Business Owner Sentenced to 100 Years for Role in 1031 Scheme

Following up on CCLI’s July 2009 article, “Making ‘1031 NNN Tenants in Common Exchange’ Work in Today’s Economy, it has been reported that Edward H. Okun, 58, the former owner of the 1031 Tax Group LLP (1031TG), has been sentenced to 100 years in prison for his leading role in a scheme to fraudulently obtain approximately $126 million in client funds held by 1031TG. A jury found Okun guilty of conspiracy to commit mail and wire fraud, wire fraud, conspiracy to commit money laundering, money laundering, bulk cash smuggling and perjury.

According to the evidence presented at trial, from August 2005 through April 2007, Okun and others used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses. Section 1031 of the Internal Revenue Code allows investment property owners to defer the capital gains tax that would otherwise be due on the properties they sell, if the proceeds are used to purchase new property in a specified time frame. To facilitate this exchange, investment property owners deposit the proceeds of property sales with qualified intermediaries, like 1031TG, for safekeeping.

The evidence presented at trial established that 1031TG obtained funds by promising clients that their money would be used solely to effect 1031 exchanges. But, after making such promises, Okun misappropriated approximately $126 million in client funds to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds.

Editor’s Note: For more information on 1031 triple net agreements, click on “Feature Articles” in the left-hand column on this site.