Three young Philadelphians, a lawyer, and a big Pinkerton guard showed up at a horse track north of Chicago one day in July 1985 with a suitcase filled with $250,000 in cash.
According to interviews, documents, and news reports, Jeffrey Yass and his friends had discovered a technique to outsmart the track’s bookies by crunching the statistics on a Compaq computer the size of a small refrigerator.
They bet $160,000 a few months previously, hoping to correctly predict the starting order of seven horses in three different races by placing tens of thousands of wagers.
A PhD statistician who had previously worked for NASA on the moon landing helped refine this advanced theory of racing chances, and it turned out to be accurate. The largest payout in American racing history at the time was their $760,000 haul.
However, they turned away when they presented the track window with their obscenely huge list of wagers that July day. They were evicted after making a request to the track owner.
When Yass, then 27 years old, wanted to place the bets, he filed a lawsuit. The track’s attorney blasted the men for attempting to corner the betting market in front of a federal judge “through the use of their statistics and numbers.”
Yass lost, but that year he and his buddies recreated it in different ways at racetracks for horses and dogs around the nation.
Then they made the decision to shift their attention from a world of thousands of dollars to one of the billions: Wall Street.
Susquehanna International Group, the business he and his associates started, is now a vast, multibillion-dollar organisation.
Yass and his group made quick computer-driven trades in options and other securities using their numeracy knowledge, eventually growing into a massive middleman in the markets for stocks and other securities.
There’s a significant chance you traded with Susquehanna without realising it if you purchased stock or options through an app like Robinhood or E-Trade. Yass, 63, is currently one of the wealthiest and most influential financiers in the nation.
But one significant development in his rise to stratospheric fortune had placed behind closed doors. Yass has turned his attention to his tax bill with the same skill he has used on racetracks and options markets.
At least $1 billion in tax savings over the last six years have resulted from this strategy, according to ProPublica’s study of a vast amount of IRS data.
Yass paid an average federal income tax rate of just 19 per cent throughout that time, which was much lower than that of comparable Wall Street dealers.
Yass has created trading plans that lessen his tax burden yet violate the law. He has drawn IRS audits on numerous occasions, yet he keeps pushing the envelope.
Susquehanna has frequently sued the government in court; one multi-year audit battle resulted in a pricey loss for Susquehanna. In court documents, the company has argued that it followed the law.
Yass’ low rate is noteworthy in that Susquehanna, according to its own description, focuses on short-term trading. Taxes on profits from such quick trades are normally in the range of 40%.
However, in recent years Yass’ annual income has been composed virtually exclusively of income taxed at the around 20% rate intended for longer-term investments.
Long ago, Congress attempted to outlaw common strategies that aim to convert income taxed at a high rate into gains taxed at a low rate. Yass and his coworkers have nevertheless avoided paying increased taxes.
Yass’s wealth has increased dramatically as a result of the tax savings, and he has progressively invested this money in political conservative politicians and causes. In recent years, he has invested over $100 million in election campaigns.
The funds were used to support politicians who erroneously claimed that the 2020 election was rigged and sought to outlaw abortion, as well as anti-tax campaigning, charter school initiatives, and opposition to the so-called critical race theory.
The specifics of Yass’ tax evasion have been put together by ProPublica using tax returns, securities filings, court documents, and interviews with former traders and executives. (The ex-employees spoke under the condition of anonymity; many expressed a desire to not enrage Yass.)
Yass declined to be interviewed for this piece through a spokesman. In response to a lengthy list of inquiries for Susquehanna and the firm’s founding partners, the spokeswoman chose not to reply.
The tax agency may have more to look into, according to Gregg Polsky, a former corporate tax attorney and professor of law at the University of Georgia who was hired by ProPublica to study Susquehanna’s tax records.
Yass’ records showed some tactics that were “extremely suspicious and suggestive of potential misuse that should be scrutinised by the IRS,” he claimed.
As opposed to other Wall Street billionaires, Yass and his partners only paid a low tax rate.
For wealthy earnings in 2017, the standard tax rate on ordinary income, including money earned from trading in short-term stocks, was roughly 40%.
However, certain types of income, such as gains from long-term investments, were taxed at a rate of about 20%. This graph displays the proportion of each person’s 2017 taxable income that was taxed at that lower rate.
ProPublica contacted each of the billionaires mentioned here through their respective representatives.
They all choose not to comment. (Reference: IRS documents; analysis by ProPublica) Eddie Malluk, Laura Goldman, Jemal Countess, Mark Lennihan, Ryan Muir for The New York Times, Thos Robinson, Misha Friedman, and Patrick McMullan are all credited with taking the photos.
Yass continues to bet more than 35 years after being expelled from the racetrack outside of Chicago. not just on horses, but also on the market, poker, and poker.
In a podcast chat, he sheepishly acknowledged that he has even put bets on his kids’ sporting events.
When asked to explain his trading strategy at Susquehanna, Yass once used a poker analogy. He stated, “If you play with the five best players and you’re the sixth-best poker player in the world, you’re going to lose.” “You will win if your talents are only mediocre and you play against inferior opponents.”
Yass freely acknowledges that a combination of this mindset and a lot of luck led to his multi-billion dollar success.
Yass doesn’t appear to be particularly interested in the trappings of great wealth as compared to many of his fellow billionaires—he is wealthier than “Star Wars” creator George Lucas, retail brokerage king Charles Schwab, and Hollywood tycoon David Geffen.
In the picturesque college town of Haverford, located on the Main Line west of Philadelphia, Yass and his wife Janine brought up their four children.
Rather than being the residence of one of the wealthiest men in the nation, their huge but unassuming home could easily belong to a successful doctor.
He wouldn’t stand out in a throng at the suburban country club where he plays golf in his quarter-zip pullover sweater, Nikes, and no-nonsense rimless glasses.
Yass has managed to preserve his megayacht and pricey art collections in perfect secret. The closest thing to a recognisable trophy asset is a home in East Hampton, a posh seaside community on Long Island, New York, belonging to the Georgica Association.
Even that house, bought in 2005 for $12.5 million and controlled by an LLC, is in a neighbourhood known for being “bucolic and understated.”
Those who have worked with Yass claim that he is more motivated by market competition and the excitement of taking calculated risks than by spending money.
Yass uses studied humility and humorous timing to allay any appearance of brutality. He once said, “Some people appreciate art history, I like the probabilistic analysis.”
But he avoids humour while discussing his intellectual worldview. He uses religious imagery when discussing capitalism. He loves to claim that creating new markets is a “mission from God.”
He starts off with a conversion experience like many religious stories do. Yass, who was born in 1958 to two CPAs in Queens, claimed that reading Milton Friedman’s “Capitalism and Freedom” as a young man saved him from having an early love affair with socialism.
Yass had already become enamoured of trading by the time he earned his degree from the State University of New York at Binghamton in 1979.
According to Forbes, Yass’ father had also encouraged his love of horse racing by taking him to nearby tracks to watch harness racing.
Yass explored whether the developing stock options market could be justified as having socially beneficial effects in his college thesis. Yass afterwards mumbled, “I concluded that it should exist. I earned a B.
He relocated to Las Vegas after graduation and played poker professionally there for a year and a half. Then he went back to the East Coast, relocating to Philadelphia, and started trading options there.
The academic study of the financial instruments experienced a surge in the previous decade, which included the development of a ground-breaking model for more precise pricing.
Yass later referred to the model as “the most revolutionary notion in a long, long time” due to its wider implications for how to make mathematically valid decisions.
A share of stock is a tiny ownership interest in a corporation, which is a fairly straightforward idea. A contract that grants the right to buy or sell a specific stock at a specific price and period in the future is known as an option.
Options draw traders with a mathematical bent because the value of each contract is based on a complicated web of factors, including the price of the underlying asset, volatility, time, and interest rates.
Choices are a flexible tool. Traders can use them as insurance to ensure they will be paid at least today’s price when they sell in the future, which may appeal to those who are risk-averse.
They are also helpful to risk-takers who wish to make large wagers on the performance of a stock.
(A speculator might employ an option as follows: Shares of Netflix were trading for less than $200 at the start of June. If the investor anticipates that the company’s financial situation will significantly improve this summer, they might purchase options to purchase the shares at $250 in mid-August for about $4.50 per option. They could make a fortune if the stock soars over that amount.
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Yass discovered more than just a financial tool in options. He developed a perspective on the world.
Everything can be compared to the reward and evaluated depending on how much it will cost in terms of money, time, or unfavourable outcomes. Afterwards, appropriate action is done or avoided.
According to Yass, it is always worthwhile to spend $19 for a 20% chance to win $100 but it is never worthwhile to pay $21.
