Trusts and the Untrustworthy
"Pure Trusts" and "Patriots for Profit"
|Mark Pitcavage, Ph.D.|
By Mark Pitcavage, Ph.D.
last year the bank acted on a levy from the irs. the levy was directed to me personally. the bank turned over funds that were in a non-grantor pure trust organization bank account. the bank was notified on various occassions that me and the trust are seperate entities etc. they -of course- ignored everything. tried suing the bank using a para-legal but got bogged down in muck. i would like to sue the bank, but need a good attorney to take this on. are there any attorneys who work well with the patriot philosophy?
Mike Kaye, the unfortunate "manager" of a "pure trust organization" whose plea for help is shown above, is a victim. Interestingly, Mike Kaye knew himself to be one, but mistakenly believed the victimizers were the Internal Revenue Service and his bank. On the contrary, those institutions were merely doing their jobs, odious as those jobs might have been to Mike. The true victimizers were the people who sold a "pure trust" to Mike in the first place, making extravagant claims about privacy, asset protection, and possibly income taxes. Mike took them at their word, put his assets in a "pure trust," then eventually discovered--as most people in Mike's situation eventually do--that his trust could actually do none of the things its proponents claimed for it.
Mike was the victim of a scam; that is, an attempt by one person or group to cheat or swindle others. Rather than simply taking people's money at gunpoint, scammers convince people to give it to them willingly. They spin a tale, promising exorbitant rewards or benefits, none of which can actually be realized. Swindlers, scammers and confidence men have been around since prehistory, but they have recently gained an ultramodern ally to help them in their deceptions: the Internet. Almost as soon as use of the Internet broke out of the cloistered university environment and began reaching mainstream America, scammers began using it as a tool. This has been especially true since 1995, when use of the World Wide Web became incredibly popular. In fact, 1995 was when some of the first prominent Internet scams gained publicity, such as the "two-cent stamp" scam. This was an electronic version of a much older scam. In the old version, the swindler mails letters (using two-cent stamps) to a large number of people that tells them they can legally use two-cent stamps for all their mailing needs. It cites (long obsolete) law in its favor, and notes that if it were illegal, then the post office would not have delivered this letter. For a fee that ranged from $10 to $70, they would tell people how to do it. Of course, the scammers send out their letters in large numbers, knowing that some will naturally escape the post office's ability to detect proper postage. The Internet version skips the actual mailings entirely--thus eliminating that cost--and simply posts the spiel and the offer. A woman named Susan Dean, head of "Dean's Executive Publishers, Inc.," but actually a long-haul trucker, was the entrepreneur who updated the old scam to the electronic age. She sold her "info packets" for $15 each until she was stopped.(2)
Susan Dean, however, was merely the first of a wave of con artists who moved their activity to the Internet, using e-mail, Usenet discussion groups, and most importantly, the World Wide Web to get their messages out. Such scams now number in the hundreds, perhaps even thousands, and have the ability to take in millions of dollars annually. The amount will grow tremendously in coming years unless particular care and vigilance is taken.
This report is about one such scam, the "pure trust" scam, which has migrated to--and flourished on--the Internet. "Pure trust" schemes are those in which people are convinced to place all of their assets into a number of trusts of dubious legitimacy in order to hide their assets from creditors and tax collectors. This report explains the primary targets of the scam, the nature of the "product" offered, the pitch the scammers use, the true status of such trusts and the consequences for those people who actually purchase "pure trusts." It also describes other, related scams and frauds that are similar to are aimed at a similar audience, and offers a few suggestions as to ways to help solve the problem.(3)
The "Patriot" Community
Practically anybody has the potential to become the victim of a scam.(4) A con artist can simply approach person after person until he or she finds a willing victim or can broadcast the pitch as widely as possible in the hopes that it will reach an appropriate number of potential victims. However, a con can be far efficient --and more lucrative--if the pitch is aimed narrowly at an audience that may be particularly receptive to such a con. In this report, such audiences are labeled vulnerable communities. Vulnerable communities are groups of people which, for demographic, ideological, religious or other reasons, are particularly likely to be taken in by a particular type of pitch or swindle. Con artists know that if they target vulnerable communities they are more likely to find more victims with less effort.
What are the most prominent vulnerable communities? Essentially there is one broad community--the elderly--and a number of more specific communities. The elderly are by far the largest and most vulnerable community. The typical elderly victim is quite advanced in age, lives alone, and can easily be either confused or intimidated. Often such victims have no one readily available to whom they can turn for advice or support; consequently they are vulnerable to seductive pitches from con men who specialize in targeting the elderly. Particularly troublesome in recent years have been telemarketing scams aimed at the elderly.(5) A second large vulnerable community consists of recent legal or illegal immigrants to the United States. An entire industry of swindles exists to separate from immigrants the dollars they have earned. Recent immigrants may have significant language problems and have little understanding of American law or government. They may also, if they are illegally present in the country, be afraid of law enforcement or other authorities. As groups, immigrant communities tend to be relatively insular and thus vulnerable to pitches from swindlers who have access to that community. As a result, many swindlers are of the same ethnicity as the people they swindle.(6) The third large vulnerable community consists of people who are devoutly religious, particularly in evangelical Christian denominations, and thus receptive to pitches from people or organizations which purport to be theologically aligned. A more mainstream version of such vulnerability can be seen in the millions of dollars sent yearly to televangelists, a number of whom have been proven not to have charitable ends in mind for the money. Some religious denominations are even more vulnerable than others, such as the Amish and Mennonite communities, which not only are receptive to many pitches, but will often refuse to cooperate with prosecution or investigation of such frauds.(7)
These three vulnerable communities--the elderly, recent immigrants and the devoutly religious--are widely known to be potential victims of cons and frauds. News stories appear almost every week about one or another of these groups being targeted by some unscrupulous individual. However, a fourth vulnerable community has received very little attention (in this regard, at least) from the media or law enforcement authorities. This is the so-called "patriot" community or "patriot" movement. It consists largely of people who are, in essence, right-wing extremists. The various wings or subgroups of the "patriot" movement include militias, common law courts, "sovereign citizens" or "freemen," tax protesters and white supremacists, as well as other groups not so readily categorizable. The members of this movement overwhelmingly tend to be anti-government in sentiment. With the rise in membership and activity in this movement after the incidents at Ruby Ridge and Waco in 1992 and 1993 respectively, "patriots" have repeatedly been in the news. Few have not heard of Timothy McVeigh, the Montana Freemen, Richard McLaren and the Republic of Texas, or Aryan Nations. However, this is exactly the context in which the "patriot" movement is usually portrayed: as a source of domestic terrorism or other criminal activity. Very little attention is spent to the fact that members of the movement are also quite frequently victims, that they themselves represent an addition, significant vulnerable community.(8)
One might initially think the "patriot" movement, given its reputation for suspiciousness or even paranoia, would be an unlikely candidate for vulnerability to frauds and deceptions. Of course, many are elderly or devoutly religious, and thus are members of other vulnerable communities as well. Many, too, live in rural areas and are not particularly well educated, which potentially could make them vulnerable to certain types of deceptions. But far more important is the fact that "patriots" tend to possess a number of qualities that make them particularly receptive to the pitches of swindlers. These characteristics include:
"Patriots for profit" are people who exploit the "patriot" movement for personal gain. While some may do so cynically, believing little or nothing of what they say, a great many of them are actually sincere in their anti-government views (and often have a record of anti-government activity). They simply are not averse to dipping into the pockets of their fellow "patriots" for a little quick cash. There is no clear division between "patriots for profit" and others in the movement. There are, for instance, any number of extremists who make their living catering to the movement by selling books, supplies, seminars or bumper stickers. There are others who host shortwave radio shows --sponsored by coin companies--that predict imminent catastrophe and try to frighten people into investing in gold and silver. There are still others who make a living on speaking engagements and seminars aimed at the "patriot" community. The "patriots for profit"--who tend to offer "goods" which either possess no value at all or tend to lead to adverse consequences--blend in among the other groups seamlessly.
"Patriots for profit" have been around as long as the "patriot" movement itself has, but the 1990s have produced a number of very prominent schemes. Many "patriot for profit" schemes center around income tax evasion. Because the "patriot" community is so united against the income tax and tax protesters make up a prominent portion of the community, a number of would-be swindlers offer various tax avoidance schemes for sale at exorbitant prices, none of which, not surprisingly, actually work. One of the most prominent such schemes was that promoted by the Pilot Connection Society. Based in Stockton, California and headed by Phillip Marsh, the Pilot Connection Society held seminars and even barbecues designed to get people interested in their "untax" kits in the early 1990s. One IRS spokesman called it "one of the biggest, if not the biggest, illegal tax protest group in the country." The Society sold kits that promised to explain "How to Un-Tax Yourself" (involving filing false W-4 forms with 50 exemptions), as well as offshore trust accounts. Like many of the larger "patriot for profit" groups, the Society operated with "associate members" who paid several thousand dollars each for the privilege of operating Society franchises. The Pilot Connection Society had at least 300 "associate members" and over 9,000 (some estimates ranged as high as 17,000) "clients" nationwide. Prices for the "products" varied widely, perhaps depending on the whims of the associates, but often cost between $1,200 and $2100 apiece. The Internal Revenue Service, after executing search warrants on its offices in several states, claimed that Phillip and Marlene Marsh received between $1 and $6 million in 1991 alone. The success of the Pilot Connection Society, moreover, created several "copycat" groups such as Certified Untax Consultants in Texas, the Federal Research Institute in Nevada, and the Society for Truth and Freedom in New York. By the end of 1993 it was operating in all fifty states and had grossed more than $10 million since 1990. Eventually the Marshes and six associates were indicted on multiple counts of conspiracy, tax evasion and mail fraud. U.S. Attorney Michael Yamaguchi characterized the group's activities well when he claimed that they were selling "snake oil." "They're essentially preying on the gullibility of people," he said. "That's the mark of a great con…Their own common sense should have told them that, if you could file papers and drop off the tax rolls, why isn't everyone doing it?" Thousands of the group's members ended up investigated by the Internal Revenue Service, much to their dismay.(9)
Of all of the "patriot for profit" schemes of the 1990s, perhaps the most ambitious one--and the scheme which reveals most clearly how vulnerable the "patriot" community is to such fraudulent promotions--is the one masterminded by Roy Schwasinger, head of a group called "We the People." Schwasinger was a former Nebraska meatpacker who became involved in anti-government activities associated with the Posse Comitatus and similar tax protest and "patriot" groups. Schwasinger developed his speaking skills addressing meeting rooms filled with angry farmers. At some point, however, Schwasinger came up with a rather novel way to extract money from his audience members.
Schwasinger brought good news to his audiences and to the recipients of his flyers. In August 1992, audiences were told, Schwasinger filed a class action suit against the United States because he had discovered that the United States had gone bankrupt in 1933 and most of its actions since then were illegal. The Supreme Court, he claimed, ruled in his favor, against the United States government, to the amount of $600 trillion. In fact, Delta Force commandos had recently brought that amount of "fraud money" back from overseas banks to the U.S. Treasury so that it could be paid back to the people of the United States. Anybody who was a U.S. citizen and had paid income or property taxes, had suffered a loss in a financial transaction where interest was paid, had ever had an adverse judgment, tax lien, or any of a number of other common circumstances, could submit a claim. Claimants could receive an average of $20-$40 million each; even children could file claims. And it would all be tax-free. Conveniently, Congress appointed We the People to process the claims for this suit. All it would take to become a party to the suit was to pay $300 to the "Claims Writer" to cover "the cost of meetings, paperwork, phone, travel, office space, etc."(10)
At times it seemed as if Schwasinger and his followers were attempting to see just exactly whether or not there was a limit to what outrageous claims his audiences would believe. The "missing" Thirteenth Amendment would be "enforced," and "all elected and appointed officials who are lawyers will be sent home, except for those that will be tried for treason. This will include Clinton and all past living presidents." No judges were legally judges. Janet Reno had fired all U.S. Attorneys. The "districts" of Canada would become new U.S. states. In a videotape of one of Schwasinger's presentations, he claimed that he and his unit "have a license to kill people" and that the organization recently took 170 judges and attorneys to a secret base and executed them. Schwasinger also claimed to "wear a transducer which emits a signal to Congress." One We the People audiotape claimed the development of a gold molecule that could make steel beams levitate and that Christ used this power to heal the sick.(11)
Eventually the law caught up with Schwasinger, but not before he (and his "associates," who would keep one-third of the $300 fees they collected and send the rest to Schwasinger) raked in millions of dollars from all fifty states and two provinces of Canada. Not everybody who attended the meetings organized by Schwasinger and his followers were swayed, but a surprising number of people fell for the pitch. One North Carolinian who attended a Schwasinger meeting called his assertions "outrageous," but noted that he "actually saw people, incredibly, sign up for this." Actually, more than a few people signed up. In $300 increments, Schwasinger grew rich. From Colorado We the People took in more than $385,000. From Oklahoma, probably another $400,000. From Iowa and Michigan nearly $2 million more. Federal officials identified at least 6,832 individuals who had fallen prey to the scheme, with an unknown additional number. Schwasinger eventually received convictions in Texas and Colorado and a lengthy prison term; followers of his were prosecuted in several states. However, most of the money was never recovered.(12)
The We the People episode reveals in startling clarity how vulnerable the "patriot" community is to the pitches of conmen and swindlers. Two issues merit particular attention. The first is that there seemed to be no limit to the outrageousness of the claims that Schwasinger could make and still make conversions. Because Schwasinger obviously came from the community and could speak its particular language, "patriots" required a far, far lower burden of proof from him than from, for instance, a government official warning them against such a scheme. Second, investigators and prosecutors in the various states which tried to stop We the People found it extremely difficult to get victims to testify against its members. Some may have been embarrassed, while a few were inevitably in denial or still hoped that the group's claims were true. However, the majority seemed simply to resent the government far more than they resented Schwasinger and his group, even if they had been cheated by them.
One last facet of the "patriot" movement as a vulnerable community deserves mention. Especially since 1995 the Internet (and in particular the World Wide Web) has opened up an entirely new medium of communication. Of the vulnerable communities mentioned here--the elderly, immigrants, fundamentalist Christians and "patriots"--most have not made the translation to the Internet. The elderly and recent immigrants face obvious barriers in terms of learning curves, language barriers and perhaps economics. Vulnerable Christian groups are just now beginning to make the translation to the Internet and in the future will undoubtedly be present in force. But the "patriot" movement has been on the Internet for years in considerable force. As a result, Internet-based pitches to the "patriot" are already large in number and are growing at an incredible rate. Of these pitches, one of the most frequently seen is that for the "pure trust."
The Pure Trust Pitch
The basic premise behind the "pure trusts" (they are known by a variety of other names as well, including common law trusts, pure equity trusts, Massachusetts trusts, unincorporated business organizations, etc.) is disarmingly simple. One creates one or more "trusts," then transfers one's assets into them. On paper, the former owner is now the "manager" of the trust and "manages" all of the trust's assets for it. The former owner no longer owns any assets at all--and thus cannot lose them to creditors, tax collectors, etc.--but manages to retain the use of, benefits from and income generated by all of the assets. It sounds too good to be true--and indeed, it is not true, as will be seen. But the marketing of such "trusts" has become a major industry among scammers targeting the "patriot" community.
Purveyors of pure trusts want people to "purchase" trusts from them. To do so they must overcome a variety of obstacles in order to convince others that they are a worthwhile purchase. Consequently, most advertisements on the Internet (or printed brochures) will attempt to convince people of at least four things: 1) pure trusts are legitimate and legal; 2) pure trusts are secrets used by the wealthy to protect their assets; 3) pure trusts guarantee privacy; 4) pure trusts provide asset protection; and 5) pure trusts provide a means of tax reduction or avoidance. While some trust advertisements include additional pitches, these are the five that are nearly always seen.
Of the five, perhaps the most important is that the trusts are seen to be legitimate business instruments. This is a natural prerequisite to getting people to open their pocketbooks. As a result, many trust spiels include lengthy sections intended to reassure prospective buyers about the trusts. Often advertisements will include a "history" of the pure trust in order to show what a long and established institution the pure trust is. Not surprisingly, these histories do not all agree with each other. But they all agree that pure trusts are a wonderful thing. One trust purveyor, The Worthington Group, claims that the pure trust can be traced all the way back to Hellenic Greece. "Plato used a non-profit trust to finance his university in Greece approximately 400 BC," reports its literature. "Trusts were known in Roman law as well. In England trusts were in use as early as the 11th century, and by the 15th century were being enforced by English Courts of Chancery." Another purveyor has a slightly different version of history: "during the Roman Empire, about 800 AD [the Roman Empire "fell" in 476 AD], the pure trust, from which the contractual company evolved, was developed. It became the preferred method of establishing ownership and management of property on the European Continent during the Middle Ages." (13)
At some point, in any case, the trust came to England, where "knights of the Round Table" used it to protect their property when they left to join in the Crusades. "Over the years," asserts the literature, "many version [sic] of pure trust were developed, but their basic goals remained to preserve English family estates and to keep them out of the hands of the King." In North America, the pure trust allegedly arrived with the colonists. Actually, pure trust vendors simply take any historical mention of a trust and convert it magically into a "pure trust." Thus Patrick Henry is said to have created a "pure trust" or "common law trust" for Robert Morris in 1765 called variously the American Land Company or the North American Land Company. Another early American alleged to have a "pure trust" was William Bingham, a wealthy landowner and Senator from Pennsylvania, who purportedly put two million acres of land into the trust. Indeed, suggested one proponent with an expansive imagination, "the Constitution, the great governing document of this nation, is written like a trust." (14)
The various "historical" accounts of pure trusts are usually just preludes to the subject of the Constitution, for it is in a strained reading of the Constitution that most pure trust proponents derive their arguments for legitimacy and legality. Pure trust vendors claim that there are two classes of trusts. The first class of trust is that into which basically all legitimate trusts (living trusts, discretionary trusts, etc.) fall. Vendors call these trusts "statutory" trusts because they "derive their existence from Congress and can be altered, amended or revoked by Congress." Pure trust proponents have little regard for these "statutory" trusts. They prefer their second category of trusts, the "contractual trusts." Virtually all pure trust arguments hinge on the notion that they are somehow protected by the contract clause of the Constitution (Article I, Section 10: "No State shall…pass any…law impairing the obligation of Contracts."). Proponents argue that this clause of the Constitution means that neither the federal government nor any state can regulate or make legislation on anything arranged by contract. Since pure trusts are created solely through contracts, this means that no legislative body can interfere in any way with the pure trust. Suggests Apollo Publishing International, "Average ordinary people are discovering the benefits and affordability of this uniquely versatile trust, which is created under the common law of the U.S. Constitution (Article I, Sect. 10). Though legally recognized all across this land, the Pure Contract Trust is not a statutory entity. It is neither created by nor governed by any laws passed by the various state or federal legislatures." In fact, states the vendor, "A Pure Trust is not some right wing radical anti-government protest. It is an exercise of your Constitutional right to contract." The Heritage Institute for Estate Planning would agree. "The Complex Trust is one of the most unique and effective estate planning entities ever devised. It is unique in that it is a privilege guaranteed by the Constitution of the United States. A Complex Trust is not governed by local or state law since it is first of all a Contract and your right to enter into a Contract is guaranteed in Article I, Section 10 of the U.S. Constitution and cannot be abridged by any state." Furthermore, the trusts "are not part of a tax revolt or a radical attempt to 'untax oneself.' These entities are soundly rooted in U.S. Tax Code and are as legal as a Corporation." (15)
Pure trust purveyors rarely stop there. They usually go on to provide a wealth of "supporting" pieces of evidence, which consists either of a string of out-of-context quotations from legal citations or a mish-mash of jumbled references that few laymen could possibly hope to look up. In this way it seems to the naïve that they are in fact providing evidence supporting their position.
American Legacy Resources, led by Arizonan Clifford R. Martin, prefers the out-of-context strategy:
"The US Supreme Court has recognized the validity of Business Trust [sic]: Navarro v. Lee, 446 US 458, 64 L.Ed. 425 (1980); also see Elliott v. Freeman, 220 US 178, 182; Hecht v. Malley, 265 US 144, 68 L.Ed 949, 44 S.Ct. 462. The Internal Revenue Service Manual MT9900-26 (1-29-5041), 5041.1 binds the IRS with recognizing the Business Trust in Regulation #301.7701-4(b). In the Restatement of the Law of Trusts, 2d, page 2, The American Law Institute also defines the Complex Business Trust.
"So in fact, we must turn to the Constitution, Article I, Section 10 that gives us the unlimited right to Contract. And you will find that a Complex Trust is simply a Contract whereby you exercise certain Constitutional privileges and rights." (17)
What both strategies have in common is that the average reader will not have the resources or the ability to investigate--or even to understand--the citations. They further share the practice of appropriating references to legitimate trusts and applying them to their variously-named sham trusts. The potential buyer has nothing to go on but the word of the vendor that the pure trusts are backed up in law. And, quite often, such references are spurious. The Weeks v. Sibley quotation above, for instance, appears nowhere in the actual decision. In fact, the term "pure contractual trust" itself cannot be found in the citation. Weeks v. Sibley is a relatively mundane case from 1920 about an oil and gas company which was sold and its assets conferred into a trust in order to avoid or lessen a certain tax liability. Nothing in the decision speaks to anything even remotely resembling "pure contractual trusts." Nevertheless, the spurious quotation appears time and time again in advertisements for pure trusts, often with the key terms replaced (substituting "business trust" for "pure contractual trust," for instance) to suit the advertisement.
The last strategy used to imply legitimacy is one aimed at suggesting a particular type of legitimacy. A significant component of the "patriot" movement's membership believes that the government, state and federal, is illegitimate. Such people believe that a longstanding conspiracy by power-hungry elites gradually replaced the legitimate ("de jure") government with an illegitimate ("de facto") government, one that is tyrannical and oppressive. This wing of the "patriot" movement is often called the "common law" movement or the "common law court" movement. Its members call themselves, variously, "state citizens," "sovereign citizens," "freemen," and "constitutionalists." The movement originated around 1970 with a tax protest group called the Posse Comitatus. By 1980 the Posse had developed an elaborate ideology centered around the notion of two governmental systems, one legitimate and one illegitimate. Posse members and their descendants believe that the legitimate system is one based on the "common law," while the illegitimate system is based on statutory law. Common law has a legitimate meaning in the United States' legal system, but the sovereign citizen belief system twisted it to mean something else entirely--generally speaking, a governing system of virtually no government, where there are no taxes, no regulations, no victimless crimes, and no unpopular laws enforced. Posse adherents believe that the illegitimate statutory system, primarily through the Fourteenth Amendment, tricks people into voluntarily giving up their "sovereign" status and becoming slaves to the statutory system. This surrender of sovereignty is done by entering into "contracts" with the de facto government, which includes using a social security card, a drivers license, or even a zip code. However, Posse leaders suggest that people can tear up all of those contracts and return to the "common law" system, becoming "sovereign citizens" who are immune to the jurisdiction of the de facto government's taxes, laws and courts.(18)
Because of the existence of this "sovereign citizen" philosophy, many purveyors of asset protection schemes, including pure trusts, try to use the language and phraseology of the "common law" movement in order to suggest compatibility with it. As Tim Richardson and "Johnny Liberty" put it, "being a sovereign state Citizen is the most important steps [sic] you can take to restore your liberties. It will take time, effort, and many courageous individuals to establish respect for sovereign Citizens once again. Having a Trust isn't going to offer you much protection if your life, liberty and unalienable rights have all been surrendered. Trusts are important if you have assets to protect, or if you want to reclaim your sovereign Citizenship." The widely advertised Liberty Pure Trusts (developed by tax protester Lynn Meredith and sold by "associates") go even further. After a brief discourse in constitutionalist philosophy describing the difference between "Constitutional jurisdiction" and "statutory jurisdiction," its vendors assert that "you may be shocked to learn that the PURE TRUST is not legal." However, they hasten to add, "the PURE TRUST is lawful." By lawful they mean that it is not illegal. The pure trust is lawful, "not because it has to comply with any tenants [sic] of the statutory law (because it does not), but because it is in compliance with the Constitution of the united [sic] States." In other words, Liberty Pure Trusts need not pay attention to the illegitimate, "de facto" government (the United States; contrast capitalization with the above), but rather comply with the purest form of American law of all, the Constitution. It is this sort of peculiar and arcane argument which appeals to many "sovereign citizens." (19)
At the same time, bizarre arguments about different systems of law and government, along with bold statements about lawfulness and legality, might frighten away potential customers. Consequently, many pure trust vendors attempt much more mild hints at common law compatibility, efforts that sovereign citizens will recognize but that will not scare away victims who do not adhere to notions of sovereignty. One way to do this is through the name of the organization, by using codewords such as "liberty," "patriot" or "sovereign." One California purveyor, for instance, uses the name "Sovereignty Pure Trusts." Other examples include "Forever Free," the "American Republic Trust Package," "American Citizens Trust Service," and "Unincorporated Sovereign Contract Trusts." Another relatively conservative tactic is to provide a pitch relatively devoid of "common law" ideology, but then to provide a "sovereign" postal address, such as this example:
The peculiar use of the phrase "Postal Zone" and the brackets around the zip code, as well as the use of the word "state" after the name of the state, are all indications that this is a "sovereign citizen" address--since sovereigns believe that using a zip code without some sort of protest is agreeing to a contract with the de facto government. Another example comes from the address on the brochure for Armorshield Universe pure trusts:
Again, the use of "Idaho Republic," "Non-Domestic Mail," asterisks around the zip code and the abbreviation for "all rights reserved" give notice that this is a sovereign address. Some trust purveyors use such addresses calculatingly, while others honestly believe in the sovereign philosophy. But all such addresses, trust names and other hints (some of which will be discussed below) provide identifying information. A few organizations are more conservative about openly identifying themselves with the "patriot" movement. A representative from the Commonwealth Trust Company admitted that "we are not a 'patriotic organization in the true sense.'" However, it made sure to mention that "we believe in many of the goals of the patriotic community." Most pure trust purveyors actively pursue "patriot" customers. (20)
Of course, no matter what strategy is used to imply legitimacy, it will all go to naught if potential customers consult estate or tax attorneys about the pure trusts. Any responsible professional will tell them that pure trusts not only can do few if any of the things advertised, but that they can have potentially very serious negative consequences. As a result, virtually all pure trust purveyors try at all costs to steer "patriots" and other customers away from lawyers and other professionals.
The vendors adopt a wide range of tactics. One of the most common is to suggest that attorneys are simply not knowledgeable about pure trusts because pure trusts are based on "common law" while attorneys are trained in "statutory law." "As you know," suggests Apollo Publishing International, "there is very little in print about this subject. Lawyers and accountants deal almost exclusively with statutory trusts and not with common law trusts. Their training is in statute law." "You may take this contract to a lawyer for review," suggests one advertisement, "although chances good he/she will not know what it is…The last law school to teach this information was the University of Oklahoma and they quit in 1954." (21)
Another strategy is to claim that lawyers will steer people away from pure trusts simply because if people use them it would mean fewer fees for lawyers. Why would your lawyer or CPA never tell you about "Constitutional Pure Trusts" asks Financial Fortress Associates. Because attorneys want to charge higher fees for court time and would lose the opportunity to manage probate. CPAs, meanwhile, would be out of a job if they told people about pure trusts, and besides, they probably have never even heard of them. It does not take a "patriot" much convincing to think that attorneys are simply out for their money. "While attorneys will charge you THOUSANDS for establishing a statutory 'trust' or what they call 'estate' planning (they're planning how to raid your estate when you die)," claims the Solutions Group, "you can place unpenetrable firewalls around your business, home, cars, boats, planes, bank accounts, investments, etc., for less than a couple months' mortgage payments." (22)
Some companies try to provide an "end-run" around the lawyer question by offering to put you in contact with their own "knowledgeable" lawyers and authorities, while others explicitly prey on the "patriot" prejudices against lawyers. "We are NOT lawyers (thank God!)," claims Unincorporated Sovereign Contract Trusts. To many people, advertisements that steered customers away from consulting knowledgeable professionals would at worst be taken with a grain of salt and at best immediately ignored. However, the "patriot" community's ingrained prejudices against attorneys makes it particularly vulnerable in this regard.(23)
Used by Elites
Once they have established the legitimacy of pure trusts, vendors of such instruments must convince people that they are worth buying. Perhaps the most compelling lure is the claim that pure trusts have long been used by the wealthy elite as a legitimate way to protect their great fortunes and to avoid paying taxes. This argument both reassures potential customers of the legitimacy of the trusts and leads them to think that they can emulate the financial lifestyles of the rich and famous. "This entity is recognized in all 50 states and foreign common law jurisdictions," claims Financial Freedom International, Ltd., about its "common law complex trusts." "The wealthiest families have utilized this entity for generations." (24)
The key to the elite pitch is in the revealing of a secret that the wealthy possess. "Pure Trust Organiztions [sic] are one of the most Closely Guarded Secrets of Americas [sic] Mega-Wealthy!" claim the vendors of Sovereignty Pure Trusts. But now the customer is offered a chance to join this select crowd, in form if not in substance. "Who uses PURE TRUSTS?" asks an advertisement from Laguna Life, following which it names a number of "super wealthy citizens." "The super wealthy exercise their protected RIGHTS, the same protected RIGHTS that every American Citizen has. RIGHTS protected by the U.S. Constitution. Yes, the super wealthy discovered a civil right that is protected by the U.S. Constitution to protect their Business, Estate, and Personal affairs." Financial Fortress Associates promises to tell people how they too can take advantage of a secret that "the 'rich' have used for years even before the founding of our country." (25)
Pure trust purveyors play upon the suspicions held by many Americans, but especially by members of the "patriot" movement, that the wealthy are "getting away with it." "Do you think that the Rockefeller and Kennedy families pay income taxes?…when Ted Kennedy exhibited negligence regarding the death of Mary Jo Kopechne, why didn't the Kopechne family sue him? Could it be that they found out the [sic] Ted, like the other Kennedy's [sic], didn't own anything?" Now ordinary Americans can utilize such secrets, claim proponents of pure trusts. Although "complex contract trusts" allow the "wealthiest families of America" to protect their fortunes, assert Clark & Associates, "you don't need to be a Kennedy, Morgan or any other millionaire to benefit from a complex trust." Associates selling Liberty Pure Trusts agree. "You and your family can join this 'Country Club' for the rich that holds a monopoly on creative financial planning. These methods are moral and legal! Therefore, you can use their system! It is your Constitutional Right…as it is theirs!" (26)
Typically, pure trust vendors seek out any mention of any trust whatsoever, then claim or imply that such trusts are "pure trusts." For instance, one essay on pure trusts claims that Joseph Kennedy established a pure trust to own the Chicago Merchandise Mart. Furthermore, "the Kennedy family is known to maintain several other Pure Trusts for tax shelter purposes as well." The essay also identifies the Rockefellers and the Hunts as families that set up pure trusts: "These are but a few of the many family estates that are preserved generation after generation through the use of the Pure Trust organization." Not only various family and estate-related trusts are misconstrued to be "pure trusts," but so are a variety of business trusts. Worldwide Wealth Systems, for instance, claim that "some of the better known examples of this type of business structure are seen in the MESABI TRUST which mines iron ore from the Mesabi Range in northern Minnesota. The MESABI TRUST is so successful its ownership units are traded on the NYSE. Other prominent practitioners of this tool include the Edward H. Hines Lumber Company, the H. L. Hunt Empire, Lyndon B. Johnson, and America's founding father, Thornas [sic] Paine just to name a few." (27)
A partial list of purported "pure trust" owners who are or were probably unaware of the "fact" includes:
Pure trust vendors not only play up the notion that customers can share in the secrets of the elite, they also suggest to customers that they are elite just because they are considering using pure trusts. "It takes a certain amount of savvy to operate a trust," confides one trust vendor to his customers. "…Many times those who are not afraid to stand apart from the crowd are the ones who earn the greatest reward." Entrepreneur Holdings Management Trust suggests that it offers a lower fee for do-it-yourself trusts "because we know some people already know how to defend their rights. They're intelligent enough to understand Trusts fairly well and just want more control over their financial affairs." In fact, admits EHMT in another document, the "truth is, not everybody can operate [a trust]. It takes a small degree of finesse and business acumen to understand and remain under the protection of a Trust. The average person will not want to devote the time or the patience to grasp the knowledge and understanding that they would need in order to work through a Trust." However, suggests EHMT, "you are not average or you wouldn't be reading this information." (28)
At the same time that they assure their potential clients that they are above-average, intelligent and elite, pure trust vendors are quick to reassure them that trusts are easy to understand and operate. EHMT takes pains to note that all one has to do with its trust documents is to fill in the blanks. "There's nothing technical to do. It's written in very plain English so that ANYBODY can understand it." Thus vendors find themselves in the interesting position of simultaneously praising and denigrating the intelligence of their potential customers, all in the hopes of increasing attraction. (29)
One of the most effective pitches made by the people who market pure trusts is the claim that trusts provide privacy. For the "patriot" movement, whose members tend to be suspicious of the intrusion into their affairs of all other institutions, from the government to banks to creditors, the promise of privacy is a very attractive notion, even when made in very vague terms with no definition of what "privacy" actually entails. Many of the reasons for privacy are associated with tax evasion strategies (discussed below), but not all are. Suffice it to say that "privacy," in no matter what form, is a good thing and something desirable to have. "Privacy in personal and business matters is a thing of the past," laments one advertisement. But pure trusts can help it return. (30)
Some pure trust advertisements and brochures promise privacy without ever going into details. When vendors do provide specifics, the most common claim is that owners of pure trusts can operate their businesses "in private" because, vendors claim, pure trusts do not need Employer Identification Numbers. As a result, "you can run your business without anyone knowing that the Trust exists." If pure trust owners don't need to pay a lot of bills, they can simply go to a check cashing agency and ask if the agency could accept checks from customers and hold the money until the checks cleared. "Don't even try this without operating under a Pure Trust," warns one pitch, "because then you are committing tax fraud if you don't report the income. It's not fraud if done under the Pure Trust, because the Pure Trust does not have to file a return." (31)
If pure trust owners do want to have checking accounts, the vendors can offer ways to provide banks with "an ID number" that the bank will accept. Some vendors even hold up the possibility of building a new credit rating in the name of the trust. The procedures for all this, as described, would give most people pause. EHMT, for instance, admits that an EIN would probably be needed to open a bank account in the name of a trust, but "if you keep looking hard enough," a person can find a bank that "will treat this entity like a non-personal, non-business account." Many advertisements neglect to provide such particulars, instead promising that "a pure trust organization holds assets, conducts business, and does banking in complete privacy without Social Security, E.I.N., and other federal ID numbers!" (32)
Another purported privacy advantage is that "trust records are not available to the public." Here pure trust vendors allege that trusts can act just like a business or corporation but are not subject to their limitations. "Anyone lending or paying money to the Trustees does not have the privilege of seeing the records, nor seeing the application for the funds. Trusts are fundamentally different from a Corporation which is chartered and regulated by the State. The State owns the corporation and you are franchising it from them. Unlike a Trust, the State may come in and order the corporate records produced." Many pure trust vendors claim that the books and records of a pure trust are not subject to review or subpoena. "We live in an age of information," suggests one pure trust brochure. "Information that used to be confidential and private, becomes more readily available on just about every aspect of a person's life. The issue of privacy becomes an increasing problem. Trusts traditionally have enjoyed protected status in the area of privacy. Often times trust records are difficult, if not impossible, to subpoena." The subpoena question comes into play because, as will be seen, pure trusts are generally used to evade taxes. (33)
One of the most attractive lures held out by pure trust vendors is the lure of asset protection. Everybody wants to protect what he or she owns, naturally enough, but "asset protection" is often seen as a good thing, desirable in itself, regardless of whether or not anybody's "assets" are actually at risk. Marketers of pure trusts play on this attitude, conjuring up scary scenarios involving creditors, tax collectors or lawsuits--scenarios that may be quite plausible for some potential customers.
Asset protection claims are so central to the pure trust scam that the entire structure of scheme is centered around the notion of asset protection. The basic premise is that a person can protect his or her assets by not owning any. One sets up one or more trusts, then transfers one's assets into them. The trust "owns" the assets, while the previous owner simply "manages" them for the trust. If someone sues the individual, they will ostensibly get nothing, because the individual owns no assets and has nothing to lose. It is the trust(s) where the assets are.
Pure trust vendors encourage the multiple layering of trusts, allegedly to better conceal assets, but primarily because they "sell" them individually. A typical offer might arrange to set up the first trust for $900, with additional trusts for $300 each. Because it is not difficult to learn how to set up such trusts on one's own, it is not uncommon to see individuals with large numbers of trusts--sometimes even over fifty or sixty. A more representative example of a trust set up might look something like this: John Doe establishes a pure trust which he names Financial Management Opportunities. He transfers ownership of his home to this trust. He sets up a second trust called Opportunities Estates Trust, to which he transfers all of his rental property. A third trust, called Equipment Holding Trust, holds the title to his vehicles. Conceivably he might layer the trusts, with a fourth trust "owning" the second and third. When all is said and done, John Doe believes that he himself actually owns no property at all--the various trusts do.
Aside from tax-related issues, the three major concerns about "asset protection" raised by the marketers of pure trust schemes are avoiding the adverse consequences of lawsuits, probate and creditors. Because the "patriot" movement includes a great many people in trouble with creditors, banks, and other financial or lending institutions, these concerns are particularly effective in catching the attention of the movement's members.
Often the first issue raised is the threat of being sued. Of course, no one wants to be on the losing end of a lawsuit and the United States is a litigious society. Pure trust vendors, however, routinely engage in hyperbole to make it seem as if lawsuits are inevitable. "We live in a sue-crazy society where at least one in five people is sued every year," claims Mauris Emeka of Apollo Publishing International (which would mean that every person would be sued on an average of once every five years). The El Shaddi Management Trust, seller of "Liberty Pure Trusts" ("the Ultimate Asset Protection"), agrees: "We live in dangerous times when anybody can sue you for the slightest provocation, real or imaginary. There have been outrageous awards paid out even for foolish cases, which totally wiped out everything in the world owned by the unfortunate losers." The fear-mongering used by pure trust vendors is blunt and to the point: a person can lose everything they own at any moment if they do not have a pure trust. "We live in the most litigious society in the history of mankind," warns the Heritage Institute for Estate Planning. "Any of us can be sued at any time for any reason and a lifetime of saving and investing can go down the drain in one lost lawsuit." (34)
A pure trust, suggest its proponents, can protect people from the "sue-crazy society." If someone sets up his or her business as a pure trust, argues Christopher Financial & Marketing Group, they can only lose property the trust owns. If their rental property is titled to a trust, they can't be personally sued by a tenant. "We recommend that…that your main business Trust keep as its assets only a desk, chair and telephone. Your main business trust can operate other trusts that own your business equipment and operate the bank accounts." Needless to say, the reverse is true as well. A person sued by a neighbor, for instance, need not lose any of his assets if they are all safely ensconced in a "pure trust." (35)
Pure trusts not only can help a person protect his or her assets from business-related suits, but also personal ones, such as in the case of divorce. One simply transfers one's assets to a trust and then the ex-spouse cannot claim them. "It's the same as if you transferred the items to a brother or sister or to your parents," asserts one vendor. "They are not yours, and thus, no one can take them away from you." (36)
Offering a way for customers to avoid probate is probably the closest that "pure trusts" come to providing a legitimate service. There are a number of different types of trusts that can help estates avoid probate and, depending on state law, a pure trust might be able to do it. Vendors of pure trusts, however, count on the relative ignorance of potential customers surrounding probate and estate law in order to make it seem like everybody needs to take drastic measures to avoid estate taxes and probate. Zola Sheehan, a pure trust proponent, offers the example of "Sam," a "common man with a wife, two kids and a home." Sam, states Sheehan, has worked hard all his life and is afraid that when he dies, probate and estate taxes will "eat away his estate." Probate alone, he has discovered, can take up to two years. So he puts his estate into a trust to make sure it is kept up, so that the estate can be distributed after his death. Compared to some other people described in pure trust advertisements, poor Sam had it easy. "There are many expenses involved, including estate taxes, inheritance taxes, income taxes, probate costs, legal and accounting feeds, and appraisal costs….if you are married, your spouse does not automatically get your estate…if you have no children, even brothers and sisters, parents or distant relatives could qualify for a portion of the state. Also, the wife must pay a court-appointed administrator to settle your financial affairs, and a guardian to protect minor children's rights. If the wife is guardian, she must post a bond, creating another expense, and make a periodic accounting to the court." But all of that is avoided with a pure trust. (37)
Seldom do pure trust advertisements bother to mention that federal estate taxes do not apply to any individual estate worth less than $600,000 or married couple's estate less than $1.2 million. Those few exceptions hasten to add that such restrictions could "change anytime." However, they are "happy to tell you that you can avoid these dangerous obstacles by using a 'complex' trust." (38)
In addition to protecting people from lawsuits and the cost of dying, pure trusts are claimed to keep creditors from seizing property to satisfy debts. Adverse circumstances could put anybody in danger. "If illness and/or old age cause you to be institutionalized," warns Mauris Emeka, "chances are you could lose your home should medical expenses escalate." Of course, pure trust vendors know that their potential customers are often already in trouble with creditors. The opportunity to put one's belongings beyond their reach is an extremely attractive one. (39)
The basic argument offered by pure trust marketers is that the trust is an entity separate from the "manager" of the trust and therefore its assets cannot be seized because of the manager's debts. The sort of assets that can be protected such a trust seem virtually endless. "A Pure Trust is its own entity," states one vendor. "As such, it can own real and personal property, like homes, cars, furniture, jewelry, computers, TVs, business equipment, etc." Since one does not own the assets, "no one can take them from you in a judgment or a lawsuit. You can't lose them in any seizure, or through a divorce, lien, or bankruptcy." In effect, one becomes "judgment proof." And "what attorney would pursue a case against you, for a contingency fee, knowing you have no assets to enforce the judgment against you?" (40)
Some trust marketers are at least partially open about the hazards of using trusts to hide assets from creditors, noting that a court could rule that the conveyance of assets to a trust was merely a sham. However, promise the marketers, if you set up your trust well in advance of any possible debt, the courts could not so rule. "If a doctor were to set up a trust and at the same time cancel his malpractice insurance," suggests the Worthington Group, "a court could decide that these two action [sic] done at the same time defrauded his future patients of their claims. However, if that doctor first sets up a trust, and then some time in the future found it financially impossible to continue malpractice insurance, that would be completely different, no problem." One trust vendor defines this anticipated indebtedness as "asset protection planning," which is "the adoption of advance planning techniques which place one's assets beyond the reach of future potential creditors. In our system, it does not involve hiding assets, nor is it based upon secret agreements or fraudulent transfers. It is based upon a time and court proven legal system of complex trusts." (41)
The promise of asset protection is an extremely powerful tool in the hands of pure trust vendors because it claims to preserve belongings such as houses and cars that people have worked their entire lives to achieve. It is probably surpassed in its attraction to the "patriot" movement only by the "Holy Grail" of tax avoidance.
Of all of the various ways in which vendors of pure trusts attempt to lure people into buying, the most prominent and effective is undoubtedly the lure of tax evasion. While few Americans enjoy paying taxes and most wish to reduce their tax burden, the "patriot" community goes several steps further in their fear and loathing of all taxes, but especially income taxes. Indeed, the segment of the "patriot" community that has probably been the most influential in shaping its ideology has been the tax protest movement.
Tax protesters and tax evaders are two quite different--though not mutually exclusive--categories. A tax evader is someone who tries (using illegitimate or illegal means) to reduce his or her tax burden, or to eliminate it entirely. A tax protester is someone who from moral or ideological concerns has decided that taxes are illegitimate and should not be paid. For instance, in the 1960s a left-wing tax protest movement formed which still has not completely died away. This movement claimed that because the federal government used tax money to support the military--which movement members believed was immoral--members should refuse to pay income taxes, which they deemed "war taxes."
The right-wing tax protest movement, which had its beginnings in the 1950s but did not really reach full strength until the early 1970s, developed differently. Its adherents believed that the income tax was an illegitimate, unconstitutional tax foisted on the American people through improper means. These tax protesters developed elaborate legal theories to support their claims, among which the most popular were: a) the 16th Amendment was never properly ratified, therefore income tax is illegal; b) the Fifth Amendment allows people to refuse to file income tax returns, because that would "incriminate" them; c) only corporations, not individuals, had to pay income taxes; d) income taxes did not apply to wages, but only to "profit;" e) only residents of Washington, D.C. or federal territories had to pay income taxes; f) only people with Social Security numbers or people who in other ways had voluntarily placed themselves under the jurisdiction of the federal government had to pay income taxes; and g) income taxes were voluntary. Eventually, many members of the tax protest movement, who often labeled themselves "tax patriots," came through their novel interpretations of the law to believe that the entire government was illegitimate, leading to the development of the "common law" or "sovereign citizen" movement.
Many members of the "patriot" movement are full-fledged tax protesters, while still others are sympathetic enough to its ideology to occasionally fall under its sway. Still others, out of either an antipathy/hatred of the government or merely a desire to keep more of what they earn, or both, are susceptible to the lure of tax evasion strategies.
Pure trust vendors calculatingly take advantage of all of these tendencies. Of course, a number of such vendors are tax protesters themselves; thus their apparent sincerity is not faked. Others simply make such promises knowing that is what will appeal to their potential customers. The appeals, however, are nearly universal: "Cut Income Taxes by 75%;" "Tax stategy [sic] to reduce your taxes by over 97%;" "Eliminates a host of taxes;" "You determine your taxes"; "Eliminate income taxes;" "Saves $$$$$$ Significantly Reduces Income Taxes both personal and business;" "Lawfully Stop Paying Taxes!!!" It is nearly impossible to come away from reading the literature of most pure trust vendors without the understanding that pure trusts allow people to do away with paying most or even all of their income taxes. (42)
Three main strategies for eliminating income taxes are used by pure trust vendors. The first and most radical such strategy, aimed at perhaps the narrowest audience, uses typical tax protest arguments to convince people that they have no obligation to pay income taxes at all. The second strategy suggests that the nature of pure trusts is such that they do not have to pay income taxes, so if a person is able to place all of his or her income-generating property or businesses within such a trust or trusts, then he or she no longer has to pay income taxes. The third strategy, and the one with the widest appeal, suggests that there are ways to manipulate assets within trusts which will allow one to eliminate most or all of one's apparent income, thus removing the necessity of paying any taxes on that income. These strategies are not mutually exclusive and it is possible to see pure trust literature that exploits all three. However, most pure trust vendors, presumably wishing to avoid frightening people away through the use of radical tax protest rhetoric, use a combination of the second and third strategies in making their pitch to potential customers.
The first approach to the promise of tax relief is brazenly to use familiar tax protest arguments or simply to reword them slightly to fit pure trusts more particularly. With this approach, customers are told either that they do not have to pay taxes or that they will not have to pay taxes once they establish a trust. For instance, Aplomb Trust of Dallas, Texas, posted an advertisement to a Usenet newsgroup in 1996 which suggested "the use of a common law trust to own and receive the exchange between labor and in our monetary system, Federal Reserve notes. This exchange is not income and the Trust is not a 'taxpayer,' as per USDC jurisdiction." The argument here is essentially that wages (the product of labor) are not categorized as income and thus not subject to income taxes. A more outré example comes from J.A.L. Financial, which claims that pure trusts have no tax requirements "because they are sovereign entities, having been established as such in English common law and through the 200-plus years of American jurisprudence. 'Sovereigns' are not subject to taxation or regulation, 'subjects' are." Similarly, EHMT and Global Privacy Management Trust claim that Americans have been granted the right to contract under the Constitution and "a RIGHT cannot be taxed. Only a PRIVILEGE can be taxed!" (43)
Some pure trust vendors use the "jurisdiction" argument--that the federal government simply does not have jurisdiction over most Americans and therefore they are not subject to the income tax. Financial Fortress Associates, for instance, asserts that the combination of the Constitutional clause which "forbids government from 'impairing contracts'" and the fact that one can "legally avoid the nexus of government jurisdiction" opens up "an enormous area" in which people can operate and not be subject to the IRS. Just to make sure, it also informs readers that the 16th Amendment was a hoax. (44)
One of the most energetic pure trust vendors who uses tax protest arguments is Lynne Meredith, author of Vultures in Eagles' Clothing and How to Cook a Vulture, two tax protest manuals, and, coincidentally, "one of the foremost experts in America on the Common Law, Constitutional Law, Pure Trust Organizations and Tax Law." Meredith, herself from southern California, developed a network of "associates" to sell her trusts (usually called "Liberty Pure Trusts") that even reaches as far as Australia, as part of her "life's work to stop government fraud and eliminate the abuses of the IRS against the American people." Such associates often suggest that one get the IRS "off your back" by purchasing various tax protest products such as the "Organic Sovereign American Freeman Compendium" or the "Liberty Action Pack" before setting up one's pure trusts. (45)
Some trust vendors are cagier about making tax protest arguments too explicitly. EHMT, though suggesting various reasons why people are not required to pay taxes, nevertheless stops short of offering specific suggestions. "AFTER you get your Trust set up," it suggests, "we would be glad to discuss with anyone, exactly how WE would cope with a particular situation, keeping in mind that it is only OUR OPINION!…I will discuss this topic further with anyone on a one-on-one basis…AFTER your purchase is complete." Gibraltar Trusts, which in a slight variation on the usual theme, not only sells pure trusts but offers itself up as a trustee, is more explicit about taxes, presumably because it has a greater involvement with the customer's trusts than simply selling them. "If you have lawful tax obligations," says Gibraltar, "then you must handle those lawful tax obligations yourself. We have no wish to be involved in any unlawful activities. We are very sorry that we are unable to protect you from the unlawful taxes of a tyrannical government." (46)
The second tax angle used by pure trust proprietors is that such trusts simply do not have to pay taxes. Often the rationalization used for this is that pure trusts are "contractual trusts" and not governed by statute. Suggests one vendor: "Since a Pure Trust is provided for in the Constitution and not by a government regulation, it is not subject to the mandates of the government, including taxation." Sometimes there is really very little attempt to explain or justify it at all; the "fact" is simply asserted. "Even though there are many, many types of Trusts," claims Apollo Publishing, "the only one to pass the test of scrutiny of even the IRS is the PURE TRUST!" The Solutions Group agrees. "While EVERY kind of 'trust' created by the legal profession has…been pierced by…the IRS, in over 220 years the PURE TRUST has NEVER been compromised. Everything ever placed in a PURE TRUST is safe, secure, and out of the reach of anyone else! You can run your business in total privacy, and be totally TAX-EXEMPT!" (47)
Occasionally there are variations to the theme. Worldwide Wealth Systems, which calls its products UBOs (unincorporated business organizations), claims that there are four "general categories" of taxation: those for corporations, partnerships, individuals and trusts. However, they suggest, the UBO "is structured in such a way that it meet [sic] none of the above categorical criteria." Somehow Congress was so lax as fail "to include the UBO in the mainstream of the tax code." (48)
Unfortunately, the Internal Revenue Service itself unwittingly aided the efforts of a number of pure trust vendors in their efforts to claim that pure trusts were somehow tax exempt. An enterprising trust marketer devised a letter to write to the Internal Revenue Service which would sometimes cause the IRS to send back a form letter stating that a "pure trust organization" has no tax requirements. Once discovered, the strategy was copied by a number of pure trust vendors, who then used the IRS letters as evidence to display to customers that pure trusts were not subject to the income tax. One such example, scanned and posted on the World Wide Web, state (in its relevant parts):
We cannot process your application for a [sic] Employer Identification Number. A Pure Trust organization has no tax requirements, thus a [sic] Employer Identification Number is not required."
Reportedly the IRS has recognized this unfortunate situation and no longer generates that letter, but the existence of previous letters is enough to do lasting damage. One pure trust vendor ambitiously titles its Internet brochure the "IRS Approved Pure Trust" and claims that a pure trust replaces corporations, partnerships or sole proprietorships with "an entity that is not created by the government, and as such, can not fall under the taxation power of the IRS. For those who are skeptical, we can provide you with copies of letters from the IRS that were faxed to us by clients who have applied for a Tax ID number using the techniques that we do for you." Many people become convinced by such language that they really will be immune from income taxes if only they create pure trusts. (50)
Of all the pitches used by pure trust vendors on the income tax issue, the most plausible is that the tax laws may be manipulated by canny people using pure trusts in order to avoid paying taxes. Members of the "patriot" movement are easily convinced that this is exactly what many elite Americans have been doing for years. Pure trust literature plays to such suspicions. "We have been told, and through our own study have come to believe," relates the Aegis Company, "that there is an agenda within the laws and tax codes of the United States. That agenda can most easily be summarized as what is often called 'The Golden Rule--Those Who Have The Gold, Make The Rules.'" According to Aegis, the "very wealthy" have structured the tax laws so that "common law business organizations" can greatly reduce or eliminate taxes. (51)
The most common claim is that pure trusts allow all sorts of items to become legitimate business expenses merely because the pure trusts pay for them. "Many items that were previously paid with 'after-tax dollars' can now be structured to legitimately become business expenses," suggests Aegis. "A Pure Trust will save you even more money," claims another vendor, "because you can buy personal assets like jewelry, furniture, computers and other items with the equivalent of pre-tax dollars." Pure trusts can even provide a tax-free vacation, because they need to have an "annual meeting," which would of course be a deductible business expense.(52)
Other tax benefits abound as well. "Did you know," asks Christopher Financial & Marketing Group, "that you and your spouse can each receive up to $10,000 in a tax-free gift? This is standard IRS policy. The Trust can make these gifts, if so stated in the Trust document! Thus, if you are married, you can draw out up to $20,000 in tax free 'income' from your trust for your [sic] to use for personal expenses." Imagine how much tax-free income a person could draw if he or she had set up multiple trusts. (53)
One can also try to hide income by moving it among multiple trusts. "From a tax standpoint, it is simple," suggests one vendor, "income that is yours is taxed to you. Trust income is taxed to the trust. Trusts are taxable entities but many taxes can be deferred by the ability to move cash and assets between the trusts, which is the real advantage." The extent to which this can be done--at least until one reaps what one has sown--may best be illustrated by an actual example. Around 1980 Steven Buford, a salesman for Constitutional Trust Associates, approached an FAA aerospace engineer named Anthony Pennybaker and his wife, Barbara. Buford convinced them to purchase a trust for $5,500 by promising them they could reduce their income taxes and avoid estate taxes and probate. This reduction in income taxes, Buford told them, would be accomplished, among other ways, by having the Pennybakers deduct all expenses related to trust property except for food, clothing and personal insurance. For the four years (1980-83) that they filed tax returns for the "Pennybaker Trust" (after this point they became complete tax protesters and stopped filing altogether), they deducted all of their utilities, vehicle expenses, medical expenses, bank charges, subscriptions and many other expenses from the trust's income, even though the trust never engaged in any activity during this period. As a result, the Pennybaker Trust reported losses that ranged from between $17,000 and $39,000 for each of those years. Since the Pennybaker Trust recorded no "income," and virtually all of the Pennybakers' personal income was hidden through the trust, they essentially paid no taxes during this time period. (54)
The lure of the income tax pitch not only convinces many people to purchase pure trusts, but it also illustrates most clearly how the pure trust schemes make them, in effect, "double victims." Individuals who believe the rhetoric of pure trust marketers first spend considerable amounts of money, perhaps well into the thousands, to have these trusts set up for them. Then, perhaps years later, they become "victims" again as they discover when the IRS comes calling that none of the promises of the pure trust vendors were true. They are instead faced with additional penalties, sometimes extremely severe ones, and even perhaps the prospect of criminal prosecution. A combination of greed, naivete and political ideology causes them to spend money to place themselves into an extremely unfortunate position.
The "True" History of the Pure Trust
Contrary to the claims of its vendors, the pure trust did not originate with Plato or Patrick Henry. Nor is it a secret that the wealthy elite have guarded for years as a means to preserve or enlarge their vast fortunes. Its history is altogether more mundane: the history of a scam. The leading figures in its history have not been Kennedys or Rockefellers but scam artists and tax evaders. Nor does it protect one's assets or provide immunity from taxes.
Trust law and the income tax code both became increasingly complex during the course of the twentieth century. The "pure trust" scam evolved as a result. Trusts had long been used by the unscrupulous to try to hide wealth or avoid taxes or other adverse consequences; it was probably only a matter of time before someone thought of the idea of trying to market such trusts to other people. By the 1960s the basics of the scheme had been established. It was in the 1970s, however, that pure trust marketing seems to have made the leap to the growing "patriot" community, spurred by the increasingly well-organized tax protest movement and the growth of related groups such as the Posse Comitatus all of which believed in creating imaginative reinterpretations of the law to suit their ends. During that decade a number of large-scale trust marketers emerged, selling their trust schemes to thousands of people across the country.
One prominent trust marketer was Kirby J Hensley. Hensley founded the Universal Life Church in 1959 (it still exists). The Universal Life Church was one of several organizations that emerged during this period to provide mail-order ordinations to anybody for a fee (in this case, $3 to become a minister; $8 to become an archbishop), so that people can claim tax exemption as a church. The Universal Life Church also marketed abusive trusts (during the 1970s and 1980s they were often sold under the term "family trust"). So too did the National Institute for Individual Religious Studies, in much the same way.(55)
Perhaps the most energetic pure trust marketer was James R. Walsh, a Coloradoan who started not one but three organizations to sell pure trusts: National Pure Trust Service, Trust Inc., and Educational Scientific Publishers. Promised the latter: "You don't have to pay taxes. For a fraction of what you pay Uncle Sam, we can teach you how to keep all your earnings for yourself. Just follow the simple instructions in this kit, and you will never pay another dime of income tax. And it's all completely legal." The kit could cost as much as $7,000. Walsh eventually pled guilty in 1981 to one count of a five-count indictment that charged him with mail fraud, conspiracy and other activities with the intent to defraud the IRS. By then, Walsh's organizations had sold more than 2,000 pure trusts.(56)
The extent to which the pure trust scam was being used in the 1970s alarmed the IRS, but it could do little to stop its promulgation. In fact, the IRS could disallow improper deductions related to trusts, and assess appropriate penalties, but did not have the power to actually declare them illegal. The Tax Court could not rule on the validity of trust schemes--only on the validity of deductions. The IRS could only warn taxpayers not to be taken in by such schemes and promise "vigorous enforcement action against taxpayers who use such sham devices…as well as the promoters of such schemes." (57)
The next major leap in the evolution of the pure trust scam was its move to the Internet in the 1990s. While a number of the more secretive pure trust vendors preferred to operate out of the public eye, through referrals and private meetings, the advantages offered by the Internet in providing an inexpensive communications medium that could reach a widespread audience were tremendously attractive. Pure trust promoters first made their way onto the discussion groups of Usenet, then largely shifted to the World Wide Web, where their number continues to grow at an alarmingly fast rate. Pure trust vendors freely plagiarize from one another, so when one individual or group comes up with a new tactic, it is quickly duplicated across the Internet. The competition has grown so fierce, in fact, that many pure trust vendors have even tried to debunk some of the arguments or positions of their fellow vendors--taking care, of course, not to harm any of their own.
One of the typical attributes of pure trust vendors is that they have little or no connection to professional expertise. Accountants and attorneys are extremely rare among them. The backgrounds of pure trust vendors--when they are made known, which is only occasionally--would give most people pause, but seem to have no detrimental effect on the enthusiasm of their "patriot" audience. For instance, Michael Vallone, "Executive Director" of The Aegis Company, according to their literature, is:
"a certified Paralegal and researcher in the field of business trusts. He is also currently pursuing his Juris Doctorate degree. He has been described as one of the country's leading experts on business trusts and has written extensively on the subject. He trains attorneys, accountants, and financial planners on the subject…Mr. Vallone is in great demand as a seminar speaker and has been a guest on various radio programs to discuss estate planning and asset protection planning." (58)
The webmaster of Financial Fortress Associates provides a laudatory biography of its "managing director" (whose name, strangely enough, is mentioned nowhere on the FFA website). "Even though he is not an attorney," states the webmaster, "the managing director of FFA went to law school several years ago. He chose not to continue in the statutory arena for several reasons…He started in the offshore arena in 1986 and has specialized in the domestic arena now for several years with over 47000 clients in this area alone. He has successfully withstood the challenge of 3 separate State Supreme Courts to cease helping others protect their assets through Constitutional Pure Trusts…He is also sought by attorneys on a regular basis for his knowledge in the area of Constitutional Pure Trusts and often conducts training seminars for them as a result." Others are less verbose. Lonnie D. Crockett, for instance, simply bills himself as a "Master of Tax Law." Lynne Meredith is a "legal scholar," although she is also "one of the foremost experts in America on the Common Law, Constitutional Law, Pure Trust Organizations and Tax Law." (59)
It is perhaps not surprising that so many pure trust purveyors are "masters" and "experts," but not actual accountants or estate or tax attorneys, because the overwhelming opinion of true professionals is that such schemes have no merit at all. Indeed, some have even adopted a nickname for pure trusts and their ilk: the "con trust." One tax expert who has been particularly vocal--in articles and his newspaper column--is Robert Sommers. "There is nothing in the Internal Revenue Code or its regulations [regarding pure trusts]," Sommers points out, "and neither the IRS nor any court of law has ever upheld the use of these trust arrangements as an honest tax planning device. In fact, every taxpayer who has been caught using one of these trusts has been hit with all the taxes, interest and penalties owed under the Code. In fact…some have been sanctioned with fraud penalties which amount to an additional 75% of the taxes owed!" (60)
Sommers is hardly the only professional to point out the flaws of pure trusts. "Every one of these looks like smoke and mirrors," Evelyn Capassakis, the estate planning director for accounting firm Coopers & Lybrand, told the New York Times, "Now you see it, now you don't…[Trust users] are likely to wind up needing a white-collar criminal defense lawyer." Although there is always a nugget of truth buried in the claims of pure trust vendors, suggests Stephan R. Leimberg, a professor of taxation and estate planning at The American College, they are "a classic shell game, a P.T. Barnum-type arrangement…the reality is if you retain control or beneficial enjoyment of property or its income, it's in your estate." (61)
The pure trusts fail to meet specifications on a number of points, but it is primarily their failure to conform to two key principles of legitimate trusts that condemn them permanently into the realm of scams and frauds. The first and most fundamental principle is that if income is generated, somebody or some entity must pay the tax on it. The burden may be on the individual or on the trust, but it is there, nevertheless, and people cannot manipulate trusts to make income simply "disappear." The second principle is that in legitimate trusts there is a true separation of control between the grantor and its assets. Pure trusts, through a variety of means, attempt to establish the appearance of a trust, yet provide the creator with a way to maintain complete control over the assets and the income those assets generate. Yet, "the fundamental requirement for avoiding taxation on trust income is giving up control and management powers of the trust assets, or limiting your powers by requiring the approval and consent of an adverse party." (62)
The principles come into play because the Internal Revenue Service--as well as potential creditors, litigants, etc.--can ignore the form of a transaction or organization and look to its substance. Robert Sommers notes, "When all is said and done, if you are enjoying the benefits of your property, you are taxed as the owner. It does not matter that you placed your property into a trust with your great uncle as trustee and created lots of paperwork in an attempt to hide your true ownership. The courts and the IRS look to the results, not the methods." As one court decision put it, "when the form of a transaction does not alter economic relationships, the Courts will disregard the form and apply the tax law according to the substance of the transaction." Pure trusts are simply a scam to separate fools from their money, suggests Jay Adkisson, an Oklahoma-based tax lawyer with an interest in investment and asset protection scams. "Don't expect a real court or the IRS to give these things any more than a chuckle," he writes. "But if you want these Constitutional or Pure Trusts to hold up, you better get an agreement from the IRS or your creditors that they will litigate any controversies before a posse comitatus in a trailer home somewhere, because no legitimate tribunal will recognize them." One adage repeatedly emphasized by professionals asked about the legitimacy or value of pure trusts was the extremely simple common-sense yardstick, "If it sounds too good to be true, the odds are that it is." (63)
When the courts and the IRS do finally scrutinize a trust-user's records, the person who purchased the trust usually ends up considerably worse off than before. Not only will the courts determine that the taxpayer must ante up on the trust's income, but trusts fall into the highest tax bracket: 39.6% on taxable income over about $8,000 (individuals do not reach this rate until they make taxable incomes well over $250,000). Then all the penalties for underpayment, fraudulent filings and other missteps must be assessed. These can include a 20% accuracy-related penalty and a 75% penalty for underpayment attributed to fraud. Moving assets into trusts may also trigger unexpected gift taxes. (64)
Moreover, the IRS is considerably more likely to scrutinize such records now than before. In April 1997 the Internal Revenue Service issued Notice 97-24 indicating that the IRS would begin a crackdown on what it termed "abusive trusts." It identified five basic types of abusive trust arrangements that it would "actively examine." These include 1) the business trust, in which a business is transferred to a trust in exchange for ownership certificates; 2) the equipment/service trust, in which equipment is placed into a trust to rent or lease to a business trust at inflated rates; 3) the family residence trust, in which property is transferred to a trust, converting personal expenses into deductions; 4) the charitable trust, in which a sham charitable trust is created to pay for educational, living or other expenses; and 5) the final trust, a trust that owns other trusts, and is often formed in an offshore country. All five of these trust arrangements, but especially the first, second and third, are or can be features of various pure trust packages. (65)
It is still unclear to what extent the IRS has devoted additional resources to the problem of abusive trusts (one official stated that the IRS would add no new staff but had reassigned existing personnel), but the IRS hopes to audit 200,000 of the approximately three million trust returns it receives each year. Already, the crackdown has resulted in some indictments, including charges for four men (one an attorney and the other an accountant whose license had been revoked) who worked together to establish sham offshore trusts for a sophisticated tax evasion scheme. No information has yet been released by the IRS as to the results of the first year of its crackdown, but the mere fact that the IRS is giving renewed attention to the problem suggests that people who fall for the lure of the pure trust are more likely than ever to rue their decision. (66)
Adding to the increased scrutiny given to pure trusts by the Internal Revenue Service is similar attention on the part of a number of states, motivated by a desire to cooperate with the federal government in stemming the tide of abusive trusts. After the IRS announced its crackdown, for instance, the Missouri Secretary of State publicly warned Missourians not to trust "private trusts" or "constitutional trusts." One state has gone even further. South Carolina's Department of Revenue announced that it too would actively examine the growth of abusive trusts. In fact, by July 31, 1997, it had already announced its first arrests. The Department of Revenue arrested Odean Broados Blewer and Jane Kellog Blewer, of Orangeburg, South Carolina, on four counts each of tax evasion. The Blewers had established trusts to pay for groceries, private school tuition, car expenses and most other normal costs of living. Also arrested was accountant Joseph Roland Avinger, who had helped the Blewers prepare their fraudulent tax returns. "We are scrutinizing every one of these trust returns for suspect filings," announced Department of Revenue director Burnet R. Maybank III, "Today's arrests are just the beginning of what we expect will be more." (67)
The announcement by the Internal Revenue Service that it would crack down on abusive trusts did create concern for pure trust vendors. The fear has not been that the crackdown would result in arrests or prosecutions of vendors, but rather that widespread publicity of the crackdown might scare prospective customers/victims away. Most vendors appear to have decided to ignore the IRS announcement, hoping that it will largely go unnoticed. However, a few marketers have responded to the announcement, hoping to counter its effect. Michael Vallone of the Aegis Company admits that there have been many trusts declared "shams" but suggests that many such incidents occurred when trusts were sold to people who did not know how to operate them properly or how to defend them if challenged. However, Vallone's "business trusts" can "stand on the merit" of their own documents. Moreover, he alleges, his trusts are not actually classified as trusts for the purposes of the tax code. Vallone's lengthy defense of his "business trusts" and rebuttal of the position of the IRS might persuade some, but could prove counterproductive in any case, since regardless of the validity of his arguments, many potential customers might not wish to risk so much in a venture the IRS has targeted for scrutiny. (68)
Another pure trust vendor, the Worthington Group, has felt more comfortable in going on the offensive against the IRS. Its attempt to deal with Notice 97-24 comes only at the end of a long tirade against alleged abuses of the IRS, punctuated by examples provided from U.S. Senator Trent Lott and various news sources. The Worthington Group then claims that it has had "direct communication" with the "Chief of Entity Control" in reference to obtaining Employer Identification Numbers and that "we are in compliance with those Treasury Regulations which govern Unincorporated Organizations/Business Trusts." Moreover, the Worthington Group states that it fully agrees with the government's concern about illegitimate trusts; of course, it classifies its own as fully legitimate.(69)
The ineffective responses to the IRS notice suggest that increased public awareness of the existence of abusive trusts and the "trust mills" that sell them can have a very beneficial effect. Like many scams, the pure trust scam does not work well when potential victims have full and easy access to full factual information. Nor do most pure trust schemes hold up very well under public scrutiny. It is for this reason that some pure trust vendors, rather than operating boldly on the Internet, choose a more surreptitious route to find willing victims. In some ways, these vendors are the most dangerous of all, since they are least likely to come to the attention of responsible authorities. A look at one of these, the Commonwealth Trust Company, provides the opportunity for an in-depth inspection into the motives and tactics of pure trust vendors.
The Commonwealth Trust Company: A Case Study in Pure Trusts
The Commonwealth Trust Company is shrouded in secrecy, but enough information exists about it from various sources to piece together something of its nature and activities. Exactly when it began is unknown, but it was apparently created by a Mr. Charles Filiatrault and was in operation by the early 1990s in the United States and Canada. Filiatrault called his instruments "pure trusts." In one cover letter he wrote for a Commonwealth Trust Company brochure being circulated in 1992, he explained it as "a method whereby an individual may establish a separate legal entity in the form of a Pure Trust. On the face of it, this may sound similar to other trusts you have heard about, or to a corporation, which also is a separate legal entity. Corporations, however, are very public affairs…A properly created Pure Trust, on the other hand, is a very private affair." In the Commonwealth Trust Company's scheme, it would create the trusts, then appoint its "customers" to be "Managing Directors," with "total practical control" over the trust. (70)
By 1993 Filiatrault was headquartered in San Diego, California, but the Commonwealth Trust Company had "agents" in many places in North America. Filiatrault apparently did little or no direct marketing of his own, preferring to rely on agents who would contact prospective buyers and make the appropriate references. In fact, the organization's brochures encourage people to act as agents. The Company targets vulnerable groups, but which groups it targets are apparently up to its agents. Different representatives of the company have focused on the elderly, on the "patriot" community and on vulnerable religious groups. (71)
One example of the Commonwealth Trust Company taking advantage of the elderly can be found in the example of Henry G. Maxham, a retired jazz musician (76 years old in 1993) from Victoria, British Columbia. After hearing about the Commonwealth Trust Company, Maxham met with one of its representatives, one Kit Lam, a self-described "immigration consultant." Lam convinced Maxham to liquidate his entire investment portfolio of $508,000 (despite the warnings of his previous investment firm, who urged that he seek professional advice) and transfer it to a trust called "Halcyon Holdings." For this, Lam charged Maxham a fee of $2600. However, Lam then went further than most pure trust vendors do. He also convinced Maxham to make Lam the managing director, promising Maxham returns of at least 20%. Lam's fee would be 50% of the return over 20%. (72)
Needless to say, this was a disastrous decision on the part of Maxham. In April 1993, just a month after taking control of Maxham's assets, Lam was in contact with a woman named Sharleen Douglas of the Excalabur [sic] International Capital Corporation. Douglas claimed that she was seeking funds to cover business expenses in connection with "reclaiming a large fund of U.S. dollars from Nigeria." In May Lam wrote large checks with Maxham's money to present to Douglas (without security). By this time he was also engaged in other dubious actions with Maxham's money, including making loans to himself. Meanwhile, Maxham himself suffered a stroke, leaving him unable to speak. His wife became concerned about Lam because Lam was not sending her an agreed-upon $2500 monthly stipend from the trust for living expenses. One of the reasons Lam was unable to do so was because he and Douglas were unable to withdraw the money from the Bank of Montreal, where it had been deposited, because the bank was quite suspicious. Despite extraordinary efforts to get their checks honored, including trips overseas (to try to cash them there), Lam and Douglas failed. In September, Maxham was able to revoke Lam's appointment as his attorney and, thanks to the Bank of Montreal, eventually able to get most of his money back, having lost only around $28,000 (U.S.). (73)
While Kit Lam was struggling to regain control over Henry Maxham's money, other Commonwealth Trust Company agents were targeting other victims. Some of these victims included the Amish. In the summer of 1993, a Commonwealth Trust agent from North Carolina, Kenneth Proctor, traveled to Lancaster, Pennsylvania, the heart of that state's Amish population, to make contacts there. One group of people he met with was with the Beiler family (David J. Beiler, and Elmer K. and Anna M. Beiler, of the same address; relationship between the three unclear but presumably familial), farmers who operated a stand at a Dutch Country Market, and presumably had many useful contacts in the community. (74)
Despite efforts to remain quiet, word of Proctor's efforts reached the local newspaper, the Lancaster New Era, which decided to investigate. Reporters managed to see copies of the Commonwealth Trust Company's promotional material, including a video which repeated most of the standard pitches for pure trusts, but the newspaper had very little luck in talking to any of the organization's tight-lipped members. When the newspaper contacted Proctor's wife in North Carolina, she would merely say, "he probably don't want anything in the newspaper about it, but I'll tell him [you called]." One law firm attempted to contact the company's San Diego number, but the man who picked up the phone not only would not even tell her his name, but refused to give out any information to someone not referred by a company agent. The Commonwealth Trust Company was "the cagiest place" they had ever had to deal with. The newspaper managed to contact Ralph McIntyre, a company agent in Denver, but he refused to comment and ended the conversation when the reporter refused to tell him how she got his name.
Although the newspaper was unable to get much information from the Commonwealth Trust Company, its reporters successfully drew what the company wanted least: attention. Not only did it contact a number of local tax and trust professionals, but it spoke to the American Association of Retired Persons and the state Attorney General's office, both of which issued appropriate cautionary messages. Consequently, quite a few people showed up at a local restaurant on August 13 for a meeting in which the Commonwealth Trust Company would explain its methods. Unbeknownst to many, the meeting site had been changed--twice--by its organizers, who apparently sent someone to the restaurant to tell certain people (definitely not reporters) where the new meeting site was. The site was the Beiler farm, which was already the property of a pure trust. About 100 people attended the roughly three-hour meeting at which Commonwealth agents spoke about pure trusts.
However, the efforts of the New Era's reporters, Andrea Brown and Tim Buckwalter, succeeded in scaring the Commonwealth Trust Company out of Pennsylvania. By August 17 Pennsylvania's Bureau of Consumer Protection announced that it had begun an investigation into the organization. "Our review reveals large red flags everywhere we look," said one official, Rob Bleecher. "We believe consumers should be very wary of this promotion." The New Era once again tried contacting the Proctors in North Carolina. Kay Proctor claimed that the trusts were safe for consumers, but refused to provide any further information or name anyone who could, claiming that was "privileged information."
Unfortunately, Pennsylvania's investigation soon petered out. According to Bleecher, too few complainants came forward. It was eventually dropped. However, it did put a scare into company owner Filiatrault, who fled San Diego in October 1993. "They flew the coop in the middle of the night," said Thomas J. Carroll, manager of the office complex where Commonwealth worked. Even while it was there, it was not a normal business office. There was no sign on the door, which was always kept locked. Filiatrault paid his rent in cash and would not even give Carroll his home phone number. Nor would he give Carroll a key to the office when he asked for one for "emergency purposes" because of the automatic sprinkler system. While they lived in San Diego, Filiatrault and his wife Sandra lived in an "opulent" home in an extremely upscale neighborhood.
Filiatrault's present location is unknown, but the operations of the Commonwealth Trust Company have continued unabated. The chief representative for the company became one Phil Filiatrault, who lives in northern Washington state and appears from Canadian court documents likely to be Charles Filiatrault's brother. When the San Diego Union-Tribune tried to contact Phil Filiatrault and other Commonwealth Trust Company representatives in 1995, it had no more success than did the New Era two years earlier. Unfortunately, the Commonwealth Trust Company seems to have escaped further public notice. Its agents across the country hold meetings to attract potential customers/victims. For instance, Brayom Anderson targeted Richmond, Virginia, holding two seminars in March 1996, one in September 1996 and another in March 1997 (among others not known) on such subjects as "Pure Trust Organizations vs. Trusts for Business Owners and Retired Persons" and "The Benefits of Off-Shore Investing." Two letters received by this author in June 1998 indicate that the Commonwealth Trust Company is still alive and well. One letter, from an agent in North Carolina, sent a small brochure and promised to send considerably more introductory material for fifty dollars in cash. The second letter, from California, consisted primarily of a number of strange assurances. "Once you are sponsored by a Commonwealth representative," it promised, "you will experience what can only be described as a 'lifestyle change.' Privacy and asset protection is a journey, not an event." It ended by noting that "your Commonwealth representative is available to help you get started. The next move is up to you." (75)
Other Trust Vendors and Trust Twists
Because pure trusts are so easy to market--requiring virtually no work on the part of the vendor, which makes the "annual maintenance fees" that some pure trust marketers require a humorous proposition--the number of people who do so is very high. Often marketers are "agents" or "representatives" for organizations, and may well believe that all the promises offered by the pure trusts are true. They sell the trusts to family members, friends and co-workers. Other pure trust vendors are prominent individuals in the "patriot" movement, who sell the trusts as a sideline to pick up some extra money. Jack McLamb, for instance, the former Phoenix police officer who started the group Police-Against-the-New-World-Order, sells trusts in his monthly newsletter "Aid-and-Abet." William Cooper, the Arizona shortwave broadcaster and militia leader (as of this writing a fugitive for not showing up for his trial on tax charges), similarly sells trusts in his monthly newsletter "Veritas." Charles Eidson, head of the white supremacist Church of the Avenger and the Tampa Freedom Centre, advertises his pure trusts in "patriot" publications such as the American's Bulletin. For all of these, trusts are merely a sideline to their main activities.
In an interesting twist on the pure trust scheme, some scammers use pure trusts in order to achieve other ends. This was the case for Eileen Belcar and her son Cedrick Robles, Arizona residents who in 1996 purchased an "unincorporated business organization pure trust" from none other than Lynne Meredith in order to help them start Global Assistance Network for Charities. GANC was nothing other than an Internet-based pyramid scheme in which investors could pay $70 initially and $50 a month, yet eventually receive $89,500 a month. Belcar and Robles created another pure trust, Quantum Resources, to be the "beneficiary" of GANC; they themselves were merely managers who had "no legal right to any profits of GANC," able to receive "compensation" but not "profits." GANC was an unsophisticated scheme run by unsophisticated individuals who seem honestly to have believed that the pure trusts were legitimate ("I am still looking for a lawyer whom we can retain who understand [sic] Pure Trust Business," lamented one GANC principle on the Internet). In fact, they also marketed Meredith's trusts, although that was not their main emphasis. Belcar and Robles also announced their affiliation with the "common law" movement. "We are Sovereign Citizens, not Federal Citizens," read one Internet announcement. "GANC is a pure trust who is sovereign entity and Me and Cedrick has earned our right to be a Sovereign citizen. The IRS and FTS has no jurisdiction over us…We do not have to follow their orders." They also told their investors that "as a Pure Trust UBO we do not have to report to government agencies and you do not have to declare your income from Quantum Resources and/or GANC as a taxable income because it is derived from a trust. This is your constitutional right as a Sovereign citizen." Luckily the Federal Trade Commission stepped in and shut down their nascent operation not long after it began. Belcar and Robles merely had to pay restitution of nearly $5,000 and agree never to enter into that sort of business again. (76)
A considerably more serious pyramid scheme involving pure trusts was that created by Wealth International Network, an Atlanta-based organization led by Andre Brady with help from others. In 1995 reports began surfacing that WIN had, through an entity called "Discovery Financial Investments," begun operating a pyramid scheme. The WIN scheme, like that of GANC, used the notion of the pure trust as a way to convince investors that the government could not intervene. It suggested that the Rockefellers, Kennedys, Rothschilds, Carnegies and Mellons, among others, had used "constitutional trusts" to enrich themselves. WIN's program would establish "individual contracts" between investors and the trust into which they would put their money. When the New Mexico Securities Division ordered WIN and Discovery Financial Investment to stop giving seminars, WIN "mentor" David Gardener refused, arguing that the contracts were constitutionally protected. WIN/DFI told investors that their money would be invested in gold coins, collectible coins, commercial paper and foreign currencies. The scheme took in more than $13.5 million from gullible investors before a federal court in late 1995 finally issued an injunction against it. The Securities and Exchange Commission seized only about 50 cents on the dollar in assets, meaning that many victims had no hope of seeing their money again. Andre Brady himself was indicted on securities laws violations in North Carolina. However, as of December 1996 he was still active with WIN, announcing the launch of a stock market prediction magazine using "neuropro pattern recognition software." (77)
Another entity still in operation is Netware International, run by North-Carolina based David Bear, which opened its "doors" to business in 1997 as Netware International Bank. This "bank," based on the World Wide Web, had no state or federal charter, yet it promised a 20% return on savings accounts and 10% on interest-bearing checking accounts. It also offered "profit sharing" for its "founding members." Among its many diverse operations, Netware sold pure trusts. In fact, it claimed that it was not a bank (despite its title, later changed) but rather a "private membership club" operating as a "constitutional bank," whose purpose was to set up trusts. Within seven months of its opening, it had 3,000 members who had paid $230 to $1,000 each to set up pure trusts. After the FBI raided the bank in July 1997, seizing its records, Network dropped all of its "banking" operations and turned to selling gold coins and offering multi-level marketing schemes, as well selling pure trusts. Since then, it moved to a different website that appears to be inoperative. The people who designed its original website, however, have renamed themselves "One Digital Planet" and continue to market pure trusts. In fact, one program combines pure trusts and multilevel marketing. "We have one of the hottest moneysaving and moneymaking products," their website advertises, "constitutional Common Law Pure Trusts!" Visitors to the website are encouraged to pay $1,550 for three pure trust organizations. Participants in the scheme must recruit five additional "seeds" who will purchase pure trust organizations. At this point, participants still receive no money, but when their '"seeds" find other "seeds," then "the magic begins." Participants will receive $400 each time one of their "branches" finds a new "seed," thus leading to a $10,000 "harvest" when their five branches each find five other people. If all twenty-five branches are created, then the "harvest" increases from $400 to $4,000. And in a third level, when some incredible number of people have found a huge number of "seeds," the "harvest" increases yet again to $1,000,000. Not surprisingly, the "MoneyTree" is the brainchild of "self-made millionaire, author, lecturer and success motivator, Lynne Meredith." (78)
Another self-made millionaire for whom abusive trusts were appealing was Lonnie Schmidt, who engaged in various money-related schemes during the 1980s and 1990s. Schmidt's first venture was a "warehouse bank," a sort of underground bank designed to sidestep government-required financial reports by doing its "transactions" in gold and silver. He used the bank to launder money for various groups. One such group was an extremist group that issued some $2 billion in fraudulent sight drafts, not all that dissimilar from the bogus financial instruments created by the Montana Freemen years later, to attack the Federal Reserve and to gain money. Banks lost an estimated $3 million to the scheme. The Internal Revenue Service raided his warehouse bank in 1985 after it laundered money given to it by undercover IRS agents posting as members of organized crime groups. Schmidt himself was indicted in 1988 and two years later was eventually sentenced to nine years in prison on money laundering and other charges. However, even after being indicted, Schmidt continued his operations, convincing over 20 North Carolina investors to invest millions of dollars in "unincorporated business organizations" and "pure trust organizations" handled by a bogus offshore bank, First Surety, set up by Schmidt. His scheme bilked the investors, most of whom were elderly, of some $2.8 million. (79)
The use of pure trust schemes in various forms as part of attempts to separate people from their money is pervasive. Variations appear constantly, with no signs of slowing down. One scheme which appeared recently on the Internet is "Freedom's Call," billed as a "private membership club dedicated to personal and financial freedom." Freedom's Call, operated by Chuck and Linda Meyers, two sovereign citizen activists in Colorado, consists of three stages. The first stage, "Understanding," costs $999 to reach. For this fee, members will receive "a home study program researched and compiled by one of America's most skilled paralegals, Linda Sanders." This program includes a copy of the "Citizen's Rule Book" (a slim jury nullification pamphlet), an audiocassette, and some documents urging people to place their assets in pure trusts. Ambitious members can aspire to the second stage, "Prosperity," which costs a mere $5,999. At this level, members will attend an "intensive workshop" on how to market through the Internet at a "desirable resort location" somewhere within the United States, "paid for by Freedom's Call." The third level, "Protection," costs $16,999 for those people ready "to explore the challenge and excitement of life as a free Citizen of the world." Members will be "wooed" by representatives of "various countries of the world" to conduct business in their jurisdictions and will visit several Caribbean islands as part of a luxury cruise "paid for by Freedom's Call." Not surprisingly, Freedom's Call is also a pyramid scheme in which members build "prosperity triads" of "Qualifying Lines." Prospective members must sign an application form in which they agree to a number of conditions, from never using "force, threat of force nor fraud" to further the ideals of Freedom's Call, to agreeing that any disputes between members and Freedom's Call "shall be exclusively resolved by binding arbitration through the AAA International Arbitration Network" within the jurisdiction designated by Freedom's Call. (80)
Dealing with the Pure Trust Problem
It is clear that pure trusts have become a significant problem. Clever and unscrupulous individuals have found ways to use the pure trust, as well as the bogus but seemingly legitimate arguments developed over the years in its favor, to defraud thousands, if not tens of thousands, of people. A few use pure trust arguments merely to help them with much more elaborate and sophisticated investment scams. Many more are satisfied merely with selling pure trusts to unsuspecting victims who are unaware that all of the promises will go unfulfilled. These victims may lose more than the few thousand dollars given to vendors; when the Internal Revenue Service catches up with them, they may suffer severe penalties. Thinking that they are emulating the Rockefellers and the Kennedys, they are unaware that such individuals have at their disposal sound financial advisors who would warn them away from any scheme as unsound and unpromising as a pure trust.
What can be done about pure trusts? The Internal Revenue Service is attempting to crack down on those people who use them, although it is too soon to tell if it is having any effect. But the best solutions are preventive ones: it is better to stop someone from setting up a pure trust in the first place than to have to punish them for having done so. The key tool to prevention is education. Here, the Internal Revenue Service has tried to do its duty. Its Notice 97-24, for instance, was widely promulgated in newspaper articles and various accounting and other professional journals. But the Internal Revenue Service suffers from a virtually unconquerable credibility barrier in attempting to reach the audience to whom pure trusts are marketed. The "patriot" movement contains a great many members who would sooner believe the most fumbling, inarticulate scam artist than the hated and feared IRS. Nor do its members trust attorneys and accountants, who are the other groups most prepared to offer sound advice and warn people away from pure trusts and similar schemes. Agencies like the Federal Trade Commission and its state-level equivalents might be more believable, but even here there is distrust.
Consequently, education and consciousness-raising must take place in other venues. Government agencies need to reach out more vigorously to non-governmental entities that might effectively distribute its message. Key among them are groups like the American Association of Retired Persons and both major and minor church organizations. All of these can help warn people against believing in the extravagant promises of pure trust vendors. Agencies should not be afraid to reach out to more marginal organizations as well, since warnings from such groups might have a greater impact in the target communities. The organ of the John Birch Society, for instance, The New American, despite its extreme right-wing orientation, is receptive to printing articles debunking various scams or conspiracy theories. An approach to that magazine might result in an article that could warn people about the pure trust scam.
After prevention, the next most important category is enforcement. To date, unfortunately, the emphasis seems to have focused largely on either the perpetrators of large investment and pyramid scams or on the tax evaders who use pure trusts. Largely left untouched--in many cases for years on end--are those groups and individuals marketing pure trusts. Imaginative application and energetic enforcement of the various fraud and mail fraud statutes would go far towards halting the operation of many pure trust vendors. California is just one state that has openly declared that promoting pure trusts constitutes fraud. Even severe warnings could shut down some of the more marginal vendors who believe that their products are legitimate. It is also crucial that authorities make themselves aware of the existence of such schemes. Even many Internet-based schemes are able to go on for months before drawing the attention of authorities, despite the fact that it is difficult to be more public than on the Internet. Some consumer protection agencies have begun to realize the pervasiveness of questionable schemes on the Internet and have set up websites designed to elicit tips and referrals. Some have even announced a more active investigation of Internet-based schemes. However, there is much, much more to be done in this arena. Investigators should also be aware that many vendors of pure trusts are also engaged in other scams; in this way, the presence of the pure trust rhetoric may be a valuable indication of possibly illegal activity of other types.(81)
Finally, legislation should be considered. While current law is very good at describing different types of legitimate trusts and business arrangements, it is not at all effective in establishing in clear language what is not a legitimate arrangement. Federal or state law that clearly outlined and made illegal certain types of arrangements, or the marketing thereof, would give strong guidance to authorities that should activity should be pursued and punished. Such language would also greatly enhance efforts at education and awareness, since it could be pointed to by consumer protection advocates, both governmental and private.
The pure trust problem is a particularly difficult one, because its greatest pool of victims is generally anti-government and anti-authority in nature. As a result, efforts at both education and enforcement become more difficult. Victims may not believe government warnings; they may not cooperate with law enforcement authorities. But the mere fact that many victims are anti-government does not mean that their government does not owe them protection. Consequently, all measures aimed at curbing the disturbing proliferation of abusive trust schemes like pure trusts need to be considered. The presence of the Internet alone guarantees that if vigorous action on every level is not taken, the problem will greatly increase.
1. "Trust Bank Account," posting, Internet web-based discussion group. Many of the quotations in this report are from web-pages or websites that tend to be very short-lived. In fact, some of the web pages used as references disappeared even before the report was completed. As a result, the author has given more generic citations, using page titles and website titles (if available), rather than full URLs. Copies of relevant documents can be made available to interested parties. On a separate note, the author would like to express his appreciation and thanks for assistance, advice and help rendered to him by a great many people during the research and writing of this report. While they are in no way responsible for any errors or inaccuracies, they are indeed responsible for helping make it a better and more useful document. People deserving thanks include, but are not limited to: Michael Wilson, Jeff Ryan, Stacie Dotson, Mark Coulston, Ralph Brock, Peter Haskel, Jay Adkisson, Stefan Leader, Ilse Bailey, Suzanne James, the participants in the Columbus Focus Group, and my colleagues at IIR..
2. On two-cent stamp scam, see Consumer Protection Report, National Association of Attorneys General, December 1995; "Electronic Scam Charges Filed Against Six," July 20, 1995, Newsbytes News Network.
3. This report concentrates almost exclusively on "domestic" trusts; that is, trusts which are situated within the boundaries of the United States and its territories. However, virtually everything in this report can also apply to the many "offshore trust" schemes which exist and are often marketed by the very same people.
4. This author once gave $20 to a man who said he needed money for gas to get his wife and daughter back to Las Cruces, New Mexico. He later discovered a friend had given the same person money for the same reason one week earlier.
5. For recent examples, see Bill Douthat, "Panels to Fight Crimes Against County Seniors," The Palm Beach Post, May 28, 1998; Kim Tyson, "Hooked on Hope," Austin American-Statesman, May 10, 1998; Joe Robertson, "A Knack for Making Fast Money; FBI Says $40 Billion a Year Taken Mostly from Elderly," Tulsa World, April 5, 1998.
6. Some such scams are described in "Judge: Investors to Recover Investments in Jewelry Scam," Miami Daily Business Review, May 19, 1998; Irving Faught, "Affinity Fraud Uses People's Interests to Scam," The Sunday Oklahoman, May 17, 1998; Nancy Cleeland, "Immigrant Task Force Arrests 1," Los Angeles Times, May 14, 1998.
7. Examples of such targeting include "Former Pastor Accused of Misleading Fellow Evangelists in Investment Scam," Associated Press, article, printed in Portland Press Herald, July 30, 1997; Paul Merrion and Michael Fritz, "How Ponzi Prey Were Suckered; A Tale, Perhaps, of Too Much Good Faith," Crain's Chicago Business, May 29, 1995. On the Amish, see Scott Canon, "Cultural Differences Test a Prosecutor's Power of Persuasion," The Kansas City Star, October 23, 1996; David R. Sands, "Fleeced in the Land of the Free," The Washington Times, November 10, 1991.
8. Few studies of the "patriot" movement exist. One sociological study is James A. Aho, The Politics of Righteousness: Idaho Christian Patriotism, (Seattle: University of Washington Press, 1990).
9. " Jim Doyle "Alleged Tax-Dodging Operation Raided by IRS," San Francisco Chronicle, February 26, 1992; H J. Cummins, "Psst! You Don't Have to Pay Tax (But Try Telling the IRS That)," Long Island Newsday, June 6, 1993; "IRS Makes Announcement," Business Wire, December 7, 1993; Jim Doyle, "Tax Protest Network Charged with Intent to Defraud U.S.," San Francisco Chronicle, December 8, 1993; Howard Mintz, "Taxing Clients," The Recorder, April 15, 1994. The first trial for members of the Pilot Connection Society ended in convictions on only a few counts, with acquittals on others and deadlocks on most. In late 1995 a second trial resulted in convictions for six of the Society's leaders. In June 1996 the 71-year old Philip Marsh received a sentence of 17 years. The other defendants received sentences ranging from five to 14 years. Some of the charges against Marsh were recently overturned on appeal, apparently on technical grounds.
10. "Don't Get Mad, Get Even," We the People flyer in the author's possession; "History of the Reconstruction Applications," http://www3.10pht.com/money.txt.
11. Ibid; Robert Baun, "'He Can Drag Just About Anybody In': Accused Con Man Pushes People Power," The Coloradoan, July 12, 1993; Clair Johnson, "Texas Jurors Convict Crusader," The Billings (Montana) Gazette, March ?, 1994.
12. Robert Baun, "Lien Scheme Followers Unperturbed," The Coloradoan, November 1, 1993; Stacey Baca, "'We the People' Members Indicted," Denver Post, January 24, 1995; John Parker, "'Patriot' Pair Found Guilty in Bank Scam," Daily Oklahoman, July 24, 1997; "Leader of Mail Fraud/Money Laundering Conspiracy Found Guilty on all 43 Counts," Press Release, June 13, 1997, U.S. Attorney's Office, Northern District of Iowa.
13. "Where Did Trusts Originate From?" Worthington Group website document; "The Origin of the Pure Trust," document from www.webtrust.com.
14. Ibid; Zola Sheehan, "What is a Common Law Trust?" Preparedness Expo website.
15. Glen Halliday, "The Truth About Trusts," Trustlaw website; Advertisement for brochure called "Pure Contract Trusts and Business Trusts," Apollo Publishing International website. www.rosemart.com/apollo/; "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html; "The Complex Trust: A Special Report," The Heritage Institute for Estate Planning website. Halliday sites, as do many others, the following quotation in support of his argument: "The United State Supreme Court holds that the (contract) TRUST relationship is based upon the common law, and is not subject to legislative restrictions as are corporations and other organizations created by legislative authority." He gives as a citation Crocker v. MacCloy, 649 US Supp 39 at 270.
16. "An Introduction to PURE CONTRACTUAL TRUSTS," American Legacy Resources website.
17. "The Complex Trust: A Special Report," The Heritage Institute for Estate Planning website.
18. This brief explanation of the "sovereign citizens'" philosophy does not do justice to their intricate belief system. For more information, see Mark Pitcavage, "Common Law and Uncommon Courts: An Overview of the Common Law Court Movement," (Tallahassee: The Institute for Intergovernmental Research, 1997).
19. Tim Richardson and Johnny Liberty, "Common Law Trusts"/"Wise Use Trust Package," Cascadian Resource Center website, www.cascadian.com; "Perpetual, Unpenetrable Privacy and Security," Solutions Group website.
20. "How to Contact Us," Innovative Financial Consultants website; "Armorshield Universe Pure Trust Information Brochure," author's possession. Commonwealth Trust Company statement is included in a June 15, 1998 letter to the author.
21. "Pure Contract Trusts and Business Trusts," Apollo Publishing International advertisement, Apollo Publishing website; "Protect Your ASSets," Unincorporated Sovereign Contract Trusts advertisement on the Internet.
22. "Asset Management Report," Financial Fortress Associates website; "PROTECT your property from Tax Liens, Confiscation and Lawsuits!" Solutions Group advertisement on Usenet.
23. "Protect Your ASSets," Unincorporated Sovereign Contract Trusts advertisement on the Internet.
24. Advertisement, Financial Freedom International, Ltd., website.
25. Advertisement, Sovereignty Pure Trusts website, www.angelfire.com; "Laguna Life Financial Quiz: Do You Need a Trust?" Laguna Life website; "Asset Management Report," Financial Fortress Associates website.
26. "Welcome to Clark and Associates," Clark & Associates website; "Perpetual, Unpenetrable Privacy and Security," Solutions Group website.
27. "Where Did Trusts Originate From?" Worthington Group website document; "UBO -- Privacy & Tax Tool of the Astute," Worldwide Financial Report, Vol. 1, Issue 1 (it is really an advertisement, not a periodical), Worldwide Wealth Systems website.
28. Glen Halliday, "Frequently Asked Questions," Trustlaw website; "Protect Yourself!" EHMT Do-It-Yourself USA Trusts advertisement, EHMT website, www.ehmt.com; "Frequently Asked Questions about the Do-It-Yourself USA Complete Trust System!" document e-mailed to author by EHMT.
30. "Pure Contract Trusts and Business Trusts," Apollo Publishing International advertisement, Apollo Publishing website.
31. Global Privacy Management Trust advertisement, GPMT website; "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html.
32. "Tax Exempt Pure Trust," EHMT website, www.ehmt.com; "Frequently Asked Questions about the Do-It-Yourself USA Complete Trust System!" document e-mailed to author by EHMT; Advertisement, Sovereignty Pure Trusts website, www.angelfire.com.
33. Tim Richardson and Johnny Liberty, "Common Law Trusts"/"Wise Use Trust Package," Cascadian Resource Center website, www.cascadian.com; "Why Should I Have a Trust Organization?" American Beauty Rose website, www.yelmtel.com; Glen Halliday, "The Truth about Trusts," Trustlaw website.
34. "Pure Contract Trusts and Business Trusts," Apollo Publishing International advertisement, Apollo Publishing website; "The Liberty Pure Trust, the Ultimate Asset Protection," advertisement, El Shaddi Management Trust website; "The Complex Trust: A Special Report," The Heritage Institute for Estate Planning website.
35. "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html.
37. Ibid; Zola Sheehan, "What is a Common Law Trust?" Preparedness Expo website.
38. "Welcome to Clark and Associates," Clark & Associates website.
39. "Pure Contract Trusts and Business Trusts," Apollo Publishing International advertisement, Apollo Publishing website.
40. "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html; "Welcome to Clark and Associates," Clark & Associates website; Arthur Thomas, "The Irrevocable Business Trust," Life & Health Insurance Sales, August 1995, 70-75; Lonnie D. Crockett, "Maybe Its [sic] Time for a Business Trust!" e-mailed to author by Dale Pond, Deltra Spectrum Research, Vibration Research Institute and Laboratories, January 26, 1998.
41. "Where Did Trusts Originate From?" Worthington Group website document; Glen Halliday, "Frequently Asked Questions," Trustlaw website.
42. Mar Services L.C. advertisement, Mar Services website; Concept Marketing International advertisement; Concept Marketing/Silver Eagle Investments website; "Can you Trust Your Trust?" Taxgate Research Group website; Financial Freedom International, LTD., advertisement, Financial Freedom website; Advertisement, Sovereignty Pure Trusts website, www.angelfire.com; "Why Should I have a Trust Organization?" American Beauty Rose website; Forever Free Financial Concepts advertisement, Forever Free website.
43. "Common Law Trusts," advertisement posted to Usenet (alt.prose), February 26, 1996, by "John Spencer;" "Your Right to Contract is Guaranteed by the U.S. Constitution!" J.A.L. Financial website; EHMT Do-It-Yourself USA Trusts advertisement, EHMT website, www.ehmt.com; "Frequently Asked Questions about the Do-It-Yourself USA Complete Trust System!" document e-mailed to author by EHMT; Global Privacy Management Trust/USA Trust advertisement, GPMT website, www.gpmt.com.
44. "Asset Management Report," Financial Fortress Associates website.
45. "Status of the Pure Trust Organization," Sovereignty Pure Trusts/Liberty International website; "Lawfully Stop Paying Taxes," advertisement for Compass Company NW, posted on the World Wide Web; "Perpetual, Unpenetrable Privacy and Security," Solutions Group website.
46. "Frequently Asked Questions about the Do-It-Yourself USA Complete Trust System!" document e-mailed to author by EHMT; Gibraltar Trusts advertisement, Gibraltar Trusts website.
47. "Tax Exempt Pure Trust," EHMT website, www.ehmt.com; "What is a Pure Trust?" Apollo Publishing International website; "PROTECT your property from Tax Liens, Confiscation and Lawsuits!" Solutions Group advertisement on Usenet.
48. "UBO -- Privacy & Tax Tool of the Astute," Worldwide Financial Report, Vol. 1, Issue 1, Worldwide Wealth Systems website.
49. "Your Right to Contract is Guaranteed by the U.S. Constitution!" J.A.L. Financial website; scanned letter from Charles F. Felthaus to Paul Karl Gregory, Dec 17, 1996, Financial Fortress Associates website. Other, similar letters also exist.
50. "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html.
51. "Introduction to the Common Law Business Organization," The Aegis Company website.
52. Ibid; "IRS Approved Pure Trust," Christopher Financial & Marketing Group website, www.angelfire.com/biz/superiorpromotions/trustinfo.html.
54. Glen Halliday, "Frequently Asked Questions," Trustlaw website; Pennybaker v. Commissioner of Internal Revenue, Tax Ct. Dkt. No. 28283-91.
55. New York Times, January 7, 1977; Wall Street Journal, July 13, 1977; Untitled article, Jeffrey Mills, Associated Press, February 8, 1977; "Tax Court Continues Crackdown on Tax Shelters," Jim Luther, Associated Press article, April 17, 1982.
56. Wall Street Journal, July 13, 1977; "No Way Out," U.S. News & World Report, October 24, 1977; "Still Trying," U.S. News & World Report, June 20, 1983; Untitled UPI story, May 7, 1981.
57. Wall Street Journal, July 13, 1977; "No Way Out," U.S. News & World Report, October 24, 1977.
58. Michael A. Vallone, "The Truth About Business Trusts," Aegis Company website.
59. "Why Financial Fortress Associates?" Financial Fortress Associates website; Lonnie D. Crockett, "Maybe Its [sic] Time for a Business Trust!" e-mail to author by Delta Spectrum Research, January 26, 1998; "Lawfully Stop Paying Taxes," advertisement for Compass Company NW, posted on the World Wide Web.
60. Robert L. Sommers, "Using Trusts to Avoid Paying Taxes -- Will This Work?" TaxProphet Hot Topics, April 1996, TaxProphet website; Robert L. Sommers, "How to Identify Fraudulent Trusts," San Francisco Examiner, May 26, 1996; Robert L. Sommers, "IRS Begins Cracking Down on Fake Trusts," San Francisco Examiner, April 20, 1997; Robert L. Sommers, "IRS Indicts Two Men for Phony Trusts," San Francisco Examiner, July 20, 1997.
61. Jan M. Rosen, "A Trust or a Trap? The I.R.S. Wants to Know," The New York Times, May 25, 1997; Grace W. Weinstein, "The Trusts That Can Get You in Trouble," Investor's Business Daily, May 13, 1997. See also Richard Duff, "How to Make Headlines the Hard Way, Part II," Journal of Financial Planning, August 1997, 38-40.
62. Sommers, "Using Trusts to Avoid Paying Taxes."
63. Ibid; "Alaska Trusts and Delaware Trusts," 1st American Legal Corporation website, www.falc.com; Stephan R. Leimberg, "Trust Me on This: IRS Warns of 'Abusive Trusts,'" article posted on "Mr. Long-Term Care" website.
64. Sommers, "Using Trusts to Avoid Paying Taxes;" "Some Claims of Trusts Are Less Than Trustworthy," Buffalo News, April 14, 1998.
65. Howard D. Rosen and Patricia A. Donlevy-Rosen, "Internal Revenue Service Targets Abusive Trust Arrangements," Journal of Asset Protection 2 (July/August 1997: World Wide Web version).
66. Joseph Finora, "IRS Takes Aim at Trusts," Private Banker International, November 1997; Norman D. Williams, "Three Roseville Men Accused of Tax Scheme," Sacramento Bee, April 19, 1997; Robert L. Sommers, "IRS Indicts Two Men for Phony Trusts," San Francisco Examiner, July 20, 1997; Kathy Kristof, "IRS Warns of Impending Crackdowns on Abusive Trusts," The Denver Post, June 9, 1997.
67. News broadcast, KSHB-TV, July 8, 1997; South Carolina Department of Revenue press releases, July 31, 1997, August 1, 1997.
68. Michael A. Vallone, "The Truth About Business Trusts, Part II," Aegis Company website.
69. "Senator Trent Lott's Dissatisfaction With the IRS," Worthington Group website.
70. Maxham v. Excalabur Int'l Capital Corp. (1995), 13 B.C.L.R. (3d) 280 (S.C.).
71. Brian W. Haines, "A Trust that Lasts Forever," Longevity Report, October 1993. Evidence suggesting that the Commonwealth Trust Company targets "sovereign citizens" or members of the "patriot" movement can be found in various records. For instance, records in some counties in North Carolina contain mortgages and quit-claim deeds where people transferred their assets to pure trusts. Some of these same individuals also filed notices declaring themselves "sovereign citizens." They can be traced back to agents of the Commonwealth Trust Company, which logically (though not definitively) suggests that the Company helped them set up their trusts.
72. Maxham v. Excalabur Int'l Capital Corp. (1995), 13 B.C.L.R. (3d) 280 (S.C.).
74. This account is largely based on articles by Andrea S. Brown and Tim Buckwalter in the Lancaster New Era, on August 13, 14, and 17, 1993.
75. Don Bauder, "Secretive firm's 'Pure Trusts' are Pure Baloney," The San Diego Union-Tribune, April 30, 1995; Richmond Times Dispatch, March 4, 1996, March 18, 1996, September 30, 1996, March 24, 1997; Sam Brown to author, June 15, 1998; W.C. Marshall to author, June 15, 1998.
76. "G.A.N.C. Global Assistance Network for Charities…" Usenet posting by Jos Duerinck in alt.business.multi-level, July 11, 1996; "Stand Upon Your Constitutional Rights," Usenet posting by Jos Duerinck in alt.business.multi-level, August 22, 1996; "G.A.N.C. Listserv," Usenet posting by Jos Duerinck in alt.business.multi-level, August 21, 1996; Don Bauder, "Investors are drained, but he looks Marvel-ous," The San Diego Union-Tribune, November 27, 1996; "Internet Pyramid Operators Settle FTC Charges: Get-Rich-Quick Charity Scheme Shut Down," Federal Trade Commission Press Release, May 12, 1997; Federal Trade Commission v. Global Assistance Network for Charities, Stipulated Final Judgment and Order for Permanent Injunction and Consumer Redress against Eileen Belcar and Cedrick Robles, CIV-96-2494 PHX RCB.
77. Josiah Cantwell, "Wealth International Network: Investing Group Ordered to Halt Local Operation," Wilmington Star-News, April 5, 1995; Josiah Cantwell, "Investor Group Fails to Show Up for Hearing on its Solicitations," Wilmington Star-News, April 12, 1995; Rob Wells, "SEC Charges Atlanta Concern Was Illegal 'Pyramid' Scheme," Associated Press article, July 7, 1995; Kit Smith, "Wealth International Network's Assets Frozen," Honolulu Advertiser, July 8, 1995; "Wealth International; Hearing Opens on Firm's Alleged Pyramid Scheme," Wilmington Star-News, July 13, 1995; Daniel Roth, "Scheme, Not Inspiration, Said To Be Firm's Mode," [Raleigh, NC] Triangle Business Journal, July 21, 1995; Patrick Armijo, "Finance Firms Ordered to Desist," Albuquerque Journal, August 10, 1995; Patrick Armijo, "Asses of Suspected Schemes Frozen," Albuquerque Journal, August 10, 1995; Patrick Armijo, "'Mentor' Cites Constitution," Albuquerque Journal, August 10, 1995; Patrick Armijo, "Two Investment Companies Ordered to Return Millions," Albuquerque Journal, November 9, 1995; "Winners is a Winner," PR Newswire, December 6, 1996.
78. Ken Elkins, "FBI Seizes Internet Bank's Records," Charlotte Business Journal, July 28, 1997; "Bank Offers Members Profit Sharing and More," World Wide Web discussion group posting by "Tony," June 26, 1997; "Security: Phony Banks Multiply on Internet," The American Banker, August 4, 1997; "Million Dollar MoneyTree," One Digital Planet website, www.homebizcentral.com/moneytree.htm; see also http://www.homebizcentral.com/nianalysis.htm for indications that the managers of One Digital Planet are still involved with Netware.
79. "Government Says Sacramento Bank Laundered $200,000," Associated Press article, October 25, 1985; "Five Sentenced for Billion Dollar Fraud Scheme," UPI article, December 18, 1989; Mike Pulley, "Patriot or Con Man?" Sacramento Business Journal, September 10, 1990; Ramon Coronado, "Jury Weighing Fraud Charge Against Two in $2.5 Million Case," Sacramento Bee, May 21, 1993; "$7 Million Verdict in Fraud Trial," Sacramento Bee, May 26, 1993.
80. Freedom's Call website.
81. Robert L. Sommers, "Hot Topics: Tax Scams -- An Update," May 1998 Hot Topics, TaxProphet website.