The Real Deal Miami

Florida laws deal easy hand to Fuld

By Sally Apgar | January 27, 2009 09:02PM

When it was revealed this week that the fallen former chairman and chief executive of Lehman Brothers, Richard S. Fuld Jr.,
quietly transferred his $13 million sprawling seaside mansion into the
trusted hands of his wife, it raised questions, tempers and a few
smirks.

After all, it happened in Florida.

Along with its
reputation for unsavory land deals, Florida’s liberal asset protection
laws have made it a legal safe haven for those seeking to protect their
personal wealth from the clutches of angry creditors and lawsuit-hungry
investors.

Long before Fuld, the protections of the state constitution were
embraced by O.J. Simpson (who shielded his wealth from civil litigation
arising from his wife’s murder), former WorldCom executive Scott
Sullivan and legions of professional athletes and Wall Street warriors
gone awry.

“People with creditor problems move to Florida rather than lose
everything,” said Jonathan Alper, an Orlando-area bankruptcy attorney.

Fuld’s attorney for the Jupiter Island mansion transaction declined
to answer questions about whether or not Fuld was using the property
transfer to keep a plum asset in the event investors sue him or he
files for bankruptcy.

“We cannot comment on client matters,” said Stuart Kapp, an attorney
with Proskauer Rose LLP in Boca Raton who drew up the deed.

Under Florida’s homestead exemption law, a person’s primary
residence, regardless of value, is a castle protected even from creditors
who have won court-ordered judgments. In Florida, a person can
file for bankruptcy and still keep a home, as long as he keeps up
mortgage payments. The only constitutional limits on the size of that
home are that it must be contained to 160 acres.

“The Florida Constitution basically protects a primary home of
unlimited value from creditors,” said Alper, explaining how some of the
wily wealthy have been able to stockpile their assets in a Florida
mansion, declare bankruptcy and later sell the house and retire on the
hefty profits.

During bankruptcy reforms passed in 2005, Congress tried to weaken
Florida’s protections by including language that a debtor can only use
a state’s exemptions if that debtor has held continuous residency in
the state for the 730 days immediately preceding bankruptcy.

This may be a sticking point for Fuld, who has long worked in Manhattan and keeps a mansion in tony Greenwich, Conn..

Alper and other Florida bankruptcy experts also noted that under
Florida law wages of “a head of household” are protected from
creditors. “With an unlimited house and unlimited wages, you can live
pretty well.” As he explains on his website: “It is never too late to
move to Florida to obtain protection from civil liability.”

Alper explains further on that site: “Even after a judgment is
entered against you in another state, one may legally become a Florida
resident and protect money invested in a new Florida homestead
property. There are no civil or criminal penalties for moving to
Florida when one is being sued somewhere else or when one has a civil
judgment against them in another state.”

The original intent of the Florida constitution was aimed not at
protecting debtors, but at attracting settlers to the swamp country in
the 1800s and then protecting the families and homes of farmers who
were periodically wiped out by natural and man-made events.

Of course, to get all of these cushy protections, Fuld will have to
move to Florida and get a Florida driver’s license. And questions could
be raised about the legality of the mansion transfer.

According to Martin County property records, Fuld and his wife,
Kathleen, bought their posh Jupiter Island retreat on March 16, 2004,
for $13.75 million. On November 10, the Fulds transferred the property to
Kathleen, according to records.

Some news accounts said the transaction was made for $10. But the
exact amount of the sale cannot be determined from the records, which
state that the transaction was made for $10 “and other good and
valuable considerations.” In fact, while Martin County records show the
Fulds bought the house for $13.75 million in 2004, the actual deed
reads for $10 “and other good and valuable considerations.”

The document recording the November sale to Kathleen bears a tax
stamp that reads 70 cents, which would make the transaction worth about
$100. The deed shows how legally allowed vagaries in Florida financial
documents can be used to shield the true price of a transaction.

The mansion transfer took place only weeks after Congressional
testimony where Fuld faced heated questions about whether he and other
executives misled investors about the financial condition of the
brokerage firm in the meltdown weeks leading up to its September 15
 bankruptcy filing.

During that hearing, Fuld took responsibility for Lehman’s failure,
defending his decisions as “prudent and appropriate” at the time they
were made. The U.S. Attorney is investigating whether Fuld and other
Lehman executives committed fraud on Sept. 10 and at other times when
they made upbeat comments to Wall Street analysts and investors while
their lawyers sat behind closed doors drawing up bankruptcy papers.

Fuld told the House Oversight and Government Reform Committee that he
was paid about $350 million between 2000 and 2007. The committee
reported that on September 11 — only four days before filing for bankruptcy — Lehman approved “special payments” to three unidentified executives
totaling $23 million.

Committee Chairman Henry Waxman, Democrat of Calif., reared at Fuld during
testimony, saying that he “made all of this money by taking risks with
other people’s money.”

Waxman revealed company emails in which Fuld dismissed suggestions
that top executives forego their lavish bonuses to convince “employees
and investors that management is not shirking accountability” for the
firm’s downward performance.

In response, Fuld fired off this email about those employees and
investors: “Don’t worry — they are only people who think about their
own pockets.”