Katie Genter writes about the case where the Department of Justice has gone after a woman for redeeming Membership Rewards points belonging to her husband’s business despite an order freezing assets.
- Kevin Merrill was arrested on charges related to running a ponzi scheme.
- His assets were frozen and an order was issued against hiding or moving assets
- His wife, Amanda Merrill redeemed points from his American Express Membership Rewards account for “127 gift cards worth $26,075 for retail businesses such as Target, Home Depot, Nordstrom, Sephora, and Starbucks” (she was not an authorized user on the account).
The FBI claimed this violated the order not to hide or dispose of assets. But are points a cardmember’s assets? The Membership Rewards terms and conditions is very clear that they are not.
- “Points are not your property” and a proof point is that “[y]ou can’t transfer points to any other person or program account.”
- Moreover American Express says that “points can’t be transferred by operation of law,” despite claims by the FBI that the order was meant to secure assets to recover damages for victims, American Express says not so fast. The terms are explicit that points cannot be ordered transferred by the government in bankruptcy or by court order in a divorce or through an estate.
American Express says they can “cancel the program at any time” (upon 3 months’ notice) and that even during this time they “may change or cancel some or all of the rewards” that are part of the program.
If you declare bankruptcy – just the sort of thing that someone caught running a Ponzi scheme might find themselves doing – then “you’ll forfeit all points in your program account.”
According to American Express points are not your asset and points cannot be transferred by the government. Moreover in bankruptcy all points are going to go away. In all likelihood prosecutors aren’t even aware of these provisions. So why is Amanda Merrill pleading guilty to absconding to Membership Rewards points in violation of a court order?
It turns out that she also was caught taking a trip to the couple’s home in Naples Florida and cleaning out cash and assets from there.
- The FBI had a taped recording of her discussing a plan to do so (hint: conversations with an inmate in prison are taped)
- There was video of her bringing back suitcases from a trip to Florida
- Plus American Express statements showing ticket purchases and overweight bag fees
That was enough to get a search warrant for the Maryland home in which the items and cash were found. Since they had her dead to rights on cash and items from the Florida house, the Membership Rewards points were more or less thrown in with the rest of the charges and likely never challenged. She could have argued those points weren’t hers really, but converting them to gift cards which were hers would have hurt her case. And she’d have been left with the rest of the assets having been moved and hidden.
As a result the Department of Justice’s position that Membership Rewards points are property of the accountholder, contra the terms of American Express, was never actually litigated.
It’s all well and good for Amex to say points can be transferred by operation of law, but if a court order comes down for them to do so I highly doubt their T&C will somehow put them above the law. I get that they don’t want MR points to be transferable as part of an estate or inheritance, but if the judge in a criminal matter says “freeze those points” then I’m quite sure, short of a successful appeal, they would have to comply.
And that should have said “can’t” be transferred by operation of law. Important typo there.
If people IN THE GOVERNMENT can ignore subpoenas to appear before Congress, to turn over documents and such…why can’t Amex? Yeah, sounds like she should have hired an attorney (a good or better one) BEFORE she filed bankruptcy…note to self: IF you ever decide to commit a crime, PUT UP A HUGE RETAINER WITH A CRIMINAL LAWYER before you do anything else! Duh…most of these big name defendants end up losing because the government freezes their cash and assets and they cannot get the money to keep paying a lawyer to fight them!
The MR T&Cs make clear these points are to be considered without real value. However, once you redeem the points for a gift card it becomes a tangible asset. I would imagine that if the points are redeemed by a business, the asset thus created is owned by the business. Taking the gift cards violated the freeze order, not necessarily the action of redeeming points.
I’ll ask a federal judge I know but my guess is I’ll get an oblique “you’d better not violate the court order” and AMEX T&C do not override a court order. I seriously doubt AMEX wants to have the issue decided by a court and would rather just deal with situations like this on an individual basis as they come up.
I remember discussing the Menendez case with the judge and he said you may not have had an ownership interest in the points but there was a right to use them at the time, and they therefore had value.
He was rather surprised to find out Menendez could have just applied for the Hyatt credit card and gotten the free nights at the Park Hyatt Vendome, avoiding at least part of the issue.