Investors in Renaissance Technologies, a hedge fund founded by billionaire mathematician James Simons, avoided $6 billion in U.S. income taxes over 14 years, said a Senate committee on Tuesday.
The Wall Street Journal reported
that Sens. Carl Levin, D-Michigan, and John McCain, R-Arizona,, the chairman and ranking Republican of the Senate Permanent Subcommittee on Investigations, detailed their findings in a 93-page report released ahead of a Tuesday hearing with company executives.
"These banks and hedge funds used dubious structured financial products in a giant game of 'let’s pretend,' costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation," said Levin.
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Hedge funds "cannot be allowed to have an unfair tax advantage over ordinary citizens," said McCain.
The senators said Barclays and Deutsche Bank helped Renaissance and other hedge funds turn short-term profits reaped through rapid trading into long-term assets that are taxed at a lower rate through so-called basket options.
According to The Washington Post
, basket options are "derivatives with a payoff that is tied to a pool of assets such as stocks, commodities or securities" and Renaissance and George Weiss Associates were some of the largest users.
Levin said the subcommittee is not alleging illegal activity, but the facts uncovered by the investigation will be used by regulators to see if there was illegal activity.
A Renaissance spokesman said he believes the fund acted legally. Deutsche Bank also said its practices are compliant with the law.
Peter Brown, co-CEO of Renaissance Technologies, Gerard LaRocca, chief administrative officer for the Americas at Barclays, and Barry Bausano, president of Deutsche Bank Securities, will testify at Tuesday's hearing.
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