November 5, 2004
Justice goes after doctor accounts in tax avoidance investigation
This New York Times article reports on a San Diego federal judge's order on Thursday that froze almost $600 million in investment accounts as the Justice Department probes charges of illegal tax avoidance involving California-based xélan, a company that markets tax-savings plans to doctors. The company's Web site says it was founded 32 years ago by doctors to help other physicians with financial matters, ranging from pension plans to disability and long-term care insurance. It calls itself "the Economic Association of Health Professionals."
The Internal Revenue Service estimates that some 4,000 doctors are involved in what it alleges is a fraudulent tax-reduction scheme, and they could owe as much as $420 million in taxes, interest and penalties. The Justice Department alleged that "persons and entities affiliated with xélan" have advised thousands of doctors and other medical professions to invest in "various fraudulent tax avoidance schemes," including purported supplemental-insurance products and improper charitable-deduction schemes involving a xélan-related foundation. The government's complaint said more than $500 million is held in investment accounts controlled by xélan-related and Barbados-based Doctors Benefit Insurance Co.
I don't know whether the government's charges against xélan have any validity, but it has been my experience that doctors are generally easy prey for promoters of investment scams and tax avoidance schemes. With a lot of money and not much time to analyze such matters, doctors are tailor-made for making bad investment decisions. As a result, I have represented many doctors over the years in extracting them from poor investment decisions that they have made.
My first experience with this phenomena is instructive. Over 25 years ago, while still in law school, my late father -- noted Professor of Medicine Walter M. Kirkendall -- called me one day to ask me to accompany him to a breakfast meeting at Houston's old Shamrock Hilton to advise him regarding an investment "opportunity" that was going to be pitched to him and a number of other Texas Medical Center doctors at the meeting.
So, my father and I attended the meeting, along with about 50 other Medical Center doctors. During the meeting, a group of slick promoters from Dallas promoted limited partnership interests (at $75,000 a pop) in an entity that would own the rights to a movie. The movie was being filmed at the time and was called "Coming Back," a preposterous tale about the adjustments that several Dallas Cowboy football stars had to make in playing professional football after returning home as Vietnam veterans. The promoters even played a few film clips from the movie, which were absurdly bad.
"We expect this to be hit throughout the country, particularly among professional football fans," commented the promoters. But the real money to be made, the promoters assured in hushed tones, was in the overseas markets. "The Dallas Cowboys are simply huge in Japan," they exclaimed breathlessly.
Through the presentation, my father and I were actually having a wonderful time, enjoying the free breakfast while rolling our eyes at each other and chortling about the absurdity of it all. At the conclusion of the meeting, the promoters asked that any doctor interested in investing to come up to the front of the conference room and they would make arrangements for giving them a discount on their investment in the film. That pitch brought a final chortle from my father and me, as we simply could not believe that anyone would be so gullible to invest any money in such a surefire scam as this movie. So, as the meeting concluded, we stood up and proceeded to leave.
As my father and I made our way out of the conference room, we were almost stampeded by the dozens of doctors literally sprinting to the front of the conference room to make their investment in the film.
About a year and a half later, the promoters of the film were convicted of securities fraud in federal court in Dallas.
To this day, no word on how "Coming Back" ever did in the Japanese market. ;^)
Posted by Tom at November 5, 2004 6:17 AM |
That's hilarious! I'd never heard about this. Too bad you and Dad couldn't get in on the bottom floor when THE PRODUCERS was filmed...
Posted by: Brother Joe at November 5, 2004 12:27 PM
Joe, now that you mention it, perhaps Zero Mostel could have saved "Coming Back." ;^)
Posted by: Tom K. at November 5, 2004 12:35 PM
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