Fifth Circuit Affirms Dow Chemical’s Bank Partnerships Were Tax Shams

Dow and several foreign banks created partnerships that generated over one billion dollars in tax deductions for Dow. The partnerships allocated the majority of income to the banks and only a fraction to Dow. The IRS issued Final Partnership Administrative Adjustments for tax years 1993 through 2006 and imposed accuracy-related penalties. The 5th Circuit affirmed that the partnerships were shams; the transactions lacked economic substance; and the banks’ interests in the partnerships were debt, not equity. Remanded for imposition of substantial- valuation and gross-valuation misstatement penalties. Chemtech Royalty Associates, L.P. v. US.

S&P’s Claims of Independence and Integrity Remain Unactionable

Plaintiff’s securities fraud suit alleged that S&P made material misstatements concerning the objectivity of its RMBS ratings. After the suit was dismissed, plaintiffs sought relief from the judgment based on new evidence. Affirming denial of that relief, the Second Circuit held that the new evidence did not alter the previous conclusion that defendants’ statements regarding the ‘independence’ and ‘integrity’ of their ratings constitute commercial puffery. Nor did the new evidence alter the generic, indefinite nature of the statements at issue or demonstrate why they are false. Boca Raton Firefighters and Police Pension Fund v. Bahash (Summary Order).

Second Circuit Extends Morrison to the Commodity Exchange Act

Plaintiff, a Russian citizen and resident, alleged defendants violated Sec. 22 of the Commodity Exchange Act. Applying the Supreme Court’s opinion in Morrison v. National Australia Bank Ltd., the Second Circuit affirmed dismissal. To bring a suit under Sec. 22, the conduct underlying the suit must have occurred within the United States. Plaintiff failed to demonstrate that the transfer of title or the point of irrevocable liability for such an interest occurred in the US. Loginovskaya v. Batratchenko.