Word: taxed
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Dates: during 1980-1989
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...world where one man who clearly violates the tax law gets elected mayor of New York while another gets put out of business and sentenced to jail, it's worth a few moments to try to discern what's going...
Regan would argue that he didn't violate the tax law. (A former IRS commissioner was prepared to testify to much the same thing, but the jury was not allowed to hear this because the judge accepted the Government's argument that his views might blur the issue.) Regan's trades were part of a hedging strategy under which you buy and sell related securities at the same time. You lose on one and gain on the other, but if you've done the math right, you'll usually lose a little less than you gain. Yippee...
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...
...Government argued that Regan and Princeton/Newport did violate the tax law, but -- 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...