- The Washington Times - Monday, September 16, 2002

BOCA RATON, Fla. Corporate executives and celebrities have long poured millions into ritzy estates in Florida and a few other states, knowing that if they file for bankruptcy their refined accommodations can't be touched.
But with the recent round of high-profile corporate scandals, some disgraced executives might not be able to take advantage of the provision that lets them keep their homes while creditors scramble to seize everything else.
Authorities are trying to seize millions of dollars worth of assets from Enron executives that reportedly were obtained illegally. Enron Chief Financial Officer Andrew Fastow, for example, could forfeit a $2.6 million mansion he is building in Texas, which, along with Florida, Iowa, Kansas and South Dakota, allows unlimited homestead exemptions.
Long tired of millionaires abusing liberal bankruptcy laws, U.S. lawmakers also are pursuing legislation that would place new limits on those trying to cheat the system.
One provision would require a person to live in a home for 40 months to claim the exemption.
That would mean someone such as ousted WorldCom Chief Financial Officer Scott Sullivan couldn't keep the lavish $15 million estate, complete with movie theater and six Jacuzzis, he is building in Boca Raton, Fla. Mr. Sullivan used the home as collateral on his $10 million bail after he was arrested last month on charges of concealing more than $3.8 billion in company expenses.
University of Florida law professor Jeffrey Davis said the new legislation would curb abuses and force more people to give up the luxurious lifestyle they might have expected.
"The goal is if some famous person moves to Florida and buys a huge home, you can force them involuntarily into bankruptcy and they won't get to keep the house," Mr. Davis said.
Experts said the vast majority of the nearly 1.5 million people who file for personal bankruptcy each year have homes valued at less than $125,000. Lawyer Stuart Young said new restrictions could hurt people who need protection, such as retirees who become overwhelmed with medical bills or a college student who racked up too much credit-card debt.
But the few egregious cases of the wealthy avoiding financial ruin by pouring loads of cash into their homes have created many critics of the system.
Sen. Herb Kohl, Wisconsin Democrat, who has been pushing for reforms, notes that while carpetbaggers and others have cheated the system for years, the Enron debacle raises even bigger concerns about state laws.
Florida's rules come from the state's Spanish roots and were designed about a century ago to be generous and lure people to its mosquito-laden, steamy climate.
"The concept was even if you owe debts, it wasn't responsible to make you homeless," said G. Ray Warner, the resident scholar at the American Bankruptcy Institute and a law professor at the University of Missouri in Kansas City. "The family was protected even if the dad was a drunkard or a gambler."
Now that Florida's population is booming and the wealthy have learned how to take advantage of the rules, "the plan may have backfired," Mr. Davis said.
One case involved corporate raider Paul Bilzerian, who walked away from $300 million in debts while keeping a $5 million mansion, despite a conviction on fraud charges and a 13-month prison sentence in 1989.
Actor Burt Reynolds declared bankruptcy in 1996, but creditors couldn't touch Valhalla, his $2.5 million estate in Hobe Sound. O.J. Simpson used the liberal rules to exempt his Miami-Dade County home in a civil judgment related to the slayings of his ex-wife and her friend.
Marvin Warner, a one-time ambassador to Switzerland, also bought a central Florida horse farm while seeking protection from $300 million in debt after his Ohio-based bank failed in 1985, triggering a run on savings and loans.
Other executives under a legal cloud have homes in Florida and Texas, but haven't filed for bankruptcy. They include former Tyco International Ltd. Chief Executive Officer Dennis Kozlowski. He is accused of using a $19 million no-interest loan from his company to pay for his personal palace in Boca Raton. Enron's ex-chief Kenneth Lay has a $7 million apartment, the entire 33rd floor of a high-rise in Houston, where the company is based.
But even the new laws wouldn't sweep the luxuries from everyone's life. Mr. Lay, who put up several homes for sale to stave off personal bankruptcy earlier this year, could keep his primary home under the new legislation because he has lived in it longer than 40 months.
Experts say the wealthy will always find ways to stash reserves.
"Lawyers will figure out a way to work within the law," said bankruptcy trustee and lawyer Robert Furr of Boca Raton. "It's just going to make it much more complicated and expensive."
Those who can't make the existing rules work for them always have other options, Mr. Warner said.
"While you can salt away a modest amount of money in a house, it's not always the place," Mr. Warner said. "The sophisticated debtors are going to move it out of the country, to an account in the Caymans for example, or hide it in some other way."


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