MYTH : Trump's Social Security Tax Holiday Will Help Employers and Their Employees

Well, this is a solid myth, that's for sure.  Smart and ethical CPAs are recommending that their clients not just walk, but sprint away from the Memorandum Deferring Payroll Tax Obligation.  Let me preface this by declaring that I'm not an attorney and that all of this is my opinion.  But I can read and think. 

First, a little background.

The current IRS Commissioner is Trump appointee Charles Rettig, who, during his confirmation hearing, "told lawmakers he would ensure that the agency is 'impartial and non-biased from top to bottom' and follows the law."  

This seems unlikely, given that Rettig's Beverly Hills law firm specialized in defending wealthy clients against taxing authorities.  Since taking over the IRS, Rettig has slashed 4000 employees, including 19% of enforcement and compliance staff.  Like every single other Trump appointee, Rettig was selected for his ability and enthusiasm to vandalize the very agency to which he was appointed.

So Trump's Memorandum Deferring Payroll Tax Obligations allows any employee with bi-weekly pay of less than $4000 to defer paying of their 6.2% share of Social Security tax.  This appeals to two kinds of Trump supporters:  the wealthier ones who hate Social Security and, including this group, the less well-off supporters who hate taxes and government in general, despite all the benefits they enjoy as a result.

The key word here is "deferring".  What could make this tax easier to pay in the future?  Some tax people are rightly claiming that only Congress has the ability to waive such taxes.  But they've already granted that right to the President in the event of a national emergency, which Trump declared in April due to the [fake, according to him] pandemic.  

In fact, it will simply put employers at risk of fees and penalties.  On top of that, I've seen nothing in the regulations that prevents employers from going after former employees for reimbursement. According to our Senator & Senate Finance Committee ranking member Ron Wyden, "Donald Trump's scam is obvious — juice paychecks before the election and sock workers with a massive tax bill early next year when he’ll be out of office or never have to face voters again. While many businesses are unlikely to go along with Donald Trump’s fake tax cut, billions could be drained from the Social Security trust fund. This scheme is designed to give Donald Trump a talking point — it won’t benefit workers in any way.”*

Whether you're an employee or an employer, don't be seduced by this nonsensical campaign trick.

 

*Thanks to Think Advisor for their excellent article on this and choice quotes.

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Caveat Venditor

We're all too familiar with the doctrine of "caveat emptor", or buyer beware, which places all responsibility for a bad deal on the shoulders of the consumer.  Caveat venditor reverses that responsibility, placing all responsibility upon the seller.  With financial products and services, both are true, as the case below shows.  A quick check with http://brokercheck.finra.org/ would have saved these investors a lot of hassle and heartache.  They would have discovered that these thieves were not registered to advise about nor sell investments.  And the perpetrators, or sellers, should have been mindful of not only enforcement actions but also their clients' best interests.

SEC Obtains Asset Freeze in Case of Investor Funds Stolen for Shopping Sprees

FOR IMMEDIATE RELEASE

2016-153

Washington D.C., July 28, 2016 —

The Securities and Exchange Commission today announced an asset freeze it has obtained against three men who aren’t registered to sell investments and allegedly went on lavish shopping sprees with more than $5 million raised from investors to purportedly develop a resort.

In an emergency action filed in federal court in Atlanta, the SEC alleges that Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed the money would be used to fund the resort project.  But they never came close to raising the funds necessary to start the project, and meantime they pocketed the $5.6 million they did raise and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.

“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.

The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website would have shown that White, Zehner, and Merandi are not registered to sell investments.

The SEC's complaint filed yesterday alleges that White, Zehner, Merandi, and their companies violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement, and penalties against all of the defendants.  The court order obtained late yesterday freezes defendants’ cash held in a brokerage account and freezes the bonds held in a separate brokerage account.   

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8 to 10% Is A Reasonable Expected Rate of Return

Reminder:  These Financial Myths Headings are Myths.

No.  8-10% is not a reasonable rate of return, even though national investment "superstars" still claim that it is.
Here in Oregon, that point has been driven home . . . again, unfortunately, by Aequitas Management.  The article that follows is long but instructive.  (Thank you Advanced Regulatory Compliance, Inc.!)
But here are the warning signs:

1. They put almost all of their eggs in one basket: notes on Corinthian College loans.  Investors need to understand where their money is going!
2. They issued their own statements.  Never rely on statements issued by your broker/agent/adviser.  Always insist on third party generated statements.
3. They were high-flying.  Take note of what your adviser himself invests in.  Fancy offices & furnishings?  Expensive cars? Jets?  Expensive client events?  You should wonder how those "investments" improve your financial situation.

So, enjoy the article.  I hope you learn something from it!

The Securities and Exchange Commission yesterday charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.  Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm.  Some money from new investors was allegedly used to pay earlier investors

The SEC’s complaint, filed yesterday in federal district court in Oregon, alleges that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse.  Former CFO and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.

“We allege that Aequitas had severe and persistent cash flow shortages and top executives knew they weren’t using money raised from investors like they said they would.  But they refused to disclose the true financial condition, continued to draw lucrative salaries, and roped even more unknowing investors into a losing venture,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. 

According to the SEC’s complaint:

• From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.
• While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges.  Corinthian defaulted on its recourse obligations to Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.
• The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors.  They used the outings to raise more money from investors.  Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.
• By November 2015, Aequitas could no longer meet scheduled redemptions.  Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer.   

The SEC’s complaint charges violations of the federal securities laws by Aequitas Management, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC as well as Jesenik, Oliver, and Gillis.  The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and monetary penalties from all defendants as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company.

Aequitas and the affiliated entities have agreed to be preliminarily enjoined from raising any additional funds by offering and selling securities, and agreed to the appointment of a receiver to marshal and preserve remaining Aequitas assets for distribution to defrauded investors.  The stipulated orders are subject to court approval.

The SEC’s continuing investigation is being conducted in the San Francisco office by Brent Smyth, Crystal Boodoo, and Tracy Combs and supervised by Steven Buchholz.  An examination of Aequitas’s registered investment advisory affiliate, and examinations of other registered investment advisers that recommended Aequitas investments to their clients, contributed to the investigation and were conducted by Thomas Dutton, Bradley Cline, Edward Haddad, Matthew O’Toole, Caroline Smith, Bernice You, Marc Valle, and Alice Schulman.  The SEC’s litigation will be led by Sheila O’Callaghan and Wade Rhyne.

Advanced Regulatory Compliance, Inc. (“ARC”) is a national full-service investment advisory compliance consulting firm backed by its association with The Law Offices of Patrick J. Burns, Jr., P.C., a securities law practice. ARC provides practical solutions to complex compliance issues. Our key services include investment adviser registrations, mock audits, annual reviews, due diligence, development of best practices and ongoing compliance support.  If you have any questions or concerns about this newsletter, please contact our firm at (310) 275-7300.

Your Constructive Comments are Welcome!

Self Regulatory Organizations Always Police Their Industries Well

Well of course that's not true.  None of them do, from the FCC to the SEC.  But some do a better job than others.
FINRA (the Financial Industry Regulatory Authority) seems to do a fair job considering their financial and political constrictions, as you can see below.  But out of 637,000+ brokers, they only examined 4500.  Or about 7/10 of one percent.  More instructional is the cases of theft and deception committed by specific brokers.  They're instructional because they all could have been prevented by more aware investors.
I invite you to explore their website at finra.org



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Christian Financial Planning

The title of this post asserts nothing so it is more of a contradiction than a myth.

I know. I'm tugging on the tail of a hungry & rather grouchy lion. But this blog is intended to be controversial and challenging.  What could be more controversial and challenging than religion and money?  Case in point is "Christian" financial planning.

What is  "Christian" financial planning?  Oddly, none of the "Christian" financial planning websites I visited even mentioned Jesus.  Perhaps it was because Jesus' financial plan was quite clear:  Sell everything and give it to the poor (Matthew 19:21).  And then there's Jesus' metaphor of a camel trying to go through the eye of a needle having better odds than a rich man attempting to enter Heaven (Matt. 19:24). Not being a Biblical literalist- since I can't read Hebrew, Aramaic or Greek -from everything else I've read about him, I think Jesus was referring to attachment to or obsession with or love of money (or any other ego attachments for that matter) not just the mere possession of wealth. 

Here is the key point:  without emotional attachment to material wealth, you would indeed gain more happiness by relieving suffering, by giving, than from amassing and clinging to wealth.  (How contrary to the sadistic, stingy behavior so common in some supposedly religious circles today, no?)  Hence the camel metaphor. [Some scholars suspect a mistranslation- remember, this was an oral history -that instead of "camel" (kamilos) the Greek word was "kamelos" or rope. The metaphor still gets the idea across as neither rope nor camel will fit through the eye of a needle.  BTW, there is no scholarly basis for interpreting "needle" to mean "doorway", as the tour guides may tell you.] So is it unreasonable to ask this?:  Why would a "Christian" financial planner do his clients the massive disservice of encouraging attachment to wealth, thereby preventing their entry into Heaven?  (To be fair, several of the websites did emphasize the tax advantages of charitable giving.)

Here is where the grand contradiction occurs:  Self-labeling as "Christian financial planner" is meant to imply "Hey, you can trust me without knowing anything else about me!". But then, every Christian financial planning website I've reviewed reverts to mostly Old Testament "Biblical financial principles". That way they don't have to deal with Christ's rather simple wealth redistribution plan for which their services would be unnecessary.

Anyway, even if you use a "Biblical" financial adviser, insist on these basics:

1. A holistic approach.  A good planner will ask lots of questions and deal with you as a whole person, not just as an investor or product consumer.  
2. Unbiased advice, meaning driven by evidence and reason rather than production quotas.  Please base your trust on evidence and understanding, not warm & fuzzy buzzwords.
3. A legal fiduciary who must put your best interests first, ahead of his own and his firm's.  Ask a lot of questions too, and assume nothing.

Your Constructive Comments are Welcome!