Scheme used by Barry Switzer and others at Foxborough
to get tax credits and sell at half price.
Prowlingowl.com recently reported, Foxborough and WFG Investments offering $2 in tax refunds for each $1 invested!
Foxborough, a Capco, used one variations of tax credit fraud schemes. Note: All schemes, uncovered, involve misrepresenting or inflating, typically by 7 to 10 times, the amount of money qualifying for tax credits (or claiming money never invested, e.g., Altus Ventures).
Note: For this explanation we use the 20% non-rural tax credit program. The rural 30% version increases the tax credits by half again as much.
Simple math: 10 x 20% gets 200% every time. See math challenged. Apparently, one key aspect few appear to have noticed, the significance, is the 200% profit is returned immediately; making this the equivalent of a rigged slot machine; rigged to pay double on every pull of the handle.
Table of Contents
The scheme's shell game, bait and switch.
Note: A real life home buying analogy may help in understanding. View analogy.
Step 1. The thinly veiled disguise, bait and switch.
The bait. To obtain preapproval a Capco sends a request for a ruling ("determination letter") to the Oklahoma Tax Commission. The request states Investors will invest 10% and borrow the remaining 90%, referred to as "Investor Loans." The investors are allowed to borrow the money they invest: if the investors are responsible for the loan and repayment; regardless of the success or failure of the business investment.
This is the risk the tax credits are intended to compensate. Without this element of risk the investment does not qualify for tax credits. The schemes are designed to misrepresent: not only the amount of money invested at risk; but the amount of money invested, period. Loan V Investment
The switch. The switch will be to substitute another loan backed by the business investment and will strap the business investment, to back the loan and repay.
The scheme's shell game?
The letter of request states the "Investor Loans" will be refinanced "within" eighteen (18) months with a ""project loan"." ""project loan"" "may be" secured by a pledge of assets of and a guarantee from the Business to which the "project loan" relates.
"Within" and the "may be" are the smoke and mirrors. "May be" is code for, it will happen! "Within" is code for, at the same time the investment occurs, to avoid the investors risking any money.
Step 2 - The Bait
The "project loan" is the equivalent of a "home loan" in home buying; and the investors providing the 10% down payment. home buying analogy
Like a home buyer prequalifying for a "home loan," the Capco arranges for a "project loan". Like the home buyer, house shopping, the Capco goes shopping for a business, that will qualify for the loan. While a home buyer is trading off taste for a home with cost. The Capco's only interest is tax credits. A business that can obtain its own loan doesn't need to pay a Capco its fees, and hand over controlling interest in the company to arrange a loan.
This red flag of wrong, is found in, virtually all letter ruling request, and certainly all the large claims. In this case the Foxborough prospectus, contains the request for a "letter ruling" sent to OTC and approved. The evidence of wrong was was found in a previous claim, described in this new claim. Researched revealed, for the referenced claim, Foxborough lobbied the OKC parking authority to sell a city parking garage; that only requires 6 to 7 employees; and created no new jobs or no economic growth. The city parking garage qualified for the needed loan, and that was all that mattered.
Step 3 - The switch.
At closing, in both home buying and the scheme cases, all parties gather at the table to shuffle and sign. The home buyer to mortgage their new home, as collateral for their home loan. The Capco to mortgage the business it is buying, for the "project loan". The Capco and investors walk away with tax credits worth 20% of the loan plus down payment; an immediate 200% profit; to keep regardless of investment failure; and free of any obligation for the loan.
The tax credits are automatically validated at the time of the investment. WPG Investment was offering to sell the tax credits at half price in early December 2009; before the letter to OTC, requesting a ruling letter, was hand delivered on December 22, 2009; and before OTC ruling letter, was issued December 31, 2009. According to Foxborough's SEC filing the full offering, meaning all tax credits had been sold, by December 31, 2009. Foxborough and WPG Investment, had complete confidence, OTC would authorize the fraudulent scheme.
It is the repeated failures to create new jobs or economic growth; that cannot be ignored; and allowed to be held in secrecy!
Rather than help the economy, these schemes are allowed to destroy economic growth, in order to steal tax credits. State officials continued denial is beyond unconscionable.