Something changed four years ago.” Gage’s glove thudded against the heavy bag in the corner of Stymie’s Gym in West Oakland. Two left jabs, then a right cross. Two left jabs, then a right cross. Two left jabs, then a right cross.
Skeeter Hall sat on the floor propped against a wall, sipping from his water bottle. He wiped away the sweat dripping from his forehead with a towel.
“We’ve been doing some research,” Skeeter said. “But it feels like we’ve just been flailing around.”
Gage lowered his gloves and turned toward the lawyer.
“What Pegasus did was so novel there’s nothing in the law addressing it,” Skeeter said. “It’s not hard money and it’s not soft money, in fact, it’s not really money.”
“You’re right,” Gage said. “It’s not money. It’s debt. I told that to Landon, but he shrugged it off. He said the senatorial campaign attorneys researched how loans should be handled and claimed they’re clean.”
Skeeter looked down as though studying his shoelaces, then back up. “If this all started with TIMCO, maybe-”
Gage shook his head. “I’m starting to think I’m wrong about that. I think the tax scam was in place first and Anston just used it for TIMCO.”
“You mean for a bunch of TIMCOs.”
“We just don’t have records going back to the start of the insurance scam because Palmer didn’t get involved until witnesses needed to be paid off.”
Gage turned back toward the bag, set his feet, and then popped the rectangular Everlast label with a straight right, jolting the hundred-and-thirty-pound bag.
Skeeter grinned. “Anston’s lucky that wasn’t his head. You would’ve separated it from his body.”
Gage glanced over his shoulder. “I wish it was that simple.” He lowered his gloves and turned toward Skeeter. “You know what Landon told me? He said I was the most political person he ever met-no, he accused me of it.”
“You?” Skeeter chuckled. “Politics in this country is treating opinions as if they were hard facts and unwelcome facts as if they were just opinions.”
“Kind of like criminal defense work?”
“That’s why I don’t do it. Even so, a wrongheaded jury verdict isn’t a declaration of war.” Skeeter nodded at Gage. “Seems to me you’re completely antipolitical. Nothing seems to outrage you more than pretense.” He grinned. “Maybe that’s why you’re an investigator instead of a lawyer.”
“Not a good one at the moment. I feel like I’ve been walking down the wrong trail for days.”
“Maybe you need to backtrack a little.”
“We’ve done some. We reviewed IRS listings of illegal tax shelters and all of the private letter opinions and didn’t find Pegasus mentioned by name in any of them. So it wasn’t like the IRS came knocking on somebody’s door asking about them.”
Gage spun and punched the bag one final time. Then turned back toward Skeeter.
“Wait a second… wait a second…” Gage smiled. “Maybe they knocked, but nobody was there to answer.”
T hirty-four years old, a lifetime’s worth of money, and no chance of ever getting laid.
Kelvin Kim answered the door in flip-flops, shorts, an X-Men T-shirt, and wire-rimmed glasses. He tried to flatten his hair as he looked up at Gage standing on the landing of his creekside Tudor mansion near Palo Alto.
“Sorry to bother you at home on a Sunday morning,” Gage said, handing Kim his business card, “but I didn’t want people at your company wondering why I wanted to talk to you.”
Kim peered up at Gage. “ I’m sort of wondering.”
“I need to talk to you about some insurance RaveTron Electronics bought a few years ago.”
A call to Norbett after Gage left Skeeter at the gym had gotten him the names of some of Pegasus’s Silicon Valley clients. His own research suggested RaveTron was the best place to start, and Kim was the CEO.
“I’m not sure I-”
“I’ve seen the records.”
“I’m still not-”
“Bloomberg says you guys are planning an IPO in a few months. For you alone, probably a half a billion dollars is at stake. A little bad press about a tax fraud investigation might snuff it out.”
“Our lawyer said it was legal-”
“How do you know what insurance I want to talk to you about?”
Kim pulled back as though Gage had drawn back his fist.
“Because it’s the only one that ever worried you?”
“How do I know you’re not the one who’ll go running to the press?”
“Because I could do it now, and haven’t. And because I’m less interested in why you started buying it than why you stopped.”
Kim backed away from the door, then turned to let Gage pass by and into the long marble hallway. Gage waited for Kim to close it, then followed him past the two-story living room and through the French doors and onto the redwood deck. Kim directed Gage to one of four teakwood chairs surrounding a matching table. Gage adjusted the umbrella to shade their eyes against the midmorning sun reflecting off the pool, then sat down.
“We were kids when we started the company,” Kim said. “We didn’t know anything about taxes. I don’t think I’d even filed a tax return before. I was just out of Caltech. The second year I owned the company, the bottom line on my 1040 was larger than all the money my father made in his whole life.”
“What was Marc Anston’s pitch?”
“It was the other way around, at least at the beginning. Somebody said we could make a lot of money by offering extended warranties on the electronics we sell and we went to Anston to set it up.”
“And he told you a warranty is like insurance.”
Kim smiled. “How’d you know?”
“And he told you that you could make a lot more money by setting up offshore.”
Kim nodded. “Basically. The customer bought the warranty from us, and then we’d buy reinsurance. We keep a little money here to pay off claims, like when somebody’s iPod crashed, but ninety percent of the money went offshore. We didn’t have to pay taxes on any of it. Tens of millions of dollars a year.”
Gage glanced back the house. “I take it some of the money came back to pay for this.”
The county assessor records Alex Z had located placed the value of the property at four point two million. The recorder’s office records showed Kim paid off the property a year after he bought it.
Kim reddened. “Anston said I could. And not just me. All the guys I started the company with did it.”
“Sounds like a good scheme.”
“Anston’s a shrewd guy, about lots of things. He talked us out of going public years ago, said if we held the company close we’d make a lot more money down the road.”
“Are you sure he didn’t want you to go public for fear that a new board of directors might audit the books?”
“I thought about that.” Kim shrugged. “But he was right in the end.”
“How’d he get you to agree to use some of the offshore money for political contributions?”
Kim drew back. “Shit. How’d you…”
“You’re not the only one.”
“Anston told us we needed to spend some money to fight having to charge sales tax on Internet purchases. Not having sales tax gave us a real edge on brick and mortar stores.”
“Did he tell you how the money would be spent?”
“No. He just said to trust him.”
“And every year it was something else.”
“Like clockwork. Eventually he just took money without asking.” Kim spread his hands. “What were we going to do? Sue him?”
“Sounds like extortion.”
Kim blew out a breath. “Sure felt like it.”
“Then how’d you get out of it?”
“The IRS saved our asses. Can you believe it? Four or five years ago, Anston found out they were investigating us, so he shut the thing down. He was really pissed. Apparently he had a lot of clients paying money into the company-”
“Pegasus.”
“Yeah, Pegasus. And he had to make the company evaporate. He kind of blamed us because we were the only one doing warranties. And blamed himself because we were the only dot-com in the group. The rest were all old line, old money companies. Dow thirty and all that.”
“Did he explain what forced the issue?”
Kim squinted into the distance, then looked back.
“Once he complained about cash flow but I didn’t understand what he meant.” Kim smiled. “If other companies were paying in as much as us, cash flow should’ve been the least of his problems.”
“Did the IRS ever come after RaveTron for back taxes?”
“Nope. Anston had that covered. First, he got a senator to call the IRS commissioner and tell him to lay off by saying we were young guys and the company grew too fast. It was a bunch of bullshit. He never said who it was, but I can guess.”
“Who?”
“Landon Meyer. Because his brother used to be Anston’s law partner.”
“And second?”
“I’m not sure I understand it exactly, but Anston had some gimmick where we wired the insurance premiums to the Cayman Islands, but the money ended up somewhere else. We never figured that part out. And after we were a few payments into the scheme, we were afraid to ask.”
“I take it the reason for the somewhere else was so the IRS would never be able to connect the money you paid for premiums offshore with the money that came back to the U.S. as loans.”
Kim nodded, then gestured with his thumb toward his house. “Ex-actly.”
H ow’d you pick me?” Kim asked Gage as he poured coffee into oversized blue RaveTron mugs in the kitchen. “You could’ve knocked on a lot of doors. I guess you figured me for the weakest link.”
“Just the opposite. I read over some of the press coverage you got when your early investors were pressuring you into going public years ago. You said you didn’t want to become a gone-tomorrow dot-com millionaire. You wanted to build a real company.” Gage leaned back against the kitchen counter. “You made a mistake getting involved with Anston, but you weren’t the kind of person who’d take millions and leave investors with an empty shell. A lot of others did.”
Kim handed Gage a cup. “Well, we sure screwed up in that tax thing.”
“I think you’re the only one of Anston’s clients who looks at it that way.”
Kim lowered his head, then swallowed hard and looked again at Gage.
“Do you happen to know what the statute of limitations is on tax fraud?”
“Sorry, but there isn’t one.”