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From Finalternatives.com:

Omega Advisors founder Leon Cooperman said he was “mortified” when he received a $19 million tax bill that he claims was the result of bad tax advice.

Cooperman, who seeded hedge fund Jana Partners in exchange for a share of its fee income, turned over that stake to his charity, the Leon and Toby Cooperman Family Foundation, in 2001 and 2006. Each time, he had the future income streams professionally appraised, the first half at $15 million and the second at $28 million.

The only problem, as Cooperman concedes, is that you’re not allowed to deduct non-publicly-traded securities donated to your own foundation. He likely would not know that—and would not be on the hook for almost $20 million—if he hadn’t had his first Jana appraisal redone in 2006, after the second appraisal found the other half of the stake to be worth nearly twice as much.

Armed with a new $20 million appraisal from RSM Business Services, Cooperman filed an amended tax return in 2005. In return, he got the tax bill—for $15 million in unpaid taxes and $4 million in fines.

While Cooperman is formally disputing the whole of the bill, his lawyer told Forbes he’s hoping that the penalties will be waived. Richard Levine notes that Cooperman relied on tax professionals and should not be penalized for their mistakes.

Whether Cooperman’s tax preparer, Gittelman & Co., or RSM will be penalized remains to be seen. The billionaire will wait until the tax case runs its course before considering his legal options against them.

When markets get hammered, you see a lot of ponzi schemes undone. That’s because when the market craps out, no one puts new money into the market and the schemer can’t maintain his lifestyle and meet client redemptions at the same time.

Scott Rothstein, who swindled $1 billion from his clients was sentenced to 50 years today. He committed his crimes while licensed as an attorney. That’s a new take on attorney – client privilege.

But Rothstein isn’t the only dirtbag to get press.

Kenneth I. Starr, a Manhattan business manager and investment adviser, was found hiding – creatively – in a closet and was arrested for conning some of Hollywood’s best known stars out of millions. According to the NYT, “he was arrested on May 27. He remains behind bars at the Metropolitan Correctional Center in downtown Manhattan, after prosecutors argued that he might flee if released on bail.”

Dana Giacchetto and his Casandra Group Investment firm advised Mike Ovitz, Rick Yorn, and Leonardo. Giacchetto was in jail for stealing some $20 million from his star clients.

No one is safe people. You have to do your homework, even if you get referred to someone. You need to get their DNA code.

Here are some helpful links:

FINRA Brokercheck for people who work at brokerage firms.

Investment Advisor Public Disclosure for firms that claim to be Investment Advisors or Independent Advisors. You can also check if their asset under management claims are correct with this site.

National Futures Association’s Background Affiliation Status Information Center (BASIC) is to check the compliance history of those who are in the commodity futures business.

I had the great pleasure of seeing and hearing Dave Morton on a panel at the Milken Global Conference a few weeks ago called The Road Ahead For ETFs.

Morton is the Chief Research Officer and Co-Chief Investment Officer of Foxhall Capital Management, a firm with $800 MM in assets.

In this interview, Morton discusses how you can achieve a higher fiduciary standard by implementing ETFs in your investment process whether you’re an RIA or plan sponsor. We also talked about how granular one can be in diversifying their clients portfolios using ETFs.

One thing you don’t want to miss, is discussion on the reality of what the public sees liquidity-wise, versus what Foxhall can accomplish utilizing specific market players in the ETF space.

How public employees became members of the elite class in a declining California offers a cautionary tale to the rest of the country, where the same process is happening in slower motion. The story starts half a century ago, when California public workers won bargaining rights and quickly learned how to elect their own bosses—that is, sympathetic politicians who would grant them outsize pay and benefits in exchange for their support.

Over time, the unions have turned the state’s politics completely in their favor. The result: unaffordable benefits for civil servants; fiscal chaos in Sacramento and in cities and towns across the state; and angry taxpayers finally confronting the unionized masters of California’s unsustainable government.

From The Beholden State, by Steven Malanga

This is a great article from The New Yorker called Publish or Perish.

It discusses the e-book business and the iPad and Kindle, the latter of which I own. All of the books I review are sent to me for free and I usually give them away once I’m done with them.

Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set at fifty per cent of the cover price. Authors are paid royalties at a rate of about fifteen per cent of the cover price. On a twenty-six-dollar book, the publisher receives thirteen dollars, out of which it pays all the costs of making the book. The author gets $3.90 in royalties. Bookstores return about forty per cent of the hardcovers they buy; this accounts for $5.20 per book. Another $3 goes to overhead costs and the price of producing and shipping the book—leaving, in the best case, about a dollar of profit per book.

Why, Mossberg asked, should consumers “pay Apple $14.99 when they can buy the same book from Amazon for $9.99?”

“That won’t be the case,” Jobs said, seeming implacably confident.

Paulson made billions on the subprime fallout. I don’t think anyone would care about Paulson or his alleged prowess in subprime BEFORE the collapse. It’s only after the fact that anyone would care and that’s because he made $$$ on the trade.

The exchange is key in that the Securities and Exchange Commission is charging that the failure to disclose Paulson’s position was a “material” factor that could have caused both ACA and German Bank IKB to back out of the CDO investment. When the CDO failed, Paulson reaped a gain of more than $900 million, the government has said.

I don’t know why ACA or German Bank IKB would care what anyone would think about an investment they were considering…they were acting in their own best interests and they got it terribly wrong.

Plenty written and spoken about Goldman Sachs since the SEC has come forward with charges. Now, CNBC has learned that Paolo Pellegrini has insight that contradicts what the SEC has alleged.

Paolo Pellegrini told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.

CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson’s position.

“Did you tell her that you were interested in taking a short position in Abacus?” a government official asked Pellegrini, referring to the name of the CDO portfolio.

“Yes, that was the purpose of the meeting,” Pellegrini responded.

Here is the full article at Yahoo! Finance.

SEC’s Mary Schapiro testified today before the House Agriculture Committee on ways to regulate over-the-counter derivatives, which present a number of risks, “chief among them is systemic risk.”

Has anyone else wondered, Why did Mary Shapiro testify before the House Agriculture Committee?

Fiduciary duty is determined by facts and circumstances and it is not uncommon for fiduciaries to be unaware of their status. One of the first issues that will arise in breach of fiduciary duty litigation is determination of whether the defendent, in fact, owed a fiduciary duty.

Gary is one of the best internet entrepreneurs I’ve seen. His passion is wine and he’s turned it into an amazing business. I just learned he’ll be in the SoCal area later this month.