Word: drexel
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Dates: during 1980-1989
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...gain. Yippee! But you've got to keep your transaction costs low and, of course, not get caught with a taxable gain on one half of the hedge without realizing your loss on the other half. It was to avoid that hitch, basically, that Princeton/Newport entered into understandings with Drexel Burnham Lambert and other firms to make these tax sales. "Look," Regan's traders said in essence, "you're not going to have any risk because we're going to buy these things back once we've satisfied the tax-loss requirements, so just charge us a small commission...
Sounds pretty innocent, though one might wonder why, if it's legal, Drexel and others haven't offered this appealing tax-loss service more widely...
...worse -- tried to disguise what they did by breaking up their repurchases into odd amounts at varying prices. What perhaps got Regan into the hottest water, though -- and it's kind of scary the Government might work this way -- is that he refused to provide damning evidence against Drexel and others: "Cooperate and we'll go easy on you. Stonewall us and we'll kill you." We've seen it on TV a thousand times...
Regan claims that he had no damning evidence against Drexel, and was convinced that he had done nothing wrong, so he refused to cut a deal. The Justice Department was irritated, to put it mildly. Far from having the IRS handle this as a regular tax case, or even as a criminal tax case, Justice brought the full force of the controversial racketeering statute, RICO, to bear. All this over a relatively small number of tax dollars...
...Drexel Burnham Lambert...