Harbor Bancorp & Subsidiaries - Page 68

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               The Housing Authority did not benefit from the misuse of the           
          Bond  proceeds.  The  majority,  however,  would  attribute  the            
          shenanigans of the wrongdoers to the Housing Authority; I would             
          not.                                                                        
               The development of the arbitrage provisions shows that                 
          Congress sought to prevent States and their subdivisions from               
          misusing their tax-exempt privileges by issuing low-yielding bonds          
          and thereafter investing the bond proceeds into higher-yielding             
          instruments.  There is no indication that Congress would require            
          States or local governments to rebate amounts that they never               
          authorized or received.                                                     
               In 1969, when Congress enacted the section 103 provisions              
          removing arbitrage bonds from tax-exempt status, the Senate Finance         
          Committee explained that it did so to ensure that the Federal               
          Government does not become "an unintended source of revenue for             
          State and local governments".  S. Rept. 91-522, supra at 219, 1969-         
          3 C.B. at 562.  Concerns later developed, however, that unwary              
          purchasers of tax-exempt bonds might be taxed upon the interest             

               4(...continued)                                                        
                    In this case, the black box structure was corrupted by            
          the use of Unified, a shell entity, instead of a bona fide                  
          financial institution that was supposed to be both the depository           
          of the bond proceeds and the buyer (from separate funds) of the             
          project mortgage from the L/C provider.  Because Unified had no             
          substantial capital of its own, it used the Bond proceeds to buy            
          the project mortgage; and via this route, the Bond proceeds were            
          invested in the GIC's. Unified improperly used the Bond proceeds            
          to purchase the GIC's, causing the Commissioner to assert that              
          the Bonds are to be treated as arbitrage bonds pursuant to the              
          provisions of sec. 148(f).  Hence, the central failure in this              
          case was the improper use of the Bond proceeds by Unified to                
          purchase the GIC's.                                                         



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