In January of this year a federal district court in Florida held that a debtor’s stock account owned by he and his wife as tenants by entireties was not exempt against collection of a judgment in favor of the Securities and Exchange Commission.
Mr. Solow allegedly engaged in a fraudulent stock trading scheme that caused millions of dollars of investor losses. The court entered a judgment against Solow in favor the SEC, in part, ordering Solow to disgorge ill-gotten profits from the fraud. Mr. Solow and his wife liquidated a tenants by entireties stock account in the midst of litigation and moved the money to an offshore trust. The court held that the funding of the trust was a fraudulent conveyance against the SEC notwithstanding that the entireties brokerage account may be exempt from judgment creditors under Florida law.
I have since read several comments about this case discussing whether the SEC, like the IRS, is a super-creditor that is able to penetrate asset protection tools such as entireties ownership, and also whether other or all federal government agencies can take all of a debtor’s property regardless of Florida exemptions. One commentator suggested the court disregarded the debtor’s entireties protection in order to enforce the SEC’s disgorgement remedy because disgorgement is more than a general debt or standard civil judgment. Disgorgement, the commentator noted, is an equitable remedy in the general public interest to deter future wrongdoers and to prevent unjust enrichment by criminals. Another commentator stated that while states can define property rights for many purposes, including creditor protection, states cannot create asset protection options that hinder federal government agencies form doing what is best for the country. In other words, concepts of “federal supremacy” give federal government agencies collection powers that may supersede state based protections.
Asset protection in Florida can never protect all assets from all creditors. Courts, especially federal courts, tend to sympathize with federal agencies enforcement in their efforts to collect ill-gotten gains from bad guys. Also, federal agencies have smart lawyers on staff with almost no legal budget restrictions. Florida asset protection tools that may effectively protect you from civil judgments, but you should not rely on asset protection planning to shield you from your problems with the federal government.