The fake securities transactions were undertaken by two offshore shell corporations in the Isle of Man, Jackstones and Barnville, whose ownership has been kept secret.

POINT: Offshore Securities Portfolio. This case history examines a complex
securities transaction used to shelter over $2 billion in capital gains from U.S. taxes, relying in
part on offshore secrecy to shield its workings from U.S. law enforcement. In contrast to the
case histories examining offshore structures used over a period of years, this inquiry focuses on
the use of offshore secrecy jurisdictions to facilitate one-time tax shelter transactions. The tax
shelter was designed, promoted, and implemented by a Seattle-based securities firm, Quellos
Group, LLC, (Quellos), with the assistance of lawyers, bankers, and other professionals. Quellos
sold the shelter, called POINT (Personally Optimized INvestment Transaction), to six wealthy
clients in six separate transactions. Together, the tax shelters were used in an effort to erase over
$2 billion in capital gains that would otherwise have been taxed, costing the U.S. Treasury lost
revenue of about $300 million.
The Subcommittee found that the POINT tax strategy was based upon billions of dollars
worth of fake securities transactions that were used to generate billions of dollars in fake capital
losses to offset real taxable capital gains of U.S. taxpayers so they could avoid paying taxes to
the U.S. Treasury. The fake securities transactions were undertaken by two offshore shell
corporations in the Isle of Man, Jackstones and Barnville, whose ownership has been kept secret.
The transactions were carried out by compliant offshore administrators and trustees, since the
corporations had no employees of their own. Using circular transactions and offsetting
payments that cancelled each other out, these offshore corporations created a paper portfolio of
over $9 billion in U.S. high tech stocks that appeared to suffer price drops and generated the fake
capital losses used in the POINT transactions. The fees charged by Quellos depended upon the
amount of tax loss generated in each transaction for the taxpayer who bought the shelter; the
more money the taxpayer “lost” from the transaction, the more Quellos charged for the scheme.
Six U.S. taxpayers, including Haim Saban and Robert Wood Johnson IV, purchased the
tax shelter, paying fees totaling approximately $65 million. Prominent law firms, such as
Cravath, Swaine & Moore and Bryan Cave, provided written tax opinion letters affirming that it
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was “more likely than not” that the Quellos plan would produce the favorable tax consequences
promised, and collaborated with Quellos on its design or implementation. The factual statements
used to support the legal analysis in the opinion letters inaccurately described the nature of the
securities transactions generating the capital losses. The law firms accepted the representations
of Quellos on these matters without inquiring behind them. Prominent U.S. and foreign financial
institutions, including HSBC Bank, provided financing for the POINT transactions, without
conducting adequate due diligence into the underlying transactions. Some communications
involving persons who helped design, promote, and implement the tax shelter indicate that they
may have deliberately hidden key aspects of the POINT transaction from the clients, lawyers,
and financial institutions who participated in them.