February 22, 2010

Two recent news articles reveal state officials trying to minimize and sweep tax credit fraud under the rug to avoid an investigation. An investigation into a program that state officials are allowed to benefit, has been operated in secrecy, and would now entail opening the door into a room of horrors for state officials and lawmakers who are benefiting, along with their friends and donors. Ironically the fraud is obvious to any willing to examine the evidence. In a culture that fears taking a stand that has not been validated by the crowd, comfort is found in waiting for others to step forth first. Few have ever ventured into the foreign territory of performing their own evaluation of the facts and test their self confidence to render their evaluation, and stand by that with conviction.

Now that budget issues are bringing tax credit incentives out in the open, some are starting to recognize we have been remiss in attentiveness to what has been occurring. Oklahoma officials, are now aware the public is starting to asked questions about some of these off the radar pork handouts. The public now starting to wake up to the fact more have one-half the money doled out by state officials is off the books, with no tracking or accountability. State officials have suddenly became proactive in efforts to head off any investigations, by trying to get by normal reviews the can control. This was evidenced by state officials' comments in the Gazette's article "Billion-dollar budget hole causes confusion over multitudes of tax breaks," and Oklahoman's Sunday editorial "Legislature obliged to give revenue debate full review." The editorial theme was to tiptoe through the tulips, and gloss over the issues as more of an issue that it is time to review for effectiveness. Let's set the record straight, there was never any tracking and accountability required for this programs, and therefore nothing to review.

Here we will show one example of what state officials have been hiding and are now worried will expose their own involvement and personal gain in fraud ridden public programs. It has already been demonstrated Oklahoma law allows state officials to benefit from tax credit incentive programs. Four tax incentive programs that have been operated in secrecy to hide the fact $100s millions have been going to programs that use public funds to guarantee investors $2 for each $1 invested; these program have produced no growth or jobs; and public officials are among those reaping the unearned profits.

Déjà vu 2006 all over again. When tax credit fraud (then called abuses to soften) where exposed in early 2006, state officials were quick to claim unidentified tax attorneys had discovered a loophole that made receiving $2 in tax credits for each $1 invested "not illegal." That was the justification for not investigating or making any attempts to recover ill-gotten public funds. FYI 2006 was the second claimed attempt to close the same loophole. Which I maintain never existed, merely a ruse. Evidence reveals tax credit fraud increased by more than 10 times after the first claimed attempt to close the loophole and doubled after the 2006 failed claim.

One case will be described here that will illustrate:

• How state officials have repeatedly ignored information available to the public that clearly amounts claimed to have been invested are and the sources of the funds invested are far beyond reasonable. So far it is criminally negligence to ignore.
• Then evidence verifying the obvious, the investment claims were falsily inflated to gain unearned tax credits.

A March 9, 2006 Associated Press article "Tax credits being abused, officials say" first exposed the following.

Altus Ventures had received $66 million in tax credits for a claim it had invested $221 million in Quartz Mountain Aerospace, in 2005. The actual investment was only $32 million. The remaining amount claimed was a $189 million loan issued by First State Bank Altus. Paul Doughty was president of both the bank and Altus Ventures, which along with several other related LLCs were all owned by the Doughty family.

There are two obvious red flags.

• That a $100 million dollar bank could not legitimately issue a $189 million loan, without some form of special backing from other banks. This was totally ignored.
• We will later learned, the $189 million loan was one of six counterfeit loans total $643 million, Doughty had fraudulently used the bank to issue $643 million in counterfeit loans. One of the loans for $189 million went to Altus Venture Capital Fund V. This was the loan claimed to be invested later.
• A counterfeit loan is a loan on paper only, where only $1 is ever loaned. The so called borrower now has an official document from a federally back bank that is accepted without question.
• That claims of investing $221 million, in a small airplane manufacture using 50 employees to build a $190,000 plane, was again totally out of reason for anyone capable of simple math. ridiculous. That is $4,420,000 per employee, and would take selling 1,105 airplanes in an unproven market just to break even.
• Then to find a second claim for investing another $200 million was filed the following year. Even if QMA would have reached the projected pie in the sky 300 employees, claimed to justify funding would have been $1.4 million per employee.

To allow such obviously disproportionate amounts to go unchallenged is beyond comprehension. Yet no one bothered to check this out or even question. State officials claimed a loophole had been found that made this "not illegal." That was utterly preposterous. To give the illusion of taking action, although superficial, lawmakers promised to close the loophole. Few realized the same loophole was supposedly close two years earlier? Yet here it appeared again, even worse!

2006: State lawmakers acted to pass an amendment (SB 1577) they claimed closed the loophole. That amendment introduced in the Senate, was held up, until last day voting, by Kevin Calvey; Chairman of House Revenue and Taxation committee. AP reported Calvey entertained Doughty's input on creating language for the amendment; after several associated with Doughty's group donated $21,900 to Calvey's US Congressional campaign.

Post 2006: Evidence surfaced this second attempt to close tax credit loophole also failed to do the job; tax credit abuses more than doubled.

2007: Altus Ventures group claimed to invest another $200 million in QMA during 2006; when in fact only $32 million claimed in 2005 was ever invested. Yet Altus Ventures still received another $60 million in tax credits. State officials were again notified of evidence the claims were riddled with failure to qualify and false claims of amounts invested. Again the preposterous disproportionate amounts were pointed out. These claims were dismissed as not credible since the loophole had been closed; and shift to the bases ignoring was this was too complicated to understand.

2007, June 1: Shortly after filing the claim it had invested another $200 million the previous year, and having only reached 100 employees for a short period QMA was laying off.

2008: July QMA stopped sending in employee payroll deduction for unemployment and employee paid health and dental insurance. The next month August QMA was asking the City of Altus and Altus economic development group for loans to meet September payroll. Then closure came shortly after that.

2008: November received Altus Ventures financial files found on computer used in Colorado land scam showing, no more than $32 million was ever invested: modeling QMA cost and expenses to operate provided from inside the company verifying the $32 million; information from reliable sources inside the company verifying the $32 million was all that was received; and all sent to state officials and lawmakers.

State officials continued to ignore the obvious fact and evidence the amounts were never invested.

* The July 31, 2009, FDIC seizure of First State Bank Altus, uncovered the fact the bank had issued $643 million in fake counterfeit loans to, $507 million to Altus Ventures in late 2005.

Again officials simply ignored both the obvious and the evidence, and privately claim this is not credible evidence.

During this same period

It was discovered and reported OTC was misreporting and under reporting tax credit information on Openbooks to hide the amount of tax credit fraud.

information was uncovered and presented for numerous other false claims:

tax credits handed out for investments that never materialized.

tax credits handed out for claiming government back loans were investments.

tax credits hand out on a loan secured by an OKC parking garage obtained through a back door deal with the city parking authority.

tax credits handed out for passing a cities tax increment financed construction payments to a contractor through a money laundering scheme to claim the payments were an investment

tax credits handed out to a nursing owner selling a nursing back to themselves through another money laundering scheme to obtain tax credits.

• a constant train of false claims, employing a variety of shell games, continued rolling out of the tax commission authorizing taking tax credits amounting to as much as 10 times the qualified amount.
• evidence was found in comparing different reports revealing tax credit usage OTC was reporting on Openbooks failed to included most of the tax credit programs, two in particular that have cost approximately $200 million since 2006. Programs reported where listed $64 million, while other information uncovered revealed that should have been $268 million.

In summary, this is a case of overwhelming evidence supporting the obvious v state officials keeping all information in secret, providing no evidence and saying just trust us.

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