How To Hide A Billion Dollars: Three Techniques The Ultrarich Use To Dodge Ex-Spouses, The Taxman And Disgruntled Business Partners

At 81, high-frequency trading pioneer Ed Bosarge is in court battling ex-business partners, the founder of a stem cell clinic of which he took control and the wife he dumped. She says he’s got billions stashed in a constantly changing array of offshore and South Dakota trusts.

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^For more than a decade through 2015, Houston-based Quantlab was a money machine, generating more than $3 billion in cumulative profits from proprietary high-frequency trading that on some days accounted for 3% of NYSE volume. More than 70% of those profits went to founder Wilbur “Ed” Bosarge—or rather, to trusts he controls.

Quantlab cofounders Bruce Eames (with a 24% stake) and Andrey Omeltchenko (with 4%) are now suing the  81-year-old Bosarge for fraud. (He denies their claims.) Bosarge is also facing a fraud suit from the founder of a Bahamian stem cell clinic that he funded, took control of and at which he received multiple treatments—for, he said in a deposition, “bad ankles, bad knees from skiing, muscles that pulled out. When you reach 70, 75, various things start going wrong and you have to deal with them.”

But Bosarge’s most notable current legal battle—for what it shows about the way U.S. state trust laws increasingly protect the rich—is with his wife, Marie, a 66-year-old onetime Marilyn Monroe impersonator Ed married in 1989. In the summer of 2017, while Marie was in London putting the finishing touches on their newest pad, a $45 million Georgian mansion in billionaire haven Belgrave Square, Ed served her with divorce papers. Marie says she was shocked. Yes, she says, she knew about Ed’s twentysomething Russian mistress, but she assumed Ed would see it as too expensive to divorce her since the couple didn’t have a prenuptial property agreement and Texas is a community property state—meaning everything earned during their marriage, including those Quantlab profits, would be jointly owned.

Marie contends she’s owed a billion or more, although she tells Forbes she’d settle for less than $100 million. “I’d be happy with that. To just pay my bills and move on with my life.” 

Forbes estimates Ed Bosarge is worth at least $1 billion. But as he and his lawyers tell it, the couple’s community property assets total just $25 million since an array of trusts own not only his Quantlab stock, but also their homes in Houston, Aspen, London and Maine and the 72-acre island in the Bahamas where they docked their three (trust-owned) yachts, including the eponymous 180-foot Marie, complete with a baby grand piano. After the divorce papers were served, one of the trusts even repossessed a $1.9 million (purchase price) diamond necklace which Marie says Ed gave her as a Christmas present in 2009.  “That wasn’t a gift; that was specifically bought by the trust. It was a specific investment,’’ Ed insisted in a deposition last year.

“He’s getting older, he’s got a new pony, and he doesn’t want to appreciate who got him here.”

After failed mediations and endless hours of depositions and hearings, the divorce was headed to a Houston jury trial in April—then Covid-19 hit. Meanwhile, Marie says the $20,000 a month in spousal support she gets all goes to her attorneys and she can’t afford to keep fighting, or even get her front teeth fixed. “I have four teeth that I knocked out very young skating. The bridges are getting ready to come out. It needs to be done.”  

She’s succeeded in making her case something of a cause célèbre among women’s rights activists in Houston.  On a steamy July Saturday, a dozen protesters gathered on the corner outside of the North Boulevard mansion, carrying signs demanding “Justice for Marie.” 

“This is a women’s rights issue,” says Cynthia Cole, a protester who is also a local official with the American Federation of State, County and Municipal Employees. “He’s getting older, he’s got a new pony,” she says, “and he doesn’t want to appreciate who got him here.”

But the case has broader implications, beyond divorce. At the heart of the Bosarges’ brawl are three techniques used by the rich to protect their wealth from (among other threats) tax collectors, creditors, disaffected business partners and yes, soon-to-be-ex-spouses. The oldest is offshore trusts, which have long frustrated creditors, but have been under attack by U.S. tax authorities for more than a decade.  

The two newer and increasingly popular techniques are domestic asset protection trusts (DAPTs) and “trust decanting.” DAPTs allow rich folks to put assets in a U.S. trust for their own benefit and then protect those assets from future creditors. Traditional trust law prevented someone from shielding assets in a trust, if they continued to control those assets and used them for their own benefit—and that’s still the case in a majority of states. But other states have been competing to attract trust business by rewriting their laws to favor those with the assets over those with the claims—hence the growth of DAPTs.

Decanting, for its part, is a maneuver used to change the terms of a supposedly irrevocable trust by removing the trust’s assets and transferring them into a new trust, typically in a state with laws that provide for maximum asset protection and opacity and no state taxes. 

“We always paid cash for everything. I wasn’t involved in any details; I trusted it.”

South Dakota has been the most aggressive in the race to “the absolute bottom of the pit,” says asset protection attorney Jay Adkisson, who is not involved in the Bosarge case. For example, it allows assets to be decanted from one trust to another without any notice to beneficiaries who may be cut out of the new trust. It also allows DAPT assets to be protected from alimony, divorce and child support claims—so long as those claims didn’t exist when assets were first transferred into the DAPT. Indeed, in a recent South Dakota case, a wealthy California woman beat a suit brought by her ex-husband who wanted her to pay nearly $9,000 in monthly child support out of a trust in her name. “South Dakota is almost bulletproof,’’ echoes David Slenn, a trust attorney uninvolved with the Bosarge case.

In a deposition taken late last year (among a trove of sealed court documents obtained by Forbes) Bosarge disclosed he is the beneficiary of South Dakota trusts holding $800 million in appraised assets and $280 million in cash. And he likely has even more socked away in trusts in the Bahamas, the British Virgin Islands and Malta, Marie and her lawyers believe. A purported Bosarge family office balance sheet from 2011 that Marie shared with Forbes shows a net worth of $2.263 billion.  

The Top States For Domestic Asset Protection Trusts

John Pavlas, an attorney for Ed Borsage declined, via an email, to “comment on the demonstrable incorrectness and/or untruthfulness of many of the ‘facts’” Forbes sought to verify for this story. He said that he can’t comment because “virtually all of that information is the subject of confidentiality orders in multiple proceedings.” Without addressing specifics, Pavlas did call Marie a liar. “Simply, the truth does not help her or fit with her narrative, so she ignores it and says whatever she pleases.”

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^Wilbur Edwin Bosarge Jr. was no trust fund baby. He was born in 1939 in Mobile, Alabama, the son of a grocery store manager from nearby Bayou La Batre, known for shrimp fishing. A numbers whiz, he studied applied math at Georgia Tech, worked for IBM on NASA’s Saturn rocket project in the 1960s and earned a Ph.D. at Brown University in 1969. In Houston, he lectured on math at Rice University and launched a startup, Texas General Resources—where in 1983 (without admitting or denying anything) he agreed to a permanent injunction barring him from violating the antimanipulation and antifraud provisions of securities law. (The U.S. Securities and Exchange Commission alleged he had illegally propped up the price of shares in an oil company that he sought to exchange for a stake in an oilfield.)

Next he created Frontier Limited, which aimed to use “adaptive pattern recognition” to beat the markets. According to the 1999 book The Predictors, by Thomas Bass, Bosarge partnered in 1990 with quantitative trading whiz Rafael deNoyo, who soon discovered that Frontier had virtually no assets: “We were behind on the rent and couldn’t pay the phone bill,”  deNoyo told Bass. His take on Bosarge: “He’s a pure con man.” Bosarge’s partners eventually sued him for looting millions from Frontier. He denied their claims and settled the suit on undisclosed terms before trial in 1994. Frontier appears to have been largely owned by Capital Technologies, which was itself owned by the African Tudor Trust.

Marie says when she married Ed in 1989, he seemed to be broke. “I loved him for his mind, truly,” she says. Her original wedding ring was a cubic zirconia and shortly after their marriage, their home in Houston was foreclosed on, Marie says.  But in 1991, that same Capital Technologies bought an 8,600-square-foot mansion on North Boulevard in Houston’s museum district, where Ed Bosarge still lives. The then-happy couple moved in, and Quantlab was eventually born there. “The whole house was the office,” recalls Marie, adding that the three data-scientist founders worked out of the sunroom and pool cabana.  

That mysterious African Tudor Trust? It was set up (or settled) in Bermuda  in 1983 by Barbara Rattay, Bosarge’s sister-in-law from his first marriage, with (according to testimony by Ed Bosarge) $100,000  contributed by his sister-in-law and mother-in-law. The original beneficiaries were the two children of Ed and his first wife, Brigitte.  Barbara Rattay is a onetime member of the Namibian parliament whose wealthy family has lived in Namibia for generations. Because she settled the assets in the African Tudor Trust, experts say, the trust was insulated from Bosarge’s creditors. Rattay’s Namibian citizenship further insulated trust income from U.S. tax authorities.

Marie contends African Tudor Trust was a sham and that Ed was always in control of the trust and used it as a platform for his future business ventures. According to Ed Bosarge’s own testimony, in the mid-1980s he transferred certain math-based “ideas” for high-speed stock trading to Rattay, who placed them into the African Tudor Trust. This intellectual property, he said in a deposition, represented the seeds of what grew to be Quantlab. Moreover, Ed did not take a formal salary for his work building Quantlab. Rather, he said, any compensation that he normally would have received was reinvested in the company.

Marie contends that the compounding value of Ed’s hard work—accrued for years inside African Tudor—was really community property. That’s crucial, because all the subsequent trusts were apparently seeded by African Tudor assets. According to court documents, in 2001, with cash flows from Quantlab ramping up, all the assets of African Tudor were apparently transferred, by Rattay, into two new trusts she settled, the North Boulevard Trust (situs in Texas) and the MAS Trust (in Bermuda). That same year, Ed and Marie were added as beneficiaries, along with Ed’s children. Son Andrew Bosarge (now 57) was the “trust protector” for the North Boulevard trust, a special designation that meant he could replace trustees for any reason. 

But Bosarge’s trust shuffling was just getting started. He explained it this way in his testimony: “If you decant one trust into two or two into one, assets from one may get split up into three. Just depends on the needs. The tax needs or basis needs.”  According to Marie’s attorneys, assets of MAS Trust were used to seed Etosha Trust, Excalibur Trust, ESD Trust and Exson Trust. Later on, assets from those trusts were used to settle the South Ocean Trust, South Pacific Trust and Exsontoo Trust. Meanwhile, assets of North Boulevard went to establish the Southport Trust (2008) and CapTech Trust (2012). Many of these are now domiciled in South Dakota.

“If you decant one trust into two or two into one, assets from one may get split up into three. Just depends on the needs.” 

Founding documents of CapTech Trust (read into the record during one of Ed’s depositions) describe its purpose this way: “to allow Dr. Bosarge and his family to retain family assets including antiques and art collection, that are currently held in the CapTech Corp. and enjoy the income generated thereby in a United States tax-efficient manner.” (That trust started out in Texas and was moved to South Dakota.)

While trusts paid the expense of his businesses and an increasingly lavish personal lifestyle, Bosarge showed comparatively modest income on his personal tax returns—or at least a purported copy of the couple’s 2014 joint tax return shows $1.67 million in gross income. When he did need cash, Ed explained in a deposition, he would get “replenished” via a distribution from one of the trusts. Ed said he instructed trust employees to keep $200,000 in cash in safes at his various properties. He sometimes carried $4,000 in walking-around money. “We always paid cash for everything,” Marie tells Forbes over coffee at Hotel ZaZa in Houston. “I wasn’t involved in any details; I trusted it.”

In 2012, fearing an Obama-era change in laws affecting offshore trusts, Bosarge decided on a change of domicile for most of his asset-rich trusts—to South Dakota. (At about the same time, according to a person with firsthand knowledge, both Merrill Lynch and Goldman Sachs ended relationships with Bosarge, apparently concerned about the source of funds in certain accounts.)

With even Switzerland and Luxembourg now forced by an international crackdown on tax evasion by the rich to turn over records of some account holders, tiny South Dakota has become a nouveau international trust magnet, attracting more than $300 billion in assets.

In his deposition, Bosarge claimed Marie was notified of the movement of trust assets to South Dakota. Marie variously asserts that she didn’t know that the trusts were changing to her detriment; that her signature was forged on some documents; and that Ed bullied her into signing others. Bosarge, in a deposition, defended his general practice of not including Marie in discussions of financial matters: “She has no judgment,” he said. 

Marie’s attorneys contend that because the African Tudor Trust contained what was really her community property—that is, the profits from Quantlab, built entirely during their marriage—every subsequent trust it was decanted into must also be community property. But they concede they can’t prove it; last November, a South Dakota court turned down their attempt to get discovery of key trust documents, noting in a ruling that according to state trust law, “ . . . a successor trustee is not individually liable for agreements, contracts or actions entered into by its predecessor fiduciary.”

Such lack of transparency is key to the effectiveness of asset protection trusts. “It’s proprietary. You’re not allowed to know,” Marie’s attorney Bucky Allshouse complained in a hearing this past February. “We don’t know what assets went in there and whether they’re contributing community assets or separate assets or whether they were there from the very beginning,” he said. “It’s their burden to prove it’s separate property. They haven’t done it.” 

Marie Bosarge is essentially caught in a Catch-22: To have any hope of proving fraud in her Texas divorce case, she needs to know what’s in the South Dakota trusts. A judge in Harris County Family Court in June dismissed three of Marie’s claims, while allowing three others to go forward—including that Ed violated his fiduciary duty toward her. Trial is set for November, pandemic pending.

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^How much of Bosarge’s trust-shuffling was aimed at avoiding tax and how much a community property split or suits by partners is unclear. Joseph R. Valentino, one of Bosarge’s longtime tax attorneys, is in federal custody in Houston awaiting extradition to the Netherlands, where he was sentenced to serve nearly three years for corporate tax fraud. As recently as 2016, Valentino served as a trustee of a trust Bosarge and Quantlab cofounders Eames and Omeltchenko had formed to control the company.

The cofounders claim in their fraud suit against Bosarge that they built the company while he “was completely disinterested in what was going on at Quantlab as long as it was keeping his yachts afloat.” They’re attempting to gain control of the company, or alternatively, to get their money out. Incessant competition from the likes of Citadel Securities and Virtu gradually eroded Quantlab’s edge. Eames and Omeltchenko say Bosarge scotched a $1.7 billion offer for the company in 2016 (he was looking for more like $3 billion) and then “effectuated a tyrannical coup” that forced them out.

Plagued by defections, in 2017 Quantlab bought assets from Chicago-based rival Teza. “What remains is valuable, but increasingly ineffective,” according to Eames and Omeltchenko. Bosarge said in a deposition in his divorce case that the system isn’t making much right now, but that might change, “if it wakes up.” 

A 2019 ruling in Delaware Chancery Court found that Eames and Omeltchenko did not have the ability, under Quantlab’s governing documents, to force Bosarge out. The cofounders still have a separate suit against Bosarge in Texas charging fraud, which he denies. That suit, too, has been on hold due to the pandemic, as has the bizarre legal mess around the stem cell clinic. 

Back in 2015, via a Bahamian trust called Big Bird, Bosarge purchased Okyanos, a stem cell clinic in Freeport, Bahamas, founded in 2011 by Matthew Feshbach, an investor and stem cell promoter without any medical training. Okyanos claimed to have gotten a Parkinson’s-stricken grandmother out of her wheelchair and walking again. But debts were piling up—Feshbach had found it exceedingly difficult to get doctors to refer patients to his clinic (paying for referrals is illegal). But Bosarge was happy to help, and eager to try the treatments, disclosing in a deposition that he himself received 13 treatments there.

Indeed, for ten years Bosarge has supported work on targeted stem cell therapies, and more recently has offered himself up as guinea pig—having his own stem cells extracted via liposuction, purified and reinjected to trouble areas. “Stem cells are the best way, your own stem cells,” he said in a deposition. Bosarge sponsored an annual symposium at the Vatican, after which the church came out in support of adult stem cell research. 

When Bosarge took control of Okyanos, he contracted with Feshbach to stay on the job at $30,000 per month, and millions more promised over several years. But the deal with Feshbach soon soured. According to a fraud and breach-of-contract suit brought by Feshbach against Bosarge in Pinellas County, Florida, the billionaire fired Feshbach after he refused to break U.S. and Bahamian law by importing stem cells from Houston to Okyanos without FDA approval or permits. Feshbach also alleges that Bosarge and his team conspired to pay doctors for referrals.

Bosarge’s camp responded to the claims by compelling arbitration, and the case is now in limbo. Bosarge’s side says the clinic was destroyed in Hurricane Dorian. Feshbach’s attorneys produced to the court an affidavit from Okyanos’ landlord saying damage was minimal. Bosarge subsequently opened up a replacement clinic at home in Houston. An associate sums up what it’s like to do business with him: “No one does business with Ed Bosarge without coming away diminished.”

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