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Trustee’s Newsletter #3
January Newsletter
February 2, 2008
Dear Victims and Other Interested Parties,
Just a quick update on the matters surrounding the 1031 Tax Group bankruptcy and related Okun entities.
Let me start with the real estate -- we now have had an opportunity to take a closer look at the real properties that were acquired by Mr. Okun. Although some appear to have value over and above the debt incurred on them, generally the amounts paid for the properties by Mr. Okun appear to be close to full market value of the property at the time of acquisition. He eventually obtained close to one hundred percent financing for these acquisitions. This is somewhat troubling in that I think all have been led to believe in the past that there was some "hidden value" that could be unlocked in each property. Almost all have negative cash flows, a substantial portion of many properties have been sold to be Tenants In Comments (" TICs") over and above the debt already existing on these properties. Okun further complicated matters when he apparently took available cash flow from properties that did have the cash to use, rather indiscriminately, amongst his other properties and / or for distributions to other Okun entities. To date, we have been unable to find any meaningful “hidden value.”
Suffice it to say, the property picture is not a pretty one.
Thankfully, the picture is a little better on Okun’s “toys.” Aside from his yacht – which was highly leveraged and sold for de minimus recovery to the estate - Okun’s toys are not generally the subject of liens and may provide for a small recovery. However, let me be clear that even in this area, Okun’s estimation of the value of his “toys” is similarly inflated.
Also, while the area certainly is ripe for criticism as to how money appears to have been squandered, it is not an area that even in the best of circumstances would produce any real values for the victims. The overall amounts involved here as compared to the losses are just too small.
On the "insurance fraud", the deadline for filing a claim with the insurance company, by mutual agreement, has been extended to April 30. We currently are working on our claim and have the accounting firm of Deloitte, Touche involved in the tracing of funds.
It does appear that the value of the estate will be very dependent to a large extent, on successes in the litigation area. Although not all potential causes of action have been reviewed at this time, certainly it appears that in addition to the insurance litigation, suits will be forthcoming against certain professionals, lenders, and others.
The unfortunate part here is that litigation costs money. Administrative costs in this case to date have been enough to fund the budgets of many third world countries. These costs cannot continue unabated and for this reason we are seeking alternate methods of financing litigation going forward. While the dollars we are dealing with could be substantial, I have to caution that the costs also will be substantial.
On another front, Mr. Okun has filed a motion to set aside the asset transfer agreement and a hearing on that motion is currently scheduled for February 11th at 2:00 PM in the Bankruptcy Court in New York. The judge has ordered that both he and his wife are to attend in person if that motion is to be heard at that time.
I would like to thank many of the victims who have corresponded with me via e-mail with helpful information and suggestions. I do try and stay current on the e-mails; however, I would like to, as a gentle reminder, indicate that I am not an attorney and more importantly, am not your attorney. I represent the estate and no individual creditors. I will not give legal advice, nor will I give tax advice. These are areas where the victims or creditors need to discuss the particular situations with their own counsel or tax advisor.
I have attempted to keep the website up to date and post a monthly calendar of upcoming court events, as well as articles that might be of interest to the victims.
Also, in certain instances, since we will be involved in heavy litigation, it would be unadvisable for me to respond in a dispositive way on matters that might be involved in that litigation.
I think generally, everyone has the same overall question, and that falls in two categories: 1) how much we got back? And 2) When?
Since so much is dependent on the outcome of litigation, the answers to both questions are beyond any reasonable ability to estimate.
All I can indicate is that I, and the team that we've put together, will work diligently to attempt to get the maximum recovery in the shortest possible time.
Thank you for your continued support,
The 1031 Tax Group LLC
Gerard A. McHale, Jr.
Gerard
A. McHale, Jr.
Chapter 11 Bankruptcy Trustee
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