IRS Targets HedgeLender

[jcolvin2]

http://www.justice.gov/opa/pr/2010/Sept ... -1063.html
Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Wednesday, September 22, 2010
Justice Department Asks Federal Court to Bar Allegedly Fraudulent Stock Loan Scheme

HedgeLoan Scheme Allegedly Mirrors Fraudulent Derivium Scheme, Falsely Claiming to Allow Customers to Receive Tax-Free Cash for Stock

WASHINGTON – The United States has filed a complaint asking a Virginia federal court to permanently bar three firms and three men from promoting a nationwide "HedgeLoan" scheme that the complaint alleges involves the disguised sale of more than $268 million in securities, the Justice Department announced today. HedgeLoan allegedly mimics the fraudulent Derivium 90 percent loan scheme that a California federal court enjoined last year.

The civil injunction suit names three men: Daniel Stafford of Gaithersburg, Md.; Fred R. Wahler, Jr. of Philadelphia; and William Chapman of Great Falls, Va. Stafford and Wahler allegedly own Philadelphia-based defendant HedgeLender LLC. Chapman allegedly owns the remaining two companies named in the complaint, Alexander Capital Markets LLC and Alexander Financial LLC, both based in Great Falls.

According to the government complaint, the defendants promote and operate the HedgeLoan scheme, in which customers are falsely told that they can receive tax free cash for their securities in the form of a "loan," when in reality the monies received are sales proceeds subject to federal income tax on capital gains at the time of receipt. One couple from Michigan cited in the complaint allegedly used the defendants’ HedgeLoan scheme to dispose of more than $4 million in stock through 25 separate transactions. According to the complaint, the Internal Revenue Service audited the couple’s 2005 federal income tax return and found that they had under-reported their income by $3,662,528 as a result of their participation in the scheme. The complaint further alleges that the couple allegedly agreed to pay an additional $616,984 in income tax for 2005.

The suit claims that in virtually every case, the defendants simply sold the customer’s securities on receipt, remitted up to 90 percent of the sales proceeds to the customer as the "loan," and retained the remaining sales proceeds for themselves and the other parties who facilitated the scheme. This allegedly left defendants without the assets necessary to return every customer’s so-called "collateral" if requested at the end of the purported "loan" term. As early as 2007, defendants allegedly lacked the funds to return all customers’ securities who requested them – yet they continued to promote and operate the HedgeLoan scheme and related schemes.

In the past decade the Justice Department has obtained injunctions against hundreds of tax scheme promoters and tax preparers. Information about those cases is available on the Justice Department website.

10-1063 Tax Division

[lawman2011]

The IRS didn't "target" HedgeLender. They targeted Alexander Capital Markets. Hedgelender was simply a broker for Alexander, and represented their loan products as a broker -- absolutely nothing more.

Alexander claimed the portfolio's of Hedgelender's clients were hedged; the IRS claims they were not. Further, they IRS says that any loan in which the client gives up title to the securities and some or all of the securities are sold -- hedged or unhedged -- is a sale. This case is part of a patttern, developed under the anti-Wall Street Obama adminstration, of splitting legal hairs to put lenders and brokers out of business.

However, this one has some merit in that Alexander was not able to return some of the shares that it was obliged to return, shares it had stated it had hedged. The clients for these loans were not Hedgelender clients -- they were clients of Robert Strauss's Emerging Money Corporation out of Connecticut.

It is important to understand that the SEC and IRS are now bent on proving that Wall Street is "bad" as the election year runup begins. Expect more and more exaggerated "tax" or "securiites fraud" cases in the days to come, which wouldn't have been anything of the sort just a few years ago.

Welcome to politicized law enforcement folks.

[Burzmali]

And for the record, if the current administration wanted to have a big push before the next election cycle, folks from Citi, BofA, Goldman, Merrill, etc., would be doing perp walks, not some seemingly fly-by-night dinky outfit of which no one has heard. Won't happen of course, due to political reasons.......

Not all political, I can't imagine that tossing the heads of all of the major US banks in jail would do wonders for the average person's confidence in the banking system.

[Burzmali]

Not all political, I can't imagine that tossing the heads of all of the major US banks in jail would do wonders for the average person's confidence in the banking system.

<SIGH> Burzmali, either you are projecting again, or are not fully reading things again. I said "...if the current administration wanted to have a big push before the next election cycle, folks from Citi, BofA, Goldman, Merrill, etc., would be doing perp walks..."

Now, point out to me where I said a damn thing about "...tossing the heads of all of the major US banks in jail..." Go ahead, I have time.

You also seem to be assuming that having faith in the banking system is the same as having faith in the folks who run the big banks and brokerage firms. If it comes out that there were some executives at Citi or BofA that knew about and/or condoned sham and fraudulent transactions that screwwed over borrowers and/or governmental agencies, it might actually do more harm by not prosecuting them. Might force the Board of Directors to clean house in upper management.

I doubt the corruption is as shallow as you imagine.

[Burzmali]

I doubt the corruption is as shallow as you imagine.

Really now. Can you show me where I mentioned anything at all about how shallow or deep the corruption might be?

Granted I said, "If it comes out that there were some executives at Citi or BofA that knew about and/or condoned sham and fraudulent transactions that screwwed over borrowers and/or governmental agencies..." but that does not denote the depth (or shallowness) of any corruption.

Are you reading posts from parallel dimensions again, like the one where I am both evil and I do not have a moustache and goatee?

You have me confused, I thought this was straight forward:

1. BoA and Citi are the two largest banks in the US.
2. You are suggesting that Obama might want to prosecute those behind the recent meltdown
3. BoA and Citi were among the companies behind the meltdown
4. Obama might want to prosecute people from BoA and Citi
5. The sub-prime meltdown was committed and sanctioned by executive level members of the offending companies
6. Obama might want to prosecute the executes of two of the largest banks in the US.
7. In general, people are distrustful towards criminals
8. In general, people treat the executives of a company as if they represented the company
9. Therefore, if Obama makes the executives of BoA and Citi criminals, they and their companies will be viewed as less trusted by many Americans, reducing "the average person's confidence in the banking system".

I know things move slower in California, but I didn't think you needed the dots connected for you. Do you need me to expand the "people distrust the biggest banks" to "people lose confidence in the banking system section"?

[bmielke]

1. BoA and Citi are the two largest banks in the US.true
2. You are suggesting that Obama might want to prosecute those behind the recent meltdownI would say he would dearly love to do so, but can't until after they fund his next election
3. BoA and Citi were among the companies behind the meltdown Yes, but I don't think that they were as bad as they are now until (at least in BofA's case) they bought up a bunch of cheap companies that were a lot worse.
4. Obama might want to prosecute people from BoA and CitiThis is a conculsion you reach from your second two premisis I am not entirely sure that number 2 is true
5. The sub-prime meltdown was committed and sanctioned by executive level members of the offending companiesPossibly, but they might have okayed someone's idea, but I really doubt they thought the idea up, and I was under the impression the subprime mortgage was created by the Government during the Clinton administration.
6. Obama might want to prosecute the executes of two of the largest banks in the US.Again this is the same as number 4, not a dot, rather a conculsion you reach using your logic
7. In general, people are distrustful towards criminalsDepends on the criminal and the crime
8. In general, people treat the executives of a company as if they represented the companyI can't name any executives, not a single one, so no they don't represent the company, when I think Enron, I don't think Jeff Skillings
9. Therefore, if Obama makes the executives of BoA and Citi criminals, they and their companies will be viewed as less trusted by many Americans, reducing "the average person's confidence in the banking system".I am not sure if this can be reached, you have a lot of dots, but not all of them make a whole lot of sense

I think the good captain was talking about the fact that the major banks fund campaigns, not the public's reactions in his first post. Also it was not the main point of his post rather an illistrantion of a point. See my bolding.

And for the record, if the current administration wanted to have a big push before the next election cycle, folks from Citi, BofA, Goldman, Merrill, etc., would be doing perp walks, not some seemingly fly-by-night dinky outfit of which no one has heard. Won't happen of course, due to political reasons.......

You kind of ran off topic on this one. Burzmali. Also you may have missed this:

You also seem to be assuming that having faith in the banking system is the same as having faith in the folks who run the big banks and brokerage firms. If it comes out that there were some executives at Citi or BofA that knew about and/or condoned sham and fraudulent transactions that screwwed over borrowers and/or governmental agencies, it might actually do more harm by not prosecuting them. Might force the Board of Directors to clean house in upper management.

I trust that when I go to the atm the money my competer says in the bank is the same the banks computer says I can take out. I trust my bankers to run the bank, but I know they are in business to make as much money as they can as fast as they can, and therefore might do corrupt things.

If BofA Executives do a perp walk I won't lose faith in the bank, just tha bankers and I would bet at least 80% of American public feel the same way.

[jcolvin2]

http://www.justice.gov/opa/pr/2011/June/11-tax-780.html

Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE Thursday, June 16, 2011
Federal Court Bars Firm with Offices in Pennsylvania and Virginia from Promoting Stock-Loan Tax Scheme
Court Finds “HedgeLoan” Transactions Were Taxable Stock Sales Disguised as Loans

WASHINGTON – A federal court has permanently barred HedgeLender LLC from promoting a stock-loan tax scheme, the Justice Department announced today. According to court findings, HedgeLender, which maintained offices in Philadelphia and Reston, Va., promoted a scheme purportedly allowing owners of appreciated stock to obtain cash through purported loans without reporting or paying tax on capital gains.

In entering a permanent injunction order against the firm, Judge T.S. Ellis III of the U.S. District Court for the Eastern District of Virginia found that HedgeLender knowingly made false statements when it told potential customers that these “HedgeLoan” transactions were true loans secured by the customers’ stock. In reality, the court found, the stock was sold immediately, and the funds provided to the customers were sales proceeds, not loan proceeds, and therefore subject to federal income tax on capital gains at the time of receipt. According to the court, HedgeLender caused the sale of more than $268 million in securities through the HedgeLoan scheme, and it promoted the program even after the U.S. Securities and Exchange Commission sued two of its owners, who agreed to stop promoting a similar stock-loan product.

The order announced today is the latest in a series of federal court decisions finding that purported stock-loan transactions like the HedgeLoan scheme are actually sales and not loans. In November 2009, a California federal court enjoined the developer of a similar scheme, the Derivium 90 percent loan program. The government complaint against HedgeLender also named two alleged owners of HedgeLender, Daniel Stafford and Fred R. Wahler, Jr., as well as William Chapman and two companies he allegedly owned, Alexander Capital Markets LLC and Alexander Financial LLC. All five of those defendants previously agreed to permanent injunctions without admitting the allegations in the complaint.

In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against tax return preparers and tax fraud promoters. Information about these cases is available on the Justice Department website .

11-780Tax Division

[UlikeitUkeepit]

HedgeLender was not the bad guy here. Obama's SEC decided to take them out because they had gotten themselves duped by unscrupulous lenders. HedgeLender was actually a very much respected and well-regarded loan brokerage. HedgeLender and its staff firmly believed that the loan programs offered by their lenders were precisely as those lenders had portrayed them, and they used that information in describing the programs.

That's as far as HedgeLender's culpability goes. Period.

Where the govt was RIGHT was in taking out the lenders, who lied to EVERYBODY including their brokers and HedgeLender, as the case files against Alexander Capital -- one of HedgeLender's lenders -- now clearly show.

But the questions arises: Why did the government wait so long to remove lenders who were misrepresenting their loan programs to the market, thereby naturally enticing brokers and clients alike? HedgeLender was not a lender; it's name described the lending program safety that it insisted any of its lending parties have in place, that's all. It was a broker.

So again, the question: Is it really fair to come crashing down on the brokers, when it was the government's job to keep the unscrupulous lenders out of the picture and thereby unable to gather new brokers to feed their machine in the first place?

Of course it is their job. But it is far easier for the Obama government to land on a small financial company broker like HedgeLender and crush it for having tied itself to an unscrupulous lender that the SEC did not remove from the market. Far easier to do that than to go after unscrupulous lenders, the people likely to have the money to fight the SEC etc in court - which HedgeLender never had.

Ah, but the Obama administration's agents didn't care about that. They wanted scalps (still do) to show they were "on the job". Thousands of small Mom and Pop finance, insurance, brokering, etc. companies were (and are being) hounded out of business and offered "settlements" or the prospect of going up against taxpayer funded, deep-pocketed government lawyers. But in the post-Madoff, anti-Wall Street era, your company will not get its day in court unless you are very wealthy indeed.

Remember Bernie Madoff? Remember how much egg the SEC had on their faces? What they did is go after the easiest, lowest-handing fruit first -- the small companies like HedgeLender which didn't make a FRACTION of what was accused -- but were innocent victims given descriptions of the lender loan programs that they used in marketing which turned out to be false only in hindsight.

Should have known? No, not POSSIBLE to have known. Not when the lender -- like Chapman and Alexander Capital -- purposely hid their systems even from their own staff.

But fat chance of getting any other facts beyond the government's innuendo up on the net, where it can then be taken as Holy Writ and turned into titillating "Fraud" stories.

One of the biggest government lies in the case against HedgeLender had to do with pumping up HedgeLender's statement on its website that there should be "no capital gains taxes." This statement was on the HedgeLender website for about three months (out of six years HedgeLender was business). From a very brief use of this phrase after being told this was true by the lender, the lie commenced that HedgeLender had been telling the world that it "touted" tax-free cash as a standard operating procedure.

Not even the IRS said HedgeLender claimed that, but it was been repeated and re-pumped later for headline effect. Yes, makes for a snappy headline, agreed, but sadly for the writers, it just wasn't true. Up briefly on the website? Yes. Touted for six years as the main feature of the stock loan program? Never. Also, the company asked EVERY client to check with their licensed CPA first in any case, both before and after they briefly put the "their should be no capital gains taxes" statement on their website that was the DIRECT result of what the lender told HedgeLender about their loan program, not something anyone that HedgeLender made up.

In a fair and just system (hey, we can dream), the system would have had the company stop marketing those loans without trying to demonize HedgeLender in the process. That would have meant one less scalp to wave around in front of the press, true. But it would have allowed justice to occur. It would have recognized that the company was victimized and targeted by these lenders, and that HedgeLender's only true fault was that it trusted two lenders that, in hindsight, it shouldn't have.

THAT would have been reasonable and just.

But we are in the days of Barack Obama's anti-business SWAT teams now. Companies in the finance field need to be drawn and quartered, or lynched and spat upon. They are part of "inequality" says our socialist president. Even though a company like HedgeLender was subjected, in both cases, to a concerted, focused policy of constant deception from its lenders about their programs, the company was demonized heartily by its merry detractors.

But think logically: Would these lenders have put their faith in a company that was NOT scrupulously run? Would that have made sense? Could they have brought new clients through the door if they did not have the stellar reputation of HedgeLender for customer service? Of course not. Such lenders sought out HedgeLender because they could get no new referrals to feed their secret Ponzi scheme otherwise.

HedgeLender was just as much a victim -- if not more so, given the ridiculous fines that had zero to do with reality -- as any client. Plain, simple and truthfully, HedgeLender was victimized and used as a life support system by lenders who sought to keep their schemes afloat.

HedgeLender's staff repeatedly and constantly asked for verification of hedging, for example, and they were given written proof of hedging. Guarantees. Contracts from the lenders. HedgeLender's staff went to bat for EVERY client and fought tirelessly when near the end, problems cropped up with returns of shares.

Regarding the "no capital gains taxes" statement that they briefly used, HedgeLender asked the lender it he had verified this statement with their CPA or lawyer; the answer came back "yes" before we put it on our website.

Naive? Reckless? Anything that goes bad can be called reckless after the fact. I suppose you could make such a statement. But guilty of fraud? Intentionally deceiving clients? Pure and total baloney. NEVER.

HedgeLender has never been found guilty of any crime because its actions were not criminal and the company was victimized by lenders. The system, at least, recognized this cardinal truth. HedgeLender agreed and settled without admitting any charge from any source as - unlike the govrnment's lie that the company was awash in money -- they had NO funds to pay $500/hour attorney's to go up against Obama's gestapo thugs. When the company went out of business, if left several thousand in overhead bills that were never paid before HedgeLender dissolved in 2010.

Once done, of course, the press grabbed and pumped up the "tax free cash" line that never really happened as stated.

And the rest is history.

The lesson from all this is simple: NEVER transfer title to your securities to another party for valuable consideration. Always retain ownership, full and real not "beneficial" or "contractual". Always require SIPC/FINRA membership in good standing. Always require no sale of securities, freedom to exit at any time without penalty, and licensed advisors. FINRA agrees. Those of us who were involved with HedgeLender certainly do too.

Yes, hindsight says that HedgeLender may have been overly trusting of its lenders -- in that is indisputable. But absolutely, positively NO WAY was it EVER engaged in any intentional fraud. Let the record show the truth no matter what comments may follow this.

[webhick]

HedgeLender was told to stop selling a similar product. After that, before selling anything similar, they should have done their due diligence. Believing a sales pitch from a lender is not due diligence. Tacking on a disclaimer about checking with a tax professional is not due diligence.

Brokers need to be held to standards, too.

[notorial dissent]

UlikeitUkeepit, welcome to Quatloos. I am afraid you are going to be seriously disappointed with the response you receive here.

You are either confusing this with some other fraud, or are just confused to begin with.

HedgeLender was running a scam, there is no other way of describing it. The idea that he would/could lend on the value of stocks, in that fashion, is laughable to anyone at all familiar with the market. Unless the stocks in question were gold plated blue chip stocks, their value would fluctuate too greatly to make that a going practice. In real trading, they call it margin, and it is a real good way to lose everything you own.

In this particular case, HedgeLender was selling the appearance of providing loans for stock held as security, when in fact all he was doing was taking the stock, selling it and then splitting 90/10 with the "borrower" so that they could claim it was a loan and not a sale, which it wasn't. Unfortunately for HedgeLender the SEC and IRS didn't buy it, and shut him down for fraud, which is what it was.

There was no actual loan, and the loan itself was a sham transaction, with the end result of the "borrowers" getting hit with all sorts of penalties and fines for trying to scam the IRS.

There was nothing political involved in this, HedgeLender was scamming the people he was pretending to make loans to, and the customers were attempting to scam the IRS out of tax money owed. in this particular incident the IRS and SEC were doing exactly what they were set up to do.

So the moral really should be that if you are going to try and scam the IRS, find a better scam