Opinion ID: 2643963
Heading Depth: 2
Heading Rank: 2

Heading: Benistar's Marketing Materials

Text: Benistar offered its services as a qualified intermediary, managing the proceeds from an exchangor's initial 1 There were two related corporate entities -- collectively, Benistar -- involved in Carpenter's business: Benistar, Ltd., the primary corporation, and Benistar Property Exchange Trust Company, Inc., a later-formed subsidiary. The distinction between the corporate identities is not relevant. -3- sale until the § 1031 exchange was completed. In advertising itself to potential exchangors, Benistar provided a set of marketing materials, including a PowerPoint slide show, a set of Frequently Asked Questions about 1031 Property Exchange, an article on § 1031 exchanges authored by Benistar's principal marketer and published in the New England Real Estate Journal, and other information. When exchangors decided to work with Benistar, they would also receive a set of forms setting out the terms of the accounts they would hold with Benistar. Carpenter did not directly solicit exchangors, nor did he create the marketing materials. However, he did review all of the marketing materials and approved their use.2 He also executed for Benistar many of the contracts the exchangors entered with the company. On the government's theory of prosecution, the marketing materials effectively promised at multiple points that exchangors' funds would be kept safe and secure. One of the PowerPoint slides, for example, was entitled Choosing an Intermediary and listed several factors that clients should consider. The fourth factor 2 Benistar affiliates other than Carpenter may have made oral representations to prospective exchangors, which Carpenter argued were unauthorized and therefore unattributable to him. We need not evaluate that evidence, however, because the jury's guilty verdict for all nineteen charges, some of which related to exchangors who received no oral representations, indicates that it found the written materials alone to be sufficient. We consider only the written marketing materials. -4- was labeled Security of Funds and stated that exchangors should [a]sk about the security of your funds, and find out what guarantees are offered. The next slide went on to state: Merrill Lynch Private Bank is used for all our escrow accounts. This provides a 3% - 6% interest on the escrow. Likewise, the Frequently Asked Questions document included a question asking What will the intermediary do with my money? The answer provided: [Benistar] has a long-standing reputation for trustworthiness, and is . . . the largest 419 trust plan administrator in the nation. Benistar has accounts with major banking and investment firms, such as Merrill Lynch. . . . Escrow accounts are restricted to paying out funds only for a subsequent closing, or to return funds to the original property owner. A similar set of IRC § 1031 Property Exchanges: Frequently Asked Questions on Benistar's website listed the question, Can I Trust [Benistar] with My Money? The answer explained: [W]e protect your assets: • We have accounts with major banking and investment firms -- accounts under our sole control, as required for these exchanges. . . . • Our accounts are restricted to paying out funds only for a subsequent closing, or to return funds to the original property owner. • We distribute funds only at your written request. Several other components of the promotional materials bore out similar themes. -5- Exchangors using Benistar as an intermediary were given the choice to have their money invested during the pendency of their exchanges for either a 3% or 6% annualized return. After sending in their funds from the initial sale, exchangors received a confirmation letter stating: We have received $____ of sales proceeds, which we are holding for your benefit. These funds are accruing interest at %___. The second blank would be filled in with either 3% or 6%. The 3% choice, which was selected for the majority of the funds in the case, was called a Merrill Lynch Ready Asset Money Market Account in several of the documents, including the account selection form and the Escrow Agreement that the exchangors signed. The government alleges that these materials, taken together, led exchangors to believe that their funds would be invested in safe, interest-bearing escrow accounts guaranteeing a 3% or 6% return, when in fact their funds were not kept in safe investments.