Senators Say Wall Street Settlement Shouldn't Be Tax-Deductible
By Robert Schmidt
Washington, Feb. 28 (Bloomberg) -- The 12 Wall Street firms that agreed to pay $1.4 billion to settle claims they misled investors with biased research should not be allowed to deduct the penalties from their income tax, the Republican and Democratic leaders of the Senate Finance Committee said.
Chuck Grassley, the Republican chairman of the committee, and Max Baucus, the ranking Democrat, as well as Senator John McCain, told Securities and Exchange Commission Chairman William Donaldson in a letter sent today that it's ``unacceptable'' for the banks to write off the fines.
``Congress has pressed hard for real change at the SEC and in the boardroom,'' the senators wrote. ``We are not interested in settlements that look good in the newspaper headlines but fail to bring real accountability.''
Federal and state regulators collected evidence in the cases against the 12 firms, including e-mails in which analysts at Citigroup, Credit Suisse First Boston and other banks disparaged stocks they were publicly recommending. The 12 firms agreed on most details of the settlement with regulators including the SEC and New York Attorney General Eliot Spitzer in late December and early January.
Final Agreement
The penalties include fines, funding over five years for independent research to be provided to their clients and money for investor education. The final details of the agreement between the firms, the regulators and the states are still being negotiated and are expected next month, Spitzer has said.
SEC spokeswoman Christi Harlan said Donaldson would respond soon to the senators. The SEC is not able to `` facilitate favorable treatment of penalties'' when it settles enforcement cases, Harlan said.
``How these payments are treated are not a matter of securities law but of the Internal Revenue code and state law,'' Harlan said. ``That said, as a matter of good public policy we don't think it is proper for insurance to be tapped to pay for penalties.''
The senators criticized Harlan in their letter for telling the Wall Street Journal that the SEC enforcement division does not consider any factors besides securities law violations when settling cases, calling her comment ``particularly galling.''
The lawmakers asked Donaldson to provide to them and the other SEC commissioners an analysis of the tax treatments of the settlement. The analysis should detail the tax savings for each firm as well as the loss of revenue for the U.S. treasury, the senators wrote.
In the letter, the senators also asked that they and the SEC commissioners be told the portion of the settlement agreement that will be paid by insurance companies.
``Bottom line: the commissioners and the American taxpayer need to know how much each firm will pay that will not be deductible and will not be paid by an insurer or other third party,'' the senators wrote.
Grassley, of Iowa, is the chairman of the Senate Finance Committee and Baucus, of Montana, is the ranking Democrat on the committee, which writes U.S. tax law. McCain, from Arizona, is the chairman of the Senate Commerce Committee. |
