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Geithner and Mathis: Troubling Double Standard

Written: January 14, 2009

By Bill Singer

http://RRBDLaw.com

http://BrokeAndBroker.com

From 2001 to 2004, when Treasury Secretary nominee Timothy Geithner worked for the International Monetary Fund, he was deemed "self-employed" and, as such, obligated to pay his own Social Security and Medicare taxes. Apparently, Geithner didn't make those payments. I suspect that his explanation will be a combination of inadvertent error, an embarrassing oversight, a misunderstanding of what he was supposed to do and whether someone else had done it for him, and a misplaced belief that it had been resolved.  How do I know those likely explanations-- why, I often work as a defense lawyer.  Those excuses are the most common answers that my clients give to me about the ever-critical "Why did you do that?"

In 2006, when Geithner was President of the Federal Reserve Bank of New York, the Internal Revenue Service audited Geithner's 2003 and 2004 taxes and found that he owed $17,230. Found owing, he paid. You would think that the slate was now cleared up to and including 2006. Think again. Apparently, not scrutinized by the IRS in its 2006 audit were Geithner's 2001 and 2002 returns.  As has also become recently disclosed, Geithner didn't reach into his pocket and tender unpaid taxes for those 2001 and 2002 returns.  Whether karma or just bad timing, those two years of unpaid returns managed to surface during the Obama team's vetting process of Geithner, and, wouldn't you know it, the nominee managed to pony up to the IRS a further $25,970. 

Nagging Questions

Why didn't the Treasury Secretary nominee voluntarily pay all his back taxes when resolving the 2006 audit? Well, I guess that's an as-yet unresolved issue.  Similarly, since it appears that the IMF routinely reimburses U.S. citizen employees for their U.S. taxes, another issue is whether Geithner received said reimbursement but failed to make the requisite payments.  Then there are questions about an allegedly undocumented housekeeper.

All of which leads to the most compelling of questions: Should Geithner be confirmed as the Treasury Secretary or do the above acts disqualify him?

Ask SEC Chair Nominee Schapiro to Explain

I urge the Press to ask that question of  Mary Schapiro, the Obama team's nominee for the Chair of the Securities and Exchange Commission. I think her answer and analysis would prove helpful.  After all, she is the Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), and that self-regulatory organization just handed down a Decision in the Matter of Scott Mathis, (National Adjudicatory Council (NAC),  C10040052, December 12, 2008), which considered the case of a stockbroker with a tax problem of his own.

Among the issues under consideration was 

Mathis was subject to five separate tax liens from August 9, 1996, to approximately October 2003, when the IRS officially released the liens after Mathis paid the outstanding tax debt. The liens during that period totaled $634, 434.  We conclude that a reasonable employer, investor, or regulator would want to know that Mathis failed to pay his federal taxes over an extended number of years and that the taxes owed were sizeable.. . .

See, Page 10 of the Mathis NAC Decision.

 The Conclusion in the case states:

We find that Mathis willfully failed to amend his Form U4 to disclose five tax liens beginning in 1996 and that he willfully failed to disclose tax liens pending against him on two initial Forms U4, in violation of NASD Rule 2110 and IM 1000-1.  For those violations, we fine Mathis $10,000 and suspend him in all capacities for three months...In light of our findings that Mathis's failures to disclose the tax liens were willful, Mathis is statutorily disqualified . . ."

See, Page 16 of the Decision

Point or Pointless

It's interesting that Schapiro's present regulatory organization deemed it a material issue as to whether a mere broker "failed to pay his federal taxes over an extended number of years." In consideration of that and other allegations, the broker was fined and suspended -- notwithstanding that he had fully paid the disputed taxes.  Lucky for Geithner that Schapiro's FINRA wasn't judging his situation.

What's the point?

First off, and perhaps most uncomfortably for me, when I was first asked a while back who I felt would make a good choice as Obama's Treasury Secretary, Geithner's name was at the top of my list.  Not among the top or near the top, but the top.  This was the quintessential wunderkind -- well educated, a wealth of relevant experience, and by all reports an engaging, dynamic individual.

Now, even more bizarrely, I just don't care about his present tax fiasco. For starters, I know of few folks who truly understand the intricacies of tax law and what you necessarily have to pay if you're self-employed or, as in Geithner's case, sort of self-employed.  Moreover, our country is in dire economic straits and despite it all, Geithner is incredibly qualified for the task. In reaching that conclusion, I was mindful of the pressure upon President Abraham Lincoln to not promote General Ulysses Grant.  In the face of accusations that Grant was a drunk, Lincoln is said to have balanced the general's success on the battlefield against his rumored drinking-- the folksy quote attributed to Lincoln in that regard was that if Grant were indeed a drunk, he would buy him a case of whiskey.  If Geithner is indeed incapable of computing his own taxes, let's just hire him a CPA.

Funny, perhaps ---but still ominious

Nonetheless, we must be careful not to make too light of these lapses and must realize that there are horrendous double standards at play here.  I, for one, have difficulty reconciling how Schapiro's FINRA fines and suspends a broker who fails to pay his taxes and then fails to disclose his tax liens; but another individual who finds himself in a not so different predicament warrants the accolade of nomination as the Treasury Secretary.  Perhaps Schapiro, and her FINRA, and others may parse the facts and draw bold distinctions that I do not see.  For me these two cases are all too eerily similar and inexplicably present two very disparate results.

I do not advocate for lesser sanctions for Mathis.  I do not advocate for more stringent sanctions for Geithner.  I simply raise the issues and hope that we all will accept the fact that our nation is riven by a fault line on which the big boys, the connected, and the powerful stand on one side, and the small fry, the average Joe, and the little guy stand on the other.  If we could just find a way to heal that divide, so much would become so much better.

For now, we seem resigned to shaking our heads and looking the other way.  I don't find that much of a solution.

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