Back in 2005 I wrote about Derivium Capital. They were under investigation by the IRS & FTB for making loans that converted capital gains to nothing! for tax purposes. A great scheme, if you can get away with it.
Well, the Department of Justice filed suit to stop the scheme. The defendants are Derivium Capital, LLC, Derivium Capital (USA) Inc., and Veridia Solutions LLC. Four individuals were named in the suit. The DOJ is asking for a permanent injunction to stop the loans; the lawsuit claims that the scheme has cost the US Treasury over $230 million.
Though Derivium is in bankruptcy, the lawsuit alleges that the individuals involved are still trying to peddle the loans. My advice from back in September 2005 was if it sounds too good to be true, it probably is. In this case, not only are the defendants in trouble, but if you happen to have “bought” a Derivium loan, or are considering buying one today, you will have problems with the IRS.
Tags: DeriviumCapital
You seems to be misinformed on some of the basic issues. Most Derivium customers entered into a three year stock loan with Derivium and paid capital gains taxes at the termination of their loan. (Derivium did not advise clients to not pay capital gains taxes at loan termination; quite the opposite, in fact.) The transaction is not, on the face of it, “too good to be true”. You give up 10% of the value of the stock, and a substantial portion of the upside, in exchange for locking in 90% of your gain and the tax deferral advantages.
The tax issues are complex and I don’t pretend to be an expert. However, there are certainly serious legal arguments that can be made in favor of Derivium. I don’t think you do your readers a favor, by merely parroting the IRS line with no independent analysis.