In the Matter of Ira Weiss (The Federal Tax Matters)

Release No. 8641, 52875 (2005)

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In the Matter of Ira Weiss (The Federal Tax Matters)

Securities and Exchange Commission
Release No. 8641, 52875 (2005)

  • Written by Tammy Boggs, JD

Facts

A local school district was governed by a board of directors (the board). The board wanted to construct various repairs and renovations of school facilities but had not agreed on any details. Ira Weiss (defendant) was retained as counsel for the school district to advise on the tax implications related to an issuance of notes to fund capital-improvement projects. Weiss advised the board that notes could be issued and interest on the notes would be tax exempt, making the notes attractive to investors. Weiss further counseled the board that the school district could use proceeds to invest in higher-yielding investments, known as arbitrage, while remaining tax-free for investors. When board members questioned Weiss on the propriety of such an investment plan, Weiss assured them that the plan was legal. The board approved the issuance of $9.6 million in three-year general-obligation notes, without Weiss having disclosed all the relevant criteria related to maintaining the notes as tax exempt. In June 2000, Weiss prepared a certificate declaring the school district’s basis for believing the notes to be “non-arbitrage.” Weiss relied on a list of the board’s proposed capital-improvement projects, even though the projects had no cost estimates or contemplated start date. The notes were issued shortly thereafter, and Weiss provided his unqualified legal opinion that the notes were tax exempt. The board later invested the note proceeds in higher-yielding securities, earning profits. The board did not authorize any repair work until one year after the issuance date of the notes, and costs incurred within six months were substantially less than the required amount. The Internal Revenue Service declared that the notes were taxable because the school district had not complied with federal tax regulations. The Securities and Exchange Commission (plaintiff) initiated an action against Weiss.

Rule of Law

Issue

Holding and Reasoning ()

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