One example of tax credit abuse shell game
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This is a classic example of a combination of: embezzlement involving state officials; and fraud involving private entities.

The scheme is like a Ponzi scheme in that profits paid investors are a sure thing and not earned from the investments. Where a Ponzi scheme uses money from new investors to return high profits, this scheme uses embezzled public funds. A Ponzi scheme might only guarantee as little as 10 percent in profits while this scheme pays 200% immediately.

An appropriate term for Oklahoma's tax credit abuse would be "created a scam" as that is what is happening. The law creating the program was so irresponsibly written it is void of the fundamental means to protect the public interest. Then we have to consider there is no state agency or official task with overseeing the program, and the public is denied access to the records preventing anyone from seeing what is occurring. The abusers are free to interpret the law anyway they chose and claim it is not illegal.

If it is later found tax credits were taken in violation of the law the state is prevented from recoverying the money.The the maximum penalty for those violating the law is they cannot use the program again.

Information has been revealed in news articles or uncovered that reveal at least two ways this program can be abused. Other information suggest a third way the scheme is used. Even if we did not have this information studying the law reveals how easily these 3 schemes can operate. Essentially the programs is virtually void of restrictions, requirments, accountability and over sight.

In all cases the CAPCO starts the shell game with no funds. In a matter of weeks or a few months they have millions in profit with no obligations. More on CAPCOs

CAPCOs treat their management fees as part of the investment and we can't always determine how much was skimmed off for management fees. In some cases, like Scissortail, we can see the business venture only received one-third fee of the supposed investment leaving two-thirds as potential profit for Scissortail.

1. Venture Capital program loan scheme

The most complete set of evidence recently surfaced reveals Oklahoma's little known "Venture Capital" tax credit program, restricted to two users, could have potentially cost Oklahoma tax payers more than $400 million in unearned tax credits.

While functionally similar to the Small Business and Rural Small Business programs, discussed below the "Venture Capital" program, operated under separate oversight. The list of investments claimed to receive tax credits, look suspiciously like Bank of Oklahoma, claimed ordinary interest bearing secured, bank loans as investments, to obtain tax credits. View more

2. Artificial loan scheme

The scheme AP reported Altus Venture (CAPCO) used in the Quartz Mountain Aerospace (business venture).

  Income   Pay out   Fund balance
Phase 1   Fleecing the flock          
Altus Venture starts out with 0       0
Straw investors invest in AV $32 million       $32 million
AV arranges an artifical loan
(similar to a Counterfeit loan)
$189 million       $221 million
AV claims 30% tax credits $66 million       $287 million
           
Phase 2   dividing up the booty  
AV pays off loan     -$189 million   $98 million
AV pays investors $2 for every $1 invested     -$64 millon   $34 millon
AV invest in company     -$16 million**   $16 million
  AV profits - minimum   $18 million

** It is not clear the reason Altus Venture chose to borrow $189 million and take 66.3 million in tax credits. Except the number had to be large enough to end up with at least $64 million in tax credits to pay the investors their $2 for every $1 invested.

** One of the many loopholes in the law is it only stipulates that at least 50%, of the investors original investment, be invested within 18 months. Putting together information from vaious articles, meeting minutes, it appears Altus Venture invested at most no more than $16 million of the capial raised under the tax credit program and less than 25% of the $66.3 million received in tax credits. The rest of the QMA funding came form other city/county, state programs.


3. CAPCO scheme

The Scissortail plan was a CAPCO scheme to raise $5 to $15 million form investors, and obtain a loan of $85-90 million using the assets of the company the investment was intended, yet Scissortail only planned to invest one-third back in the business they used its asset to obtain the loan. I should point out that the business the investment was suppose to help was not allowed access to the plan and only knew what Scissortail let them know.

Belows is an example using the shows the minimum of $5 million from investors and a loan for $85 million.

  Income   Pay out   Fund balance
Phase 1   Fleecing the flock         Fund balance
CAPCO starts out with 0       0
Straw investors invest $5 million       $5 million
Arrange a loan $85 million       $90 million
CAPCO claims 30% tax credits $27 million       $117 million
           
Phase 2   dividing up the booty  
Pay off loan     -$85 million   $32 million
Pay off investors their $2 for $1     -$10 millon   $22 millon
Invest in company     ** -$1.33 million   $20.7 million
  CAPCO profits   $20.7 million


4. Money laundering to gain tax credits.

This scheme is as simple as using some money sitting around or taking out a loan long enough to pass it through a CAPCO to gain some tax credits. First the owners of the business that is to receive the investment sets up a Front LLC to serve as the investor. The owners put money in the Front LLC, which then invests in a CAPCO. The CAPCO claims tax credits then invest the money in the business owned by the same owners of the blind LLC. The money is back where it started and the CAPCO and business owners have 30% of the amount laundered in tax credits.

  Income   Pay out   Fund balance
Phase 1   Fleecing the flock         Fund balance
CAPCO starts out with 0       0
Blind LLC invest in CAPCO $20 million       $20 million
CAPCO claims 30% tax credits $6 million       $26 million
           
Phase 2   dividing up the booty  
CAPCO invests in "business venture"     -$20 million   $6 million
Leaving $6 million to be split between CAPCO and front LLC

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