Articles, poems and commentaries
American depositary receipts
by Alyssa A. Lappen
Forbes | Jun. 15, 1987
Vol. 140, No. 12, p. 244
586 words
COMPANIES
by Alyssa A. Lappen
Forbes | Jun. 15, 1987
Vol. 140, No. 12, p. 118
733 words
TECHNOLOGY
by Alyssa A. Lappen
Forbes | Apr. 6, 1987
Vol. 140, No. 7, pp. 156-157
711 words
TECHNOLOGY
by Alyssa A. Lappen
Forbes | Feb. 23, 1987
Vol. 140, No. 3, p. 132
375 words
William Kilpatrick reorganizes his tax shelters
by Alyssa A. Lappen
Forbes | Feb. 9, 1987
Vol. 140, No. 3, pp. 60-61
884 words
Question: What do bad marriages and bad investments have in common? They’re easier to get into than to get out of. Just ask the 1,000 or so luckless souls who invested upwards of $120 million in various tax shelter schemes promoted several years ago by a Denver businessman named William A. Kilpatrick, a prominent target of the Internal Revenue Service’s campaign to stamp out abusive tax shelters.
Tax reform has largely closed down tax shelters of all sorts, including 4-to-1 writeoffs like those Kilpatrick promoted through his United Financial Operations Inc. Those unlucky enough to have invested in Kilpatrick’s limited partnerships have suffered, as the Internal Revenue Service is still fighting to deny investors their promised writeoffs on his deals–assessing them instead with hefty back taxes, penalties and interest charges.
One dazed investor pumped $165,000 into a Kilpatrick deal five years ago and, to stop his tax bill from mounting, recently decided to pay out $580,000 in back taxes and interest. Chastened, he now says: “Businessmen should pay their taxes and hope that next year they owe more.’
As for the investors’ quandary: Kilpatrick insists that his investors pay up on hundreds of limited partnership contracts they signed years ago but which now have little value.
In 1977 Kilpatrick began putting together $700 million worth of convoluted deals involving investments in proposed coal mining and synthetic fuel ventures. In the partnerships, the deals provided that each investor pay $12,500 in cash, as well as sign a promissory note for $37,500 from one of several foreign banks.
Kilpatrick’s operating company promised to invest the resulting funds with a Cayman Islands firm. That company, in turn, would use the money for research and development on synthetic fuel plants, thus giving the investors a total of $50,000 in first-year tax deductions. Investors also signed yet more notes, this time not from the banks but directly from two Cayman Islands research and construction companies.
A lot of supposedly smart people went for the deals, but the IRS considered the whole arrangement just a tax dodge, and Kilpatrick was charged with masterminding $120 million in phony deductions. The court threw out all the fraud charges, ruling that the indictment had “failed to state a crime.’ Overzealous IRS investigators also contaminated the case by manipulating evidence before a grand jury, and the final charge–obstruction of justice–was dismissed in September 1984.
Kilpatrick proclaims himself fully exonerated. But the Justice Department has appealed to have all charges reinstated. Meanwhile, without awaiting the decision, Kilpatrick has come back with another scheme. Without consulting the limited partners, he has consolidated the partnerships from United Financial into a new corporation–Green Mountain Herbs Inc., a spice distributor that was in Chapter 11. It had gone public over-the-counter in the late 1970s, rose to a high of $2 a share, and was languishing at 2 cents a share before United merged with it in late 1986.
Through a complex reorganization plan involving the swap of stock and assets, Kilpatrick arranged to get back $140 million in investor promissory notes from the Cayman Islands research and construction firms that held them, in exchange for 4.4% of Green Mountain stock. Kilpatrick himself took 32% of the stock.
The paper shuffle, in effect a tax-free exchange of “like assets,’ had two other important benefits for Kilpatrick. First, it gave Green Mountain the appearance of a fresh infusion of capital in the form of the Cayman Islands promissory notes and other new assets–primarily a coal-cleaning technology of unproved value. Second, by making United Financial in operating subsidiary of Green Mountain, Kilpatrick could continue arguing with the IRS that United’s investors were indeed entitled to claim their tax deductions, since United remained a going concern.
And now comes the kicker: Kilpatrick has gone back to his original investors and is insisting that they make good on the notes they signed to the Grand Cayman outfit. If they pay, the limited partners are promised a 29% block of Green Mountain stock. But that is hardly a powerful enticement, since the stock now trades at 25 cents bid. It seems unlikely to grow in value by more than whatever cash the investors choose to pay on their promissory notes.
Kilpatrick says that he will use what funds he collects to build up the business. In hopes of bolstering the stock price, he is now busy talking up Green Mountain to brokers nationwide. But many investors are skeptical of his plans, and collecting the money won’t be easy. “This is going to be a real dogfight,’ gripes Howard Moon, a Houston investor who sank at least $50,000 into Kilpatrick deals. Adds John Cook, a Texas oilman who put in $98,000 and now faces tax penalties that could bankrupt him, “Nothing he has ever done has worked out. He says, “Trust me again.’ But we will not.’
Undaunted, Kilpatrick now even wants to acquire the assets of seven other tax shelter promoters, holding a total of $40 million in uncollected notes from deals that also have soured. Kilpatrick says he intends to collect on those debts, too. In ice hockey, they’d call that a hat trick. If there were an annual award for the nerviest dealster around, we’d nominate Bill Kilpatrick for the honor.
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Polluted water has caused cancer in huge numbers of fish
by Alyssa A. Lappen
Forbes | Apr. 26, 1986
Vol. 137, No. 8, pp. 124-127
1,116 words
Viewed from shore, Puget Sound’s Eagle Harbor looks postcard idyllic, its wavelets gently lapping the beachfront as gulls bob offshore. But from about 20 feet beneath the surface, a different and completely revolting picture emerges–of a gloppy, creosote-soaked sand bottom that suggests the devil’s own vomit.
In this gunk, which was dumped for years by a local chemical company, English sole must forage for worms. And when researchers haul in the fish and slit open their bellies, they very often find the livers riddled with cancerous tumors.
Cancerous fish have surfaced in epidemic proportions in at least ten fresh- and saltwater shorefronts and estuaries around the country. Up to a quarter of the English sole in 20 areas in Puget Sound are diseased. So, too, are nearly all the saugers, a type of perch that inhabits Torch Lake, Mich. More than 90% of the two-year old Atlantic tomcods that swim in the Hudson River also have liver cancers. Likewise, in Ohio’s Black River tumor-laden catfish are common. And two years ago a quarter of the winter flounder in part of Boston Harbor suffered from liver cancer.
In Massachusetts, where commercial fishing brings in $1 billion a year and saltwater anglers add an estimated $175 million, the public outcry has been intense. “Just about everyone I know has rented a dory and gone out into Boston harbor for flounder, and now the damned things are cancerous,” says Paul Garrity, a former Massachusetts Superior Court judge.
Before he stepped down from the bench in late 1984, Garrity temporarily banned new sewer hookups in the Boston area after the city of Quincy (which is often called “the flounder capital of the world”) sued to force a cleanup of area waters. In response, the Massachusetts legislature promptly set up the Massachusetts Water Resources Authority, which plans to spend $1.2 billion over 17 years to build a waste treatment plant for the area.
Most humans diagnosed with liver cancer die of the disease within five years, and it is likely that most stricken fish will die premature, too. But is there a demonstrable connection between fish with cancer and human disease? Scientists have not been able to document one yet. But one disturbing study on the matter comes from Greta Fein, a researcher at the University of Maryland, who in 1984 reported that the offspring of 242 women who had eaten PCB-tainted fish for years have measurably slower neuro-muscular reflexes.
Warns Thomas Cameron of the National Cancer Institute: “The correlation between fish cancer and pollution is a red flag that there may be problems for people exposed to these waters by bathing, drinking, and eating the fish.”
If that is so, a grim possibility arises. Recreational fishermen spend an estimated $25 billion each year on the sport. In certain areas, they and the inner-city poor, who fish off piers and bridges and often live on what they catch, may actually be slowly poisoning themselves without even knowing it.
Studies show that many toxins from pollution are collected in the fish organs, which most people don’t eat. But some toxins, such as hexachlorobenzene, chlorinated butadienes and polychlorinated biphenyls, accumulate in both fat and flesh–and thus pass into the bodies of those who eat the fish.
Congress is alarmed. The House Fisheries & Wildlife Conservation & the Environment subcommittee plans to convene hearings in June to raise public consciousness about fish and water pollution. Says Michigan Democrat Dennis Hertel, a committee member, “We don’t want people eating those fish or swimming in polluted water.”
Federal agencies, funded by new research grants, are starting to look for an answer to the dilemma. The Environmental Protection Agency has allocated $14 million this year to assess environmental risks in Buzzards Bay, Narragansett Bay, Long Island Sound, Puget Sound and Chesapeake Bay. Likewise, the National Oceanic & Atmospheric Administration (NOAA) has mounted its own effort–an investigation costing $5 million this year alone that will examine correlations between cancerous fish and contaminated sediments in 50 coastal areas.
Early findings offer some clues. Apparently, toxic chemicals that cause mammalian cancer trigger the disease in fish, too, says Donald Malins, director of environmental conservation at Seattle’s Northwest & Alaska Fisheries Center. The fish feed off heavily contaminated sediments that contain large doses of toxic wastes. Time and again, scientists find traces of toxic elements in the gallbladders of fish with cancerous livers.
Environmental problems like these have put industry on the spot. In industrialized Midland, Mich., Dow Chemical began operating a $4.3 million pressure sand filter system last year to remove dioxin from wastewater that flows into Saginaw Bay, where PCB-tained fish have been found. Meanwhile, Occidental Chemical, which makes chlorine, caustic soda and hydrochloric acid at its Tacoma, Wash. plant, has also taken action, reinforcing its chemical storage tanks’ walls and surrounding them with asphalt and concrete dikes to contain spills. “We have a plant full of fishermen and hunters. We’re as concerned about the environment as anyone,” says Occidental plant manager Dave Scholes.
State authorities are trying to enforce clean water laws as best they can. Their efforts are particularly intense in situations in which pollution winds up putting state revenues in jeopardy. Last year the Washington State legislature created the Puget Sound Water Quality Authority, and the state’s Department of Ecology has stepped up enforcement actions by 30% over 1984. Michigan has restricted sales of tainted carp and catfish, and New York State now forbids sale of PCB-tainted striped bass as well.
Meanwhile, in the last five years state authorities elsewhere have closed 11% of the nation’s active shellfishing grounds. Such estuaries are the spawning grounds for more than 65% of commercially valuable species, such as bluefish, snapper and pompano, which inhabit the Gulf and East coasts. Luckily for seafood lovers, and for the $18 billion fishing industry, mature saltwater fish caught for commercial sale live in clean, deep waters and so far don’t show signs of developing cancers.
Under the eye of the EPA, states are charged with responsibility for enforcing existing water pollution laws. In Michigan, where recreational fishing is a $1 billion industry, authorities have slapped Velsicol Inc., BASF, National Steel and dozens of others with nearly $19 million in penalties, much of it relating to water pollution, since 1982. Even so, because EPA regulations don’t cover them, small businesses that dump into sewers, such as textile mills and commercial laundries, continue to pollute unchecked. More research is necessary before firm conclusions can be drawn as to whether cancer in fish is a harbinger of disease in humans or simply a warning of developing environmental danger. Either way, the threat is obvious, and foot-dragging is risky.
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