The Bain Files: Inside Mitt Romney’s Tax-Dodging Cayman Schemes

John Cook - Gawker

 

Mitt Romney's $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002, depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama's fiscal approach and his money managers' embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren't made until years after he left the company.

Bain isn't a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. When Romney left in 1999, he and his wife retained significant investments in many of those Bain vehicles—he claims they are "passive investments" and that they are managed in a blind trust (though the trustee isn't blind enough to meet federal standards of independence). But aside from disparate snippets of information contained in his federal and Massachusetts financial disclosure forms, his 2010 tax returns, and SEC filings, the nature of those investments has been obfuscated by design.

When he disclosed his finances to the U.S. Office of Government Ethics in 2007, Romney took care to publish the underlying holdings of many funds he invested with—after disclosing his $1 million-plus stake in "GS 2002 Exchange Place Fund LP," for instance, he listed six pages of individual equities the fund held, from Panera Bread Co. to Tribune Co. But when it came to the Bain investments, he simply listed the value of his investments in odd-sounding entities like "Sankaty High Yield Partners II LP" with no indication of what was inside. In an accompanying note, he claimed that he had tried and failed to get the information: "The filer has requested information about the underlying holdings of these funds and values and income amounts for these underlying holdings. However, the fund managers have informed the filer in writing that this information is confidential and proprietary, and has declined to provide such information."

That information—for Sankaty and 20 other funds—is now available here, in the form of 48 documents totaling more than 950 pages. They consist predominantly of confidential internal audited financial statements from 2008, 2009, and 2010, as well as investor letters from the same period, for Bain entities that Romney has previously disclosed owning an interest it.

Owing to the time frame—during and after the catastrophic economic meltdown of 2008—some of the investments show substantial losses. One limited partnership had even entered into liquidation as of October 2008 after failing to meet certain payments owed to partners. Others show astronomical gains.

The documents are exceedingly complicated. We don't pretend to be qualified to decode them in full, which is why we are posting them here for readers to help evaluate—please leave your thoughts in the discussion below. We asked an attorney who specializes in complex offshore corporate transactions, including ones involving Cayman Island entities, to review them and help us understand them. (We also asked the Romney campaign. It hasn't responded yet.) The full set can be read here.

Here's what we've found so far:

• Equity Swaps, AIVs, and Mitt Romney's Other Tax-Dodging Tricks
• Mitt Romney's Endless ‘Retirement' Package
• How Mitt Romney Puts His Money Where Obama's Mouth Is
• Derivatives, Short Sales, and Mitt Romney's Other Exotic Financial Instruments
• Mitt Romney Is the National Enquirer's Banker

Comics and Graphics

240 Million Americans to Lose Protections From Coal Pollution

Tuesday, August 21, 2012 by Common Dreams
US Court Throws Out EPA Coal Pollution Rule, Leaves Millions Exposed to Harmful Emissions

Up to 240 million Americans will now lose protections against dangerous smog and soot pollution, following a decision by a US appeals court on Tuesday. In a 2-1 decision the US Court of Appeals for the D.C. Circuit overturned the Environmental Protection Agency's Cross-State Air Pollution Rule, which would have reduced harmful emissions from coal-burning power plants and saved the lives of up to 34,000 people per year.

“This decision allows harmful power plant air pollution to continue to aggravate major health problems and foul up our air. This is a loss for all of us, but especially for those living downwind from major polluters,” said John Walke, clean air director at the Natural Resources Defense Council.

The rule, slated to reduced sulfur dioxide emissions by 73 percent and nitrogen oxide by 54 percent at coal-fired power plants from 2005 levels in 28 states, will now be sent back for revision for an indefinite period of time.

The EPA had adopted the regulation one year ago in a bid to reduce downwind pollution from power plants across state lines. It was scheduled to go into effect in January; however, several large power companies and some states sued to stop it.

“This rule would have prevented thousands of premature deaths and saved tens of billions of dollars a year in health costs, but two judges blocked that from happening and forced EPA to further delay long overdue health safeguards for Americans,” Walke stated.

According to the Environmental Defense Fund, the rule would have:

• Saved up to 34,000 lives each year
• Prevented 15,000 heart attacks each year
• Prevented 400,000 asthma attacks each year
• Provided $120 billion to $280 billion in health benefits for the nation each year

No Person Shall Be Deprived of Life, Liberty or Property… Unless the Oil and Gas Industry Says So

Tuesday, August 21, 2012 by Food & Water Watch blog

by Alison Grass

 

Eminent domain, the government’s right to condemn (or take) private land for “public use,” has at times been a highly contentious topic because it can displace people from their homes to make way for construction of different projects, like highways or roads, civic buildings and other types of public infrastructure. However, what some may not realize is that several states have granted eminent domain authority to certain private entities, including oil and gas companies. These companies are using it as a tool to seize private land, which increases profits and benefits their wallets.

According to the U.S. Constitution’s Fifth Amendment, in order to pursue eminent domain, the land must be taken for “public use” and the private property owners must receive “just compensation.”

No person shall be . . . deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Traditionally, the “public use” provision referred to projects like roads, schools, parks and other public facilities that could be directly used by all. However, the meaning of “public use” has been loosely interpreted in recent years.

The controversial Kelo v. City of New London (2005) is credited with broadening the interpretation of “public use.” In this case, the Supreme Court ruled in favor of New London, deciding that the city could take private property and give it to another private entity for “economic development.” The Court decided that this met the “public use” provision of the Fifth Amendment. But despite taking the land and spending millions of taxpayer dollars on the proposed project, the plan never came to fruition and nothing was constructed.
Now it seems that the oil and gas industry is capitalizing on this this precedent-setting case.

A University of Minnesota Law professor describes this trend: “in many natural resource–rich areas of the country, however, the knock on the door is less likely to come from a government official and much more likely to come from a mining, oil, or gas company representative.”

The state legislature of North Carolina recently legalized fracking. Yet, what some residents may not know is that North Carolina’s eminent domain law allows some private entities to take private property for certain uses. This includes oil and gas companies who have been given the right to condemn land and construct pipelines for natural gas transportation. As a supervising attorney at the Duke Environmental Law and Policy Clinic points out, there could be even bigger implications. “If private companies engaged in these activities are designated as ‘public enterprises,’ then they may be able to take private property for purposes far beyond that of laying pipelines.”

In July, the Pennsylvania Commonwealth Court ruled that provisions in Act 13, (which revised the Oil and Gas Act of 1984), aiming to prevent local zoning rules for gas drilling and fracking were unconstitutional. However the Court didn’t rule on the topic of eminent domain. This leaves open the possibility that oil and gas companies could pursue this as a method to take people’s land.

Meanwhile in Texas, TransCanada, the company that wants to build the Keystone XL Pipeline, is trying to grab private property from a small town, claiming they have eminent domain rights—and some residents are outraged.

The Kelo case broadened the interpretation of the “public use.” The city of New London took land from a private property owner so that they could give it to a private entity in the name of “economic development.” Unfortunately, oil and gas companies will now have this card to play when justifying land grabs.

Mitt’s Big Secret

Is Romney Trying to Conceal a Massive Tax Fraud Scheme?

by DAVE LINDORFF

 

A lot of theories have been put forward to try and explain why Romney has allowed his campaign to become bedeviled by charges of tax dodging, but what if what he is hiding is felonious tax fraud?

Okay, so he’s taken the legal option of delaying filing his 2011 taxes, which every taxpayer is entitled to do without penalty and without having to give any explanation until October 15 this year (I agree it’s a little weird when a super-rich guy who pays accountants by the dozen does this, but hey). The nagging question though is why he hasn’t just responded to the demand that he release two years of tax returns like John McCain did in 2008 by simply releasing his 2009 tax filing, along with the 2010 return he already released?

The answer may well be that 2009 was the year that the Treasury Department decided to offer an amnesty from prosecution for tax fraud to any of the tens of thousands of millionaires who were known or suspected to have illegally hidden income abroad in the Cayman Islands or in Swiss banks — a felony, but one that people thought they’d never be caught at.

That year alone, some nearly 30,000 people, many of them no doubt prominent in society, politics and business, and customers of the finest accounting firms, reportedly voluntarily came forward to the IRS to admit that they had hidden some of the estimated $100 billion in income that crooked rich Americans have for years been secreting away in banks overseas. Under the terms of the program, they were able to just report their fraud, pay the taxes, penalties and interest on the money and then walk away scott free, with no charges and with their returns kept confidential by the agency.

That is, unless they decided to run for national office, where the expectation is that they have to release their income tax returns to the media for inspection.

As journalist Matthew Yglesias has written in Slate, “Romney might well have thought in 2007 and 2008 that there was nothing to fear about a non-disclosed offshore account he’d set up years earlier precisely because it wasn’t disclosed.”

But the scandal that exploded around Swiss megabank UBS, where a whistleblowing employee released some of the names of wealthy Americans who were being allowed to use the bank’s privacy protections to hide their income from the IRS, caused many of America’s super-rich, fearing the worst, to rush for an amnesty offered by the IRS, which was more interested in collecting the money than putting a lot of the country’s toniest people behind bars. The floodgates opened when the US sued UBS demanding the full list of tax criminals from the bank, and then offered an amnesty to those who came forward voluntarily, reported their fraud to the IRS, and paid the required interest and penalties.

Given Mitt Romney’s known predilection for avoiding taxes, it’s hard to imagine him not having taken advantage of the Swiss tax dodge, particularly when so many other people of his class were doing it. Hiding income overseas was, back in the early years of this gilded century, the thing to do–the stuff of mirthful asides over cognac at the Club after a bracing game of golf or polo.

But explaining paying lower taxes than your maid or gardner to the public is one thing. Explaining deliberately committing massive tax fraud is another. Plenty of Americans have gone to the slammer for years for defrauding the IRS of mere five-figure sums. Most live in a cultivated fear of the IRS, worrying that they made some mistake on a form or missed a filing deadline, and yet the wealthiest Americans, thanks to the 2009 and subsequent amnesties or partial amnesties, have gotten away with massive fraud, just having to pay penalties and interest, as if they had just inadvertently filed late or made a math error.

None of this is proof that Romney is guilty of felony tax fraud, of course. On the other hand, it is curious that John McCain would have gone for the loopy lady from Wassilla and rejected Romney as his running mate back in 2008. Mitt was seriously in the running as a candidate for the job of VP on the McCain ticket at one point, and the UBS scandal broke right when McCain was picking his running mate. It seems logical that McCain’s vetting team would have asked Romney if the scandal might touch him. Maybe they ruled him out of contention when they got the answer.

In any case, running for president is not for sissies, and there is no presumption of innocence in politics. If Romney did not commit tax fraud back in 2008 and earlier, and did not avail himself of the IRS’s 2009 tax amnesty program, he should have to prove it by releasing his 2007, 2008 and 2009 taxes, and, if the 2007 and 2008 filings turn out to have been belatedly corrected, he should have to show the original filings too.

No doubt the Obama campaign has figured all this out, which would explain why they are offering Mitt Romney a deal that says: “You release five years of your taxes, and we’ll shut up” about demanding even older ones.

It remains to be seen whether conservative and right-wing and libertarian Americans, famous for their loathing of taxes, will decide that Romney is simply doing what they’d all like to get away with doing, and give him a pass on all this tax dodging, or whether they will become so incensed at the idea of this richest of presidential candidates in history cheating on his taxes that they will demand that he prove he didn’t do it before he can have their vote.

Meanwhile, if Romney did commit tax fraud courtesy of a Swiss bank arrangement, and he stonewalls it through the campaign weeks ahead, he runs a huge risk that someone will leak the information. After all, federal employees have to realize that four years of a Romney/Ryan administration will be brutal on their job security, benefits and working conditions. And right now Obama is the boss of the federal government, with his own appointees at Treasury and the IRS.
Stay tuned.

U.S. Court Upholds Status Quo on Gene Patents

Saturday, August 18, 2012 by Inter Press Service

by Amanda Wilson 

 

Is a gene more like a tree trunk or more like a baseball bat? A federal court Thursday took a stand on the question, ruling that isolated DNA molecules are “not found in nature”, and are therefore more like inventions, such as baseball bats, than natural phenomenon, such as tree trunks.

 Using language steeped in metaphor in a packed U.S. federal courtroom, attorneys in July debated the question in a closely-watched case on the right to patent genes that has been working its way through the courts.

At stake: the right of one company – Myriad Genetics – to patent a gene as a human invention under U.S. patent law, which allows patents on inventions but not on products of nature.

In a ruling that largely upheld the status quo in a biotech industry that has been patenting genes for decades, the U.S. Court of Appeals for the Federal Circuit ruled Thursday that “isolated” human genes are patentable. Methods of “comparing” or “analysing” DNA sequences are, however, not patent eligible, it ruled.

In a two-to-one decision, the court affirmed Myriad’s right to claim intellectual property rights on the BRCA-1 BRCA-2 genes, genes where mutations indicate a woman has an 82 percent increased risk of developing breast cancer.

The company’s patents on the genes are the basis of a breast cancer indicator test that has been a profitable asset in the company’s portfolio of intellectual property.

The American Civil Liberties Union (ACLU), representing a group of about 20 plaintiffs, including the breast cancer patient advocates and geneticists, several years ago launched a legal challenge to Myriad’s right to patent the genes.

The plaintiffs, including patient advocacy group Breast Cancer Action, have argued that Myriad’s IP rights to the genes allow it to block others from testing for – or even looking at – the BRCA-1 and BRCA-2 genes, a right they say Myriad has exercised in the past with legal threats.
Plaintiffs have also argued the patents raise prices for testing and essentially create a market monopoly which blocks the poorest from getting tested and stifles scientists who want to look at the genes. Yale geneticist Ellen Matloff, a plaintiff in the case, told IPS last year the situation was “horrifying.”

Matloff told IPS that 95 percent of patients she recommended for Myriad’s 700-dollar supplementary BART test, which looks for mutations on the BRCA-1 and BRCA-2 genes, opted not to get it because of its high cost.

Furthermore, those who question gene patents have pointed out that patenting individual genes might even be myopic, especially in a world of whole genome sequencing where the scientific community is increasingly interested in gene interactions, the influence of the environment on genetics (called epigenetics), and other big-picture indicators to understand patient health.
The case has been working its way through the courts. A New York district court judge sided with the ACLU in 2010, but the Federal Circuit Court of Appeals overturned the ruling in July 2011.

The ACLU appealed to the Supreme Court last year, but the Court declined to issue a ruling in the case. Instead, it sent the case back to the Federal Circuit to re-examine in light of its unanimous spring decision that Prometheus Laboratories Inc. did not have a right to patent a certain blood test because the patent was based on observations about natural phenomena.
But Thursday, the Federal Circuit again ruled that genes are patentable. The court wrote, “The isolated DNA molecules before us are not found in nature. They are obtained in the laboratory and are man-made, the product of human ingenuity.”

In its majority opinion the court also highlighted that gene patenting had been standard practice for the U.S. Patent and Trademark Office (PTO) for years.

“Why hasn’t this come up in 30 years,” Circuit Judge Kimberly Moore, who sided with the majority, asked during oral arguments in the courtroom July.

Moore hinted at the biotech sector’s financial stake in gene patents, often key components of diagnostic test IP at the centre of a much-hyped personalised medicine industry. “What about the biotech sector and all the money?” Moore asked.

In his dissenting opinion, Circuit Judge William Bryson wrote, “my colleagues assign significant weight to the fact that since 2001 the PTO has had guidelines in place that have allowed patents on entire human genes… I think the PTO’s practice and guidelines are not entitled to significant weight…”

Sandra Park, an attorney with the ACLU, told IPS her team was disappointed in the Federal Circuit court’s decision, which she said she believed did not take the Supreme Court’s ruling in Prometheus adequately into consideration.

“We think that the Supreme Court’s recent decision is very clear that the Court is very concerned about how patents interfere with scientific work,” Park told IPS. “The Supreme Court has said that the interests of industry in relying on patent protection is not a factor in determining that something is patentable.”

Park said the mere fact that Prometheus argued that it needed its patents to advance its interests, in the Supreme Court’s ruling, was insufficient reason to justify patents.

If the ACLU decides, with the other plaintiffs, to appeal the Federal Circuit court’s decision, it is possible the Supreme Court might decide to hear the case. Such a scenario is not unheard of. In fact, Park said, the Supreme Court decision to overturn Prometheus’s right to its diagnostic patent came after the Federal Circuit twice upheld it.

Park said the ACLU was still deciding its next step. “We are reviewing our options, but we haven’t made any decisions yet.”

Pot Treats Cancer Without The Devastating Effects of Chemotherapy

Research shows THC and other compounds found only in marijuana don't just soothe symptoms; they can shrink tumors and slow the spread of cancer. 
By Martin A. Lee

Smoke Signals: A Social History of Marijuana -- Medical, Recreational, and Scientific [2] (Simon and Schuster, 2012):

Peer-reviewed scientific studies in several countries show THC and other compounds found only in marijuana are effective not only for cancer symptom management (pain, nausea, loss of appetite, fatigue, and so on), but they confer a direct antitumoral effect as well.

Animal experiments conducted by Manuel Guzmán at Madrid’s Complutense University in the late 1990s revealed that a synthetic cannabinoid injected directly into a malignant brain tumor could eradicate it. Reported in Nature Medicine, this remarkable finding prompted additional studies in Spain and elsewhere that confirmed the anticancer properties of marijuana-derived compounds. Guzmán’s team administered pure THC via a catheter into the tumors of nine hospitalized patients with glioblastoma (an aggressive form of brain cancer) who had failed to respond to standard therapies. This was the first clinical trial assessing the antitumoral action of cannabinoids on human beings, and the results, published in the British Journal of Cancer, were very promising. THC treatment was associated with significantly reduced tumor cell proliferation in all test subjects.

Guzmán and his colleagues found that THC and its synthetic emulators selectively killed tumor cells while leaving healthy cells unscathed. No Big Pharma chemotherapy drugs could induce apoptosis (cell death) in cancer cells without trashing the whole body. Up to 90 percent of advanced cancer patients suffer cognitive dysfunction from “chemo brain,” a common side effect of corporate cancer meds that indiscriminately destroy brain matter, whereas cannabinoids are free-radical scavengers that protect brain tissue and stimulate brain cell growth.

There is mounting evidence that cannabinoids may “represent a new class of anticancer drugs that retard cancer growth, inhibit angiogenesis [the formation of new blood vessels] and the metastatic spreading of cancer cells,” according to the scientific journal Mini-Reviews in Medicinal Chemistry. Studies from scientists around the world have documented the anticancer properties of cannabinoid compounds for various malignancies, including (but not limited to):

• Prostate cancer. Researchers at the University of Wisconsin found that the administration of the synthetic cannabinoid WIN-55,212–2, a CB-1and CB-2 agonist, inhibited prostate cancer cell growth and also induced apoptosis.
• Colon cancer. British researchers demonstrated that THC triggers cell death in tumors of the colon, the second leading cause of cancer deaths in the United States.
• Pancreatic cancer. Spanish and French scientists determined that cannabinoids selectively increased apoptosis in pancreatic cell lines and reduced the growth of tumor cells in animals, while ignoring normal cells.
• Breast cancer. Scientists at the Pacific Medical Centers in San Francisco found that THC and other plant cannabinoids inhibited human breast cancer cell proliferation and metastasis and shrank breast cancer tumors. 1.3 million women worldwide are diagnosed yearly with breast cancer and a half million succumb to the disease.
• Cervical cancer. German researchers at the University of Rostock reported that THC and a synthetic cannabinoid suppressed the invasion of human cervical carcinoma into surrounding tissues by stimulating the body’s production of TIMP-1, a substance that helps healthy cells resist cancer.
• Leukemia. Investigators at St. George’s University and Bartholomew’s Hospital in London found that THC acts synergistically with conventional antileukemia therapies to enhance the effectiveness of anti-cancer agents in vitro (in a test tube or petri dish). Scientists had previously shown that THC and cannabidiol were both potent inducers of apoptosis in leukemic cell lines.
• Stomach cancer. According to Korean researchers at the Catholic Uni- versity in Seoul, WIN-55,212–2, the synthetic cannabinoid, reduced the proliferation of stomach cancer cells.
• Skin carcinoma. Spanish researchers noted that the administration of synthetic cannabinoids “induced a considerable growth inhibition of malignant tumors” on the skin of mice.
• Cancer of the bile duct. The administration of THC inhibits bile-duct cancer cell proliferation, migration, and invasion and induces biliary cancer cell apoptosis, according to experiments conducted at Rangsit University in Patum Thani, Thailand.
• Lymphoma, Hodgkin’s and Kaposi’s sarcoma. Researchers at the University of South Florida ascertained that THC thwarts the activation and replication of the gamma herpes virus. This virus increases a person’s chances of developing cancers such as Hodgkin’s, non-Hodgkin’s lymphoma, and Kaposi’s sarcoma.
• Liver cancer. Italian scientists at the University of Palermo found that a synthetic cannabinoid caused programmed cell death in liver cancer.
• Lung cancer. Harvard University scientists reported that THC cuts tumor growth in common lung cancer in half and “significantly reduces the ability of the cancer to spread.” Lung cancer is the number one cancer killer in the world. More Americans die of lung cancer each year than any other type of cancer.