Department of Justice Seal Department of Justice
FOR IMMEDIATE RELEASE
THURSDAY, JUNE 16, 2011
WWW.USDOJ.GOV
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(202) 514-2007
TDD (202) 514-1888

FEDERAL COURT BARS FIRM FROM WITH OFFICES IN PENNSYLVANIA AND VIRGINIA FROM PROMOTING STOCK-LOAN TAX SCHEME

Court Finds “HedgeLoan” Transactions Were Taxable Stock Sales Disguised as Loans

WASHINGTON - A federal court has permanently barred HedgeLender LLC from promoting a stock-loan tax scheme, the Justice Department announced today. According to court findings, HedgeLender, which maintained offices in Philadelphia and Reston, Va., promoted a scheme purportedly allowing owners of appreciated stock to obtain cash through purported loans without reporting or paying tax on capital gains.

In entering a permanent injunction order against the firm, Judge T.S. Ellis III of the U.S. District Court for the Eastern District of Virginia found that HedgeLender knowingly made false statements when it told potential customers that these “HedgeLoan” transactions were true loans secured by the customers’ stock. In reality, the court found, the stock was sold immediately, and the funds provided to the customers were sales proceeds, not loan proceeds, and therefore subject to federal income tax on capital gains at the time of receipt. According to the court, HedgeLender caused the sale of more than $268 million in securities through the HedgeLoan scheme, and it promoted the program even after the U.S. Securities and Exchange Commission sued two of its owners, who agreed to stop promoting a similar stock-loan product.

The order announced today is the latest in a series of federal court decisions finding that purported stock-loan transactions like the HedgeLoan scheme are actually sales and not loans. In November 2009, a California federal court enjoined the developer of a similar scheme, the Derivium 90 percent loan program. The government complaint against HedgeLender also named two alleged owners of HedgeLender, Daniel Stafford and Fred R. Wahler Jr., as well as William Chapman and two companies he allegedly owned, Alexander Capital Markets LLC and Alexander Financial LLC. All five of those defendants previously agreed to permanent injunctions without admitting the allegations in the complaint.

In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against tax return preparers and tax fraud promoters. Information about these cases is available on the Justice Department website.

Related Documents:

  United States v. HedgeLender, LLC, et al.

 

 

 

 

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