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Proceeds of $930,000 from the sale of MMI stock in 1999 were also
dissipated. Some of the cash was used to pay substantial fees,
and the remainder, with the exception of approximately $54,000,
was apparently used to make investments primarily in U.S. stocks
that were sold, often at a substantial loss, to cover the overage
in Clend’s account resulting from the $900,000 loans to the
Melniks.
The record demonstrates that Clend functioned primarily as a
conduit and that neither the Melniks, Clend, nor Bermuda Trust
acted with the kind of restraint that one would expect to see
from participants in a legitimate annuity transaction. Although
Clend had a substantial annuity obligation to fund, Clend and
Bermuda Trust used substantial portions of Clend’s assets to make
unsecured loans and high-risk real estate investments in the
United States at the Melniks’ request. In reality, the Melniks
treated Clend’s assets as a personal bank account and line of
credit.41 Such transactions support a conclusion that the
Melniks had access to, and indirect control over, Clend’s
assets42 in a manner that is inconsistent with the Melniks’ paper
status as creditors/annuitants.
41During trial, Moshe Melnik referred to the assets held by
his foreign trust and by Clend as “my money.”
42In the Form 8-K that MMI filed with the Securities and
Exchange Commission regarding the acquisition of HouTex, MMI
stated that the Melniks indirectly controlled Clend.
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