris acknowledges Cook Islands trusts have asset protection advantages. They can be a perfectly legitimate asset protection technique under the right circumstances. But no matter what asset protection devices you choose to utilize, you have to consider all the alternatives available to a judge who decides (rightly or wrongly) that you should somehow satisfy a judgment against you.