ABUSE OF STRUCTURED FINANCIAL PRODUCTS- Misusing Basket Options to Avoid Taxes and Leverage Limits MAJORITY AND MINORITY STAFF REPORT

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no longer had any real interest in continuing the MAPS structure. 277 Mr. Doucette told the
Subcommittee that he believed the new structure had several provisions that lacked “any
business purpose” and that Deutsche Bank had explained most of the new provisions as being
necessary “for tax purposes.” 278 In an email, George Weiss informed Deutsche Bank that several
of the new requirements would forcibly change the way that George Weiss operated its business,
noting for example that the lack of cross-collateralization could reduce George Weiss
investments in MAPS by as much as 60% due to the need for additional liquidity to fund the
remainder of the business. 279 After George Weiss was unable to negotiate changes to the revised
structure, it decided to end its participation in MAPS. 280 No hedge fund other than RenTec
purchased options using the new structure.
At the same time Deutsche Bank was making substantial changes to MAPS, the evidence
indicates that very few changes were made to the COLT structure employed by Barclays. As
one RenTec employee explained to the Subcommittee, Barclays was very easy to work with and
its structure accommodated RenTec’s needs. Moreover, as previously noted, RenTec provided
Barclays with a tax indemnity agreement, in which RenTec promised to pay for any potential tax
exposure that Barclays might suffer as a result of entering into the COLT transaction. 281
(c) Current MAPS
The restructured MAPS option remained in place from 2009 through 2010, and was used
by RenTec to purchase additional options. 282 In November 2010, after the IRS issued its Generic
Legal Advice Memorandum (GLAM) on basket options, as indicated earlier, Deutsche Bank
ceased writing new MAPS options for over a year. In 2012, Deutsche Bank resumed offering the
restructured MAPS basket options. Those MAPS options, however, had been revised yet again.
In the new format, the only MAPS options offered to RenTec had terms which lasted less than
one year and contractually required all gains to be reported as short-term capital gains. 283
MAPS options lasting more than one year were no longer available.
In contrast to Deutsche Bank, Barclays continued to offer COLT options to RenTec, even
after issuance of the IRS basket options GLAM in November 2010. It was not until two years
later, in 2013, that Barclays revised its COLT structure so that it, too, offered only those basket
options that were less than a year in length. 284
277 Id.
278 Id.
279 2/26/2009 email from Frederick Doucette, GWA, to Frank Nelson, Deutsche Bank, “MAPS comments,” DB-PSI-
00033762, at 763-764 (listing out George Weiss concerns with new MAPS structure).
280 Subcommittee interview of Frederick Doucette, GWA (5/23/2014).
281 See 10/1/2004 “Indemnity Agreement,” signed by Barclays Bank PLC, Palomino Limited, Badger Holdings L.P.,
Medallion International Limited, Medallion Capital Investments Ltd., Medallion Associates L.P., Medallion Fund
L.P., Medallion USA L.P., and Medallion RMP Fund L.P., BARCLAYS-PSI-632877-904, at 880.
282 See undated and untitled chart prepared by Deutsche Bank, DB-PSI 52583-585.
283 See, e.g., 6/7/2012 Deutsche Bank letter agreement with Mosel Equities L.P., “BARRIER OPTION
TRANSACTION—Cash Settled, DBSI Reference No. 941-50340,” DB-PSI 00047768-796, at 786.
284 See “History of COLT Options,” prepared by Barclays, BARCLAYS-PSI-748604.