Virginia Feds Indict "1031 Exchange" Operator; $132M In Escrow Funds Misappropriated, Says Indictment

The South Florida Business Journal reports:

• Miami businessman Edward H. Okun was arrested Tuesday at his Hibiscus Island home on federal charges connected to a scheme to defraud investors of millions of dollars. Monday, a federal grand jury in Richmond, Va., indicted Okun, 57, on charges of mail fraud, bulk cash smuggling and making false statements. [...] According to the indictment, Okun used his 1031 Tax Group LLP to defraud clients of millions of dollars through false pretenses between August 2005 and April 2007.

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• The company, now in bankruptcy in New York, was in the business of acting as an intermediary for 1031 exchanges. The 1031 section of the tax code allows investment property owners to defer the capital gains tax due on properties sold, dependent on the use of the proceeds to purchase new property in a specified time frame. To do this, investment property owners deposit the proceeds of sales with qualified intermediaries, such as 1031 Tax Group, and sign exchange agreements that include various promises to clients regarding the safekeeping and use of exchange funds.

• The indictment alleges Okun misappropriated $132 million in client funds to support his own lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate and purchase additional qualified intermediary companies to obtain access to additional client funds.

For more, see Miami businessman faces federal fraud charges.

Go here for other posts on Edward Okun.

Go here for some 1031 exchange real estate investor horror stories that have occurred when the wrong intermediary is used to conduct the exchange. sneaky slick escrow agents beta