WILLIAM SIMON SAYS...Take the money and run!

William Simon Says...

Take the money and run!

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Rules for Playing the Game -

Simon Says

Players form a line facing the leader and perform any action that “Simon says” do this. If he doesn't say "Simon says" before an action, then anyone who imitates the action is out of the game. Continue until one person is left.

The last person who is standing can then be "Simon"!

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Brief Descriptions of our previous and current game leaders...

William E. Simon - Financier, businessman, and Secretary of the Treasury during the Nixon and Ford administrations. He was also a member of the secretive and select Committee of 300.

A partial business career listing: Partner, Solomon Brothers (1964); Deputy Sec of the Treasury (1973); Secretary of the Treasury (1974-77); Sr Consultant, Booze Allen & Hamilton (1977-79); Consultant, Allstate Insurance Co.; Pres, John M. Olin Foundation; Director, Kissinger Associates; Founding Board Member, Robert Trent Jones International Golf Club; Senior Trustee, University of Rochester; Director, Xerox Corp.

William Simon died on June 3, 2000 of heart and lung ailments. He was 72.

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William Simon, Jr. - William Simon, Jr. was the unsuccessful Republican gubernatorial candidate, State of California, in the 2002 election.

Executive Director of William E. Simon and Sons, and co-chairman of the WES&S Investment Group.

Previously, Simon was an Assistant United States Attorney for the Southern District of New York, working under Rudolph Giuliani. He was also a foreign exchange trader and an assistant treasurer in the Municipal Bond Department of Morgan Guaranty Trust Company.

Simon serves on the Board of Trustees of Newark Academy and Williams College, where he is also a member of the Executive Committee, he is chairman (Emeritus) of Covenant House California, co-chairman of the William E. Simon Foundation, a family foundation that focuses on educational scholarships, physical fitness and opportunities for young people to improve their own circumstances, vice chairman of Catholic Charities, a director of the Criminal Justice Legal Foundation and the Heritage Foundation, and the Board of Regents for the Children's Hospital Foundation. Simon earned his JD at Boston College Law School.

Now, let’s play the game ! ! !

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WILLIAM SIMON SAYS... “SMOOZE WITH SPIES”

April 11, 2003

FBI SAYS ITS AGENT HAD AFFAIR
WITH CHINESE SPY

Accused woman was prominent Republican activist

By Erica Werner, Associated Press

LOS ANGELES - If the FBI is right, one of its own agents carried on an affair with a prominent Republican activist who happened to be a Chinese double agent.

The affair allegedly gave the spy, nicknamed “Parlor Maid,” access to classified documents while she wined and dined some of California’s top politicians and businessmen.

“Basically you see her everywhere,” said Paul Zee, a businessman and former mayor of South Pasadena who is active in the Chinese-American community.

Authorities said Katrina Leung, 49, was recruited to work for the FBI in the early 1980s and soon began an affair with her handler, former supervisory Special Agent James J. Smith, 59.

She would copy classified documents he left unattended when he came to debrief her at the posh home she shared with her husband and their son in wealthy San Marino, according to a prosecution affidavit.

Attorneys for both have denied the accusations.

The FBI alleges it paid Leung $1.7 million over 20 years to act as an informer, and during that time she allegedly had an affair with a second agent, whom officials did not identify. The second agent learned of Leung’s unauthorized contacts with officials in Beijing and alerted Smith, but Smith continued his relationship with Leung, authorities said.

Leung was charged Wednesday with obtaining a classified national security document for purposes of aiding a foreign nation, Smith was charged with gross negligence for allowing Leung to obtain the documents. They could face up to 10 years in prison if convicted.

Prosecutors said they found FBI documents at Leung’s home, including phone directories and a secret 1997 memorandum about Chinese fugitives that contained “national defense information.” The affidavit said that an FBI agent secretly searched her luggage when she left Los Angeles for China in November and found six photographs of current and former FBI agents. The photos were not found when the luggage was secretly searched again upon her return....

The house Leung and her husband, Kam, own has four stone lions around a fountain, and a pool and guest house. The two worked as consultants, and Katrina Leung brought neighbors cookies and cake at Christmas.

Leung worked with many Chinese-American groups, and her former posts included secretary of the National Association of Chinese Americans.

A naturalized American citizen and a registered Republican, she donated money to Republicans including Rep. David Dreier and failed GOP gubernatorial candidate Bill Simon, as well as some Asian-American Democrats including Chu, records show. She raised money for Simon and former Los Angeles Mayor Richard Riordan.

She accompanied Riordan on a trip to China in 1998 and joined Mayor James Hahn’s delegation when he went to China last year.

Leung and her husband donated about $25,000 last year to candidates for state office, including a $10,000 donation to Riordan.

According to the federal affidavit, Leung has admitted setting up bank accounts in Hong Kong to which she pretended to make mortgage payments on the home she bought about 12 years ago for $1.4 million, though she was actually paying herself.

That enabled her to claim mortgage interest tax deductions after she had actually paid off her mortgage....

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For more on THE FBI, GO TO > > > The Secret Nests - Part II

For more on the China Connection, GO TO > > > Crouching Dragons ~ Hidden Rats

WILLIAM SIMON SAYS... “DRILL FOR OIL.”

March 31, 2002

Simon has millions in oil stocks as California fights offshore drilling

DON THOMPSON, Associated Press

SACRAMENTO ---- As California battles the Bush administration over plans to drill for oil off the state's coast, Republican candidate for governor Bill Simon has millions of dollars invested in companies that would benefit if drilling is allowed.

If drilling starts, the companies in which Simon owns stock could gain drilling contracts, ship the oil pumped from beneath the sea and then sell that oil. As governor, Simon could end California's legal efforts to stop drilling.

A Los Angeles millionaire and former oil company vice president, Simon has said repeatedly he opposes additional drilling off California's coast, but has defended his vast investments.

"Just because you're against offshore drilling in certain areas doesn't mean you're against offshore drilling worldwide," Simon said in January.

But his extensive ties to offshore oil interests don't comfort drilling opponents.

"To have someone heavily invested in the oil industry overseeing California's coast is a little scary," said Carl Zichella, the Sierra Club's regional director. "If he waffles (on offshore drilling) at all, it will be to his political detriment."

The Bush administration wants a federal appeals court to allow drilling off San Luis Obispo, Santa Barbara and Ventura counties. Democratic Gov. Gray Davis used the courts to block attempts to build the first new oil platforms off California's coast since 1994, rejected settlement offers and has sworn he will take the case to the U.S. Supreme Court if necessary.

Simon has at least tens of thousands of dollars invested in companies with direct interests in the dispute, financial disclosure documents show, and owns millions more in companies that drill, sell and ship oil by tankers and pipelines.

For example, he owns up to $100,000 of SeaRiver Maritime Financial Holdings Inc., a subsidiary of Exxon Mobil Corp., which is one of the companies holding the 36 leases at issue in the federal drilling case. It also owns currently producing leases. A SeaRiver subsidiary, formerly Exxon Shipping Co., operated the Exxon Valdez that ran aground and spilled oil off Alaska in 1989.

Through family trusts, Simon owns up to $100,000 of stock in USX-Marathon, an Exxon Mobil partner, and Occidental Petroleum, a Shell partner. The trusts own between $4,000 and $20,000 worth of stock in Royal Dutch Petroleum/Shell Oil Co. and ChevronTexaco; both hold California offshore leases.

While Simon owns some oil stock, campaign strategist Jeff Flint said, Davis has accepted hundreds of thousands of dollars in campaign contributions from companies including ChevronTexaco and Occidental, including $176,000 last year alone.

Simon also owns hundreds of thousands of dollars of stock in Seacor Smit Inc., a Houston-based drilling and shipping company, and its former subsidiary, Chiles Offshore Inc., which specializes in offshore drilling.

U.S. Securities and Exchange Commission documents indicate that one-third of Chiles Offshore's business comes from Shell. Seacor Smit, meanwhile, established what its chairman called a "toehold" on the California coast last year when it bought a West Coast supply vessel.

SEC documents and the Simon campaign indicate that South Street Capital LLC, an investment firm controlled by the Simon family, sold about $4 million in Chiles stock last year. Simon declared no income from the stock sale in the financial disclosure report he filed with the Fair Political Practices Commission, but reported owning a maximum of $1 million invested by South Street in the company.

Campaign finance reports and Simon's disclosure forms show some offshore oil money may have gone to his campaign. He sold hundreds of thousands worth of energy stocks last year as he poured more than $4 million of his own money into his campaign. Meanwhile, Simon's siblings, who share in family trust profits, have given him at least $750,000.

Last year, Simon sold as much as $100,000 worth of stock in Diamond Offshore Drilling of Houston, which engaged in three drilling projects off California's coast in the 1980s....

His father, William E. Simon, was President Nixon's "energy czar" through the Arab oil embargo of the early 1970s before becoming treasury secretary. In 1988, Simon and his brother joined their father in William E. Simon & Sons, an investment firm with substantial holdings in the energy industry.

Corporate records from Florida, Louisiana and Mississippi show Simon was a vice president and director through the mid-1990s in Paramount Oil Co. of Baton Rouge, La., and Shore Oil Co. of Houston, oil and exploration companies that had extensive holdings in the Gulf of Mexico region.

Paramount merged into Shore, which later merged with a firm that eventually became 3TEC Energy. Simon sold up to $100,000 in 3TEC shares last year; family trusts own as much as $1 million in 3TEC stock.

Those companies drilled off the Gulf of Mexico coast, Flint said, so it's not "fair to tie Bill's investments" to California.

Oil, gas and other energy company executives have also donated thousands to Simon's campaign, state campaign finance records show.

They include $5,000 from Tesoro Petroleum, a Texas-based company active in offshore drilling, and $22,000 from people and firms connected to Alvin V. Shoemaker, former chairman of First Boston Corp. and a director of Shore Oil and Paramount. Occidental contributed $10,000.

Davis this month accused Simon of profiting from California's energy crisis through business dealings with El Paso Natural Gas, which regulators alleged helped drive up gas and electricity prices last summer.

A Simon family investment company owns between $10,000 and $100,000 in El Paso stock. Simon also sold as much as $100,000 worth of stock last year in 3TEC Energy Corp., 20 percent of which is owned by an investment arm of El Paso.

Simon is a major investor and former board member of Houston-based Hanover Compressor Co., which does business with companies such as El Paso and the bankrupt energy giant Enron.

Davis himself is defending his acceptance since 1996 of $119,500 in campaign funds from Enron.

Simon's charitable foundation also benefits from extensive oil and gas investments, primarily Hanover Compressor.

While Simon was a board member, Hampton joined Enron in a Venezuela-based partnership, SEC records show, before Enron's collapse. After Simon left the board, Hanover ran into Enron-style accounting problems this year over its involvement in the Hampton Roads gas project off the coast of Nigeria with California leaseholder Shell Oil Co.

Though the California Coastal Commission and the state attorney general also are parties to California's suit against the Bush administration, Simon if he became governor could use his legal and budgetary power to end the state's efforts.

"He could make it not just difficult ---- impossible" to continue, said Nathan Barankin, spokesman for Democratic Attorney General Bill Lockyer.

Eleven environmental groups have joined the state's suit, arguing that most Californians want to defend their world-famous coastline.

Simon agrees "there should not be any new exploration or drilling off the coast of California," Flint said. However, he said Simon has taken no position on what he would do with existing contracts such as are at stake in the California suit.

"He would have to take a look at it," Flint said.

WILLIAM SIMON SAYS ... “PUT ON YOUR RUNNING SHOES!”

August 05, 2002

Business credentials lose
political luster

Corporate scandals create voter distrust

By Daniel B. Wood and Abraham McLaughlin
The Christian Science Monitor

LOS ANGELES AND BOSTON - Where American voters are concerned, a political candidate's once-sterling tagline of MBA is morphing into the ignominious acronym, BTA: "Better Think Again."

Thanks to the freefall of the stock market and the corporate scandals of Enron, WorldCom, Adelphia, and others, the political aspirant with a business background –– promising to clean up government mismanagement –– is running head-on into a new level of public distrust....

Bipartisan distrust

While typically thought of as a bigger minus for Republicans than Democrats, the new climate of business distrust is hurting both parties simultaneously.

"To run for office as a businessman right now, Democrat or Republican, ... may be as bad a strategy now as during the Depression of 1929," says Joe Cerrell, a California political consultant.

Perhaps the highest-profile example of a businessman-candidate running into trouble is Bill Simon, who won the GOP primary in March at least in part because he said his business credentials could help get California, currently struggling with economic and budgetary woes, back on track.

But Mr. Simon, son of former US Treasury Secretary William E. Simon Sr., has stumbled since the primary, including refusals to publicize his tax returns, releasing them, but then raising suspicions by refusing to answer key questions about them.

His candidacy entered an even darker period last week with a jury's multi-million dollar civil fraud verdict against his family investment firm. The Los Angeles Superior Court jury found that the firm, William E. Simon & Sons LLC, saddled the plaintiff –– Pacific Coin, a private, pay-telephone company –– "with excessive amounts of debt" after acquiring controlling interest in 1998.

The jury awarded Pacific Coin $13.3 million in compensatory damages, plus $65 million in punitive damages....

"The current trial finding is a blow to the very reputation Simon has been trying to push, namely that he is the business outsider that can set this state straight economically," says Mark Di Camillo of the California Poll.

Simon says the verdict is "fatally flawed" and that he's confident it will be overturned.

But Simon presents a dilemma for President Bush –– himself an MBA holder –– who only recently backed Simon and is scheduled to visit the state Aug. 24.

"Part of the problem for Bush is that he is also trying to be seen as someone who is trying to clean up the climate of corporate corruption in America," says Mr. Cerrell.

"So how do you go about associating yourself with someone who was just found guilty of fraud and ordered to pay $78 million?"...

WILLIAM SIMON SAYS ... “GIVE ME A BIRD IN THE HAND, BUSH!”

August 23, 2002

Bush campaigns for embattled California candidate

PORTLAND, Oregon (Reuters) - One day after calling for corporate crooks to serve "hard time" in jail, President George W. Bush on Friday will campaign in California for a Republican gubernatorial candidate whose company was fined almost $80 million in July for fraudulent business dealings.

Bush plans three appearances on Friday and Saturday to raise about $3 million for the embattled Bill Simon Jr., son of President Nixon's Treasury Secretary William Simon....

With scandals affecting blue chip icons like Enron and WorldCom, confidence in American business has been rocked badly, sending stock markets plunging during the summer months and threatening to derail the nascent U.S. economic recovery.

Indeed, corporate scandal is such a hot topic on the American political landscape that Bush has made a point of talking about it at almost every recent public appearance.

On Thursday in Oregon at a stop to promote his new forest policy, Bush portrayed himself as hard on corporate crime.

"We're going to find those who cheat, and we're going to prosecute them, and they're going to find out that instead of easy money, they've got hard time ahead of them," Bush said to rousing applause from the audience.

TRUE TO HIS WORD

Earlier, Bush was asked if he saw any conflict between his tough rhetoric on corporate crime and his support for Simon.

"Bill Simon assures us that when the courts look at this case, he'll be innocent," Bush said.

"I take the man at his word."

Bush and his vice president, Dick Cheney, themselves are no strangers with corporate problems. Both men are under fire from Democrats for their own business practices before taking up their current positions....

At the end of July, the investment firm co-owned by Simon and another company was ordered to pay $97.2 million to a man who said the two firms financially wrecked his company.

A Los Angeles civil court jury returned a $75 million punitive damages award against Simon's family firm, William E. Simon & Sons, and B-R Investors, another investment firm.

A day earlier, the same jury had found the two firms guilty of fraud, breach of fiduciary duty and other claims and awarded $22.2 million in actual damages to Edward Hindelang Jr. and his company, which distributes and manages pay phones.

Simon's company, which he founded with his father and brother, was ordered to pay about $79 million of the total. The Republican candidate, whose financial dealings have come under question in the campaign, called the decision "fundamentally flawed" and predicted it would be overturned on appeal. ...

The Bush visit comes a week after Cheney visited California and mentioned Simon's name only once in two speeches and took no photos with him at all -- something interpreted by many political commentators as a sign the White House might try to distance itself from the candidate.

As Simon seeks to win the election, perhaps the best hope is how unpopular the current governor, Gray Davis, is.

Davis has been blamed for his handling of California's energy crisis -- a debacle that caused blackouts, electricity shortages, massive utility bills and economic disruption for the state.

The last public polls showed Davis and Simon close while private polls give Davis an 8 to 16 percentage point edge. But that was before a Los Angeles jury on July 31 found the Simon family investment company guilty of fraud.

WILLIAM SIMON SAYS ... “TAKE A TAX-FREE TRIP TO THE CAYMANS!”

Bill Simon's Enron Ties

by Jason Leopold

California GOP gubernatorial candidate Bill Simon Jr. has portrayed himself as a savvy businessman who can deal successfully with the state's financial woes. But Simon's ties to Enron, the bankrupt energy company that has been charged with manipulating the electricity market in California and is under federal investigation, raise questions about his business acumen and his fitness for the state's top post.

Former business associates of Simon say that he personally persuaded Enron to invest in Hanover Compressor, a Houston company he founded in 1990 and on whose board he sat between 1992 and 1998. Hanover makes pumps that move natural gas and oil through pipelines and from wells.

According to several people at Enron and Hanover involved in the transaction, the Enron investment was made in 1995 through an Enron partnership called Joint Energy Development Investments, or JEDI, which is now at the center of the federal investigation into Enron's collapse.

Simon held a 1.4 percent stake in Hanover, which after the JEDI investment was worth tens of millions of dollars. His father, William Simon, the former energy czar and Treasury Secretary under Richard Nixon, ran a private investment firm, William E. Simon & Sons, which owns more than 4 percent of Hanover. The younger Simon declined requests for an interview. He has previously dodged questions about his relationship with Enron.

JEDI was at one time Hanover's second-largest shareholder, with an $84 million stake in the company, according to a Securities and Exchange Commission filing. Last June, JEDI shifted most of its shares to another off-balance-sheet Enron partnership. JEDI's stake in Hanover allowed the Enron executives who managed JEDI to attend Hanover board meetings. Hanover executives said Simon and Enron came up with several joint-venture ideas.

Simon was also involved in Hanover in matters separate from the Enron deals that could raise legal concerns. Hanover said in February that it would have to restate its financial results beginning in January 2000 because of improper accounting for a partnership that--as with Enron--made the company appear more profitable than it was.

Over several years during this time, according to the Wall Street Journal, Hanover officers sold millions of shares of stock--again much like Enron, where officers who were allegedly aware of the company's accounting practices were encouraging employees and others to buy shares even as they were selling their own. Hanover is now the target of at least four class-action lawsuits by shareholders who have alleged the company misled investors; and it is also under investigation by the SEC.

Simon wasn't a member of Hanover's board at the time of the improper accounting, but a week before Hanover made the announcement, the company reported that every annual report it has issued since going public in 1997 contained errors. Simon, as a member of Hanover's audit committee, was responsible for approving the company's annual reports. The audit committee, according to Hanover's investor relations department, was held responsible by Hanover for the error.

Simon helped Hanover set up a partnership in the Cayman Islands, Hanover Cayman Limited, as a tax shelter. In addition, he assisted Hanover in setting up a joint venture with Enron and JEDI to construct a natural-gas compression project in Venezuela.

Jamie Fisfis, Simon's campaign spokesman, said Simon has been forthcoming about his business dealings with Hanover and Enron. But when asked about JEDI's investment in Hanover and what role Simon played, Fisfis said he did not know and would only confirm that Simon was a member of the Hanover board at the time. Moreover, he could not offer an explanation when asked about the other joint ventures with Enron that Simon's former business associates said he had a hand in creating.

Simon has told reporters on the campaign trail that he was barely involved in Hanover's business activities, but Hanover executives say Simon was intimately involved during his six years on the board. When Simon left the board in 1998, he sold most of his 430,000 shares in the company. However, he still has more than $1 million invested in Hanover, according to the Associated Press.

Sherry Bebitch Jeffe, senior scholar of the University of Southern California's School of Policy, Planning and Development, said Simon has to start answering questions about his dealings with Enron, "whether it be good or bad," or risk alienating voters.

"The symbol that Enron has become is negative, cheating and ruthless."...

WILLIAM SIMON SAYS... “POINT YOUR FINGERS AT THE AUDITOR.”

September 16, 2002

Documents spell out Simon's tax deal

TECHNIQUE CALLED FRAUD IN IRS SUIT AGAINST FIRM THAT SOLD STRATEGY

By Laura Kurtzman, Mercury News

Gubernatorial candidate Bill Simon employed an aggressive accounting technique using an offshore corporation to create paper losses that may have saved him millions of dollars in taxes, according to documents obtained by the Mercury News.

The extent of the tax benefits, if any, Simon accrued in 1997 could not be determined. But the financial means are laid out in intricate detail in an Internal Revenue Service suit against KPMG, the accounting firm that sold Simon the strategy.

While Simon is not a target of the legal action, his use of the accounting device places him in a select group of wealthy Americans who can massage the law to minimize their tax obligation. And the episode illustrates that, despite Simon's firm's recent exoneration in an unrelated fraud case, the contrivances that make a successful business career can also make for a vulnerable campaign.

The KPMG procedure -- involving a Cayman Islands corporation, Swiss bank stock, stock options and warrants -- is complex by any measure. It relies on the accounting maneuver of ``basis shifting,'' under which credit for an investment by one entity ``shifts'' to another. In the KPMG plan, the credit ultimately evaporates, and can be claimed as a loss.

``I think the American public should be morally outraged at these kinds of deals,'' said David Weisbach, a University of Chicago Law School professor who worked in the Treasury Department under former presidents Bush and Clinton.

Simon, a Republican lawyer and investment banker, said only that the tax plan involved bank stock and foreign exchange.

``It was an investment transaction involving investments in a bank and investments in foreign currencies,'' he said. ``It was recommended to us by KPMG. We looked at it together with our accountants, and we decided to enter into it.''

Simon participated through a family partnership in 1997, according to an aide, and says he has not been audited.

KPMG would not comment.

It was not until July that Simon was connected to the KPMG arrangement when the IRS took the unusual step of identifying in its suit dozens of wealthy taxpayers thought to have used the strategy. Besides Simon, the IRS names his brother J. Peter Simon and their late father, William E. Simon.

The lawsuit and confidential KPMG marketing materials for the shelter, which were obtained by the Mercury News, show for the first time publicly how Simon's tax deal worked.

One beneficiary

In its suit, the IRS included a description of how one KPMG customer had benefitted from the shelter.

Joseph Jacoboni of Lake Mary, Fla., used the strategy -- actually intended for corporations owned by married couples -- when he earned a $28 million profit by selling his share of Software Support, a tech support company. He saved $5.6 million in federal taxes.

Experts familiar with the KPMG shelter and the IRS lawsuit say it is clear from the court documents that Jacoboni's deal was fundamentally the same as Simon's.

Using the dollar amounts for Jacoboni's deal, here are the shelter's six steps:

•• Step One: A taxpayer buys $1.7 million in stock in the Union Bank of Switzerland.

•• Step Two: A Cayman Islands corporation provided by KPMG buys $35 million in Union Bank stock. The corporation borrows the entire purchase price amount from the bank.

•• Step Three: The taxpayer purchases a warrant for the right to buy 85 percent of the Cayman corporation's shares. This allows the taxpayer to claim a controlling interest in the corporation and its investment.

•• Step Four: Union Bank buys back the $35 million in stock from the Cayman corporation. Simultaneously, the taxpayer purchases an option to buy $35 million of Union Bank stock.

•• Step Five: Soon after, he sells the option back to Union Bank and relinquishes all interest in the Cayman corporation.

•• Step Six: The taxpayer sells the $1.7 million in Union Bank shares bought at the beginning of the deal.

In the end, both the taxpayer and Union Bank got back virtually all the money they spent on the bank stock. But the taxpayer was able to claim a $33.3 million loss -- the difference between the corporation's $35 million stake in Union Bank and his own $1.7 million share.

The reason: The corporation's $35 million stake ``shifted'' to the taxpayer because the taxpayer had a controlling interest in the corporation and because he briefly owned an option for the same amount of Union Bank shares -- $35 million worth.

But because he owned only $1.7 million in stock at the end of the investment, the rest could be considered a loss.

IRS claims fraud

To the IRS, the deal is not a loss but a fraud, and Jacoboni now seems to agree. He sued KPMG for fraud after the IRS audited him, alleging that KPMG misled him about the risks by representing the shelter as a ``no lose proposition'' and a ``clean deal, never audited.''

Some tax experts think the maneuver may be upheld in court because there was an element of economic risk when the taxpayer bought the Union Bank stock. The stock price could have risen or fallen while the taxpayer held it.

Others contend that this was a minuscule risk when compared with the total value. In Jacoboni's case, he could have lost part of his $1.7 million stake. But the largest sum of money in the deal -- the $35 million put up by Union Bank -- was never in any danger.

However a court decides, the tax breaks are not what the IRS intended when it wrote the tax rule, said Joseph Bankman, a professor at Stanford Law School who has studied the KPMG shelter and others like it.

``For a lot of us, this is really about respect for the law,'' Bankman said.

``People don't realize how phony these transactions are.''

Contact Laura Kurtzman at lkurtzman@sjmercury.com or (408) 920-5608.

Catbird Comment: For some of you returning visitors, this might seem like déja vu, but you probably just have Bill Clinton’s deal with the Arkansas Financial Development Authority and AIG in the back of your mind.

To refresh your memory, GO TO >>> The Un-American Insurance Group

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SIMON SAYS ... FLY ON DOWN AND TAKE A CLOSER LOOK AT SOME OF OUR FRIENDS AND THEIR WELL-FEATHERED NESTS!

Industrial and Commercial Bank of China - From The Straits Times-Asia, 10/31/00:

ANTI-GRAFT AUDITS TO INCLUDE TOP LEADERS

China's chief auditor plans to take his fight against corruption to almost the top of the country's political system, according to state media.

This follows the discovery of US$11 billion in mismanaged funds at Chinese government offices and businesses.

The astounding sum, reported by Mr. Li Jinhua, Auditor-General of China's National Audit Office, is one of the strongest indications of how mismanagement is in China....

"Corruption thrives under a lack of efficient supervision," the paper said....

According to earlier official reports, the auditing led to the discovery of misuse of funds at the Industrial and Commercial Bank of China, and the Construction Bank of China, causing losses worth more than 10 billion yuan (S$2 billion)....

Mr. Li's auditors found that individual officials and managers had misappropriated 590 million yuan. But this marked only a fraction of the 96.17 billion yuan mismanaged, if not embezzled, by offices and firms, the China Daily said.

The reports did not give details of how the funds were misused . . . But in previous reports over the past 18 months, Mr. Li has criticised officials for diverting government subsidies and spending lavishly on offices. There has also been talk of speculation in stocks....

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Asia 2000, 11/8/00, by Jeremy Page:

CHINA SENTENCES 14 TO DEATH IN SMUGGLING CASE

China sentenced 14 people to death on Wednesday, including senior police and customs officials, in the first verdicts of a multi-billion dollar smuggling scandal, the biggest corruption case of the Communist era.

Those sentenced to death included the former customs chief and deputy mayor of the southern port of Xiamen, and the former deputy police chief of southern Fujian province . . .

But state media said the mastermind of the smuggling scam, businessman Lai Changxing had fled overseas after being tipped off by police. ...

Lai's Yuanhua Group smuggled more that $6 billion worth of cars, luxury goods, oil and raw materials in the early 1990s, paying off city and provincial officials to facilitate and cover up duty evasion, Xinhua said.

"The group also used money and women to seduce a number of government officials for the convenience of their smuggling activities," Xinhua said.

The smuggling "caused serious damage to the normal economic order, brought huge financial losses to the state, led to rampant corruption, and impaired the social, political and economic life in China," it said. . . .

The death sentences included Xiamen's former customs chief Yang Qianxian and former vice mayor Lan Pu, and former Fujian deputy police chief Zhuang Rushun, Xinhua said.

Ye Jichen, head of the Industrial and Commercial Bank of China in Xiamen, was also given a death sentence . . .