15. Show Me the Money: Asset Investigations
Throughout the book, we have discussed ways to protect yourself before you make an investment, hire an executive, loan money, or ink a deal. But what happens when the money is already on the table, and when you look to recoup your investment, you are told the money is no longer there? Or, what if you have a hunch there is more (or less) money in the pockets of the person you are about to invest in? Asset investigations empower you with the necessary information about an individual’s financial structure and assist you in targeting your pursuit.
The Situation: Going for Broke
KindBank gave a real estate developer in California a $7 million loan for construction on new development properties in the southern part of the state. Jim Imbroke, the developer, promised to repay the loan in a period of five years. A few months after the loan was in default, Jim Imbroke met with his bankers at KindBank and said, “Listen, fellas, the truth is I have no money. The market has changed, my deals fell through, and I can no longer repay the money I owe you. Any chance we can strike a deal and settle the loan for five cents on the dollar?”
The associates at KindBank knew the real estate market had taken a dive. They thought about Imbroke’s proposal and realized it was better for them to recoup some of their money than to have a complete loss. So KindBank told Imbroke it would accept his offer. A few days after striking the verbal agreement with Imbroke, Kindbank’s outside counsel called us. KindBank wanted us to run a preliminary asset search just to confirm that Imbroke was as strapped for cash as he presented himself to be.
As part of our methodology, we ran property records and did not find anything of substance owned by Imbroke (although we found Imbroke did own some properties, all of these parcels of property were encumbered). Next we ran some court record searches. Court records do not reap results that directly relate to an individual’s asset structure; however, they do provide information that can indicate whether an individual or company is in financial distress. Whether we find bankruptcy filings, liens, judgments, or UCC filings, these records can tell us that the person or company has been unable to make payments to others. So for Imbroke, that is exactly what we found. Imbroke had several state tax liens and civil judgments filed by subcontractors that had never been paid. This seemed to indicate that Imbroke was, indeed, unable to repay the KindBank loan.
We then decided to look at some of Imbroke’s business associates from over the years. Initially, we thought these individuals would either have valuable information regarding Imbroke’s asset structure or would be able to point us in the direction of someone who was privy to this type of information. Instead, we found something much better: a newly formed real estate development company in California named Poleved that was formed by a former business partner of Imbroke’s. Poleved’s website boasted the roster of the company’s talented and experienced team, and Jim Imbroke was named as a principal of the Poleved team (even though he was not named on the company’s corporate record). We started to do more research on Poleved and found that a local real estate trade publication just announced Poleved was among the final bidders on a large state government contract. Because government contracts are public record information, we were able to determine that all final bidders on this contract were required to demonstrate that the principals had a net worth in excess of $10 million. So Jim Imbroke had told KindBank he had no money, yet he had signed a government document attesting to having a net worth of more than $10 million.
We presented the information to the outside counsel of KindBank and suggested we join them in meeting with Imbroke when they were scheduled to execute the original agreement of repayment of the loan for five cents on the dollar. At the meeting, the KindBank associates sat at the table with Imbroke and watched as he took out his personal checkbook and began to write the date on the check for the negotiated repayment. Before the check was signed, the attorney for KindBank leaned in to Imbroke and said, “Just wanted to let you know that we have an obligation to go to the California Building Standards Commission to tell them that you apparently falsified the document stating you have an exorbitant net worth because you’re saying in our documents here that you don’t have any money.” Without blinking, Imbroke filled out the check for the entire amount owed to KindBank.
The Tactic: The Property Paper Trail
It is always wise for people to protect their assets. You know this. But when loans are in default and financial agreements are being ignored, the line between protecting assets and hiding assets is slim. To recoup monies owed from loans or equity investments and in the instance of recourse loans, attorneys, investment firms, and financial institutions hire us to conduct asset investigations to identify any assets owned by the person that may be of relevance. Of course, without authorization, we cannot access private banking records but, like anything else, it takes a little creativity and a lot of experience to know where to find the money.
As you saw with Jim Imbroke, property records are public record information. Every county in every state has a different system of compiling these records, but LexisNexis and Westlaw have an impressive collection of property records filed throughout the country. We always call the local tax assessor or appropriate state/county department to get the most current property information because the online records may not have been updated in a timely manner.
Finding Hidden Assets in the Real Estate Business
Corporate Resolutions has worked with banks to help identify an individual’s assets when that person or entity claims he or she can no longer repay the loan. And we have found that banks may not always verify the assets or the financial stability of the borrower before the loan is made. When seeking to identify assets, sometimes the person is, indeed, without any assets, yet it is also often the case that these cries of poverty are unsubstantiated. For instance, many financial institutions provided multi-million dollar loans to real estate developers at the height of the residential market in booming cities, such as Miami. Profits seemed rather promising. Within a year, however, the landscape changed. Many projects halted midway through construction as the subprime mortgage crisis hit and fewer people were able to pay the soaring prices of apartments. Despite a developer’s earnest efforts to proceed with the project, the market could no longer support all of the projects at once. Nonetheless, the banks that provided the initial loans still needed to recoup their investment. Some developers were new players in the development space and had riskily put all of their investments, both personal and professional, into the success of the project. Other experienced developers ran into cash flow problems (could not make payroll or pay subcontractors and suppliers), knew the business was in trouble long before the banks got wind of it, and began to shelter assets, knowing one day the banks would come knocking. This is where we come in.
Banks hire investigative companies to determine if a developer has any assets that would enable him or her to repay the bank loan. We have found that real estate developers generally know six to nine months in advance if they are going under and accordingly make plans to hide their assets. They often form new entities for each project to limit their liability, and they also can take equity in condos at every different project. If a developer is working on four different properties, then there will typically be at least four different companies that have been formed by the developer, and the company names often reflect the address where the development is taking place (for example, 123 Main Street, LLC). With this in mind, when we undergo our asset search we start by identifying any addresses used by the developer. This information comes to us through identifiers and business and media sources.
Local newspapers and trade magazines are great sources of information when developments are planned in a specific area because developers want to create necessary buzz for the project, so as to entice future investors and buyers/renters. For instance, The Real Deal focuses on real estate in New York City and provides updates of any and all scheduled projects in the area. Through these sources, we identify where the developer is active and then search corporate records to see all of the entities that were formed for each development project. For the older development projects, the corporate records show the corresponding company as inactive or delinquent. But because you are required to pay taxes on active companies, we can identify active companies that correlate to active projects owned or managed by the developer. Each company can represent a potential asset: Either the developer will earn money if/when the project is complete, or the developer can hold bank accounts in the name of these companies. This is one of the tricks when finding assets for real estate developers. Asset searches, like the situation with Jim Imbroke, do not always uncover specific assets owned by an individual but rather find information that gives you leverage in a situation.
The Situation: The Driver Has the Keys
We were once hired to run an asset search on an elderly couple who owed money to a private investor. When we searched our trove of public record sources, we did not find the couple had any assets in their individual names. The couple, however, had lived a lavish life in the 1980s and had paid off the mortgage for their large townhouse on the Upper East Side of New York City. We were able to find out that the couple had recently laid off a number of former employees, including their longtime private chauffeur. We located the driver, and when we spoke with him and asked him if he knew anything about the financial status of the couple, the driver said, “Hop in. I will show you the bank I drove them to on Mondays, the other bank I drove them to on Tuesdays, and the third and fourth banks I would drive them to at the end of the week. Oh, and I know what names each bank account is under.”
The Tactic: Human Sources
Former employees have proven to us to be great troves of information. While not every lead we follow brings us to a driver with secrets ready to be unloaded, we do find former employees who know about a person’s hobbies, spending habits, or travel schedules. This could mean unearthing a person’s affinity for gambling or jetting to the Cayman Islands for vacation, both of which are clues as to where money is spent or kept. If they are going to the Caymans, maybe they have bank accounts or own property there and do not declare those assets on U.S. tax documents so as to avoid paying taxes. Because there is no research vehicle to find where someone banks internationally, contacting former employees or attempting to discern a person’s travel habits are some of the best ways to find out or at least to develop information that points you in the right direction. You never know where the research will lead, but whether circuitous or direct, the information inevitably leads you to the right answers.
Methods for Finding Assets
Corporate records always represent potential assets for an individual, but not many people outside of the real estate world, the oil and gas industry, and the restaurant sphere have the tendency or need to form numerous companies. For these individuals, our asset searches are initially focused on property records, vehicle registration records, and other various nontraditional sources. Before we run any asset searches, we must confirm identifying information on a person to get a track record of addresses the person has used over the last 10 or 20 years. This lets us know where to start when we review property records. We always look to see if the person owns his or her current residence and, if the home is not in the name of the subject, then who owns the property.
If Harry Home lives at 789 Elm Street, we find the property record for 789 Elm Street. If we find that Harry Home does not own the house, but rather that Elm Street Properties owns the house, we then review corporate records to find out who is the owner of Elm Street Properties. The research is multitiered.
Once we find this information about Harry Home’s current residence, the same steps are taken for every other address identified for Harry Home, as well as for the addresses where the taxes are sent (that is, if Harry Home’s property taxes for 789 Elm Street are sent to 456 Generic Street, then we will see who owns 456 Generic Street). What we end up with is a list of properties bought and sold by Harry Home over the years.
We also look to see when properties were sold. If we find Harry Home currently owns no real properties, we look to see when he sold the properties he previously owned. What if he sold them all on, or around, the same date? What if he transferred the properties to be in the name of his wife, children, or company via an interfamily transfer that can be done by way of a quitclaim deed or warranty deed? These would be indicators that Harry Home is attempting to shelter his assets or be judgment proof.
In the case of Jim Imbroke, we talked about searching for judgments and liens filed against a person, which indicate that person is struggling financially. Another resource to this end is the U.S. Tax Court, which has a searchable website that allows you to see if a person has been sued by or has sued the Commissioner of Internal Revenue. While sometimes these cases are merely routine, in other instances, the cases can be indicators that someone has tried to avoid paying taxes, is attempting to devalue property assessed at a high value, or other issues that shed light on a person’s asset structure and character.
Another spot we hit when looking for assets is vehicle, boat, and airplane registrations (does Harry Home drive a Ferrari? a yacht? a single-engine plane?). If we find through the Federal Aviation Administration (FAA) that Harry Home has a pilot’s license, it is only logical that we search to see if he owns a private plane. Both Harry’s license and his plane can be identified through the FAA website (www.faa.gov).
We also look to see if Harry Home has made political contributions. If he is claiming he has no money, then how is he able to donate to his favorite political candidate? Political contributions are easily accessed through the Federal Election Commission (www.fec.gov). There are a few websites that allow you to see if a person has made any contributions to political parties/campaigns over the years. The Federal Election Commission is the first place we go to search for these contributions. However, there are other websites that have different ways to search contributions, such as by address, by company, and so on. These websites are opensecrets.org, newsmeat.com, followthemoney.org, and campaignmoney.com.
We also determine if Harry Home has had any patents or trademarks registered in his name. These patents and trademarks are a form of intellectual property, and in many cases can be purchased (or sold) for sizable sums of money. The U.S. Patent and Trademark Office has a great website, http://www.uspto.gov/, that allows you to search for patents and trademarks, and the information tells you not only the name of the inventor(s) but also when it was filed and who the trademark or patent was assigned to (quite often this is a company).
These are some of the basic research tools we use when conducting asset investigations. With asset searches, as with all of our other investigations, a single component of research is never enough. The research must be done comprehensively, the information must be analyzed repeatedly, and the sources must be accessed properly in order to reap the best results.