1031 Tax Owner Asks Judge to Toss Deal
Associated Press 01.28.08, 4:39 PM ET

WASHINGTON -

Miami businessman Edward Okun, who had promised to hand over his assets to the court-appointed trustee of his failed real estate company in order to repay $150 million to investors, wants to back out of the deal.

Okun said in court papers filed Friday in 1031 Tax Group's bankruptcy case that the trustee, Gerald [sic] McHale, hasn't held up his end of a deal, which called for Okun to keep two multimillion dollar homes and two automobiles.

McHale, the trustee for Okun's 1031 Tax Group, has been selling off Okun's luxury "toys" - including a 132-foot yacht, several jets and more than a dozen exotic cars - to pay back creditors of Okun's failed tax shelter.

In October, Okun and his wife, Simone Bolanji, signed over most of their luxury items so that 1031 Tax Group's investors, many of whom lost much of their life savings when the company went bankrupt, can get some of their cash back. As part of the deal, the couple were allowed to retain possession of the two multimillion dollar homes located in New Hampshire and Florida, and the two automobiles.

But Okun says McHale has "materially breached" their deal because he's failed to block one large creditor from trying to seize the houses and cars.

The result of the deal is that Okun and his family have "effectively entered into indentured servitude for the rest of our lives with no house or living budget," he said in court papers.

Okun wants Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan to let him out of the agreement with McHale. A hearing on his request is scheduled for Feb. 15.

Earlier this month, Glenn ordered Okun to hand over four cars - a Rolls Royce Phantom, a Bentley continental, a Lamborghini Gallardo and Porsche 911 - that he had refused to turn over to McHale. The trustee has also sold Okun's yacht for $9 million.

Okun's bid to get out of the deal with the trustee, is the latest twist in the collapse of his business empire. Okun has been accused of fraud in operating 1031 Tax Group, which served as a real estate tax shelter. The company collapsed after Okun allegedly "borrowed" $150 million of his investors' money, according to court filings.

About 300 investors across the United States were owed $150 million when the company filed for Chapter 11 protection in May.

1031 Tax Group was a "qualified intermediary" that let investors, who sell investment properties, defer capital-gains taxes if they invest the proceeds in similar-type properties within 180 days. To qualify for the benefit, the seller can't touch the money from the sale. Instead, the money must go into an account until it's used for the purchase of a new property.

Okun allegedly diverted investors' cash to pay for real estate transactions conducted through a separate company under his ownership - Investment Properties of America LLC.

New York-based 1031 Tax Group filed for Chapter 11 protection on May 14, along with more than a dozen affiliates. The companies listed combined assets of $154.6 million and debts of $152.1 million.

The U.S. Attorney's Office in Richmond, Va., and the U.S. Postal Inspection Service are investigating Okun's dealings and the conversion of funds from creditors. Okun has previously said in court papers that he's cooperating with that investigation.

Copyright 2007 Associated Press. All rights reserved.

Source:  http://www.forbes.com/feeds/ap/2008/01/28/ap4583286.html