Probe Targets Finance Firms Over 'Sneaky' Strategy

Do private equity firms like Bain Capital use a sly strategy to avoid paying hundreds of millions in taxes? That's what New York Attorney General Eric Schneiderman aims to find out. In recent weeks he issued subpoenas to more than a dozen companies, including Bain, TPG Capital, and Sun Capital Partners, demanding documents regarding the scheme. It involves turning management fees into fund investments, which are taxed at a much lower rate, the New York Times reports.

But some call the strategy justified, because fund managers are risking some or all of their payment by tying it to the fund's performance. "The IRS has known that private equity funds have been doing this for 20 years," says a finance lawyer. So is Schneiderman, a first-term Democrat, playing politics over Mitt Romney's links to Bain Capital? Team Romney seems to think so: It says in a statement that Romney has never profited from the strategy and that it is "a common, accepted and totally legal practice." (More New York Attorney General Eric Schneiderman stories.)