(by Peter Van Bruggen)

Long-Term Capital Management LP, a hedge fund that had lost $4 billion after 1998 Russia default, intends to take an appeal to U.S. District Court’s decision to impose a penalty of $16 million on its partners.

The appeal will take into account the way the law was applied and the conformity of the fine imposed. Still, specialists are strongly doubtful in its success. “Findings of fact made by the judge, who heard the case without a jury, generally can’t be appealed,” said Larry Langdon, a lawyer at Mayer, Brown, Rowe & Maw in Palo Alto, California. Long-Term doesn’t think so. “We have the right to appeal,” said Myron Scholes, a Nobel laureate in economics.

U.S. District Court Judge Janet Bond Arterton has brought in a verdict that tax had no economic substance or business purpose other than to avoid taxes and that the participants knew it did not.
David Curtin, a Long-Term’s lawyer, argued the fund legally decreased its taxes with the shelter in the reason that it had brought new investors into the fund, and therefore its transactions had a real economic ground. The government’s lawyer, on the other hand, contended the shelter was not legal because its only aim was to evade taxes.