Free Statement - District Court of Colorado - Colorado

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Case 1:04-cr-00103-REB

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DarreI1 ~ u n L a m
Attorney at Law

Document 876-3

Filed 10/20/2006

Page 1 of 3

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October 19,2006 Mr. Thomas E. Goodreid Attorney at Law 1801 Broadway, Suite 1100 Denver, Colorado 80202 Re: U. S. V. Weed 04-CR- 103 Dear Mr. Goodreid: Pursuant to your request I am writing you this opinion letter concerning the legal effect of Policy Number 406 CF 0362 and the obligatory depository bond, 400KA348 1, issued by St. Paul Fire and Marine Insurance Company in October 1999. The named insured was "The Reserve Foundation Trust." Specifically, I have been asked to address the question of whether the certificates entitled "The Reserve Foundation Trust Certificate" contain material misrepresentations of fact or law. I have made the following assumptions regarding this opinion:
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In October of 1999, St. Paul Fire and Marine Insurance Company ("St. Paul") issued a sole obligatory deposition bond in the amount of $2,000,000.00 and a commercial crime policy No. 406 CF 0362 in the amount of $2,000,000.00. The insured on the policy and the obligee of the bond was The Reserve Foundation Trust. Various "investors" transferred monies into a bank account located in Saint Vincent and the Grenandines, which account was owned by The Reserve Foundation Trust. The trust document itself did not list any of the investors as either the settlors of the trust or as any of the beneficiaries. In fact, neither the investors' interest in the trust, the trust assets, nor the bank account is identified, although it seems clear that the investors were the sole source of trust assets. The "Trust Certificate" read as follows:

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PO. Box 803

Carbondale. IL 62903 1224 West Main St.. Suite A Carbondale, IL 62901 Phone (618) 549-9800 Fax (618) 549-9805 Email [email protected]

Case 1:04-cr-00103-REB

Document 876-3

Filed 10/20/2006

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The St. Paul THE RESERVE FOUNDATION TRUST CERTIFICATE This Certificate No. is registered to:

Settlor-Beneficiary's Tax ID Name Number This Certificate insures the Settlor-Beneficiariey's $100,000.00 deposit in The Reserve Foundation Trust Account No. 10148965 at CIBC, St. Vincent's and the Grenadines, this 7th - day of December, 1999 with the St. Paul Insurance Company's Sole Obligator Depository Bond No. 400KA3481 and Commercial Crime Policy No. 406 CF 0362. This certificate is issued to the name Settlor-Beneficiaryabove as evidence of insurance on their individual deposit in this Trust's account.

Alan Weed: Authorized Agent 6)

Date

It is my understanding that the investment soured and the funds disappeared under conditions such that St. Paul's would be liable on its policy if The Reserve Foundation Trust were to bring suit. It is my further understanding that the trustee of the trust resigned and was not replaced.

I have been in communication with the following legal professional practicing in the Saint Vincent and the Grenandines: Mr. Sarnmuel E. Commissiong, Esq. S. E. Commissiong & Co. Law Firm P. 0 . Box 768 First Floor, St. Vincent Building & Loan Association Building Halifax Street, Kingston I have been advised by Mr. Commissiong that the law of that jurisdiction permits the investors to bring proceedings in that jurisdiction to substitute a new trustee. A trustee who is willing to honor his or her fiduciary duties could bring suit against St. Paul in a forum in the United States that has jurisdiction and venue. In limited circumstances it is suggested that even the beneficiaries of a trust could bring suit when the trustee refuses to do so. The Restatement of Trusts 2d fj 282 provides: (1) Where the trustee could maintain an action at law or suit in equity or other proceeding against a third person if the trustee held the property free of trust, the beneficiary cannot maintain a suit in equity against the third person, except as

Case 1:04-cr-00103-REB

Document 876-3

Filed 10/20/2006

Page 3 of 3

stated in Subsections (2) and (3). (2) If the trustee improperly refuses or neglects to bring an action against the third person, the beneficiary can maintain a suit in equity against the trustee and the third person. (3) If the trustee cannot be subjected to the jurisdiction of the court or if there is no trustee, the beneficiary can maintain a suit in equity against the third person, if such suit is necessary to protect the interest of the beneficiary. Several courts have looked to Section 282 to prevent individual beneficiaries from bringing suit on an insurance policy. Orentreich v. Prudential Insurance Co., 275 A.D.2d 685, 713 N.Y.S.2d 330 (2000) (attempt to rescind insurance policy owned by trust); Pillsbury v. Karmgard, 22 Cal.App.4th 743,27 Cal.Rptr.2d 491 (1994) (beneficiary has standing to sue only if the beneficiary can show that trustee's refusal to bring suit was negligent or improper); Anderson v. Dean Witter Reynolds, Inc., 84 1 P.2d 742 (Utah Ct.App.1992) (beneficiary can sue when trustee failed to bring suit against broker for violating terms of trust agreement); Axelrod v. Giambalvo, 129 Ill.App.3d 512,703,472 N.E.2d 840 (1984) (Section 282 will not be applied to permit trust beneficiaries to sue former trustee for breach of fiduciary duty when the successor trustee withdrew a complaint that had been filed on behalf of the trust). In the instant case, the investors were not named as beneficiaries of the trust. However, section 282 clearly permits the trustee to bring suit on any policy of insurance insuring the trust. Since the investors could replace the trustee under the law of Saint Vincent and the Grenandines, the investors had the power to protect their interest by naming a trustee who had standing to bring suit. In my view, because the investors had the ability to name their own trustee, their investment was covered by the crime policy and the bond. The opposite conclusion would make St. Paul's insurance policy and bond illusory. Only the investors have suffered a monetary loss and any suit brought by the original trustee would have had to have been for the benefit of the investors. If their trustee does not act either because he fails to do so or because he has resigned, the investors can simply replace the trustee with one to their own liking. That trustee can therefore bring suit. The economic realities of the transaction are such that each deposit is covered by the insurance policy and the bond. When a party has suffered a loss, that party does have an obligation to take such steps to protect his or her interest. It would not have been a difficult task for them to locate an attorney in Saint Vincent and the Grenandines, who could have replaced the trustee. If you have any questions, please advise.