Superdonor Steyer used tax shelters
Hedge fund record draws comparisons to Democratic attacks on Romney in 2012
Tom Steyer, the billionaire environmental activist who is spending $100 million to help elect Democrats this fall, is rallying support for energy taxes that could impact everyday Americans. But when he ran his own hedge fund, Mr. Steyer sought to help wealthy clients legally avoid paying taxes, confidential investor memos show.
Mr. Steyer’s strategy included establishing funds in tax havens like the Cayman Islands and Mauritius, and are reminiscent of the tactics used by former Republican presidential nominee Mitt Romney during his career at Bain Capital — which was repeatedly savaged by Democrats during the 2012 election.
For instance, Mr. Steyer boasted to investors such as major universities that his hedge fund, Farallon Capital Management LLC, had a “desire not to earn income which would be taxable to our tax-exempt investors,” one internal memo reviewed by The Washington Times showed.
Mr. Steyer also helped his firm’s wealthy clientele avoid the highest of U.S. taxes and penalties by establishing arcane tax shelters such as blocker corporations — tactics most Americans have never heard of or used.
The tax avoidance memos could complicate Democrats’ efforts to run populist, middle-class targeted campaigns this fall to retain control of the Senate by reminding voters that one of their biggest political benefactors is a classic “one percenter” who made his reported $1.6 billion fortune by helping others avoid paying taxes.
Conservatives already are sharpening their attack lines.
“To me, the most astonishing aspect of this is the Democrats’ reliance on this guy. While Harry Reid is on the floor of the Senate lambasting out-of-state billionaires for funding political activities, he has no problem using their money when it comes to his purposes. There’s a totally absurd disconnect,” said Phil Kerpen, president of American Commitment, a free market public policy group, who also has written on Mr. Steyer’s business dealings. “They’re criticizing the use of dark money, but Steyer’s money is about as dark as it comes.”
Now a political activist who left his hedge fund in 2012, Mr. Steyer is pushing for a variety of new taxes on the energy sector. In California, Mr. Steyer supports an oil extraction tax, and he is funding politicians who support taxing carbon, including Sen. Mark Udall, Colorado Democrat.
Mr. Steyer also has been a vocal advocate for cap-and-trade measures and has helped fund a defense of California’s climate change law. Industry advocates say such measures necessarily raise energy costs, which are passed on to consumers.
While at Farallon, however, Mr. Steyer used loopholes in U.S. tax regulations to produce maximum returns for his elite clientele. That included using tax havens in the Cayman Islands, the British Virgin Islands and Mauritius, “where there are no regulations at all, no call for transparency, and have little to no income tax rates,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy in Washington.
Mr. Steyer, through his political action committee, declined to comment.
A spokesman from Farallon Capital also declined a request for comment from The Times. Farallon was notified of the content of the investor documents obtained by the Washington Times and didn’t object to it as inauthentic or fraudulent.
The billionaire has said little publicly about his hedge fund days, even after newspapers such as The New York Times questioned why he once was heavily invested in fossil fuels, an industry that conflicts with his environmental positions.
One of his few rebuttals to the criticisms, however, came in the form of a blog post late last month in which Mr. Steyer claimed to have undergone a political conversion of self-described biblical proportions when he stepped down from Farallon in 2012 to launch his environmental movement.
“My version of a Paul on the Road to Damascus conversion on the issue was the result of continuing to learn more about the devastating impacts of climate change and as the scientific evidence became clearer, I realized I could no longer remain at my company — not when it meant supporting investments in the fossil fuel industry,” Mr. Steyer wrote June 25.
In an op-ed published this week in Politico, Mr. Steyer acknowledged Farallon’s investment in fossil fuels but said he has divested all his personal fossil-fuel holdings since leaving the hedge fund.
“I left the firm and committed myself to addressing global climate change because — based on the scientific evidence — I could not reconcile my personal values with managing a fund that by mandate is invested in all sectors of the global economy, including fossil fuels,” Mr. Steyer wrote in the July 14 article.
He added: “To prevent any possible conflict of interest, I no longer own any stake in Farallon or have any influence over its actions.”
Mr. Steyer didn’t address any tax issues in the op-ed. He also has declined to say whether his former firm is managing any of his personal money.
Romney and offshore politics
The mystery, intrigue and potential conflicts for Mr. Steyer’s image as a populist environmental crusader could become grist for Republicans hoping to blunt the impact of his spending during the campaign season.
When Mr. Romney was running for president two years ago, Mr. Reid, the Senate majority leader, created a firestorm in the national media by blasting Mr. Romney on the chamber floor for not having paid U.S. taxes in a decade.
Mr. Reid never disclosed where he obtained that information and told reporters that they were the ones who should check out the claim. One of President Obama’s attack ads at the time, however, provided a world map pointing to the tax havens in Bermuda, Luxembourg and the Cayman Islands, where Mr. Romney owned assets.
Mr. Obama’s online ad questioned: “Has Mitt Romney avoided U.S. taxes by investing millions in tax havens? We’ll never know, because he won’t release his records.”
Mr. Steyer, through his representatives, also declined to release his tax records to The Times.
Farallon’s empire while Mr. Steyer was at the helm consisted of almost 200 corporations, partnerships and LLCs set up in different locations, including the Cayman Islands, Singapore, and Mauritius. All are known tax havens. In the Cayman Islands, for instance, confidentiality law states that a person can be imprisoned up to four years just
Tom Steyer, a former hedge fund manager who helped wealthy clients dodge taxes, now is helping Democrats’ campaigns and pushing for taxes on the energy sector.