In re Bilzerian, 01-00076-8W7.
| Citation | 258 BR 850 |
| Decision Date | 16 February 2001 |
| Docket Number | No. 01-00076-8W7.,01-00076-8W7. |
| Parties | In re Paul A. BILZERIAN, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
Judith R. Starr, Assistant Chief Litigation Counsel, Securities and Exchange Commission, Washington, DC, for Securities and Exchange Commission.
Philip V. Martino, Piper, Marbury, Rudnick & Wolfe, Tampa, FL, for the Receiver.
Deborah R. Meshulam, Receiver, Piper, Marbury, Rudnick & Wolfe, Washington, DC.
Andrew M. Brumby, Mary Ruth Houston, Shutts & Bowen, Orlando, FL, for HSSM # 7 Limited Partnership.
Robert L. Welsh, U.S. Department of Justice Tax Division, Washington, DC, for United States Department of Justice.
Jeffrey Warren, Bush, Ross, Gardner, Warren & Rudy, Tampa, FL, Steven Berman, Morse, Berman & Gomez, Tampa, FL, for trustee.
Patrick Tinker, Office of U.S. Trustee, Tampa, FL, for United States Trustee.
This case came on for hearing on February 8, 2001, ("Hearing") upon the motion ("Motion to Dismiss") of the Securities and Exchange Commission ("SEC") and Deborah R. Meshulam, as receiver ("Receiver") (collectively, the SEC and Receiver, the "Movants"), seeking the following relief: dismissal of the case for cause under Bankruptcy Code § 707(a), dismissal of the case under the abstention provisions of Bankruptcy Code § 305, a finding that certain actions are within the "police power" exception of Bankruptcy Code § 362(b)(4), relief from the automatic stay for cause under Bankruptcy Code § 362(d)(1), or alternatively, an order excusing the Receiver from compliance with the turnover provisions of Bankruptcy Code § 543.
The court has considered the entire record including the testimony of the debtor, Paul A. Bilzerian ("Debtor" or "Bilzerian"), the exhibits received in evidence, the declarations of the parties, as well as the numerous memoranda and other filings with the court.
For the reasons set forth below, the court will grant the Motion to Dismiss and dismiss this Chapter 7 case for cause pursuant to Bankruptcy Code § 707(a).
Bilzerian commenced this case by the filing of a petition under Chapter 7 on January 2, 2001. At the time of the filing of his Chapter 7 case, Bilzerian was a defendant in an action, SEC v. Bilzerian, Civil Action No. 89-1854 SSH ("Enforcement Action"), pending in the United States District Court for the District of Columbia ("D.C. District Court") which currently seeks enforcement of a judgment of disgorgement ("SEC Judgment") obtained by the SEC in an original amount (exclusive of interest) in excess of $60 million.
The Enforcement Action was commenced on June 29, 1989. Soon after, on September 27, 1989, Bilzerian was convicted of securities laws violations and sentenced to four years in prison and fined $1.5 million. The Second Circuit affirmed his criminal conviction on January 3, 1991. United States v. Bilzerian, 926 F.2d 1285 (2d Cir.1991).
On April 8, 1991, Judge Harris from the D.C. District Court found Bilzerian liable for securities fraud. SEC v. Bilzerian, 1991 WL 83964 (D.D.C.1991). The Court of Appeals affirmed the D.C. District Court's decision. SEC v. Bilzerian, 29 F.3d 689 (D.C.Cir.1994).
On August 6, 1991, Bilzerian filed his first personal bankruptcy case in the United States Bankruptcy Court for the Middle District of Florida ("First Bankruptcy"). The case was assigned to Bankruptcy Judge Alexander L. Paskay. See in re Bilzerian, 146 B.R. 871 (Bankr.M.D.Fla. 1992).
On January 28, 1993, the D.C. District Court entered the SEC Judgment against Bilzerian in the amount of $33,140,787.07. SEC v. Bilzerian, 814 F.Supp. 116 (D.D.C. 1993). On June 25, 1993, the D.C. District Court entered an order adding an additional $29,196,812.46 in prejudgment interest to the SEC Judgment. SEC v. Bilzerian, 1993 WL 542584 (D.D.C.). The Court of Appeals affirmed these decisions. SEC v. Bilzerian, 29 F.3d at 696.
The SEC was ultimately successful in the First Bankruptcy in obtaining a determination that the SEC Judgment was non-dischargeable under Bankruptcy Code § 523. In re Bilzerian, 153 F.3d 1278 (11th Cir.1998). In addition, another creditor, HSSM # 7 L.P. ("HSSM"), which was scheduled by Bilzerian in this case as being owed $30,650,328.17, was similarly successful in obtaining a judgment of nondischargeability in the First Bankruptcy. In re Bilzerian, 100 F.3d 886 (11th Cir.1996).
Between 1994 and 1999, Bilzerian transferred his substantial assets into a complex ownership structure of off-shore trusts and family-owned companies and partnerships. It is clear that he did this purposefully to insulate his assets from the reach of his creditors.
For example, in 1994, Bilzerian established "The Paul A. Bilzerian and Terri L. Steffan 1994 Irrevocable Trust" for the benefit of his children ("Children's Trust"). In June of 1994 Bicoastal Holding Company ("Bicoastal"), then jointly owned by Bilzerian and his wife as tenants by the entireties, acquired an option to purchase 6 million shares of Cimetrix Incorporated2 at 16 cents per share. Bicoastal then paid a dividend of an option to acquire 5.4 million shares of Cimetrix to Bilzerian and his wife.
In June of 1994, Bilzerian and his wife transferred an option for 2.4 million Cimetrix shares to the Children's Trust. In that same month, Bilzerian's wife transferred the home in which they reside to Bilzerian and his wife as tenants by the entirety ("Home"). The Home is over 30,000 square feet and is valued at approximately $3.5 million. Until Bilzerian's recent incarceration, he resided in the Home with this wife.
In 1995, Bilzerian and his wife established a Cook Islands trust entitled "The Paul A. Bilzerian and Terri L. Steffen 1995 Revokable Trust" ("Family Trust"). Bilzerian is one of the trust's settlors and is a trustee and beneficiary of it. In December of 1995, Bilzerian and his wife transferred all of their shares of Bicoastal to the Family Trust.
In December of 1995, Overseas Holding Limited Partnership, a Nevada limited partnership ("OHLP") was established. Bicoastal is OHLP's sole general partner, owning 1 percent of its equity, and the Family Trust is OHLP's sole limited partner, owning 99 percent of its equity.
Bilzerian and his wife transferred a second Florida property, a Minnesota vacation home, and an option to purchase three million share of Cimetrix stock to OHLP in December of 1995. In March of 1997, Bilzerian and his wife executed a deed of the Home to OHLP. The deed was recorded in January 1999.
In April of 1997, Bicoastal, the Children's Trust, and the Family Trust through OHLP, exercised the Cimetrix options and acquired 6 million shares of Cimetrix's stock worth more than $31 million. Bicoastal holds 180,000 shares. OHLP holds 2.9 million shares. The Children's Trust holds 2.315 million shares. About 600,000 shares were sold for an unknown amount at an unknown time.
On November 20, 1998, in response to the SEC's motion for civil contempt, the D.C. District Court issued a show cause order that required Bilzerian to file a sworn accounting identifying all assets in which he had any direct or indirect beneficial interest ("Show Cause Order"). Immediately after the entry of the Show Cause Order, in late November or early December of 1998, Bilzerian was removed as trustee of the Family Trust and on December 21, 1998, he was removed as co-beneficiary of the Family Trust.3
On August 21, 2000, Bilzerian was found to be in contempt by the D.C. District Court which held that Bilzerian has the ability to repay the disgorgement judgments, at least in part. Rather than comply with the disgorgement, "his diligent efforts have been focused on how to avoid compliance with the Court's orders." SEC v. Bilzerian, 112 F.Supp.2d at 23-28 and n. 23.
Bilzerian has been the beneficial owner of substantial assets in the years since the judgment was entered, but he has made no attempt whatsoever to pay the SEC Judgment. Instead of complying, he has transferred the assets to entities controlled by his wife and other family members.4
The D.C. District Court set a number of conditions that Bilzerian had to meet in order to purge the contempt. One of these was a requirement that he submit an additional accounting of his assets so that the D.C. District Court could ascertain the precise portion of the $62 million judgment Bilzerian was capable of paying.
On December 22, 2000, the D.C. District Court entered an order appointing the Receiver. On December 22, 2000, the Receiver was ordered to marshal assets of Bilzerian and various related entities — the Family Trust, the Children's Trust, Bicoastal, and OHLP ("Bilzerian Related Entities"). Bilzerian and the Bilzerian Related Entities were also ordered to provide access to assets and documents to the Receiver and to take no action to hinder, delay, or obstruct or otherwise interfere with the Receiver.
Immediately after her appointment, the Receiver sent letters to a variety of individuals and entities connected to Bilzerian requesting that they immediately surrender assets, provide the Receiver with access to assets and information, and take no action to interfere with the Receiver.
On January 2, 2001, less than two weeks after appointment of the Receiver, Bilzerian filed this Chapter 7 case. The same day, Bilzerian sent a letter to the SEC and the Receiver notifying them of the bankruptcy filing and that the filing
On January 12, 2001, the D.C. District Court found that Bilzerian had not purged his contempt and ordered him incarcerated ("Incarceration Order"). The Incarceration Order also sets forth the findings of the D.C. District Court that the civil contempt...
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