A sweet deal. Let's Sweethearts Steal.

The tax credit abuse occuring through a loophole in Capital Formation Incentive Act, state lawmakers and the governor claimed they closed, for the second time, in 2006, is continuing to be exploited taking even greater amounts. -

Between the time the law went into effect June 2006 through the end of October 2006, approximately 5 months, an additional $330 million in tax credits were taken. Then in September 2007 a letter surfaced showing another $300 million. Adding over $200 million in previous losses that brought on the heat forcing officials to claim they would stop the abuse, brings the known total to roughly $850 million.

As a reminder this $850 million only covers that which has leaked out. No one outside Tony Mastin, the head of the Oklahoma Tax Commission, and who Mr. Mastin lets know.

The law also stipulates all information about the program be kept secret preventing both the public and state lawmakers from ever knowing how much is taken, who benefits and what if any value the state receives for the tax credits.

Hijacking the state's future economy and jobs. -

The economy and jobs are such a popular issue no elected officials would leaving the appearance they were not totally behind the program. That is why the Senate passed the measure 46 to 0, and the House passed the measure 98 to 0.

Elected officials find political safety in the playing the dumb act. In voting for some bills without understanding the contents. An act of irresponsible negligence which they always escape challenged.

While hijacked the measure was laden with auspicious elements that serve to provide windfall gains to a few at the expense of the public while requiring the those benefiting provide little if any measurable benefits in return.

The end result is the operators/investors are relieved of all risk while rewarded $2 for every $1 invested, retain 100% ownership of the venture, no strings attached and have no further obligations. All paid for by the public who is left with nothing but repeated failed promises of a few jobs.

How this came about.

Under the radar -

Using tax credits has been around for some time. We aren't clear on when this line of tax credit program were first abused, but it appears a program similar to the current program started taking form in the 1990's. Some news articles suggest there was abuse from the beginning, but it stayed under the radar until the Great Plains Airline debacle that left many state and Tulsa area officials along with Bank of Oklahoma red faced over being so easily conned and fighting in court over who was to blame.

Fall out from the Great Plains Airline bankruptcy revealed many questions about the abuse of Oklahoma's tax credit incentives for new business ventures. Information on two other venture Rocketplane and Quartz Mountain Aerospace started surfacing. There are many question surrounding Rocketplane, but there is a strong lobby behind keeping information on Rocketplane out of the public's hands.

More information has been published about the Quartz Mountain Aerospace venture. Altus Ventures, a subsidiary of First State Bank Altus, is the venture capital company that is taking $2 in tax credits for every $1 dollar invested in QMA.

Popped up on the radar. Sham promoting tax attorneys. -

In early 2006, new articles appeared describing how Altus Ventures was cooking the books and taking seven times the tax credits specified in the law. Altus Ventures claimed their tax attorney found a loophole in the law that prevented their scheme from being illegal.

Oklahoma officials, accepted the Altus Ventures claim without challenging, and have yet to make any attempt to investigate, stop further abuse or recover the money.

Highly irresponsible under any circumstances, but criminally negligent when we take our head of the sand and read the many stories of federal officials busting tax sham and after tax sham all using the opinions of hired gun tax attorneys used to sell illegal tax shelters to the unknowing.

How could Oklahoma state officials ignore something so big happening in the rest of the country? Inlcuding the forced closing of one of the nation's largest and most respected law firms, which ws located in Dallas, for selling bogus tax opinions. The stories

Government officials reaction and the results? -

When discover by the public state officials clamored to announce how wrong and promised they would put an end to the abuse - They would "fix the problem." Then state lawmakers created, passed and the governor signed Senate Bill 1577, the "Capital Formation Incentive Act". The "Capital Formation Incentive Act" was nothing more than a rewrite adding verbosity as clutter and rearranging the key elements of the loophole. Plus some fine tuning to reduce the likelihood of possible conviction in the event an investigation is ever launched. A clever diversion to deflect public concerns while allowing the abuse to continue.

The integrity of our legislative system.

It is important to note this fix or law was passed during the closing days of the session. The time most questionable bills are saved then all rushed to the floor with only a few precious days or hours left to consider stacks of laws. When deliberation and understanding what is in the bills succumbs to "working together", i.e., vote trading on pet projects. Quick changes made accommodate enough votes to get a bill passed.

Here we go again? Someone tweaked the law once before and no one noticed. -

Sen. Ted Fisher, D-Sapulpa, Oklahoma State Senate Majority Leader and senate author of Senate Bill 1577 when ask about the current abuse in "Loophole in tax law threatens budget", Daily Oklahoman, March 26, 2006.

"It's awful," said state Sen. Ted Fisher, who in the 1990's authored the two pieces of venture capital tax credit legislation that are now being abused.

Fisher said the abuses started after some unknown person "tweaked" the law, and he failed to notice.

Someone tweaked the law once while no one noticed?

The loophole was freely used over several years while no one noticed.
Making $100's millions while no one noticed.
Finally someone noticed.
But, no one bothered to find out who it was or how they did it.
Or, even politely ask for some of the money back.

Why on God's green earth would we ever imagine that this wouldn't be tried again?

Now we are suppose to believe that someone didn't try that again?

Does this come as a surprise to us that the loophole is still sitting there wide open and folks are continuing to help themselves?

And, no one is noticing?

The campaign money trail. -

Follow campaign money trail.

In summary through 5 election cycles the Altus Venture group, the biggest known abuser of the tax credit loophole costing the state $100's millions had donated an average of less than $400 per year, total for all candidates.

Now in one short period while a candidate, Rep Kevin Calvey, outside their district, was working on legislation that was critical to their tax abuse scheme Mr. Paul Doughty walks in with a single bundled donation of nearly $40,000. And, appeared to have attempted to donate even more until it was caught that they had exceeded individual contribution limits. Note: This is all according to campaign records filed with the Federal Election Commission. What we don't know is how much might have been donated using the very common straw donor method the FBI is finding so wide used in Oklahoma.

Three significant events occurring in the same time frame.

During the 2006 legislative session, State Rep. Kevin Calvey, R-Del City, as chairman of the House Revenue and Taxation Committee, was responsible for writing new legislation to close a tax loophole some, including Altus Ventures, were using to take $100's millions in excess tax credits.

Rep. Kevin Calvey was running for US Congress at this same time.

Mr. Paul Doughty, his wife and others associated with First State Bank Altus and its subsidiary Altus Ventures donated, $21,900 to Rep. Calvey's campaign. This more than doubled Rep. Calvey's donations to date. And was by far the most any of these had ever donated to any candidate and the first time any of these had donated to a candidate outside their district. See note below.
Rep. Kevin Calvey relied on Mr. Doughty, a known abuser, for input on how protect Altus Ventures' scheme, while writing the legislation. And, Rep Calvey in fact did protect Mr. Doughty's programs, or turned his back while others protected.

The final Capital Formation Incentive Act included clever language that

Legalized every element needed for the $2 for $1 scheme (receiving 7 times the tax credits allowed by law) First State Bank Altus and Altus Ventures were operating. By doing so attempted to minimize future criminal conviction.
Created qualifying criteria a perfect fit for First State Bank Altus and Altus Ventures while disqualifying most if not all others. Giving Altus Ventures a virtual monopoly over this scheme. Forcing others to cut Altus Ventures in on their deals to participate in the scheme.

Note:

When questioned about the unusual donations Paul Doughty's response was

"it is not unusual for him and his associates to give to "pro-business" conservative candidates in other areas of the state."

He said he had contributed to US Sen. Jim Inhofe, US Rep. Tom Cole and former US Rep. W3C Watts, among others.

Records going back to 2000 and up to 2008 show.

None of these had ever donated to a candidate outside their district. Neither W3C Watts or "others" show on the records for this period.
The three donors had a total of 7 other donations during for all 5 election cycles, all to those running for the office covering their district. The history of the three donors combined accounted for had a total of $1,900 spread over 7 candidates for the years 2000 through 2008. One single denotation of $500, one of $200 and five for $250
Now we are to believe that nearly $40,000 to one candidate outside their district is normal?

Download Capital Formation Incentive Act.

More information

This story describes hard to accept elements that conflict with how we feel about our laws and government. -

The shield of a disbelieving public is the nature of any well conceived fraud.

As this story unfolds it will become clear how these conflicts played together paint the picture of a well conceived scheme to enrich at the public's expense.

A program so at odds with that which a government is trusted to protect. One can only conclude when government officials not only turn their backs but proactively protect a fraud, this lucrative, many of the powerful within the government are under some strong influence. Generally financial or political rewards.

A program that so vividly illustrates how uninformed, misinformed and out of touch a public that relies on a media that accepts and reprints or repeats, unchallenged, public official's politically driven press announcements and explanations.

Huge losses and failed promises? A closer examination reveals why this program is an incentive to fail! -

A program that rewards the number of ventures, regardless of the potential for success with no penalty for failed ventures.

A program that incentivizes the operators to sift through the trash dumpsters of successful venture capital firms for the worthless rejects. All the operators need is a business plan and a few warm bodies to pass off as management.

The success realized from the traditional venture capital approach is the risk of losses incentivizes those investing to be careful and thorough in performing due diligence and evaluating the potential for success. Selecting only the best managed programs, properly positioned, with the greatest upside potential. Venture Capitalist may evaluate 50 to 100 businesses to find one with promise.

With a guaranteed 2 for 1 and no money at risk there is no incentive to devote the time to performing due diligence on 50 to 100 possible ventures to find one good venture. The greater reward is grabbing every venture that comes along. Get the $2 for $1, leaving the venture to fend for itself.

The normal venture capital venture takes 5 plus years before the rewards are realized.

The Oklahoma program returns tax credits in a matter of a few months. The tax credits can then be immediately sold for cash. The investors have their $2 return in hand before they take their $1 out of other interest bearing investments. (Ref. 20 new ventures processed during the June to October 2006 time frame, some turned around in less than one working day.)