angelburst29
The Living Force
Amazing! Wonder if these two articles point in the direction of the "on-going trend in Banker's death's?"
Hedge Funds Accused of Screwing Americans out of Billions of Dollars in Taxes
_http://www.allgov.com/news/where-is-the-money-going/hedge-funds-accused-of-screwing-americans-out-of-billions-of-dollars-in-taxes-140723?news=853767
Wednesday, July 23, 2014
Senate investigators have determined that some of the most powerful investment firms on Wall Street schemed their way into billions of dollars in tax breaks.
A report (pdf) by the U.S. Senate’s Permanent Subcommittee on Investigations says more than a dozen hedge funds used “basket options” over a 15-year period to avoid paying hundreds of billions in taxes they would otherwise have owed to the U.S. Treasury.
One firm in particular, Renaissance Technologies, used complex financial structures created by founder James H. Simons to capture its $6 billion in savings. Simons—who worked as a code breaker for the National Security Agency in the 1960s—retired from Renaissance in 2010 and currently serves as its non-executive chairman.
Other basket options were devised by Barclays and Deutsche Bank, and other hedge funds that took advantage of them included Steven A. Cohen’s SAC Capital Advisors (now known as Point72 Asset Management) and George Weiss Associates. SAC changed its name as part of its guilty plea with the government on insider trading charges.
“These banks and hedge funds involved in this case used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation,” Senator Carl Levin (D-Michigan), chairman of the subcommittee, told the media.
Alexandra Stevenson at The New York Times described the basket options as structured accounts “that allowed hedge funds to bypass taxes on short-term trades.”
The two banks noted by investigators “used the options to build special accounts for their hedge fund clients in their own names and claimed they owned the assets when it was, in fact, the hedge fund clients that exercised full control of the assets, determining each trade and reaping all the profits,” Stevenson added.
The structure of the basket options also allowed the hedge funds to borrow up to $17 for every dollar in an account rather than the 50 cents on the dollar that broker-dealers are restricted to according to limits that go back to the 1930s.
The Internal Revenue Service (IRS) has been investigating Renaissance Technologies’ use of these tax structures for six years, ever since the Securities and Exchange Commission alerted them to the practice.
“To say [the IRS has] not moved swiftly is an understatement,” said Levin.
Renaissance’s legal team that is defending the firm against the government’s investigation includes Kenneth W. Gideon, a former IRS chief counsel and former assistant Treasury secretary for tax policy.
When asked at a 2008 Congressional hearing if he would “support repealing this tax loophole” and pay the customary tax rate, Simons responded, “That would be OK with me.”
Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes
_http://taxprof.typepad.com/taxprof_blog/2014/07/former-vanguard-tax-lawyer-.html
Saturday, July 26, 2014
A former employee of Vanguard Group Inc. has sued the mutual-fund company in New York, saying it has avoided paying federal and state taxes and sheltered hundreds of millions of dollars annually.
The civil suit, unsealed in the Supreme Court of New York on Friday, accuses the Malvern, Pa.-based firm of operating an illegal tax shelter for nearly 40 years, thus avoiding $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years, according to a copy of the complaint. The suit was filed by David Danon, whose LinkedIn profile describes him as an associate counsel at the company from August 2008 to June 2013. Mr. Danon is requesting all costs of filing the lawsuit as well as 15% to 30% of any money recovered by the state and local governments, including all proceeds of any related action.
A spokesman for Vanguard said in a statement that the company operates under a unique mutual structure and has a long history of serving the best interests of shareholders. "We believe that this case is without merit, and we intend to defend the matter vigorously," the spokesman said.
Philadelphia Inquirer, Suit Alleges Vanguard Wrongly Avoids Paying Taxes:
Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years," alleges the lawsuit, which was filed by David Danon of Wayne before he was terminated by Vanguard in 2013. ...
Danon's attorney explained why the case was filed in New York. "New York is the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes," said Brian Mahany of Milwaukee. "We believe he was terminated because, even though this was under seal, they figured out he was a whistle-blower."
In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of Fordham Law School who worked at Sullivan & Cromwell L.L.P., Cleary Gottlieb Steen & Hamilton L.L.P., and other New York corporate law firms before joining Vanguard in 2008, said he had voiced his concerns to Vanguard officials and finally went outside the company when they refused to take steps to comply with the law as he viewed it. Danon said other Vanguard principals who disagreed with the company's tax position had also left Vanguard.
Danon has also talked with IRS and SEC investigators about his allegations, The Inquirer has learned. The SEC and IRS typically do not comment on possible investigations.
In the lawsuit, Danon details his allegation that Vanguard has been illegally avoiding taxes.
Section 482 of the Internal Revenue Code, and most state's laws, require that transactions between related companies take place at the same price as if the companies were unrelated. Instead, Danon contends, Vanguard provides services to its mutual funds "at artificially low, 'at-cost' " prices. "As a result, Vanguard shows little or no profit and pays little or no federal or state income tax despite managing funds with nearly $2 trillion in assets." This is illegal for the same reason rich people are not allowed to sell property to their children at artificially low prices to avoid inheritance taxes, the lawsuit says. It is a "bedrock tax principle" and what lawyers call "black-letter law," generally accepted by lawyers and courts, the suit adds.
Danon also alleges that "Vanguard knowingly and fraudulently failed to report and pay taxes on its $1.5 billion 'Contingency Reserve,' avoiding approximately $500 million of U.S. federal income tax." The reserve is under Vanguard Group control and used for Vanguard purposes, and has been funded by Vanguard mutual fund fees. So, Vanguard should pay taxes on it, the suit contends.
Vanguard's no-tax structure has enabled the company to underprice competitors and grow faster than other companies, the lawsuit argues. Vanguard has been the leader in low-cost mutual funds, it adds, because "it has flouted tax rules."
Hedge Funds Accused of Screwing Americans out of Billions of Dollars in Taxes
_http://www.allgov.com/news/where-is-the-money-going/hedge-funds-accused-of-screwing-americans-out-of-billions-of-dollars-in-taxes-140723?news=853767
Wednesday, July 23, 2014
Senate investigators have determined that some of the most powerful investment firms on Wall Street schemed their way into billions of dollars in tax breaks.
A report (pdf) by the U.S. Senate’s Permanent Subcommittee on Investigations says more than a dozen hedge funds used “basket options” over a 15-year period to avoid paying hundreds of billions in taxes they would otherwise have owed to the U.S. Treasury.
One firm in particular, Renaissance Technologies, used complex financial structures created by founder James H. Simons to capture its $6 billion in savings. Simons—who worked as a code breaker for the National Security Agency in the 1960s—retired from Renaissance in 2010 and currently serves as its non-executive chairman.
Other basket options were devised by Barclays and Deutsche Bank, and other hedge funds that took advantage of them included Steven A. Cohen’s SAC Capital Advisors (now known as Point72 Asset Management) and George Weiss Associates. SAC changed its name as part of its guilty plea with the government on insider trading charges.
“These banks and hedge funds involved in this case used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation,” Senator Carl Levin (D-Michigan), chairman of the subcommittee, told the media.
Alexandra Stevenson at The New York Times described the basket options as structured accounts “that allowed hedge funds to bypass taxes on short-term trades.”
The two banks noted by investigators “used the options to build special accounts for their hedge fund clients in their own names and claimed they owned the assets when it was, in fact, the hedge fund clients that exercised full control of the assets, determining each trade and reaping all the profits,” Stevenson added.
The structure of the basket options also allowed the hedge funds to borrow up to $17 for every dollar in an account rather than the 50 cents on the dollar that broker-dealers are restricted to according to limits that go back to the 1930s.
The Internal Revenue Service (IRS) has been investigating Renaissance Technologies’ use of these tax structures for six years, ever since the Securities and Exchange Commission alerted them to the practice.
“To say [the IRS has] not moved swiftly is an understatement,” said Levin.
Renaissance’s legal team that is defending the firm against the government’s investigation includes Kenneth W. Gideon, a former IRS chief counsel and former assistant Treasury secretary for tax policy.
When asked at a 2008 Congressional hearing if he would “support repealing this tax loophole” and pay the customary tax rate, Simons responded, “That would be OK with me.”
Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes
_http://taxprof.typepad.com/taxprof_blog/2014/07/former-vanguard-tax-lawyer-.html
Saturday, July 26, 2014
A former employee of Vanguard Group Inc. has sued the mutual-fund company in New York, saying it has avoided paying federal and state taxes and sheltered hundreds of millions of dollars annually.
The civil suit, unsealed in the Supreme Court of New York on Friday, accuses the Malvern, Pa.-based firm of operating an illegal tax shelter for nearly 40 years, thus avoiding $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years, according to a copy of the complaint. The suit was filed by David Danon, whose LinkedIn profile describes him as an associate counsel at the company from August 2008 to June 2013. Mr. Danon is requesting all costs of filing the lawsuit as well as 15% to 30% of any money recovered by the state and local governments, including all proceeds of any related action.
A spokesman for Vanguard said in a statement that the company operates under a unique mutual structure and has a long history of serving the best interests of shareholders. "We believe that this case is without merit, and we intend to defend the matter vigorously," the spokesman said.
Philadelphia Inquirer, Suit Alleges Vanguard Wrongly Avoids Paying Taxes:
Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years," alleges the lawsuit, which was filed by David Danon of Wayne before he was terminated by Vanguard in 2013. ...
Danon's attorney explained why the case was filed in New York. "New York is the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes," said Brian Mahany of Milwaukee. "We believe he was terminated because, even though this was under seal, they figured out he was a whistle-blower."
In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of Fordham Law School who worked at Sullivan & Cromwell L.L.P., Cleary Gottlieb Steen & Hamilton L.L.P., and other New York corporate law firms before joining Vanguard in 2008, said he had voiced his concerns to Vanguard officials and finally went outside the company when they refused to take steps to comply with the law as he viewed it. Danon said other Vanguard principals who disagreed with the company's tax position had also left Vanguard.
Danon has also talked with IRS and SEC investigators about his allegations, The Inquirer has learned. The SEC and IRS typically do not comment on possible investigations.
In the lawsuit, Danon details his allegation that Vanguard has been illegally avoiding taxes.
Section 482 of the Internal Revenue Code, and most state's laws, require that transactions between related companies take place at the same price as if the companies were unrelated. Instead, Danon contends, Vanguard provides services to its mutual funds "at artificially low, 'at-cost' " prices. "As a result, Vanguard shows little or no profit and pays little or no federal or state income tax despite managing funds with nearly $2 trillion in assets." This is illegal for the same reason rich people are not allowed to sell property to their children at artificially low prices to avoid inheritance taxes, the lawsuit says. It is a "bedrock tax principle" and what lawyers call "black-letter law," generally accepted by lawyers and courts, the suit adds.
Danon also alleges that "Vanguard knowingly and fraudulently failed to report and pay taxes on its $1.5 billion 'Contingency Reserve,' avoiding approximately $500 million of U.S. federal income tax." The reserve is under Vanguard Group control and used for Vanguard purposes, and has been funded by Vanguard mutual fund fees. So, Vanguard should pay taxes on it, the suit contends.
Vanguard's no-tax structure has enabled the company to underprice competitors and grow faster than other companies, the lawsuit argues. Vanguard has been the leader in low-cost mutual funds, it adds, because "it has flouted tax rules."
