I am not a lawyer, I am a judgment broker. This article is my opinion, based on my experience in California, and laws vary in each state. If you ever need legal advice or a strategy to use, please contact a lawyer.
Most of the time, judgments are not easy to recover. The most common and cost-effective tools to recover a judgment are bank or employment (wage) levies/garnishments.
Many judgment debtors have assets, however some keep their assets in brokerage accounts. Usually, stocks, bonds, commodities, and similar assets; cannot be reached with a simple levy. In California, see Commercial Code 8112, especially section E.
Brokerage account companies include Merrill Lynch, Ameritrade, Scottrade, Ameriprise, Charles Schwab, and Etrade. Like banks, some will accept a levy at any branch or office, others require levies to be served at the branch the account was opened at. Some require you to domesticate the judgment to a state where they do business, others do business in every state, etc.
How do you find out if your judgment debtor owns assets in a brokerage account? Three ways to find this kind of information are:
1) Tips from an ex-spouse, ex-friend, or ex-partner of the judgment debtor.
2) Hire a private investigator, or an asset search firm. This can be expensive.
3) Conduct a court-based judgment debtor exam (OEX) with subpoenas issued for the production of financial, tax, or business records of the debtor, their bank, spouse, and/or business associates. If you find hints about judgment debtor assets at a brokerage firm, then subpoena them for any records pertaining to the judgment debtor. Expect to pay banks and brokerages for their costs in complying with your document requests.
4) Use a searching compay, e.g., US Bank Data.
In most states and situations, one cannot usually levy retirement or other protected accounts, or distributions from them; even when they have a judgment for fraud, which makes no sense to me.
What happens after a levy is served on a brokerage, as a third-party holding the judgment debtor’s assets, is usually very different from a regular bank levy. When a bank is levied, the judgment debtor’s assets are cash, a very fungible asset, that is held; then turned over to the Sheriff. Then, after a waiting period, the Sheriff sends the money onto the creditor.
At a brokerage, after the levy is served, they put a hold on the judgment debtor’s account, at least as much as is required to satisfy the levy. However, if the judgment debtor’s assets are not in cash, the brokerage does not send any funds to the Sheriff automatically. Instead, they wait for a creditor-initiated court order, instructing the brokerage to sell the debtor’s stocks and other assets.
When a levy is served, the brokerage confirms any assets that are in the judgment debtor’s name, such as stocks. Then, they wait for a court order, instructing them to sell stocks and other assets. Once the court order is received, the judgment debtor’s assets are liquidated for cash, and the cash is turned over to the Sheriff.
Often, the brokerage house sends out a list of stock shares owned by the judgment debtor and you can select which ones you want liquidated. They then convert those shares to cash and send it to the Sheriff. This procedure may differ in other parts of the country.
Because brokerage companies are not banks, they are not regulated by Departments of Financial Institutions. Brokerages are regulated primarily by the Office of the Comptroller of the Currency (“OCC”), located in Houston, Texas at http://www.occ.treas.gov.
In certain circumstances, long-arm statues may be used to reach accounts far away from the creditor or the court where the judgment originated.
Long-arm statues allow local state courts have jurisdiction over a non-local entity or person (who is for example, a judgment debtor). The typical test is, whether the debtor or third-party (for example, a bank or brokerage) holding the judgment debtor’s assets, does or did business local to the court or creditor. Remember to include witness fees if required in your state.
Here is an example of where long-arm statutes have worked: A judgment enforcer took a judgment from Oklahoma. The judgment debtor was a corporation based in New York. The judgment enforcer found out that they had a banking relationship (deposits) with a bank based in Pennsylvania. That bank did business in Texas, and was thus amenable to jurisdiction here. He domesticated the judgment into Texas and immediately did a bank levy (writ of garnishment) for service on the bank in Pennsylvania, thus trapping all the funds of the judgment debtor.
The judgment debtor’s stock is usually held in “street name”, for example “Charles Schwab and Co., Inc., for the benefit of Barry Debtor”.
Uniform Commercial Code, section 8-317, defines creditor’s possible rights to judgment debtor’s assets at brokerages. Especially if the judgment is large, it is a good idea to hire a lawyer, especially if you have not attempted to levy on a brokerage account before.
What if the brokerage is named and served as the garnishee and ignores, and will not answer your Sheriff’s levy? I know judgment enforcers, that in this situation, sued the brokerage for the amount they should have held and released to the Sheriff, pending a court order.
The brokerage, after being served notice of the creditor’s lawsuit, did not file an answer, or show up in court, so a default judgment was obtained against the brokerage.
The judgment enforcer waited for their default judgment to become final. Then, they sent the brokerage a demand letter, telling them that they could either pay, or the judgment would be domesticated to their state, and the Sheriff would seize their assets. The brokerage paid, however there is no guarantee this would work in your situation.
An alternative to levying the brokerage where the judgment debtor maintains an account, is to obtain a turnover order for all shares of stock owned at a brokerage, as of the date of the turnover order. One problem is that many debtors will move their assets, as soon as they are served a copy of the court-approved turnover order, violating the court’s order.
Prior to, or at the same time the turnover order is served, one could serve a court-approved temporary restraining order (TRO), preventing the judgment debtor from doing anything, except for withdrawing funds and turning them over to the Sheriff.
Then, if the judgment debtor does not comply with the court order, you can request an order to show cause “re: contempt”. If your debtor violates the restraining order or the turnover order, what happens next depends on what state you are in, and which judge you get.
Too often, contempt of civil court orders have very little ramifications for the contemptee. Once again, especially if the judgment or assets are large, it is a good idea to retain a lawyer.
One more thought, when you try and get shares of a small company, be aware of the laws. For example, you must be a doctor to own shares in a small medical corporation, and you must be a lawyer to own shares of a small legal company.