SENATOR LEVIN PROPOSES GOING AFTER "UNJUSTIFIED" TAX LOOPHOLES

The following excerpt is from the Senator Carl Levin website:

February 7, 2012
“WASHINGTON – Two Senate committee chairmen introduced legislation today to help reduce the budget deficit and pay for important priorities by closing tax loopholes.
Sens. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee and the Senate Permanent Subcommittee on Investigations, and Kent Conrad, D-N.D., chairman of the Senate Budget Committee, introduced the Cut Unjustified Tax Loopholes Act, or CUT Loopholes Act. The bill, S.2075, would crack down on offshore tax abuses, close tax loopholes that encourage corporations to move jobs offshore and end a corporate tax loophole that allows corporations to claim a stock option tax deduction that is greater than the stock option expense shown on their books.

Based on estimates from the Joint Committee on Taxation and the Office of Management & Budget, the CUT Loopholes Act would yield at least $155 billion in deficit reduction over 10 years. That is more than enough to cover the $100 billion cost of a full-year extension of the payroll tax cut, and could contribute to the kind of balanced deficit reduction agreement that the nation needs.

“With federal tax revenue at its lowest level in decades and economists warning that more draconian budget cuts could damage the recovery, it is clear that we can’t achieve significant deficit reduction and meet important priorities by focusing on spending cuts alone,” Levin said. “Many in Congress have refused to consider revenue measures to meet our budget challenges, but there should be bipartisan support for closing these indefensible tax loopholes.”

“The CUT Loopholes Act is a win-win as it promotes tax fairness and it will help reduce the budget deficit,” said Conrad.  “This legislation identifies a series of steps we can take now to end egregious tax loopholes and offshore tax abuses.  The revenue raised by cutting these tax loopholes will reduce the deficit and help pay for pressing domestic needs, such as an extension of the payroll tax cut.  I commend Senator Levin and his Permanent Subcommittee on Investigations for their excellent work identifying and seeking to change unjust tax policies.”

The bill would take steps to close offshore tax havens identified by the Permanent Subcommittee on Investigations. This portion of the bill is based primarily on the Stop Tax Haven Abuse Act, S. 1346, authored by Levin and cosponsored by Conrad and six others. President Obama, as a senator, supported a similar measure. Among other measures, the bill would:

Give Treasury authority to take tough new actions to combat tax haven banks and tax haven jurisdictions that help U.S. clients hide assets and dodge U.S. taxes.
Stop offshore corporations that are managed from the United States from claiming foreign status and thereby dodging taxes on their non-U.S. income.
Eliminate tax incentives for moving U.S. jobs offshore and transferring intellectual property offshore.

Establish in law the presumption that, unless a taxpayer proves otherwise, an offshore corporation that is formed by, receives assets from or benefits a U.S. taxpayer is considered under the control of that taxpayer for U.S. tax purposes.
Based on estimates from the Joint Committee on Taxation and the Office of Management and Budget, the offshore tax provisions of the bill would reduce the deficit by at least $130 billion over 10 years.

The second major focus of the bill is closing a corporate tax loophole that provides a tax subsidy to corporations that compensate executives using stock options. Under current law, corporations are allowed to take a larger income tax deduction for stock option expenses than is recorded on their financial books. Between 2005 and 2009, this loophole allowed U.S. corporations to take between $12 billion and $61 billion annually in excess tax deductions.

The bill would:
Prohibit corporations from taking a larger income tax deduction for stock-option grants than the expense shown on their books.
Preserve current tax treatment for individuals who receive stock options and for incentive stock options commonly used by start-up companies.
Apply to stock options the same $1 million overall limit on corporate tax deductions for executive pay that applies to other forms of compensation.

This portion of the bill is based primarily on the Ending Excessive Corporate Deductions for Stock Options Act, S. 1375, authored by Levin and cosponsored by Sens. Sherrod Brown, Claire McCaskill and Sheldon Whitehouse. The Joint Committee on Taxation has estimated that these provisions would reduce the deficit by $25 billion over 10 years.

“We can’t afford to use taxpayer dollars to subsidize offshore schemes and loopholes,” said Levin.  “Closing down offshore tax havens that tax dodgers use to get out of paying their fair share is not only the right thing to do, it can help us pay our bills while boosting the economy and reducing the deficit. The CUT Loopholes Act offers a way to provide additional revenue that should get bipartisan support.”

SEC TIGHTENS RULE ON INVESTMENT ADVISER PERFORMANCE FEES

The following excerpt is from the SEC website:

“Washington, D.C., Feb. 15, 2012 — The Securities and Exchange Commission today announced it is tightening its rule on investment advisory performance fees to raise the net worth requirement for investors who pay performance fees, by excluding the value of the investor’s home from the net worth calculation.

Under the SEC’s rule, registered investment advisers may charge clients performance fees if the client’s net worth or assets under management by the adviser meet certain dollar thresholds. Investors who meet the net worth or asset threshold are deemed to be “qualified clients,” able to bear the risks associated with performance fee arrangements.

The revised rule will require “qualified clients” to have at least $1 million of assets under management with the adviser, up from $750,000, or a net worth of at least $2 million, up from $1 million. These rule changes conform the rule’s dollar thresholds to the levels set by a Commission order in July 2011. The Commission-ordered increase in the thresholds was required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, the revised rule will exclude the value of a client’s primary residence and certain property-related debts from the net worth calculation; the change was not required by the Dodd-Frank Act, but is consistent with changes the Commission approved in December to net worth calculations for determining who is an “accredited investor” eligible to invest in certain unregistered securities offerings.

A new grandfather provision to the performance fee rule will permit registered investment advisers to continue to charge clients performance fees if the clients were considered “qualified clients” before the rule changes. In addition, the grandfather provision will permit newly registering investment advisers to continue charging performance fees to those clients they were already charging performance fees.

Finally, the revised rule provides that every five years, the Commission will issue an order making inflation adjustments to the dollar thresholds used to determine whether an individual or company is a qualified client, as required by the Dodd-Frank Act.
The rule amendments will take effect 90 days after publication in the Federal Register, but investment advisers may rely on the grandfather provisions before then.”

CHAIRMAN OF THE BOARD AT CYTOCORE,INC. CHARGED WITH FRAUD BY SEC

The following excerpt is from the SEC website:

“The Commission announced that on January 31, 2012, an Illinois federal court entered a default judgment against Daniel J. Burns (“Burns”), a defendant in an action filed by the Commission in January 2011. The Commission alleged in its complaint that from 2003 to 2008, Burns, the former Chairman of the Board of Directors of CytoCore, Inc. (“CytoCore”), employed fraudulent schemes to profit from CytoCore stock transactions and received hundreds of thousands of dollars in improper compensation and benefits from CytoCore as an unregistered broker. According to the complaint, in February 2008, Burns caused CytoCore to issue a press release touting Burns’ investment in CytoCore stock, and then secretly sold shares immediately following the announcement. According to the complaint, Burns’ secret selling also constituted insider trading because Burns was in possession of material, nonpublic information about an ongoing CytoCore private stock offering.

The complaint further alleged that, from 2003 to 2008, Burns improperly received transaction-based compensation as an unregistered broker soliciting investors in CytoCore stock. The complaint also alleged that Burns submitted false claims for commissions purportedly earned by a friend for soliciting CytoCore investors, and his friend, in turn, remitted those commission payments to Burns. The Complaint also alleged that Burns submitted to CytoCore false claims for expense reimbursements relating to his investor solicitations. The complaint further alleged that Burns violated insider reporting requirements.

The Court’s final judgment enjoins Burns from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 14(a), 15(a), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 14a-9, and 16a-3 thereunder, orders him to pay disgorgement in the amount of $804,100.00, plus prejudgment interest of $324,325.00, for a total amount of $1,128,425.00, and permanently bars him from acting as an officer or director of a public company.”

SENATOR LEVIN PROPOSES ENDING TAX LOOPHOLES FOR SPECULATORS

The following excerpt is from the Senator Carl Levin website:

January 23, 2012
WASHINGTON – Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, on Monday introduced legislation to end a tax loophole that subsidizes short-term speculation in derivatives.
The Closing the Derivatives Blended Rate Loophole Act [PDF] would end a tax loophole that allows traders in complex derivatives to buy and sell these instruments in days or even seconds, yet claim a large portion of the resulting income as a long-term capital gain. It is one of a series of bills from Levin to implement a seven-point deficit reduction plan he rolled out in September.

The bill would end a tax subsidy that allows people who make short-term investments in certain derivatives to treat much of their earnings as long-term capital gains. Generally speaking, taxpayers are allowed to claim the lower capital gains tax rate on earnings only if those earnings come from the sale of assets that they have held for more than a year. That’s the way the tax code encourages the long-term investment that helps our economy grow.

But under Section 1256 of the Internal Revenue Code, traders in covered derivatives can claim 60 percent of their income as long-term capital gains, no matter how briefly they hold the asset.

In December, the American Bar Association Tax Section called for ending the loophole, telling lawmakers in a letter: “Whatever the merits of extending preferential rates to derivative financial instruments generally, we do not believe that there is a policy basis for providing those preferential rates to taxpayers who have not made such long-term investments.”

Levin has repeatedly called for ending tax breaks and loopholes that benefit Wall Street and high-income tax payers, and has pointed out that a range of budget experts across the ideological spectrum say that addressing revenue, along with spending cuts, is essential to achieving real deficit reduction while avoiding damaging cuts in important federal programs such as education, alternative energy and defense. In September, he outlined a plan that would reduce the deficit by hundreds of billions of dollars. In addition to ending the blended-rate loophole, that plan would:

:
End the carried interest loophole that subsidizes the pay of hedge-fund managers.
End abusive offshore tax shelters.
End a tax loophole that subsidizes lucrative stock options given by corporations to their executives.
Replace the wasteful and inefficient paper tax lien system with a publicly available electronic database that is more efficient and increases scrutiny on those who have failed to pay what they owe.
Restore capital gains tax rates to those in place under President Reagan.
Restore Clinton-era income tax rates on incomes of $250,000 or more.
Levin’s Stop Offshore Tax Haven Abuse Act, introduced last year, would address the offshore tax loophole issue. He and Sen. Sherrod Brown, D-Ohio, last year introduced the Ending Excessive Corporate Deductions for Stock Options Act to end tax subsidies for stock-option pay. And with Sen. Mark Begich, D-Alaska, he introduced the legislation to modernize the tax lien system and improve enforcement.

“This is an agenda for ending wasteful policies that add to our deficit, raise the tax burden on hardworking Americans and make it harder for them to provide for their families,” Levin said. “By closing loopholes and ending tax breaks that overwhelmingly benefit wealthy taxpayers and corporations, we can reduce our budget deficit without crippling our ability to care for our seniors, educate our children and defend our nation.”

DOJ WANTS DIVESTMENT'S BEFORE TEMPLE INLAND & INTERNATIONAL PAPER MERGER

The following excerpt is from the Department of Justice website:

Friday, February 10, 2012
“WASHINGTON — The Department of Justice announced today that it will require International Paper Company and Temple-Inland Inc. to divest three containerboard mills in order to proceed with their $4.3 billion merger.  The department said that the merger, as originally proposed, would have substantially lessened competition in the production and sale of containerboard, the type of paper used to make corrugated boxes, in the United States.   
 
The department’s Antitrust Division filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., to block the proposed transaction.  At the same time, the department filed a proposed settlement that, if approved by the court, will resolve the lawsuit by requiring International Paper and Temple-Inland to divest three containerboard mills to resolve the competitive concerns alleged in the lawsuit. 
 
“Corrugated boxes made from containerboard are used to ship more than 90 percent of all goods nationwide,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “With the mill divestitures, the transaction can proceed and American consumers and businesses across the country can be assured that competition is preserved in this important industry that is vital to the U.S. economy.” 
 
According to the complaint, International Paper and Temple-Inland are, respectively, the largest and third-largest producers of containerboard in North America.  The merger, as originally proposed, would have produced a single firm in control of approximately 37 percent of North American containerboard capacity. 
 
The department said that by combining the containerboard capacity of International Paper and Temple-Inland, the proposed merger would significantly expand the volume of containerboard over which International Paper would benefit from a price increase, and likely would have led International Paper to strategically reduce its output of containerboard in order to increase the market price.
 
The proposed settlement requires the divestiture of Temple-Inland’s containerboard mills in Waverly, Tenn., and Ontario, Calif., and either International Paper’s containerboard mill in Oxnard, Calif., or International Paper’s containerboard mill in Henderson, Ky., but not both of those mills.  Collectively, the divestitures account for approximately 950,000 tons of containerboard capacity.  The department’s Antitrust Division must approve the purchaser or purchasers of the divested mills. 
 
International Paper is a New York corporation headquartered in Memphis, Tenn.  International Paper owns and operates 12 containerboard mills and 133 box plants that convert containerboard into corrugated boxes in the United States.  In 2010, International Paper reported revenues of approximately $25.2 billion, with its North American Industrial Packaging Group, which produces containerboard and corrugated products, accounting for $8.4 billion.
 
Temple-Inland is a Delaware corporation headquartered in Austin, Texas.  Temple-Inland owns and operates seven containerboard mills and 53 box plants in the United States.  In 2010, Temple-Inland reported revenues of approximately $3.8 billion, with its corrugated-packing business accounting for approximately $3.2 billion.
 
The proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register, as required by the Antitrust Procedures and Penalties Act.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Joshua H. Soven, Chief, Litigation I Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 4100, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the settlement upon a finding that it is in the public interest.”

HEDGE FUND AND MANAGER CHARGED BY SEC WITH INSIDER TRADING

The following excerpt is from the SEC website:

“Washington, D.C., Feb. 10, 2012 — The Securities and Exchange Commission today charged a hedge fund manager and his Menlo Park, Calif.-based firm for their involvement in the insider trading ring connected to Raj Rajaratnam and hedge fund advisory firm Galleon Management.

The SEC alleges that Douglas F. Whitman and Whitman Capital illegally traded based on material nonpublic information obtained from Rajaratnam associate Roomy Khan, who was Whitman's friend and neighbor. Khan tipped Whitman with confidential details about Polycom Inc.'s fourth quarter 2005 earnings and Google Inc.'s second quarter 2007 earnings prior to the public announcements of those financial results by the companies. Whitman Capital reaped nearly $1 million in ill-gotten gains by trading on Khan's illegal tips.

"Whitman engaged in what even he termed 'slimeball' activity and together with Khan brought new illicit meaning to the maxim 'help thy neighbor,'" said George S. Canellos, Director of the SEC's New York Regional Office.

Sanjay Wadhwa, Associate Director of the SEC's New York Regional Office and Deputy Chief of the Market Abuse Unit, added, "This action should send a strong signal that the SEC will continue to pursue every angle of the Galleon investigation to hold accountable those who have undermined the integrity of our markets by engaging in illegal insider trading."

According to the SEC's complaint, filed in federal court in Manhattan, the inside information about Polycom and Google used by Whitman is the same information that the SEC has previously alleged Khan provided to many of her hedge fund contacts, including Rajaratnam as well as Robert Feinblatt and Jeffrey Yokuty at Trivium Capital.
The SEC alleges that Khan illegally tipped Whitman in January 2006 with information about Polycom's quarterly financial results, and she noted that these details were nonpublic and acquired from a source at Polycom. Whitman Capital accumulated 132,263 shares of Polycom stock in the next two weeks. When the company announced its results on January 25, Whitman Capital liquidated its entire Polycom position for a profit of more than $360,000. On at least one later occasion, in September 2008, Whitman asked Khan to contact her Polycom source to obtain inside information about the company's upcoming earnings so the two could "short it." When Khan rebuffed Whitman citing a fear of getting caught, Whitman suggested that she use "Skype" to avoid detection. Whitman later stated that he would stop speaking to Khan if she wasn't going to be a "slimeball" anymore.
The SEC further alleges that Khan illegally tipped Whitman with inside information about Google's quarterly financial results shortly before the company's post market-close earnings announcement on July 19, 2007. At Whitman's insistence, Khan identified her Google source as an employee of an investor relations firm used by Google. Whitman Capital funds then purchased 2,761 Google put option contracts based on the tip from Khan. On July 20, Whitman Capital closed the put option positions and generated ill-gotten profits of more than $620,000. Afterwards, Whitman sent Khan a large floral arrangement to thank her for the tip.

The SEC's complaint charges Whitman and Whitman Capital with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.

The SEC has charged 30 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit profits totaling more than $91 million.

The SEC's investigation, which is continuing, has been conducted by John Henderson and Joseph Sansone - members of the SEC's Market Abuse Unit in New York - and Diego Brucculeri and James D'Avino of the New York Regional Office. Kevin McGrath and Valerie Szczepanik will lead the SEC's litigation effort. The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their ongoing assistance in the matter.”