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State Whitewashing Letter Exposing Tax Credit Loophole Remains Open

Note: This inquiry has all the appearances of a "Whitewash," in an attempt to head off other investigations. Making one question who Irving L. Faught, state Securities Department administrator, is really serving, by trying to allay public concern? The "securities fraud," only addresses one very narrow issue and is something entirely different than the tax credit abuse angle. Tax credit abuse, as is occurring here, in itself is not a securities violation. These comments serve the purpose of seeming to give the tax credit a clean bill of health to those not familiar with the fine lines of responsibilities of different agencies that this is the entire issue a clean bill of health. This would include most people. Secondly, May's comment about the legislature fixing a problem did, in-fact, not turn out to be the case. Most importantly, the real issue was avoided with non-issue comments.

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State launches inquiry into fund

NewsOK.com, October 12, 2007
Randy Ellis

Irving L. Faught, state Securities Department administrator, described the investigation of Foxborough Funding LLC as "technical" in nature and said he expects it to be resolved fairly quickly.

"There is no evidence that we are looking at any kind of securities fraud," Faught said.

Former University of Oklahoma football coach Barry Switzer is a principal in Foxborough and has been promoting its program.

Switzer could not be reached for comment Thursday, but said previously that he likes the program because of its potential to aid rural economic development. He has been introducing fund managers to potential investors and business owners who might want to participate.

The department is investigating whether a letter that Capital West Securities mailed to bankers touting a tax credit program offered by Foxborough constituted an improper solicitation for the sale of unregistered securities, Faught said.

Capital West originally had an agreement to sell investments in Foxborough's program, but that agreement has been terminated, officials with both companies said.

State securities officials opened their investigation of Foxborough on Sept. 25, three days after The Oklahoman published an article that discussed controversy over the letter, records reveal.

Faught said the securities department and National Association of Securities Dealers were conducting a routine examination of Capital West Securities at the time and have expanded that routine examination to look into concerns raised by the letter.

The letter created a furor in Oklahoma's financial community because it described Foxborough's desire to use state tax credit programs, using language strikingly similar to ways in which a tax credit loophole was abused last year. The abuses prompted state officials to temporarily shut down the programs and enact reforms that were supposed to correct the problems.

Foxborough representatives Robert S. May and Josh Brim told The Oklahoman in September that they did not know about, approve or sign the letter, were shocked by it, and could understand why it was creating concern.

Thursday, however, Capital West officials provided The Oklahoman with a copy of an Aug. 29 e-mail from May to Capital West employee Chad Goodman that shows May drafted the language and it was used almost verbatim in the letter Capital West mailed to Oklahoma bankers.

May's letter to Goodman concluded, "Chad - I've kept this pretty brief since it is only part of your letter - If you want me to beef it up or strip it down, let me know."

Contacted again Thursday, May acknowledged drafting the e-mail but said it was his understanding the Capital West letter was only going to be sent to 20 or 30 bankers who had attended a seminar where Foxborough officials had previously briefed them on the program.

May said he didn't know it was going to be sent out to 300 bankers, many of whom had no previous knowledge of the program.

Keith Geary, chairman, chief executive officer and president of Capital West, contends May knew how the letter was going to be used.

The difference may seem insignificant to the public, but it could be important to securities regulators.

The investment opportunity offered by Foxborough was designed to be sold directly to wealthy, sophisticated investors through a private placement memorandum. Such private transactions are not required to be registered with securities regulators.

When investment opportunities are mass marketed or offered to people who aren't as financially sophisticated, they must be registered to protect the public.

Foxborough is seeking wealthy individuals who want to invest in new Oklahoma businesses, expanding businesses and businesses that want to relocate to Oklahoma.

The investment program is controversial, in part, because potential investors are told they can obtain $2 in tax credits for each $1 invested. State officials have expressed concern that such programs could drain the state treasury without providing corresponding benefits to the state.

May, however, said past concerns centered on money put up by investors not really going into projects, and said such concerns were fixed by the Legislature last year.

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