Carolyn Branan and Ralph Lovejoy were married, but they didn’t tell their clients. After their separate companies were found guilty of selling abusive tax shelters, along with KPMG, by the Internal Revenue Service (IRS), this former power couple is finding life difficult, being named in about a dozen lawsuits initiated by former clients, according to the Charlotte Observer.
Although not indicted by the IRS directly, the couple became key players in the tax shelter market in their own respective firms. The Charlotte Observer reports that the couple maintains that any conflicts of interest were avoided in helping their wealthy clients lower their tax bills.
Lovejoy told the Charlotte Observer, “I don’t recall any instance when I was at either Quadra or First Union where my wife and I both worked on the same strategy for the same client.”
The couple’s path to their present situation starts with rather humble beginnings. Born in Cheraw, S.C., Branan became a certified public accountant (CPA) in 1978 and joined the accounting firm now known as Deloitte & Touche, in Charlotte. One of her specialties was financial planning for corporate executives, according to the Charlotte Observer. She jumped to KPMG in 1989.
Raised in Hamlin, W.Va., Lovejoy joined an accounting firm after graduating from law school in 1978 but moved to what is now Mellon Financial Corporation as a financial planner, shortly thereafter. After that, the Charlotte Observer reports he came on as a partner in the buyout firm Wellington Group, made up of former Mellon associates. In the wake of a failing marriage and a staggering bankruptcy, Lovejoy started his relationship with Branan at KPMG, where she was his boss, when he moved to the large accounting firm that brought him on to start a financial planning group in 1993.
In 1995 Lovejoy left KPMG and moved to NationsBank Corporation, now Bank of America, before moving on to First Union Bank, that is now Wachovia Corporation. The Charlotte Observer reports that Branan was one of the top tax shelter marketers at KPMG in 1997, while Lovejoy was the head of financial planning at First Union when the bank started selling tax shelters in the same year. He moved to Quadra Capital Management in 1998 and started two more companies that promoted tax strategies, as well as working in a number of brokerages after leaving Quadra.
What would become labeled as potentially abusive tax shelters thrived in the booming economic environment of the 1990s, with the huge flood of wealth of the times and resulting tax bills. The Charlotte Observer reports that one frequent situation that promoted these tax shelters was that entrepreneurs and family business owners were selling their businesses. These wealthy individuals were looking to minimize their capital gains, using a combination of carefully placed financial planning and investments favorable to this goal.
The tax instruments the couple allegedly sold were Foreign Leveraged Investment Programs or FLIPs, according to the Charlotte Observer. FLIPs were allegedly complex transactions devised to create investment losses in order to counter and lower capital gains taxes.
Companies have codes of business conduct and ethics for those in their employ. In civil cases, Harmonic Inc. promotes “honest and ethical conduct, including the ethical handling of actual or apparent conflicts between personal and professional relationship,” for their “directors, officers and employees.” A “full, fair, accurate, and understandable disclosure in reports and documents we file with or submit to the U.S. SEC and in our other public communications,” is also promoted.
“Good faith, responsibility … with due care, competence and diligence … without misrepresenting material facts…,” is also expected of their employees, as well as honesty and integrity, “avoiding actual or apparent conflicts of interest in personal and professional relationships,” according to Harmonic, Inc.
The Senate Finance Committee also requests nominees to provide any potential conflicts of interest in a comprehensive statement of information. The first question in the Potential Conflicts of Interest section of their disclosure form reads, “Indicate any investments, obligations, liabilities, or other relationships which could involve potential conflicts of interest in the position to which you have been nominated.”
The second question would have been revealing for Branan and Lovejoy if answered truthfully, as well. It reads, “Describe any business relationship, dealing or financial transaction which you have had during the last 10 years, whether for yourself, on behalf of a client, or acting as an agent, that could in any way constitute or result in a possible conflict of interest in the position to which you have been nominated.”
In researching this story, I found an OLR Report stating that Connecticut has 30 laws codified in the 2001 General Statutes in which marital status is a factor in financial disclosures and conflicts-of-interest. Although these laws apply to corporate directors and officers, public officials, members of the General Assembly, municipalities and professional examining boards, all business professionals should nevertheless be aware of any conflicts of interest and other disclosures in light of their own high ethical codes of business conduct.