SEC v. Solow Case Analysis

The court in SEC v. Solow, 682 F. Supp. 2d 1312 (S.D. Fla. 2010), held Jamie Solow in civil contempt because he had not paid a $3.4 million disgorgement order and directed his surrender to the U.S. Marshal. His inability to pay was self-created. Between the jury’s verdict and the judgment, he had mortgaged a jointly owned beach house, raising $5.2 million that funded his wife’s Cook Islands trust.

The court reached that result without deciding whether a disgorgement order can take property that Florida law protects as tenancy by the entirety. It called the question unsettled and rested the contempt on Solow’s failure to make any real effort to pay. The trust was never ordered to do anything, and neither was Solow’s wife; the sanction ran against the defendant who had signed the mortgage.

The Securities Fraud Judgment Behind the Contempt Order

Jamie Solow was a Florida broker the SEC sued in November 2006 over a trading scheme built on inverse floating-rate collateralized mortgage obligations. The SEC alleged that he secretly bought large forward positions in these volatile bonds without his firm’s authorization and had false trade tickets submitted to hide it. He also sold the same bonds to retail investors for whom they were unsuitable. After a nine-day trial, the jury found him liable on all seven counts on January 31, 2008.

Judge Donald Middlebrooks held an evidentiary hearing on remedies on April 9, 2008, and entered the final judgment on May 14, 2008. It ordered Solow to pay $3,424,788.90 within ten business days: $2,646,485.99 in disgorgement, meaning his ill-gotten gains, plus $778,302.91 in prejudgment interest. It added a civil penalty of another $2,646,485.99, a permanent injunction, and a bar from the brokerage and investment-adviser business. The Eleventh Circuit affirmed the judgment in January 2009. Solow paid $2,639.24 toward it, raised by selling office furniture and a Ford Expedition and from a small tax refund.

What the Solows Moved Between the Verdict and the Judgment

Four days after the verdict, Gina Solow hired a law firm that specialized in offshore asset protection and told it her husband had just lost a jury trial. Between January and April 2008 the Solows liquidated securities accounts worth $1,546,112, and on March 24 they stripped $5.2 million of equity from a beach house they owned together. The SEC had filed its motion for remedies, asking for $6.2 million, on February 8.

More than three-quarters of the securities proceeds, $1,161,156, went into an account in Gina Solow’s name alone. After the verdict another $932,916.68 arrived in the couple’s joint checking account, and the court found that it was immediately spent or moved into her sole account. The same accounts paid $556,632 to the IRS and $74,200 more to Solow’s lawyer. The asset-protection firm received $30,000 in fees and $123,242.04 in trust-formation costs.

The largest move was the house. On March 24, 2008, both Solows signed a $5,261,289 mortgage on their Hillsboro Mile beach house to Federation Advances Corp., a Nevis company the court described as part of the Cook Islands trust scheme. The loan proceeds never reached the Solows; they went into a certificate of deposit held by the Gina P. Solow Trust in the Cook Islands, and the CD’s interest pays the mortgage interest. A parallel $1,187,500 mortgage on the Fort Lauderdale condominium, owned by her corporation, produced a second CD assigned to the same trust.

Gina Solow was the settlor. Her attorney testified that the trust existed so that, if she died, her assets would not pass to her husband and then to his judgment creditors. She put her jewelry in the trust because, in her attorney’s words, she was not trusting of the legal system. On April 21, twelve days after the remedies hearing, she flew to Zurich and placed it in a vault the trust held. She left the Utah house out because title had come to her within four years, the fraudulent-transfer limitations period.

Why the Court Held Solow in Contempt

Judge Middlebrooks held Solow in contempt because a disgorgement order can be enforced that way, the SEC proved he had not paid, and he showed neither a genuine inability to pay nor good-faith efforts to pay. A disgorgement order, the court explained, “is more like an injunction for the public interest than a money judgment,” and that resemblance “allows disgorgement orders, unlike judgments, to be enforced by civil contempt.” 682 F. Supp. 2d at 1325.

Once the SEC showed by clear and convincing evidence that the order was violated, Solow had to show a present inability, categorically and in detail, or good-faith efforts to comply. His answer was that the assets the SEC pointed to had belonged to him and his wife as tenants by the entirety and were never reachable, so the transfers changed nothing, and that the industry bar had cost him his income. The court rejected both points.

It found that Solow’s earnings were the sole source of every asset his wife held, and that she had brought nothing into the marriage and had not worked since 1989. She now paid all of his expenses, including winters in Park City and a BMW lease, and his claim to have “no clue” about her finances was not credible.

The court compared Solow to two offshore trust cases. In SEC v. Bilzerian, the district court in Washington, D.C., had counted a contemnor’s beneficial interest in a Cook Islands trust and his share of jointly owned assets. It applied the Ninth Circuit’s rule that the impossibility burden “will be especially high” where assets sit offshore, and it called a defendant’s failure to recover transferred assets “a problem of his own making.” 682 F. Supp. 2d at 1327–28.

The Eleventh Circuit had upheld contempt and incarceration in In re Lawrence, where the settlor kept the power to appoint trustees and funded his trust ahead of an arbitration award. The court put Solow in the same group: each had “divested control over their assets through the use of offshore ‘asset protection’ trusts” and then told his trial judge that payment was impossible. 682 F. Supp. 2d at 1328.

The mortgage he signed and the absence of any effort to pay decided the contempt. Florida law bars one spouse from mortgaging entireties property without the other’s consent, so Solow had to sign. The court held that the signed mortgage “irrefutably establishes” two things: Solow made no good-faith effort to pay, and his inability to use the house was self-imposed. 682 F. Supp. 2d at 1330. No evidence showed any attempt to unwind the trust or the mortgage.

It then applied the rule from Lawrence: where the contemnor is responsible for the inability to comply, impossibility is not a defense. 682 F. Supp. 2d at 1329–30. It called Solow “diligent in his efforts to divest himself of assets” and his professed inability “disingenuous at best.”

Credibility finished the analysis. Sixteen days before the hearing, Solow emailed the firm holding the accounts to unfreeze his IRA and his children’s custodial accounts. At the hearing he testified that he had offered the court everything he owned and did not have a dollar to his name, without mentioning the IRA. It also found he paid his own lawyers from his wife’s accounts. Its conclusion was that if Solow could not convince his wife to return his assets, “that is a problem of his own making.” 682 F. Supp. 2d at 1330.

The Tenancy by the Entirety Argument and Why It Failed

Solow’s main legal argument was that a federal court cannot break up Florida tenancy by the entirety to satisfy one spouse’s debt, so the joint accounts and the beach house could never have paid the judgment even if nothing had moved. Entireties ownership shields property a married couple holds together from either spouse’s individual creditors. He relied on United States v. Craft, which lets a federal tax lien attach to one spouse’s entireties interest, and read it as a rule for the IRS alone.

He also cited McGregor v. Chierico, where the Eleventh Circuit refused to let the FTC’s contempt power reach a family home an innocent wife co-owned. The court gave two answers, and only the second was necessary. First, a disgorgement order rests on the court’s equitable power and can reach assets that state law would otherwise protect. 682 F. Supp. 2d at 1325–26, 1329. Citing SEC cases that disregarded homestead and other state exemptions, the court wrote that it “does not have to recognize the protections of tenancy by the entirety created by State law.”

It distinguished Chierico on four grounds: a final judgment rather than a disgorgement order, an innocent spouse who had herself been held in contempt, a single family home, and no bad faith after liability attached. In Solow, only the defendant was subject to the order, and he had taken part in every transfer. His wife lived in a condominium her company owned and also held a house in Utah.

Second, the entireties question was beside the point, and this is the ground the holding rests on. A contemnor must show that he made all reasonable efforts to comply. The court’s own illustration was a husband with $10,000 in a joint entireties account who faces a $5,000 disgorgement order: he can write the check, and if he does not, a court may hold him in contempt.

The court said that even if it could not bypass state law, Solow would still face contempt “for failing to make, himself, the reasonable efforts necessary to satisfy the disgorgement.” 682 F. Supp. 2d at 1334. The entireties argument was therefore “completely irrelevant.” Any other rule, the court added, would encourage people making money from securities fraud to marry and put the proceeds in a joint account.

Denying a stay pending appeal on January 22, 2010, the court acknowledged that the law on Chierico and entireties property “is not entirely settled.” 682 F. Supp. 2d at 1335. No decision holds that the SEC can take Florida entireties property to satisfy one spouse’s liability, and Solow does not change that: the contempt ran against Solow personally, and the SEC pursued the transferred property in a separate fraudulent-transfer suit.

What Solow does establish is narrower. Because under Beal Bank v. Almand neither spouse can mortgage or transfer entireties property alone, the liable spouse’s consent to the other spouse’s asset-protection plan was the act that made his inability to pay self-created.

The Surrender Order, the Denied Stay, and the Second Lawsuit

Judge Middlebrooks ordered Solow to surrender at the U.S. Marshal’s office in West Palm Beach on January 25, 2010. He was to be held in a federal prison facility until he complied with the May 2008 judgment. The opinion also said he could purge the contempt, meaning end it by complying, “by making good faith reasonable efforts to retrieve his assets and apply them toward the Final Judgment.” 682 F. Supp. 2d at 1328. The order did not direct the trustee, Gina Solow, or the lender to do anything.

Solow moved for a stay pending appeal, telling the court he was “no longer saying he can’t pay” and would keep trying to sell the house, dissolve the Cook Islands trust, and remove the mortgage. The court denied the stay on January 22, 2010.

It agreed that a person’s liberty “is not subject to the ups and downs of the South Florida real estate market,” but Solow had made the same promise at the first contempt hearing in August 2009 and nothing had happened. In the court’s words, “There is a difference between making reasonable-sounding representations to the Court and actually making reasonable efforts.” 682 F. Supp. 2d at 1335. It moved the surrender date to February 1, 2010, so that Solow could ask the Eleventh Circuit for a stay.

The Eleventh Circuit affirmed in September 2010 in a brief unsigned opinion. SEC v. Solow, 396 F. App’x 635 (11th Cir. 2010). The panel described the purge condition as paying the amount owed or “satisfactorily demonstrating good faith reasonable efforts to pay it,” and it found the district court’s credibility finding well supported. It held that the district court “acted well within its discretion in adjudging Solow in civil contempt and ordering his incarceration until he purges his contempt.”

The SEC had already filed a second suit. In November 2009 it sued Gina Solow, her condominium company, the Nevis lender, and others for fraudulent transfer and to foreclose equitable liens. In June 2010 it filed lis pendens, notices that the properties were in litigation, against the Hillsboro Beach house and the Fort Lauderdale condominium.

In August 2010 the parties jointly moved to deposit property-sale proceeds into the court registry, and $319,711.26 reached the registry that September; Gina Solow’s own filing described the money as proceeds of the Hillsboro Mile sale. The SEC gave notice of a settlement in June 2011, and the case was dismissed that August.

What SEC v. Solow Adds to the Contempt Cases

The decision in SEC v. Solow extends the self-created impossibility rule four ways. The transfers came after a jury had fixed liability but before any judgment existed. The debtor was not the settlor. The order he disobeyed was a payment order, not a turnover order aimed at the trust. And the purge condition shows what a court demands of a contemnor who says he has nothing.

First, the earlier contempt cases involved trusts funded before any judgment existed, and the courts reached the settlors anyway. In FTC v. Affordable Media, the Andersons funded their trust three years before the FTC sued and lost because they stayed on as protectors with practical control. In Lawrence, the settlor funded his trust about two months before a $20 million arbitration award and kept the power to replace trustees.

Solow argued that his case was different because his transfers came before any judgment. The court’s answer came from Lawrence, which had called that trust “an obvious attempt to shelter his funds from an expected adverse arbitration award.” 682 F. Supp. 2d at 1329. A verdict on liability is enough. A transfer made between the verdict and the judgment carries the same contempt exposure as one made after the judgment, because the liability is already fixed and the coming order is foreseeable.

Second, the trust did not have to be Solow’s. Gina Solow was the settlor and beneficiary. Solow told the court the trust gave him no control over its property, and his wife’s attorney testified she could not force the trustee to act. The court reached him anyway, on three findings.

Every asset in the trust traced to his earnings. He had to sign the mortgage that funded it. And the trust was his “whole source of support,” which gave him a de facto interest in it. 682 F. Supp. 2d at 1332. A trust that one spouse settles with marital or entireties assets does not put the liable spouse beyond contempt when that spouse consented to the funding and lives on what the trust holds.

Third, Solow disobeyed a payment order. The Andersons and Lawrence disobeyed repatriation and turnover orders aimed at the trust assets. A private money judgment is collected through execution and garnishment; contempt enters only after a court issues a further order the debtor can disobey, such as a turnover order. The contempt risk after a Cook Islands trust is funded therefore depends partly on who the creditor is: an agency with a disgorgement order starts with that power, and the SEC and FTC have pushed further than most private plaintiffs.

Fourth, the purge condition shows that a court demands effort and measures it by conduct. The court treated a promise to sell the house and dissolve the trust as no effort at all once a year and a half had passed since the judgment without either happening. Solow himself had no right to ask the trustee for anything; payouts came only at a beneficiary’s request.

Cook Islands trusts can be established after a lawsuit is filed, though the settlor takes on higher contempt exposure and a weaker negotiating position. A trust built for planning during a lawsuit carries a Jones clause letting the trustee pay the known creditor on defined terms. The Solow trust, as its own attorney described it, existed to keep assets from Solow’s creditors if his wife died.

The real estate did not move. The beach house sat inside U.S. jurisdiction; within the year the SEC had filed a lis pendens against it and, by Gina Solow’s own account, the house had been sold and the proceeds deposited in the court registry. So post-claim planning has its hardest limit at real property inside the United States, because a court can reach the land and its equity. Stripping the equity offshore through a mortgage to a lender the court treats as part of the plan only adds a fraudulent-transfer target; the house stays put.

Across the litigation over Cook Islands trusts, contempt has reached settlors who kept control, funded during litigation, or spent trust money, and in Solow it reached a spouse who consented to the funding. The one defendant who defeated contempt, Arline Grant in United States v. Grant, had trusts two decades older than the judgment and trustees who refused her documented requests. The Solow case sits at the other end of that line: the defendant claimed to own nothing, his wife held everything, and the court held him in contempt anyway.