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Colorado land scam10 more scams using the Scissortail scheme reaping 540% in unearned profits.
To set the stage lets first point out that the Scissortail scheme cost the taxpayers $27 million to generate a mere $5 million in venture capital investment funding. The $27 million in tax credits was all skimmed for profits. The program operated honestly would have generated $90 million in new capital at the same $27 million cost to the taxpayers. In total the taxpayers were scammed for $25.5 million (only $1.5 million was justified) and Oklahoma's economic future was cheated out of $85 million in capital funding.
An analogy to help understand the shell game and the element of risk. -
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Say you own a building worth $100,000 free and clear. You decide to start a business but need another $100,000 for start up. Someone comes along offering to invest the $100,000 for one-half interest in your business. You agree and the investor only having $5,000 goes to the bank and mortgages your property to borrow the other $95,000. Then brings you the $100,000. The investor then goes to the state and claims they invested $100,000 at risk and receives 30% or $30,000 in tax credits, which they keep. Within a few days the entire business is destroyed. The $100,000 was in inventory and in the safe that was destroyed. You lost everything, including the $5,000. The bank is left with the value of the land. The "so called investor" walked away with a $25,000 profit. There was no way for the investor to lose but was guaranteed a $25,000 in profit. Courtesy of being allowed to misrepresent the amount of their risk exposure and anyone gullible enough to take the deal. You had to give away one half of your $100,000 in assets and in return received $5,000 and are left with a $95,000 loan. Technically you and your new partner, but you are the only one with your remaining assets at risk. The investor partner has already received their original $5,000 back and a $25,000 profit. So how do state officials justify this is ok? Hang on, because you will love this. Here is what those profiting are trying to pass off as risk and is not illegal, and state officials are accepting. The new investor partner is now at risk of losing that 50% of your business that they wrangled out of you for a mere $5,000, which they have already received back the $5,000 plus a $25,000 profit. Another analogy is someone robs a bank and hides out. Another robber hears about the robbery, finds the original robbers. Holds them up and steals their entire haul. The original robber calls the police demanding they catch the second robber and return their money. |
| Scissortail Scheme investment cost, risk and profits In $ millions |
|||||||
| Fund source | Funds invested |
Funds received |
Profits | Losses | Amount at risk |
Net Gain/loss |
|
| Scissortail | 0 | $17 | $17 | None | None | $17 | |
| Investors | (1)$5 | $10 | $5 | None | None | $5 | |
| Business venture | (2)$85 | $90 | $5 | None | $80 | $5 | |
| Taxpayers | $27 | None | None | $27 | $27 | - $27 | |
| Notes | |
| (1) | There was never a need for an actual investment since this is all a paper shell game. Scissortail would receive the $27 million in tax credits before any money was invested in the business. Then the tax credits shared with the investors or sold for cash. The tax credits automatically become valid at the time the business venture receives the investment. It is a wash. |
| (2) | Although Scissortail tries to claim it is the party taking out the loan, the business venture has to sign over its own assets to secure the loan, and the loan is paid out of the business ventures profits. This leaves the business venture's assets at risk. |
Now we find at least 10 and possibly 23 more.
OTC issued 24 determination letters for investment plans to receive tax credits under the 2006 Grandfather clause. At least ten of the other plans were the same scenario as the Scissortail scheme that failed to meet most requirements, including the key requirement that investments must be at risk. These plans describe the same scheme as Scissortail's raising $5 to $15 million from investors, then using the assets of the business venture receiving the investment to borrow from $85 to $90 million. This transferred the risks to the business venture.
This is a financial shell game that any reasonably intelligent person should readily see in reviewing the first plan. Yet OTC issued determination letters knowing they did have to reveal the information to anyone.
Then Scissortail plan allowed taking $27 million in tax credits immediately. Benefits never imagined with legitimate investments. Scissortail could then divide the $27 million in the following fashion. $5 million, in clear profit, for the investors, if they had not already paid their investment share. $10 million if they had paid the $5 million investment. $5 million to the business venture which also receives the $85 million in loan proceeds. Scissortail keeps $17 million as its own profit.
The business venture received an extra $5 million for serving as the shill and the $85 million loan backed by its assets and will have to be paid out of its profits.
The cost to the public? $27 million!
Within a matter of a couple months at most of paper shuffling, and while not investing or risking one dime of either the "so called investors" or Scissortail's money, they pocketed $27 million in unearned profits. Their involvement added no value or benefit to the business or the public.
The Oklahoma Tax Commission is fraud central. OTC could not pull this off in an honest government. All evidence clearly points too many of these same Oklahoma officials are benefactors of this scheme a scheme they have been turning their backs to protect.