Big Game Asset Hunters

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"We have a complex structure designed to insulate these properties from claims and lawsuits," wrote Derek Elliott in an e-mail to staffers. "These companies are completely judgment proof."

It was no empty boast. The Elliotts had structured their company so that some assets could be pursued only in a Delaware court; others in St. Vincent, the Grenadines, or Gibraltar; still others in the Dominican Republic or Turks & Caicos; and most in some combination thereof. "These are telltale signs of an offshore financial fraud," says Diaz's partner, Robert I. Targ, a veteran of the U.S. Customs Service.

Diaz knows from complex financing schemes. He has spent thousands of hours defending money managers and other financiers from asset forfeiture. In 2006 he won a case on behalf of an alleged Argentine Ponzi artist who was sued for $1 billion. On Mar. 3, Diaz filed a civil suit in U.S. District Court in Miami, the closest American jurisdiction to the Caribbean. The suit alleges that the Elliotts used their company as a "personal piggy bank," siphoning investor proceeds to personal holding companies and "fraudulently diverting funds" to finance Artisan, a luxury cigar brand, and pay for a private plane, a $520,000 yacht, a film festival, a $300,000 country music tour bus, land holdings, and other items.

But proving that a defendant has used investor proceeds to buy particular toys isn't easy. Who's to say the Elliotts didn't lose money alongside everyone else? That they didn't buy personal effects with legitimate savings? That the real culprit for the losses wasn't the global real estate collapse?

The Elliotts' legal team, which is co-led by Coral Gables (Fla.) attorney Nelson C. Bellido, a former prosecutor, has been counterpunching vigorously. Bellido has filed two motions to disqualify Diaz, alleging that Diaz was illegally soliciting new clients from the hundreds of investors who have yet to join the suit. (A magistrate is considering the charge.)

Despite the roadblocks, Diaz scored a coup in March when he flipped Greg Clark to his side. Until last summer, Clark, 48, had been the Elliott Group's chief financial officer. Diaz says he laid it out for Clark starkly: "You can either tell your story now or sit and take your chances" in further civil and criminal actions. Over the ensuing 48 hours, Diaz says, he was able to wear the executive down. Clark reasoned that he could protect his own assets better—and gain favorable treatment in criminal proceedings—by detailing the fraud for the plaintiffs. "He looked like he had the weight of the world off his shoulders," says Diaz. Clark declined to comment.

Diaz says Clark diagrammed the Elliotts' dealings, showing how earlier investors were paid with proceeds from new ones—and backed up his claims with financial records. "Instead of utilizing the funds raised in the manner in which they represented to purchasers," Clark asserted in his sworn Mar. 20 statement, "the Elliott Group paid themselves large fees and diverted funds to acquire personal assets."

In a May 8 deposition, Diaz cited Clark's testimony when asking Frederick Elliott about $17 million diverted from the incomplete Juan Dolio project to an unrelated real estate venture. Frederick cracked. He said he couldn't account for discrepancies between monies raised and monies used.

The admission was a turning point in the case. By May 19 judges in both Miami and the Dominican Republic had frozen $36 million of the Elliotts' U.S. assets and certain assets in the Dominican Republic. Nine days later plaintiffs won a freeze order for an additional $68 million in assets, including the Elliotts' 54-foot yacht, the Independence. The Elliotts have signaled they'll challenge the orders. "The plaintiffs' allegations of wrongdoing are entirely false," said Carlos F. Concepción, Bellido's co-lead attorney on the case, in an e-mail to BusinessWeek. "The Elliotts will continue to fight vigorously in the Dominican Republic to protect the interests of its investors against the dissident group that is attempting improperly to seize control of the Elliott properties."

Despite his progress so far, Diaz is unabashedly eager to get back to defense work. Sitting inside his sleek Miami office, he leans back in his chair and asks how the recent asset-forfeiture conference went. "Hey, good luck to those guys," he says with a sly smile. "They're good for business."

BusinessWeek Senior Writer Farzad covers Wall Street and international finance.

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