Financial Crimes – Part 3,

Stop Financial Crimes and Attract Billions of Dollars in Deposits to Arizona

Billions of dollars of investors’ monies have been lost and more are at risk!  Roughly $185 billion in Internal Revenue Code, IRC Section 1031 Like-kind Exchanges was processed and held as deposits nationally in 2008.

Although, Federal Law mandates that each exchange must be executed with the services of an Exchange Facilitator, (Qualified Intermediary – QI), an Exchange Facilitator is not audited or otherwise monitored by any federal regulatory body.  Consequently, billions of investors’ dollars have been stolen.

Arizona should move without delay to establish standards for Exchange Facilitators.

Bank deposits in Arizona as of June 30, 2009 (last figures available) were in excess of $82 billion.  I believe this legislation alone, properly marketed across the U. S., can bring $12 billion to $15 billion more to Arizona in deposits by our state becoming a safe-harbor.  This substantial increase in deposits is money that could be reinvested in our state causing a 4 to 10 time multiplier effect when loaned locally.

The risk of trust fund loss is great, but unnecessary if our Arizona legislature would take action.  This past session is the second time I have had a bill introduced in the state senate.   It failed both times without as much as a hearing.

During these same two years, 7 states provided the leadership to regulate this process; Nevada, California, Washington State, Oregon, Colorado, Virginia and Maine.   Colorado Legislators passed their law January 25, 2010.  See http://www.1031.org/.

Your money becomes their money to do with as they wish!

The defense of the QI that lost $120 million dollars of clients’ money in Nevada by comingling personal, client and company monies was, “There was no regulation of what could be done with the funds.”  The Nevada legislature did not act to protect its citizens until after this loss.

Losses in Arizona have happened and more are inevitable!  I personally know of a bank that was approached with an offer to use client money as collateral for personal loans to the owners of a QI.  Absolute power over money corrupts.  We don’t need to continue stalling passage of legislation while more people loose money!

In December 2008 the QI of LandAmerica filed bankruptcy with over $400 million of consumer funds. The monies are now in limbo and may never be seen again due to co-mingling and improper investment under LandAmerica’s control.

In the meantime, the victims are further penalized by being forced to pay income tax for non-compliance.

Arizona consumers, inundated with a flood of downward economic trends, should not have to include money entrusted to Qualified Intermediaries that due to a lack of both federal and state legislation are riddled with intentional and unintentional fraud. QI’s are not required to be bonded, insured, or even licensed. This regulatory void has left unscrupulous and incompetent Exchange Facilitators with doors wide open for malpractice or outright fraud.

Arizona must move quickly to become the 8th state in the nation to bring regulation to this important business function. Our state could become home to billions of dollars of 1031 exchanges.  This legislative act would bring assets, tax revenues and jobs to Arizona.

For examples of frauds see:

http://www.patriotledger.com/business/x1162817610/S-Shore-investors-lose-hard-earned-money-in-alleged-tax-scam for $132 million in losses.

http://www.hollandhart.com/presentations/Outline_1031Exchanges(CrenshawMaxfield).pdf II, C. Recent Qualified Intermediary Failures and Defalcations.

http://1031netex.wordpress.com/2008/03/30/more-1031-exchange-accomodators-in-hot-water-lawsuit-claims-80-million-stolen-in-scheme/ for $80 million in losses.

Now for the surprise

What do you think happened to SB 1333 Exchange Facilitators Regulation?  Without a hearing and without warning, everything after the enacting clause was stricken.  The bill was changed to regulate canneries, fertilizer plants, refineries, commercial feed lots, meat packing plants and tallow works by the Senate Commerce and Economic Development Committee chaired by Senator Barbara Leff.  The sponsor of the bill, Senator Thayer Verschoor is also a member of the Committee.  Both are now candidates for the office of Arizona state treasurer.

In the next installment in this series, I’ll describe the Task Force that has been created to bring reform to Arizona’s antiquated tax system and introduce ways that you can help.

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Copyright July 4, 2010