Sinners and Saints

Some of our Arizona Legislators continue to turn a blind eye to victims who have lost millions of dollars to dishonest Facilitators acting as Qualified Intermediaries for Internal Revenue Code 1031 Property Exchanges.  (A taxpayer may completely defer payment of taxes by structuring a sale as an exchange in accordance with IRS Code 1031)

Some of our Legislators continue to turn a blind eye to the huge economic benefit for Arizona if Senate Bill 1333 were to be passed!  Bank deposits in Arizona as of June 30, 2009 (last figures available) were in excess of $82 billion.  I believe this legislation alone, could bring $12 billion to $15 billion more to Arizona in deposits to help create jobs at the very time we are facing a devastating revenue shortfall. 

I’ll tell you a story about what happened to the bill that you couldn’t possibly believe until I show you proof right from the Arizona State Senate files. 

Without as much as a hearing SB1333 became a bill to “regulate canneries, fertilizer plants, refineries, commercial feed lots, meat packing plants, tallow works, energy parks and other like businesses.”   See this sick “Strike everything after the enacting clause” joke for yourself at http://www.azleg.gov/FormatDocument.asp?inDoc=%2Flegtext%2F49leg%2F2r%2Fproposed%2Fs%2E1333tv1%2Edoc%2Ehtm.

Roughly $185 billion was processed by Exchange Facilitators in 2008 in the U. S.  Although, Federal Law mandates that each exchange must be executed with the services of a Qualified Intermediary, the QIs are not audited or otherwise monitored by any federal regulatory body. 

The risk of loss is great, but unnecessary if some of our legislators would wake up.   This is the second Legislative session that I have asked for this bill to be introduced hoping to be the first state to act.  Since then four states have provided the leadership to regulate this process; Nevada, California. Washington State and Colorado.

The defense of the QI that lost their clients $120 million dollars in Nevada by comingling personal and company monies with clients’ funds was, “There was no regulation of what could be done with the funds.”  The Nevada legislature did not act to protect its citizens until after this loss. 

We should move without delay to become the fifth state to establish standards for QIs.

Losses in Arizona have happened and more are inevitable!   I personally know of a bank president who was approached with an offer to use client money as collateral for personal loans for the owners of a QI.  Absolute power over money corrupts.  We don’t need to wait until after the fact to regulate.

In December 2008 the QI of LandAmerica filed bankruptcy with over $400 million of consumer funds.  The monies are now in limbo and may never be seen again due to commingling and improper investment under LandAmerica’s control.

Arizona consumers, inundated with a flood of downward economic trends, should not have to risk money entrusted to Qualified Intermediaries that due to a lack of both federal and state legislation are riddled with intentional and unintentional fraud.  QIs are not required to be bonded, insured, or even licensed.  This regulatory void has left unscrupulous and incompetent QIs with doors wide open for malpractice or outright fraud.  Your money becomes their money to do with as they wish!

Arizona must move quickly to become one of only four other states in the nation to bring regulation to this important business function.  Our state could be seen as a safe haven and a home to billions of dollars of 1031 exchanges bringing relocations, assets, tax revenues and jobs to Arizona.  Funding will be needed for the Arizona Department of Financial Institutions to oversee this industry.