CFL Asset Tracing & Recovery 1 — Questions and Answers
Question 1: What type of court order is specifically designed to freeze a defendant's assets to prevent dissipation pending the outcome of litigation?
- Writ of mandamus
- Mareva injunction (freezing order) (Correct answer)
- Writ of certiorari
- Order of attachment only available post-judgment
Correct answer: Mareva injunction (freezing order)
A Mareva injunction (freezing order) is the equitable remedy specifically designed to prevent defendants from moving or dissipating assets before a judgment is entered.
Question 2: Which doctrine allows courts to disregard the separate legal existence of a corporation to reach assets held by its controlling owner?
- Alter ego doctrine (Correct answer)
- Business judgment rule
- Successor liability doctrine
- Respondeat superior
Correct answer: Alter ego doctrine
The alter ego doctrine treats the corporation and its controller as a single entity, piercing the corporate veil when the corporation is used as a sham to perpetrate fraud or avoid liability.
Question 3: In financial litigation, what is the primary purpose of 'tracing' misappropriated funds?
- To establish criminal intent beyond a reasonable doubt
- To connect specific identifiable assets to the original misappropriated funds (Correct answer)
- To determine the debtor's overall net worth
- To establish the chain of title in real property transactions
Correct answer: To connect specific identifiable assets to the original misappropriated funds
Tracing establishes a connection between specific current assets and the original misappropriated funds, allowing the claimant to assert a proprietary right to those assets or their traceable proceeds.
Question 4: What is a constructive trust in the context of asset recovery?
- A trust created by a formal written trust agreement between parties
- An equitable remedy imposed by courts to prevent unjust enrichment by requiring the holder to return assets (Correct answer)
- A statutory trust created by the Uniform Trust Code for minor beneficiaries
- A tax-deferred trust structure used for charitable remainder purposes
Correct answer: An equitable remedy imposed by courts to prevent unjust enrichment by requiring the holder to return assets
A constructive trust is an equitable remedy imposed by courts—not created by agreement—requiring the person holding assets obtained through fraud or breach of duty to return them to the rightful owner.
Question 5: Under the civil RICO statute (18 U.S.C. § 1964(c)), what must a plaintiff establish to pursue asset recovery?
- A pattern of racketeering activity consisting of at least two predicate acts that caused injury to the plaintiff's business or property (Correct answer)
- A prior criminal conviction of the defendant for any federal offense
- Exclusive federal court jurisdiction with damages exceeding $1 million
- Proof beyond a reasonable doubt of at least one predicate act
Correct answer: A pattern of racketeering activity consisting of at least two predicate acts that caused injury to the plaintiff's business or property
Civil RICO requires proof of a 'pattern of racketeering activity' (at least two predicate acts within ten years) that proximately caused injury to the plaintiff's business or property, entitling the plaintiff to treble damages.
Question 6: Which post-judgment discovery mechanism compels a judgment debtor to appear and answer questions under oath about their assets and finances?
- Writ of execution
- Examination of judgment debtor (debtor's examination) (Correct answer)
- Request for production of documents
- Writ of attachment
Correct answer: Examination of judgment debtor (debtor's examination)
A debtor's examination (also called examination of judgment debtor) is a post-judgment proceeding that requires the debtor to testify under oath about the location and nature of their assets so the creditor can enforce the judgment.
Question 7: What is a 'charging order' and how does it function in asset recovery against a member of an LLC?
- A court order directing payment from a specific bank account
- A lien that attaches to the debtor's distributional interest in an LLC, entitling the creditor to receive any distributions made to that interest (Correct answer)
- An order seizing and transferring the debtor's LLC membership rights to the creditor
- A court-imposed management injunction preventing the debtor from operating the LLC
Correct answer: A lien that attaches to the debtor's distributional interest in an LLC, entitling the creditor to receive any distributions made to that interest
A charging order attaches to the judgment debtor's economic interest in an LLC, entitling the creditor to receive any distributions that would otherwise go to the debtor, without giving the creditor management or voting rights in the entity.
CFL Asset Tracing & Recovery 1
What type of court order is specifically designed to freeze a defendant's assets to prevent dissipation pending the outcome of litigation?