The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The PLP's leadership front-runner is battling on behalf of a once-jailed gaming kingpin's family trust to uphold Bahamian law's supremacy against a $50 million US tax claim.

Court documents obtained by Tribune Business reveal that a Supreme Court Order obtained by Philip Davis QC, and his law firm, is now central to efforts by the Kaplan Family Trust to overturn Internal Revenue Service (IRS) levies against its multi-million dollar assets.

Its Bahamian trustee, Equity Bank & Trust, and underlying investment company, Nineveh Investments, are using Justice Indra Charles' Order to prove that the assets neither belong to, nor are controlled by, once-jailed family patriarch, Gary Kaplan.

Nineveh, in an October 23, 2017, filing is urging the eastern Pennsylvania federal court to "unambiguously adopt the conclusions" reached by the Bahamian Supreme Court and force the IRS to release the assets it has seized.

The IRS had previously imposed levies on assets owned by Nineveh, which acts as the Kaplan Family Trust's underlying investment vehicle, in a bid to collect on multi-million dollar tax liabilities owed by Gary Kaplan in his personal capacity.

However, the Supreme Court Order obtained by Mr Davis and Davis & Co stipulates that Nineveh's assets are "legally and beneficially owned by Equity Bank & Trust Bahamas" in its capacity as trustee of the Bahamas-domiciled Kaplan Family Trust, "and do not form part of the personal assets of Gary Kaplan".

This was despite Nineveh's admission, in its October 23 filing, that the Kaplan Family Trust's predecessor was 'settled' by the business venture - and subsequent sales proceeds - that first brought Mr Kaplan to the US authorities' attention.

Gary Kaplan was the founder of BetOnSports.com, an online sports betting company that took $4 billion in wagers between 2002 and 2004, some 98 per cent of which came from US gamblers.

However, Kaplan's business ran afoul of the US Justice Department, which issued a 22-count indictment against him in 2006 for violating the 1961 Federal Wire Act. That prohibited betting across state or national borders, and ultimately resulted in Kaplan reaching a 2009 plea deal whereby he served a four-year jail sentence.

As part of the deal, Kaplan paid a $43.65 million penalty to the US Treasury, using funds from the Kaplan Family Trust's predecessor's, the Bird Charitable Trust and the Bird Purpose Trust, both of which were based in the Channel Islands.

These trusts received the $100 million proceeds from the sale of BetOnSports.com, which was taken public in the UK in 2004, and then put through a private placement one year later. The Bird trusts were subsequently amalgamated into the Kaplan Family Trust, which migrated to the Bahamas under the control of Equity Bank & Trust as trustee.

The IRS is arguing that Nineveh is effectively acting as Kaplan's 'nominee' in an effort to shield his assets/income from its scrutiny. But Nineveh, aided by Mr Davis and his law firm, are countering that because the trust and Equity Bank & Trust are domiciled in, and governed, by this jurisdiction then Bahamian law trumps its US counterpart in this extraterritorial battle.

"This case involves foreign assets generated from the sale of a foreign business placed in a foreign trust governed by foreign law," Nineveh alleged in its October 23 filing. "Those assets have now been improperly caught in the middle of a long-standing tax dispute between the US Government (defendant) and the owner of that foreign business, Gary Kaplan."

Kaplan was described as a US citizen "who has lived outside the US for decades, including at all times when" BetOnSports.com was operated and sold, and the family trust structure established.

Nineveh alleged that despite the Kaplan Family Trust being established as "an irrevocable, fully discretionary Bahamian trust" with four beneficiaries, one of whom is Kaplan, the IRS had placed levies on two of its accounts in February 2016 in a bid to satisfy the patriarch's tax debt that "exceeds $50 million".

Nineveh is arguing the levies are "improper" because the accounts belong to itself, and Kaplan has no "property rights" to the funds. It is thus demanding that the IRS seizures be overturned, and the funds released, which is where Mr Davis and the Supreme Court Order come in.

"The key issue in this case is whether Mr Kaplan, the taxpayer, has a property interest in the assets of Nineveh and the Kaplan Family Trust sufficient to subject those assets to a federal tax lien," Nineveh's October 23 filing said. "The threshold question is: what law applies to determine if Mr Kaplan has such an interest?

"The relevant state law in this case is the law of the Commonwealth of the Bahamas. On July 6, 2017, the Bahamian Supreme Court confirmed as much when it entered an Order finding, among other things, that Nineveh's assets are legally and beneficially owned by the trustees of the Kaplan Family Trust, and do not form a part of the personal assets of Mr Kaplan.

"The Bahamian Supreme Court further concluded that Mr Kaplan did not have any right to mandatory distributions from the Kaplan Family Trust, to use Kaplan Family Trust assets or to exclude others from such use, or to transfer or assign any Kaplan Family Trust assets. Thus, Mr Kaplan did not have any of the indicia of a property interest in the assets of Nineveh or the Kaplan Family Trust."

Nineveh alleged that the IRS and US Justice Department were supplied with "full notice of the Bahamian Supreme Court proceedings", but declined to participate in the action before Justice Charles.

"In sum, not only does US Supreme Court precedent warrant that Bahamian law govern critical issues in this action, but such law has already been determined by the Bahamian Supreme Court--specifically, the nature of the taxpayer's interest in Nineveh's and the Kaplan Family Trust's assets," Nineveh's filings allege.

"And under well-accepted principles of comity, this court should adopt the conclusions of the Bahamian Supreme Court set forth in its July 6, 2017 Order - an Order which unambiguously declares the nature of Mr Kaplan's property rights and interests in relation to the Kaplan Family Trust and Nineveh."

The Order obtained by Mr Davis and his law firm is intended to prove to the US courts that Mr Kaplan has no control over the Kaplan Family Trust, and especially over how its assets are managed and distributed.

Justice Indra Charles makes clear that Equity Bank & Trust must consider the interests of all beneficiaries, who include Kaplan's wife and children. And she noted: "The Commonwealth of the Bahamas is the proper jurisdiction to adjudicate upon issues relating to the Kaplan Family Trust."

Nineveh alleged that Justice Charles' Order showed "Bahamian law was the exclusive law" for determining the IRS battle, but whether the latter agrees is another matter.

Kaplan was represented before the Bahamas Supreme Court by attorney Gavin Cassar.