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From Law360
Law360, New York (April 4, 2016, 6:16 PM ET) — A $1.57 million deposit in the Nevada district court’s registry from a trust to which transfers had been made fraudulently to avoid a convicted tax dodger’s $335 million debt will be paid out to the U.S. government, according to a judge’s order Monday.
The judgment follows U.S. District Judge Andrew P. Gordon’s ruling last month that the primary income stream for a trust set up for Jon Edelman, a businessman who served five years for tax fraud, was illegally transferred to a new trust to put it out of reach of the government’s hands.
In another brief order Friday, Judge Gordon also barred Peter Lazare, trustee of the Edelman Trust; Ian Williams, an independent trustee of the Aurora Borealis Trust to which the fraudulent transfer had been made; and Premier Trust Inc., the administrative trust for the Aurora Borealis Trust, from requesting, obtaining or disbursing the $1.57 million deposit that Williams had made in July 2015 following a court order.
Lazare and Williams’ attorney Eric Olsen told Law360 on Monday that his clients will be appealing the court’s final judgment.
“We disagree with the court’s ruling and believe the court erred in its conclusions,” Olsen said in an email.
The government had filed suit in July 2014 against Lazare after he and Edelman settled the Aurora Borealis Trust and transferred an income stream to it when it seemed that the government may be able to seize assets from the Edelman Trust, according to court documents.
The government alleged that the transfer violated Nevada’s Uniform Fraudulent Transfer Act, and Judge Gordon agreed and set aside the transfer last month. However, he refused to hold Lazare personally liable under the Federal Priority Statute.
“The government’s argument suffers from a fatal flaw,” Judge Gordon wrote in his March 4 order. “While the government’s fraudulent conveyance claim under Nevada law arose before the transfer was made, the Edelman Trust did not yet owe a debt to the government [under the priority statute].”
The judge said that at the time of the transfer the parties were still involved in prior litigation in New Mexico about the merits of the government’s claim against the Edelman Trust, but that the court had not yet found the Edelman Trust owed a debt to the government.
According to Judge Gordon’s ruling, Edelman “made a lot of money in the tax shelter business and lived an extravagant lifestyle,” including owning a 55-foot yacht and a 30-acre property in Taos, New Mexico.
But in 1991, he was convicted of tax fraud, sentenced to five years in prison and ordered to pay the government $334.8 million.
He escaped from prison after two months and spent more than two years sailing the South Pacific on the yacht, named the Elusive, with his wife and children. They lived off a $5 million trust, called the Delos Trust, that he funded before reporting to prison.
He was captured in 1995 and, while back in prison, his mother established the Edelman Trust, naming Edelman and his three minor children as beneficiaries. Later, Edelman funneled money from the Delos Trust to the Edelman Trust to buy back his Taos residence, which had been sold in foreclosure.
The New Mexico lawsuit began when Edelman couldn’t fulfill a $2 million agreement to buy the house because of insufficient funds. The owner sued him to demand payment and the U.S. intervened. The government then sought to collect on the nearly $335 million in tax delinquencies.
The New Mexico federal court said that the $1.6 million transferred from the Delos Trust to the Edelman Trust was Edelman’s property and the U.S. could foreclose on the assets, and it found that a constructive trust was the appropriate remedy. The Tenth Circuit laterupheld the ruling.
Lazare and Williams are represented by Eric R. Olsen of Garman Turner Gordon LLP and Kory Logan Kaplan of Gentile Cristalli Miller Armeni & Savarese
The federal government is represented by Roger W. Wenthe, Waymon Giles DuBose and Curtis Cutler Smith of the U.S. Department of Justice.
The case is U.S. v. Lazare et al., case number 2:14-cv-01075, in the U.S. District Court for the District of Nevada.
–Additional reporting by Eric Kroh and Christine Powell. Editng by Patricia K. Cole.
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