A Capital Idea: a loan
You got some stock with unrealized profits but you don't want to sell the shares and get hit with capital gains tax. What's an investor flush with unrealized profit to do when he or she is allergic to paying tax?
You could have gotten in touch with HedgeLender, which magically transformed your untapped profits into, voila, a loan. And what collateralized this loan? Why the very shares that you are trying to ring some profit out of, albeit without paying tax. A loan that HedgeLender asserted avoided the recognition of profit for capital gains purposes. A loan that supposedly didn't need to get reported to any taxing authority.
Unfortunately, on June 16, 2011, the Justice Department announced that the U.S. District Court for the Eastern District of Virginia entered a permanent injunction against HedgeLender LLC that barred the company from promoting a stock-loan tax scheme. The Complaint against HedgeLender also named two alleged owners of HedgeLender, Daniel Stafford and Fred R. Wahler, Jr., as well as William Chapman and two companies he allegedly owned, Alexander Capital Markets LLC and Alexander Financial LLC. All five of those defendants previously agreed to permanent injunctions without admitting the allegations in the complaint.
It seems that the Court found that HedgeLender knowingly made false statements when it characterized its tax-avoidance program as a loan secured by the customer's stock. Apparently, the Court was troubled by the fact that the subject stock was sold immediately and the proceeds of that sale were then paid to the customer. This nuance sort of killed the whole idea that the customers were getting "loans," and really made the transaction look like little else than the payment of capital gains, which are subject to federal taxes.
Still, I gotta hand it to HedgeLender. Before the feds turned off the lights on this party, the defendant engaged in sales of more than $268 million in securities . The other brassy aspect of this deal was that even after the Securities and Exchange Commission sued two of its owners, who agreed to stop promoting a similar stock-loan product, HedgeLender stayed the course.
Ooooooooookay, so let's do the quick math. Ya got yer $34 million restitution. Ya got the court order of repayment at the minimal rate of $150 a month. So, we divide $34 million by $150 and get 226,666.67 monthly payments. Then we divide that by 12 and come out with 18,888.89 years to fully repay the restitution. Ahhh, the sweet smell of justice! Say . . . what the hell is that stink?Dft. must pay restitution in monthly install, of $150 up to 25% of net income to begin 60 days after release