Conseco Inc. says former Chief Financial Officer Rollin Dick and his wife, Helen, set up a $7.5 million trust in a remote South Pacific island nation five years ago as part of a scheme to put family assets beyond the company's reach.
The trust in the Cook Islands has surfaced as an explosive new area of attack by Conseco attorneys trying to recover $97 million in principal and interest on loans Rollin Dick used in the 1990s to buy company stock that ended up worthless.
Detailed information about the trust in the Cook Islands, a balmy nation of 15 islands northeast of Australia and New Zealand, are hidden from public view in sealed court documents filed as part of Conseco's debt-collection lawsuit against the Dicks in Boone County.
Because Judge Steve David put trust proceedings under seal, attorneys for Conseco and the Dicks declined to discuss them. However, during a public court hearing last month, Conseco attorney Reed Oslan described the trust and charged the Dicks formed it with the intent to evade obligations to Conseco.
"They went, 'Wow. This is something we can do to protect some assets because otherwise we are fully exposed,'" Oslan said during the Jan. 4 hearing, according to a recording reviewed by IBJ.
Estate planners say the Cook Islands has become the world's most popular locale for offshore asset-protection trusts. The Cook Islands' legal system does not recognize U.S. court judgments, and the nation's laws strongly favor debtors over creditors.
"The modern world is highly litigious, and increasingly creditors are receiving disproportionate judgments from the courts," observes the Web site for the Cook Islands Trust Corp., one of many firms pitching the trusts. "People who have worked hard their entire life are in danger of having their life savings wiped out by spurious litigation."
The trusts typically include a lock-down provision, which would be triggered in an event of duress, such as a large judgment against the person setting up the trust. In that case, control of the assets are supposed to shift from that person to a trustee. During the Jan. 4 hearing, Oslan said the Dick trust includes that provision.
California attorney Jay Adkisson, author of the 2004 book "Asset Protection: Concepts and Strategies for Protecting Your Wealth," said he does not consider a Cook Islands trust a legitimate planning tool.
"Do I see it as a sleazy deal? I think the answer to that is probably yes. I certainly don't use them," he said. "A Cook Islands trust is little more than a naked attempt to defeat the application of U.S. laws."
Further, he said, the effectiveness of the trusts is increasingly in doubt. He described as a "charade" debtors' contention that they have no ability to recover trust assets to satisfy a U.S. court judgment. He noted that in two high-profile cases several years ago, defendants who didn't comply with court orders to recover the trust assets were put in jail.
The public docket sheet for the Dicks' case-which summarizes filings, court orders and other developments-suggests the Cook Islands trust was set up in Helen's name. It shows the trust first surfaced as an issue last July, when attorneys for Conseco sought a temporary restraining order restricting what could be done with it.
The attorneys took the rare step of seeking the order in an ex parte motion, meaning they filed it without notifying the Dicks' attorneys. Plaintiffs in collection cases sometimes file ex parte motions if they're concerned defendants might take steps to reduce assets available for recovery. In the Dicks' case, Judge David granted the restraining order.
The next month, the judge lifted the order.
"I think that speaks for itself," Phil Fowler, an attorney for Rollin Dick, said of the judge's decision.
However, the docket sheet shows that at the same time the judge lifted his order, Helen Dick made a series of commitments, including agreeing not to put more assets in the trust and not to take steps to lock down the trust. She also agreed to make the assets in the trust available to satisfy a court judgment if she's later ordered to do so.
Conseco attorneys say creating the trust was just one in a series of steps the Dicks took in 2000 to try to eliminate the risk the loan debt would wipe out their family fortune.
Rollin Dick was one of 11 former insiders who took out huge loans to buy company stock. The insiders bought most of the shares in the mid-1990s, before Conseco's $6 billion purchase of Green Tree Financial Corp. sent shares plummeting.
Conseco a year ago sued Dick in Boone County in an attempt to collect the $27 million in interest it says he owes on the loans. It's trying to collect the $70 million in principal in a separate lawsuit in Illinois.
In the Boone County case, Dick has raised a range of legal defenses he thinks should extricate him from the debt. He argues, for instance, that "change of control" language in loan documents should nullify his debt and that language in another document forces Conseco to extend to him the same breaks it gave smaller borrowers.
Former Conseco CEO Steve Hilbert raised the same defenses in a Hamilton County case against him, but Judge Judith Proffitt rejected them late last year. She granted Conseco's motion to prevail without a trial, and ordered him to pay $72 million, the interest Conseco says he owes on his $162 million in loans. Hilbert is appealing.
Rollin, now 73, has so far fared better in his case. Judge David last month rejected Conseco's motion to prevail without a trial. However, at the same time, he also rejected a motion by the Dicks' attorneys to toss out allegations the couple committed fraud.
Conseco charges Rollin deceived a Conseco attorney in the fall of 2000 in order to get the loans put in his name only, a move attorneys for the Dicks say eliminated Helen's and daughter Tami's personal exposure to the massive debt. The Dicks deny doing anything improper.
Oslan said Dick had little reason for concern about the loans while he and Hilbert were firmly in charge of Conseco. Because they and other big borrowers were directors, he said, the board wouldn't have done anything to push borrowers into financial ruin.
But by April 2000, Oslan said, Dick realized he was going to be forced out and that he was in a worse predicament than many other big borrowers, because they had not put spouses or children on their loans.
"It was a question of, in effect, the entire family assets of Rollie Dick being subject now to a decision that would be made not by Rollie Dick and his friends, but rather new people controlling Conseco," Oslan said in the Jan. 4 hearing. "So he had a crisis."
In court records, Conseco charges that on April 20, eight days before he resigned under pressure, Rollin removed Helen and Tami as general partners of partnerships on the hook for the loans.
Then, in July, he eliminated the partnerships altogether, Oslan said. "You step back and say, 'How do you do that? These were legal entities that were actually the borrowers [and] he didn't tell anyone for months," he said.
Later that summer, Conseco alleges, Rollin and Helen swapped assets, a move Conseco says left him with speculative and worthless assets and her with stock in publicly traded companies.
In September, Rollin informed Conseco in a letter that he had dissolved the partnerships, and he asked that the loans be reissued in his name only. In reference to both partnerships, the letter includes this line: "This was a family limited partnership, of which I was the sole general partner."
Attorneys for Dick said the statement was true, since he had been the sole general partner in the final months the partnership existed. But Oslan said, "Only a lawyer could say that was a true statement. ... It was a statement that was carefully drafted ... with one purpose in mind-to deceive Conseco."
Based on the letter, Conseco attorney Kathleen Kiefer had the loans reissued in Rollin's name only, company attorneys say. They say she never would have done that had she known she was extricating Helen and Tami from liability. Kiefer, now with Ice Miller, could not be reached for comment.
Attorneys for Rollin counter that he had made dozens of monthly filings with the company that showed who else had been general partners. They say the information sat in files in Conseco's legal files but that Kiefer didn't check.
"The corporation had knowledge, and whether or not [Kiefer] says she was personally deceived is an irrelevancy," Linda Pence, an attorney for Helen Dick, said during the Jan. 4 hearing.
Conseco says Helen, Rollin Dick's wife since 1951, now has $20 million to $40 million in assets, while Rollin has about $7 million. The company says that if it prevails on the fraud claim, Helen would share liability for the loans.
As part of the suit, which is scheduled to go to trial in April, Conseco is seeking to reverse millions of dollars in asset transfers from Rollin to Helen, charging he did not receive equivalent value in return. The company also wants to reverse other transfers it charges were intended to evade debt.
Attorneys for the Dicks say all transfers were proper.