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To: ild who wrote (219578)	2/7/2003 2:14:19 PM
From: Box-By-The-Riviera™	Respond to of 436258

didn't the head of goldman say, only about 10 people really had any value to the firm while the rest were merely optionable? <g> wonder where he places flabby abby on the value scale? there were two scales: pre bubble and post pop

To: ild who wrote (219578)	2/7/2003 2:27:31 PM
From: ild	Respond to of 436258

Sprint Tax Shelter Was Sparked By Scrapped WorldCom Merger By REBECCA BLUMENSTEIN and KEN BROWN Staff Reporters of THE WALL STREET JOURNAL NEW YORK -- The tax shelter that derailed the careers of Sprint Corp.'s two top executives was intended to indefinitely protect the income they reaped around the time of the proposed deal with WorldCom Inc., then the richest corporate merger ever. Ernst & Young LLP proposed the complicated two-part shelter transaction -- which was structured to allow them to permanently avoid paying taxes -- to executives in a series of group and private meetings soon after the deal was announced in late 1999, say people familiar with the matter and some executives who attended the sessions. The $129 billion deal ran aground on antitrust concerns in June 2000 and was scotched. But top company executives managed to cash out hundreds of millions of dollars in options. Many of the options had been "accelerated" to vest more quickly in anticipation of the deal. In what proved a disastrous decision, Sprint's chief executive, William Esrey, and its president, Ron LeMay, signed up for a shelter designed to indefinitely defer taxes on income from the exercising of options on hundreds of millions of dollars of Sprint stock. Mr. LeMay exercised options that generated a taxable income of about $150 million and Mr. Esrey exercised options that brought a taxable income of about $138 million. The Internal Revenue Service is investigating the propriety of the structures, and both executives have been dismissed and face possible financial ruin. Four other Sprint executives participated in similar shelters, but realized much less income and haven't been disciplined. Messrs. Esrey and LeMay's use of the controversial tax shelters led to their ouster from Sprint and a management shake-up. Sprint is seeking to hire Gary Forsee, but BellSouth is blocking the move of its vice chairman. See a related article1, profiles of the key players2 in the management tussle and a note3 Mr. Esrey sent to Sprint employees about the shelter. There isn't any indication the executives did anything illegal. But Messrs. Esrey and LeMay now face potential financial disaster because they say they didn't sell Sprint shares to cover the taxes owed on the options they exercised. With the slump of Sprint stock from a high of $75.50 to its current $12.17, Mr. LeMay's holdings are now $28 million -- far less than the more than $70 million he could owe in taxes and interest. The transactions that the Sprint executives carried out were designed to eliminate the taxes that are normally owed when people exercise employee stock options. The first part of the two-part deal was known as contingent deferred swap, and used a quirk in the tax law to sharply reduce and delay the taxes owed. This deal involves periodic payments from one party to another and then a back-end payment to the executive. The net result is the tax bill, which would normally be due the year the options were exercised and could be as high as 40% of the profits made in the transaction, is deferred by one year and reduced to the long-term capital-gains rate of 20%. The second part of the transaction, known as contingent deferred swap add-ons, was even more complicated and involved uses of partnerships and offsetting trades in currency options. These trades carried little risk for the executives, but had the net result of raising the cost basis of the assets involved. In other words, it made it seem as if the executives had no profits at all, which cut what remained of their tax bill. The IRS has posted notices raising questions about each of these transactions, largely because the transactions weren't done for any economic reason but only to reduce the taxes. By 2001, the two executives were worried enough about the tax shelters that they signed up for amnesty with the Internal Revenue Service, people close to the situation say. They signed up for the amnesty program after receiving indications the IRS had ruled against the kind of shelters they used when exercising options in 1999 and 2000, these people said. As a result, the executives have been assured they won't receive penalties for using the shelters, these people say. Messrs. Esrey and LeMay weren't available to comment. Both men have issued statements to employees saying they are being audited by the IRS but so far haven't been told they have done anything wrong. They say they were following the recommendation of Ernst & Young, which Sprint had hired to advise top executives on their personal taxes. Ernst & Young refused to comment.