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Warren Buffett has announced his largest buyout in history, the $38 billion takeover of Portland, Oregon based Precision Castparts.  This is almost twice the size of the Heinz takeover, one of his largest prior takeovers.

Heinz and other Buffett enterprises, including Burlington Northern and Pacific Power, are having a strong negative impact on the Oregon economy.

This includes potato farmers in Eastern Oregon who had a win/win long term relationship with Heinz cancelled, and local communities battling to prevent oil and coal from being shipped by rail thru their communities without adequate safety guidelines.

Burlington Northern receives more than one-third of its gross revenues from the shipment of coal and also carries more than 80 percent of the oil transported by rail in the United States.  Pacific Power’s primary source of energy is coal.

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Below is the link to a press release by Parish & Company in October 2005 which was provided to Berkshire Hathaway’s David Sokol and Warren Buffet for review.

Warren Buffett Dupes Intel with Ingenious Tax Scheme

In typical Buffett fashion, he is providing assurances to “top management,” what some might call insider dealing,  with inevitable devastating cost cuts to follow in mid management along with significant outsourcing to related companies and aggressive use of tax havens. Not to mention erasing long-term oriented shareholder gains as investors are forced to sell the stock.  One can also expect Berkshire Hathaway to use a related subsidiary to loan Precision funds at a rate significantly higher than market rates, that’s the Buffett formula.

The legal team representing Precision Castparts and its shareholders consists of Portland based Stoel Rives, the state’s largest law firm that was also intimately involved in Enron’s affairs prior to its demise, and New York based Swain Cravath, Swaine & Moore LLP.

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SEC Chair Mary Jo White’s husband John White is a senior partner at Cravath, Swaine & Moore LLP. Most large law firms are now living off merger and acquisition fees and those that are doing straight up legal work have been decimated from a loss of clients due to such consolidations.

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SEC Chair Mary Jo White              John White, Cravath Partner

As a former CPA and auditor I can attest that independence must be achieved both in “appearance” and “in fact,”   the most fundamental principle of auditing. That is a standard question on the CPA exam yet sadly it is impossible  for SEC Chair White to meet.

This is not some small merger or takeover but rather the biggest deal in Berkshire Hathaway’s history and one that will greatly impact the tax base in Portland, Oregon as jobs are cut and outsourcing accelerated.   Police, fire and school budgets will be greatly impacted.

The question is, how on earth are such inside deals between top management and takeover artists like Buffett being tolerated by the SEC?  Put another way, who is advocating for ordinary investors in Precision Castparts?  Remarkably, there has been almost no public discussion of this “deal” between top management at Precision and Buffett, expected to close in early 2016.

And where  is the SEC, the “Investors Advocate,” whose job it is to protect ordinary investors interests.  Granted, the workload for the SEC is staggering, and made more difficult by Buffett’s control of the media.  News coverage has in fact ceased largely due to Buffett’s enormous media clout, which includes his ownership of Business Wire, numerous newspapers and other media channels, not to mention vast advertising budgets capacity to influence news decisions.

White’s job at the SEC is difficult indeed.  For example, last month the Oregonian ran a lead editorial against the “fiduciary standard,”  openly challenging an important SEC initiative White is advocating.  Former SEC Chair Arthur Levitt, on the boards of both Bloomberg and the Carlyle Group, has called failure to establish this standard a “national disgrace.”

Buffett is clearly a political genius.  Rarely discussed is that his father was an influential four term Republican Congressman from Nebraska, who also chaired Taft’s Presidential campaign in the 1950’s.  No one could have started their career more politically connected.

And here in Oregon the joke is that he owns the State Legislature along with taking control of the Governor’s office with the ascension of Kate Brown after popular four term Governor, John Kitzhaber, was run out of office over a scandal regarding his partner’s advocacy of “clean energy.”

Hayes was not a state employee yet emails indicated she was actively acting as if she were. Of course this is nothing new for spouses of public officials.  What really put Kitzhaber’s demise on overdrive was charges against Hayes of tax fraud, specifically, not reporting her consulting income on behalf of clean energy non-profits.

These charges were completely made up and a gross breach of journalistic ethics given that Hayes released her 1040 showing net consulting income yet never provided a schedule C, which would show gross consulting income along with all her various expenses.  Reporters essentially took the net income amount on the 1040, compared it to publicly disclosed gross revenues from consulting contracts, and claimed tax evasion in several major front page stories and editorials.

How do I know this?  I was asked the by key journalist involved, as often is the case, to review the tax returns for major public officials.  In this case I was provided the returns by Nigel Jaquiss of the Willamette Week, completed the review, and clearly indicated there was nothing there.  Nigel followed up with a thoughtful analysis, highlighting net business income.  Sadly, other reporters at major publications then took this “net” number and compared it to the publicly revealed gross consulting revenues and ran major front page stories and editorials, almost on a daily basis, essentially charging Hayes with criminal tax evasion.

What never came out is the Kitzhaber and Hayes filed separate returns in which he used a local CPA firm and Hayes returns were “self prepared.”  Rather than give Hayes the benefit of the doubt and let the IRS do their job, as should be the case with any citizen, public or private, she was crucified in the media and remarkably no one came to Kitzhaber’s defense.

And once the new Governor Kate Brown stepped in, her first major action was to try and bargain away the “clean energy” bill for a transportation funding package.  And who would be the single biggest beneficiary, that’s right, King Coal Warren Buffett.

Bravo Warren!  You are amazing?

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Investment advisors like myself who walk the walk with respect to long term oriented investment rely on the SEC to function as the “investor’s advocate.”  That is all investors, not just takeover artists like Buffett who have never created anything but rather specialize in inside deals with top management, appeasing shareholders with a short term spike in the stock price and then gutting companies, as was done with Heinz, Burlington Northern and Pacific Power.

One could argue that this takeover should be denied on national security grounds given Precision Castparts key role in the aerospace industry and Buffett’s inability to manage companies in which true innovation is required.  Similarly, if the national power grid is a strategic issue, how can we rely on Buffett to make the key decisions required for security when all he seems to know how to do is gut companies and then thrive on corporate welfare.   And while he boasts about the cash flow Burlington Northern is generated, businesses suffer from gross neglect and related bottlenecks in the rail system.

In 2015 Buffett boasted in a front page Barron’s story that he and his Brazilian private equity partners made $22 billion in the first two years after his $25 billion takeover of Heinz.  Long term Heinz shareholders were stuck with a tax bill and dedicated employees and vendors were betrayed.  Buffett creates one debacle after another yet the media never seems to provide coverage.

Meanwhile here in Oregon the $80 billion state pension fund managers have said nothing about the takeover of Precision Castparts.  They perceive their role as narrow and only related to returns on portfolio investments.  One could argue however that the PERS system needs a strong tax base, in addition to returns on the existing portfolio.   A tax base being decimated by such takeovers.

Oregon PERS was the original large outside investor in KKR and has large investments in both hedge and private equity funds, including KKR, TPG and Blackstone.  These firms make tax evasion a science by gaming residency via tax havens ranging from the Caymen Islands to the UK.

It is ironic that the chair of the Oregon Investment Council, Katy Durant, has not clarified if she is a full resident of the State of Oregon for tax purposes, not only for W-2 wages but also investment income.   Perhaps that is where tax reform should begin, that is, full disclosure regarding tax residency for public officials and for publicly traded companies a footnote that summarizes actual taxes paid, the specific type of tax whether state, federal, property, etc.  and the years to which the taxes paid apply.  This would be great information for investors, advisors like myself and other stakeholders.  In addition, it would meet the spirit of the SEC rules.

A likely impact would be fewer takeovers of companies vital to the economy, like Precision Castparts, leading to stronger local schools and services and better long term returns for investors as tax receipts stabilize.  Put another way, go home Warren.  Enough of the “big con.”

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Sondland is a major real estate developer with numerous points of intersection with real estate investments made by the Oregon Investment Council.   He was also the most ardent opponent of a convention center hotel in Portland,  fearful it would compete with his existing properties, yet when the city finally crossed a legal threshold making it a reality, Sondland proposed that his firm handle the contract.

Even though private equity and hedge funds have produced poor returns for years, the Oregon Investment Council under has dramatically increased investment in this area under Durant with TPG, KKR and Blackstone being three of the primary beneficiaries.



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Disclsoure and Media Development Background:  Parish & Company maintains no speculative investments in the health care companies discussed and does not collaborate with any private equity or hedge funds.  It’s goal is to identify high quality health care opportunities suitable for long term oriented investment.

This effort includes providing high quality news material to leading journalists including Gretchen Morgenson of the NY Times, Mark Maremont and Rich Rubin of the Wall Street Journal, Joseph Tanfani of the LA Times and Margaret Collins of Bloomberg.

In doing its research Parish & Company has revealed a massive price fixing scheme, both in medications and medical equipment, being orchestrated by private equity and hedge funds, often financed by public pensions including Oregon PERS.   These firms purchase drug and medical equipment royalty cash flows and, in conjunction with the use of various drug and medical procedure distribution systems, including hospitals, specialized clinics and pharmacies, are price gouging patients and fleecing taxpayers via Medicare and Medicaid reimbursements.

In addition to anti-competitive practices that would result in quick DOJ actions in most industries, these firms are also aggressively using tax evasion to embellish financial results.

The purpose of this post is to provide a conceptual overview of the scheme for leading journalists to further their work in this area.   A related goal is to demonstrate that indeed one person can make a dramatic positive difference by revealing such issues via collaborating with leading journalists.  Already Congressional hearings have been scheduled.

The original analysis was provided to a few key reporters in the fall of 2014 with the expectation a story would be completed by December 2014, yet this was complicated by Bloomberg dismissing most of its leading investigative reporting staff and my favorite reporter at the NY Times, Gretchen Morgenson, being weighted down by a backlog of story material.  In reference to the analysis of investment firms purchasing drug cash flows and price fixing generic drugs, she did note  ” Thanks Bill. And thanks again for an illuminating conversation…sorry that my head is always spinning after we talk. You’re always way ahead of me.”

In order to help facilitate the story,  I began to publicly discuss the scheme on December 3, 2014 at the monthly Oregon Investment Council meeting.  See link to minutes and related audio file involving public comment questioning whether it was appropriate for public pensions to invest in such drug cash flow resulting from the sale of royalty rights to private equity and hedge funds.

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OIC meeting 12/3/15 Parish comment (See public comment at end of 3 page document)

OIC meeting 12/3/15 Parish comment audio mp3 (Full audio of testimony, approx 2 minutes)

It is amazing that medical equipment representatives from leading firms like Stryker are regularly in the operating rooms during procedures and appear to be compensated on commission based upon the volume of product sales.   Technicians yes, but commissioned sales reps? Two key areas where this should be a major concern are oncology and spinal procedures.  Hopefully this post will stimulate a close look at this yet to be publicly revealed practice,

This was followed by a January 2015 interview on Kink Radio here in Portland, the leading morning radio show.  This interview was generally about the energy sector yet I also made comments about Enron like accounting practices and its role in price fixing of generic drugs, specifically claiming that drug prices could fall sharply if this scheme were addressed,

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Kink FM Interview January 8, 2015 audio mp3 (5 minutes of audio)

One could easily criticize the NY Times for waiting nearly 8 months to do the first major story on this analysis yet they still beat Bloomberg and the Wall Street Journal.  Of course they must also be especially careful given the enormous financial stakes.

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Gretchen Morgenson, Reporter/Editor New York Times

Since Andrew Pollack and Gretchen Morgenson of the NY Times superb original September 20, 2015 report on Daraprim, a drug purchased by a hedge fund for which the price was immediately raised from $13 to $750 a pill, leading generic drug maker, Valeant Pharmaceuticals, has declined almost 70 percent, erasing more than $50 billion in market value.

Valeant was indeed one of the top holdings in many large hedge funds.  This superb story on Daraprim finally motivated the financial analyst community to get to work and realize that revenue increases at firms like Valiant were mostly resulting from what some call “price gouging,” an unsustainable model.

Here is the link to the NY Times story on Turing, the hedge fund that purchased the rights to Daraprim. Remarkably, the fund manager agreed to a video interview in which he tried to defend his actions.

Drug Goes From $13.50 a Tablet to $750 Overnight, NY Times, by Andrew Pollack 

Later in October of 2015 the NY Times also reported that a competitor would start selling the same medication for $1 per pill for bottles of 100.  Patients might call this sweet justice.

Drug Compounder Offers $1 Alternative to $750 Pill, Associated Press

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And while Berkshire Hathaway’s Charles Munger and Warren Buffett (In photo at right) are calling Valeant’s practices immoral,  one of its defenders, Bill Ackman (photo on left), is similarly calling out Munger on Berkshire Hathaway’s investment in Coke, calling it a key contributor to obesity and diabetes.  Neither Ackman nor Munger talk about their sizable investments in transporting coal and crude oil by rail and the related environmental and health/safety consequences.

Ackman is one of Canadian Pacific’s largest shareholders while Buffett and Berkshire of course own Burlington Northern, which receives a third of its gross revenues from transporting coal, in addition to transporting 80 percent of all oil in the U.S. that goes by rail.  Interestingly,  Bill Gates and his foundation are together the largest holders of Canadian Pacific railway, and are clearly trying to corner rail traffic in North America together with Buffett.

Already Canada Pacific has attempted to purchase CSX railway and, having backed away due to anti-trust issues, is now making a play for Norfolk Southern.  It is almost ridiculous that Warren Buffett is making billion dollar transfers to the Gates Foundation and then the foundation is using these funds to create a monopoly on rail traffic in North America.   Put another way, they are clearly related parties and the SEC should treat them as such.

Tax exempt public pensions should similarly think about whether it is appropriate for them to participate in monopoly generating activities in the health care grid.  Especially when these investments are using inversions and other schemes to deplete the very same general tax base necessary to sustain the public pensions.

I did also attempt to get some major coverage on this health care grid price fixing scheme in the LA Times as part of a review done on Jeb Bush”s financial statement yet was unsuccessful.  And while the market is focused on Valeant’s relationship with a “specialty pharmacy,” the best example needing more disclosure, in my opinion,  is Blackstone’s development of Catalent, which it merged into Vanguard Health Systems, which was sold to Tenet Healthcare, the nations third largest for profit health care company, on whose board Jeb Bush sat until shortly after the story was printed.

Here is a link to the excellent story by Joe Tanfani.  Unfortunately, the drug and procedure price fixing concept was too big to fit into the scope of the story, even though Bush made a fortune in gains from Tenet stock options, gains largely created by the roll-up purchase of Vanguard Health from Blackstone.   Consolidations done with tax-exempt public pension investment dollars.

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Jeb Bush                           Joseph Tanfani, LA Times

Jeb Bush, shifting focus, quits firm that has profited from Obamacare – LA Times, by Joseph Tanfani

Basic Premise Regarding Private Equity and Hedge Funds in Health Care:  Just as Enron spiked energy prices by shutting down key generation facilities on the power grid for unnecessary maintenance, private equity and hedge funds are purchasing hospitals,  specialized clinics and various other health care distributions systems and limiting access points through “roll-up” consolidations.  This is moving patients to higher cost choices, both in medications and medical equipment, often from related companies.

In understanding Enron, one could always rely on Ken Lay’s own words. ” We are going to be the Microsoft of the energy field,” he would say.  In practical terms he meant that they were using “financial engineering” to raise its share price and leverage growth in their stock options.

One key strategy was to hide debt in offshore entities, thereby strengthening its balance sheet.   The major debt now being hidden is taxes and all investors should ask, what if these firms had to pay a modest rate upon their various schemes being successfully challenged by the IRS?

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Ken Lay, Former Enron CEO

Of course Key Lay was known as “Kenny Boy” in the Bush administration, as he masterfully manipulated regulators, including the SEC, to prevent any real regulatory scrutiny.  Today PE firms like KKR are similarly manipulating key regulatory agencies and hiring the best political muscle money can buy.

Not only is former CIA director General David Petraeus on board with KKR for millions yet former President Bill Clinton has also made a fortune working for KKR thru 2014, a year in which he made $4.5 million working for one of KKR’s key portfolio companies, Laureate Education, a controversial for profit college company living off student loans.  Laureate paid Clinton $16.5 million over a 4 year period ending in 2014.

The irony regarding Clinton is that student loans and drug costs are positioning to be key issues in the 2016 Presidential campaign.

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Henry Kravis              George Roberts

Two Top KKR Promoters:

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Bill Clinton                      David Petraeus

Still unreported in the business press is that 70 percent of all carried interest earned by most major PE firms is paid in the form of stock options, see PricewaterhouseCoopers study posted on this blog.  And similar to Enron and Microsoft prior to the .com bust, PE firms are excluding the cost of these options from the valuation of their portfolio firms, thus greatly inflating their values and legitimizing “deal specific” carry fees they would not otherwise be entitled to.

See slide with PricewaterhouseCoopers summary.

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Health Care should present some terrific investment opportunities, especially in the basic delivery area, yet the level of fraud is currently simply staggering.  Step one should be to allow the government, since their are 45 million people in Medicare, to negotiate volume discounts and other key terms.  Remarkably, this was prohibited by Congress when prescription coverage was added.

Today Oregon PERS approved a $400 million investment in Stonepeak, a firm that invests in “infrastructure projects.”

In his presentation Stonepeak’s managing director Michael Dorrell noted their strategy is to invest in “essential infrastructure assets with an economic monopoly, much like an airport.”  This includes water, power plants, transportation and telecom with a focus “outside the auction process.”  They expect an annual return of 12 percent over 30 years.

One of their major projects he discussed is the largest desalination operation in the western hemisphere, in Southern California.  The key development partner is Poseidon Resources, “former GE guys.”  Dorrell noted they obtained the exclusive rights to such desalination projects.  They brought these rights over from their former employer Blackstone, who is entitled to 50 percent of the carried interest from this project. The expected return is 14 percent over 30 years and the City of San Diego could not do much about this high rate since Stonepeak has rights to the “only viable site near San Diego.”

In the old days government entities would issue municipal bonds for such improvements in order to make sure the public interest is served with respect to keeping costs down.  One might question why Oregon PERS is investing in such projects via private equity firms rather than directly funding them via a firm specializing in this area working with the municipality?

This also highlights why it is so important for Oregon PERS to fully disclose carried interest fees and partnership audit reports to the public.  Key questions regarding Blackstone’s participation in 50 percent of the carried interest from the desalination project were simply not asked.  They include noting whether Blackstone has other businesses independent of Stonepeak with a stake in the project,  etc.

Put another way, more disclosure of private equity and hedge fund fees is important, not only with respect to their own funds yet also in terms of how much these funds have allocated fees to outside supposedly independent firms like Blackstone, especially if they come in the form of stock options.  At a minimum, Stonepeak should update its SEC ADV filing noting that Blackstone has a material participation in its largest project.

Remarkably, one of Stonepeak’s principal equity owners, per SEC filings, is TIAA-CREF.  Given that TIAA-CREF is tax exempt, along with Oregon PERS and most of the other limited partners, its not hard to see why tax rates are going up for the rest of us.  The overall corporate tax base is simply vanishing behind tax exempt status.

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Disclosure:  Parish & Company maintains no ties to any of the Presidential candidates.  The purpose of this post is to summarize the major candidates tax returns and related financial disclosures.  Given that both the Clinton and Bush campaigns have issued reports using the Scribd service, which prohibits printing the entire documents, as a public service, Parish & Company has created a simple archive at the end of this post with all the reports in a standard PDF format.

Bush Financial Disclosures and Related Tax Returns

Bush Background: Candidate Bush was born on February 11, 1953 in Midland, Texas. He is 62.  He was sent to a boarding school in Massachusetts at the age of 14 and later graduated in Latin American affairs from the University of Texas.  He married in 1974, became Catholic and has three children.  His business career began in banking for Commerce Bank, whose Chairman of the Board was James Baker, former Treasury Secretary under Ronald Reagan.   Commerce Bank ultimately merged into JP Morgan Chase.   His experience at Commerce Bank included being posted to Venezuela for three years, prior to Hugo Chavez.  Bush’s CPA is Gary Gerson of Miami Beach, Florida.  Other than serving as Florida Governor from 1998-2007, he has mostly worked in banking.

Bush Tax Return Summary: Jeb and Columba filed a joint return in 2013 and reported approx $7.3 million of  income and federal income tax of $2.9 million.  Their 2014 return has not yet been posted. Florida is one of seven states with no state income tax.  The state tax reported of $40k was $25K from New York and the remainder from other states outside Florida.  He filed one schedule C, for Jeb Bush and Associates, where he recognized $5.8 million in taxable income or 80 percent of the total reported income on his 1040 federal tax return.

Capital gain and partnership income amounted to roughly $1.3 million or 18 percent of total income. The primary investment income source was Tenet Healthcare stock provided to Bush for his role as a board member.  This gain upon sale was $556K or 43 percent of the total for 2013.

Dividends and interest amounted to approx 2.5 percent of taxable income while charitable deductions were approx 1.4 percent of the same total. Total travel, meals and entertainment expenses for Bush and Associates was $132K.

The only W-2 income reported was $27K, likely Bush’s wife Columba so they could maximize their family pension contributions to the Jeb Bush and Associates defined benefit pension plan, which lists two participants.  These tax deductible contributions amounted to almost $350K per year over a 5 year period.  See WSJ story on Bush’s Pension Plan Here (Pdf), which includes a copy of the annual 5500 filing.

Bush Investment Summary:  Basic banking is done at Suntrust Bank and the primary investment focus is energy and commodities.   Returns are poor given the general decline in these markets of the last several years.  Like Romney, Bush has also invested heavily in private equity partnerships based in tax havens, one being the Lighthouse Global Long/Short fund, based in the Cayman Islands, with others being based in Hong Kong and the Marshall Islands.


John E. & Columba M. Bush


Jeb Bush Tax Return 2013 (Yet to File 2014)

Bush Income and Asset Financial Disclosure 8/4/15 (pdf)

Clinton Financial Disclosures and Related Tax Returns

Clinton Background:  Candidate Clinton was born in Chicago, Illinois on 10/26/47 into a Methodist family.  Clinton is 67.  She received an undergraduate degree from Wellesey in Political Science followed by a law degree from Yale, where she met Bill Clinton.  In 1975 she moved to Arkansas, married Bill and became the first female partner of the Rose Law Firm.   She later served on the boards of two Rose clients, Walmart and TCBY, from 1986 to 1992.  After serving as first lady from 1992-2000 Clinton moved to New York and was elected to the US Senate in 2001, serving 8 years.  She was later appointed US Secretary of State and served from 2009-2013.

Clinton Tax Return Summary:  The Clinton’s reported adjusted gross income of $27.9 million in 2014 and paid $9.9 million in federal tax in addition to state income tax of $2.8 million.  The return includes 5 schedule C forms, one for each of their businesses.  They are Hillary Clinton -Author, Hillary Clinton-Speeches, Bill Clinton – Author, Bill Clinton – Speeches and Bill Clinton – Consulting.

Remarkably, the Clinton’s return shows no partnership, no dividend and no capital gain income.  All their accounts are at JP Morgan Chase and appear to be short term low risk savings accounts throughout 2014.

Also striking regarding the Clinton’s is that Bill has earned $21.9 million from 2010-2014 as a consultant to two for profit college enterprises, $16.4 million from Laureate Education and $5.5 million from Dubai based GEMS.  Laureate was founded in Portland, Oregon in 1979 as Sylvan Learning Systems.  In 2003 Sylvan sold its K-12 tutoring business to the private equity firm Apollo Management and kept the for-profit college segment, renaming it Laureate Education.

With the cost of college and related student loan discussions now entering the campaign it is noteworthy how much for profit colleges have driven up the cost of education via excessive lending, in particular for graduate schools.  One might ask, why are students encouraged to obtain law degrees via massive student loans when their are so few jobs in the legal community due to takeovers and related consolidation in so many industries?

Many of these graduates now pursue careers in lobbying on behalf of private equity and hedge fund interests, undermining important regulatory safeguards.  It is not known what percent of an education is financed at Laureate in comparison to public universities and other for profit colleges.


For Clinton, dividends and interest together amount to less than .1 percent of taxable income while charitable deductions were approx 11 percent of the same total. Substantially all of the charitable contributions were to the Clinton foundation. Total travel, meals and entertainment expenses listed for 2014 were $375K and $1.1 million for Bill and Hillary respectively.   The expense seems high for Hillary yet it is not clear how many employees travel with her.

Total pension and profit sharing expense for the Clinton’s was only $2K in 2014.  Neither Bill nor Hillary appear to have set up a defined benefit plan which would allow them each to set aside up to $350K each year and collectively reduce their taxable income by $700K.

Also see related post regarding Clinton’s home office deductions and relation to email security controversy.

https://blog.billparish.com/Clinton Tax Returns Focus Email Controversy

Clinton Investment Summary:  The Clinton’s liquidated a diverse portfolio of securities in their grantor trust on May 11, 2007 and later in 2008 exited private equity related investments, including a partnership with Ron Burkle of Yucaipa Partners.  Since then they have invested in only low interest earning savings accounts until 2015.

Recent disclosures indicate a large investment in the Vanguard Index 500 mutual fund.  Clearly, it would not look good for a presidential candidate to have no investments in Corporate America.  This must have been purchased in 2015 given the absence of dividend income in 2014 and lack of retirement accounts to hold such a purchase between $5 and $20 million, as disclosed.

Hillary Clinton Tax Return 2014(pdf)

Clinton Income and Asset Financial Disclosure 5/15/15(pdf)

Clinton Foundation:  The Clinton’s are affiliated with four tax exempt foundations as follows:


Both the William J Clinton and the Clinton Foundations primary purpose listed is fundraising.   Clearly they are trying to make their philanthropy globally based yet domiciling these key fundraising entities in foreign nations not subject to US based disclosure requirements in order to enjoy tax exempt status.  To her credit, Clinton has subsequently disclosed the donor identities to these offshore based charities.

Overall, the Clinton’s foundations appear to be doing great work, and giving significantly more than the minimum required 5 percent each year to maintain tax exempt status is surprising.  In addition, the Clinton’s have set up an outstanding defined contribution 401K plan for the foundation employees.  I find this interesting because one would expect Donald Trump to have the superior plan yet the plan for Trump’s enterprises is low quality compared to the Clinton’s.

As an advisor it continually amazes me how many successful business people aren’t willing to spend a few hours to have a great plan when the contributions are generally all from the employees, i.e. non company assets, and there is no additional cost between having a low quality plan, as Trump does, and the cost of a high quality plan similar to the Clinton foundations.

Fiorina Financial Disclosures and Related Tax Returns

Fiorina Background:  Candidate Fiorina was born September 6, 1954 in Austin Texas. She is 60.  Raised Episcopal she now considers herself a non-denominational Christian.  She received an undergraduate degree in philosophy and history from Stanford and an MBA in marketing from the University of Maryland followed by an MS in management from MIT.

Florina began her business career at AT&T in 1980 and advanced through its spinoff of Lucent Technologies to President.   She later was appointed CEO of Hewlett Packard form 1999 -2004 and was the driving force behind the $25 billion acquisition of Compaq computer , which resulted in a financial disaster for Hewlett Packard. The acquisition was bitterly fought and one director, Walter Hewlett, spent $50 million of his own funds fighting the purchase.

Fiorina was strategic in that she made her case for the merger directly to Institutional Shareholder Services (ISS), which voted the proxies for almost a third of all shares.  Large funds rely on ISS opinion.

Meanwhile, Hewlett naively went fund to fund trying to convince large fund managers to oppose the deal.

At the time ISS was controlled by private equity interests, in particular Warburg Pincus, who rubber stamped most such proposals.  See Smart Money Story Pdf Here.

Ultimately, the Hewlett Packard board called for Fiorina’s resignation in 2005.  A key criticism of Fiorina was her large entourage and lavish spending while at the same time eliminating tens of thousands of jobs, including drastic cuts in research and development.

Florina Tax Return Summary:

Carly and Frank Fiorina filed a joint return in 2013 and reported approx $1.9 million of income, federal income tax of $429K and state income tax of $121K.  They list Lorton, Virginia as their residence for both 2013 and 2012, even though she did run for US Senate in 2010 in California and obtained more than 40 percent of the vote in the nations most populous state.   Virginia’s state income tax is 5.75 percent while California’s is 13.3 percent.

Two schedule C’s are included, implying two separate businesses.  One is consulting with income of $322K and the second shows revenue of $400K from one source, “Washington Speakers Bureau.”

Dividends and interest amounted to approx $864K or 44 percent of their income. Charitable contributions of $261K amounted to 13 percent of income.  Of this amount .5 percent was contributed in cash and the remainder in kind property.

Florina Investment Summary:  Fiorina maintains substantially all her accounts at Goldman Sachs and is invested in mostly private equity and hedge funds.  Her total income form this multi million dollar portfolio in 2013 for tax purposes was a loss of $209,300.  Similarly her 2012 return showed a loss of $270,382.

These losses resulted from valuable tax deductions being allocated to her as a partner, perhaps again highlighting why the tax rate on private equity investments should be secondary to the rules regarding how deductions are allocated, especially if deductions are coming from tax exempt investors who can not use them in the first place..

Carly Fiorina Tax Return 2013(pdf)

Carly Fiorina Income and Asset Financial Disclosure(not yet released)

Carly Fiorina’s schedule of private equity and hedge fund investments from her 2013 Tax returns:


It is surprising how much discussion surrounds Hillary Clinton’s emails after Edward Snowden clearly revealed that more than 1 million people have top level security clearance, many of whom are contractors with no government oversight.  Whether there are 2 or 20 top secret emails on her server may be irrelevant.


There is also a certain irony that Clinton’s converted barn, put in service for home office purposes in 2002, running various computer equipment purchased in 2011 for a total cost of $6,500, could have been more secure than government servers.  See form 4562 for 2011 tax return.  I’ll post up a detailed review of the Clinton’s returns along with those of Jeb Bush and Carly Fiorina next week.

Also note that the Clinton’s completed four Schedule C’s, meaning they have four separate businesses for tax purposes in 2011.   They are as follows:  Hillary Clinton-Author, Bill Clinton-Speaker, Bill Clinton-Author and finally Bill Clinton-Consulting.  The only one of the four that lists any computer assets is Bill Clinton-Speaker, which of course could mean that, from an accounting standpoint, Bill is still in charge of the state department.  See schedule A below.



An additional computer was purchased in late 2012 for $5,220, also charged to Bill’s speaking business.

In principle, Clinton was smart to use a private server given Snowden’s revelations.  The real discussion should be the security of all government computers for two reasons.  The first is the wide adoption of Windows software, a hacker’s dream, and more recently a major security hole involving all Intel pre 2011 chips.   This should be a Y2K moment for government and a call to upgrade, at a minimum, to new hardware.

Clearly it would not be smart for Clinton to broadcast the mix of hardware and software used for her server.  And if she has indeed reliably used a converted barn and $6,500 worth of computer equipment to safeguard correspondence from the Secretary of State, perhaps that is a lesson for all in efficient government.

In late 2014 the tax exempt Oregon Historical Society sold the Sovereign Apartment building, after owning it more than 30 years.  The Society maintains an outstanding board of directors and this was clearly a difficult decision. As part of the sale the society negotiated a long-term lease for itself yet its 44 tenants were last month given six months to vacate.


The building’s new owner is the Randall Group, a prominent locally based owner of numerous residential and commercial buildings.  The stated reason for the forced eviction is to undertake a major remodel resulting in much higher rents.  The Randalls are prominent local philanthropists and make significant contributions to OHSU.


Rather than use its own property management subsidiary, CTL, the Randall Group has chosen instead to use Norris Beggs, Simpson.  Tenants were offered the last two months free rent if they stay until the eviction date, December 31, 2015.  At the same time Norris Beggs is advertising short term rental rates below current tenants rates.  Of course some of the long term tenants find this disappointing.

Ironically, the Randall Group receives a significant amount of financing from tax exempt public pensions via CBRE, what they call structured finance in the real estate industry.  In 2012 Oregon PERS invested $100 million in one such CBRE fund.

Unlike New York, there is no rent control in Portland, Oregon and therefore this type of forced eviction effective December 31, 2015 to pave the way for a significant rent increases is an accepted business strategy.

In New York prominent private equity firms regularly purchase rent control buildings, financed by public pension co-investors including Oregon PERS, with the stated strategy of forcing a certain percentage of renters out of their apartments by cutting off utilities, not making key repairs, etc, what could be considered suggested evictions.  By doing this, they can often raise the rent 500 percent for new occupants.

Where it gets interesting is that the Oregon Historical Society was playing by the rules in that it held its ownership of the apartment building in a taxable subsidiary C corporation.

Therefore, they paid full taxes on its income, including $1.3 million or a 40 percent overall tax rate on the gain at the time of sale.

The following footnote is from the 2014 annual audit report.  Note the taxes paid on the sale, again, the society is a tax exempt entity.


So while the Historical Society is playing by the rules, other prominent Oregon based foundations including the Meyer Trust, Oregon Community Foundation, Ford Foundation and others invest aggressively in private equity based real estate partnerships that use foreign blocker corporations based in the Cayman Islands and pay no tax on either their income from the investments nor from gains on sales.  This is similar to Goldman Sachs renting a Post Office box in the Caymans, claiming it as its main office, and averting billions in taxes.  Tax attorneys call this tax efficiency while other more simply minded might consider it criminal tax evasion.

The solution is simple and that is to make sure any tax reform plans also incorporate various tax-exempt entities.

My proposal would be to provide tax free treatment on investment gains for tax exempt entities only if an investment is held 5 years and standard capital gain treatment if held less.  The only exception would be investment in government issued securities, the gains of which would be tax free without exception.  Of course an added benefit would be to reduce the rampant speculations being made with tax exempt investment funds,  or as one prominent short-seller Jim Chanos says, only tax exempts should short sell due to “tax efficiency” reasons.

It will be interesting to see how long the Randall Group hangs on to the Sovereign building or whether it will be sold to a private equity real estate pool using an offshore blocker so that tax exempts can invest and pay no tax on income or gains from sales.

Even CPA firms better known for crafting tax strategies have moved aggressively into private equity.  One such firm, which began as the CPA firm Parrot and Associates, now calls itself Vergepoint Capital.  It recently sold a $52 million complex to the Randall Group with financing provided to Randall by CBRE.

The next chapter in the Sovereign’s life might simply be a takeover by another more “tax efficient” tax exempt.  Not only is this bad public policy yet it is also aggravating an acute shortage or reasonable housing in downtown Portland.

It is astonishing how leading Presidential Candidates banter about tax rates with no recognition that public pensions, foundations and endowments via investments in offshore based private equity and hedge funds now control trillions of the US economy, and since they pay no tax on either income or gains, no tax reform will work without bring a discussion of tax exempt to the table.

by Mark Maremont, The Wall Street Journal

In a blog posting, Bill Parish, a Portland, Ore., investment adviser, called Mr. Bush’s pension plan “aggressive,” in part because the defined-benefit plan assumes a retirement age of 62. That allowed Mr. Bush, who turned 62 in February, to shelter more money more quickly than if the plan assumed retirement at 65. Mr. Bush’s election as president wouldn’t have any impact on the retirement plan.

Read the full story here: Jeb Bush’s Pension Cut His Taxes