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| Case Updates for 2004 | |
Prior Case Updates for: 2012—2011—2010—2009—2008—2007—2006—2005—2004—2003—2002—2001 |
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Posted: 12/ 05/04 Follow-up
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Here are answers to some of the questions that have been received since our most recent website report announcing the tax settlement offer. The government sued FDIC, the Receiver for Benj. Franklin, in 2002, for $1.2 billion of taxes, interest, and penalties for tax years after the seizure of Benj. Franklin. There is now $91 million in the Receivership. FDIC with our approval and after much discussion with the government on November 19th offered to settle the tax claim for $47 million plus allocating the payment 25% to tax and 75% to interest. If the U.S. Court of Federal Claims finalizes and the Federal Circuit Court of Appeals affirms the $35 million Claims Court Judgment - which is completely separate from the tax settlement referenced above - this will mean an additional $35 million paid to the Receivership. This $35 million, however, will be taxed to FDIC-Receiver at Corporate tax rates which is a tax of about $12 million. The 75% allocated to interest in the pending settlement proposal, if approved, can be used to offset this corporate tax, thereby saving this $12 million, and allowing the additional distribution of $35 million minus expenses to the shareholders at a later date. As I said in the most recent website, the offer still needs further approvals which will take months. |
| Posted: 11/22/04
"Important Good News" |
On Friday, November 19, 2004, the FDIC as Receiver
for Benj. Franklin, with our approval, finally submitted an offer to settle
the tax claim for a payment out of the Receivership to the IRS of $47 million.
The offer also provides that this payment shall be allocated 25% to taxes and
75% to interest on the taxes. This means that if we can get the $35
million Claims Court judgment finalized (or increased) and then sustained on
appeal, we can use this interest payment to reduce the Receivership's future
corporate tax due on the Claims Court judgment.
Although this offer has been discussed at length
with Department of Justice and IRS staff before it was formally submitted, the
final approval must come from the IRS hierarchy and the Deputy Attorney
General of the United States - not the government officials with whom we have
been talking for the past 2 1/2 years. We will do everything we can to
help expedite the process, but I stress that only the Deputy Attorney General
can give final approval for the Department of Justice.
Assuming the Deputy Attorney General
approves, there will then be a fairness hearing before a federal judge in
Washington, D. C. FDIC has agreed to work with us to request a telephone
hook-up between the U. S. District Court in Washington, D. C. (where the
fairness hearing will be held) and the U. S. District Courthouse in Portland,
Oregon, in order to permit full
participation by interested Benj. Shareholders. A Notice will be sent to
all Benj. Shareholders that will explain what a shareholder needs to do if
he/she wishes to be heard at the fairness hearing and also will explain the
reasons that the parties have agreed to the proposed settlement amount.
The Federal judge will then decide if the settlement proposal is fair and
reasonable. Any settlement will bring less that we hope and more than we
fear. All litigation is uncertain. My colleagues and I believe
that this proposal is the best settlement that can be achieved.
There is now over $91 million in the Benj.
Franklin Receivership. Assuming approval by the Deputy Attorney General
and by the federal judge at a fairness hearing, approximately $44 million will
remain in the Receivership after the payment of the tax. FDIC will have
to retain some of this amount for the legitimate taxes owed for 2003 and 2004
and for other contingencies. In addition, FDIC and our legal team have
agreed to recommend to the federal judge that other payments be made from the
Receivership in accordance with FDIC's statutory priority scheme for making
distributions. These will include, first, a return of all contributions
made by the shareholders to the Benj. Franklin Shareholders Litigation Fund
(approximately 4200 shareholders have made such contributions). We
will also seek interest on the amount of these contributions in accordance
with FDIC's receivership procedures. Next will be a payment for the
attorneys and consultants' fees and expenses related to our work to preserve a
surplus in the Benj. Franklin Receivership in the face of the mammoth IRS tax
claim. Such fees and costs will be approved by the federal judge only if
he finds the amounts to be both fair and reasonable.
After these payments, we estimate that there will
be between$30 million and $35 million remaining in the Receivership, which
will be available for distribution to all Benj. Franklin shareholders
sometime in 2005. If the separate damage award of $35 million is
finalized (or increased) by the Claims Court and then affirmed by the Court of
Appeals, such amount (less appropriate fees and expenses) will be available
for a later distribution - in addition to the potential distribution discussed
above.
There is still much work ahead and additional
approvals needed, but this is the first time 14 1/2 years that I have been
able to talk realistically about money for the shareholders!
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| Posted: 11/09/04 | "I am now in Washington D.C., involved in detailed discussions with the Federal Deposit Insurance Corporation. I hope to have important news to report very soon." |
| Posted: 9/21/04
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Today, September 21st, is a day for which we have been waiting for over two years. On August 18th, our tax group met with the Department of Justice (D.O.J.) and Federal Deposit Insurance Company (FDIC), (the Receiver of Benj. Franklin) for another discussion of the IRS’s tax claim against the Benj. Franklin Receivership. On September 6th, I submitted a proposed tax settlement to FDIC, on behalf of the majority of the shareholder plaintiffs. The FDIC subsequently agreed to submit our proposed tax settlement to the D.O.J. and the I.R.S. Today, September, 21st, we and FDIC had a final settlement discussion with D.O.J. and will follow-up that meeting with a written letter that jointly offers a definite settlement amount to resolve the tax disputes. If, after discussion with the Internal Revenue Service, D.O.J. approves an offer then D.O.J. will submit the proposed tax settlement to the Assistant Attorney General for his approval. At the same time, the FDIC and we will submit a detailed factual and legal analysis of the proposed tax settlement to the federal court requesting that the Court set a date for a fairness hearing in open court. We will then be instructed by the Court to notify the shareholders by the best means possible that shareholders may advise the Court of their approval or disapproval of the proposed tax settlement. After considering the views of the D.O.J., the FDIC and the shareholders, the Court will decide whether the tax settlement is fair and equitable. If the Court approves the tax settlement, FDIC will pay the tax to the Internal Revenue Service out of the $91 million now in the Receivership, pay necessary costs (which we hope will include return of shareholder contributions to the Benj. Franklin Shareholders Litigation fund plus interest), and then make a substantial cash distribution to the shareholders. This entire process will take time, but if a tax settlement is reached and approved there is some expectation that a partial distribution could be made in 2005. If, on the other hand, no tax settlement is reached with D.O.J., or if the Court does not approve the settlement, then litigation will have to result with D.O.J. in which D.O.J. will claim a much larger amount of tax and we will move to intervene in that suit in order to argue that only a much smaller amount of tax is due. I cannot predict how long this tax litigation will take and cannot guarantee that the Court will permit our shareholders’ group to intervene and participate in this litigation. Under the procedure required by D.O.J. before we started the negotiations two years ago, the amount of our proposed tax settlement remains confidential until agreement can be reached. We believe our offer is fair. Any amount received from the tax settlement is separate from our $35 million Claims Court judgment. We expect both sides to appeal from Senior Judge Smith’s decision, in 2005. We will seek more and the government will seek less. |
| Posted: 8/26/04
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On Wednesday, August 18th, twenty of us met at the FDIC in Washington, D.C.
Ten from the Department of Justice and the Internal Revenue Service, five from
the Federal Deposit Insurance Company (FDIC), (Receiver of Benj. Franklin) and
five members of our team. We discussed all of the tax issues, especially the
taxability of the federal financial assistance provided to the Receiver after
the seizure of Benj.
Then, on Thursday, August 19th, we met with the FDIC to discuss our forthcoming offer to settle, which will be made to the government. More information is needed. This week I have spoken again by telephone with Department of Justice and FDIC officials. We hope to make a confidential offer within the next few days. |
| Posted: 8/17/04 |
Don and his team have made outstanding progress in the last few weeks in
getting the DOJ back to the table. One of the possible outcomes of the
meeting on August 18th is a satisfactory tax settlement and a distribution to
shareholders. The details are explained below in the June 28 message from our attorney,
Don Willner. We are awaiting the outcome of this meeting with great anticipation.
The results of this meeting will be provided if the parties agree to something significant. Let's keep our fingers crossed. |
| Posted: 6/28/04 |
Our tax group met with the Department of Justice attorneys and the IRS experts plus the Federal Deposit Insurance Company attorneys and experts on Tuesday May 18, in Washington D.C. Although I cannot tell you the matters that were confidentially discussed, I was pleased with the meeting because we were finally talking about the merits of the tax claim. There were a number of unanswered questions and all parties have more work to do and will be submitting additional memoranda to the others. I asked for a follow up meeting in early July and the Government to my disappointment responded that they could not meet until the week of August 16, because the persons who needed to be present were not all available before that date. I have accepted the meeting date of Wednesday, August 18th, for a meeting with DOJ and FDIC and we should be meeting with FDIC the following day Thursday, August 19th, to see if we can agree upon a tentative offer to make to the Department of Justice. I have told the Department of Justice that we want our offer to be acted upon very soon thereafter otherwise we will have to reactivate our motion to intervene and transfer the case to Oregon. Everyone needs to understand that although we believe our motion to intervene and transfer the case to Oregon is well founded, the judge will make that decision since the FDIC-Receiver is the taxpayer and we are not. It would be far better if we could reach a reasonable settlement which would include early partial payment to the shareholders, but we are not prepared to wait indefinitely. The suit to collect the tax was filed in July 2002, and we are coming close to 2 years since the tax suit was filed. This has not been wasted time since an enormous amount of work had to be done in reviewing 14 years of tax returns and the law that applies to what tax is owed. We hope that an offer can be made to the Department of Justice in August and we will be asking for their earliest possible reaction. As mentioned in previous reports, any resolution of the tax matter in these confidential discussions cannot be finally approved until a fairness hearing is held by a court with prior notice to the shareholders, so all shareholders will have the opportunity of being heard before the court acts on the tentative offer. We are working very hard on your behalf. |
| Posted: 5/29/04
From the Lead Plaintiffs |
The meeting with the Department of Justice and the Federal Deposit Insurance Corporation was held on May 21st. The meeting was constructive and we are expecting our attorney to provide an update in the coming week.
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Posted: 5/8/04
Meeting Scheduled this MonthSettlement of Tax Issue Possible |
From our attorney, Don Willner Our legal and tax team will meet May 18th in Washington D.C. with the legal
and tax teams from the Department of Justice and the Federal Deposit Insurance
Corporation in confidential discussions that will hopefully lead to a
satisfactory settlement of the tax claim. We have been waiting for 18 months for
this meeting. During this period the IRS, represented by the Department of
Justice, has reviewed the complicated tax filings of the Receivership back to
1990. All sides have been conducting research and exchanging memoranda. The wait
has seemed interminably long to us (and to the shareholders) but finally the
meeting taking place. It is doubtful that an agreement will be reached during
this first settlement discussion meeting, but at least we are beginning the
process. |
| Posted: 04/19/04 Update |
From our attorney, Don Willner There is important news in the tax case. In June 2002 the Internal Revenue Service sued the receiver, “Federal Deposit Insurance Corporation,” for $1.2 billion claiming that a loan which the receiver obtained after Benj. was illegally seized and then repaid in full with interest was taxable income rather than a loan. We believe that this position of the Internal Revenue Service is nonsense. The IRS suit is against the receiver of the corporation not against the shareholders. But if the suit is successful, it would drain the $90 million dollars that is currently in the Receivership which otherwise belongs to the shareholders. FDIC was threatening to turn over the money in the Receivership to the IRS so we went to court in the Spring of 2002, in Portland, Oregon and first obtained a temporary restraining order to prevent this from happening, and then worked out an arrangement whereby the FDIC would not pay this money over to IRS without advance notice to us which would allow us to go back to the District Court in Oregon to seek an injunction. We then filed a motion to intervene in the IRS tax claim pending in the District of Columbia District Court and to transfer it to the District of Oregon. After we filed the motion, the IRS, represented by the Department of Justice, the FDIC and us started some negotiations seeking a possible compromise. We want most of the $90 million to be paid over to the shareholders. These negotiations have been delayed interminably while IRS analyzed the tax returns of the receivership back to 1990, while we kept urging early action. Now all of the IRS analyses has been completed in this confidential negotiation and we have just written a letter to the government and the FDIC asking that a settlement negotiation meeting take place before May 15th. We have also told them that if this meeting is not set, we will reactivate our motion for our intervention in the case and to transfer the case to Oregon. If the motion has to be reactivated, the government will oppose it on behalf of the IRS and it is unknown what FDIC would do. We believe we would have a good chance of winning the motion but the government thinks they will win the motion. We have told the government and FDIC that we can wait no longer. There will either be serious settlement negotiations before May 15th,or we will reactivate our motion in the United States District Court for the District of Columbia. If we can achieve a settlement it will need to be approved by the Deputy Attorney General of the United States and by a sub-committee of the Congress. Any such settlement would also have to be submitted to a judge either in the District Court for the District of Columbia or in the Federal Claims Court to determine whether it adequately protects the Shareholders, and such a hearing would require advance notice to the Shareholders. We will keep you notified of progress. From the Lead Plaintiffs: We would like to update this site weekly but unfortunately, there was nothing to report. Our attorney, Don Willner, has had many, many conversations with the IRS. Don is doing a wonderful job dealing with the IRS under the most frustrating circumstances. But, as you can tell from today's update, he has lost patience with them. The delay has gone on far too long. A great deal has been accomplished despite of the Government's unwillingness to return money that belongs to us. And, the final negotiations will be very interesting - we have not played all our cards yet. As you can imagine, all of this is costing money and contributions have dwindled to almost zero. Several thousand shares have traded recently and we sincerely hope the new shareholders will contribute 25 cents per share to the BENJI Litigation Fund. The previous shareholders have been very fair in their help as should you. YOU KNOW WHO YOU ARE. And we will know when the settlement is made; all legal contributions will be returned FIRST before any distributions to the shareholders. |
| Posted: 02/05/04
Update |
The government has delayed sending us their interest computation, but promise that we will have them very soon. Then the discussions will start. |
| Posted: 1/05/04 Letter to Shareholders |
To the Shareholders: At last, there appears to be real progress on the tax liability issue. The anticipated meeting this month is most encouraging. And, since the tax liability issue is the last hurdle before a final settlement is possible, we are cautiously optimistic. However, there remains a financial commitment by the shareholders to the Benj. Franklin Litigation Fund in order to continue our efforts. We still need your help, especially those shareholders that have not contributed the nominal 25 cents per share for necessary legal costs. Please send your contributions to the address below. Thank you, Lead Plaintiffs |
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