Under Indictment?

Summary: Are you under indictment? Is Federal Prison potentially in your future? This article written by a White Collar Advice client will help you avoid financial ruin. Specifically, the article shares 16 strategies to follow. If you have questions please call 818-424-2220 or schedule a call here.

“Many of the strategies in this article were learned through trial and error. Some were learned from very expensive counsel. I share them with you so that your journey through the legal system may be just a bit less arduous. When I was indicted I did not hire a federal prison consultant right away. I wish I had. It might have saved me a lot of aggravation and expense. Reading Lessons From Prison and hiring Justin Paperny will not just save you money (a shorter prison term means you are home earning money), but more importantly you will save time—time served. Time is the most valuable asset we have.”

White Collar Advice Client, January 22, 2017

Being indicted is expensive. Very expensive. But, with a little knowledge and some careful planning you might be able to reduce the financial impact. The legal costs for my case totaled over $10 million dollars. You don’t believe me, do you? You think that’s nonsense. I would too, except that I lived it. When the investigation first began, we used our corporate attorneys to speak with the FBI and SEC. This took several months and several hundred thousand dollars. Later, we were handed off to the criminal defense team. Not much happened after that. In fact, more than a year went by—nothing. Then the subpoena came and was shortly followed by a Wells Notice from the SEC. Subpoenas are very expensive.

To do it right you’re supposed to preserve all the files, hard drives, email, voicemails, personal files, and any other type of information that the company possess. There are companies that specialize in this type of data collection but they come at a cost. They warehouse the information the government has asked for on their servers and then charge you a monthly ransom to access your own data. But, the theory is that you can’t be accused of hiding information. The case kept percolating and again we were hopeful that it was going to die a slow death after the government saw that we were cooperating. That didn’t happen. Eventually, all the parties named as targets — eight of us all together — were advised to seek individual counsel. Because the company indemnified all senior employees, as most companies do, we now had well over a dozen lawyers from eight different law firms working on the case. This alone gobbled up millions of dollars.

As preparations for trial started the heavy lifting began. It was nothing to have hundreds of thousands of dollars a month being billed between the various parties. This process went on for eighteen months. The motions, the hearings, the joint council meetings, the research—it all goes on and on. But legal costs are only half of the financial equation. The other half is your income. There is a chance that through this process your income will be impacted. In my case, we began to wind down our business shortly after the investigation was opened and I stopped receiving any income.

For many who do not work for themselves I would imagine that their employment may be quickly terminated. Since your case could easily drag on for several years your lost income can be significant. I would immediately look for another job. The money is helpful and working can help you get a shorter federal prison sentence.

Under Indictment? So What Should You Do?

My experience is that you should make changes to your life very quickly—almost immediately. I realize that you may still have a lot of money in the bank and that some of these moves seem draconian. But, if you lose or must plead to a settlement, and you must be realistic here, then you can assume that much of your savings may be lost through a forfeiture or restitution order. If you are incarcerated, then your family may be left to make all these changes after you’re gone. If you win, then hey, so what, you downsized a bit—no shame in that.

Under Indictment? Avoid Financial Ruin By Following These 15 Strategies

Under Indictment? Avoid Financial Ruin By Following These 15 Strategies

I must also advise that I do not know your situation—only you, your federal prison consultant and your attorney do. Some of you reading this may be investment bankers with millions socked away and you’re simply looking at a big fine. Much of this may not apply to you. For others, being indicted may be the most financially devastating moment of your life— one that threatens your family’s wellbeing. Therefore, I can only give general advice and you must consult with your attorney and prison consultant before you start any financial planning.

The Legal and Financial Landscape

First, assume that every financial step you take will be scrutinized. Both Justin and my attorney told me several stories of white collar defendants that had made their case worse by trying to shelter or hide money from the government. So, I cannot, and would not, advocate that. Nor should you even consider it. Assume that everything you do will be viewed by the court or the prosecution. Second, you should be familiar with the concept of fraudulent conveyance. That is, moving money from one person or company to another to avoid a debt. That could be in and of itself a “cause for a civil action.”

In other words, it will only make matters worse—so, don’t do it no matter how tempting. Prior to sentencing you will be asked to complete an extensive financial disclosure form. Any movement of assets out of your name and into someone else’s name, or a trust or other entity, will be flagged in that report. So, again, moving money, or other shenanigans with assets could be disastrous. Third, after a sentencing hearing the court will have to divine a number called “restitution.” This is the amount you will owe to your victims based on the crime you committed.

It is possible that you could go to jail and have no restitution or it is possible that you may have a huge restitution in an amount that far exceeds any amount of money you have seen. This number will be closely related to the “loss” that your crime costs its victims—although it is not necessarily the same. Restitution will likely be joint and several with any co-defendants and will result in a seizing of certain of your assets after sentencing. Therefore, you want to plan ahead.

The Goal

We will consider three broad categories of your financial situation: reducing your expenses, maintaining your income and protecting your current assets. The goals are to:

  • Lower your expenses including your legal bill
  • Maintain as much current income as possible
  • Attempt to salvage any portion of your net worth possible

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

In the end all of this is to minimize the financial impact of the case on you and your family. If we can achieve any of these goals then we have accomplished some good. Now, at this point, someone may say “well if some insider-trading, hedge fund manager is sitting on hundreds of millions of ill- gotten gains why should anything be protected?” I generally agree with that statement. If you have ill-gotten gains, well then those are ill-gotten and they are not yours. You need to come to grips with that. But, I think that for many white-collar cases the analysis isn’t always so simple. Often, entrepreneurs or business people have many sources of income—including those their spouses earned. Not all of this is part of your case and not all of it should be subject to a restitution order.

Additionally, the government will not hesitate to inflate the loss number as large as they possibly can while keeping a straight face. As such, I firmly believe that you have the right to argue your case and reasonably put in place prudent financial plans. Finally, and most importantly, if you have a family you have an obligation to provide for them as best you can. While you're unlikely to get much sympathy from the government, I believe that the innocent victims, including your family, have rights too.

Section I: Lowering Expenses

I believe this is the most critical part of the equation for several reasons including: it’s the easiest to accomplish, it’s non-controversial, and it is helping to set up your family to prosper if you are not with them. In all likelihood your family will need to adjust to a lower standard of living moving forward. Anything you can do to help that process now is valuable.

Strategy 1: Negotiate Your Legal Fees

Legal fees are highly negotiable. Many of you who haven’t had a experience with lawyers will be shocked to find this out. But, I assure you attorney fees are easily negotiated. The standard billing process for most lawyers is to ask for a retainer (essentially a down payment) and then bill you by the hour for their work. Hourly fees are between $300 and $900 per hour for a skilled criminal defense attorney depending on the size of the firm and the geographic location. As the retainer is depleted they will ask you to fill it up again, thus protecting themselves against unpaid invoices. T

There is no reason you must accept this formula. If you firmly believe that you will go to trial then you are going to have to spend a lot of money and there is really no way around that fact. Trial prep is very time consuming. It is one reason that so many people settle their cases—they just don’t have the resources to fight. If you are going to be negotiating a plea then you will spend less and you have more options to negotiate with your attorney. Based on my experience there are a few ways to cut the overall expense.

Interview several attorneys

Interview at least three attorneys. Ask them about their experience. Specifically ask “how many cases like mine have you handled?” “How do you bill?” “How much will this cost?” “Since this is a large case what type of discount can you offer?” They likely won’t have a good answer until they learn more about your case but you do have the right to ask these questions. Their answers will give you insight into the costs.

You may be insured or indemnified

Depending on the nature of the charges you may be covered by your company’s insurance. Most companies have “D&O” (Directors and Officers) insurance. You may find that you are covered even if you don’t think of yourself as a director or officer. For example, a Controller may be covered. There is no harm in asking your company to pay your legal bills. All they can do is say no. Many firms are willing to pay your legal fees (or use their insurance to pay) to protect their own reputation. If possible, ask. A flat $50,000 or $100,000 may seem excessive right now but I can almost assure you that on an hourly basis you will exceed any flat rate you can negotiate. You can make the deal so that the firm tracks their hours but subject to a cap on the total amount. That way if they do end up under the flat amount you get the lower of the two. Also ensure that the arrangement takes you all the way through sentencing and surrendering (if necessary).

Negotiate an hourly rate

If you can’t negotiate a reasonable flat fee then I guarantee that you can at least negotiate a reduction in rates. Almost all large cases will command a reduction in hour rates. This is true for business deals as well as criminal cases. A 20% reduction is absolutely standard and even 30% is reasonable. A lawyer’s hourly rate is somewhat like the sticker price on a car— nobody really believes it and nobody pays it. Lawyers hourly rates are almost like bragging rights. The higher their stated hourly rate the bigger their manhood. This is just a starting point.

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Utilize associates where possible

Obviously, you want the best lawyer you can afford but there are many communications that you will have that are better done with a much cheaper associate. For example, every time you need to travel outside your district you need to get permission from the probation office. This is a great duty for a young associate to tackle at half the price of the senior partner. You may need to manage this. In short, you must negotiate with your lawyer. This might be the single biggest savings you can achieve while awaiting trial or sentencing.

Strategy 2: Move to More Affordable Housing

After legal costs, your house is likely your highest expenses. Moving can also be one of the most emotionally traumatic things you can do to your family. But, there are several very complex dynamics at work here and this will take some serious thought and analysis on your part. Many people may feel that moving is somehow admitting defeat or just not necessary. But, I advise that you make the assumption that your spouse and family will have to live in the house where you leave them without your income. Therefore, the house needs to be affordable enough (including all monthly expenses such as insurance, utilities and maintenance) that your spouse can afford it on his or her income alone.

Therefore, the best possible strategy you can employ to lower your expenses, protect your family and ensure that you have a stable place to return is to have a modest home with no mortgage and low taxes and maintenance. This may not be entirely possible but you should try to get as close to this as possible. Throwing sand in the gears of this strategy are two factors. First, now that you’ve been indicted your are unlikely to be able to qualify for a mortgage. Second, you must be very careful about the fraudulent conveyance issues highlighted earlier. For example, if your current house is in your name and you sell it and buy a smaller home solely in your wife’s name you may be committing a civil crime that could cost you way more than you're gaining. Ask your attorney about this. If you’ve negotiated a flat rate then it won’t cost you anything.

Strategy 3: Get Rid of all Unnecessary Expenses

I get it, you may be living the life of a very successful person. But guess what—not any more. You have been indicted and there is a very real possibility that you are going to prison. Get over yourself. It took me quite a while to face the reality of my situation. Not because I didn’t want to or that I was being naïve. I just didn’t have the knowledge to understand my situation. I truly thought that the government would not bring charges. If I had known how likely it was, I would have acted much more quickly to reduce our family expenses.

Here are a few ideas of things to seriously consider cutting if they are currently part of your budget. The club: This is nothing but an expensive place to feel humiliated. Drop it. They don’t want you there anyway. Private school: This is a $20,000+ per child expense that is just not affordable anymore. 99% of kids in America go to public school. Short of religious reasons this expense is difficult to justify.

Car loans and leases: Pay your cars off if you can. Make sure your spouse has a well maintained, reasonable cost car with an extended warranty so that she (or he) has good solid transportation for several years to come without the fear of breakdowns. As mentioned earlier, you will have to provide the government with a complete accounting of all your expenses. So, I recommend taking the time to account for every penny spent over the last year, grouping them by category, and then sorting them from high to low.

Start at the top and cut what you can. Then move down the list. Many of these items, like club memberships and expensive cars, may be part of your self worth. They shouldn’t be. Focus on your family, your friends, and your soul. You may find that these material possessions are weighing you down. Remember:

“The real measure of your wealth is how much you’d be worth if you lost all your money.”

In the end, reducing expenses was one of the most freeing parts what was an otherwise horrific experience. It has helped me to focus on what matters most—family and friends.

Section II: Maintaining Income

While cutting expenses is important the other side of the equation is income. If you’ve been indicted it is very likely that your income has been impacted either because you've been fired from your job or your business has been hurt. If not, consider yourself fortunate. http://www.appointmentcore.com/app/freeslots/V2cLbrqThere are several key strategies I would recommend you consider.

Strategy 4: Dual Income is Critical

I was very fortunate in this regard. Just before my legal issues became serious my wife had decided to go back to work after taking a hiatus while our children were young. This was fortuitous for our family. No matter how much money you have in your bank account you must be prepared that it could all go away through the restitution process and that your spouse will be solely responsible for your family’s income. Another ancillary benefit to dual income is health insurance.

Even a budget health plan may cost over $1500 per month for a family of four. Add in the huge deductible and this is an amazingly expensive insurance plan can easily run over $20,000 per year. If your spouse is working full time you may have access to employer subsidized health care. So in short, if you currently do not have a dual income family then my advice would be to change that dynamic to the best of your family's ability. This may not always be as feasible, but even a small second income could make a big difference.

Strategy 5: Keep Working at Your Current Career

If you are still working at your current job or career then congratulations. Keep at it. Right to the end. Don't stop. This could be a multi-year legal process. Even if you don’t need the income, working will provide you with a mental break and feeling of self worth during an otherwise depressing time in your life.

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Strategy 6: Start a New Business & Grow it From Federal Prison

If you’ve lost your job you may think this is ridiculous advice but I believe it’s much easier than you think. Most white-collar defendants have very specialized skills in some type of business—accounting, sales, financial analysis. You can easily begin a consulting contract or other “behind the scenes” type of business. At first you will think this is impossible given your situation but I assure you it’s not. Many people who I know through business have been incredibly sympathetic to my situation. Many of those would either hire me, go into business with me, refer some consulting work to me or at least support something I was doing.

After the investigation into my investment business began I became the president and board member of a small public company. The majority shareholders knew me and trusted me. In order to be accepted I had to speak to the regulators and explain the investigation in great detail, with my attorney of course (another reason to get that flat fee), but in the end I was allowed to serve on the board. That turned out to be a profitable endeavor for me and a great experience.

After that public company was sold I helped a friend to start another business—this time as a consultant. My case was still dragging on and I had time. But, I know that when I am through with my ordeal I will have a place to land—that is an important consideration. If you can set up a relationship or company now that might provide income for you while you’re gone or when you return then all the better. Another consideration is that your case may take much longer than expected. Delays are commonplace in the court system. The initial timeline may look like nine months but it could easily extend to two years or beyond.

In short, assume the worst and do everything you can to keep income flowing. In addition to the practical nature of this advice, working will keep your spirits up and give you some daily purpose. If you want to continue growing the business from federal prison, speak to Justin. There are certain protocols you must follow to avoid problems.

Section III: Protecting Assets

This is the most controversial subject and I saved it for last. I’m sure many would say that you have no right to “protect assets.” That may be true depending on the nature of your case—but, I’m not here to judge. I’m here to say that your family shouldn’t necessarily suffer for your actions or the actions of the government. In protecting assets let me stress what I will not be discussing. No hiding assets. No transferring assets to other names or corporations. Nothing that could even remotely be construed as fraudulent conveyance. Take the high road—just don’t do it. The government may run state-by-state checks on corporations with your name associated with them, they will run bank account records, they will check for any transfers out of the ordinary. That said, there are some simple strategies that can ethically be employed.

Strategy 7: Adjust Wills and Estates Appropriately

Make sure that assets not currently in your name stay that way. For example, a likely source of this could be parents who have you listed in their will or estate as a heir or beneficiary. Ask them to change this immediately. If they were to unexpectedly pass away those assets would be transferred to you and they would be subject to any restitution order. I’m sure that your parents would much rather leave that money to your children or to a trust, than to you if they knew it was going to go to the government. The same strategy applies if you and your wife have any type of estate planning that would somehow leave you with a bulk of your assets if there were an untimely death.

Strategy 8: Understand “At Risk” Money

There is a hierarchy of “at risk” money when it comes to restitution. You should attempt to preserve the least at-risk money. The order, from most risky to least, goes something like this:

1. Money that is directly tied to the alleged crime.

2. Money that is in name of the company tied to the alleged crime.

3. Assets in your name only including IRAs.

4. Assets held jointly with your spouse that are clearly from your income—for example a vacation home whose value far exceeds what your spouse could have paid alone.

5. Assets in some form of asset protection trust. Depending on when this was set up and with what original source of funds this may or may not be attacked. 6. Your 401 k. The law provides some protection to a 401k that is not afforded to an IRA. Max out your 401k and your spouse's 401k if you can (you’re doing that anyway right?). Do not “roll over” money from a 401k to an IRA.

7. Health Saving Accounts. Put as much income into an HSA as possible. Spend non-HSA money on healthcare costs. This will help to preserve those savings for your family if you're gone and they need assistance with health care.

8. Assets solely in your spouse's name. Again depending on when and how they ended up in your spouses name these are likely to be safe from restitution. If your wife works and has her own bank accounts great. Keep plowing her income into that while you spend joint assets or your assets.

9. Your spouse's retirement accounts and assets in your kids names (assuming these are reasonable amounts). Don’t touch these. There are other categories but you get the concept. The money closest to you and to the source of the alleged crime are most at risk for restitution.

Strategy 9: Own Your Home

We briefly discussed your home in an earlier section as an expense. But I want to cover it in again in more detail here. If you owe restitution, the government will not likely seize your house but rather simply put a lien on the house. This lien will last for 20 years. If your restitution is not paid at the end of the 20th year then they may renew the lien. But, anecdotally there are many stories where the lien does not get renewed simply due to the inefficiencies of bureaucracy. In short, this means that your family may continue to live in the home while you’re gone and you may be able to continue to live in your house for the next 20 years. As such, If you own your home outright, congratulations—do nothing. Your family can “squat” there indefinitely.

Of course you have to be able to pay the bills. So a large expensive house that is paid off may still be too expensive for your spouse to manage on a greatly reduced income. If you can downsize I suggest doing it as soon as possible. If you require a loan you may need your spouse to sign. Your indictment will likely prevent you from qualifying for a mortgage. This may be a limiting factor if you’re the only breadwinner in the house. Do not try and sell your home in a non-arms length transaction. Justin shared a number of stories about defendants who tried to do this. This will only cause you more pain and suffering.

Strategy 10: Prepare for Discontinued Accounts

This was one for the biggest surprises for me, and one that Justin helped me overcome. Banks, credit cards and brokerage accounts will be automatically closed after you are indicted. Some closed almost immediately and others took over a year but eventually they all seem to get to the same end—large financial institutions do not want your business. All major financial institutions routinely run checks against court records. Within a few weeks of my indictment accounts started being closed. First, all my credit cards were shut off. Then all brokerage accounts were closed including my retirement accounts. Even my wife’s IRA account was closed. Obtaining a car loan, mortgage or refinancing a home during this period is highly unlikely.

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Fortunately, my wife had two credit cards that were in her name only and she was able to issue a second card with my name on them so that I could at least buy groceries and gas. You may want to have your spouse increase his or her credit lines now. Also, we were able to find a broker at a smaller firm that was able to take our IRA and securities accounts. Generally smaller institutions seems to have more flexibility than larger national firms.

Strategy 11: Simplify Your Financial Life

While we’re discussing brokerage accounts and investments you may want to consider a simplified investment strategy as well. If your assets are invested in a complex manner including private investments, rental properties, or other “hard to manage” assets this might be the right time to put everything in a few simple mutual funds. You will be prohibited from conducting any business from prison—even over the phone. If your account is “frozen” while you’re in prison you will not be able to trade or liquidate anything. Therefore, a simple, low- risk, liquid investment strategy may be worth considering.

Strategy 12: Execute a Power of Attorney

You also need to implement a power of attorney with your spouse, other trusted friend or family member. Because of the prohibition of conducting any business, even personal business, from prison you need a trusted person to handle your affairs. Ideally, this would be a general power of attorney but depending on your circumstances you may want to keep it as a more restrictive limited power of attorney. Your lawyer should easily be able to help with this.

Strategy 13: File Taxes Separately

If your alleged crime could end up resulting in any type of tax liability then you definitely want to file your taxes separately from your spouse. The general rule is that if you file jointly in a specific year and you end up owing money in that year (even retroactively) then you both owe the money even if the debt is solely from your crime. If you are incarcerated and your spouse is trying to make ends meet that last thing he or she needs is a tax lien that freezes her bank accounts. This topic can be so complex depending on your situation that it may be worth it to spend money on a tax lawyer who specialized in criminal negotiations with the IRS.

Strategy 14: Maintain Your Life Insurance

You are most likely uninsurable. For some reason life insurance companies do not write new policies on felons. Additionally, given the stress in your life and potential incarceration your mortality rating just went up. As such, you should think twice before dropping your life insurance. Much of this will depend on whether or not it is whole/ universal or term life (whole life with a cash value may be subject to restitution), how old your children are, and the income your spouse brings to the table.

Strategy 15: Negotiate with the Government

When it comes to that fateful decision to plead or not to plead, cooperate or not cooperate, one consideration is the ability to negotiate some of these financial matters as part of your agreement. Obviously, this will be highly dependent based on the specifics of your case, your role, your willingness to cooperate, and the nature of the alleged crime. But even Bernie Madoff negotiated to allow his wife to keep some assets.

Strategy 16: Complete the Residential Drug Abuse Program

Logic would tell you the less money you spend in prison the better financial position you will be in. Moreover, if you are not in prison you will be home earning money. For those reasons (and for purposes of this post I am ignoring the obvious benefits of going through RDAP, which are many), you should determine if RDAP is best for you. I spent a lot of time going through the pros and cons with Justin--he told us the truth that it was not for everyone. All things considered, I pursued it. Completing the program helped get me home 15 months sooner (I got 9 months off based on my 33 month sentence, plus 6 months in the halfway house), for completing RDAP. Grab Justin's free course on RDAP to learn more.

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

Summary: Under Indictment? Avoid Financial Ruin By Following These 16 Strategies

1. Negotiate Your Legal Fees

2. Move to More Affordable Housing

3. Get Rid of all Unnecessary Expenses

4. Dual Income is Critical

5. Keep Working at Your Current Career

6. Start a New Business, and let Justin teach you how to run it from federal prison

7. Adjust Wills and Estates Appropriately

8. Understand “At Risk” Money

9. Own Your Home

10. Prepare for Discontinued Accounts

11. Simplify Your Financial Life

12. Execute a Power of Attorney

13. File Taxes Separately

14. Maintain Your Life Insurance

15. Negotiate with the Government

16. Qualify for the Residential Drug Abuse Program