Herald Tribune – At the Deep End Bar, a poolside grill on the island of St. Croix just steps from the Green Cay Marina, a handful of money managers and investors sipped Cruzan rum from a localdistillery and reached for free bug repellent as dusk brought out the no-see-ums.
Warren Mosler, who opened a hedge fund firm in St. Croix five years ago, was having what has become the usual conversation with people who were lured to the U.S. Virgin Islands in 2001 by the prospect of legally cutting their tax bill by 90 percent. Almost half of the 49 funds that set up shop on the islands have fled in the past two years.
Mosler complained that hedge funds were chased away by U.S. tax law changes and a U.S. Internal Revenue Service that said it suspected rampant fraud by those that signed up for the tax incentive.
“It’s kind of like what happens to a community when a big company or an army base pulls out but on a smaller scale,” said Mosler, a founding member and manager of the III Funds, which manages $3.5 billion. He now advises the fund in Christiansted, one of two Danish colonial settlements on St. Croix.
He was surveying the sparse happy- hour crowd. “Unfortunately, the fear is causing a case of running away from the police when you’re not guilty,” he said.
