Asset Protection

I am not a lawyer, but I read something today that I thought was ingenious. Despicable but still ingenious. It had to do with a very high net worth individual who was a client of a Swiss-based company that protected his assets from being seized as part of a lawsuit.

This individual was in the financial services industry. His net worth was upwards of $500 million dollars. He contracted with a company out of Switzerland that literally rents all personal property to high net worth individuals. If I understand the concept correctly, the Swiss company actually owns everything that is typically considered personal property. Things like houses, cars, and boats. They can even own personal care items like hair dryers and clothing. Clients pay both an upfront fee and periodic installments which grant them exclusive rights to use these items in perpetuity or until the items reach the end of their serviceable life. Since the high net worth individual does not own the items, they cannot be seized as part of a judgment from a lawsuit or surrendered in bankruptcy proceedings. The article cited an example of a Canadian client who had his condominium and cars seized as part of a lawsuit. The rightful owner of the condo and cars was the Swiss-based asset protection company. They petitioned the Canadian court and the seized property was returned to the company. The company's client went back to enjoying exclusive rights to use the property.

While such an arrangement is ingenious, it seems like it is a sophisticated way to get away with fraud. Apparently, one of the of the convicted Enron executives was a client of this Swiss company and was able to resume using some of his protected property after he got out of jail.

Is this sort of thing legal?

 

Fraud? Perhaps the court would consider it just a sophisticated method of trying to avoid a court order? Apparently not.

 

Rob,

The article states that plans are specific to the needs of the client. A client could pay an upfront fee for a certain level of benefits. Another client may have to pay an upfront fee plus periodic payments to cover maintenance and depreciation. I guess it depends on what type of lifestyle you want to live and how much money you have. Imagine it this way. You want to protect yourself from going destitute because of a lawsuit or financial collapse from any myriad of reasons. You decide you want to live in a $1,000,000 house with taxes, utilities, and maintenance taken care of for 30 years. An asset protection company does the math and comes up with a fee of $10,000,000. You pay the $10,000,000 either upfront, in payments, or a combination of both. You get sued and are on the hook for $50,000,000. You declare bankruptcy. If you paid your lease fee to the asset protection company upfront, you are set. If you have to make payments, perhaps you have some money stashed away overseas where it cannot be touched.

I just found the whole thing bothersome. The article mentions that Bernie Madoff wanted in on this program but the asset protection company refused to accept him as a client because even they thought he was shady. Of course, it would not have profited Madoff much because he is spending the rest of his life in Club Fed. Funny. This Swiss company thought Madoff was shady but the SEC took years to figure out the same thing.