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Fact Checker: Iowa Rep. Pat Murphy's ad on Rod Blum's business practices

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Congressional candidate and State Representative Pat Murphy. (Stephen Mally/The Gazette file photo)
Congressional candidate and State Representative Pat Murphy. (Stephen Mally/The Gazette file photo)

Introduction

“Blum cheated his workers out of overtime.”

“He moved his business to dodge Iowa taxes.”

“He laid off over 70 workers”

Source of claim

Iowa Rep. Pat Murphy, a Dubuque Democrat running for U.S. House of Representatives

Analysis

In his 30-second TV ad, “Last to Leave”, Murphy criticizes his competitor, Republican Rod Blum, for his business practices while leading Dubuque-based Eagle Point Software from 1990 to 2000.

 

Claim 1: “Blum cheated his workers out of overtime.”

A group of former Eagle Point employees filed a complaint with the U.S. Department of Labor in 1997, claiming Eagle Point hadn't paid them adequate overtime pay, according to a March 8, 2001 article in the Dubuque Telegraph-Herald.

The original documents from the Labor Department were not immediately available, but Eagle Point's filings with the U.S. Securities and Exchange Commission verify the report.

“The company and the Department of Labor have reached a settlement agreement,” Eagle Point reported to the SEC in 1997. “The company has taken a $235,000 charge which the company estimates to be sufficient to cover the settlement negotiated with the Department of Labor as well as future costs and necessary expenses related to the ongoing litigation.”

Paul Smith, Blum's director of operations, said Wednesday the claims came from salaried sales representatives who did not want to punch a time clock. The settlement resulted from the company having to guess at past hours for each employee, he said.

 

Claim 2: “Moved his business to dodge Iowa taxes”

Originally incorporated in Iowa in 1983, Eagle Point, under Blum's leadership, reincorporated in Delaware in 1995, according to SEC filings. The company's physical location and all employees remained in Dubuque.

Many U.S. companies — including more than half of those in the Fortune 500 — have their legal home in Delaware for beneficial tax laws and courts.

University of Iowa College of Law professor Andy Grewal, who specializes in tax law, said a company's Delaware presence — even if it's just a P.O. Box — may charge royalties on income gained in other states. Companies deduct those royalties from the income taxes they are required to pay in, say, Iowa, while Delaware doesn't tax the royalties.

 

Claim 3: “Laid off over 70 workers”

SEC filings show Eagle had 257 employees on June 30, 1996 and 192 in 2001. The company had as few as 185 employees in 1998, which would have been a 28 percent, or 72 employee, loss over that two-year period.

 

CONCLUSION

Eagle Point's filings with the SEC show the software company paid a financial settlement to former employees who alleged they had not been paid for overtime. This was after the DOL launched an investigation. Settlements aren't necessarily an admission of guilt, but the company felt paying $235,000 was better than a court battle.

Murphy's ad uses the word “cheated,” which implies a bad intent. The Fact Checker could not verify that.

Under Blum, Eagle Point reincorporated in Delaware, generally viewed as having more business-friendly tax laws and courts. In these types of cases, the home state can lose out on corporate income taxes.

Eagle Point cut employees under Blum, SEC filings show, with a reduction of 72 from 1996 to 1998. The firm was back up to 192 in 2001, about six months after Blum stepped down as CEO.

The claims in Murphy's ad are mostly true.

 

SOURCES

Blum's history with Eagle Point: http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=578694-86445-90289 & type=sect & TabIndex=2 & companyid=9335 & ppu=%252fdefault.aspx%253fcompanyid%253d9335%2526amp%253bformtypeId%253d7

Dubuque Telegraph-Herald 2001 article: http://iw.newsbank.com/iw-search/we/InfoWeb?p_action=doc & p_theme=aggdocs & p_topdoc=1 & p_queryname=0EAE451DD864B5BA & p_docnum=1 & p_sort=YMD_date: D & p_product=NewsBank & p_docid=0EAE451DD864B5BA & p_text_direct-0=document_id=(%200EAE451DD864B5BA%20) & p_multi=DTHB & s_lang=en-US & p_nbid=R5EW4FBFMTQxMTU2OTcyNC4yMjQ2Nzc6MTo4OnJmLTIxODI1

Description of DOL settlement: http://www.sec.gov/Archives/edgar/data/945066/0000950131-97-006814.txt

Eagle Point incorporation history: https://www.sec.gov/Archives/edgar/data/945066/0000950131-96-004767.txt

Delaware as tax home for corporations: http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?pagewanted=all &_r=0

http://corp.delaware.gov/whycorporations_web.pdf

Eagle Point employee levels: https://www.sec.gov/Archives/edgar/data/945066/0000950131-96-004767.txt

https://www.sec.gov/Archives/edgar/data/945066/0000950131-98-005302.txt

https://www.sec.gov/Archives/edgar/data/945066/000095013101503355/d10k.txt

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