The recent press release from Robbins Arroyo LLP says:
On August 15, 2013, according to the complaint, First Marblehead issued a press release announcing the results of an ongoing Internal Revenue Service audit in connection with the sale of certain trust certificates. According to the release, First Marblehead would incur an additional tax liability of approximately $300 million plus interest, an amount nearly twice the size of the company's market capitalization.
This is a total lie. FMD managment did not say they owned $300 million. The said:
The Company continues to believe that its position is a strong one and intends to vigorously contest any proposed adjustment. The Company has evaluated the information expected to be included in the NOPA and has concluded that it does not change the Company's assessment of the ultimate outcome of this matter and, in accordance with relevant accounting guidance, the Company has not recorded an accrual for this matter in its consolidated financial statements.
Also, in the conference call they said that they consulted with their legal and accounting experts who have concluded they do not owe the taxes.
how is that a total lie, or even a partial lie? given that FMD absolutely DID say in their 8-k filing with the SEC that the disallowance creates a proposed adjustment of that amount it sounds like they were being 100% truthful and accurate...
" The disallowance of the loss, coupled with the additional taxable income after the sale date, creates a proposed adjustment which we estimate to be approximately $300 million plus interest."
current shareholders should not be too dismissive of this case because, if FMD loses, it will easily, potentially, wipe they don't appear capable of even coming close to meeting the terms of even generous repayment plan that includes IRS interest on $300 million that continues to accrue.
keep in mind that this involved a contingent sale. FMD reserved the right to reverse it, and many here thought they would if conditions had improved.
The reason it is a misrepresentation is the fact that the Robbins Arroyo press release announced that the company owed $300 million. There has been no determination that the company owes $300 million. All they said is that could get a Notice of Proposed Adjustment, probably because the statute of limitations is running out. In fact, Meyers on the press release stated that they feel they did not owe the money. Mangrove also had some research done also and the conclusion was they did not owe the money.
Further, anybody who can count should know that the company received $200 million in tax refunds and they have been saying for years that if the audit went against them they could pay this money back. So the $300 million number is no surprise. This is not new information for anyone who actually reads the sec filings.
They have been under audit for three years and nothing new has happened. If the matter does go forward to court, I cannot see how they will be liable for the tax since the sale agreement clearly says Vanquish will be responsible for all the state and federal taxes from the trusts going forward. The IRS is free to seek the taxes from Vanquish. Also, Vanquish is receiving all the residual income from the trust so it seems that they should pay the taxes on the income.
In addition, FMD received a legal opinon before entering the transaction so it is not like they entered the transaction blindly.
FMD did not reserve the right to reverse the sale. They only held the right to repurchase from the buyer if the buyer decided to sell the Trust. That is quite a bit different meifoot - let's draw it out on the chalkboard. A right to reverse would mean FMD could call up randomly and say, hey guys I want it back! Good luck finding any buyer willing to engage in such an agreement. If they had done that, it could be called a variable duration loan, and the IRS would be scrutinizing 'characterization', not sale. see previous remarks