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How One Fund’s Profits Ended Up in the Caymans
- Text size
Lucy Komisar
IPS
February 8, 2009
President Barack Obama said he would crack down on firms that use offshore centres to evade taxes. He could begin with a New York subsidiary of one of the world’s largest private banks, which used a Cayman Islands company to shift its profits.
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| Why would a New York fund manager run operations through an office in the Caymans? “This type of structure is for optimising taxes,” explained Max Obrist, a Cayman Islands official of the global Julius Baer Group. | |
Why would a New York fund manager run operations through an office in the Caymans? “This type of structure is for optimising taxes,” explained Max Obrist, a Cayman Islands official of the global Julius Baer Group (Zurich).
He told IPS that “generating” the income where a company was actually based, “you would pay much more taxes”. Obrist was describing a company shifting claimed earnings to tax havens to evade home taxes. He allegedly helped Julius Baer Investment Management (JBIM) New York do just that.
Obrist is a director of Baer Select Management (BSM), a Cayman Islands company. According to a whistleblower who used to work with him in the Caymans, BSM is a fake firm created by Julius Baer to sign agreements with JBIM and other subsidiaries so they could evade taxes.
The whistleblower, Rudolf Elmer, 53, a German, was chief operating officer of Julius Baer Bank & Trust Company (JBBT), Caymans, at 212,000 dollars a year and served on the BSM board from 1999 to November 2002. JBIM paid fees to BSM to “manage” its investments. Elmer told IPS that JBIM moved to BSM profits it should have reported to the U.S. Internal Revenue Service.
JBIM is now called Artio Global Investors. It manages 72 billion dollars in assets. It has some 900 institutional clients, including corporations, pension funds, endowments and foundations and major financial institutions as well as more than 700,000 mutual fund shareholders.
Its chief executive and chief investment officer Richard Pell and head of international equity Rudolph-Riad Younes were paid 120 million dollars during the first nine months of 2007, leaving the company with income of 48.6 million dollars.
Artio is a subsidiary of Julius Baer Group, Switzerland’s largest private banking group with over 300 billion dollars in assets invested on behalf of institutions and very wealthy individuals. Julius Baer’s reported profits in 2007 were more than 1.1 billion dollars. It has 30 offices in world financial centres, from New York and London to Dubai and Tokyo. BSM is a Julius Baer subsidiary.
Elmer said, “There was a strategic plan adopted in 1996 to utilise Baer Select Management, JBIM New York and JBIM London to benefit from the offshore system.” He said that JBIM assigned management functions to BSM in order to award it a performance fee. He provided backup documentation to IPS, including financial spreadsheets.
He said that Obrist in the name of BSM ratified a few decisions, but really worked for JBBT. He said that control was exercised and decisions taken by JBIM New York or Julius Baer Investment Funds Services Ltd, Zürich, which were part of Bank Julius Baer & Co, Zürich.
According to Elmer, JBIM made a proposal to Julius Baer Investment Management, Zürich, to launch a fund, and Zürich approved. JBIM did the paperwork and other organisational tasks with the help of JB Zürich and Caymans lawyers.
- A d v e r t i s e m e n t
The offering memorandum said that Baer Select Management was appointed investment manager, Elmer said, and BSM appointed JBIM investment advisor.
JBIM was generally listed as a fund “advisor”, though some public documents said that JBIM managed funds. Elizabeth Nesvold, founder of the New York investment-banking boutique Silver Lane Advisors LLC, noted that though investment managers make most of their money from performance fees, most of the JBIM’s revenue was claimed from advisory fees.
A call to the Grand Caymans phone number for BSM was picked up by a receptionist for Julius Baer Bank and Trust Co Ltd (JBBT). “Is this the number for Baer Select Management?” she was asked. “Yes,” she replied, and passed the call to Max Obrist. He identified himself as BSM’s director. He had a few other jobs. The Jan. 13, 2000 minutes of the JBBT management committee said, “Direct Money Market dealing has started. Max Obrist has assumed responsibility for this activity.”
He was also listed as a director of Directorate Inc., British Virgin Islands, the corporate director of some Julius Baer funds.
Describing BSM’s tasks, Obrist explained, “We have to follow stocks, monitor their investment policies, we monitor the risk reports we receive from the investment advisor and check if there are performance fee calculations involved if they are executed properly, all monitoring duties. We are in contact with the external auditors and the regulatory authorities and Cayman Islands monitoring authority.”
He said BSM’s fee was “a percentage of profits, and it depends on what type of duties we have to do here from Cayman.”
Why was BSM needed? He replied, “That’s an interesting question. I don’t always know when they start something. They decided on a much higher level. I wasn’t involved. We were told: ‘You act as investment manager for these new funds’.” But he didn’t manage, he “monitored”.
Fees paid to BSM resulted in lower company profits and taxes for JBIM. Fund managers generally take profits of 1 or 2 percent of assets plus 10 to 20 percent of investment gains. As the funds had high values, that involved substantial amounts. According to Elmer, BSM, acting through a board whose members worked for JBBT, transferred profits via several offshore companies to Julius Baer Holding Ltd, Zürich.
Obrist denied that BSM is a shell company. He said, “We are physically here in the Cayman Islands, not just a post office box like some companies trying to save taxes without doing anything physically.”
He insisted, “BSM is to give service from an offshore place and at the same time we can within Julius Baer optimise taxes, yes. But we are physically here. We do our job as investment manager. If Baer Select would be here just as a post office box company and generate the millions in Cayman as income instead of in the U.S. or the U.K. or Switzerland, then that would not be a very smart thing.”
Obrist said BSM stopped working for JBIM New York four or five years ago after it closed some hedge funds. However, JBIM/Artio would still be potentially liable for unpaid taxes, as the U.S. has no statute of limitations for tax fraud.
Artio CEO Richard Pell did not reply to numerous phone messages and emails describing this story and requesting an interview. Martin Somogyi, spokesperson for Julius Baer, Zurich, emailed that the company always adhered to applicable regulations and was regularly audited, but that it would not agree to an interview. (Its global auditor is KPMG.)
Julius Baer Americas Inc. (now Artio Global Investors) which owns JBIM/Artio, in February 2008 filed with the SEC that it would go public with an initial public offering (IPO) to sell up to 1 billion dollars of common stock on the New York Stock Exchange. The offering would be handled by Goldman, Sachs and Merrill Lynch. The IPO has been postponed.
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February 8th, 2009 at 4:19 pm
business as usual.
February 8th, 2009 at 5:37 pm
If we hide money then…..”we’re scum of the earth”.
When they do it……”it’s a wise business decision”.
How is someone like Obama going to crack down on firms that bank offshore?, especially since so many of these same kind of people helped finance his own campaign to get elected in the first place.
lee comstock Reply:
February 9th, 2009 at 12:50 am
Why would he want to?
February 8th, 2009 at 6:24 pm
UBS IRS and CRA and Swiss accounts and diamond smuggling not a story, but this is. Those crazy censors.
February 8th, 2009 at 6:26 pm
Never heard them deny the tax benefits..just her justifying that they are legal about their tax shell.
This is like what Dubai is creating..a tax free break.
February 8th, 2009 at 7:50 pm
i lost 2600 dollars when bill farley moved fruit of the loom to
cayman is if a stock you own re charters or moves operations
to caymans sell immediatly that is a red flag
you are about to get fleeced
February 9th, 2009 at 2:25 am
Why in hell would anyone rich or poor keep money in the United States of America?
We have the crookedest tax system in the world, and getting crookeder every year.
All this shit makes me glad I live from check to check, and am now working very hard to be as self providing as possible.
I give as little as I can to this rotten system, and I’ll be happy when I’m giving nothing to these thieving bastards.
February 9th, 2009 at 2:33 am
swear aleigence to a man instead of an idea
and the plan always falls
for a man is part Gaia
hot windy sand can fray all he calls.
But an idea writen in words
Can be an unsmiten surge
from the man
and all he left to stand
(children to begin a purge
of the man who says he is all we need), to merge
with what is real
like huts of asteroid steal
stolen in secret
v/s hemp, void of dirty deals
rolling in, to keep it-
it: the idea of peace
that will seap
into the mangers of mothers
and change all the others.
this is why the old middle eastern culture covers and controls their women
back then they where sacred and powerful so the only way to make them objects was to make them too sacred
and the new western culture treats their women like objects
we are all bodies in a scientific world. Women were going to become free
so the culture(the parts manipulated) turned on them and makes them into side line entertainment
accessories.
but it is us men that are the accessories
flash light and blind fold
that is the two main ones
we scout out what might be real and our mothers/daughters/wives/sisters put it in action, mostly, during gestation. when women see what has become in mass levels, evolution will happen, possibly with slight physical changes to dna.
this is why they are trying to beat it to the punch with their own version, because truth humbles them, which they immediatly, with reaction-mind, reject. women are allowed to do their own magic in the elite, but it is all too perverted and mind numbed to even comprehend the true evolution that takes place when the human race, primarily women, conclude that a new truth is apperent. total speculation: i suppose the last one was that we were not exactly like most of the other animals and had a different calling, the hand and the mind became the symbols. this time i think it will be the heart. like learning something, sometimes you go back to the begining when you’re done. we could have always had the same dna and evolution is solely spiritual and consciousness oriented. either way, women hold the button. men hold their speculations and don’t mind a good debate. women feel what is and don’t need any one to tell them some logical crap.
DAVE CLINE Reply:
February 9th, 2009 at 8:10 am
YOU NEED TO GET SOME SLEEP…………..TAKE A NAP…… YOU MAKE NO SENSE………….
February 9th, 2009 at 4:50 am
Hey infowarriors check out my new website and blog! Its pretty new and needs some work still.
Please visit and click on some of the GOO-GLE ads to support and fund my website, thanks!
http://www.info-warriors.com
February 9th, 2009 at 11:58 am
Banks dirty little secrets and stimulus money ©
By Michael W. DeXXXXXX.
As a taxpayer! Now these banks need to answer to me, not congress, or the house,
or even Obama himself
Now for the subprime mortgages, this is a total myth that I am being sold, the real
financial crisis the deleveraging of the whole world market system, to include the likes of UK, Japan, China, and most of Europe, Other country’s are coming into play as well. Ok now I know the so called bubble has broke,
What’s next, I’ll tell you but hold on this is a big bubble, the derivative market, the bad credit moves, this is done between the banks, so the balance sheets look okay,
I bet you didn’t know it!
Next the Bond Market is about to go thought the bubble like Mount St, Helens.
And a couple more that is at the brink of busting, Credit Cards and commercial
real estate
And what is left here for all to do, they need money and how to get it, that’s easy,
The stimulus packages,
And why are the people of America not told about the electronic run on the banks in September of 08,
Giving these banks more money seams to be alright, But to use for those toxic debt
is or as they are now called assets, a bad loan or loans are just as they are,
Here is something I didn’t go into detail with, but theses are being sold back and forth
or between each bank an may I say or add! Correct me if I am wrong okay; the bank sells to another and receives a fee for this, The fee I’ve got no idea, But it could be in the billions for each bank, or I should say the Chase, Bank of America, Citi, PNY, and
a few others,
And what you need to know some of these toxic assets are being exchanged with foreign banks,
Help is not on the way, the stimulus will for ever be used for the wrong investments
TKXs
February 9th, 2009 at 1:12 pm
More of DC’s smoke & mirror bullshit in an effort to blind the sheeple into believing in “change”. Barry isn’t going to punish his brothers or change anything, as roaddog it’s just “business as usual”.