Tuesday, February 14, 2012

Romney's Tax Returns, Mel Brooks, and Lawrence O'Donnell

So where's the rest of Romney's tax returns? Especially the ones for the Bain years?

I ask because there was a story going round briefly in the media that he and Bain bought companies on borrowed money, sold stock in them (this is the key part), then took the companies into bankruptcy and walked away with bulging pockets. This could have been sloppy reporting, of course. Bain might have been selling stock in Bain and not the purchased companies as was implied by the stories. The two are somewhat different in terms of risk to investors. So one wonders exactly what was going on.

If you sell stock to "sophisticated investors" as a private equity firm like Bain, the SEC doesn't pay much attention. The belief is that "sophisticated investors", such as those who buy into Bain, can take care of themselves, i.e. the very well-to-do are on their own. Nevertheless, if someone knowingly misrepresents what they're selling to anyone, sophisticated or otherwise, it can be fraud. All the requisite legal elements have to be present, of course, to constitute fraud, but one does not get off the hook for fraud just because the SEC was not exerting jurisdiction.

So what went on precisely in the Bain deals while Romney was part of the company? As far as I know, no one has expressly raised this issue of whether Bain solicited investments in the purchased companies that subsequently went under and, if so, how Bain had represented these companies to investors.

Of course, the statute of limitations on fraud has probably run on any dealings as old as these, if fraud there was. But prosecution is not at issue.

An election is.

Bain seems to have had a hard time holding on to its records from back then. It was asked some questions a while ago about Romney's role in the firm and replied that it didn't have the records any more.

That doesn't sound real great.

So maybe Romney's tax returns from then would show something. Like exactly which deals he made money on and how much. And what was the nature of the earnings. Were some of them fees for selling stock in companies Bain had acquired? Were some of them actual profits on such stock before Bain took the companies into bankruptcy? Was the stock that was sold in the companies, if any, taken from the companies' own stock or from that held in the companies by individuals at Bain? Perhaps all of this was subsumed into Bain's returns and won't show up on Romney's returns.

So how about a look at Bain's tax returns as well as Romney's?

That's not an outrageous idea. If a candidate for president is basing his claim to fame on his work for a company, hasn't he put that company on the block for scrutiny? After all, Romney claims that "corporations are people", so if people can be pressured to open their returns when they seek public office, why not the corporations that are would-be stepping stones to the White House?

I'm not beating a broken drum on this. This week the New York Times quietly noted that the SEC is no longer taking a hands-off approach toward private equity firms. It's been sending them letters asking questions in conjunction with what it terms an "aberrational performance inquiry".

I wouldn't like to get a letter like that, would you?

What the SEC is sniffing for, according to the Times, is misrepresentation of asset values when soliciting investments.

That's another way of saying what I've suggested above about Bain. In fact, the SEC may be taking an even broader view of these private investment firms. The "aberrational performance" could be that of the firms Bain purchased, i.e. they did worse than they were predicted to do by Bain when selling stock in them, if stock was sold. Or it could refer to Bain itself performing too well, i.e. raking in profits not predictable in light of the ACTUAL value of the assets it held. This last sounds weird, but think about it. If your company buys an old wrecked out Chrysler, let's say, and you persuade someone to invest in it by putting a high "value" on it as a potential classic car and then you sell it to a wrecking yard for virtually nothing, you can then declare the car deal a flop, i.e. the equivalent of a bankruptcy, and walk off with the investor's money.

This is, of course, a variant on the plot of Mel Brooks' classic "The Producers". (It's fun thinking of Mitt Romney prancing around like Zero Mostel, cardboard belt and all!)

As long as you declare a nice profit to the IRS on the transaction as manager of the deal and dutifully pay your income taxes, the IRS likely won't give a damn how you made the money because it's got its tax money. And the SEC would have been looking the other way, as we've noted because you're a private equity firm.

But maybe  -  just maybe  -  the SEC is now going to be looking for such "aberrational performances" on the way-too-high side, where the deal promoters inexplicitly did too well given the actual value of the underlying assets, while investors got nada. The profits and asset valuations reported to the IRS by Bain or Romney might show such a pattern, though it's doubtful the SEC will be looking back that far.

Therefore, let's urge our Democratic officeholders to start asking about Romney's tax returns for the Bain  years. And Bain's returns too. Even better, let's start asking the media.

Especially let's ask Lawrence O'Donnell. He's the handsome Irish guy on MSNBC who was once Chief of Staff of the Senate committee that writes tax law. He'll  know what we're talking about. And he's already suspicious about Romney's tax returns, wondering aloud on his "The Last Word" show how Romney reputedly transferred $100 million to his kids without any gift tax.

So do it!

E-mail O'Donnell and ask him to push these issues. Don't be like so many Democrats who choose to ignore business/financial issues. He who minds the cash register minds the store.

Let's find out if someone's hand has been in the till!

And watch the original "The Producers", with Zero Mostel and Gene Wilder. It's a great antidote for GOP yuckiness and our mutual dread that they will win this year.


  1. You have no idea of what you are talking about, sounds to me you invested in a venture similar to the one displayed in the movie The Producers?

  2. Thanks, Vincent, for taking the trouble to read the blog and write a comment. You and I may disagree on the issues, but I think if you read the New York Times article on 6/22/12 about Bain's operation you'll see that I do know something of what I'm talking about. In addition, I was a whiz in tax, corporate and business law in law school. Also managed a billion dollars in funds in my earlier life. And, no, I never invested in a venture like that depicted in The Producers. "Flaunt it, baby! Flaunt it!"