Tennessees’ “Martin Ruling” Linked To Madoff’s Techniques

“THE MARTIN RULING” IN TENNESSEE GIVES THE OK TO HIDE LEGAL & FINANCIAL RECORDS

Special to www.stopprobatefraud.com

Williamson County Tennessee Judge James Martin III

This is Part 3 in our “anatomy of fraud” series that details the big changes in Tennessee’s legal and accounting laws rising from “The Martin Ruling” delivered by Judge James Martin III (shown left).

If you missed parts 1 and 2 you may read them here:

http://www.stopprobatefraud.com/blog/2018/10/26/big-changes-to-tennessee-probate/

and here:

http://www.stopprobatefraud.com/blog/2018/11/16/tennessees-new-rules-for-fraud/

RECAP: When Leiper’s Fork resident Woody Darken died, the court installed his wife, “Miss Cherry Lane,” as the estate administrator. His children were trustees of both his estate and the family’s trusts that had been constructed by the firm Lassiter, Tidwell, Davis, Keller & Hogan, (which is now called

Wm Lassiter, partner at Nashville’s Farmer, Purcell, Lassiter and White

Farmer, Purcell, Lassiter and White, the home of Nashville’s former mayor Bill Purcell.)

Court records detail that the executor had signed a pre-nuptial, but wanted more money. To accomplish her goal, she worked the the firm to hide years of legal and financial records from the trustees and the courts. Here are some details of how the fraud played out:

THE DETAILS OF FRAUD:

According to court records, the trustees met with their lawyer, Randle S. Davis, the senior managing partner of the firm at the time. Court records detailed that Davis told the trustees that their father’s affairs were “cut and dried” and directed them to get their family’s legal and financial records from their father’s office.

But when they went to their father’s farm to get the family’s records, the executrix refused to release the files.After being denied their family’s records, the trustees called the firm and told Davis that the executor was hiding the files.

The firm had key pieces of the family’s legal and financial records in their office, but they too worked with the executrix to hide files from the trustees when they asked for them.

Instead, they excused the executrix’s behavior and directed the trustees to try a second meeting with her. This was the trustees’ first estate accounting experience and so they took the firm’s advice and agreed to a second meeting.

SUBSTIUTION FRAUD: BERNIE MADOFF’S LINK TO LIEPER’S FORK

Trial testimony details that at the second meeting, the executrix again denied the trustees access to the family’s actual records:

But this time, in place of the actual legal files and accounting statements she offered a two-page summary of accounts in a “flow chart” that she had constructed while hiding the actual records from the trustees.

In the world of fraud, this is called “substitution” and it was a tool in the frauds used by convicted Wall Street con-man, Bernie Madoff.

Substitution is a fraud where something bogus is substituted for the real thing. It is used in “cons” ranging from auto repair shops that substitute an old part for new one, to an art broker substituting a forged work for an original. In Madoff’s case he produced fake brokerage statements that gave an inflated, fraudulent accounting of his clients’ assets. He substituted those fake statements for the real ones.

This leads to a second key element in Madoff’s substitution fraud: Madoff was able to sustain his fraud by controlling access to real, legitimate records. For years he used a variety of techniques to deny his clients ability to audit their actual accountings. And so they remained duped.

MADOFF’S TECHNIQUES USED IN TENNESSEE’S COURTS

In nearly all states, an executor, or estate administrator is “deputized” by the court to have full control of the legal and financial affairs in the estate. Just like Madoff, the executrix in Tennessee and her attorney were able to use their court-power to control access to the accounts of the estate and stop the trustees from doing an audit.

But in the Tennessee case, there was a subtle twist: At first glance, a list of accounts from the executor of an estate appears to be a legitimate “accounting.” But fraud examiners know that the core of a fraud is rarely seen in what is presented—but is seen by discovering what is missing, hidden or left out.

The executrix’ refusal to provide a transparent audit of the records remained a red-flag to the trustees, and so they persisted.

After more than two years in Tennessees’ courts Judge Timothy Easter ordered the executrix and Davis to give the trustees their family’s documents.

Like the Madoff frauds, once the trustees had access to the actual records, the truth came into focus. The fraud was revealed in what had been left out of the accountings. Among the assets not listed in her accounting were thousands of shares of stock, gold, art, loans, and whole trusts.

“THE MARTIN RULING” TAKES TENNESSEE IN NEW DIRECTION

But the links between Leiper’s Fork and Wall Street end there.

In 2008 Madoff’s ponzi scheme collapsed. Madoff pled guilty, and a federal judge in New York sentenced him to 150 years in prison.

But Tennessee’s courts saw it differently. “The Martin Ruling,” named after judge James G. Martin III who presided over the breach of fiduciary duty trial, takes the Volunteer state in a new direction.

Appointed in 2008, Judge Martin serves in Tennessee’s Twenty-First Circuit Court which includes Hickman, Lewis, Perry, and Williamson counties in Tennessee.

Martin is a veteran of the Vietnam war, as well as a veteran in the law, with nearly half a century of experience in public and private practice. After graduating at the top of his class from Vanderbilt law school in 1974 he began his career as an assistant city attorney for Franklin, Tennessee. In 1976, he joined the firm of Farris, Evans and Warfield where he remained for thirty-two years. That firm later merged with Stites & Harbison, where Martin was a partner until his judicial appointment in 2008.

Martin was appointed by democrat governor Phil Bredesen, but runs as a Republican.

In his decision judge Martin “ruled for the defendant (executrix)” even though she did not deny any of the breach, concealment or accounting frauds presented at trial. In allowing this, the judge established that it was not fraud, obstruction of justice or even a breach of fiduciary duty in Tennessee for an officer of the court to pay a law firm to help hide legal and accounting records from trustees and beneficiaries of an estate.

The trustees appealed Martin’s decision, but the Tennessee court of appeals confirmed Martin’s logic.

The court’s ruling means that fiduciaries and officers of the court in Tennessee no longer need to deliver full disclosure and transparency to their clients, beneficiaries or principals. “The Martin Ruling” makes Tennessee the only state in the nation with these rules.

It also means that beneficiaries and trustees of estates have been stripped of the long-held right to audit the accountings of fiduciaries and officers of the court. People doing business in Tennessee must now accept whatever access to accountings that fiduciaries choose to offer, making the state a fertile place for fraudsters like Madoff.

TENNESSEE’S ATTORNEY GENERAL, PURCELL’S FIRM SILENT:

Tennessee Attorney General Herbert Slaterly III

The SPF editors asked for comment from attorneys Bill Purcell, William Lassiter and Elizabeth Ryder Sykes, who are partners at Farmer, Purcell, Lassiter and White. We received no response.

The editors contacted the press office of Tennessee’s Attorney General Herbert Slaterly, III. They did not comment on the ruling.

To learn more about spotting and stopping fraud in probate, trusts, estates and guardianships, visit www.stopprobatefraud.com or contact the volunteers at stopprobatefraud@gmailcom.

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About Edmund Burke 89 Articles
Volunteers working to help people spot, stop and recover from fraud and corruption in probate, trusts, estates & guardianships.