US

How a Trump tax break for the poor led to a $30 million gold stash in a Queens warehouse

QUEENS, NY — Behind one of the doors here, in an unmarked Brink’s Global warehouse near John F. Kennedy International Airport, lies approximately $30 million in gold bullion.

A group of suburban Pennsylvania investment advisers parked the gold here last May, shortly after buying it from a seller in Europe. And they chose this location – an ordinary-looking warehouse in Springfield Gardens, a predominantly black, lower-middle-class neighborhood of the city – for one very specific reason: a provision in Trump’s tax cuts that offers relief for investors who start businesses in the poorest neighborhoods.

“We’re actually driving economic activity in economically depressed areas,” Bob Enck, the company’s CEO and founder, boasted in a promotional video. He dubbed his scheme the US Opportunity Gold Fund.

The bet is based on “opportunity zones,” a controversial federal program that lavishes a steep reduction in capital gains on businesses and wealthy individuals in exchange for investing in a struggling community. Thanks to the Tax Cuts and Jobs Act 2017, investors who sell financial assets such as shares can defer and reduce their capital gains taxes – which can be as high as 40% – if they use the proceeds to establish a business or housing in a federal institution. approved popular district.

If the business lasts more than 10 years, the profits of the new business become fully tax-exempt.

The program has very few requirements to prove that new projects will benefit existing communities. As a result, Opportunity Zones fueled the construction of luxury accommodation, self-storage units and even a super yacht marinaand helped Trump’s tax breaks earn their reputation as a boon for the ultra-rich.

But even with that in mind, experts tell HuffPost that the US Gold Opportunity Fund is one of the boldest applications of the program they’ve ever come across.

“How the hell does that create societal value?” said Brett Theodos, senior fellow at the Urban Institute, who criticized the overly broad use of opportunity zones.

And they couldn’t be sure whether the fund was ingenious or wacky.

After all, the IRS has established some basic conditions for the use of Opportunity Zones: a set of technical rules and a rule for companies that meet all the technical rules but are in clear contradiction with the spirit of the law. The agency itself suggested examples companies that do not comply with the so-called anti-abuse rule. One scenario is to turn vacant land into self-paid parking while investors wait for the land to appreciate in value.

Another example is a sole proprietorship that stores gold while investors wait for the price of gold to rise in value.

This poses an obvious challenge for the US Gold Opportunity Fund — a of thema sole proprietorship that stores gold while investors wait for the price of gold to rise in value.

At least that is how the fund founder markets the fund to potential investors. Enck did not respond to multiple calls and emails for this story. But in a series of undated videos on the company’s website, he presents potential investors with a business model that is shockingly similar to one the IRS has declared inappropriate: Sitting in gold for at least 10 years. , then sell it duty free.

“We want to stimulate economic development in areas of opportunity, and as part of this we offer a fund that invests in physical gold,” Enck says in a video. “If anyone has an interest in stimulating economic activity in an opportunity zone, and if you like gold as an investment, we should talk.” The ideal investor, he says in another video, is someone who “buys into the thesis that gold is a good long-term investment.”

The bottom raised $30 million of unidentified investors in December 2020, according to a disclosure the group filed with the Securities and Exchange Commission. Six months later, he contracted with StoneX, a global commodity carrier, to purchase and deliver $30 million in gold bullion from a vendor in Europe to the Queens warehouse. A StoneX executive welcomed the delivery as “an important part of our broader social responsibility initiatives”.

“How the hell does that create societal value?”

– Brett Theodos, Principal Investigator at the Urban Institute

Hearing a description of the U.S. Gold Opportunity Fund and its gold reserve adjacent to the airport, Theodos said, “Oh, for God’s sake.”

For Theodos, this type of savage scheme exists because the government has lost its ability to meaningfully control wealthy taxpayers, and because Congress required virtually no disclosure when it created the Opportunity Zones program. .

“We need the IRS to have adequate resources,” he said. “We need to know where Opportunity Zone projects are happening, where they are, in real time, so we can understand and verify what this program is accomplishing. [And] we need a legitimate certification process, which the Treasury could undertake now, to limit the program to mission-conscious investors.

Other experts agreed that the fund goes to the limit of what is allowed by IRS rules for opportunity zones – if not simply exceeds it.

“My first thought was, ‘Wow, someone is really settling in and walking right into the abuse-busting example. That’s an interesting choice!’” said Jessica Millett, specializing in investments in opportunity zones within the New York law firm Duval & Stachenfeld.

The IRS has singled out companies buying gold in its regulations because, in the agency’s words, they are “simply speculative in nature.” [and] should not increase economic activity. Millett’s assumption is that the US Gold Opportunity Fund offers more than physical gold, such as financial advice, in order to remain qualified as an opportunity zone firm.

But the line the fund is walking is extremely fine, Millett said.

“They’re definitely saying, ‘Hey look, you’re gonna own all that gold if you invest in the fund! ‘” she said. “It gives me pause.”

Probably anticipating these criticisms, Enck asserted that in fact the company’s purchase of gold is helping to create a wave of economic activity in poor neighborhoods.

“We’re really trying to make sure we’re driving economic development,” Enck says in another promotional video. “We will bring gold from abroad [and] all the economic activity that [goes] as well as. Storage, securing, custody, analysis, weighing, all the kinds of things that have to happen with gold bullion, will be done now, in the United States, in an OZ.

But the economic impact was hard to detect on the ground at Springfield Gardens, a tiny neighborhood bounded by a few small parks, the Belt Parkway and the barbed wire fences that surround JFK International.

From the sidewalk, the Brink’s warehouse where the gold arrived didn’t appear to have undergone any recent renovations or expansions. (And why would he, when $30 million in gold bars can fit on a kitchen table?) Approached by a reporter, the driver of an idling Brink’s truck waved him away with annoyance and went back to eating his snack.

“We are actually stimulating economic activity in economically disadvantaged areas.”

– Bob Enck, CEO and Founder of the US Opportunity Gold Fund

Most of the economic impact likely went to whoever gave Enck and his team $30 million. Because there were special tax reductions for investors who used the opportunity zone program before 2021, the fund may have already helped clients avoid over $1 million in taxes. federal.

At launch, the fund had a total of just two employees: Enck and its managing director, Scott Victor. Its website also lists a president, John Pallat, and an affiliate member, Alex Joslin.

The four men previously worked at Equinox Funds, an investment manager where Enck was CEO and chairman from 2007 to 2021. In 2016, the SEC Sanctioned Equinox Funds for misrepresenting the way it calculated its management fee, among other “material inaccuracies and omissions”, allowing Equinox to overcharge its clients by $5.4 million. Equinox Paid fined $400,000 and reimbursed over $5 million to investors, and the fund has since been reorganized under new management.

For their gold fund business, Enck and his partners receive legal advice from Dechert, a highly reputable law firm, and auditing from Novogradac, an equally reputable accounting firm. Novogradac did not respond to a request for comment. Dechert did not respond to inquiries from HuffPost or make the attorneys who advised the Gold OZ Fund available for comment. Hours after HuffPost first contacted Dechert and Brink’s, references to disappeared from the “about us” section of the Gold OZ Fund website.

Brink’s spokesperson did not respond to questions about whether it hires additional staff or makes physical improvements to its warehouses when it handles a particularly valuable depot, in this case or in general.

So HuffPost asked the residents of Springfield Gardens if their new neighbor — $30 million in gold bricks — was having a positive impact.

“I really can’t say,” said David Mendez, the owner of Bugging Out 4 Burgers, when asked if his restaurant has seen a substantial increase in foot traffic. “Most of our clients are from the community.”

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