- SAN FRANCISCO - While former
WorldCom CFO Scott Sullivan sat stoically before lawmakers last week -
amid cries that executives responsible for corporate scandals be jailed
- construction continued on his $15 million lakeside mansion in Boca Raton,
Fla.
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- Other corporate chieftains continue to pour millions
into modern-day castles, while being dogged by corporate bankruptcies and
allegations of improper financial behavior. The biggest: the soon-to-be
$94 million estate of Gary Winnick, chairman of Global Crossing, which
this year filed the fourth-biggest bankruptcy case ever.
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- Much of the upper Enron contingent continues to live
well, too. Former chief financial officer Andrew Fastow, the alleged mastermind
behind partnerships that plunged Enron into a financial abyss, lives in
a $700,000 house in Houston and is building an 11,400-square-foot home
in the so-dubbed "Beverly Hills of Houston" worth more than $1
million.
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- A congressional committee's investigation of Martha Stewart
for allegedly taking advantage of inside information to unload shares in
ImClone hasn't stopped renovation on two homes she owns on a $15 million,
153-acre farm in Bedford, N.Y.
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- Home is where the money is
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- None of the executives have been charged with anything
illegal. They all say they are innocent of financial improprieties as several
investigations unfold. They clearly have the money to spend, and real estate
is always a good tax break.
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- But there are other perks and reasons for profligate
spending on homes, experts say.
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- In all states, debtors who file for Chapter 7 bankruptcy
must liquidate most of their assets to pay creditors. The federal bankruptcy
code, however, lets them keep some things exempt from liquidation. States
determine which assets, such as clothing, cash or home equity, are exempt.
Only five states have unlimited homestead exemptions. Florida, where Sullivan
lives, and Texas, where Fastow lives, are two of them. The others are Iowa,
Kansas and South Dakota.
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- "The exemption was expressly created in Texas in
the 19th century to attract settlers and, later, rich people," says
Charles Tabb, a bankruptcy law professor at the University of Illinois.
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- A tearful Linda Lay, wife of former Enron CEO Ken Lay,
in January said the couple might be forced to declare bankruptcy. But after
selling homes in Aspen, Colo., commercial property and personal items,
they no longer face that threat, family spokeswoman Kelly Kimberly says.
That is, legal experts say, unless shareholder lawsuits siphon their finances.
Regardless, Texas law permits the Lays to keep an unlimited amount of equity
in their 13,000-square-foot Houston penthouse, valued at $7.1 million.
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- Florida has long been a haven from creditors. Former
Sotheby's CEO Diana Brooks, who pleaded guilty in October 2000 for her
role in a price-fixing scheme with rival Christie's, denies she and her
husband acquired a $4 million waterfront property in Florida to take advantage
of the homestead law shortly after the government started its investigation.
Brooks was sentenced to six months home detention and three years probation
in April.
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- Attacking the perk
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- Some in Congress are trying to cap unlimited homestead
exemptions. But a proposed bill to do that ,Äî now stalled in
Congress ,Äî could be toothless in Texas and Florida, where
the homestead exemption is protected by the states' constitutions, Tabb
says. Other loopholes could also be exploited, experts say. "If the
law allows you to keep your home instead of handing it over to creditors,
why not take advantage?" Tabb asks.
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- Finances aren't the only reason executives build extravagant
digs. Psychologists, real estate agents and lawyers say other factors are
at work, including:
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- A fortress mentality. Many top-level executives build
palatial homes ,Äî often in gated communities ,Äî
as a defense mechanism. "It offers a sense of invincibility when things
are going badly," says psychologist Karen Foster of Management Psychology
Group. "It shelters them from reality and offers privacy." Sullivan's
new 24,000-square-foot, five-building Mediterranean-style hideaway is ringed
by gates with television monitors. It comes with a private lagoon, a two-story
boathouse and 18-seat movie theater. Sullivan started construction on the
multimillion-dollar house on four acres he bought in 1998. He currently
lives in a modest Boca Raton neighborhood. He has been mum on various WorldCom
probes and accusations that he improperly hid expenses.
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- Ego. Most executives view their homes as testaments to
their professional legacy. "A lot of executives look at their house
as an image of themselves," says Jonathan Bloom, a real-estate attorney
in Boca Raton. "It's visual proof of how smart, rich and successful
they are." The biggest monument belongs to Winnick. He is pouring
$30 million into restoring his ostentatious 65-year-old Los Angeles mansion
,Äî dubbed Casa Encantada, or House of Enchantment ,Äî
raising its value to $94 million, the nation's priciest.
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- Winnick spokeswoman Marcia Horowitz says the 64-room,
23,000-square-foot Georgian-style home ,Äî once owned by hotel
magnate Conrad Hilton ,Äî needs repairs.
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- Flabbergasted laid-off Global Crossing workers, meanwhile,
are attempting to recoup $32 million in severance pay wiped out by the
bankruptcy filing.
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- Contributing: Christine Dugas
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- http://www.usatoday.com/money/economy/housing/2002-07-15-rich-infamous-homes.htm
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