An investigation by the Senate Permanent Subcommittee on Investigations has unearthed facts that two reputed bankswere involved in devising a complicated financial scheme by which thirteen hedge funds avoided paying taxes to the tune of many billion dollars, and also exceeded the borrowing limits for brokerage accounts set by the Federal government.
The unethical practices were being done for the last 15 years and the two banks involved are Barclays Bank and Deutsche Bank. The two banks gave their clients “basket options” by whichhedge funds could change their trading profits into long term capital gains to evade tax compulsions despite 97% of the assets beingheld for six months or less.
Moreover, trades were directly made in the bank’s accounts that enabled hedge funds from excluding themselves from the $2 cap for every $1that was put in by hedge funds. 1998 – 2013 was the time when these banks sold these one hundred and ninety nine basket optionsto the hedge funds and traded them in for $100 billion.
The focus of the committee was mainly on two offenders – George Weiss Associates and Renaissance Technologies. The latter made a profit of $34 billion and wriggled out of paying taxes of $6.8 billion.
Deutsche Bank defended themselves by saying, “The options offered by Deutsche Bank which were discussed in the Committee’s report were at all times fully compliant with applicable laws, regulations and guidance,” while Barclays said they “has been fully compliant with the law, has cooperated with the committee and looks forward to continuing that cooperation at the hearing. “
