The Cook Islands have a smaller population â?? about 20,000 â?? than one apartment complex in Manhattan, and an economy with little to offer except tourism and pearl exports. The country contracts out its national defense to New Zealand, which is four hours away by plane.
But sand and sun are not the attractions for some Americans who have sent their money to the Cook Islands.
Under Cook Islands law, foreign court orders are generally disregarded, which is helpful for someone trying to keep assets away from creditors.
In fact, getting an American court order can make it harder to get money out of the Cook Islands. If someone who stashed funds in a Cook Islands trust asks for the money back because a court ordered him to do so, Cook Islands law says that person is acting under duress, and the local trustee can refuse to return the money.
Over the years, a number of less-than-upstanding Americans have found the islands attractive for that reason, among them former corporate raiders, penny stock promoters and telemarketers who defrauded customers.
The latest to use that tactic is the wife of Jamie L. Solow, a former broker in Florida who evidently has a silver tongue and certainly has a lot of angry former customers. In one year, he earned more than $3 million in commissions selling a form of collateralized debt obligations known as â??inverse floatersâ? to individual investors who claim he never warned them of the risks.
The investments proved to be disastrous, and the Securities and Exchange Commission persuaded a jury in West Palm Beach, Fla., that he had committed securities fraud.
Now a federal judge has ordered Mr. Solow to go to prison on Monday for civil contempt for failing to come up with a large part of the $6 million he was ordered to pay in disgorgement, interest and penalties.
Mr. Solow claimed he had virtually no assets, since his wife owned everything in the family and had put most of it in a Cook Islands trust. A couple of months after the jury verdict, but before the final judgment was issued, she put an undisclosed amount of cash and jewelry in a safe deposit box in a Swiss bank in Zurich.
Mr. Solow did sell all the assets he acknowledged owning â?? an old pickup truck and some office furniture â?? and sent $2,639 to the court. The family Rolls Royce was also sold, for $205,000, but the Solows say it was actually owned by Mrs. Solow, even though her husband had put up the money to buy it and signed the sale documents.
This week, Mr. Solow asked that his incarceration be delayed, on the grounds that he and his wife were now willing to ask the Cook Islands trustee to return the money. They have not actually made that request, and in the past, Cook Islands trustees have refused to honor such requests. In ordering Mr. Solow to prison, Judge Donald M. Middlebrooks, of the United States District Court for the Southern District of Florida, said his inability to pay was self-created, and thus no excuse.
Nor was the judge impressed by Mr. Solowâ??s contention that the S.E.C. itself was to blame for his inability to pay, since it had won an order barring him from the securities industry, and thus prevented him from working.
â??Mr. Solowâ??s â??chosen professionâ?? consisted of committing fraud against his investors,â? the judge wrote. â??That being the case, an opportunity to do different work, outside his â??chosen field,â?? may better serve his ability to satisfy the disgorgement order.â?
In setting up the trust, Mr. Solowâ??s wife, Gina, followed a blueprint laid out in a 2005 article in an accounting publication, written by Howard D. Rosen, a lawyer in Florida whom she hired a few days after the jury verdict in early 2008.
The Solows own a waterfront home in Hillsboro Beach, Fla., which they view as their permanent residence even though they have not lived in it for several years because of hurricane damage. â??It has been condemned due to the roof falling in,â? Mr. Solowâ??s attorney, Carl F. Schoeppl, said Thursday, adding that he did not know how much repairs would cost.
The house was already encumbered by $2.4 million in mortgages, but a Cook Islands bank lent $5.2 million more secured by the house. The money from that was immediately placed in a Cook Islands trust to benefit only Mrs. Solow.
The judge noted that the mortgage could not have been taken out without Mr. Solowâ??s consent.
The house is now listed for sale for $6.1 million, far less than the combined mortgages, but the bank in the Cook Islands was taking no real risk. The proceeds from the mortgage were deposited in the Cook Islands, and the interest earned is used to pay the interest on the mortgage.
Mrs. Solow also took out a $1.2 million mortgage on the Fort Lauderdale condominium she owns, and in which the couple live.
Mr. Rosen, the lawyer who set up the trust, said in the article that it was a challenge to protect real estate from American courts, since the property obviously could not be moved overseas.
Floyd Norris comments on finance and economics in his blog at nytimes.com/norris.
Read Full Article »