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4th person charged in UBS tax-evasion case

Sunday, August 16th, 2009

A California businessman Fri. became the 4th person charged with using an offshore account at Swiss banking giant UBS to cover funds from the IRS as federal prosecutors kept up stress on other well off American citizens with secret foreign accounts to come clean. Malibu resident John McCarthy agreed to plead guilty to failing to hand over a UBS account that investigators charged he used to transfer more than $1 million in business revenue out of the country tax free.

McCarthy, whose business wasn’t identified by prosecutors, admitted he purposely ducked payment of at least $200,000 in federal revenue taxes on the cash he sent to the UBS account he anonymously controlled using the name COGS Ventures , a HK entity. By agreeing to plead guilty at a federal court hearing set for Sept. 14, he’s going to face a maximum five-year jail term and $250,000 in fines, and payment of 5 years of back taxes and penalties. “Mr McCarthy has accepted accountability for his conduct,” declared defense lawyer Steven Toscher.

“He, like lots of other US taxpayers, has made heavy mistakes referring to the use of foreign bank accounts.”. McCarthy opened his UBS account in 2003 and afterwards used it to transfer more than $1 million from his L.A. firm, according to the federal plea agreement filed Fri. . He transferred extra funds to other UBS accounts from one more UBS account he controlled in the Cayman Islands. UBS actively helped him hide the funds, as bank delegates told him “a lot of United States’ clients don’t report their ( business ) earnings and just take it off the top,” the contract said. 3 other UBS customers from Florida were also part of that group, and confessed early on in the year to filing fake tax returns.

For its recognized involvement, UBS also agreed to pay $780 million to defer prosecution of legal charges that it frequently sent its financiers on surreptitious journeys to the US to help Yank buyers like McCarthy place assets in offshore accounts that wouldn’t be reported to the IRS. till an initial agreement was reached on Wed., UBS had confounded IRS demands in a federal civil court action for account information on up to 52,000 other rich Yankee clients suspected of using offshore accounts to dodge millions of greenbacks in taxes.

The number of accounts to be revealed and the timing of the new handover are anticipated to be revealed as early as next week after both sides and the Swiss state officially approve a legal condition. Eileen Mayer, CEO of the IRS Criminal Inquiry Division, called the McCarthy case “the tip of the iceberg” in a continual effort to prosecute American citizens who use offshore accounts to dodge taxes. “The fact this case was handled out of California and the earlier cases were in Florida shows this is a heavy inquiry that extends across the country,” expounded aid US solicitor Sandra Brown in LA.

Acting aid solicitor General John DiCicco, head of the Justice Office tax division, cited the charges against McCarthy as an alert that other tax evaders should take merit of an IRS voluntary discovery program. The program, which offers leniency for people that stand up, is ready to expire Sept. “Many taxpayers are asking whether to come into observance of respect to their previous tax indiscretions,” announced Toscher, whose Beverly Hills legal company represents other UBS clients.

Judge won’t approve BofA bonus settlement with SEC

Monday, August 10th, 2009

A Federal  judge has declined to approve a suggested settlement between the SEC Commission and Bank of America over the payment of bonuses to Merrill Lynch middle management, exclaiming he wasn’t able to establish if it was fair to the general public. The largest US bank concluded August three to pay $33 million to decide an SEC civil legal action accusing it of tricking stockholders by not divulging it had permitted the payment of almost $5.8 bn. of bonuses to Merrill staff. RELATED : B. O. A still fighting in USA during Second-quarter . But at a hearing Mon. , Judge Jed Rakoff of the Fed. court in Manhattan said he requires a “much more detailed account of the underlying facts” before signing off on the settlement. “I would be less than candid if I did not express my continued misgivings about this settlement at this stage,” Rakoff claimed. He announced the settlement “seems to be low in transparency.

Noting the government had pumped $45 bn. of taxpayer cash into Bank of America from the Fed bank rescue plan, the Uneasy Asset Relief Program, Rakoff further said he couldn’t reconcile the SEC’s position the bank “effectively lied” to investors, with the regulator’s call not to persuade the bank to confess evil-doing.  Given the bailout cash awarded to BOA, including $20 bn. used to help absorb Merrill, Rakoff declared that “one might infer that public money was employed, in reality to pay the bonuses. “Don’t I must know what the truth is before I could make a backbone here?” Rakoff announced.  “Is there not something bizarrely contorted in a fine of $33 million?”.

The judge directed both sides to make new submissions on August twenty-four and Sept.  According to the SEC complaint, BOA told stockholders in stand in documents that Merrill accepted not to award bonuses or inducement pay before the coalition closed, when actually the bank had sanctioned Merrill to pay bonuses. Rakoff appeared doubtful that Kenneth Lewis and John Thain, the chief managers of B. O. An and Merrill, shouldn’t be held to account for the choice not to reveal the bonuses to investors before they voted on the alliance. Maureen Lewis, an SEC barrister, responded that Lewis and Thain “relied on the lawyers’ recommendation and did not know what was in the declaration schedule. B. O. A barristers denied that Fed. rescue money was employed badly. “This isn’t a case in which there’s any risk or threat to TARP funds,” Lewis Liman, a counsel for the bank, informed the judge. The $33 million penalty was below the $50 million that General Electrical concluded last week to pay to settle SEC crime charges. Counsels asserted it is rare for judges to obstruct supposed SEC consent agreements, but Rakoff has done it before.

In 2003, he blocked a $500 million settlement with WorldCom over the accounting crime that led straight to the telephone company’s bankruptcy. The Merrill amalgamation has weakened Lewis, whose bank faces many lawsuits, regulatory probes, and the fury of stockholders and judiciary over the bonuses and the size of Merrill’s losses. Since April, Lewis has got fired as head honcho and over fifty percent of his long-supportive board. Shares of the bank have fallen 51% since the coalition was published last Sept. They closed Mon. up 26 cents at $16.68 on the Big Apple Stock Exchange.

Wall Street bankers are still raking in billions in bonuses WTF?

Monday, August 10th, 2009

Public concern has bubbled over as billions of greenbacks in bonuses have been distributed on Wall Street, the center of the 2008 money typhoon that made a contribution to the worst recession in generations and left many millions of people jobless. Even President Obama joined in, labeling the $18.4 bill in bonuses “shameful” and calling on the Street to “show some restraint.” Seizing on the populist anger, lawmakers put together a compensation-reform bill that passed the House of Delegates on July 31 and may be brought to a vote in the Senate after the summer recess. Still, regardless of all of the clear momentum building to rein in runaway pay, it seems like Wall Street’s compensation practices will largely appear unscathed. Critics say the bill’s key suggestions, though well-intentioned, are non-binding, so corporations can opt to ignore them. And Wall Street managers, seemingly disinterested about further alienating an already perturbed mob, are revving up to lift pay. Some top firms that just last year received billions in govt rescue money are prospering again and appear unfazed by the widespread feedback of large paychecks.  Flush from 2 quarters of profits and having paid back the govt its rescue money, Goldman Sachs has put aside $11.36 bill for compensation and benefits in the just first half a year of the year, a 33% increase from last year.

JPMorgan Chase, which also has repaid taxpayer money, reported record Q2 income and has chopped out $14.5 bn.  for pay in the first part of the year, up 22%. While Morgan Stanley, too, has paid back the govt, the bank recorded its third-consecutive loss in quarter 2. Regardless of that, the bank has put aside $6 bill so far this year for compensation costs, and $3.87 bn. just in quarter two, which represents 72% of its revenue.  “The the Street community isn’t especially plugged into the public sentiment,” claims Peter Cappelli, management teacher at Wharton business faculty. “It’s a culture that has not cared much about the political realities elsewhere.

Officers have put the blame on Wall Street’s pay structure for making the fiscal crisis worse. Treasury Secretary Timothy Geithner expounded the compensation practices “encouraged OTT risk-taking.” Lured by gigantic bonuses, increasingly large numbers of financiers took risks that led the US to the threshold and a $700 bn. state rescue for the industry. The Street banks usually put aside more for compensation than other industries about half of income to pay staff. Financiers say they should pay more to keep top talent.

In Morgan Stanley’s annual report, it asserts : “In order to draw in and keep qualified staff, we must compensate such staff at market levels. Generally those levels have caused worker compensation to be our best expense.” The banks also say that pay is firmly linked to performance and that if they do not keep qualified workers, performance may be influenced.

Studies have found that there’s little relationship between pay and performance on Wall Street, and financiers win no matter what way the market goes. On July thirty, Manhattan Attorney General Andrew Cuomo released results of a nine-month inquiry of the first nine banks that received bailouts from the governing body’s Uneasy Asset Relief Program ( TARP ). His report found that banks paid out bonuses even while running at a total loss, and at those that did post positive earnings, yearly bonuses surpassed the whole year’s profit. At Citigroup, regardless of the $27.68 bln in losses last year, the bank paid out $5.33 billion in bonuses, of which about 738 workers each received $1 million or more.

JPMorgan earned $5.6 bln in the year and paid out $8.69 bn. in bonuses.  The bank also had more seven-figure earners than any of its rivals 1,148 staff received $1 million or more.  Goldman earned $2.3 bln and paid out $4.8 bill in bonuses, with 212 workers earning $3 million or more. Cuomo asserts his research makes it clear that “there is no clear rhyme or reason to the way banks compensate and reward their workers. Compensation for bank employees has become unmoored from the banks’ financial performance.

Thru this year, there were lots of other revelations about Wall Street excesses. One example that only appeared to get uglier as more details appeared was what occurred at Merrill Lynch before and after it was compelled to sell itself to B. O. A to avoid collapse. In the final a quarter of 2008, as BofA was attempting to close the acquisition, Merrill lost $15.3 bill bringing its losses for all of 2008 to a record $27 bn.. Yet, Merrill Boss man John Thain pushed thru $3.6 bn.  in bonuses to Merrill staff days before the amalgamation with BofA closed on Jan 1, 2009. The alliance cost American taxpayers $20 bln in readies and a contract by the govt to share in losses that totaled $118 bn.

It also damaged the reputation of BofA Manager Kenneth Lewis. He had to relinquish the title of manager in Apr and since that point has faced calls to step down as Manager.  The bank is getting investigated by Cuomo and by Congress due to the Merrill bonus payments and losses that were not divulged to stockholders. Last week it paid a fine of $33 million to the SEC Commission to decide a court complaint that BofA had misled stockholders about what it knew about the bonuses.

Even as Wall St is enlarging its compensation and lawmakers are criticising it for doing so, Washington, too, looks to be shying away from imposing harsh curbs on pay. The key point is that legislators are afraid that troublesome pay curbs might get in the way of the finance services industry helping foster an industrial recovery.

“It is a nightmare situation no-one wants these firms to fail, which would lead to a larger business and political disaster ; on the other hand it’s embarrassing that they’re already deciding to pay themselves more for doing well,” asserts Alan Johnson of compensation specialist Johnson Associates.

Critics say the compensation-reform bill lacks teeth.

Bankrolled by Rep Barney Frank, D-Mass, the company and Money Institution Compensation Fairness Act of 2009 has provisions that can have an effect on all publicly traded corporations, and there are special provisions for monetary establishments. Rather, it demands that shareholders vote on compensation of senior operatives. That is because, as Frank notes, the quantity of compensation at banks isn’t “a public call, rather it’s up to shareholders.” the votes are non-binding, and boards of directors at the firms can decide to pay no attention to them.

One notable shareholder is asserting that it’d be most unlikely for it to be handy. The allowance fund of The United Society of Carpenters and Joiners of America has assets of $40 bn. and holds shares of 3,603 firms. Douglas McCarron, the fund’s president, asserts it might be a “challenge” to try a quantity of research and research needed to vote on the pay plans of all of the corporations in which it owns shares.

He is saying the fund might end up voting at thousands of the firms it invests in based mostly on a straightforward check list. “Such an action will enfeeble the goals that inspired the work to enhance compensation disclosure,” claims McCarron, in a letter to the SEC. Opponents of the bill say there are a lot of unanswered questions that they hope the Senate will address when it discusses the legislation. “Part of the issue is that I do not recall any expert affidavit on any of the pieces of the bill, nor have we held any hearings on compensation specifically,” Rep Scott Garrett, R-N.J, says. It is also confusing how, precisely, banks that still have TARP funds will see their compensation influenced.

The govt. has delegated Kenneth Feinberg as pay czar to observe pay at banks and automobile corporations that have not paid back govt rescue cash, and he still has to in public take any action. The Treasury has suggested that operatives at these firms get no bonuses or retention and motivation awards, and in a few cases they’d actually have to repay past bonuses.

7 corporations have till Thu. to submit suggested compensation details for the 100 highest-paid employees in the firms. While Feinberg has the power to make certain pay doesn’t reward dangerous behaviour and to even take back pay that was unjustified, it is misleading what he’s going to do with the info. “Feinberg has broad authority to be sure that compensation at those firms strikes an appropriate balance,” announces Treasury spokesman Meg Reilly. “Obviously, we all have a shared interest in guaranteeing that those corporations can return to profitability as fast as possible so that taxpayers can recoup their investment.

But neither Feinberg’s appointment nor the bill that awaits the Senate addresses the elemental problem that fueled the fury, which is that traders and operatives at these firms finish up winning all ways. As Cuomo asserted in his report, the Street compensation is an offer in which “heads I win, tails you lose. But at Goldman Sachs, “The relationship between our net income and compensation has been 99% since the firm went public in 1999,” claims speaker Lucas Wagon Praag. “This is hard evidence that pay is explicitly linked to performance. Feedback is targeted on more than the industry’s large players. An August four report from compensation experts Presidio Pay aides researched 115 banks that received TARP funds.

The report, like Cuomo’s, found no link between pay and performance at the banks in the last 3 years. “Wall Street’s commercial contentment is based on taxpayers’ money saving them from disaster, and they have already forgotten that,” asserts Stephen Lerner, who directs the financial-reform campaign at union group SEIU. “Americans lost trillions of bucks in wealth from the industrial collapse, and while Wall Street got bailed out, it’ll take years for employees on Main Street to get roles and work their way out of this industrial catastrophe.

Settlement talks continued in UBS-IRS case

Friday, August 7th, 2009

A judge for the 3rd time delayed a hearing over IRS demands for the names of 52,000 made Yankee clients of Swiss banking giant UBS on Fri. after lawyers for the US Justice Office and the bank stated that they need more time to play ball. “There are still some issues that are yet to be resolved,” Stuart Gibson, a Justice Dept tax division attorney, told US District Judge Alan Gold in Miami.  “The parties are working through these issues and plan to resume talking. Gold scheduled an August 12 phone standing conference at the request of both sides in the closely studied case which has promised to add new cracks to Switzerland’s historic name for banking privacy.

“By then we might hope to have worked thru the leftover issues, and have initialed a written agreement,” recounted Gibson.  “If the parties have not reached agreement, we might expect to be ready to report where the parties are in their discussions, or whether they’ve been unable to reach an agreement. If the two sides are unable to strike a deal, Gold claimed he would schedule a key evidentiary hearing in the case either later on this month or in mid-September.

Gibson had said to the judge on July 31 that both sides had reached “an agreement in theory on the major issues.”. The Justice Department and IRS disagree that UBS must turn over the customer info because plenty of the bank’s Yankee clients have dodged millions of greenbacks in Fed taxes with the bank’s active help.

UBS in Feb agreed to pay $780 million in a settlement that deferred prosecution of charges that it continually sent its financiers on secret visits to the US to help Yankee consumers place their assets in offshore accounts that wouldn’t be reported to the IRS.

UBS has contended that divulging the customer data would be a criminal violation of Swiss banking privacy laws.

Backing that position, the Swiss presidency has raised the chance that it might seize the customer info to stop any handover ordered by a US court. Fed. investigators have maintained force on UBS in the deadlock by chasing criminal cases against some of the approximate 250 Yank clients whose account information the bank formerly agreed to give the IRS based primarily on explicit proof of tax evasion. So far, 3 of those clients have begged to filing fake tax returns, most lately last week.

The IRS in March launched a half year program offering lower penalties to USA citizens who willingly divulge formerly secret offshore assets and agree to pay taxes on the holdings. Collusion often means no legal charges will be filed, and needs payment of back taxes and interest for no less than 6 years, and some penalties. While the IRS hasn’t revealed the precise collusion rate, the agency claimed there was a swift rise in the quantity of taxpayers making voluntary disclosures this year. The majority of the cases involve unreported income in offshore accounts, the agency claimed.

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