Tennessee’s New Rules for Fraud

Details of Tennessee's New Estate Fraud Rules

EDITOR’S NOTE: 

THIS SERIES IS ABOUT PROTECTING YOUR FAMILYS

ASSETS IN THE WAKE OF

NEW RULINGS FROM TENNESEE’S COURTS

FRAUD’S RED FLAGS

Publication date: November 16, 2018

Special to www.stopprobatefraud.com

This is Part 2 of the story of “The Little Case From Leiper’s Fork.” If you missed Part 1 you can read it in full here: http://www.stopprobatefraud.com/blog/2018/10/26/big-changes-to-tennessee-probate/

Recap of Part 1: An overview of the tiny accounting case of an estate in Leiper’s Fork that has brought big changes in the laws governing both legal and financial relationships in Tennessee. In the case, the executor of the estate partnered with the law firm of Lassiter, Tidwell, Davis, Keller & Hogan (now known as Farmer, Purcell, Lassiter & White) to hide the family’s legal and financial records from the trustees. Williamson County Judge James Martin III ruled that in Tennessee, it is legal for fiduciaries and officers of the court to hide legal and accounting records from the principals of an estate or financial transaction. Tennessee’s court of appeals upheld Martin’s ruling.

In Part 2 of the series, we start to catalog the many changes coming from the “Little Case from Leiper’s Fork.” 

PART 2: RED FLAGS FOR FRAUD

After Woody Darken died, his surviving wife called “Miss Cherry Lane” in court documents, was sworn in as executor of his estate. The executor is a “deputy” of the court and was given sole access to Darken’s legal and financial records. It’s a common event that happens thousands times a year in Tennessee.

While the executor began work on Darken’s estate accountings, his two sons, Brett and Eric Darken met with their lawyer, Randle S. Davis.

Nashville Attorney Randle S. Davis

Davis was an attorney at Lassiter, Tidwell, Davis, Keller and Hogan, which now is called Farmer Purcell Lassiter & White, the business home to Nashville’s former mayor, Bill Purcell.

At trial, Davis described himself as the “senior managing partner” of his firm and an expert in estates with scores of clients. He had been the lawyer for three generations of the Darken family and was the lawyer in charge of the estate accountings for three family members who had already passed.

Court transcripts show that the trustees met with Davis after their father’s death and Davis assured them that their father’s affairs were “cut and dried.”

Davis had written Woody Darken’s portion of the pre-nuptial agreement signed by Darken and Miss Cherry Lane. Trial testimony details that at their first meeting, Davis told the trustees he had a copy of their father’s pre-nuptial in his files, and he would give it to them.

The trustees never had been involved in an estate accounting, so Davis told them that the next step in the process was for them to go to their father’s farm, meet with the executrix, and get their family’s trust, legal and financial records. The trustees did as Davis told them to do.

ACCESS DENIED

Case transcripts detail that the trustees drove together to their father’s farm in Leiper’s Fork expecting a cordial meeting, a review of her work on the estate, and to do what Davis had told them to do.

But when they arrived the trustees were met by an executrix who not only denied them access to their father’s office, she refused to give them any of the paper records or even the computer used by their father to run the family’s investments.

The trustees left the meeting empty handed. The estate that Davis had said was “cut and dried ” had just triggered a red flag for fraud.

RED FLAGS FOR FRAUD:

According to the Association of Certified Fraud Examiners it’s normal that suspicions are triggered when records are missing or concealed. The ACFE is the world’s largest professional organization dedicated to fraud prevention,detection and recovery. Based in Austin, Texas the group has 80,000 members worldwide.

Mandy Moody is a certified fraud examiner. Writing in ACFE’s “Insights” magazine, Moody says that people involved in fraud “…often exhibit certain behavioral traits or warning signs associated with their illegal activity.” In their “Report to The Nations” the ACFE found that one of the top five behaviors of fraudsters is “excessive control issues or unwillingness to share duties.”

Jodi Chavez is the author of the “Top Ten Red Flag Warnings of Fraud.” Chavez is the president of Randstad Professionals in charge of staffing accounting and financial professionals in Newport Beach, CA. She writes that the No. 1 thing on her list of triggers for fraud is “missing documents…,” which, she says, “should raise suspicion and may require a more in-depth examination.”

While the trustee’s suspicions were triggered after their Leipers Fork meeting, they were denied further examination of their family legal and accounting files for more than two years.

BIG CHANGES IN TENNESSEE LAW:

At the trial over the executrix’s breach of fiduciary duty, Davis testified that boxes of trust, legal and financial files had been withheld from the trustees. The executrix did not deny hiding the records from the trustees and the court.

Williamson County Judge James Martin III

But Judge James Martin III ruled that in Tennessee, it’s no longer fraud or even a “breach of fiduciary duty” when a court officer or fiduciary hides trust, legal and financial records from principals. Martin’s ruling is a big shift from long-established law and the trustees appealed Martin’s findings. The trustees were again on the losing side of the fight when the Tennessee Court of appeals upheld Martin.

The new rules rising from the court’s decision  in the “Little Case From Leiper’s Fork” impact nearly all residents of Tennessee. Every financial and legal and professional in the Volunteer State will be directly affected, from agents and managers in the music business to student-loan brokers and of course families trying to plan their estates.

ACTION SUGGESTIONS:

In states outside Tennessee, hiding legal and financial records still are

considered red-flags for fraud. If you are getting an “access denied” message

from a fiduciary it is wise to trust your instincts and contact your family’s accountant or

the Association of Certified Fraud Examiners at (800)-245-3321.

Next in Part 3 of the series: Linking the “Little Case In Lieper’s Fork” with convicted Wall Street fraudster Bernie Madoff.