Oil spill muckraking, SEC excuses, and Gingrich’s taxes

By Steven Brill
December 20, 2011

1. The Muck Around the BP-Halliburton Oil Spill Legal Fights

Earlier this month, BP filed papers in federal court alleging that Halliburton – which built the ill-fated Deepwater Horizon offshore well for BP – had destroyed test results showing it had used unstable cement to secure the well. The 310-page filing, filled with lurid accusations of negligence and cover-ups, is one of many such documents now sitting in publicly-available court records charging all kinds of misconduct by everyone involved in the oil spill disaster. For example, there’s also Halliburton’s suit against BP, filed in September, accusing BP of fraud and of hiding information that could have prevented the spill. A tour through all of this multi-million dollar lawyer name-calling is  bound to be fun reading, as would a highlights reel from the ton of documents produced in the dozens of suits filed by plaintiffs lawyers against both companies. It’s time that someone plow through all the mudslinging and tell us which charges, if any, seem real and what they tell us about letting either of these companies continue to operate in the Gulf or anywhere else.

2. Post-Crash Prosecutions: Excuses or Reality?

I tend to be skeptical of any government agency that cites funding shortages as an excuse for poor performance. So, as I keep reading all of those stories quoting the SEC saying that one reason the agency hasn’t been able to be tougher on those accused of violations related to the financial crash is because of budget constraints, my radar flares – especially since a quick check that any reporter could do before simply taking down those quotes reveals that the SEC’s $1.26 billion budget for the just-ended fiscal year is nearly three times its budget nine years ago. Can’t we see some reporting that details whether these supposed constraints on enforcement are real and, if so, why, given the flood of extra funding?

We also keep reading about the difficulty of proving criminal intent as the excuse for there not having been any prosecutions of major Wall Street bosses, which is the responsibility of the Justice Department, not the SEC. But I haven’t seen anything yet that actually explains why it’s harder to prosecute these securities fraud cases than others. Can’t someone zero in on those issues by talking to experienced prosecutors and defense lawyers and pinning down, with specifics, whether or why that’s true – or whether what’s more at work is some kind of failure of will, or nerve? How good a lawyer and leader is Lanny Breuer, the head of the Justice Department’s criminal division? And is it he or the local U.S. Attorneys who are making these decisions not to pull the trigger?

3. Gingrich and Tax Reform:

In a prior column, I suggested a story on the extent to which Mitt Romney has been able to pay lower taxes than the average American because Bain Capital is the prime source of his wealth. The story I envisioned would look at how Romney benefited from tax rules that provide advantages to off-shore entities (of which Bain reportedly has many) and that allow for the “carried interest” paid to partners in private equity firms to be taxed at capital gains rates even though their carried interest involves no investment of capital. Now that the New York Times has covered much of that (though not the question of the Bain off-shore entities) in a story published yesterday,it’s time to look at Newt Gingrich’s tax situation – which might prove an even more bountiful treasure trove of (legal) tax gamesmanship and another primer on the need for tax reform.

We already know that Gingrich formed multiple entities, including some non-profits, to which he channeled speaking and consulting fees. In fact, on “Face The Nation” last Sunday the former Speaker said that while his consulting company might have received $1.6 million from Freddie Mac, he personally had received only a small portion of the money. The rest of the money went for the firm’s overhead, he said. Really? Let’s see the books. How much of that overhead supported his personal expenses? (As an historian, Gingrich might remember that the darling-of-the-right lawyer Roy Cohn was famous for having his law firm pay almost every nickel of his personal expenses, which allowed him to avoid the income taxes he would otherwise have paid had he had the firm pay him a salary so he could pay those expenses himself.)

To take two possible examples that could relate to Gingrich, some media entities, especially those involved in video presentations, pay wardrobe allowances to their on-camera people, ostensibly so that they can splurge on camera-suitable clothing they might otherwise not buy. Did the Gingrich companies that produce his documentaries reimburse him (or his wife, who also appears in them) for their clothing? This would mean in this case that Gingrich’s personal corporation gets to deduct the clothes as a business expense, while Mr. or Mrs. Gingrich or both get the clothes tax free. Also, we’ve all seen how the former Speaker seems to work a book or documentary promotional appearance into various campaign travels. Does one of his companies pick up these travel expenses on the theory that the travel is promoting a book or documentary? This would mean not only that the corporation is paying a campaign travel expense (which is otherwise not allowed) but also that campaign travel has morphed into a tax-deductible business expense (meaning that we taxpayers are paying 35% of it, assuming Gingrich is in the top federal bracket)? I have no idea whether Gingrich has deployed these or any other strategies, but Newt, Inc. seems to have been enough of a big-time operation that it would be worth finding out.

Editor’s note: On December 6, this column noted “It seems time for a profile of [attorney general Eric] Holder and a report card on his tenure.” On December 17, the New York Times published a profile of Holder, noting that no member of the Obama cabinet “has drawn more partisan criticism.”

PHOTO: A work boat passes an oiled marshland, one year after the BP Oil Spill, in Bay Jimmy near Myrtle Grove, Louisiana April 20, 2011. REUTERS/Lee Celano

5 comments

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I couldn’t agree more with your first two issues.

With regard to the third, it would be a poor use of federal investigative and prosecution resources to “zero in” on the nickles and dimes (relatively speaking) of Romney’s and Gingrich’s wardrobes. It should be obvious that politicians are “entertainers”, like David Letterman and Jay Leno.

Their “professional clothes” enhance their image, and thus credibility and value; and are, therefore deductible as a cost of doing business. I’m sure each has a cheap suit that they can wear to those occasions that are purely personal and they each paid for themselves with after-tax dollars (even if it was some years ago…suits last a long time if you don’t wear them much.

It has long been said that a well run small business is not supposed to make a profit. It should “break even” higher and higher. Today a “small business” can be pretty big (in dollar value). Do we really think “big business” is too dumb to apply the same logic whenever and wherever possible under applicable tax regulations?

This is but one way a “small” company can compete with a large company for management, accounting, etc. “Inventive reimbursement” is nothing new and not going away! This has long been part of the “cost of doing business”.

Posted by OneOfTheSheep | Report as abusive

“It’s time that someone plow through all the mudslinging and tell us which charges, if any, seem real and what they tell us about letting either of these companies continue to operate in the Gulf or anywhere else”

I nominate Ken Salazar, it might give him a chance to show at least some evidence of competence. Eric Holder seems to have left the building.

Posted by ARJTurgot2 | Report as abusive

Believe what you want, Brill, but a friend of mine who does appellate work for the SEC says they have no travel budget. Doesn’t say anything about what else they do have budgets for though.

Posted by borisjimbo | Report as abusive

The Muck Around the BP-Halliburton.
Interesting reading revolving arround the entire Deep Water Horizon disaster is “FIRE ON “THE HORIZON”, Author is a Rig Captain who delves deep into the deep water drilling industry and the BP Gulf Spill in particular. In particular he sheds light on many engineering and ignored safety alarms sounded and shortcuts enacted in the drilling of this particulr well.

Posted by Mandolin | Report as abusive

There will be very little mainstream coverage of Romney or Newt espousing policy from which they personally benefit. It’s easier to repeat GOP talking points about birth certificates, socialism, et al. Average voters can’t follow tax law.

Posted by IgnatiusJ | Report as abusive