Loser

There aren’t at lot of events that make someone like me want to make the “L” sign on our foreheads and start yelling “Loser!” at someone who has managed to create his or her own Epic Fail in a business context. Part of it, of course, is simply due to the fact that I am a mature adult with two Master’s degrees in Business and a better-than-average experience with things that can go wrong through no fault of one’s own. Some of it is because I am a student of business failures, and I’m aware of how fine a line there is between a “moderate success,” a “fail” and an “EPIC FAIL.” And some of it is just because I’m the type to view another person’s misfortunes and think “There but for the grace of God go I,” rather than “Neener Neener Neener!” None of which keeps me from wanting to call the guy who renounced his U.S. Citizenship to avoid paying taxes on the money he made on the Facebook IPO a loser – and a complete idiot with no grasp of strategy – however…

In case you missed it during the original events, you can pick up the story on the Forbes web page. A man named Eduardo Saverin bought a large amount of stock in Facebook during the initial public offering, and then moved out of the country and renounced his U.S. Citizenship in order to avoid paying the capital gains tax he was sure would arise as the stock price continued to soar. He had to pay taxes on the $2.4 billion his shares were worth on that day, but he’d be immune to any additional gains. Unfortunately, he failed to take into account what would happen if the stock didn’t continue to rise – as, in fact, it didn’t. As of this writing, Saverin’s shares of Facebook are now worth about $1.2 billion, or about half what they were on the day he renounced his citizenship. But, since he’s no longer a citizen, he can’t take advantage of the tax implications of the loss…

Yes, that’s right: his stock is now worth $1.2 billion, but he is going to have to pay taxes on $2.4 billion. Best guess, according to Forbes, is that this will cost him around $180 million – in addition to the loss of half of his stock value in the first place, of course…

Now, I don’t pretend to know much about finance or tax law, let alone karma, but it seems relatively straightforward to me that if you’re going to play games with the tax laws in order to screw the United States government out of money you owe them, you should probably at least consider what will happen to your clever stunt – and your personal fortune – if the market doesn’t do what you expected it to do. Especially in a case like this one, where nearly all of the company’s assets are intangibles – not even defined things, like patents and copyrights, but nebulous things like market position and goodwill. Because if the market does not rise, you’ve renounced your citizenship and accepted all of the issues that will come with that decision for nothing – and if it drops, you’re losing money fast…

Previously in this space I’ve noted that right or wrong, a stock price is based on what people will pay for it, not on what the security is actually worth, or even on what they think it is worth. And in the case of a company that owns no property, has no tangible or intellectual assets, and is counting on driving its stock price up based almost entirely on hype it doesn’t take much to change people’s opinions. I’m not saying that attempting these sorts of shenanigans with tax laws and citizenship will automatically make you a loser; I’m saying that just as in any other human activity, you need to plan for the possibility that you’re not quite as clever as you think you are…