Four Wall Street firms have received subpoenas from US Senate investigators who are examining whether the firms improperly structured transactions to help hedge funds avoid dividend taxes, The Wall Street Journal reported on its website.
Citigroup , Lehman Brothers Holdings , Morgan Stanley and Swiss bank UBS have received subpoenas relating to the use of derivatives by offshore investors, including some big hedge funds, to help avoid withholding taxes on U.S. stock dividends, the Journal reported, citing people familiar with the matter.
Officials from Citigroup, Lehman Brothers, and Morgan Stanley declined to comment when contacted by Reuters. A UBS representative was not immediately available for comment.
Investigators have also contacted a number of hedge funds to ask about the use of the derivatives, the Journal reported.
The investigators are examining the transactions to determine whether the securities firms and banks acted improperly by failing to withhold taxes on U.S. stock dividends, the Journal said, citing sources.
The probe was launched by the Senate Permanent Subcommittee on Investigations, the paper said. Federal tax authorities also are seeking information about these types of transactions, it said.
A spokeswoman for subcommittee Chairman and Michigan Democrat Carl Levin declined to comment.
At stake is more than $1 billion in withholding taxes on U.S. stock dividends that are sidestepped by such trades, the Journal reported.
Investigators are seeking emails, marketing materials and any other documents dating back to Jan. 1, 2000, that are related to these transactions, the Journal cited sources as saying.
It added that they are focusing on swaps executed for 21 days or less involving underlying securities where there was a scheduled dividend payment during that time.
The investigators also are asking for information about clients who executed trades through them, the Journal said, referring to hedge funds that engaged with Lehman.
The paper said they are Angelo, Gordon & Co, as well as JP Morgan Chase & Co's Highbridge Capital Management, JMG Triton and KBC Alternative Investment Management.
Attempts by Reuters to reach the funds were unsuccessful.