US hedge fund executives to pay $9.4 billion to settle tax dispute

James Simons and some of his former Renaissance colleagues have settled the dispute with the government. PHOTO: NYTIMES

NEW YORK (AFP, NYTIMES) - Top executives at the Renaissance Technologies hedge fund will personally pay some US$7 billion (S$9.4 billion) to settle a tax dispute with the Internal Revenue Service (IRS), one of the largest settlements ever.

Dr James Simons, a mathematician whose algorithmic approach has been adopted by many other investment funds, and some of his former Renaissance colleagues have settled the dispute with the government over the tax treatment of some of their investments, the firm said in letter to investors.

The settlement, which involves 10 years' worth of trades made by the hedge fund, could be worth as much as US$7 billion, according to a person with knowledge of the agreement.

The deal ends a stand-off that led to a congressional investigation and involved two politically connected financiers: Dr Simons, 83, a long-time patron of Democratic candidates with an estimated net worth of US$25 billion, and Dr Robert Mercer, 75, a former Renaissance executive whose advocacy for conservative causes included helping to found Cambridge Analytica. After Mr Donald Trump won the 2016 presidential election, the now-defunct political consulting firm became embroiled in a scandal for harvesting Facebook data without users' consent to assist his campaign.

The billions in payments to the IRS will be made by current and former investors in a small group of Renaissance funds, but principally its Medallion fund. Those investors include seven people who were members of the firm's board between 2005 and 2015, as well as their spouses. Dr Simons will make a payment of US$670 million on top of his obligation as part of that group.

Renaissance is best known for pioneering a data-intensive form of stock trading called quantitative strategy, which has been adopted by many other hedge funds and trading platforms on Wall Street. The settlement centres on the firm's Medallion fund, which manages about US$15 billion, mostly for employees and former employees of the firm and their family members.

Dr Simons founded the firm in 1982. Once the head of the maths department at Stony Brook University on Long Island, he was a code-breaker for the United States military during the Vietnam War. He stepped down from the firm's day-to-day operations in 2010, handing the reins to Dr Mercer and Dr Peter Brown as co-chief executives.

The tax dispute involved Medallion's fast-paced options trading and how those transactions should be taxed - a major consideration given that the firm's rapid-fire trading had a history of generating big profits.

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