• 21 May 2013 at 11:06 AM

Senate Discovers There’s A Tax Code

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Here’s a math problem: what does this sentence, from John McCain, tell you?

“Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders,” he said in Monday’s pre-hearing comments.

The answer, of course, is that Apple is among the most profitable companies in America.1 If you have a lot of profits, you can not pay taxes on a lot of them, and still pay lots of taxes on a different lot of them. There much focus on the exceptions, but for the most part I’d guess that “biggest taxpayers” and “biggest tax avoiders” are both highly correlated to “biggest profits.” Warren Buffett pays more taxes than his secretary, but at a lower rate.

The Senate, not being known for its quickness with math, is holding hearings today on the avoiding part; here you can read (pdf) the committee’s report. Apple does two main things to avoid taxes that the committee doesn’t like:

  • It incorporated two of its main foreign subsidiaries, Apple Operations International (AOI) and Apple Sales International (ASI), in Ireland. Those subsidiaries are, however, managed and controlled in the U.S. by their California-based directors. The U.S. taxes corporate income based on place of incorporation; Ireland taxes corporate income based on place of management and control. So if you’re incorporated in Ireland and managed and controlled in the U.S. you pay taxes nowhere, as AOI does and ASI more or less does. This is … honestly isn’t the surprise that everyone doesn’t do this?2 I’m incorporating myself in Ireland as we speak.
  • It entered a cost sharing agreement that gave ASI the economic rights to Apple intellectual property outside of America, in exchange for ASI funding a share of Apple’s California-based R&D proportional to its share of Apple’s total sales. Apple is in the business of manufacturing cheap electronic components in China, slapping expensive cool on them in California, and selling the package for $500. ASI effectively got the California cool at cost, rather than paying retail, which means that the international share (some 60%) of the profits of that cool are, for tax purposes, “earned” abroad (in a zero-tax subsidiary!) rather than in California.

That’s the main stuff; there’s some stupid stuff too.3 Apple’s response is a lot of blather that boils down to: Read more »

Opening Bell: 05.21.13

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Apple’s Web of Tax Shelters Saved It Billions, Panel Finds (NYT)
Thanks to what lawmakers called “gimmicks” and “schemes,” Apple was able to largely sidestep taxes on tens of billions of dollars it earned outside the United States in recent years. Last year, international operations accounted for 61 percent of Apple’s total revenue. … “There is a technical term economists like to use for behavior like this,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles and a former staff director at the Congressional Joint Committee on Taxation. “Unbelievable chutzpah.”

JPMorgan investors on edge over vote on Dimon; what if they win? (Reuters)
Investors say that while Dimon, 57, may need more oversight after the bank posted $6.2 billion in losses from failed derivative trades last year, they do not want him to quit. Among big bank CEOs, Dimon ranks first for stock returns and has been praised for leading the bank through the financial crisis with no quarterly losses and a strong balance sheet. If Dimon were to leave, the bank’s shares could fall as much as 10 percent and erase about $20 billion of market value, according to Mike Mayo, a bank analyst with brokerage CLSA. JPMorgan also has no ready replacement for Dimon, Mayo wrote in a research note, adding that the two lieutenants best positioned to succeed him – Matt Zames, 42, and Mike Cavanagh, 47 – seem to be about three years short of being ready for the job.

SAC Capital Aims to Stem Withdrawal Requests (DealBook)
“I’m very comfortable and confident having my money with him,” said Ed Butowsky, managing partner of Chapwood Investments in Dallas, a firm that invests client money in SAC. “All I know is that the returns are coming in nice, and my clients are happy.”

Funds Get Active Over Director Pay (WSJ)
Current pay structures don’t give directors enough of a stake in making sure the company does well, and boards need to be more creative about tying their compensation to performance, said John Wakeman, a vice president and portfolio manager at mutual-fund giant T. Rowe Price Group Inc. “If bad people are going to be on these boards, we’ve got to stop it,” said Mr. Wakeman. “We owe it to our fund holders.”

Buffett Jets Chief Says U.S. Leads Private-Flight Rebound (Bloomberg)
The U.S. is leading a recovery in demand for private flights while Europe remains weighed down by economic weakness, the head of billionaire Warren Buffett’s jet-management company said. “The U.S. from our perspective is coming back and doing relatively well,” Jordan Hansell, chief executive officer of Berkshire Hathaway Inc.’s NetJets, said by phone yesterday from Geneva, where he is attending the European Business Aviation Convention & Exhibition. “Europe has remained difficult.”

Poor li’l rich kids: Posh schools scold parents who send nannies (NYP)
Wealthy New Yorkers are shunning their parental duties — choosing instead to send nannies to their children’s private schools to take part in everything from “safety patrol” to accompanying the kids on their entrance interviews. … “Now the schools are getting angry — and other parents are getting angry. They don’t want to work the school bake sale with someone’s paid employee,” Uhry said. … But one Upper East Side mom whose daughter attends The Birch Wathen Lenox School sniffed that she pays the school $40,000 a year — and can’t be bothered with such menial duties. “These schools are exorbitantly expensive, they hit you up for school fees, donations, and then they want your time?” she huffed. “I have three kids at three different schools. If I can send my nanny, I’m happy to do it.”
Former Horace Mann admissions director Dana Haddad said schools now accept nannies at admissions interviews because kids tend to perform better in front of them. “When I was a director of admissions and children would act up, I would tell parents, ‘Don’t worry, send them back with the nanny,’ ” said Haddad.
Read more »

Write-Offs: 05.20.13

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$$$ JPMorgan, under pressure, gives polling information to investors [Reuters]

$$$ Ergen Bids $2 Billion for LightSquared Spectrum [WSJ]

$$$ Prosecutors’ subpoena of SAC’s Cohen puzzles defense lawyers [Reuters]

$$$ Financial Firms Said to Be Seeking Bloomberg Alternative [Dealbook]

$$$ Laura Fernee says her good looks are so powerful they are ruining her life – and have forced her to quit her job. [DM] Read more »

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  • 20 May 2013 at 7:19 PM

California Jeweler Who Traded A Rolex, Unmarked Envelopes Of Cash For Inside Information Re: Herbalife, Skechers In Pretty Good Spirits For Someone Who Just Plead Guilty To Felony Charges

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Which may or may not have something to do with someone hitting the jackpot this weekend/having big money riding on June’s Belmont Stakes. Come on Itsmyluckyday, daddy needs a new source of income/money to cover up to $250,000 in fines! Read more »

  • 20 May 2013 at 7:04 PM

SAC Capital May Be Forced To Admit That Its Multiple Convicted Insider Traders Insider Traded

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What is the point of prosecuting a company? Sometimes they pay fines, that’s something. A criminal conviction against a company may keep that company from doing bad things in the future. As a prosecutor, you get to say “this prosecution proves that no company is too big to jail,” despite the fact that a company is the exact and literal embodiment of a thing that is too big (and too abstract) to jail. So, there’s some stuff.

The point of prosecuting a human is to punish that human for doing bad stuff and deter other humans from doing similar bad stuff in the future, and prosecuting companies doesn’t do a great job of that. Prosecuting companies tends to both over-deter and under-deter: “if I commit a crime in my corporate capacity, my company will disappear and I’ll be out of a job” doesn’t have quite the same sting as “… and I’ll go to prison,” though it does have exactly the same sting as “if someone else at this company commits a crime in his corporate capacity, my company will disappear and I’ll be out of a job.”

Is (or was) SAC Capital organized to encourage individual analysts and portfolio managers to get inside information while shielding Steve Cohen from direct knowledge of that information? Meh, I don’t know, but man do a lot of people think so.1

Was that kind of what its investors wanted? Even today you can read about how investors are voluntarily fleeing SAC, or planning to, because “[e]ven Cohen’s legendary 25 pct annual returns at some point aren’t worth the risk,” but still: what risk? “At least nine current or former SAC employees have been linked to insider trading while working at the firm, including four who have pleaded guilty to crimes, according to Bloomberg News’s tally.” I submit to you that if you don’t want to be associated with insider trading, six cases would be enough. If nine isn’t enough, ten won’t be either. It seems like at least some investors are only going to be dragged away from SAC by force.

And it seems like they will be: Read more »

  • 20 May 2013 at 6:32 PM

Former IBM Chief Will Look Into Bloomberg Employees Looking Into Bloomberg Subscriber Data

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Meet the guy who’s going to get to the bottom of the Bloomberg staff’s favorite hobby: Ex-IBM CEO Samuel Palmisano. Read more »

Steve Cohen Considering Kicking All Investors Not Named Steve Cohen Out Of His Fund

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After five years under investigation for insider trading, Steven Cohen is considering proposing a deal to prosecutors that would shut his $15 billion hedge-fund firm to outside investors, according to a person familiar with his thinking. Cohen has discussed an agreement under which his SAC Capital Advisors LP would admit wrongdoing but wouldn’t be prosecuted unless it broke the law again, said the person, who asked not to be named because the talks are private. As part of the deal, known as a deferred prosecution agreement, Cohen would close the Stamford, Connecticut-based firm to outside investors and make it a family office that manages his personal fortune. SAC Capital probably would also pay fine. [Bloomberg]

  • 20 May 2013 at 2:30 PM
  • M&A

Yahoo! Radically Changes Acquisition Strategy To “Don’t Screw It Up”

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If you’ve seen the internet today you know that everyone wants to talk about their feelings regarding the union of Yahoo! and Tumblr, those icons of two different generations of internet orthography. Do you prefer the florid olden style of Extraneous Punctuation! or the sleek postmodern vibe of Mssng Lttrs?1 Let us know in the comments or, of course, on your Tumblr. Here’s Goldman’s note:

Management cited the “uncanny” fit between Tumblr, with its fast-growing but largely unmonetized usage, and Yahoo, with its strengths in monetization but declining engagement.

Many people would think “avaricious widely disliked company” and “well-liked nonprofit, more or less,” would not be a good fit for each other, but I guess “uncanny” doesn’t actually mean “good.”

The press release is … terrible? Unspeakable. “Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business,” begins the second paragraph. Are you encouraged? If you’re a Tumblr user? (Not really, right?2 ) If you’re a Yahoo! shareholder? I drew you a picture:

Etc., etc., there is this: Read more »

  • 20 May 2013 at 2:29 PM

Carl Icahn Will Answer Dell’s Questions When He God Damn Wants To

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If there’s anything that Carl Icahn learned in the mean schoolyards of 1940s Far Rockaway, it’s chutzpah. To wit: responding to Dell’s demands for more information about his nebulous plan to sort-of take the company over by issuing a special dividend with no answers—but demands for information of his own. Read more »

  • 20 May 2013 at 2:13 PM

H.M. Treasury Calls An Independent Scotland The Worst Thing It Can Thing Of

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The British government is fighting dirty in its bid to win next September’s referendum on Scottish independence, with a new Treasury report calling Caledonia Cyprus without the beaches or Turks. Read more »

Opening Bell: 05.20.13

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Hedge Fund Owner Gets Subpoena to Testify (DealBook)
By subpoenaing Mr. Cohen, the government indicated that it was pursuing a case against SAC itself. Federal guidelines discourage prosecutors from soliciting grand jury testimony from the target of an investigation, which suggests that Mr. Cohen was being treated as if he were a potential witness against his own fund. While the authorities have not settled on a strategy, according to the lawyers and executives briefed on the case, they are pursuing an avenue that could possibly lead to an indictment against SAC, accusing it of allowing traders to carry out illicit activity over years.

Yahoo Is Planning to Buy Tumblr for $1.1 Billion (NYT)
For Yahoo and its chief executive, Marissa Mayer, buying Tumblr would be a bold move as she tries to breathe new life into the company. The deal, the seventh since Ms. Mayer defected from Google last summer to take over the company, would be her biggest yet. It is meant to give her company more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices. Tumblr has over 108 million blogs, with many highly active users.

Enron No Lesson to Traders as EU Probes Oil-Price Manipulation (Bloomberg)
Shell, London-based BP and Statoil ASA, three of Europe’s biggest oil explorers, are under investigation for potential manipulation of prices in the $3.4 trillion-a-year global crude market. The involvement of McGraw Hill Financial’s Platts, which publishes pricing data, hearkens back to other pricing scandals including Enron, and more recently, Libor. “We’re making exactly the same mistakes we did with Enron, just with a different commodity,” Robert McCullough, an energy consultant, said by telephone from Portland, Oregon. “The same manipulation we saw in electricity and gas pricing is what we’re seeing in oil.”

Gold Slump Hits Silver (WSJ)
Falling appetite for the safe haven of gold has pushed the metal down 20% since the start of the year as inflation fears faded and global growth improved. In Asia, investors have zeroed in, especially on Japan where the central bank’s aggressive easing measures have kick started an economic recovery and pulled up shares. The biggest moves on Monday were felt in silver, which dropped 9% in the first 10 minutes of Asian trading, touching its lowest level since September 2010. It later recouped some losses to trade down 3.9%. Silver is less liquid than gold and therefore more susceptible to such sharp moves. Spot gold fell 1.2% to $1,344 a troy ounce, and is off 8.9% since the beginning of May.

Barbie eyeing a Manhattan penthouse in search for new dream home (NYP)
Barbie is moving from her California mansion and embarking on a quest for new digs that could land her in a posh penthouse with Central Park views, makers of the doll say. Toymaker Mattel has hired a team of top-notch interior designers to create three “dream houses” — in New York, California and India — and will announce its choice in August. … Barbie’s VP of marketing, Lori Pantel, said the story reflects the doll’s evolution as an independent woman. “As a workingwoman with over 135 careers, Barbie is proud to have a Manhattan home,” Pantel said. “It’s a glamorous work space to host movers and shakers.”
Read more »

Write-Offs: 05.17.13

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$$$ Wall Street Bonuses, Staff Levels to Rise in 2013: Report [Reuters]

$$$ Ackman, Investor Group in Contract to Buy a New York Penthouse for Over $90 Million [WSJ]

$$$ Regulators Take Hard Line On Exchanges [WSJ]

$$$ Is Ticket for $600 Million Powerball Jackpot a Good Bet? [Real Time Economics]

$$$ “Mother Nature often works in mysterious ways, but the recent birth of a baby anteater has the staff at a Greenwich conservation center stumped. The mystery begins in August, when Armani, a female giant anteater at the LEO Zoological Conservation Center in Greenwich, gave birth to baby Alice. It was a joyous occasion for all involved, except perhaps for Alf, baby Alice’s father. Male anteaters are known to commit infanticide, so Alf had to go. He remained at the center, but was kept away from mom and baby for several months. Fast forward to one morning in April. A tender went into Armani’s enclosure and received quite a shock. Armani, sometime during the previous night, had given birth to another baby. The sudden appearance of little Archie was a surprise, to say the least. The gestation period for anteaters is six months. Armani and Alf had not been back together long enough to do what they needed to do to put the cycle of life into gear a second time. The staff at the conservation center immediately got to wondering. Either this was a case of immaculate anteater conception, or Alf had somehow gotten the keys to Armani’s pen one night in October.” [Greenwich Time] Read more »

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