“We expect that substantially all of the net proceeds Mr. Zuckerberg will receive upon such sale will be used to satisfy taxes that he will incur upon his exercise of an outstanding stock option to purchase 120,000,000 shares of our Class B common stock.”

What that means, in dollar terms, is that Facebook founder Mark Zuckerberg may face a tax bill this year of more than $2 billion. The Financial Times puts the figure at $1.5 billion. But if the IPO values the company at the hoped-for $100 billion, his bill could be higher.

Facebook declined comment. But here’s the math. Zuckberberg received the 120 million options in 2005, presumably for being CEO and being, well, Mark Zuckerberg. Those options will be treated as ordinary income, which means he would pay the top federal income tax rate of 35%.

The cost basis for those options is six cents a share. So if the company is valued at $100 billion, and the shares are valued at around $50 each, his gain from the sale would be up to $6 billion. Taxed at 35%, the tax bill would be more than $2 billion. The FT puts a more conservative value on the company for its $1.5 billion total.

What’s more, Zuckerberg would have to pay an additional 10.3 percent for California sate taxes, though he would likely be able to deduct those taxes from his federal bill.

It’s unclear whether the $2 billion would make him America’s biggest taxpayer, since the IRS doesn’t disclose such things. But given that the 400 top earners in the U.S. paid an average of $48 million each in taxes, chances are he’ll be at least one of the biggest taxpayers in 2012 or 2013.

Mr. Zuckerberg’s tax bill will also provide an important counter-point to the notion that the rich pay lower tax rates than the rest of America. That may be true for professional investors and private-equity chiefs, but not for dot-commers and many entrepreneurs.

Source: WSJ Wealth Report

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/news/mark-zuckerberg

“It’s kind of the late arrivals who get excited around the time of the IPO,” said Jason Thomas, chief investment officer of Aspiriant, whose clients on average have about $10 million under management with the Los Angeles-based firm. “Our clients remember the tech bubble very well, and are appropriately skeptical of being the last money in.”

Facebook, the world’s biggest social-networking service, filed yesterday to raise as much as $5 billion in the largest Internet IPO. Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Barclays Plc and Allen & Co. were hired to handle the deal for the Menlo Park, California- based company. The $5 billion figure is a placeholder used to calculate fees and may change.

Based on recent IPOs, investors who are able to buy in at the offering price once it’s determined could be looking at below-average returns if they seek to buy and hold. They may face a large tax bite if they sell into an early run-up in the stock price.

Buying the Hype

Ed Reinhart, 41, holds about 5 percent to 10 percent of his personal portfolio in Facebook after buying shares in 2010 through SharesPost Inc., a secondary market for private-company stock. He said he likes the company’s revenue-growth prospects and isn’t looking to increase his position in the initial offering.

“You don’t want to buy into the hype,” said Reinhart, who lives in Yakima, Washington, and is a managing partner for Capital Advisors Wealth Management, which works with institutional retirement plans. “I think it would be very wise for individual investors to stay back and let some of this steam escape, and see where all of this shakes out.”

SharesPost and SecondMarket Holdings Inc. facilitate transactions in private-company stock for accredited investors. That generally means individuals with assets of greater than $1 million, excluding a primary residence, or those earning more than $200,000 annually. SharesPost has offered transactions in Facebook shares since 2009.

Lockup Periods

Investors holding private-company stock at the time of an IPO generally are not permitted to sell their holdings for a certain period of time after the offering, generally as long as 180 days, according to Tim Sullivan, managing director of SharesPost.

Goldman Sachs in January 2011 halted a planned offering of Facebook shares to U.S. investors on concerns that media attention on the deal could violate rules limiting the marketing of private securities, and instead restricted the offering to non-U.S. investors. That month Facebook said it raised $1.5 billion from Goldman Sachs and related funds along with Digital Sky Technologies.

Some clients of Constellation Wealth Advisors LLC have invested in Facebook through venture-capital funds or the secondary market, said David Arizini, a managing director and partner at the firm in Menlo Park, California, whose investors generally have at least $10 million in investable assets.

Signature, which oversees about $2.1 billion for families, has been invested in private equity and hedge funds that have owned Facebook for a few years, said Andrew Gorczyk, a portfolio manager for the Norfolk, Virginia-based firm. He declined to name the specific firms or funds.

‘Quick Buck’

Most clients haven’t expressed an interest in Facebook, said John Jennings, senior vice president of St. Louis Trust Co., a multifamily office based in St. Louis, which oversees about $3 billion for clients with an average of $75 million under management.

“It’s more exciting than having another muni bond in your portfolio,” Jennings said. “But the way we invest, we’re not going to load up on Facebook and try to make a quick buck.”

While some companies go public and do extremely well, the “odds are against you,” as some firms start trading at a high price point and then underperform or fail, said Scott Schermerhorn, chief investment officer at Granite Investment Advisors in Concord, New Hampshire, which manages about $500 million.

Groupon Shares

Shares of Groupon Inc. gained about 31 percent in their first day of trading after the firm’s November IPO, and have since fallen about 22 percent as of Jan. 31, according to data compiled by Bloomberg.

Stocks of companies that held U.S. IPOs in 2011 lost about 1.1 percent on average from their offerings through Jan. 30, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index returned about 5.1 percent over the year through Jan. 30, including reinvestment of dividends.

Shares of Google Inc. jumped 18 percent on their first day of trading after the company went public in August 2004 and have risen more than 500 percent since, Bloomberg data show.

Many investors may already have exposure to Facebook even if they haven’t deliberately acquired shares through the secondary market or a private fund. About 50 mutual funds have reported stakes in the company, according to Chicago-based Morningstar Inc.

Fund Holdings

Funds managed by T. Rowe Price Group Inc. held about $408 million in Facebook at the end of December, according to spokesman Robert Benjamin. Morgan Stanley Institutional Fund Opportunity Portfolio held about 3.7 percent of assets in Facebook as of December, making it the fund’s ninth largest holding, according to the Morgan Stanley website.

Fidelity Contrafund held about $87 million in Facebook’s Class B shares in December, according to the fund’s monthly holdings report. That amounts to about a 12 basis-point allocation for the fund, which had assets of about $73 billion in December, according to spokeswoman Sophie Launay. A basis point is 0.01 percentage point.

People who have a broker may be able to ask for shares and the allocation may be determined by how much business they did at that investment banking or brokerage firm, said Todd Morgan, senior managing director at Los Angeles-based Bel Air Investment Advisors, which manages about $6 billion. Investors trying to obtain shares now may not gain access to a large enough allocation to have an impact on their portfolios, he said.

Allocating Shares

Spokesmen from Morgan Stanley, Goldman Sachs, JPMorgan and Barclays declined to comment on how the firms would allocate any shares of the IPO they receive among customers. A spokeswoman for Allen & Co. didn’t return calls seeking comment.

“We have a systematic approach to IPO allocation that seeks to promote broad participation by investors with a longer- term view,” said Matt Card, a spokesman for Bank of America.

“It is difficult for most investors to access shares at the IPO price,” Kathleen Smith, principal of IPO investment adviser Renaissance Capital LLC, said in an e-mail. “Even the best institutional clients of Wall Street only get a small portion of their order filled at the offering price.”

Interested investors should study Facebook’s financial information in the prospectus, including its growth rate, sales margins and cash on the balance sheet, and wait until the Facebook IPO has begun trading, Smith said. Facebook is considering a valuation of $75 billion to $100 billion, two people with knowledge of the matter said last week.

‘Feeding Frenzy’

“People get caught up in the feeding frenzy that surrounds these opportunities,” said Gerri Walsh, vice president of investor education for the Financial Industry Regulatory Authority, the self regulator for the securities industry. “When a potential IPO is highly publicized and well-covered, people think that any way into that deal might be a legitimate way.”

The U.S. Securities and Exchange Commission in November filed an emergency enforcement action to stop what it said was a fraudulent scheme targeting investors trying to gain access to pre-IPO technology companies such as Facebook and Groupon.

Managers of the Praetorian Global Fund falsely claimed that their fund and related entities owned “shares worth tens of millions of dollars in privately held companies that were expected to soon hold an initial public offering,” according to an SEC statement. The individuals claimed that client funds were held in escrow while in fact they were being transferred to the managers’ personal accounts, the SEC said in the statement.

Outbid on Houses

While investors should be aware of the risks of trying to get a piece of the Facebook action this late in the game, their interest is understandable, said Aspiriant’s Thomas.

“Our Silicon Valley clients have been outbid for houses by Google employees often enough,” Thomas said.

Those who do obtain shares at the offering price and sell into an initial jump could face higher tax rates on their profits. Gains on stocks held one year or less generally are taxed at an individual’s ordinary rate, currently as high as 35 percent, while long-term gains usually are taxed at a maximum levy of 15 percent, according to the U.S. Internal Revenue Service.

“Who knows if it’s going to be the next Google,” said Reinhart, the individual investor. “But even if you bought Google in the first year, you’ve still done well.”

Source: Businessweek.com

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/facebook-ipo

While authorities have traced hundreds of millions of dollars to banks, MF Global’s trading partners and even the firm’s securities customers, investigators remain uncertain about whether they can retrieve the money.

Some recipients were entitled to payouts from MF Global, which could make clawing back the money difficult. For instance, securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients, according to other people briefed on the matter.

But the Commodity Futures Trading Commission, the regulator leading the investigation, will examine whether anyone accepted customer cash without verifying the source of the money, one of the people briefed on the matter said.

This person and others who discussed the case did so on the condition of anonymity because the investigation is not public.

The findings shift the pressing question surrounding the collapse of MF Global from what happened to the money to how to recover it and who is at fault.

Answers will not come easy. A significant impediment has been clashes among the parties trying to resolve the MF Global mess: three federal agencies and two bankruptcy trustees.

At the center of the squabbling are e-mails sent by top executives at MF Global — communications that have been withheld from federal authorities, according to the people briefed on the matter. Investigators suspect the e-mails, sent just before the firm collapsed, contain clues about who transferred the money from protected customer accounts.

The clashes stem from the conflicting interests of those involved. James W. Giddens, the trustee overseeing the liquidation of the brokerage unit, is charged with returning money to wronged customers. That mission is at odds with the interests of Louis J. Freeh, the trustee overseeing the liquidation of the firm, who is seeking to recover money for MF Global’s creditors.

Mr. Freeh’s lawyers have declined to share a number of internal MF Global e-mails with Mr. Giddens and federal investigators, including the Commodity Futures Trading Commission, which has asked for access to the documents, the people briefed on the investigation said. In turn, Mr. Giddens has been slow to hand over account statements that Mr. Freeh, a former F.B.I. director, needs to conduct his court-ordered investigation and determine what creditors are owed.

Mr. Freeh’s reluctance stems in part from the fact that the lawyers working on his behalf have not made their way through the mountain of e-mail, people involved in the case said. The lawyers are loath to waive attorney-client privilege, which shields the documents from outsiders, until they have completed their review.

Despite the obstacles, federal authorities say they are making progress.

As of late December, investigators had obtained more than 10,000 e-mails, interviewed more than 50 witnesses and subpoenaed about 20 people, another person briefed on the case said.

Jill E. Sommers, the Commodity Futures Trading Commission official charged with overseeing the MF Global case, said in a December statement that transfers from customer accounts “have been identified, and subsequent transfers of those funds are currently being traced.”

Now, authorities have traced more than 90 percent of those subsequent transfers, people briefed on the investigation said.

“We understand the frustration of customers, but the C.F.T.C. must take the necessary time — however long it takes — to get to the bottom of what happened at MF Global and take appropriate actions,” the agency said in a statement on Tuesday.

Customers, including farmers, hedge funds and other small traders, have been very frustrated with the pace of the investigation and the dearth of updates about their missing money.

While a number of the 38,000 customers have been paid nearly three quarters of their money, others have yet to receive a dime. Paul Jordan, a retired business executive, has not received any of the money from accounts trading on foreign exchanges, an amount that totals about $500,000, he said. His patience is wearing thin.

“The thing that really irritates me is that I’m not a super wealthy individual,” said Mr. Jordan, 65. “I’m thankful that some funds have been paid out, because bankruptcies can last for years, but I would have hoped by this time that it would be pretty clear where the funds are and exactly what happened to them.”

In contrast, when customer cash was missing from Sentinel Management Group, a Chicago brokerage firm that collapsed in 2007, the trustee overseeing that case found the money within a week. Within a month, the trustee, Fred Grede, announced that the money had turned up at the Bank of New York Mellon.

While MF Global presents a greater challenge than Sentinel, given its size and the amount of money missing, the precedent underscores the importance of keeping customers informed.

“To me, transparency is the key,” Mr. Grede said.

Even regulators are growing anxious about how long the investigation is taking.

“Futures customers — including farmers, ranchers, and manufacturers — have been suspended in excruciating limbo, wondering when they will receive their funds,” Scott O’Malia, a member of the futures commission, said in a speech on Tuesday. “This situation is intolerable and unacceptable.”

While the commissioners are briefed weekly on enforcement cases, over the last three months they have only been briefed twice as a group on the status of the MF Global investigation, according to people close to the commission. Instead, commissioners are seeking their own separate briefings on the case.

Some argue that the lack of cohesion deprives investigators of the collective insight of staff members when the agency faces perhaps its greatest test.

In November, investigators said they began to worry that money may have vanished into a web of counterparties and creditors who are entitled to MF Global’s money. The concern implies that the money may not be missing, but is gone for good.

But at least some of the customer money MF Global misused was transferred to JP Morgan Chase, MF Global’s main bank. Investigators also suspect that MF Global made improper transfers of customer money to the Depository Trust & Clearing Corporation, a clearinghouse that did business with MF Global. The clearinghouse may have passed on the money to MF Global’s trading partners, who would have rightful claims to money from MF Global. A major part of futures customer money also went to securities customers who were closing accounts in October.

Ultimately the task of recovering money falls to Mr. Giddens, who collected the final claims on Tuesday, the last day customers were permitted to file forms outlining what they are still owed.

He has not said how far his investigation has come. He has deployed a team of 60 lawyers and hired 100 consultants from Deloitte and 60 forensic accountants from Ernst & Young to help sift through some $327 billion in wire transfers in and out of MF Global the month before its collapse.

As Mr. Giddens’s team hunts for the money, it is quietly coaxing some recipients to return it.

“We are pressing our investigative team to now come up with actionable intelligence that the trustee can use to determine the location of remaining customers assets, and most importantly, if we can get those assets back under the trustee’s control for return to customers,” Kent Jarrell, a spokesman for Mr. Giddens, said in a statement. “The trustee will use all appropriate and legal means to get those assets.”

Source: NY Times

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/mf-global2

A “significant amount” of the missing $1.2 billion in MF Global customer funds may have been “vaporized,” the Wall Street Journal reports, citing “a person close to the investigation” into the missing funds. The money could have gotten lost during chaotic trading leading up to the brokerage firm’s bankruptcy filing.

Yet only one week before the brokerage collapsed, MF Global’s CFO sent an email to Standard & Poor’s saying the company had “never been stronger,” according to Bloomberg.

Some officials reportedly believe that despite public claims to the contrary, the firm was growing more concerned about its European bets, employees dipping into customer money and using it to unfreeze assets at banks and meet demands for more collateral, according to the WSJ.

The report comes nearly two months after former MF Global CEO Jon Corzine, once chief executive of Goldman Sachs, told a Congressional panel ”I simply do not know where the money is.” The firm filed for bankruptcy in October, after risky bets related to the European debt crisis compromised its position. Corzine resigned shortly after the bankruptcy and the company laid off more than 1,000 workers.

The bankruptcy filing also spawned investigations by multiple federal agencies into allegations that the firm misused hundreds of millions in customer funds. In addition to Corzine, the company’s CFO and COO also told lawmakers that they don’t know where the missing funds are. Some of the missing money may have been found at a British JPMorgan Chase in November, according to The New York Times.

That hasn’t stopped the government from acting. Roughly two months after the extent of the firm’s collapse was made clear, the Commodity Futures Trading Commission, a federal regulator tasked with overseeing the derivatives market, approved ”the MF Global rule” in order to avoid similarly improper uses of client money in the future, according to The New York Times.

Even if the rest of the money turns up — a prospect that seems unlikely — Corzine’s reputation may never recover. The former New Jersey Governor, Senator and CEO of Goldman Sachs has become somewhat of a pariah on Wall Street since the meltdown. Some of his former employees created a pinata featuring a photo of him at a holiday party and President Obama gave back tens of thousands of dollars of campaign donations from Corzine.

Source: Huffington Post

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/mf-global

Clearly, the number of American investors approaching retirement is on the rise — and this is the biggest opportunity of all time for advisors who know how to meet their needs.

For today, let’s leave the retirees out of the equation. I want to concentrate on the younger cohort of Baby Boomers who still have some time until retirement and are still very much in the accumulation stage of their financial lifecycle.

These people are currently 46 to 55 years old. As they look to transition their portfolios to the distribution phase, many will look for a new advisor. Or, if they elect to stay with their current advisor, they may be looking for an expanded or modified set of services to meet their new needs.

Either way, there are several points to keep in mind:

1. Complexity is the name of the game.

At this stage of life, investors have many commitments and a complex set of circumstances and needs. Over the years, they have amassed more obligations — and more assets. They need higher-powered legal advice. They need more sophisticated accounting expertise. They need a more detailed financial plan.

Serving these clients can reward a team effort. As the lead advisor, you can provide the investment management core of the offering while playing quarterback as part of a larger team that provides services according to its areas of specialty.

It’s essential that you communicate with clients that there is a coordinated plan to help them meet their investment and retirement objectives — with a leader (you) providing direction and oversight and key players providing the vital services and expertise to provide the nuts and bolts.

2. Provide all the key services that can be categorized as “Financial Management 101.”

This involves ensuring the daily cash flow and engaging in the day-to-day planning that enables your Baby Boomer clients to run their lives. They know their lives have gotten more complicated. Simplicity is what they’re really looking to you to provide.

Ask your clients if they would like you to help them with:

* Planning for living expenses for clothing, food and shelter

* Bill paying

* Caring for pre-college children, college-age children, graduated post-college kids who are living back at home

* Insurance requirements

* Accumulating retirement savings

* Wills, trusts and after-life planning

Yes, even high-net-worth clients need to plan and make choices in these areas. Or if they do not need to make choices, they would still like to have the day-to-day irritations off their plate and on yours.

3. Extend your services to cover special situations that you don’t see every day, but that can be pivotal.

Do your prospective and current Baby Boomer clients have special circumstances? Might they do so in the foreseeable future? Now is the time to let them know that you can provide extraordinary service to help them cope with less universal challenges.

You can help them meet the needs of parents who live with them and/or depend on them for some form of financial support.

Many people have special needs dependents, which can be a very costly obligation in terms of money, personal time and commitment. Life planning is vital here, or your clients could spend their life savings in this category and have nothing left for themselves.

Caring for a sick spouse restricts the entire household’s ability to generate income and draws from existing resources. Financing this care is crucial, and when framed in these terms, the conversation goes far beyond any abstract “long-term care planning” bullet point on your brochure.

Divorce and child support can easily complicate any household’s finances.

Many clients in this age group own their own business and it serves as the basis for all — or most — of their net worth. Is the enterprise burdened with debt or other liabilities? Is there a succession plan in place? What happens when your client wants (or needs) to retire?

4. Drill down into the data

Segmenting your business offering into all these areas requires a lot of information at your fingertips.

The risk here is “data exhaust,” a term from the high-tech world where corporate decision-makers breathe too much data and are effectively poisoned.

Your clients want clean, streamlined, purified information about where they are financially.

You need clean information to give them and to ensure that you are always ready to offer them the right service at the right time.

If you’re a Baby Boomer client, would you rather speak to the advisor who sees the whole landscape — with no blind spots, even on assets held by other advisors or custodians — or the advisor who is content to only see what’s obvious to everyone?

The competitive advantage here is clear.

You might also be interested in …

Help Your Clients Better Prepare For the Future: A Discussion with Harold Evensky on Managing Retirement Assets (Complimentary Whitepaper)

Will it be a Baby Boom or Bust For You? (Free Whitepaper)

The Hidden Threat: Why Your Clients Will Leave You When They Retire (Blog post By Stephen Peters, Institutional Sales Director, ByAllAccounts)

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