Levine on Wall Street: Golf and Taxes
Some tax avoidance.
A while back we talked about how very complicated it seems to have been for U.S. citizens to avoid taxes on Swiss bank accounts. Here's a criminal case that New York U.S. Attorney Preet Bharara just brought against a Kentucky resident (OK!) who allegedly did some of that tax avoidance. Not as a Swiss banker, I mean, just as a guy with some Swiss bank accounts:
Thereafter, in approximately 2005, CANALE, with Singenberger’s assistance, opened an undeclared account at the Swiss bank Wegelin. The account was opened in the name of a sham foundation formed under the laws of Lichtenstein to conceal CANALE’s ownership. As of December 31, 2009, the account held assets valued at approximately $789,000.
For each of the calendar years from 2007 through 2010, CANALE willfully failed to report on his tax returns his interest in the undeclared accounts and the income generated in those accounts.
How much income do you think he made on that account in 2007 through 2010? I guess it's not trivial, and it doesn't look like he was flying to Switzerland to withdraw cash, but still, this seems like sort of a silly crime. If you're going to avoid taxes on something, surely the interest on your savings account isn't the place to start. Elsewhere, here is a law professor's "Compendium of Private Equity Tax Games." And here is a two-part series from Matt Klein on offshore tax avoidance, based on a paper finding that at least the U.S. Treasury is missing out on at least $120 billion of corporate taxes due to "increased tax avoidance in low tax countries." I bet Canale made less than that.
Some more enforcement.
Will the Justice Department bring a civil lawsuit against Angelo Mozilo? Let's go with "Sure, but in 2027." Ben Lawsky got $315 million in fines, and some firings, out of Bank of Tokyo-Mitsubishi for not being totally honest when it previously paid $250 million in fines to Ben Lawsky for evading U.S. sanctions. BNP Paribas executives might be in trouble for selling stock ahead of their own fine for violating U.S. sanctions. A Goldman currency trader was fired for allegedly manipulating currencies at his previous job. It's a busy time for enforcement.
Golf is not great for business.
Here is a paper (via) with the title "FORE! An Analysis of CEO Shirking," which is about what it sounds like it's about, viz., "the golfing habits of a subset of S&P 1500 CEOs." Those habits are varied, with the champion golfer among those chief executives logging 146 rounds of golf in a single fiscal year, though the CEOs are not named and it's possible that that one runs a golf equipment company. "We argue that time spent on the golf course is a reasonable proxy for leisure consumption both because a plurality of CEOs list golf as their preferred outlet for leisure and because golf commands a significant time commitment." The cutoff for the top quartile is 22 rounds a year, for the top decile it's 37, and "CEOs that golf frequently (i.e., those in the top quartile of golf play, who play at least 22 rounds per year) are associated with firms that have lower operating performance and firm values." Also, CEOs with low equity ownership, long tenures, and less firm leverage all play more golf than average, so that is a model for leveraged buyouts right there. On the other hand, Morgan Stanley has "started a new unit that focuses on professional athletes and entertainers"; currently it has 69 advisers and more are on the way.
Never use analogies.
My possibly controversial rule of thumb is that whenever someone says "[financial concept] is like [unrelated thing from everyday life]," he is trying to lie to you and you should stop listening. So I repeatedly had to stop reading this Third Way report about "Demystifying Dodd-Frank," which analogizes financial markets to "highways that connect borrowers and savers," financial rules to speed limits, bank capital to airbags, bank liquidity to shock absorbers, stress tests to crash test dummies, the resolution authority to "death panels for banks" (!), and the Financial Stability Oversight Council to a highway patrol. None of those things are true, and none add to the understanding of the underlying concept. But each performs its argumentative work purely by asserting the connection and then saying, well, airbags are good aren't they? Elsewhere in regulation, How Volcker Will Stir Up the CLO Market. And here is Manmohan Singh on central counterparties, the lender of last resort, and taxpayer puts (via).
Probably don't day trade.
"More than $500,000 was raised from investors who were assured that funds invested with Traders Café would be segregated and used only for day trading or other specific business purposes," says the Securities and Exchange Commission, and while the SEC goes on to allege that "nearly all" of the money was stolen, would it be so much better if it wasn't? The big selling point of Traders Café, according to the SEC complaint, was "low commissions, high leverage of up to ten dollars of buying power for each dollar invested, and purportedly unique software," and the average deposit was just over $14,000. If you're an amateur day-trading $14,000 at 10 times leverage, you'd probably lose it almost as fast as these guys allegedly stole it. Really they were doing you a favor, and making markets more efficient.
How your M&A litigation sausage gets made.
Do you think that Allergan's directors did a pretty good job of maximizing shareholder value in selling to Actavis? Ronald Barush does, and I have no cause to disagree. But maybe you think that the sale was driven by director self-interest? If so, contact the law firm of Lifshitz & Miller today; it's looking for plaintiffs to sue Allergan. [Update: That link no longer works; try here or here.] But if Allergan doesn't grind your gears, what about the Baker Hughes/Halliburton deal? Also a merger, less of an obvious home run than Allergan, maybe something went wrong there and you should sue them? Lifshitz & Miller has you covered. Or maybe something went horribly wrong with the fiduciary process at ChyronHego Corp., Horizon Lines, Susquehanna Bancshares, Swift Energy, or Valley Financial? Lifshitz & Miller wants to sue all of those companies, and is advertising for plaintiffs for all of them in the same press release. Do you think that all of those deals featured serious breaches of fiduciary duty? Do you think that any of them will be repriced or re-negotiated because of nefario behavior brought to light by the lawyers' investigation? Do you think the lawyers have done any investigation? This is what's called the "plaintiffs' lawyer tax on M&A."
Blackstone is marketing "core" private equity, which is longer-term, less levered, and less expensive than regular private equity. UBS is pushing a return to late-1990s investment banking, because the '90s were great. Vietnam issued a New York law bond with an ICMA CAC. There was a fake acquisition of Pabst. Alex Salmond could have saved RBS. A senator wants more oversight of the New York Fed. The St. Louis Fed on the welfare effects of unemployment insurance versus universal basic income. Tracy Alloway and Michael MacKenzie on the October 15 Treasury market freakout. Dan Davies on Roger Farmer, "your next favourite macroeconomist." Steve Landsburg on Grothendieck. The Epicurean Dealmaker on Thomas Nagel. Derek Thompson on Shazam. Sarah Nassauer on family breakfast. If you want a vision of the future, imagine white-collar workers stomping around looking for a place to sit, forever. Jets fans love Billy Joel. "Coriolanus" is great and underrated.
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Matthew S Levine at firstname.lastname@example.org