Peter F. Brown, co-chief executive officer of hedge-fund manager Renaissance Technologies LLC, is scheduled to testify before a Senate panel investigating his firm’s use of financial products to lower its tax bills.
The Senate Permanent Subcommittee on Investigations will examine the use of “basket options” to avoid taxes at a July 22 hearing, the subcommittee said in a statement today. Also scheduled to attend are Gerard LaRocca, chief administrative officer for Barclays Plc (BARC) in the Americas, and M. Barry Bausano, co-leader of global prime finance at Deutsche Bank AG (DBK), the panel said.
The subcommittee is examining a set of trades that Renaissance used to lower the tax rate paid by investors in its Medallion fund, people with knowledge of the matter said earlier this week. Senator Carl Levin, a Michigan Democrat, is the panel’s chairman.
Renaissance is in a dispute with the Internal Revenue Service over the trades, the people said. Renaissance claims that its profits from the options, which were held for more than a year, should be taxed at the preferential lower rate for long-term capital gains; the agency says the profits derive from short-term trading and should be taxed at a higher rate, the people said. Barclays and Deutsche Bank helped Renaissance arrange the trades, the people said.
Renaissance in a statement today described as appropriate its tax treatment for the options under review by the subcommittee.
“These options provide Renaissance with substantial business benefits regardless of their duration,” the fund said. “The IRS already has been reviewing these option transactions for over six years, and Renaissance has cooperated fully with both reviews. Renaissance looks forward to assisting the committee on Tuesday.”
Brown and Robert L. Mercer took over as co-CEOs in January 2010 when founder James Simons retired and became non-executive chairman. The East Setauket, New York-based hedge fund manager uses advanced mathematics and computers to identify profitable trades.
The Medallion fund, whose investors are almost all Renaissance employees, has one of the best investing records in history, returning more than 35 percent annualized over more than 20 years.
The returns helped Simons amass a fortune estimated at about $15.5 billion, according to the Bloomberg Billionaires Index. He contributed $9 million to Democratic causes in the 2012 election cycle. Mercer has donated millions to Republican causes.
A former language-recognition specialist at International Business Machines Corp., Brown joined Renaissance in 1993. Forbes magazine estimated that he and Mercer earned about $125 million each in 2011.
Also scheduled to appear before the subcommittee are Mark Silber, chief financial officer of Renaissance; Jonathan Mayers, a lawyer there; Martin Malloy, a managing director at Barclays; and Satish Ramakrishna, a managing director at Deutsche Bank.
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