Bitcoin is Booming in Miami. But can you buy a House with it?

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January 26, 2018
By Rene Rodriguez

They gathered in downtown Miami — an estimated 4,350 Bitcoin believers — to trade pitches for apps and start-ups. They discussed and debated trends in cryptocurrency. They speculated about the volatility of Bitcoin, which shot up in value from $900 to $19,000 over the course of 2017 and is currently hovering around the $10,000 mark.

But despite the national stir created last fall when a $544,500 Edgewater condo was listed for sale in “Bitcoin only,” none of the panels or presentations at Miami’s sixth annual North American Bitcoin Conference focused on real estate. Although Bitcoin is the oldest and best-known of the nearly 1,500 kinds of cryptocurrencies currently available, real estate developers, brokers and analysts are cool on its use in an industry that is literally defined by physical assets.

In other words, if you’re hunting for a home, don’t worry that you’ll get outbid by a buyer offering cryptocurrency. At least not yet.

“I think it’s fine to buy Bitcoin, because high risks lead to high returns, and I believe in capitalism,” said Nela Richardson, chief economist for Redfin, a national real estate brokerage. “But when you come to buy my house, I’m going to need a currency that I can use to buy milk at the grocery store. I wouldn’t accept junk bonds or a lottery ticket as a payment. Any currency that drops 45 percent in value within three months, like Bitcoin has done, is not a currency that is stable enough for large transactions.”

According to Redfin, only 134 out of the site’s total 568,000 listings in December 2017 — a miniscule .03 percent — included a Bitcoin mention.

Created in 2009, Bitcoin is digital currency tracked on decentralized ledgers — called blockchains — that keep a real-time, immutable record of every transaction made around the world. Buyer and seller interact directly. Bitcoins can be purchased through a digital currency exchange or broker and are kept in a “wallet” that protects the user’s anonymity. And because the blockchain system is not centralized, security is considered to be significantly safer than current e-transaction software.

For now, at least, Bitcoin is not regulated by any bank, state or nation.

General awareness of Bitcoin and blockchains exploded in 2017 as the cryptocurrency’s value skyrocketed. Earlier this month, the stock price of Eastman-Kodak shot up 89 percent, to $10.70 a share, just a day after the company announced an Initial Coin Offering (ICO) to develop a blockchain system for photographers to secure the digital rights of their work.

Miami is one of the nation’s staunchest and most enthusiastic cryptocurrency hubs, and proponents of Bitcoin argue that cryptocurrency is a perfect fit for real estate. On Dec. 22, the first-ever Bitcoin-only real estate deal in Miami closed, with a buyer paying 17.741 bitcoin — the market equivalent of $275,000 — for a two-bedroom condo at 777 NE 62nd St. in the Upper East Side.

But some experts believe a lot of the hype around Bitcoin is just that — hype. The currency’s value fluctuates so much that the value of a Bitcoin transaction could either gain or lose thousands of dollars in value within a week’s time. In an interview with CNBC on Jan. 10, billionaire investor Warren Buffett warned that the cryptocurrency craze is destined to end badly, costing a lot of people a lot of money.

“We’re in an area of hysteria right now involving Bitcoin,” said Andrew Ittleman, a partner at the Miami law firm of Fuerst, Ittleman, David & Joseph. “There are a lot of people making claims about Bitcoin that they can’t substantiate and for the most part are not meant to be substantiated. I do see a lot of uses for cryptocurrency in real estate, but I don’t see the disruptive effect some people are promising.”

Waning favor?

Andrew Hinkes, a partner at the law firm of Berger Singerman who specializes in technology-related issues, said cryptocurrency is nearing the end of its initial wave of interest from Wall Street and investment by new ventures. Bitcoin still has a long way to go before it is widely embraced by the real estate industry.

“Nothing has really changed insofar as how virtual currencies are impacting real estate,” he said. “A lot of people saw tremendous gains in the values of their holdings in 2017. But now that the IRS has made clear how they want to treat the gains on crypto like Bitcoin, there’s uncertainty in the market as to how you sell them and find value. In South Florida, that’s traditionally in the ground. But if you want title insurance, or if there are any liens or taxes that are owed, those will have to be payed with fiat currency.”

A giant Bitcoin logo welcomed visitors outside the James L. Knight Center during the North American Bitcoin Conference held Jan. 18-19, 2018.

Although the Internal Revenue Service taxes Bitcoin capital gains — if you cash
out for a profit, the IRS gets a cut — there’s no procedure in place that forces people to report those transactions. (In November, the IRS ordered Coinbase, a platform for buying and selling Bitcoin, to turn over information on accounts from 2013-2015 that were worth at least $20,000.)

The current lack of regulations is one of Bitcoin’s biggest draws for its users. And despite suspicion that Miami’s real estate market is prey to money launderers, it can be a deal-breaker for real estate. For example, South Korea, the third biggest cryptocurrency market in the world (after Japan and the U.S.), has banned anonymous cryptocurrency transactions, fearful of the potential for shady business.

That uncertainty and lack of transparency, combined with cryptocurrency’s volatility, is making real estate developers and investors wary.

“Bitcoin is too new of a form of currency,” said Daniel de la Vega, a Realtor with Sotheby’s International. “Anything that operates in a gray area is not something I would want to associate with. I do believe in the future of cryptocurrency. I’m just not bullish on it short term.”

The Miami Association of Realtors reports that sales of luxury ($1 million and above) condos and single-family homes in Miami-Dade County surged 47 percent and 16 percent respectively year-over-year in December. But the market is still glutted by too much supply, which caused the average luxury sales price to fall 6.3 percent in 2017, according to Mansion Global.

Still, the need to sell expensive properties is not enough to make developers rally behind Bitcoin — at least for now. Gil Dezer, president of Dezer Development, said if a buyer made a Bitcoin offer right now on one of the multimillion dollar condos at the Porsche Design Tower in Sunny Isles Beach, he would turn them “If Bitcoin is so easily transferable to cash, why do they need to pay with that?” Dezer said. “Why can’t they transfer it into cash first and pay with that? The transverse effect of that is the seller receiving the money. If he wants Bitcoin, he can take the cash and buy Bitcoin. Why would you use Bitcoin in the actual transaction?”

Peggy Fucci, CEO of One World Properties, said she has yet to come across a buyer or seller interested in using Bitcoin as a form of payment, but she understands Bitcoin’s buzzy appeal.

“I think the general consensus from the developers I work with and represent is that the whole deal with Bitcoin and real estate is a marketing thing — a way to get exposure for your property,” she said. “I don’t see it as a real thing yet. Most people don’t even know about Bitcoin and cryptocurrencies in general. Eventually, it is something that will be inevitable. But right now, it’s too early. We don’t use it. Instead, people are riding the wave of a phenomenal stock market.”

Realtors wary

Some Realtors who have had first-hand experience with Bitcoin agree that cryptocurrency isn’t yet ready for prime time in the real estate field.

Edgardo Defortuna, president and CEO of the real estate firm Fortune International Group, said his company has been involved in two listings where Bitcoin was in play: A $4.6 million home on Sunset Island where the seller accepted Bitcoin (the house eventually sold for $3.8 million via conventional loan) and a Key Biscayne condo currently on the market for $1.5 million (the seller received and turned down an offer for $1 million in Bitcoin).

“Bitcoin was talked about a lot last year because of the appreciation, but it has scared a lot of people away in the last month or two,” Defortuna said. “Cryptocurrency could be a player [in real estate transactions] in the future, but I’m not sure this Bitcoin craziness is the way to go yet.”

But Charles Penan, executive vice president of the real estate investment and merchant banking firm Aztec Group Inc., takes a more flexible approach. He currently has a property for sale at 4141 North Miami Ave. in Miami’s Design District — a three-story, nearly 16,000 square-foot building — for $14.5 million. The seller, Remy Jacobson of J Cube Development, is accepting cryptocurrency as payment.

“Crypto is a very viable alternative to traditional financing — for the right buyer and right seller,” said Penan. “They have to be more entrepreneurial. Bitcoin does not work for institutions, because they are more transactional and want instant gratification. They don’t want to assume any risk of fluctuation.”

Others are already doing due diligence, preparing themselves for what they believe to be an inevitable and radical change in traditional real estate transactions. Beth Butler, general manager of Compass Florida, a technology- focused real estate firm, said her company isn’t accepting Bitcoin yet. But she’s currently researching the field, tapping experts to figure out the problems that need to be solved before cryptocurrency can be readily used.

“So far, people are very open to it,” Butler said. “The appeal is that blockchain could make real estate transactions more secure. You wouldn’t have the wire fraud or hacking fraud that has been plaguing our industry in the last few years. But there’s a lot more that needs to be defined on a large scale first. The concept of blockchain suggests to me that state law and regulators will have to adopt some kind of policy to accept it.”

An optimistic gathering

Bitcoin believers, however, remain undaunted. German Montoya, chief strategy officer for the Miami-based venture-building company Rokk3r Labs, said the volume and enthusiasm of attendants at the North American Bitcoin Conference — far bigger than the roughly 100 people who turned out for the inaugural edition in 2012 — is evidence that cryptocurrency is destined to take hold.

“For a long time, the only thing you could do with Bitcoin was buy and sell it,” Montoya said. “There are only a few coffee shops in the world that take Bitcoin, for example. The more Bitcoin is used for real things, the more this coin will become a real alternative to others.”

At the conference, the main exhibition hall was crammed with start-ups hoping to use blockchain technology for everything from Bitcoin ATMs to virtual reality. Dr. Gor Van Ek, a respected figure in the blockchain field, flew in from Australia to promote his latest endeavor, Bitcar, a platform that will allow users to purchase an interest in exotic, rare and classic cars — a way of investment that has been traditionally exclusive to the wealthy.

“This is the third or fourth year that I’ve gone to that conference, and I had never seen this sheer scale and number of people who attended,” said Hinkes, the attorney. “That signals a certain threshold of consumers have been reached. Bitcoin is starting to make an impact and insinuate itself into the mainstream.”

Many of the panels at the conference delved into upcoming regulation that would stabilize Bitcoin and other cryptocurrencies for both consumers and government entities. That kind of regulation, if successful, could presumably offset Bitcoin’s volatility and make it a more viable and dependable medium for large-value transactions.

“Once there are enough things to spend Bitcoin on directly, the real estate market could never be a reason to go back to the dollar,” Montoya said. “You could have a whole economy where you use Bitcoin to buy and sell and spend.”

The questions, for now, are how long that wait will be and whether Bitcoin’s seesawing value can stabilize. Six weeks after all the hubbub, that Bitcoin-only condo in Edgewater still hasn’t sold. On Jan. 24, the price on the listing was quietly raised to 37 Bitcoin.

Despite the apparent increase, though, the adjustment actually brought the value of the condo down in dollars — from $525,000 to $410,000.

Nursing Home Patient’s Family Can’t Revive Axed Jury Win

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By Y. Peter Kang
January 17, 2018

Law360, Los Angeles (January 17, 2018, 8:54 PM EST) — A Florida appellate panel on Wednesday affirmed a trial judge’s decision to overturn a jury verdict in favor of the son of an elderly woman who allegedly died because of a nursing home’s negligence, saying the plaintiff’s medical expert’s opinion was contradicted by the evidence.

In a 2-1 ruling, a three-judge panel for the Third District Court of Appeal upheld the trial judge’s decision to set aside a jury’s verdict in favor of Robert Siegel in a suit accusing Cross Gardens Care Center LLC of providing negligent care for his mother, Sybil Siegel, which purportedly contributed to her death at the age of 88. The majority said Siegel’s medical expert, Dr. Lee Fisher, submitted a medical opinion that was contradicted by the patient’s medical records and that therefore his opinion should never have been presented to the jury.

The appeals court said the burden was on Robert Siegel to prove that the alleged negligence “more likely than not” caused the patient’s death.

“An examination of Dr. Fisher’s opinions indicates that, time and again, he drew inferences from the medical records that were not more-likely-than-not,” the 12-page majority opinion states. “Indeed, at critical points, his opinions are directly contradicted by the very medical records upon which they are purportedly based.”

In Fisher’s opinion, Sybil Siegel died of pneumonia and the nursing home’s medical staff had failed to properly monitor her and order her timely transfer to a hospital, but the panel said the doctor makes this assumption based on the fact that there were no entries in the nurse’s notes for a two-week period.

“The problem with this inference is that it is contradicted by the raft of medical reports indicating that Ms. Siegel’s condition was being constantly monitored, recorded, and reported throughout that period,” the majority said. “Dr. Fisher’s inference that the ‘gap’ in the notes signified that she was not monitored is worse than speculation: it is contradicted by the only evidence Dr. Fisher or the jury had.”

The majority also took issue with Fisher’s theory that Siegel could have lived for an additional three years had she received timely treatment, an assessment based on the fact that she had been previously hospitalized for pneumonia and survived.

“This is a total non sequitur,” it said. “It does not follow that because a person was admitted with pneumonia at age 60, 70, or 80 and survived that she will necessarily survive if she is admitted with pneumonia at age 88.”

The panel noted that Fisher never personally examined the patient so his assertion that she died of pneumonia is contradicted by the medical records, which state that the patient’s official cause of death was end-stage dementia and end-stage chronic obstructive pulmonary disease.

“Dr. Fisher’s opinion that pneumonia caused her death, which is based entirely on the medical records, but which is flatly contradicted by the medical records, is entitled to no evidentiary weight,” the court said.

In a dissenting opinion, Judge Robert J. Luck voted to reinstate the jury’s verdict, saying the legal principles for reviewing judgments notwithstanding the verdict does not allow the court to reweigh testimony and choose between conflicting evidence.

“After reviewing the conflicting records, listening to Dr. Fisher’s direct and cross-examination, and hearing the attorneys’ arguments during closing about why he should and shouldn’t be believed, the jury credited Dr. Fisher’s testimony in finding that the nursing home violated chapter 400, which caused the Siegel family’s injuries,” Luck said. “We should not reweigh Dr. Fisher’s testimony and substitute our view for the jury’s.”

Siegel had sought nearly $500,000 in damages, but the jury awarded a sum of approximately $6,100.

An attorney for the nursing home said he was pleased with the appellate ruling.

“We think the trial court and the Court of Appeal got it right,” said Christopher M. David of Fuerst Ittleman David & Joseph PL. “We think this opinion will go a long way in relieving nursing homes of being forced to prove negatives when defending themselves in court.”

An attorney for Siegel declined to comment on Wednesday.

Judges Thomas Logue, Edwin A. Scales III and Robert J. Luck sat on the panel for the Third District.

Siegel is represented by Douglas F. Eaton of Eaton & Wolk PL.

The nursing home is represented by Christopher M. David, Michael B. Kornhauser and Jeffrey J. Molinaro of Fuerst Ittleman David & Joseph PL.

The case is Robert Siegel v. Cross Senior Care Inc. et al., case number 3D16-600, in the Third District Court of Appeal, Florida.

–Editing by Jill Coffey.

What’s the Best Bitcoin Wallet?

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November 06, 2017
By John Divine

Storing Bitcoin is just as important as buying it. With a wealth of options available, which is best?

Bitcoin is hot. What once cost 6 cents in 2010 hit highs above $7,400 in 2017. If you own the cryptocurrency, or are even thinking of buying some, you’ll want to find the best bitcoin wallet you can.

Wallets are where the currency lives.

So, with blockchain technology here to stay, what’s the best bitcoin wallet for 2018 and beyond? With an emphasis on safety, here are the top five wallets and wallet types.

No. 5: Coinbase (online exchange). Online exchanges are, by and large, less secure than the methods described below. But Coinbase seems to have learned from the lessons of its predecessors, and is one of the biggest bitcoin exchanges in the world. It’s also user friendly; not only can you buy, sell, exchange and trade bitcoin on Coinbase, but you can store your bitcoin in a wallet there, too.

But the risks of keeping bitcoin on the same site where you buy it are steep, and there’s a poor track record.

“There’ve been many incidents of those types of service providers collapsing in the middle of the night and people losing serious amounts of money. Mt. Gox being a great example there,” says Andrew Ittleman, founder and partner of Fuerst Ittleman David & Joseph, a law firm in Miami.

In 2014, Mt. Gox was the Coinbase of the world, being the go to exchange for excited new cryptocurrency investors. That is, until February of that year when about 850,000 bitcoin vanished from its coffers – a haul that works out to about $6.29 billion at today’s prices.

In 2016, another hack took the Bitfinex exchange platform for 120,000 bitcoin, a $75 million score that would be worth more than $890 million by 2017.

Despite the tainted history of its predecessors, Coinbase’s ease of use, a more secure storage option called “Vault,” and two factor authentication put Coinbase as the best bitcoin wallet provider among the exchanges.

No. 4: Blockchain.info (online wallet). Exchanges are ripe pickings for ambitious hackers. Web based wallets can pose some security and hacking risks too, but they don’t have quite the glaring target on their backs that exchanges do. Nor do they have the nightmares of Mt. Gox and Bitfinex hanging over them.

Claiming to be the “world’s most popular digital wallet,” Blockchain.info boasts more than 15 million wallets and has supported more than 100 million transactions. Security is a top priority, and with many longtime cryptocurrency enthusiasts comfortably keeping their spoils there for years, even as Mt. Gox and Bitfinex were breached, it would have to be.

For the extremely technologically impaired in society, web based wallets are just an additional step of complexity – but that’s the trade off you get for additional security, and it’s a trade off that continues as we proceed to the best bitcoin wallet available.

No. 3: Electrum (software wallet). Electrum is a popular, free storage option in the bitcoin community, and is one of the most, if not the most, well respected desktop storage apps out there. It’s been around since 2011 and is also available for mobile, though Apple Inc.(Nasdaq: AAPL) users are out of luck – to date it’s only supported by Android.

Electrum gets high marks for its ease of use and user interface, which is always nice, but the real reason it’s the best bitcoin wallet for desktop is its safety and reliability. Like any desktop wallet that’s worth its salt, users get to control their private key; Electrum doesn’t know what it is. Since your private key, a long string of letters and numbers, gives you access to your bitcoin, you need to keep that, you know, private.

Many online wallets and online exchanges don’t give you ultimate control of your private key, adding an extra layer of risk. You have to both trust the counterparty is a good actor, and hope their servers don’t get hacked, if that could compromise the service or your information.

Electrum also boasts two factor authentication, and supports hardware wallets and cold storage – techniques that are further detailed below.

No. 2: Ledger or Trezor (hardware wallets/dongles). When you start thinking about using hardware storage solutions for your cryptocurrency, you know you’ve gotten serious. These dongles both make the best bitcoin wallet list because of their safety and mobility. Plus, they’re good enough for professional investors.

“We have a little bit of experience in this area and prefer using Trezor and Ledger Nano S,” says Peter Keenan, director of investments at Hehmeyer Trading + Investments, headquartered in Chicago.

“Both wallets are ‘cold storage’ wallets which we highly recommend. Cold storage eliminates counterparty risk and greatly reduces cybersecurity risk,” Keenan says. “Counterparty risk refers to the risk of losing your bitcoin to the exchange where you bought your bitcoin due to nefarious acts like hacking – Mt. Gox as an example.”

The downside of these solutions? First, they’re not free, like all the previous wallets mentioned. Trezor’s base model costs 89 euros, while the Ledger Nano S costs 58 euros. Both have fancier solutions that cost 229 euros (Ledger Blue) and 139 euros (Trezor model T).

No. 1: Paper wallet or other cold storage. A paper wallet is simply a document that contains all the information you need to generate
the bitcoin private keys you need. It often takes the form of a piece of paper with a QR code that can be scanned into a software wallet when you so desire. By storing your bitcoin offline, trusting nothing and no one but yourself, and you have all the information you need to control and access your bitcoin, you’re using the strongest “cold storage” method out there.

“I recommend using a paper wallet so you have a physical backup of the private key,” says Ryan Spanier, director of research at Kudelski Security.

“Be sure to generate it using a clean system, such as a Linux live CD. Store this in a safe place, such as a safe or safety deposit box,” Spanier says.

The incremental complexity and technological know how needed for this method are both downsides to the paper wallet approach. Cold storage solutions and hardware wallets are less nimble than other options, too; if bitcoin were crashing, for example, you might find yourself slower to the draw than if you merely kept your bitcoin on a site like Coinbase.

Sure, paper wallets may elicit images of a tin foil hat wearing paranoid, but the truth is that a paper wallet is the best bitcoin wallet for 2018 and beyond because it’s the safest, and in the crypto space the value of safety is – or at least should be – placed at a premium.

VIDEO: Allan Joseph and Family Central Featured on BECON TV

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Allan Joseph, Chairman of the Board of Family Central – Featured on Broward County Public Schools BECON TV

Learn all about Family Central and what they do to help families and children.
To view video, click image below or link here.

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Why the Trump Organization Can Play Dumb on Money Laundering

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October 01, 2017
By Maren McInnes

Due diligence for buyers is minimal, but Treasury is tightening rules on shell companies

President Trump has been connected to allegations of money laundering as far back as 1987, when a Russian gangster forfeited five condos in Trump Tower that authorities said he purchased with ill-gotten gains. And the appearance of impropriety hasn’t faded: A Kazakh family who bought apartments in Trump’s SoHo building is facing laundering charges from their government as well as the United States.

Yet even with special counsel Robert Mueller now reportedly investigating even more questions surrounding laundering between Trump and Russia, legal experts say the Trump Organization’s habit of selling to suspicious individuals over and over may be perfectly legal.

In fact, a privately held company like Trump’s is “generally not” obligated to investigate buyers of its property, says Stefan Cassella, former deputy chief of the Justice Department’s asset forfeiture and money laundering section. But that may change, as the Treasury Department has been steadily building a body of regulations that increase the responsibility of sellers across the board.

Laundering money via high-end real estate is a fairly common practice among criminals and corrupt organizations. Criminals create a shell company, which they use to buy a property. When they finally sell it, the money is clean. The Treasury Department’s Financial Crimes Enforcement Network said in an August advisory that real estate can be “an attractive vehicle for laundering illicit gains” because it appreciates in value, “cleans” large sums in one transaction, and shields buyers from market instability.

A New York Times investigation in 2015 found that more than half of all condo sales at the Trump International in New York were by hidden buyers. A more recent USA Today study found such transactions with the Trump Organization have rose 70 percent since Trump’s nomination.

The law hasn’t historically made many demands on sellers of such properties. University of Pennsylvania Law School professor Stuart Ebby said while the doctrine of caveat emptor—”let the buyer beware”—dates to the 17th century, there doesn’t exist an equivalent principle for sellers.

“Logically, the sellers aren’t in a position to investigate or deter buyers of their property,” said Katie Johnson, general counsel for the National Association of Realtors. “They don’t really have any incentive or desire to do that. They want to sell their property.”

There is a concept called customer due diligence, she explained, and the NAR has been strongly encouraging their member agents to “know your customer” for years. The association has a document that outlines recommendations for their members to spot potential illicit financial activities such as money laundering.

The August FinCEN advisory said while real estate agents and brokers are not required by law to report suspicious activity, they are encouraged to.

Property owners themselves are confined largely by criminal law. “Regulations are not yet designed for the sellers of the property, but to say that there’s no obligation on them I think is going a little bit too far,” said Andrew S. Ittleman, partner at Fuerst Ittleman David & Joseph. If a seller knowingly sells to a criminal and receives money derived from a crime, he could be prosecuted.

Cassella added that sellers who are “willfully blind” could still be charged. And anyone receiving more than $10,000 in a cash transaction must report it to the IRS. “There’s not a bright line, but there is a line that can be crossed,” he said.

If the seller is a financial institution, however, they are required by law to check out buyers. The Bank Secrecy Act of 1970 explicitly authorized FinCEN to create anti-money-laundering regulations for financial institutions, including those, like mortgage lenders, that deal in real estate. They also must file reports of suspicious activity.

In an email, a FinCEN spokesperson noted the law defines financial institutions as businesses and professions that could be vulnerable to money laundering or financial crime—banks, brokers, insurance companies, and even casinos. (In 2015, the Trump Taj Mahal casino had to pay the Treasury Department millions for violating anti-money- laundering laws.)

The BSA statute that defines financial institutions was amended by the PATRIOT Act to include persons involved in real estate closings and settlements. However, Jack Hayes, counsel at Steptoe & Johnson, explained that FinCEN hasn’t published final regulations implementing specific anti-money-laundering-compliance obligations that apply to such persons as financial institutions.

In the wake of the PATRIOT Act, FinCEN called for public input, but after reviewing comments, “recognized the complexity of the problem and chose not to impose anti-laundering requirements across all persons involved in real estate closings and settlements.” Therefore, they started with the real-estate-finance sector first and let individual sellers be.

In May 2016, Treasury announced new actions to combat illicit financial activities, including a customer due diligence rule that said financial institutions have to collect and verify personal information on the real people behind companies. Then in August, FinCEN announced requirements that title-insurance companies identify the real people behind shell companies that pay “all-cash” for high-end residential real estate in big markets such as New York and Miami.

Despite these new requirements, Cassella wonders at what point Treasury will impose on the real estate industry the full complement of rules that have been imposed on banks and other financial institutions.

“Financial institutions resisted this for some time, but they’ve come around in the 30 years I’ve been doing this,” he said. “I would expect the real estate industry, including title insurers, real estate agents and developers, would [initially] resist in the same fashion,” but eventually come around as well.

Feds Widen Hunt for Dirty Money in Miami Real Estate

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August 23, 2017
By Nicholas Nehamas and Rene Rodriguez

Wake up and smell the dirty money.

That’s the message federal regulators are sending to the real estate industry in Miami and other high priced housing markets.

On Tuesday, the U.S. Treasury Department announced it would extend and expand a temporary initiative designed to uncover criminals laundering money through real estate. The decree targets secretive shell companies — corporations that don’t have to reveal their true owners — buying luxury homes. The feds have already renewed the rules twice since first issuing them in March 2016.

But this time, there’s a big difference — and it’s putting Miami’s struggling condo market under even more scrutiny.

The rules, previously so limited in scope that they applied only to a few hundred transactions, will now cover every big ticket cash transaction by shell companies in seven major markets. They are the South Florida counties of Miami Dade, Broward and Palm Beach; all five boroughs of New York City; San Antonio, Texas; Honolulu (included in the order for the first time); and the metropolitan areas around San Francisco, Los Angeles and San Diego.

“This is going to gather much more information,” said Andrew Ittleman, a South Florida attorney who specializes in anti money laundering laws.

There’s been speculation about whether the administration of President Donald Trump, a former real estate developer, would double down on an initiative pushed by Obama era officials. But the new policy shows Trump’s Treasury digging even deeper into the murky world of luxury real estate.

The end result: It’s going to get a lot harder for everyone from drug dealers to Latin American politicians to foreign royalty to shield their purchases of condos and mansions in the United States from law enforcement.

The federal decree comes at a bad time for Miami real estate. Overbuilding and a slump in wealthy foreign buyers are hurting sales. the average sales price for luxury condo units on Miami Beach fell 21 percent year over year in the second quarter of 2017, according to a report from brokerage Douglas Elliman, . Two thirds of those sales were cash.

The rules kick in at different price points depending on the market. In South Florida, they apply to shell companies buying homes for $1 million or more with cash.

“This will help a market that has long neglected the amount of criminal activity taking place in the condo sector,” said Jack McCabe, a South Florida real estate analyst.

But Peter Zalewski, founder of the real estate advisory company Cranespotters, thinks the government is moving too slowly — and not going far enough.

“If you’re closing a $10 million sale and you stand to make $1 million on the deal, that’s a pretty big carrot,” Zalewski said. “And there’s no fear of a government stick, because there isn’t one in place.”

Bark or bite?

Critics dismissed Treasury’s original anti money laundering rules — first deployed in Miami Dade and Manhattan last year — as largely toothless.

That’s because they looked only at less common methods of cash payments such as money orders, personal checks and hard currency. But the latest order now includes wire transfers, which are electronic exchanges of money between banks. In most home sales that don’t involve bank loans, money is sent from buyers to sellers through wire transfers. Regulators were missing out on a huge swath of transactions.

“It exempted most people from disclosure,” said Alan Lips, a partner at Miami accounting firm Gerson Preston. “In today’s world, people wire money.”

Until an act of Congress earlier this summer, the Treasury agency behind the initiative, the Financial Crimes Enforcement Network (FinCEN), did not have the authority to monitor wire transfers.

John Tobon, who leads a team of Department of Homeland Security investigators in South Florida, said the move is a crucial first step in allowing law enforcement to monitor funds moving electronically. After the first order, his agents observed home buyers immediately come up with “countermeasures” to avoid the disclosure requirements, including the use of wire transfers, Tobon said.

“Wire transfers were wide open” for abuse by criminals, “and no one was looking at them,” he said. “Now, we’re going to be able to identify companies and individuals that we had no idea about in the past.”

FinCEN is targeting cash home deals because it says they are most susceptible to money laundering. Cash transactions generally don’t involve heavy bank vetting. When banks give out mortgages, they are required to background their customers; professionals in the real estate industry are exempt from those responsibilities, although that could be changing.

Naughty or nice

As part of FinCEN’s latest push, the agency has told real estate industry professionals they should be on the lookout for suspicious activity from their clients.

“The misuse of shell companies to launder money is a systemic concern for law enforcement and regulatory agencies,” the agency wrote in an advisory to real estate agents, brokers, lawyers and other industry players.

It also encouraged them to report suspicious activity involving clients.

Warning signs of bad behavior include clients willing to blindly overpay or lose money on a deal; the purchase of properties with “no regard” for their condition or location; funding that far exceeds a client’s known wealth; and clients asking for unwarranted secrecy or for records to be altered.

David Weinstein, a former federal prosecutor in South Florida who now works in white collar criminal defense, called the advisory “heavy handed.”

FinCEN is “asking people who are not financial institutions and have no outright obligations to become an arm of the government, to become informants for them,” he said, “They’re sending a not so subtle message: We want you to tell us what’s going on. The implication is that if you don’t do this, we’re going to come after you and start squeezing you and say in our eyes you should have known what was going on. You should have vetted this money.”

Although real estate professionals aren’t required to set up compliance programs, no one is allowed to “willfully” turn a blind eye to money laundering, according to federal law.

Weinstein recommended that realty firms consider implementing basic compliance programs.

Ron Shuffield, CEO of EWM Realty International, says the new requirement means closing agents must confirm the name and address of a beneficial owner with a 25 percent stake in a corporation or limited liability company via a legal form of ID, such as a passport or driver’s license.

“There’s no legitimate buyer who’s going to feel uncomfortable with this,” Shuffield said. “Most of the transactions we do now, it’s already obvious who the beneficials are.”

The degree to which suspect money fuels Miami’s luxe real estate market is debated. But real estate crops up in case after case involving illicit funds. The release of the massive trove of offshore files known as the Panama Papers showed how easily offshore money moves into Miami real estate. The flood of cash has helped raise home prices far beyond what most locals can afford.

In FinCEN’s advisory, the agency highlighted several cases showing the threat posed by money laundering. One example cited was Venezuela’s vice president, Tareck El Aissami, and his associate, Samark López Bello. Both were sanctioned by U.S. authorities for their alleged involvement in narco trafficking. López Bello owns three Brickell condos valued at nearly $7 million.

Tobon, of Homeland Security, said roughly 50 percent of his investigations involve money laundering through real estate.

The new order takes effect on Sept. 22 and expires on March 20, 2018. It could eventually be made permanent and expanded nationwide. The Washington D.C. bureau of the Herald’s parent company, McClatchy, broke the news that the order would be extended Tuesday.

Achilles’ heel

The FinCEN initiative — called a geographic targeting order — was designed to target the Achilles’ heel of American anti money laundering laws: weak transparency rules for limited liability corporations.

In many states, including Florida, it’s possible to set up an anonymous company and use it to buy a pricey mansion or condo. Offshore companies can be used for the same purpose. That’s catnip to criminals who don’t want anyone asking where they got the cash.

FinCEN changed the game by requiring title insurers — which are involved in almost all real estate transactions — to pierce the veil of shell companies and determine who really owns them. The information is then passed on to FinCEN and shared with law enforcement, but not made public.

Because of the limitations of the original rules, only 247 transactions in the target markets were reported to regulators over 12 months. But 30 percent of those sales were linked to people who’d been separately reported for suspicious activity by financial institutions.

In Miami Dade, 16 of 32 reported deals were linked to suspicious buyers.

“They’re going to capture a lot more activity now,” said Jason Chorlins, a risk advisor at Miami accounting firm Kauffman Rossin. “The majority of this activity is done via wire transfer.”

FinCEN Issues Revised Order Targeting Shell Companies Buying Real Estate

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August 23, 2017
By Keith Larsen

The Financial Crimes Enforcement Network has expanded its crackdown on real estate-related money laundering transactions involving wire transfers.

The agency has broadened its Geographic Targeting Orders (GTOs), which require U.S. title insurance companies to identify the people behind shell companies used to pay for high-end residential real estate in seven metropolitan areas, including Miami-Dade County.

This could have a big impact in Miami-Dade County where there is the largest supply of $1 million-plus condos in the region’s history.

The Financial Crimes Enforcement Network (FinCEN) also published
an advisory for financial institutions and the real estate industry on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted without traditional financing.

Such transactions are vulnerable to abuse by criminals seeking to launder illegal proceeds and mask their identities, according to FinCEN.

“Through this advisory and other outreach to the private sector, FinCEN, industry, and law enforcement will be better positioned to protect the real

estate markets from serving as a vehicle to launder illicit proceeds,” said FinCEN acting director Jamal El-Hindi.

Andrew Ittleman, founder and partner at Miami law firm Fuerst Ittleman David & Joseph, PL, said the biggest difference with the recently revised orders is the focus on wire transfers and the fact that the GTO’s are now on Congress’s radar.

In January 2016, FinCEN originally issued GTOs to require U.S. title insurance companies to report beneficial ownership information on legal entities, including shell companies used to purchase certain luxury residential real estate in Manhattan and Miami – specifically. The order also applied to luxury residential property purchased by a shell company without a bank loan and made at least in part using a cashier’s check or similar instrument.

“Congress is looking at the GTO’s as being relevant in sanctions against Russia,” Ittleman said.

In July 2016 and February 2017, FinCEN reissued the original GTOs and extended coverage to all boroughs of New York City, Palm Beach County and Broward County, five counties in California (including Los Angeles, San Francisco and San Diego), and the Texas county that includes San Antonio.

Australian Money-Laundering Alliance a Stretch for U.S.

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May 15, 2017
By Richard Hill

An anti-money laundering partnership between Australia’s big four banks and the continent’s government designed to share more information in real time is getting good reviews but probably isn’t exportable to the U.S., several lawyers and consultants said.

The Fintel Alliance launched in March “offers an unprecedented opportunity for government and banks to share insights to combat the long-standing issue of serious financial crime,” Aidan O’ Shaughnessy, policy director for the Australian Bankers’ Association, told Bloomberg BNA.

Real-time information sharing could even help halt money-laundering transactions as they happen, said Peter Reeves, special counsel at Gilbert and Tobin, Sydney, who specializes in financial services law and AML regulation.

Bloomberg Law®, an integrated legal research and business intelligence solution, combines trusted news and analysis with cutting-edge technology to provide legal professionals tools to be proactive advisors.

Nevertheless, privacy concerns, the much-larger size of the U.S. banking industry and different AML requirements would all make it difficult to replicate the partnership in the U.S. The U.S. also already has a quasi public-private partnership, AML experts said.

All in a Day

The Australia partnership brings together the continent’s largest banks, the Australian Transaction Reports and Analysis Centre (AUSTRAC) and other government and academic institutions to share information about money laundering in near real-time in a bid to combat the financing of terrorism, smuggling and other crimes.

The partnership is designed to allow a regulator to flag suspicious activity to bank officials and then work with them to connect disparate information and summon law enforcement–all in the course of a day, according to a video posted by AUSTRAC.

The alliance reflects a shift in thinking by the government “from a regulator that seeks compliance to a regulator that seeks cooperation,” Reeves said. Indeed, one of the reasons banks agreed to join the alliance was to reduce their compliance burdens, Reeves said.

The initiative was conceived to transform the “siloed relationship” that existed between banks and the government to “a partnership where solutions are co-designed in response to mutual problems,” an AUSTRAC spokesman told Bloomberg BNA.

U.S.-Aus. Differences

There are several reasons the program may not be easily exported to the U.S., starting with privacy concerns, according to Miami attorney Andrew Ittleman and others.

“You’ve got a lot of businesses with access to private information that they otherwise wouldn’t have, [and] you don’t necessarily have the benefit of the federal government coordinating the information-sharing between the private companies,” Ittleman, a white-collar criminal defense attorney at Fuerst Ittleman David & Joseph, said. “It looks like a free-for-all.”

Another factor is that in most cases, financial institutions in Australia must file suspicious activity reports within 72 hours. In the U.S., institutions have up to 30 days and can file for extensions, making real-time information-sharing less imperative.

It’s a major difference, said Don Andrews, who heads the compliance and risk-management unit at Venable LLP, New York. “One thing I think would get significant pushback, and maybe rightly so, would be getting reporting down to a matter of days” in the U.S., he said. “That’s a pretty big burden to place on a financial institution.”

Priorities

The Fintel alliance is a good way for banks to learn about law enforcement priorities, Robert Rowe, vice president and associate chief counsel for the American Bankers Association, said. Such information currently is lacking in the U.S., he and others said. Banks are “trying to get a better understanding about where to focus their energies,” Rowe said. “The banks are saying, `if you tell us what the problem is, we know where to look and what to look for.’”

Andrews agreed, saying, “a little more direction from the government would be helpful. Firms are spending billions of dollars to comply with [AML] requirements, so it’s very important that the government be incredibly clear about what it’s looking for.”

Dennis Lormel, a former FBI agent who specialized in AML enforcement, cited costs and regulatory concerns as reasons banks might not be keen on forming an alliance with the government. “When the general counsel for some of the major banks get involved in this, they look at it like, `we’re just asking for trouble if we open ourselves up to something like this,’” Lormel said.

Banks also are “very concerned and and overly conservative as a result of regulatory expectations,” Lormel, who now runs DML Associates LLC, a consulting firm that helps financial institutions with compliance, said. “If they go above and beyond what they’re expected to do, then the expectation is they’re gong to do it on a regular basis.”

Present Partnership

Several AML observers also said that U.S. banks and the government already have a functioning AML partnership appropriate to the size of the financial services industry, making a formal alliance like Australia’s—with its much smaller banking industry—less necessary.

“The reality is, we have a pretty good public-private partnership between banks and law enforcement,” said David Stewart, director of the financial crimes and compliance unit of Cary, N.C., analytics software firm SAS Institute Inc. Stewart cited the USA PATRIOT Act as one conduit for information-sharing, as well as a “close network of relationships” between financial institutions and the Department of Justice. “The question is whether the current system could be improved with technology to share data in real-time between the public and private sectors,” he said.

Rowe agreed that there’s a dialogue, but said the banking industry has sought a more formal alliance over the years. “Believe it or not, law enforcement says, we don’t have the time,” Rowe said.

However, according to Sharon Cohen Levin, a former top U.S. AML official, the Australian program of “out-and-out collaboration” between the government and financial institutions “would be welcome in the U.S.” Levin, former chief of the money laundering and asset forfeiture unit in the U.S. Attorney’s Office for the Southern District of New York, said that while a U.S. alliance would have to be consistent with U.S. AML rules, “in the end, I think it would lead to better law enforcement outcomes.”

The collaboration gives financial institutions “a better understanding of the criminal conduct and the patterns of suspicious activity, which produces more complete suspicious activity reporting,” Levin, now a partner at Wilmer Cutler Pickering Hale and Dorr LLP, New York, said.

Back-and-Forth Information

U.S. AML efforts are spearheaded in the government by the Financial Crimes Enforcement Network. FinCEN spokesman Stephen Hudak pointed to remarks by Deputy Director Jamal El-Hindi in November that financial intelligence “is most effective when information flows in both directions between the public and private sectors.”

Like Stewart, El-Hindi said the USA PATRIOT Act allows the government and financial institutions to share information. “It’s a successful program,” he said.

 

Marijuana Stocks: How to Invest in Marijuana Today

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April 10, 2017
By John Divine

Investment opportunities exist. But on the whole, the marijuana industry isn’t ready for prime time.

States are legalizing, decriminalizing, or allowing for the medicinal use of marijuana. And for many opportunistic investors, one question arises over and over again: How do you invest in marijuana?

As it happens, there are several ways to go about it – and it’s not so simple as calling up your broker and saying, “I’ll have some marijuana stocks, please.”

By the time it’s feasible to invest in cannabis on that level, the act of calling up a broker may not even be a thing any more.

Still, it’s worth surveying Wall Street for what, if any, upstanding marijuana stocks exist for individual investors to buy today.

The trouble with looking for marijuana stocks to buy. GW Pharmaceuticals (ticker: GWPH) is the closest thing to a legitimate U.S.-based marijuana stock. Though technically speaking, GWPH actually isn’t a marijuana stock in the sense that most people would expect.

GW Pharmaceuticals doesn’t grow or sell pot. The company is instead working on a marijuana-based epilepsy treatment called Epidiolex, which is expected to get a thumbs-up or thumbs-down from the FDA by the end of 2017.

Two of the most legitimate-looking weed stocks other than GWPH are both Canadian companies, where medical marijuana is legal: Canopy Growth Corp. and Aurora Cannabis. The competing medical marijuana suppliers north of the border have both seen their stocks roughly quadruple in price over the past year, and both currently seem to trade at exuberant valuations.

In short, this isn’t the tech sector. The market isn’t teeming with promising marijuana stocks to buy.

“There are virtually no public companies that directly touch the plant,” says Lamine Zarrad, the CEO and founder of Tokken, an app granting banking privileges to cash-intensive industries like cannabis. “The majority of companies that are publicly traded are penny stock companies.”

Penny stocks are notoriously bad investments for most individual investors, and are rife with scams, liquidity issues and transparency problems.

The fact that marijuana remains federally illegal is what relegates many marijuana stocks to these shadier corners of the market.

Companies dealing directly with marijuana not only have to worry about potential enforcement actions, but are also shunned by most banks, who want to steer clear from doing business with companies trafficking in the sale of federally illegal substances to the public.

Still, marijuana is legal (in medicinal or recreational form), in more than half of the states in the U.S. as well as the District of Columbia, and the trend is unmistakably moving toward legalization. Despite the new Trump administration taking a tougher stance on the issue than the Obama administration, industry insiders are optimistic.

“It’s been a little rocky with (Attorney General) Jeff Sessions and (President Donald) Trump, but the industry will stay strong,” says Neil Demers, CEO of Diego Pellicer – Colorado, a Denver-based upscale dispensary.

“We’ve reached a tipping point,” Demers says.

Still, while upbeat cannabis bulls may be eager to get their money in on the ground floor of a huge industry, marijuana stocks, largely speaking, just aren’t ready for prime time yet. “It’s probably wise to let some things settle – probably wise to wait until some of these companies aren’t penny stocks,” Zarrad says.

Until then, there are other ways to invest in this budding industry – outside of Wall Street.

Invest without buying stocks. It’s a good news, bad news situation. On the one hand, there are legitimate ways to invest in the marijuana industry today without buying penny stocks, compromising one’s true investment intent or taking a flier on richly priced, highly speculative stocks that might not even be profitable yet.

On the other hand, if you’re not buying stocks, the options basically boil down to becoming a local investor, small business owner or partner in a marijuana-related local business. That can be an expensive proposition, and certainly isn’t for everyone, but opportunities do exist.

Andrew Ittleman is a founder and partner at Fuerst Ittleman David & Joseph, and concentrates a good portion of his practice on marijuana-related issues on a national level.

“I don’t think there’s a one-size-fits-all approach,” Ittleman says of the do-it-yourself approach to marijuana investing.

“Stick with what you know. If you’re a real estate guy and you want to get into the cannabis space, there are plenty of opportunities for you,” Ittleman says. The principle also applies to experts in the warehousing, product and marketing fields, he says.

Of course, buying part of a local marijuana-related business still has its risks – mainly the glaring risk posed by the plant still being federally illegal. In many cases, raids, fines and charges are still within the realm of possibilities.

“But if that’s within your appetite for risk and you understand what you’re getting into, then by all means: Go for it. Because the growth trajectory that we’re on right now – it’s not always gonna be like that,” Ittleman says.

One day, the era of federal prohibition will end. What comes after that, as far as the marijuana industry is concerned, is the “billion-dollar question,” Ittleman says.

Final risks to consider. While it may not seem like there can be risks bigger than the Feds raiding your business, seizing its assets and looking for scapegoats, there is one more considerable risk involved for those considering locally investing in the marijuana industry: scammers.

“I’ve seen Ponzi schemes, I’ve seen investment fraud, I’ve seen securities fraud, I’ve seen it all,” Ittleman says. “If you wanna buy in because it’s sexy and because you like the growth and because you have the appetite for risk, you can go and buy GW Pharmaceuticals – but otherwise you gotta get out there. Meet the people.”

And try to invest in what you know.

For bold investors thinking about going the local business route, it’s always best to consult a lawyer before laying any hard cash down.

Despite its high growth and the encouraging long-term regulatory trends, when it’s all said and done, facts are still facts. And for the vast majority of investors, the marijuana industry – and even marijuana stocks – just isn’t very investable right now.