Hedge Fund’s Insiders Agree to Pay as Muchas $7 Billion to I.R.S.

This is a heartening case! It supports the notion that justice does prevail and what goes around, does indeed come around, “The Law of Cause & Effect” in action!  It means a $7 Billion penalty owed by these shysters to the IRS.

Plus, considering the fees these folks paid to their tax advisors, they never expected this outcome. Don’t cheer too loudly though. It also means that the rules apply to everyone!

https://www.nytimes.com/2021/09/02/business/renaissance-irs-robert-mercer-james-simons.html?smid=em-share

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

The agreement ends a longstanding tax dispute involving a decade’s worth of transactions at Renaissance Technologies, one of the world’s biggest and best-connected hedge funds.

The settlement is a blow to James Simons, the hedge fund’s founder, seen here at a congressional hearing in 2008.
Credit…Daniel Rosenbaum for The New York Times

Matthew Goldstein and 

A yearslong dispute between a pioneering hedge fund and the Internal Revenue Service ended Thursday with an enormous bill for taxes and penalties: as much as $7 billion.

James Simons, a mathematician whose algorithmic approach has been adopted by many other investment funds, and some of his former colleagues at Renaissance Technologies have settled a decade-long dispute with the government over the tax treatment of some of their investments, the firm said in a letter to investors.

The settlement, which involves 10 years’ worth of trades made by the hedge fund, could be worth as much as $7 billion, according to a person with knowledge of the agreement. It is one of the largest federal tax disputes in history.

The deal ends a standoff that led to a congressional investigation and involved two politically connected financiers: Mr. Simons, a longtime patron of Democratic candidates with an estimated net worth of $25 billion, and Robert Mercer, a former Renaissance executive whose advocacy for conservative causes included helping to found Cambridge Analytica. After Donald J. Trump won the 2016 presidential election, the now-defunct political consulting firm became embroiled in a scandal for harvesting Facebook data without users’ consent to assist his campaign.

While Mr. Simons, 83, who stepped down as chairman of the $55 billion firm last year, supported Hillary Clinton in that race, Mr. Mercer, 75, has donated tens of millions of dollars to Republican candidates and political action committees. He also reportedly invested $10 million in Breitbart News, and was a key supporter of Stephen K. Bannon, who was Breitbart’s chairman before becoming Mr. Trump’s chief strategist.

The billions in payments to the I.R.S. will be made by current and former investors in a small group of Renaissance funds, but principally its Medallion fund. Those investors include seven people who were members of the firm’s board between 2005 and 2015, as well as their spouses. Mr. Simons will make a payment of $670 million on top of his obligation as part of that group, according to the letter.

“Renaissance’s board ultimately concluded that the interests of our investors from the relevant period would be best served by agreeing to this resolution with the I.R.S., rather than risking a worse outcome, including harsher terms and penalties, that could result from litigation,” Peter Brown, the firm’s chief executive, wrote.

Renaissance is best known for pioneering a data-intensive form of stock trading called quantitative strategy, which has been adopted by many other hedge funds and trading platforms on Wall Street. The settlement centers on the firm’s Medallion fund, which manages about $15 billion, mostly for employees and former employees of the firm and their family members.

Mr. Simons founded the firm in 1982. Once the head of the math department at Stony Brook University on Long Island, he was a code-breaker for the U.S. military during the Vietnam War. He stepped down from the firm’s day-to-day operations in 2010, handing the reins to Mr. Mercer and Mr. Brown as co-chief executives.

Mr. Simons was one of Mrs. Clinton’s biggest supporters during the 2016 presidential elections; in the last election cycle, he gave millions to a super PAC focused on winning a Democratic majority in the Senate.

Mr. Mercer — whose annual pay as co-C.E.O. of Renaissance was estimated at between $125 million and $135 million by the financial media — is his political opposite. A former IBM programmer, Mr. Mercer and his daughter Rebekah were significant financial supporters of Mr. Trump during his 2016 campaign.

In 2018, The New York Times reported that contractors and employees of Cambridge Analytica, eager to sell psychological profiles of American voters to political campaigns, acquired the private Facebook data of tens of millions of users — the largest known leak in the company’s history. Facebook eventually said as many as 87 million users — mostly in the United States — had their data harvested by the firm.

Mr. Mercer’s decision to resign as co-chief of Renaissance shortly after Mr. Trump won the presidency came about in part because of his involvement in bankrolling Cambridge Analytica. Some of the hedge fund’s investors had voiced concerns about Mr. Mercer’s political activities.

The firm’s letter on Thursday said that aside from the board members and their spouses, other investors will be required to pay additional tax and interest owed, but no penalties. Renaissance’s outside clients, who include wealthy individuals, pensions and other investors, are not expected to be affected by the settlement.

The tax dispute involved Medallion’s fast-paced options trading and how those transactions should be taxed — a major consideration given that the firm’s rapid-fire trading had a history of generating big profits.

At the time of the transactions the federal tax rate on long-term capital gains was about half what it was for short-term capital gains. The hedge fund argued that many of its trades were eligible to be taxed at the lower rate because it had converted those options trades into longer-term holdings through the use of complex financial instruments.

These instruments involved baskets of stocks put together by a bank. But Medallion didn’t buy the actual basket of stocks; it instead bought an option on that basket and sometimes gave the banks instructions on how to trade those stocks. Basket options have been criticized for having allowed hedge funds to borrow money more easily and allowing them to make bigger and potentially riskier trades.

The I.R.S. argued that the basket option trades should have been taxed at the higher rate because they were mainly the result of short-term trading.

The disagreement drew the attention of Congress, and led to rule changes. Following a report from the Senate Permanent Committee on Investigations, the I.R.S. issued new guidance in 2015 that sought to clamp down on this type of trading by making it more difficult and costly for hedge funds to buy basket options. Such investment vehicles had to be declared on the tax returns of any investor who used them, the agency said.

The I.R.S. had said its guidance on basket options would be retroactive, and applied to all transactions as far back as Jan. 1, 2011.

Still, some senators were critical of the I.R.S. for taking so long to change its rules and start investigating the trading practice, including at Renaissance.

Senator Carl Levin, the Michigan Democrat who headed the Senate committee in 2014 and died in July, said the I.R.S. guidance would stop banks and hedge funds from using “dubious structured financial products” that had cost taxpayers billions.

Elise Bean, a former aide to Mr. Levin, said she wished her former boss had lived to see the settlement. “It’s good to see that, despite a yearslong, knock-down, bare-knuckles battle, the I.R.S. prevailed in compelling at least one set of billionaires to pay the taxes they owe,” she said.

Jesse Drucker contributed reporting.

Correction: 

An earlier version of this article referred incorrectly to media reports about the compensation of Robert Mercer. His annual pay as co-chief executive of Renaissance was between $125 million and $135 million, according to the reports. They did not say he had an estimated fortune of $125 billion.

Matthew Goldstein covers Wall Street and white collar crime and housing issues. @mattgoldstein26

 

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.


Kirkus Reviews, the gold-standard for independent & accurate reviews, has this to say about

What Goes Around Comes Around:

A stable, positive, non preachy, objective voice makes the book stand apart from others in the genre. A successful guide that uses anecdotes to reveal powerful truths about life.

~ Kirkus Reviews

“The author gives readers not just points or principles to ponder, but real human experiences that demonstrate them!
Kirkus Reviews

“I’ve read a number of books that focus on sharing a similar message, including “The Secret” by Rhonda Byrne, “The Answer” by John Assaraf & Murray Smith, “The Celestine Prophecy” by James Redfield, “Think and Grow Rich,” by Napoleon Hill, and I must say that I find Rob’s to be my favorite. – Sheryl Woodhouse, founder of Livelihood Matters LLC

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

This is a heartening case! It supports the notion that justice does prevail and what goes around, does indeed come around, The Law of Cause & Effect” in action!  It means a $7 Billion penalty owed to the IRS and I’d guess, considering the fees these folks paid to their tax advisors, they never expected this outcome. Don’t cheer too loudly though. It also means that Principle applies to everyone!

Hedge Fund’s Insiders Agree to Pay as Much as $7 Billion to I.R.S.

The agreement ends a longstanding tax dispute involving a decade’s worth of transactions at Renaissance Technologies, one of the world’s biggest and best-connected hedge funds.

Drake Bell Given Two Years of Probation

Drake must have felt a sense of empowerment, the big star over the impressionable fan. It’s been called intoxicating and at the right time and place, with the right profile of a fan it might indeed have been just a “good time!”

But when that person turned out to be a minor it was a whole other ballgame and now Drake is someone who has been charged with the felony of attempted child endangerment. It lead to a plea deal including financial penalties, probation with various conditions for a minimum of two years and registration as a sex offender!

Have to ask though as we always should, is it possible its not so black and white? Were there mitigating circumstances? Had Drake himself been a victim of child abuse? Was this a one-off mistake or just one of a series? Does it indicate a much deeper problem and need for help, but with the proviso to also keep him away from other potential victims?

A deeper analysis might answer those questions and let us have a dose of sympathy. But in the end, sympathy or not, he made the choices! He lured her in! He pounced!

There’s at least one thing we can be pretty sure he didn’t have, which is the insight that whether there seems to be someone watching or not, that there IS something taking note.That something is the universal Law of Cause & Effect which explains every action/reaction in the physical universe and nature, but also applies to all human thoughts, words and actions and their consequences.

In our time and culture, the common vernacular for this principle in action is the expression “What Goes Around Comes Around.” Most of us use those words, perhaps many times, but only when describing someone else’s misfortune. We didn’t understand at first, but when the facts came out we could see why it happened!

However another truth is that, what is so easy to see in others can be so hard to see in ourselves. Unfortunately for Drake, he didn’t either! If he’d only read the book I wrote with that title he might not be in this fix!

The former star of the Nickelodeon series “Drake & Josh” had pleaded guilty to two charges related to a girl he met online. She attended one of his concerts in 2017.

https://www.nytimes.com/2021/07/12/arts/television/drake-bell-sentenced-child-endangerment.html?smid=em-share