N.Y. Times News Service
PONTE VEDRA BEACH, Fla. _ For an admitted felon who arrived in Ponte Vedra Beach just a step ahead of the irate victims of his insider trading, Martin A. Siegel manages to live quite well, thank you. The former Wall Street investment banker occupies a $3.25 million, 7,000-square-foot beachfront home whose purchase put Siegel's assets out of reach of a $2.75 billion civil suit.
Just up the road at the Marsh Landing Country Club lives Bowie K. Kuhn, the former baseball commissioner who moved here in 1990 as his Manhattan law firm was going through bankruptcy proceedings.
Kuhn enjoys the benefits of a Florida life style in his million-dollar, five-bedroom, five-bath house, which he bought after creditors seized his weekend house in the Hamptons and were just about to attach his $1.2 million home in Ridgewood, N.J.
Good weather and the many golf courses and beach resorts scattered across this elegant Jacksonville suburb are not the only advantages of a legal residence in Florida.
As Siegel and Kuhn knew when they came here, a state law prohibits the seizure of a person's legal residence in bankruptcy proceedings, regardless of the value of the property. Florida also allows debtors to protect a broad array of financial assets, ranging from wages to annuities and pension plans.
The law is part of a broad and increasingly controversial network of legal exemptions from bankruptcy claims that have led Florida to be dubbed "the deadbeat's haven" and "the debtor's paradise."
"I believe this law is grossly unfair," said Judge A. Jay Cristol, a federal bankruptcy judge in Miami who has been an outspoken advocate of overhauling Florida's bankruptcy and homestead exemptions. "Theoretically, you could shelter the Taj Mahal in this state and no one could do anything about it."
Siegel and Kuhn are not alone in their decision to seek refuge in Florida. A multimillion-dollar horse ranch near Ocala is now owned by Marvin Warner, an Ohio banker and former U.S. ambassador to Switzerland with more than $4 billion in claims against him as the result of the collapse of the savings and loan association he owned. In April 1991, Warner began serving a prison term of 3 years for violating securities laws and making unauthorized money transfers.
And Harvey Myerson, Kuhn's law partner in the New York firm Myerson Kuhn, moved to Key West in the midst of his travails, where he bought a $1.75 million Mediterranean-style oceanfront home known locally as "the southernmost house in the United States."
Had Myerson remained in New York, he would have been allowed to shelter only $10,000 in a homestead. In California, he could have sheltered $50,000 for a home that he alone occupied or $75,000 for a family home. Texas and a few Plains and Midwestern states also have unlimited homestead exemptions, but none seem to draw wealthy debtors like Florida.
"It has been my experience over the years that people from all sorts of places suddenly seem to move to Florida once they know they are in trouble with the law," said Frank Maas, a New York lawyer who represented Marine Midland Bank, which lost a $3.1 million claim against Kuhn and Myerson.
What is more, Florida has sweetened the attraction with numerous other broad exemptions that attract millionaire debtors from other states. In addition to sheltering their homes, people filing for bankruptcy in Florida are allowed to exempt all of their wages, including wages deposited in bank accounts, and the total value of any annuities, pension plans, individual retirement accounts, life insurance policies or profit-sharing benefits they have. Creditors can go after cars, boats, jewelry and other personal property.
Florida's homestead exemption is part of a populist tradition that dates to the 19th century, when a person could buy a comfortable house in the city, or a large working farm, for $1,000 or less. The Florida Legislature has never gotten around to limiting the value of the exemption.
"The Constitution says the bankruptcy laws are to be administered uniformly, but it doesn't work out that way," said Judge Cristol, who also teaches courses in bankruptcy reorganization at the University of Miami Law School. "Someone like Bowie Kuhn or Marvin Warner gets to keep million-dollar properties, but the little old man or woman working in a sweatshop, the people with only $1,400 to their name, they get to keep much less. People are supposed to get a fresh start, not a head start."
The Florida Bankers Association and legal experts on bankruptcy law complain that the state's laws are so prone to abuse that many of the biggest or smartest debtors never have to file for bankruptcy at all. Because so many of the debtors' assets are sheltered so effectively in the exempt categories, these experts argue, creditors are discouraged from even initiating efforts to recover what is due them.
The dozens of insider-trading specialists, savings and loan moguls, real estate speculators, and quick-thinking lawyers who have moved to Florida generally argue that the state's generosity is not the principal reason they come here.
Warner told a federal bankruptcy judge that he and his wife "believe there is a little air and sunshine somewhere on this planet for us."
Kuhn, who has not been accused of any crime, said he had settled in Ponte Vedra Beach because of "strong connections to this part of Florida," links that include close relatives in the area and an ancestor who was Florida's first governor.
"I see no abuse whatsoever" of bankruptcy laws, Kuhn said recently in a brief interview, but he said he had been aware of the homestead exemption when he moved. "My house was sold in the normal course of business, not in a hasty manner. There is nothing inappropriate about my actions. People do this all the time."
Federal authorities in New York, however, indicated that they thought otherwise when creditors were trying to recover the money due them from Myerson Kuhn after the law firm collapsed. "I am not prepared to let Mr. Kuhn's assets go walk to the state of Florida," Judge Prudence B. Abram of U.S. Bankruptcy Court said at one point in the proceedings.
Siegel did not respond to requests for an interview, but his lawyer, Jed Rakoff, of New York, said his client had known of the homestead exemption but had primarily moved because "he and his family were going to be subjected to tremendous difficulty in the New York area" because of Siegel's involvement in the insider-trading scandal that also netted Ivan F. Boesky and Michael R. Milken.
Siegel was sentenced in June 1990 to two months in jail for insider trading and tax evasion while at Kidder, Peabody Co.; he has completed his sentence.
Almost annually, members of the Florida Legislature try, without much success so far, to eliminate or curtail bankruptcy benefits to prevent abuses. Earlier this year, for example, a bill to limit the homestead exemption to $250,000 was defeated. Aides to lawmakers said the defeat was largely because of objections from Florida doctors' groups, which feared what might happen to doctors who lose malpractice suits.
"I don't think it's very wise of Florida to accommodate these people who want to perpetrate a fraud on others by availing themselves of our protection of the homestead," said Rep. Robert Trammell, who, as chairman of the Judiciary Committee of the Florida House of Representatives, has been an advocate of changing the bankruptcy laws.
But, as Trammell acknowledged, support for the unlimited homestead exemption is not restricted to wealthy people who moved from out of state with creditors in hot pursuit. "There's a belief in the nation, but especially in Florida, that the homestead is sacred, and any time you monkey with that by trying to change the status, citizens become fearful and pass that on to their representatives," he said.
Judges in Florida have sought in recent years to limit abuses of bankruptcy exemptions. In May, a U.S. bankruptcy judge ruled that Kathleen Pizzi _ who won the Connecticut lottery, moved to Florida and spent herself into debt _ could not claim that her winnings are an annuity. That means the money cannot be shielded from her creditors, to whom she owes $380,000, said the judge, Robert Mark.
In an earlier case, another judge ruled that a Miami coffee broker who owed $122 million could not apply the homestead exemption to his million-dollar Miami Beach residence because the house had been bought by a holding company he owned.
And in the case of Myerson, the federal government argued that in obtaining the loan to buy his home in Key West, Myerson used as collateral paintings by Chagall, Miro, de Kooning and others that were also sold to a gallery for $1.5 million. The homestead exemption could not be invoked because the house was bought with illegally obtained money, federal officials argued.
Myerson is now in prison after being convicted of defrauding clients and the Internal Revenue Service, his wife has moved out of the house, and the property was recently sold in accordance with a court order, the officials said.…