Tag Archives: fraud

Wachovia Sued for Millions in 1031 Exchange Fraud

Wachovia Corp., the troubled banking and financial services company that was the subject of a bidding war between Citigroup Inc. and Wells Fargo & Co., the target of a $60 billion lawsuit from Citigroup, and that has also been linked to money laundering by Mexican and Columbian drug cartels, has now been sued by the victims of  a fraudulent scheme to steal millions of dollars in client funds held by The 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Ed Okun.

Okun was indicted, along with Lara Coleman, on July 10, 2008, by a federal grand jury in Richmond, Va., and charged with conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud, mail fraud, money laundering, bulk cash smuggling and forfeiture. Okun is also charged with one count of making false statements.

The new lawsuit by the 1031TG Trustee alleges that Wachovia aided and abetted breaches of fiduciary duty by Edward Okun and Lara Coleman against the 1031 Tax Group Debtors, and seeks to recover more than $140 million of damages arising from such actions.

According to a lawsuit filed in the Southern District of New York on October 2, 2008, by the Trustee for the bankrupt tax-deferral company, “Wachovia was entwined in all aspects of the 1031 debtors’ operations, Okun’s personal finances and Okun’s other businesses” and assisted in the fraud by transferring $240 million to “inappropriate” accounts before the tax firm collapsed and Okun was arrested.

The lawsuit seeks recovery of more than $43 million of conveyances allegedly made to Wachovia in the form of cash and mortgage liens, and the imposition of equitable liens and constructive trusts on several properties in which Wachovia continues to hold liens.

The complaint also asserts that Wachovia housed more than 250 bank accounts for the 1031 Tax Group Debtors as well as other Okun Entities; provided several personal loans to Okun; and made commercial loans to Okun-related entities, such as IPofA affiliates. 

The lawsuit further alleges that during the course of this relationship, Wachovia learned that Okun and others were misappropriating funds of the 1031 Tax Group Debtors, but did nothing to stop the misappropriations, and in fact took steps that furthered the misconduct.

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An Open Letter about Comments Regarding Richard Simring

Our post on The Rise and Fall of Richard B. Simring, Esq. has gotten a lot of attention.  It has also generated a lot of comments – some of which we’ve posted and some we haven’t — and we want to address these comments in this “open letter.”

We do not know Richard Simring.  We wrote about him because we found his story compelling and perhaps instructive.  A large part of what makes Simring’s story compelling is its moral ambiguity – before his current troubles stemming from his invovement in Ed Okun’s 1031 exchange scam, Simring had an admirable record of achievement and community service, yet he was indicted for (and pled guilty to) participating in a fraudulent scheme that stole millions of dollars from innocent people.

We encourage comments on Richard Simring, as on any other topic.  But we have some minimal conditions that must be met for a comment to be posted.

Here are some guidelines:

Do not use all capital letters.  No one wants to be shouted at, in life or in print.  We do not want our comments section to degenerate into shouting, flaming, and name-calling.

Do not repeat the same opinion over and over. There is no reason to post a comment that simply repeats what you’ve said before. 

Do not libel anyone.

Tell us why you care, and tell us why we should care about your comment.  If you have some inside information or some special insight, let us (and our readers) know.  If you have personal knowledge of the situation or the people involved, share that will us, and be specific.

We hope this explains why some comments have been posted and some not, and that we’ve provided you with guidelines for future comments on our blog.

Thanks.

UPDATE: Richard Simring Pleads Guilty — Set to Testify Against Ed Okun

Richard B. Simring, the attorney charged with mail fraud and money laundering in the 1031 exchange scam led by Ed Okun, has pled guilty and agreed to testify against Okun.

According to a report in the ABA Journal based on a story in the National Law Journal, Simring “entered the plea in July in the Eastern District of Virginia, but few were aware of the development… Simring has agreed to testify against the businessman, billionaire Ed Okun, as part of the deal, Simring’s lawyer, Brian Tannebaum, told the National Law Journal. Simring faces up to five years in prison.”

The article in theNational Law Journal provides a few more details:

“Simring took the plea deal, in which he faces a possible five years in prison and must testify against his former boss, before a grand jury could indict him, according to his lawyer, Brian Tannebaum of Miami’s Tannebaum Weiss. ‘He’s taking responsibility for what the government says he did,’ Tannebaum said. ‘He didn’t want to roll the dice and face… a jury’.”

“Facing 12 to 14 years in prison and having just become a father for the second time, Simring pleaded guilty, said Tannebaum. He’s agreed to testify against Okun and faces a maximum five years in prison.  Tannebaum said Simring — who has no record of Bar complaints or crime — regrets going to work for Okun. ‘If he had it to do all over again he wouldn’t make the same choices,’ Tannebaum said.”

“Simring has notified the Florida Bar of his charges and agreed to temporarily stop practicing law. The Bar will appoint a referee to determine whether to impose any disciplinary action, which sources say will likely mean suspension.”

A Simple Way to Avoid Getting Scammed

When we read CNN’s story about the FBI’s investigation of a massive Ponzi scheme operated out of the University of Miami, what struck us as most instructive was the statement from one of the scam’s victims that he had been promised an 18 percent return on his short-term investment.

The victim, Victor Gonzalez, said he put more than $3.5 million into the scheme.

Here is a simple rule to follow if you want to avoid being scammed:

Do not believe someone who promises you an 18 percent return on a short term investment.

The Rise and Fall of Richard B. Simring, Esq.

Richard B. Simring is not someone you would expect to be charged with conspiracy to commit mail fraud and money laundering in a multi-million dollar scam.

Simring was a rising legal star and a well respected leader in his community.

The son of an attorney, Simring was valedictorian at Hollywood Hills High School in Florida, a magna cum laud graduate of Princeton University in 1988 and a 1991 summa cum laud graduate of George Washington University Law School.  

Following law school, Simring served as law clerk for Rosemary Barkett, the former Chief Justice of the Florida Supreme Court.  He then developed a successful legal practice in the areas of insurance, banking, and securities, specializing in complex business litigation and winning multi-million dollar verdicts. He represented banks, insurance companies, and financial institutions in reinsurance and insurance disputes, bad faith claims, state and federal RICO actions, securities class actions and broker/dealer arbitrations.  He became a partner in the prestigious law firm Stroock, Stroock & Lavan and then in the law firm Jorden Burt.

Simring actively used his success to benefit others.  He was a prominent figure at Miami fundraising events; charities, schools, and professional organizations were proud to have Richard B. Simring on their side.

He served as Chairman of the Board of Voices for Children Foundation, Inc., a Miami charity that raises money to advocate on behalf of abused and neglected children. He often spoke to legal and community groups about representing abused children in court.  He contributed to the Miami Lighthouse for the Blind, and he served on the board of directors for Educate Tomorrow, an international charity that works to make education an attainable goal for the disadvantaged in Miami and throughout the world, with particular efforts in the impoverished African nation of Niger. He took an active part in Princeton alumni organizations. He donated money to his law school and served as a volunteer on its advisory board of directors. 

Then he met Ed Okun.

According to the federal indictment, Simring first came into contact with Okun in November 2006, when Okun consulted him about legal issues involving the transfer of client funds in Okun’s 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Okun. 

The indictment does not claim that Simring knew that 1031TG was a scam, or that Simring thought that Okun wanted anything other than legitimate legal help in making sure that his activities were lawful. 

In fact, the indictment states that Simring conducted a legitmate and independent investigation of Okun’s activities with 1031TG and told Okun that they were illegal and needed to be halted until the exchange agreements were changed to allow the transfer of client funds and there were sufficient assets to cover client exchanges as they came due.  Simring also told Okun that doing this would not rectify what Okun had done in the past, but only reduce the liklihood of criminal charges.  Okun told Simring that he would follow his advice and change the exchange agreements and pay back the client exchange funds.  Simring then told Okun that if he failed to do this, he would probably go to jail.

A month later, Okun hired Simring as the Chief Legal Officer for Okun Holdings.  Simring was to be paid a salary of $850,000 and given a signing bonus of $100,000.

The indictment then alleges that in March 2007 Simring became aware that Okun had not followed any of his advice and was continuing to transfer millions of dollars from client exchange accounts into his personal bank account.  Simring also learned that 1031TG was on the brink of insolvency. Simring then “confronted” Okun. Okun assured Simring that he was fixing the problems and was in the process of paying back 1031TG.

By April 2007, the financial situation of 1031TG had become dire and Okun’s scam was on the verge of coming part.  1031TG was no longer able to fund exchanges or pay back clients. And the people whose money Okun had taken were calling and demanding explanations.

This appears to be the point at which Simring went from being Okun’s attorney to his co-conspirator.

According to the indictment, Simring now participated with Okun and others in lying to clients, telling them that their funds were secure.  Now also Simring apparently joined Okun in attempting a “holding action” against client inquiries and complaints, including making “lulling” payments to clients with money misappropriated from other clients.

In late April 2007, 1031TG’s CEO resigned and Okun appointed Simring as interim CEO.  Okun then directed Simring to transfer approximately $8,000,000 in client funds into Okun’s personal bank accounts.  According to the indictment, Simring complied.

Three days later, Simring resigned.

Why did Richard Simring become a co-conspirator of scammer Ed Okun?  Why didn’t he walk away once he learned that Okun wasn’t following his advice and continuing to engage in criminal activity?

Perhaps it was the money — although it seems that Simring had no trouble making money legally.

Perhaps he was caught up in his client’s bunker mentality once it was clear that the enterprise was collapsing.

Or perhaps Simring fell under the spell of Okun’s swindler charm.

We will likely never know why Richard B. Simring, Esq., legal star and community leader, appears to have thrown away his career, his honor, and the respect of his colleages and community.

He may not know himself.

UPDATE:

Read Richard Simring Pleads Guilty — Set to Testify Against Ed Okun.

UPDATE:

Read Wachovia Sued for Millions in 1031 Exchange Fraud.

Ed Okun and Co-Conspirators Lara Coleman and Richard Simring Charged in New Indictments

Edward H. Okun of Miami, Fla., and Lara Coleman, of Richmond, Va., were charged in superseding indictments on July 11, 2008, with conspiracy, fraud and money laundering charges.

The indictments stem from a scheme to defraud and obtain millions of dollars in client funds held by The 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Okun.

On July 10, 2008, a federal grand jury in Richmond, Va., returned a 27 count superseding indictment charging Okun and Coleman with one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, 13 counts of wire fraud, three counts of mail fraud, seven counts of money laundering, one count of bulk cash smuggling and forfeiture. Okun is also charged with one count of making false statements.

The original indictment, returned on March 17, 2008, charged only Okun with mail fraud, bulk cash smuggling and making false statements. Okun’s initial appearance was held March 18, 2008, in the U.S. District Court for the Southern District of Florida, and Coleman’s initial appearance was held Monday, July 14, in the U.S. District Court for the Eastern District of Virginia.

According to the indictment, from August 2005 through April 2007, Okun and Coleman used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on properties sold, if the proceeds are used to purchase new property in a specified time frame. To facilitate such exchanges, investment property owners deposit the proceeds from the sale of their property with qualified intermediaries and sign exchange agreements, which include various promises by the qualified intermediaries to clients regarding the safekeeping and use of exchange funds.

Specifically, the indictment alleges that 1031TG obtained funds by promising clients that their money would be used solely for 1031 exchanges as outlined in the exchange agreements. After making such promises, Okun and Coleman allegedly misappropriated approximately $132 million in client funds to support Okun’s lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds.

The indictment also alleges that Okun and Coleman instructed employees to withdraw $15,000 in cash from Investment Properties of America’s (IPofA) bank account, a company owned by Okun, and smuggle the cash to Okun’s personal yacht on Paradise Island in the Bahamas to avoid federal currency reporting requirements.

The indictment further alleges that Okun made material false statements under oath before the U.S. District Court for the Eastern District of Virginia relating to conversations he had with the chief legal officer of IPofA.

The charges of conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud, and mail fraud each carry a maximum prison sentence of 20 years. The charges of money laundering, bulk cash smuggling, and false declaration carry a five-year maximum prison sentence. The indictment also seeks forfeiture of all funds and assets owned by Okun and Coleman that were derived from or connected to the misappropriation of approximately $132 million in funds held by 1031TG and all funds and assets traceable to the $15,000 in cash Okun instructed to be smuggled to his yacht in the Bahamas.

This case is being prosecuted by Assistant U.S. Attorney for the Eastern District of Virginia Michael S. Dry and Trial Attorney Brigham Q. Cannon of the Criminal Division’s Fraud Section.  The continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and the FBI.

You can read the indictment at United States vs. Edward Okun and Lara Coleman (PDF)

In addition, Okun’s former attorney, Richard B. Simring, who had been the Chief Legal Officer for Okun  Holdings, Inc., was indicted in the Eastern District of Virginia on charges of conspiracy to committ mail fraud and money laundering as part of Okun’s schemes.

You can read the indictment here at United States vs. Richard B. Simring. (PDF)

Are Our Economic Problems Just in Our Minds? John McCain’s Chief Economic Advisor Thinks So

Are the nation’s economic problems — the financial crisis, the mortgage meltdown, the tidal wave of foreclosures, soaring gas prices, increasing job losses, and a tumbling dollar — only in our minds?

It appears that Phil Gramm, John McCain’s chief economic advisor and co-chair of his presidential campaign, thinks so.

He also thinks that those of us who are seriously troubled by the state of the economy are “whiners.”

In an interview in yesterday’s Washington Times, Gramm said that “this is a mental recession. We may have a recession; we haven’t had one yet.”

Gramm says that Americans have “become a nation of whiners.” 

Americans, according to Gramm, are constantly “complaining about a loss of competitiveness, America in decline.”

“You just hear this constant whining,” he said.  “Misery sells newspapers,” Gramm said.  “Thank God the economy is not as bad as you read in the newspaper every day.”

What also sells newspapers are bone-head comments from key advisors to presidential campaigns.

We said last month that Gramm was on thin ice in the McCain campaign because of his ties to the mortgage meltdown and financial crisis

As a U.S. Senator from Texas, Gramm spearheaded sweeping changes in federal banking law, including the Gramm-Leach-Bliley Act in 1999, which repealed previous rules separating banking, insurance and brokerage activities, and which some analysts blame for creating the legal framework for the current mortgage meltdown and credit crisis.  For that effort, Gramm has been called “the father of the mortgage meltdown and financial crisis.”

In addition, Gramm is currently vice chairman of UBS, the giant Swiss bank that has been a major player in the U.S. subprime mortgage crisis.  While advising the McCain campaign, Gramm was paid by UBS to lobby Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

Gramm’s leadership role in UBS — whose stock has fallen 70 percent from last year — also raises questions about his economic, and not just his political, judgment. 

As a recent article in Slate.com observes, “UBS’s investment banking unit made disastrous forays into subprime lending. Last December, having already announced a third-quarter loss, UBS raised about $13 billion to replenish its balance sheets, mostly from the Government of Singapore Investment Corp.  In the fourth quarter of 2007 and the first quarter of 2008, it racked up Mont Blanc-sized losses on subprime debt of nearly $32 billion. In May, it sold about $15 billion worth of mortgage-related assets to the investment firm BlackRock — but only after it agreed to finance most of the purchase price. In June, UBS raised another $15.5 billion in a rights offering. The credit losses — some $38 billion so far, according to UBS — caused the bank to replace its chairman and install new leadership at its investment bank.”

In addition, Massachusetts has charged UBS with defrauding customers who had purchased auction-rate securities. UBS is accused of “selling retail brokerage customers products that turned out to be profitable for the bank’s investment banking unit but caused the customers to suffer significant losses.”

UBS is also the subject of an ongoing federal investigation, in which Bradley Birkenfeld, an American UBS private banker who was busted on tax evasion charges, has plead guilty and is cooperating. 

UBS has also recently paid millions of dollars to settle a lawsuit with the victims of a 1031 exchange scam.  UBS was one of several defendants who were alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

And most recently, the Financial Times, which called UBS “Europe’s biggest casualty of the US subprime crisis,” reported that UBS’s write-downs could total another $7.5 billion.  UBS’s stock fell 7 percent in trading on Monday.

With that resume, we think it would be best for everyone, not least John McCain, if Phil Gramm was no longer introduced to voters as “John McCain’s chief economic advisor.”

UPDATE:

As of July 18, Gramm has resigned as co-chair of McCain;s presidential campaign.