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

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(2) George Weiss Utilization of Basket Option Structure
The use of the basket option structure by George Weiss Associates – the second largest
user of the basket option structures – further calls into question the legitimacy of this structure as
a derivative, and whether resulting gains qualified for long term capital gains treatment.
From 2003 to 2007, George Weiss bought ten MAPS basket options from Deutsche
Bank, involving assets that at their inception had a notional value totaling about $2.8 billion. 376
Those basket options functioned in the same manner as the MAPS options purchased by RenTec.
The option assets were held in the name of Deutsche Bank and kept in a proprietary trading
account opened in the name of the bank. Like RenTec, George Weiss was named as the
investment advisor for the option accounts, and it was George Weiss that determined the trading
strategy and initiated the trading orders, which were then executed using Deutsche Bank’s
trading software. Like RenTec, the assets purchased through George Weiss’ individual options
were pooled, and the hedge fund traded them as part of an integrated trading strategy. Unlike
RenTec, George Weiss did not trade as frequently nor did it rely on a trading algorithm.
(a) Crossing Trades Between Accounts
On several occasions, George Weiss used basket option assets in ways that appeared to
disregard which entity nominally owned the assets.
For example, in July 2008, prior to closing out several MAPS options, George Weiss
moved some of the assets from the MAPS account it managed to a prime brokerage account
opened in the name of OGI Associates LLC, a related entity. 377 The OGI prime brokerage
account was also located at Deutsche Bank. In an email instructing the transfer – or journal – to
occur, George Weiss personnel requested movement of the assets “to [the] OGI account from the
MAPS account.” 378 Later, in the same year, crossing positions were suggested again by George
Weiss personnel in order to correct a perceived imbalance between long and short exposure in
the MAPS account. 379 On both occasions, George Weiss transferred assets that had been held in
the name of the bank to a brokerage account where those same assets would be held in the name
of a related entity. When asked about the trades, George Weiss COO Federick Doucette told the
Subcommittee that “a handful” of these trades did occur, but that George Weiss viewed them as
“a mistake” and that they involved “very small amounts.” 380
376 See undated chart, “MAPS Transactions,” prepared by Deutsche Bank, DB-PSI 00052577-582.
377 See 5/23/2012 “Weiss Enterprise Audit Organizational Overview,” prepared by George Weiss, GWALLC-PSI-
0002164, at 167; 7/10/2008 email from Apollo Wong to David Betten, “George Weiss MAPS Investment
Guidelines – PLEASE READ,” GWALLC-PSI-0002504. See also “Connecticut Companies” profile of OGI
Associates LLC, http://www.connecticutcompaniesindex.com/ogi-associates-llc-5ahy/ (indicating the company’s
business address was care of George Weiss Associates Inc. and its “principal” was “George A. Weiss Manager”).
378 7/9/2008 email from Apollo Wong to Susan Sevigny of GWA, “FW: George Weiss MAPS Investment
Guidelines– PLEASE READ,” GWALLC-PSI-0002492-494, at 493. See also Subcommittee interview of Frederick
Doucette, GWA (5/23/2014) (confirming assets were moved from MAPS to OGI).
379 10/10/2008 email from Apollo Wong to Federick Doucette, “db maps account imbalance,” GWALLC-PSI-
0002328.
380 Subcommittee interview of Frederick Doucette, GWA (5/23/2014).