Tax credit letter causes public outcry (The Capital West screwup)
State Whitewashing Letter Exposing Tax Credit Loophole Remaining Open
OSSD later admits these crimes are not within their jurisdictionauthoirity to investtigate thees crimes.
$150 million in investments results in ($300 million) in tax credits, with the 200% tax loophole in the law.
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Tax credit letter causes public outcry
Oklahoman, September 22, 2007
A letter touting a tax credit program former University of Oklahoma football coach
Barry Switzer promoted has created an outcry all the way from the financial community to the state Capitol.
"We did not know about or approve or sign this letter," said Josh Brim,
a securities broker with a future minority interest in Foxborough Funding Company LLC,
the venture capital fund whose investment program was touted in the letter.
The letter does not fairly and completely describe the program, he said.
Keith Geary, chairman, chief executive officer and president of Capital West Securities,
said he regrets mailing the letter.
"If I had it to do over again, there are certain things I would have changed," Geary told The Oklahoman.
Capital West Securities mailed the letter to Oklahoma bankers in an effort to
identify potential investors in Foxborough, an Oklahoma company that is seeking
wealthy individuals who want to invest in new Oklahoma businesses, expanding
businesses and businesses that want to relocate to Oklahoma.
The letter has created a furor because it described Foxborough's desire to use state
tax credit programs using language that was strikingly similar to abuses of a tax
credit loophole last year (2006) that prompted state officials to temporarily shut down
the programs and enact reforms that were supposed to correct the problems.
Prior to the reforms, investment schemes were created using borrowed funds that allowed wealthy
investors to obtain $2 (actually $3 see note above) in state tax credits for every $1 invested without any of the borrowed
funds being used to help create new businesses and jobs the programs envisioned.
The old law was called a "scam" by former state Sen. Ted Fisher
D-Sapulpa, and a "serious threat to the state" by state
Treasurer Scott Meacham. The programs had the potential to drain the state treasury of hundreds of millions of
dollars without providing comparable economic benefits to the state, he complained.
About the plan
The letter Capital West Securities sent out this month said Foxborough was seeking investors for a
program that would be structured using loans so investors could obtain "$2 of tax credits for each $1 invested."
The minimum investment would be $50,000 and the fund was seeking to collect between $5 million
and , the letter said. A fund of that size could generate between $10 million and
in tax credits.
The letter did not identify specific businesses that the fund hoped to help finance. Financial experts often refer to that as a "blind pool" investment.
The letter also raised concerns about whether many jobs would be created, stating
targeted companies would be "capital intensive, in contrast with service companies,
which are personnel intensive."
Legislators cited job creation as one of the primary purposes for enacting
tax credit laws.
The state treasurer read the letter and said it warranted further investigation.
"This is very concerning to me," Meacham said, adding that he has always
favored capping the tax credit programs.
"I think further work needs to be done" to make sure the state isn't
"giving up way more than it's getting back," Meacham said.
Brim and Robert S. May, manager of Foxborough, said they were shocked by the
Capital West Securities letter and understand why it is creating concern.
The letter, however, doesn't fairly describe the program, they said.
"There is no way it's going to be ," Brim said of the fund.
"There are not enough deals out there."
What the experts say
The fund's private placement memorandum does say it will be between $5 million
and , but the latter figure was picked out of thin air because a maximum
amount had to be listed, he said.
Brim said he expects the fund will be around $5 million, or perhaps a little
larger if particularly good deals can be put together.
"Right now we have zero dollars," he said.
Switzer told The Oklahoman he is one of the principals in Foxborough and is helping
introduce fund managers to potential investors and business owners who might want to
The former football coach said he likes the program because of its potential to aid
rural economic development
May said he has been in discussions with businesses many that would bring jobs to
Oklahoma and a letter should not have been sent out that gave the impression
Foxborough was concentrating on businesses that would create few jobs.
May said he could not name specific companies because of the need for ,
but oil service companies, an aerospace company, an assisted living center and a
company that supplies devices for airplanes are among the companies talking with
Brim said it is true that with some of the deals investors may be able to get
$2 (actually $3) in tax credits for every $1 invested, but what investors are being told
is that they will get $2 back for every $1 invested - through a combination of
tax credits, dividends and other returns on their investment - before operators
of the fund will make a penny.
Brim said there is a big difference between the old tax credit laws and the new ones.
Now the investment money must actually be spent on businesses or the Oklahoma Tax
Commission can recapture the money from tax credits it has granted, he said.
What could happen next
If the Capital West Securities letter hasn't torpedoed Foxborough into the minds
of potential investors and businesses, May said he expects to announce the funding
of several new businesses in the next few months.
"I expect to be able to show the state what it got for its money and
I think everybody will be happy with it," May said.
Brim said he believes Geary's heart was in the right place when he sent out the letter.
"He got a little aggressive and excited and sent out a mailer and we wish he
hadn't," Brim said.
Geary said Capital West Securities has a non-exclusive agreement to sell investments
He said he discussed Foxborough in the letter to give bankers an example of the
types of businesses it might be able to help in their communities - businesses
that might not be able to succeed on bank loans, alone.
However, Geary said he wishes he hadn't sent out the letter because Foxborough
has not identified specific projects to be funded.
Capital West Securities is not going to sell investments in a blind pool, Geary said.
Once specific projects have been identified, Capital West will try to find investors
who might want to invest in those projects, he said.
Right now, however, Capital West Securities is not actively soliciting subscriptions,
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