Romney's IRA: Investment gurus can you explain this to me?

#77
#77
This is not something you want to change. You can't limit the returns on a person's IRA. And it's not really unfair now that I understand it.
 
#78
#78
Here's an article that explains in more detail how Bain employees could invest in Bain deals using their IRA and what is meant by Bain setting values on shares A vs L.

It also clearly shows (contrary to what we were told in this thread) that this strategy was NOT largely devoid of risk and WAS really investment. The lower value A shares were highly risky relative to L shares and only paid off if the total Bain investment was successful. If Bain sold it's stake at the investment level or less (win some/lose some) then A shares were completely worthless.

There's plenty more there - sounds like an interesting approach but nothing suggesting it "mischaracterizes income".

Bain Gave Staff Way to Swell IRAs by Investing in Deals - WSJ.com

Further to get at the "unfairness" - because this money is in Romney's IRA instead of simply a cap gains investment he must pay the top marginal rate on withdrawals instead of the cap gains rate. He will end up paying more income tax on this than if he didn't put it in his IRA...
 
#79
#79
IMO, this actually help Romney. He was apparently damn good at managing investments.
 
#84
#84
lawgator1 said:
I've got no problem about his making money.

But if he wants to run the country, I do care how he used a tax haven to mischaracterize income so as to avoid taxes.

Legal or otherwise.
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But you don't care if someone that wants to run the country hasn't shown the intelligence to do anything more than to be a community organizer?
 
#86
#86
volinbham said:
Here's an article that explains in more detail how Bain employees could invest in Bain deals using their IRA and what is meant by Bain setting values on shares A vs L.

It also clearly shows (contrary to what we were told in this thread) that this strategy was NOT largely devoid of risk and WAS really investment. The lower value A shares were highly risky relative to L shares and only paid off if the total Bain investment was successful. If Bain sold it's stake at the investment level or less (win some/lose some) then A shares were completely worthless.

There's plenty more there - sounds like an interesting approach but nothing suggesting it "mischaracterizes income".

Bain Gave Staff Way to Swell IRAs by Investing in Deals - WSJ.com

Further to get at the "unfairness" - because this money is in Romney's IRA instead of simply a cap gains investment he must pay the top marginal rate on withdrawals instead of the cap gains rate. He will end up paying more income tax on this than if he didn't put it in his IRA...
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The article you quote says it was rare for businesses in this industry to allow employees to co-invest in the businesses, and even more rare to do so by buying the special class of stock used to manipulate the system. The article specifically says that this mechanism is not available to the average person, and rarely available even in the Bain industry.

One of the deals allowed people to make over 500 times their investment in a short period of time.

This is the problem. To get that deal, you have to be in a very elite situation. A situation only a very small number of people can utilize.

Legal ? Sure.

Palatable to the voters ? Time will tell, but if they really understood how this was done and how they are effectively locked out of getting such similar sweetheart deals, I tend to think not.

Last, I call attention to the fact that your characterization of the article about valuation of the shares is simply false. Your own posted article specifically says that Bain could assign it's own value to the shares. That's how they could shove millions of latent value into a $30,000 capped vehicle.

The deal was so good that employees borrowed money from friends and family to try to get in on the gimmick.

The article -if you actually read it -- supports my position. And that is that thus kind of inside baseball strategy to turn small amounts of money into incredible wealth is done by setting a false price and letting only a select few in on it.
 
#87
#87
LG, You are on the losing end on this issue.

It may not be what some consider ethical, it is legal. He did nothing wrong legally.

You have pointed out one of the many problems in our tax laws.

IMO, the entire tax system needs to be done away with and replaced with something simple such as some form of a flat tax.
 
#88
#88
lawgator1 said:
Point is, the law should be changed to get rid of the loophole. Obama can't get it passed. Romney would never even try.

You guys keep trying to make this about the minimum standard you can -- legality. No. It's about what is fair. And if the law creates the loophole unfairly and he benefits, that matters.
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And you'll be the arbiter of what is "fair" because you've proven that you are more compassionate than I by wanting me to pay more taxes for social programs that make you feel better about yourself?
 
#89
#89
Gramps said:
LG, You are on the losing end on this issue.

It may not be what some consider ethical, it is legal. He did nothing wrong legally.

You have pointed out one of the many problems in our tax laws.

IMO, the entire tax system needs to be done away with and replaced with something simple such as some form of a flat tax.
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It's both moral and legal. Bain can't manipulate the valuation of stocks since it must be appraised at fair market value by a third party and reviewed by the IRS. And employees can purchase stock in their company if they work for a company that offers it (ESOPs), but they aren't risk free (see: Enron).
 
#90
#90
lawgator1 said:
The article you quote says it was rare for businesses in this industry to allow employees to co-invest in the businesses, and even more rare to do so by buying the special class of stock used to manipulate the system. The article specifically says that this mechanism is not available to the average person, and rarely available even in the Bain industry.

One of the deals allowed people to make over 500 times their investment in a short period of time.

This is the problem. To get that deal, you have to be in a very elite situation. A situation only a very small number of people can utilize.

Legal ? Sure.

Palatable to the voters ? Time will tell, but if they really understood how this was done and how they are effectively locked out of getting such similar sweetheart deals, I tend to think not.

Last, I call attention to the fact that your characterization of the article about valuation of the shares is simply false. Your own posted article specifically says that Bain could assign it's own value to the shares. That's how they could shove millions of latent value into a $30,000 capped vehicle.

The deal was so good that employees borrowed money from friends and family to try to get in on the gimmick.

The article -if you actually read it -- supports my position. And that is that thus kind of inside baseball strategy to turn small amounts of money into incredible wealth is done by setting a false price and letting only a select few in on it.
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Don't be ridiculous. These deals are only available to accredited investors and GPs in these funds typically qualify. The deal proponent within the shop almost ALWAYS invests to have skin in the game alongside LP capital. Leave this issue alone, as you clearly have no idea what you're talking about.
 
#91
#91
Weezy said:
It's both moral and legal. Bain can't manipulate the valuation of stocks since it must be appraised at fair market value by a third party and reviewed by the IRS. And employees can purchase stock in their company if they work for a company that offers it (ESOPs), but they aren't risk free (see: Enron).
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Incorrect. Both times.
 
#93
#93
Weezy said:
It's both moral and legal. Bain can't manipulate the valuation of stocks since it must be appraised at fair market value by a third party and reviewed by the IRS. And employees can purchase stock in their company if they work for a company that offers it (ESOPs), but they aren't risk free (see: Enron).
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You think Romney is guilty of a crime ?
 
#94
#94
Gramps said:
You think Romney is guilty of a crime ?
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No, I believe he did nothing wrong, and in fact, he should be commended. His company made investments, and as a partner he was paid in those investments as a benefit similar to our employers matching 401k contributions, except his was in stock of those investments. He did not manipulate the price, it was low because it was a risky bet. As a succesful investment by Bain the price went up, and since it was in his IRA, he now has a lot more money in his than you or I do. Would you like to regulate IRAs from higher gains?

edit: Personally I find Romney's success in being an intelligent investor to be a big plus. It's his washy political views that are questionable.
 
#95
#95
lawgator1 said:
The article you quote says it was rare for businesses in this industry to allow employees to co-invest in the businesses, and even more rare to do so by buying the special class of stock used to manipulate the system. The article specifically says that this mechanism is not available to the average person, and rarely available even in the Bain industry.

One of the deals allowed people to make over 500 times their investment in a short period of time.

This is the problem. To get that deal, you have to be in a very elite situation. A situation only a very small number of people can utilize.

Legal ? Sure.

Palatable to the voters ? Time will tell, but if they really understood how this was done and how they are effectively locked out of getting such similar sweetheart deals, I tend to think not.

Last, I call attention to the fact that your characterization of the article about valuation of the shares is simply false. Your own posted article specifically says that Bain could assign it's own value to the shares. That's how they could shove millions of latent value into a $30,000 capped vehicle.

The deal was so good that employees borrowed money from friends and family to try to get in on the gimmick.

The article -if you actually read it -- supports my position. And that is that thus kind of inside baseball strategy to turn small amounts of money into incredible wealth is done by setting a false price and letting only a select few in on it.
Click to expand...

Go back and understand valuation - they took the total investment and divided among the shares they created. The total investment sets the total value which they divided among class of shares - these were internal shares. Their value was a piece of the total Bain investment which employees had the option to participate in. If Bain liquidated their position then those internal investors received value based on what the total Bain investment returned. It was a way to divide the proceeds of the total investment. As the article points out the only thing they did that was "rare" was the ratio of value among these internal shares - risk/reward for the employee investor. PE firms virtually all do this, Bain was simply a bit more aggressive.

Your example of Dominos is simply wrong - they didn't set the value (as low as zero as you suggest). The equity had x value and all the equity investors got a chunk at a function of that value - Bain may then divide that value into classes of shares for it's internal investors and the pay out comes from Bain's return on the it's original chunk that was not valued at zero by Bain.

The notion that what Bain did was rare is not anything of significance - companies do "rare" things all the time and as the article suggests that "rareness" came with more risk. The price for risk is return potential.
 
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#96
#96
Weezy said:
No, I believe he did nothing wrong, and in fact, he should be commended. His company made investments, and as a partner he was paid in those investments as a benefit similar to our employers matching 401k contributions, except his was in stock of those investments. He did not manipulate the price, it was low because it was a risky bet. As a succesful investment by Bain the price went up, and since it was in his IRA, he now has a lot more money in his than you or I do. Would you like to regulate IRAs from higher gains?

edit: Personally I find Romney's success in being an intelligent investor to be a big plus. It's his washy political views that are questionable.
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Good assessment - it's amazing that some wish to attack the man for making well-thought out, risky decisions that actually paid off.

Sucks when entrepreneurs doing something unique yet risky that really pays off. Really screws the country...:blink:
 
#97
#97
volinbham said:
Good assessment - it's amazing that some wish to attack the man for making well-thought out, risky decisions that actually paid off.

Sucks when entrepreneurs doing something unique yet risky that really pays off. Really screws the country...:blink:
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If we could get past this media idiocy surrounding Bain and actually talk about how risk capital actually drives growth and jobs in our economy, we'd stop debating the backgrounds of the two and how they relate to the economy. There actually is no debate.
 
#98
#98
BigPapaVol said:
No it isn't. There are multiple ways to validate share price, none of which Bain is in charge of.
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Read the articles.

Bain set the price for purposes of jamming as much of it as they could into the $30,000 tax deferred IRA vehicle.

Once there, the real value was realized. And wallah, $450,000 becomes $102 million.
 
#99
#99
lawgator1 said:
Read the articles.

Bain set the price for purposes of jamming as much of it as they could into the $30,000 tax deferred IRA vehicle.

Once there, the real value was realized. And wallah, $450,000 becomes $102 million.
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*voila

The did not do it for the purposes of putting it into an IRA. That is absurd. They allowed employees to invest in a high risk/high return venture. There was no requirement that it be put in an IRA and I would guess most of it was not IRA bound.

From the WSJ article these are not Roth IRAs so they pay taxes upon withdrawal. Also as pointed out they will most likely pay higher taxes because they are in an IRA than if they were in a regular investment account on which they paid cap gains rates.
 
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#100
#100
volinbham said:
*voila

The did not do it for the purposes of putting it into an IRA. That is absurd. They allowed employees to invest in a high risk/high return venture. There was no requirement that it be put in an IRA and I would guess most of it was not IRA bound.

From the WSJ article these are not Roth IRAs so they pay taxes upon withdrawal. Also as pointed out they will most likely pay higher taxes because they are in an IRA than if they were in a regular investment account on which they paid cap gains rates.
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Tx for the correction. I know that, but have a mental block on it.

As to discussion, I'm not the one speculating on how this happened. Its the accountants and lawyers these reports are talking to. And the overwhelming sense I get from these articles, whether they be by or in liberal or conservative leaning publications, is that a return of 227 times over the course of the investment period we are talking about, is nothing short of jaw dropping astounding, and cause for concern.

The Obama campaign I think we all always knew would paint Romney as the epitome of the elite and secretive multi-millionaire, engaged in deals we can't be a part of in every day life. What does surprise me is how ill-prepared it seems that Romney's campaign is to deal with it. They seem so defensive and unable to counter these attacks.

I think George will's comments of frustration with Romney over this past weekend hit the nail on the head. You know the day McCain loses in 2008 that you are running and that you are probably the front runner. How you don't at that point in time get out of and resolve the issues created by the blind trusts and the millions in the Cayman's and the Swiss accounts, its just mind boggling how that was not anticipated and handled back then.
 
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