Development Financier Faces Tax Woes

By Richard Brenneman
Thursday July 23, 2009 - 09:45:00 AM

David Teece is having a bad year. 

For a man once dubbed “an economics rock star,” 2009 is shaping up more like “The Rocky Horror Picture Show.” 

The low-profile Berkeley academic was estimated to be worth $150 million in 2008 by a New Zealand business publication. So far this year, he’s ended up on the wrong end of a $1.84 million IRS tax settlement, watched the stock of an Emeryville company he founded plunge and seen the bankruptcy of a once highly touted firm he owned in his native New Zealand. 

Teece currently serves as professor of business administration at UC Berkeley’s Haas business school, where he also holds the Thomas W. Tusher Chair in global business.  

But for Berkeley residents, his main impacts have been to the city’s skyline in his role as very silent partner in the downtown housing projects of developer Patrick Kennedy—projects recently sold to Chicago real estate magnate Sam Zell. 

Teece is also a co-founder and vice chair of Emeryville-based LECG, the Law and Economics Consulting Group, a company which, according to its website, “has provided independent expert testimony and analysis, original authoritative studies, and strategic consulting services to clients.” 

Founded in 1988 by Teece and other UC Berkeley faculty, the company went public in 2003. Its stock has been badly battered in the market crash, though Teece received a $10 million retention bonus, paid out in two $5 million chunks in November 2007 and January 2008, according to the company’s most recent annual report. 

In addition to that one-time sum, he also received another $4,471,000 for his services in 2008—the same year the company reported an $86.9 million loss, down from an $11.4 million profit the year before. 

Share prices, which had peaked at $25.19 in early 2004, have fallen to as low as $1.50 in recent months, reaching at $3.71 during Thursday’s trading to close at $3.69.  

On July 6, LECG announced that “Michael Jeffery has notified the company of his intention to step down as CEO of LECG, effective at the annual meeting of stockholders” later this month. 

Another major Teece holding, Canterbury of New Zealand, has also hit the financial rocks, and his major partner, a Bahrain investment fund owned by the Kuwait Finance House, has forced the company to look for a buyer, reports Karyn Scherer, deputy business editor of the New Zealand Herald. 

Scherer also reported that the sportswear company, which manufacturs rugby gear, lost $5.5 million in 2007—the most recent records available—and $18.2 million the year before. 

But the most damaging blow may have come from Uncle Sam, inflicted in the April 8 decision by federal Tax Court Judge Harry A. Haines in Washington, D.C. 

Haines ruled that Teece underpaid his income tax for 1999 by $1,824,886. 

The judge rejected IRS claims that more taxes were due from 1998. 

The IRS had originally alleged that Teece and his spouse Leigh had owed more than $12 million. Tax cases are frequently settled for smaller amounts than initially sought. 

After the IRS began its court actions, Forbes Magazine writer Janet Novack reported that “An adverse outcome in the cases could hurt Teece’s credibility as a highly paid witness and provide fodder for hostile cross-examiners.”  

Haines’s decision, along with Teece’s problems with Canterbury, leave Novack’s question an open issue.