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 Winning the Lottery is Very Dangerous (A Practitioner's Guide) - LONG
Austrian  [Member]
8/29/2008 5:37:36 AM
Congratulations! You just won millions of dollars in the lottery! That's great.

Now you're fucked.

No really.

You are.

You're fucked.

I've seen this question (what to do if you win the lottery), a few times on ARFCOM. Amusingly, it recurs quite often. I posted a similar article to this one "back when" but I've updated it with some actual stories and slapped it in GD because, well, why not?

Keep in mind: IAALBNY (I Am A Lawyer, But Not Yours). Consult professional advisers before spending your hard earned lottery cash.

It's long. There are no cliff notes. But if you just want to skip the biographical tales of woe of some of the math-tax protagonists, skip on down to the next line in bold.

You see, it's something of an open secret that winners of obnoxiously large jackpots tend to end up badly with alarming regularity. Not the $1 million dollar winners. But anyone in the nine-figure range is at high risk. Eight-figures? Pretty likely to be screwed. Seven-figures? Yep. Painful. Perhaps this is a consequence of the sample. The demographics of lottery players might be exactly the wrong people to win large sums of money. Or perhaps money is the root of all evil. Either way, you are going to have to be careful. Don't believe me? Consider this:

Large jackpot winners face double digit multiples of probability versus the general population to be the victim of:

Homicide (something like 20x more likely)
Drug overdose
Bankruptcy (how's that for irony?)
Kidnapping

And triple digit multiples of probability versus the general population rate to be:

Convicted of drunk driving
The victim of Homicide (at the hands of a family member) 120x more likely in this case, ain't love grand?
A defendant in a civil lawsuit
A defendant in felony criminal proceedings

Believe it or not, your biggest enemy if you suddenly become possessed of large sums of money is... you. At least you will have the consolation of meeting your fate by your own hand. But if you can't manage it on your own, don't worry. There are any number of willing participants ready to help you start your vicious downward spiral for you. Mind you, many of these will be "friends," "friendly neighbors," or "family." Often, they won't even have evil intentions. But, as I'm sure you know, that makes little difference in the end. Most aren't evil. Most aren't malicious. Some are. None are good for you.

Jack Whittaker, a Johnny Cash attired, West Virginia native, is the poster boy for the dangers of a lump sum award. In 2002 Mr. Whittaker (55 years old at the time) won what was, also at the time, the largest single award jackpot in U.S. history. $315 million. At the time, he planned to live as if nothing had changed, or so he said. He was remarkably modest and decent before the jackpot, and his ship sure came in, right? Wrong.

Mr. Whittaker became the subject of a number of personal challenges, escalating into personal tragedies, complicated by a number of legal troubles.

Whittaker wasn't a typical lottery winner either. His net worth at the time of his winnings was in excess of $15 million, owing to his ownership of a successful contracting firm in West Virginia. His claim to want to live "as if nothing had changed" actually seemed plausible. He should have been well equipped for wealth. He was already quite wealthy, after all. By all accounts he was somewhat modest, low profile, generous and good natured. He should have coasted off into the sunset. Yeah. Not exactly.

Whittaker took the all-cash option, $170 million, instead of the annuity option, and took possession of $114 million in cash after $56 million in taxes. After that, things went south.

Whittaker quickly became the subject of a number of financial stalkers, who would lurk at his regular breakfast hideout and accost him with suggestions for how to spend his money. They were unemployed. No, an interview tomorrow morning wasn't good enough. They needed cash NOW. Perhaps they had a sure-fire business plan. Their daughter had cancer. A niece needed dialysis. Needless to say, Whittaker stopped going to his breakfast haunt. Eventually, they began ringing his doorbell. Sometimes in the early morning. Before long he was paying off-duty deputies to protect his family. He was accused of being heartless. Cold. Stingy.

Letters poured in. Children with cancer. Diabetes. MS. You name it. He hired three people to sort the mail. A detective to filter out the false claims and the con men (and women) was retained.

Brenda, the clerk who had sold Whittaker the ticket, was a victim of collateral damage. Whittaker had written her a check for $44,000 and bought her house, but she was by no means a millionaire. Rumors that the state routinely paid the clerk who had sold the ticket 10% of the jackpot winnings hounded her. She was followed home from work. Threatened. Assaulted.

Whittaker's car was twice broken into, by trusted acquaintances who watched him leave large amounts of cash in it. $500,000 and $200,000 were stolen in two separate instances. The thieves attempted to spiked Whittaker's drink with prescription drugs in the first instance. Whittaker was violently allergic to the drug used, and likely would have died given the distance to the nearest emergency room, and the lateness of the hour, but, unfortunately he did not consumed the drink containing the narcotics. The second incident was the handiwork of his granddaughter's friends, who had been probing the girl for details on Whittaker's cash for weeks.

Even Whittaker's good-faith generosity was questioned. When he offered $10,000 to improve the city's water park so that it was more handicap accessible, locals complained that he spent more money at the strip club. (Amusingly this was true).

Whittaker invested quite a bit in his own businesses, tripled the number of people his businesses employed (making him one of the larger employers in the area) and eventually had given away $14 million to charity through a foundation he set up for the purpose. This is, of course, what you are "supposed" to do. Set up a foundation. Be careful about your charity giving. It made no difference in the end.

To top it all off, Whittaker had been accused of ruining a number of marriages. His money made other men look inferior, they said, wherever he went in the small West Virginia town he called home. Resentment grew quickly. And festered. Whittaker paid four settlements related to this sort of claim. Yes, you read that right. Four.

His family and their immediate circle were quickly the victims of odds-defying numbers of overdoses, emergency room visits and even fatalities. His granddaughter, the eighteen year old "Brandi" (who Whittaker had been giving a $2100.00 per week allowance) was found dead after having been missing for several weeks. Her death was, apparently, from a drug overdose, but Whittaker suspected foul play. Her body had been wrapped in a tarp and hidden behind a rusted-out van. Her seventeen year old boyfriend had expired three months earlier in Whittaker's vacation house, also from an overdose. Some of his friends had robbed the house after his overdose, stepping over his body to make their escape and then returning for more before stepping over his body again to leave. His parents sued for wrongful death claiming that Whittaker's loose purse strings contributed to their son's death. Amazingly, juries are prone to award damages in cases such as these. Whittaker settled. Again.

Even before the deaths, the local and state police had taken a special interest in Whittaker after his new-found fame. He was arrested for minor and less minor offenses many times after his winnings, despite having had a nearly spotless record before the award. Whittaker's high profile couldn't have helped him much in this regard.

In 18 months Whittaker had been cited for over 250 violations ranging from broken tail lights on every one of his five new cars, to improper display of renewal stickers. A lawsuit charging various police organizations with harassment went nowhere and Whittaker was hit with court costs instead.

Whittaker's wife filed for divorce, and in the process froze a number of his assets and the accounts of his operating companies. Caesars in Atlantic City sued him for $1.5 million to cover bounced checks, caused by the asset freeze.

Today Whittaker is badly in debt, and bankruptcy looms large in his future.

But, hey, that's just one example, right?

Wrong.

Nearly one third of multi-million dollar jackpot winners eventually declare bankruptcy. Some end up worse. To give you just a taste of the possibilities, consider the fates of:

Billie Bob Harrell, Jr.: $31 million. Texas, 1997. As of 1999: Committed suicide in the wake of incessant requests for money from friends and family. “Winning the lottery is the worst thing that ever happened to me.”

William “Bud” Post: $16.2 million. Pennsylvania. 1988. In 1989: Brother hires a contract murderer to kill him and his sixth wife. Landlady sued for portion of the jackpot. Convicted of assault for firing a gun at a debt collector. Declared bankruptcy. Dead in 2006.

Evelyn Adams: $5.4 million (won TWICE 1985, 1986). As of 2001: Poor and living in a trailer gave away and gambled most of her fortune.

Suzanne Mullins: $4.2 million. Virginia. 1993. As of 2004: No assets left.

Shefik Tallmadge: $6.7 million. Arizona. 1988. As of 2005: Declared bankruptcy.

Thomas Strong: $3 million. Texas. 1993. As of 2006: Died in a shoot-out with police.

Victoria Zell: $11 million. 2001. Minnesota. As of 2006: Broke. Serving seven year sentence for vehicular manslaughter.

Karen Cohen: $1 million. Illinois. 1984. As of 2000: Filed for bankruptcy. As of 2006: Sentenced to 22 months for lying to federal bankruptcy court.

Jeffrey Dampier: $20 million. Illinois. 1996. As of 2006: Kidnapped and murdered by own sister-in-law.

Ed Gildein: $8.8 million. Texas. 1993. As of 2003: Dead. Wife saddled with his debts. As of 2005: Wife sued by her own daughter who claimed that she was taking money from a trust fund and squandering cash in Las Vegas.

Willie Hurt: $3.1 million. Michigan. 1989. As of 1991: Addicted to cocaine. Divorced. Broke. Indicted for murder.

Michael Klingebiel: $2 million. As of 1998 sued by own mother claiming he failed to share the jackpot with her.

Janite Lee: $18 million. 1993. Missouri. As of 2001: Filed for bankruptcy with $700 in assets.

Mack Metcalf: $65 million. Kentucky. 2000. As of 2001: Divorced. As of 2002: Sued girlfriend for $500,000 claiming he was drunk when he gave it to her. Sued by wife for child support. As of 2003: Died of alcoholism. As of a few months later in 2003: Second wife bought a mansion with the money, collected dozens of stray cats and died of a drug overdose immediately after moving in.

I could go on quite a bit.

So, what the hell DO you do if you are unlucky enough to win the lottery?

This is the absolutely most important thing you can do right away: NOTHING.

Yes. Nothing.

DO NOT DECLARE YOURSELF THE WINNER yet.

Do NOT tell anyone. The urge is going to be nearly irresistible. Resist it. Trust me.

1. IMMEDIATELY retain an attorney. Get a partner from a larger, NATIONAL firm. Don't let them pawn off junior partners or associates on you. They might try, all law firms might, but insist instead that your lead be a partner who has been with the firm for awhile. Do NOT use your local attorney. Yes, I mean your long-standing family attorney who did your mother's will. Do not use the guy who fought your dry-cleaner bill. Do not use the guy you have trusted your entire life because of his long and faithful service to your family. In fact, do not use any firm that has any connection to family or friends or community. TRUST me. This is bad. You want someone who has never heard of you, any of your friends, or any member of your family. Go the the closest big city and walk into one of the national firms asking for one of the "Trust and Estates" partners you have previously looked up on http://www.martindale.com from one of the largest 50 firms in the United States which has an office near you. You can look up attornies by practice area and firm on Martindale. The top 50 firms by size are:

Baker & McKenzie
DLA Piper Rudnick Gray Cary
Jones Day
White & Case
Latham & Watkins
Skadden, Arps, Slate, Meagher & Flom
Sidley Austin Brown & Wood
Greenberg Traurig
Mayer Brown, Rowe & Maw
Morgan, Lewis & Bockius
Holland & Knight
Wilmer Cutler Pickering Hale and Dorr
Weil, Gotshal & Manges
Kirkland & Ellis
Morrison & Foerster
McDermott, Will & Emery
Shearman & Sterling
Hogan & Hartson
Kirkpatrick & Lockhart Nicholson Graham
Reed Smith
O’Melveny & Myers
Akin Gump Strauss Hauer & Feld
Paul, Hastings, Janofsky & Walker
Foley & Lardner
Fulbright & Jaworski
Cleary Gottlieb Steen & Hamilton
Pillsbury Winthrop Shaw Pittman
Dechert
King & Spalding
Bingham McCutchen
Wilson, Elser Moskowitz, Edelman & Dicker
Winston & Strawn
Squire, Sanders & Dempsey
Hunton & Williams
Gibson, Dunn & Crutcher
Orrick, Herrington & Sutcliffe
Bryan Cave
Vinson & Elkins
Ropes & Gray
Proskauer Rose
Heller Ehrman
Alston & Bird
McGuireWoods
Simpson Thacher & Bartlett
Baker Botts
Sonnenschein Nath & Rosenthal
Debevoise & Plimpton
Nixon Peabody
Paul, Weiss, Rifkind, Wharton & Garrison
LeBoeuf, Lamb, Greene & MacRae

2. Decide to take the lump sum. Most lotteries pay a really pathetic rate for the annuity. It usually hovers around 4.5% annual return or less, depending. It doesn't take much to do better than this, and if you have the money already in cash, rather than leaving it in the hands of the state, you can pull from the capital whenever you like. If you take the annuity you won't have access to that cash. That could be good. It could be bad. It's probably bad unless you have a very addictive personality. If you need an allowance managed by the state, it is because you didn't listen to point #1 above.

Why not let the state just handle it for you and give you your allowance?

Many state lotteries pay you your "allowence" (the annuity option) by buying U.S. treasury instruments and running the interest payments through their bureaucracy before sending it to you along with a hunk of the principal every month. You will not be beating inflation by much, if at all. There is no reason you couldn't do this yourself, if a low single-digit return is acceptable to you.

You aren't going to get even remotely the amount of the actual jackpot. Take our old friend Mr. Whittaker. Using Whittaker is a good model both because of the reminder of his ignominious decline, and the fact that his winning ticket was one of the larger ones on record. If his situation looks less than stellar to you, you might have a better perspective on how "large" your winnings aren't. Whittaker's "jackpot" was $315 million. He selected the lump-sum cash up-front option, which knocked off $145 million (or 46% of the total) leaving him with $170 million. That was then subject to withholding for taxes of $56 million (33%) leaving him with $114 million.

In general, you should expect to get about half of the original jackpot if you elect a lump sum (maybe better, it depends). After that, you should expect to lose around 33% of your already pruned figure to state and federal taxes. (Your mileage may vary, particularly if you live in a state with aggressive taxation schemes).

3. Decide right now, how much you plan to give to family and friends. This really shouldn't be more than 20% or so. Figure it out right now. Pick your number. Tell your lawyer. That's it. Don't change it. 20% of $114 million is $22.8 million. That leaves you with $91.2 million. DO NOT CONSULT WITH FAMILY when deciding how much to give to family. You are going to get advice that is badly tainted by conflict of interest, and if other family members find out that Aunt Flo was consulted and they weren't you will never hear the end of it. Neither will Aunt Flo. This might later form the basis for an allegation that Aunt Flo unduly influenced you and a lawsuit might magically appear on this basis. No, I'm not kidding. I know of one circumstance (related to a business windfall, not a lottery) where the plaintiffs WON this case.

Do NOT give anyone cash. Ever. Period. Just don't. Do not buy them houses. Do not buy them cars. Tell your attorney that you want to provide for your family, and that you want to set up a series of trusts for them that will total 20% of your after tax winnings. Tell him you want the trust empowered to fund higher education, some help (not a total) purchase of their first home, some provision for weddings and the like, whatever. Do NOT put yourself in the position of handing out cash. Once you do, if you stop, you will be accused of being a heartless bastard (or bitch). Trust me. It won't go well.

It will be easy to lose perspective. It is now the duty of your friends, family, relatives, hangers-on and their inner circle to skew your perspective, and they take this job quite seriously. Setting up a trust, a managed fund for your family that is in the double digit millions is AMAZINGLY generous. You need never have trouble sleeping because you didn't lend Uncle Jerry $20,000 in small denomination unmarked bills to start his chain of deep-fried peanut butter pancake restaurants. ("Deep'n 'nutter Restaurants") Your attorney will have a number of good ideas how to parse this wealth out without turning your siblings/spouse/children/grandchildren/cousins/waitresses into the latest Paris Hilton.

4. You will be encouraged to hire an investment manager. Considerable pressure will be applied. Don't.

Investment managers charge fees, usually a percentage of assets. Consider this: If they charge 1% (which is low, I doubt you could find this deal, actually) they have to beat the market by 1% every year just to break even with a general market index fund. It is not worth it, and you don't need the extra return or the extra risk. Go for the index fund instead if you must invest in stocks. This is a hard rule to follow. They will come recommended by friends. They will come recommended by family. They will be your second cousin on your mother's side. Investment managers will sound smart. They will have lots of cool acronyms. They will have nice PowerPoint presentations. They might (MIGHT) pay for your shrimp cocktail lunch at TGI Friday's while reminding you how poor their side of the family is. They live for this stuff.

You should smile, thank them for their time, and then tell them you will get back to them next week. Don't sign ANYTHING. Don't write it on a cocktail napkin (lottery lawsuit cases have been won and lost over drunkenly scrawled cocktail napkin addition and subtraction figures with lots of zeros on them). Never call them back. Trust me. You will thank me later. This tactic, smiling, thanking people for their time, and promising to get back to people, is going to have to become familiar. You will have to learn to say no gently, without saying the word "no." It sounds underhanded. Sneaky. It is. And its part of your new survival strategy. I mean the word "survival" quite literally.

Get all this figured out BEFORE you claim your winnings. They aren't going anywhere. Just relax.

5. If you elect to be more global about your paranoia, use between 20.00% and 33.00% of what you have not decided to commit to a family fund IMMEDIATELY to purchase a combination of longer term U.S. treasuries (5 or 10 year are a good idea) and perhaps even another G7 treasury instrument. This is your safety net. You will be protected... from yourself.

You are going to be really tempted to starting being a big investor. You are going to be convinced that you can double your money in Vegas with your awesome Roulette system/by funding your friend's amazing idea to sell Lemming dung/buying land for oil drilling/by shorting the North Pole Ice market (global warming, you know). This all sounds tempting because "Even if I lose it all I still have $XX million left! Anyone could live on that comfortably for the rest of their life." Yeah, except for 33% of everyone who won the lottery.

You're not going to double your money, so cool it. Let me say that again. You're not going to double your money, so cool it. Right now, you'll get around 3.5% on the 10 year U.S. treasury. With $18.2 million (20% of $91.2 mil after your absurdly generous family gift) invested in those you will pull down $638,400 per year. If everything else blows up, you still have that, and you will be in the top 1% of income in the United States. So how about you not fuck with it. Eh? And that's income that is damn safe. If we get to the point where the United States defaults on those instruments, we are in far worse shape than worrying about money.

If you are really paranoid, you might consider picking another G7 or otherwise mainstream country other than the U.S. according to where you want to live if the United States dissolves into anarchy or Britney Spears is elected to the United States Senate. Put some fraction in something like Swiss Government Bonds at 3%. If the Swiss stop paying on their government debt, well, then you know money really means nothing anywhere on the globe anymore. I'd study small field sustainable agriculture if you think this is a possibility. You might have to start feedng yourself.

6. That leaves, say, 80% of $91.2 million or $72.9 million. Here is where things start to get less clear. Personally, I think you should dump half of this, or $36.4 million, into a boring S&P 500 index fund. Find something with low fees. You are going to be constantly tempted to retain "sophisticated" advisers who charge "nominal fees." Don't. Period. Even if you lose every other dime, you have $638,400 per year you didn't have before that will keep coming in until the United States falls into chaos. Fuck advisers and their fees. Instead, drop your $36.4 million in the market in a low fee vehicle. Unless we have an unprecedented downturn the likes of which the United States has never seen, should return around 7.00% or so over the next 10 years. You should expect to touch not even a dime of this money for 10 or 15 or even 20 years. In 20 years $36.4 million could easily become $115 million.

7. So you have put a safety net in place. You have provided for your family beyond your wildest dreams. And you still have $36.4 million in "cash." You know you will be getting $638,400 per year unless the capital building is burning, you don't ever need to give anyone you care about cash, since they are provided for generously and responsibly (and can't blow it in Vegas) and you have a HUGE nest egg that is growing at market rates. (Given the recent dip, you'll be buying in at great prices for the market). What now? Whatever you want. Go ahead and burn through $36.4 million in hookers and blow if you want. You've got more security than 99% of the country. A lot of it is in trusts so even if you are sued your family will live well, and progress across generations. If your lawyer is worth his salt (I bet he is) then you will be insulated from most lawsuits anyhow. Buy a nice house or two, make sure they aren't stupid investments though. Go ahead and be an angel investor and fund some startups, but REFUSE to do it for anyone you know. (Friends and money, oil and water - Michael Corleone) Play. Have fun. You earned it by putting together the shoe sizes of your whole family on one ticket and winning the jackpot.

You 'da Man (Woman).
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aaron_fsp  [Member]
8/29/2008 5:43:45 AM
I'm not going to ask how you know this, that was very detailed.
desertmoon  [Team Member]
8/29/2008 5:48:04 AM
I'd call someone like Edelman Financial and get the whole shebang set up through them.

Then I would fucking vanish.
c0wcommander  [Member]
8/29/2008 5:49:27 AM
You wouldn't happen to have any personal experience on this now, would you?
TheGrayMan  [Team Member]
8/29/2008 5:51:51 AM
I've always thought that winning the lottery would be more of a curse than a blessing. Everyone would know your name, and your life would change, virtually overnight... you'd be nothing but a target... a mark.

I like my dull, boring, low-profile life.
maxell27  [Member]
8/29/2008 5:54:40 AM
Again as posted before, there was a lot of thought in this.

Max
ORinTX  [Team Member]
8/29/2008 5:58:29 AM
You forgot the step where you invest half of the winnings in class 3 weapons.
B00M  [Member]
8/29/2008 6:01:29 AM
Fucking hell. Even winning the lottery doesn't subside your worries in life.

Worth it though.
Bohr_Adam  [Life Member]
8/29/2008 6:02:31 AM
<-- Just posting to feel part of such an excellent post and observation of human nature.
JBlitzen  [Team Member]
8/29/2008 6:03:20 AM
How's the security situation in putting tens of millions of bucks into a single index fund? If that broker goes tits up, what happens to the money?
packingXDs  [Team Member]
8/29/2008 6:03:22 AM
That is all well and good, but how do I win the lotto in the first place?
aaron_fsp  [Member]
8/29/2008 6:05:31 AM
I wonder what the rate of kidnappings are for those who receive lump sum payments?
Chairborne  [Team Member]
8/29/2008 6:07:30 AM

Originally Posted By packingXDs:
That is all well and good, but how do I win the lotto in the first place?


Throw away money every week playing a game you have no statistical probability of ever winning. They don't call it the "stupid tax" for nothing.
xanadu  [Team Member]
8/29/2008 6:13:19 AM
subscribed - I have a feeling I'll need this in the near future.
penguinslider009  [Member]
8/29/2008 6:31:02 AM

3. Decide right now, how much you plan to give to family and friends. This really shouldn't be more than 20% or so. Figure it out right now. Pick your number. Tell your lawyer. That's it. Don't change it. 20% of $114 million is $22.8 million. That leaves you with $91.2 million. DO NOT CONSULT WITH FAMILY when deciding how much to give to family. You are going to get advice that is badly tainted by conflict of interest, and if other family members find out that Aunt Flo was consulted and they weren't you will never hear the end of it. Neither will Aunt Flo. This might later form the basis for an allegation that Aunt Flo unduly influenced you and a lawsuit might magically appear on this basis. No, I'm not kidding. I know of one circumstance (related to a business windfall, not a lottery) where the plaintiffs WON this case.

Do NOT give anyone cash. Ever. Period. Just don't. Do not buy them houses. Do not buy them cars. Tell your attorney that you want to provide for your family, and that you want to set up a series of trusts for them that will total 20% of your after tax winnings. Tell him you want the trust empowered to fund higher education, some help (not a total) purchase of their first home, some provision for weddings and the like, whatever. Do NOT put yourself in the position of handing out cash. Once you do, if you stop, you will be accused of being a heartless bastard (or bitch). Trust me. It won't go well.

It will be easy to lose perspective. It is now the duty of your friends, family, relatives, hangers-on and their inner circle to skew your perspective, and they take this job quite seriously. Setting up a trust, a managed fund for your family that is in the double digit millions is AMAZINGLY generous. You need never have trouble sleeping because you didn't lend Uncle Jerry $20,000 in small denomination unmarked bills to start his chain of deep-fried peanut butter pancake restaurants. ("Deep'n 'nutter Restaurants") Your attorney will have a number of good ideas how to parse this wealth out without turning your siblings/spouse/children/grandchildren/cousins/waitresses into the latest Paris Hilton.


Thanks for the write up

I have no freaking idea how a trust works, how does it work in the US at least? How does it prevent you from being messed with by the neighbors, cousins, brothers,sisters,grandmother's second counsin's friend's neighbor?
Austrian  [Member]
8/29/2008 6:31:27 AM

Originally Posted By JBlitzen:
How's the security situation in putting tens of millions of bucks into a single index fund? If that broker goes tits up, what happens to the money?


This is a good question.

$100,000 is the limit for Cash. $500,000 for most securities.

Just to give you an example though, no one at the retail level who was using Bear Stearns for brokerage and or custody for their stocks lost anything. This might not be the best example, however, as they didn't have a ton of retail brokerage or private wealth management customers. The worst you should realistically expect from a brokerage when it comes to that is a long wait to get your securities back if they kept poor records. Then you are going to have to prove to the regulator (in case of liquidation or such) that you own the securities. If you keep good records and print out statements often, you'll likely have no trouble.

Some people try to spread it around. That's likely wise. But you're going to have a hard time spreading $30 million around $500k at a time.

ETA: It is of course possible to see a brokerage fold so completely that there is nothing left, but that requires a level of fraud that is pretty significant. This has me curious. I'm going to try to dig up the largest securities loss from a failed brokerage and see how bad it really was.
bluezerosix  [Member]
8/29/2008 6:33:27 AM

Originally Posted By desertmoon:
I'd call someone like Edelman Financial and get the whole shebang set up through them.

Then I would fucking vanish.


QFT
Scooter4736  [Team Member]
8/29/2008 6:45:57 AM
Why should I give my second or tenth cousins anything? I won't. Fuck them.

Why should I care about some crooks cancer ridden, MS, heart trouble since birth, mother dying, sister has breast cancer, holly rollers, charity, sister has 30 kids and broke......ect, etc,etc? I won't. Fuck them.

I will support my immediate family (brothers, mom, dad, my kids)

The rest of the world can kiss my ass. I'm not falling for any bullshit.

Like another poster said above. Vanish.
ColtAllure  [Member]
8/29/2008 6:50:10 AM
A very instructive post. And not just about winning the lottery, either.
GENESMITH  [Life Member]
8/29/2008 6:51:12 AM
tag
310Cadet  [Team Member]
8/29/2008 6:58:51 AM
If you win over here its all one lump sum with no tax to pay, and no publicity if you want anonymity. We do of course get the morons who opt for publicity and then proceed to bankrupt themselves in record time, but the ability to get your money with no-one knowing is there as well.



Iggyort  [Team Member]
8/29/2008 7:09:30 AM
funny
Austrian  [Member]
8/29/2008 7:12:35 AM

Originally Posted By JBlitzen:
How's the security situation in putting tens of millions of bucks into a single index fund? If that broker goes tits up, what happens to the money?


Most accounts will have language in an account agreement that looks something like this:


All securities, commodities and other property held, carried or maintained by you in your possession in any of my accounts may be pledged and repledged by you from time to time, without notice to me, either separately or in common with other such securities, commodities and other property for any amount due in my accounts or for any greater amount, and you may do so without retaining in your possession or control for delivery a like amount of similar securities, commodities and/or other property.


This, effectively, means that the securities are held in street name, not your name and that your brokerage can lend them out to short sellers, or (in some cases) provide voting rights to third parties. Bear had language to the effect that:

"[We] may receive and retain certain benefits to which you will not be entitled."

If the SPIC takes over a brokerage account, the first securities to get handed back to customers are those held in the customer's name. The rest (most of them) are put into the general "pie" of customer securities. They are distributed out in the case of liquidation pro-rata to customers with claims. Even if there is 100% coverage, you could be waiting a long time (months, years) for resolution there. This is reason enough to try and keep your securities out of "street name" and in your name. Brokerages, of course, don't want you doing that because they can't command lending fees and the like if the securities are held in your name.

Look at this Study of the Failure of MJK Clearing (.pdf file) if you really want to get into the technical nitty gritty.

Of course, if it is bad for brokerages, it's likely good for you in this case.

Solutions?

Mike Offit was a commercial mortgage-backed securities and asset-backed securities at Goldman at one point. He's got some answers that look very good for this problem.

1. Don't use a margin account unless you really need to borrow against your securities. Keep a cash account instead and look over the agreement carefully. Make sure that the broker has to get your say-so to lend out, change to street name, etc.

2. Put your request to have the securities in your name in writing. Unfortunately, this isn't always possible. Instead:


...the safest bet is to set up a custodial account at a Trust Bank, and have your securities delivered and/or registered there. Securities held by trust banks for their customers are registered in the name of a separate nominee than the bank’s proprietary property at DTCC, and barring fraud or misappropriation, will not get caught up in a bank’s insolvency. The bank will manage the paperwork and charge a negotiable custodial fee. Some will do it for free provided you agree to do your securities business through them.

You MUST use a nominee registered at DTCC. The difference between a brokerage’s account nominee and a bank custody-or trust-type account nominee is that the NOMINEE in the latter is ONLY USED for CUSTOMER property, and the institution is bound by law and contract not to use the securities so registered for any purpose. It is essentially a safekeeping nominee account. By keeping the customer property totally separate from bank property, it will not get caught up in any bank failure. Brokerages do not do this. Yes, if you have more money, you can negotiate your own deal (we did)… but anyone with a few bucks can open an account at Northern Trust or such and ask that his securities be held in a customer-only nominee name. Most will do it, I’m sure.

I know it’s hard to believe. An individual or company CAN NOT register the vast majority of securities in their own name. I went through this with at least 4 major brokerages, INCLUDING Goldman. They had written an agreement to do that for a friend of mine with over $125 million in their Asset Management division, and had to admit that they simply COULD NOT DO IT.


Hopefully that covers your question. Go win the MegaMillions so we can test the theory.
AssaultRifler  [Team Member]
8/29/2008 7:13:44 AM
I won $57 2 weeks ago, any advice for the digit winners
Austrian  [Member]
8/29/2008 7:18:02 AM

Originally Posted By 310Cadet:
If you win over here its all one lump sum with no tax to pay, and no publicity if you want anonymity. We do of course get the morons who opt for publicity and then proceed to bankrupt themselves in record time, but the ability to get your money with no-one knowing is there as well.


I think several states in the United States REQUIRE you to participate in promotional events and efforts when/if you win. But you can keep these to a minimum and you can get your act together BEFORE YOU CLAIM the jackpot. I think most awards are open for a year or more. And the longer you wait, the less press you are going to get because the news can only run the "who is the mystery winner" segment a few times before they have to move on.

I used to know more about how EuroMillions worked, but I haven't paid attention in years.
Demordrah  [Life Member]
8/29/2008 7:19:56 AM
My urge to purchase quantities of machine guns for shits and giggles would probably cause my heart to explode.

Imagine the feeling of a child on Christmas morning magnified by about 10,000.


That being said, this post was a surprisingly good read.
Aimless  [Site Staff]
8/29/2008 7:21:01 AM
Ha, hiring a partner at one of those firms will use up most of your winnings in a few hours. That's like hiring a pirate to keep an eye on the yacht you just won.


Sounds like the smartest thing would be to move to a very desolate part of another country under an assumed name.

I don't buy lottery tickets, but if anyone gives me the big winner as a Christmas present you'll be on retainer Austrian.
Austrian  [Member]
8/29/2008 7:22:01 AM

Originally Posted By AssaultRifler:
I won $57 2 weeks ago, any advice for the digit winners


Reinvest it in lottery tickets. Duh.
Austrian  [Member]
8/29/2008 7:26:07 AM

Originally Posted By Aimless:
Ha, hiring a partner at one of those firms will use up most of your winnings in a few hours. That's like hiring a pirate to keep an eye on the yacht you just won.


Really, you only need a few days of his time. Even at absurd New York rates, this would be money quite well spent. Likely to save you many times over the outlay over the next several months.


Sounds like the smartest thing would be to move to a very desolate part of another country under an assumed name.


It is amazing some of the stories that come out with features up to and including murder, mayhem, arson, and in one case, having the winner declared mentally unsound, subjected to involuntary commitment and then made the victim of abandonment in a state facility. Guy, in good heath before winning, died 15 months after winning the lottery at age 52. His kids (who had him committed) got it all.


I don't buy lottery tickets, but if anyone gives me the big winner as a Christmas present you'll be on retainer Austrian.


Ah, alas, I don't practice law in the United States. Happy to help you with the finances however!
sprayandpray  [Team Member]
8/29/2008 7:26:42 AM
Wow, great post
JBlitzen  [Team Member]
8/29/2008 7:28:06 AM

Originally Posted By Austrian:
Hopefully that covers your question. Go win the MegaMillions so we can test the theory.

Very interesting answer. I always wondered about that.

I'll get cracking on the lotto. Can't be too hard, people win them every day.

SevenMaryThree  [Team Member]
8/29/2008 7:33:12 AM
I am interested to see how these same statistics and advice would compare with people who might have been awarded any significant monetary settlements as the result of litigation.



Chairborne  [Team Member]
8/29/2008 7:35:42 AM

Originally Posted By SevenMaryThree:
I am interested to see how these same statistics and advice would compare with people who might have been awarded any significant monetary settlements as the result of litigation.





They don't have those sorts of problems, their lawyers take all of their money.
TheGrayMan  [Team Member]
8/29/2008 7:43:12 AM

Originally Posted By Chairborne:

Originally Posted By SevenMaryThree:
I am interested to see how these same statistics and advice would compare with people who might have been awarded any significant monetary settlements as the result of litigation.





They don't have those sorts of problems, their lawyers take all of their money.


Or at least the first 50%
disco_jon75  [Team Member]
8/29/2008 8:00:54 AM
Excellent post.

For a balanced investment, what portion should be in real estate? I'm going to be honest, I'd be hard pressed not to purchase huge swaths of land in 2-3 different states and get conservation easements put on them.
spartacus2002  [Team Member]
8/29/2008 8:02:05 AM

Originally Posted By Scooter4736:
Why should I give my second or tenth cousins anything? I won't. Fuck them.

Why should I care about some crooks cancer ridden, MS, heart trouble since birth, mother dying, sister has breast cancer, holly rollers, charity, sister has 30 kids and broke......ect, etc,etc? I won't. Fuck them.

I will support my immediate family (brothers, mom, dad, my kids)

The rest of the world can kiss my ass. I'm not falling for any bullshit.

Like another poster said above. Vanish.


You missed the point. Money makes family get WEIRD. Some families will hound you for money incessantly, and the more you give in the more they demand, and once you stop handing it out you become a bastard.

But, if you immediately throw 20% into a trust for family and tell family "sorry, the lawyers are in charge of that 20%, go ask them for the $" then it reduces the pain and stress.

Not everybody can or wants to vanish. I have a wife and 3 kids and community connections that I would not want to cancel. IF you're single and can run off to a trailer in Arizona on land large enough to have your own range and NFA toys, excellent. Many of us simply cannot do that.
jixxerbeast  [Member]
8/29/2008 8:03:55 AM
That was a pleasure to read and very insightful.

it's amazing how before you have money you think everything would be smooth sailing and then the shit hits the fan.

there is a saying "it's lonely at the top" thats because you must now isolate yourself from every gold digger who now wants to be your "friend"

I had a sizable down payment I ended up putting down on my house and it's amazing at how when you ask others for advice and they discover you have more cash then they do just who starts calling and their sob stories.

now that that money is in equity the phone doesn't ring and I don't hear from those people anymore. so much for friends
Austrian  [Member]
8/29/2008 8:21:01 AM

Originally Posted By SevenMaryThree:
I am interested to see how these same statistics and advice would compare with people who might have been awarded any significant monetary settlements as the result of litigation.


One of the big differences is that many states don't tax damage awards in litigation. Personal injury damages are, for instance, not taxable at the federal level either.

I think one of the things with those statistics is that they are already subject to some non-representative sample errors. If one compares the likelihood of being a victim of crime among lottery winners and everyone else you might be boosting the "multiples" because lottery PLAYERS might be of a demographic that have higher per-capital crime than non-lottery players.
gun74  [Member]
8/29/2008 8:23:44 AM
Very good post .Tag
crodeo  [Team Member]
8/29/2008 8:28:24 AM
I know Jack Whittaker from his construction business. Partied with him a few times as well. Most of your story about him is correct but some of the details are not quite right. Just small things like the boyfriend dead at the vacation house, it was Jack's house not vacation house. His "foundation" or headquarters was about 50 feet from my front door. It is called the "Brandi Building", like everything else that Jack owned that beautiful building is now a flooded out brick eyesore. If you look in the front door though you can see a huge portrait of Jack, his wife and Brandi.

I liked Jack and there were a lot of people pulling for him locally but the State, authorities and women thought he was an easy meal ticket. I am not saying Jack was a saint but he was a big target that greed followed around. I think he has pretty much pulled his business and investments out of WV and moved somewhere to VA.
Jarhead_22  [Team Member]
8/29/2008 8:29:20 AM
Interesting reading. Thanks Austrian.
SevenMaryThree  [Team Member]
8/29/2008 8:39:42 AM

Originally Posted By Austrian:

Originally Posted By SevenMaryThree:
I am interested to see how these same statistics and advice would compare with people who might have been awarded any significant monetary settlements as the result of litigation.


One of the big differences is that many states don't tax damage awards in litigation. Personal injury damages are, for instance, not taxable at the federal level either.

I think one of the things with those statistics is that they are already subject to some non-representative sample errors. If one compares the likelihood of being a victim of crime among lottery winners and everyone else you might be boosting the "multiples" because lottery PLAYERS might be of a demographic that have higher per-capital crime than non-lottery players.


That makes sense and would be congruent with my own experience. It's kind of like the statistic that says people who don't regularly visit a dentist have a greater probability of other concurrent undiagnosed medical issues. It is implied that this is due to not seeking dental care, but the reality is...

It's because they don't see any other medical professionals either, and not simply because they don't go to the dentist.

I love statisticians.
figley  [Member]
8/29/2008 8:47:20 AM
+1 for hookers and blow
444  [Team Member]
8/29/2008 8:56:34 AM
When I was just out of high school I used to play the lotto and my dad used to tell me that if I won it, it would be the worst thing that ever happened to me.


Now as a middle aged adult I realize that if I ever won the lottery, it would be the worst thing that ever happened to me.
And, I didn't need to read this post to realize it (although I enjoyed reading it).
AeroE  [Team Member]
8/29/2008 9:02:38 AM
Who wants to win a million bucks?

I occasionally buy a ticket for a large lottery big enough to change my lifestyle. Also, I'm a cold hearted and cheap sob and nobody ain't gettin' nuthin'. And I don't have any bad habits involving wimmenz, casinos, booze, or dope. Just guns. (Did you know the going in cost for a Fabbri shotgun is about $70k, before you get a good start on the options?)

Indexed funds: +1
Rolling CD's for pocket money: +1
other low return cash instruments: +1

Quitting my job: +10


I hadn't thought about the trust angle; that's a remarkably good idea.
intheburbs  [Team Member]
8/29/2008 9:24:25 AM
Good post.

Most people aren't aware that you can claim your winnings anonymously

Set up a trust first, then have the trust claim the prize. It is possible to do this and stay out of the public spotlight.



Austrian  [Member]
8/29/2008 9:29:08 AM

Originally Posted By crodeo:
I know Jack Whittaker from his construction business. Partied with him a few times as well. Most of your story about him is correct but some of the details are not quite right. Just small things like the boyfriend dead at the vacation house, it was Jack's house not vacation house. His "foundation" or headquarters was about 50 feet from my front door. It is called the "Brandi Building", like everything else that Jack owned that beautiful building is now a flooded out brick eyesore. If you look in the front door though you can see a huge portrait of Jack, his wife and Brandi.

I liked Jack and there were a lot of people pulling for him locally but the State, authorities and women thought he was an easy meal ticket. I am not saying Jack was a saint but he was a big target that greed followed around. I think he has pretty much pulled his business and investments out of WV and moved somewhere to VA.


Thanks for the correction. Edits forthcoming!

ETA: Most of the Whittaker stuff was taken from the many articles and profiles on him, including a very long Washington Post article. I didn't bother citing, but perhaps I should have. If there are any other corrections please let me know and I'll key them in.
peekay  [Team Member]
8/29/2008 9:34:01 AM

Originally Posted By intheburbs:
Good post.

Most people aren't aware that you can claim your winnings anonymously

Set up a trust first, then have the trust claim the prize. It is possible to do this and stay out of the public spotlight.



Even better, have the NFA trust claim it

Austrian  [Member]
8/29/2008 9:37:20 AM

Originally Posted By intheburbs:
Good post.

Most people aren't aware that you can claim your winnings anonymously

Set up a trust first, then have the trust claim the prize. It is possible to do this and stay out of the public spotlight.


In some states, yes. But not all. MegaMillions generally requires you to submit to the bright light of the public eye, but it varies by state in the United States.


14. Can a Mega Millions jackpot winner claim the prize anonymously?

Public disclosure laws vary from state to state. Some states require their lotteries to publicly identify winners, while others do not. Check with your Mega Millions state lottery.
Austrian  [Member]
8/29/2008 9:42:26 AM

Originally Posted By disco_jon75:
Excellent post.

For a balanced investment, what portion should be in real estate? I'm going to be honest, I'd be hard pressed not to purchase huge swaths of land in 2-3 different states and get conservation easements put on them.


That's a hard question to answer without a lot of inputs first. What kind of real estate? Commercial? Residential? Where? How much total capital in the portfolio? Is the real estate designed to be investment only, or used by the owner? Rental properties? How long is the investment horizon? Where is the market for real estate today?

Generally, if you want to include real estate as an asset class for pure diversification, you should be looking at well diversified REITS rather than just buying land. (Whittaker bought a ton of land. That seems to have ended badly). What mix? Well, if you are usually 60% stocks and 40% bonds, I'd thin down stocks before bonds to add real-estate. But, then again, my horizon, return goals and everything else about my investment strategy probably looks nothing like yours.

There is, unfortunately, no magic formula.
crodeo  [Team Member]
8/29/2008 9:48:20 AM

Originally Posted By Austrian:

Originally Posted By crodeo:
I know Jack Whittaker from his construction business. Partied with him a few times as well. Most of your story about him is correct but some of the details are not quite right. Just small things like the boyfriend dead at the vacation house, it was Jack's house not vacation house. His "foundation" or headquarters was about 50 feet from my front door. It is called the "Brandi Building", like everything else that Jack owned that beautiful building is now a flooded out brick eyesore. If you look in the front door though you can see a huge portrait of Jack, his wife and Brandi.

I liked Jack and there were a lot of people pulling for him locally but the State, authorities and women thought he was an easy meal ticket. I am not saying Jack was a saint but he was a big target that greed followed around. I think he has pretty much pulled his business and investments out of WV and moved somewhere to VA.


Thanks for the correction. Edits forthcoming!

ETA: Most of the Whittaker stuff was taken from the many articles and profiles on him, including a very long Washington Post article. I didn't bother citing, but perhaps I should have. If there are any other corrections please let me know and I'll key them in.


Most of it was spot on. He was drugged by the manager and a stripper at the Pink Pony in Cross Lanes, one of my favorite hang outs until that happened. The club shut down after that. He didn't go to the hospital until the following day to have a drug test to prove he was slipped some pills. The manager slipped him some pills and the stripper was hanging all over Jack while the manager slipped out the back and broke the window to Jack's Navigator and stole $500,000 from his brief case. The old man actually beat the shit out of the manager when they wouldn't let him leave. He went out to his car to find his window broke and called the police. Jack's body guard showed up and found the money hidden behind the dumpster.

His house and cars were broken into several times, he was threatened daily, wierdo's would show up out of the blue at the Brandi building asking for money to invest in their ideas or help with their bills. I was taking some communication classes at the local college around that time and had an assignment to do a news story. I interviewed Jack and some of the employees at the foundation and they would read me some of the thousands of letters he would get from people asking for money. Jack helped a lot of people through business and charity but he also paid for several funerals for very poor rural people who couldn't afford to bury loved ones. Jack also gave five different counties a million dollars each to go to Walmart and buy clothes and jackets for poor kids for school. Jack liked to party but he was a good man who tried to do the right thing. I am sure if I had won that kind of money my life would probably be much more fucked up.
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