Oklahoma's tax credit abuse scam bites

The tax credit abuse scam having already sucked over $850 million from Oklahoma funds, and growing, was put in place when Oklahoma like several states, neglecting due diligence, fell prey to a slick lobbying blitz and modeled the state's economic development program after CAPCO.

Reading the comments from other states and independent experts should help understand Oklahoma's tax abuse scam, how the scam works and how the scam came to be.

The gensis of a public fraud, in a nut shell

A group of small time venture capitalist and insurance companies teamed to created CAPCO, in the early 1980s. Claiming CAPCO would provide risk funding for states in need of economic development capital.

CAPCO, using a well funded slick high pressure glitzy blitz, pitched the plan to several states. The pitch without the details Fraud 101.

Louisiana was the first to embrace CAPCO, followed by several other states.

Soon questions by those knowledgeable of the business and details emerged Louisiana and the other states realized CAPCO was a scam on the greediest order. CAPCOs were skimming approximately one-half the money intended for investment off the top.

Some greedy and unscrupulous Oklahoma investment operatives got wind of CAPCO and create their own more lucrative Okie Crony CAPCO. A CAPCO on steroids, we will call CRAPCO.

Ignoring the well documented bad experiences other states had encountered with the basic CAPCO plan, Oklahoma officials quickly implemented CRAPCO.

CRAPCO is such a lucrative scam the Oklahoma taxpayers shelled out over $600,000 for each employee in one venture. Employees paid approximately $30,000 per year for only a couple of years unitl the venture was in financial problems and started laying off.

As it turns out CRAPCO is nothing but a slush fund for the benefit of many wealthy Oklahoman's.

So far Oklahoma taxpayers have contributed over $850 million to the slush fund with few jobs.

CAPCO v CRAPCO Comparison -

Scam	CAPCO	CRAPCO - Oklahoma

Investors	Insurance companies	Private
Total refunded thru tax credits	100%	200%
Milestones to meet	A few, mostly irrelevant	None
State oversight/audit	Yes. Varies by state	None
In essence CAPCO consisted of insurance companies partners providing states a 10 year loan. The venture capitalist partners would have the task of managing the investments. Taking 50% of the loan off the top for management fees. Leaving the states obligated to repay the loan in the form of tax credits. An average of 10% in tax credits per year. Oklahoma's CRAPCO is structured where: 1) The venture capitalist find their own investors, cutting out the insurance companies. With no restrictions. 2) The state repays at the rate of 30% in tax credits up to 200% of the investment. How does that work? This is the fraudulent shell game part. The venture capitalist arranges a artificial loan to inflate the investment (money at risk) to appear nearly 700% as large as it is. Actually 690% which is what it takes to turn a 30% tax credit into 200%.

To protect the identity of those benefiting from the slush fund, lawmakers used the notion that CRAPCO could not attract investors without guarantying complete secrecy for the investors. Oklahoma legislators inserted language in the law to prevent the public from learning how much was being scammed and who was getting the money.

Note 1: The idea that you would have to protect investors' identity in a guaranteed $2 for $1, is so incredulous it insult our intelligence. Quite the contrary. Making this opportunity known publicly would resulted in a mad rush by people begging for some of the action.

Note: 2 The Taxpayer Transparency Act, a great effort by Senator Randy Brogdon to get this bill passed. However, there is a powerful lobby, the State Chamber of Commerce, pushing to get the Taxpayer Transparency Act amended to keep the Tax Credit information secret. According to Governor Brad Henry "The State Chamber makes a good point" So far that lobby has managed to have disclosure of the Tax Credit information withheld until further review.

CAPCO a scam coop!

Oklahoma's tax credit abuse scam, a paper trail-less fraud.

Oklahoma state officials are turning a blind eye, while their political cronies are operating a tax credit fraud scheme costing the public $100's millions each year. A program created under the guise it would encourage investments in Oklahoma business ventures by offering a 30% tax credit rebate to reduce investors' risk, is in reality a scam that not only are the investors protected from any possible losses they are rewarded with an almost immediate guarantee of $2 for $1. Regardless of the success of the business venture which they get to keep. Actually $3 for $1 since they keep the investment, and the $2 is all incentive.

Political cronies provided the fraud structure to unscrupulous Lawmakers who hid the mechanism in legislation, fully aware fellow legislators and the Governor do not read the bills. Especially at the end of sessions. The legislation structured the fraud where it operates outside the constitutionally mandated financial records and budgetary process avoiding scrutiny and leaving no paper trail. This is done by using tax credits to divert future revenue, before the money reaches state control. The cost impact to the public will be mask in the vagaries of future revenue shortfalls.

Political cronies: Only select Venture Capital Companies are allowed access to tax credits. All investors must go through one of these small groups, who operate the fraud skimming huge profits off the tops of the scams.

Capital Formation Incentive Act creating the tax credit scam loophole mandates all information be withheld from the public, by language making it a crime punishable by a fine, imprisonment, and dismissed from office for any to divulge who is receiving tax credits and how much.

Those allowed to participate only need provide documentation, stating a certain group "intends" to start a business venture. This documentation is basically for establishing who is eligible for tax credits and how much, to insure only the right people or entities can claim the tax credits. Using a financial shell game involving taking out artificial loans (money remains in the bank for loan security) to grossly inflate the reported amount at risk. The fraud operators claim tax credits on the sum of the amount investors have at risks plus the artificial loan, scamming $2 for every $1 actually invested. Actually $3 for $1 since they keep the investment, and the $2 is all incentive. There are no requirements that the business venture has to reach any level of success. Therefore allowing the scams to use any worthless business as a front defeating the purpose of the bill.

To protect state officials from accusations of wrong doing the fraud using the Capital Formation Incentive Act was structured as a free standing (void of government oversight) perpetual open ended source of funding, for the benefit of a select few. The program operates, both anonymously and autonomously, with no limitations, no requirements to meet and virtually no possibility of breaking any laws. Yet strong penalties for protecting the identity of those involved and how much is being taken from the state.

Note: to give the illusion of some legitimacy and the tax credits will pass IRS scrutiny, those involved in the fraud lead investors to believe the Oklahoma Tax Commission issues a pre-approval letter. In reality the letter is simply an acknowledgement verifying the paperwork has been received, and if what is claimed in the letter, is in fact truthful then it meets the program qualifications. The letter also includes some exceptions to protect the Oklahoma Tax Commission from wrong doing. In summary the letter is nothing more than some vagaries trying to cover everyone without anyone accepting responsibilities.

The fraud is further facilitated by the facts

no accountability, no transparency.
no agency or state official was assigned the responsibility for monitoring and oversight.
the act specifically prevents releasing information to the public regarding how much is taken in tax credits or who receives the tax credits.

Capital Formation Incentive Act. A license to fraud.

The Daily Oklahoma, on September 22, 2007, revealed yet another tax credit scam. This one involving $300 million. This $300 million, coming on top of $330 million in tax credits found in documentation anonymous sources recently provided the Website.

Both the $330 and $300 million scams used the same so called tax loophole in the Capital Formation Incentive Act the Governor and State Lawmakers claimed to have closed when they enacted into law Senate Bill 1577, effective June 2006. That act was precipitated by a public up roar after it was revealed that over $200 million had been scammed using the loophole.

Note: This approximately $700 million discussed here is only what has leaked out for one reason or another about a program state officials refuse to reveal any information that would reveal the identities of those who participate and how much money is involved. One of many obvious violation of the constitution and their sworn duties to protect the public interest.

State officials are doing nothing to stop, prevent or recovery the money.

The obvious questions

Q. Why not?
A. Good question, why not?

Q. Why can't State Lawmaker correct the law?
A. After one public uproar, the Governor and State Lawmakers claimed to correct the law in 2006. Since that correction information on another $480 million more has been scammed after the law "was supposedly" corrected?

Oklahoma's Vice Lice and Fraud Hogs -

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