URL: http://www.nytimes.com SUBJECT

1059 of 1231 DOCUMENTS

The New York Times
February 20, 2008 Wednesday

Late Edition - Final

Study Says Education Gap Could Further Limit Poor
BYLINE: By ERIK ECKHOLM
SECTION: Section A; Column 0; National Desk; Pg. 14
LENGTH: 775 words
Economic mobility, the chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades, a study being released on Wednesday says.

The authors of the study, by scholars at the Brookings Institution in Washington and sponsored by the Pew Charitable Trusts, warned that widening gaps in higher education between rich and poor, whites and minorities, could soon lead to a downturn in opportunities for the poorest families.

The researchers found that Hispanic and black Americans were falling behind whites and Asians in earning college degrees, making it harder for them to enter the middle class or higher.

''A growing difference in education levels between income and racial groups, especially in college degrees, implies that mobility will be lower in the future than it is today,'' said Ron Haskins, a former Republican official and welfare expert who wrote the education section of the report.

There is some good news. The study highlights the powerful role that college can have in helping people change their station in life. Someone born into a family in the lowest fifth of earners who graduates from college has a 19 percent chance of joining the highest fifth of earners in adulthood and a 62 percent chance of joining the middle class or better.

In recent years, 11 percent of children from the poorest families have earned college degrees, compared with 53 percent of children from the top fifth.

''The American dream of opportunity is alive, but frayed,'' said Isabel Sawhill, another author of the report, ''Getting Ahead or Losing Ground: Mobility in America.'' The report is at economicmobility.org

''It's still alive for immigrants but badly tattered for African-Americans,'' said Ms. Sawhill, an economist and a budget official in the Clinton administration. ''It's more alive for people in the middle class than for people at the very bottom.''

The report and planned studies constitute the most comprehensive effort to examine intergenerational mobility, said John E. Morton of the Pew Trusts, who is managing the project. It draws heavily on a federally supported survey by the University of Michigan that has followed thousands of families since the late 1960s.

A chapter of the report released last fall found startling evidence that a majority of black children born to middle-class parents grew up to have lower incomes and that nearly half of middle-class black children fell into the bottom fifth in adulthood, compared with 16 percent of middle-class white children.

The Pew-sponsored studies are continuing with the involvement of research organizations and scholars. Another report expected in the spring by the more conservative Heritage Foundation will focus on explanations for the trends described in the current report.

Stuart Butler, vice president for economic studies at the Heritage Foundation, said, ''It does seem in America now that for people at very bottom it's more difficult to move up than we might have thought or might have been true in the past.''

Mr. Butler said experts were likely to disagree about the reasons and, hence, on policies to improve mobility. Conservative scholars are more apt to fault cultural norms and the breakdown of families while liberals put more emphasis on the changing structure of the economy and the need for government to provide safety nets and aid for poor families.

''We may well have an economy that rewards certain traits that are typically passed on from parents to children, the importance of education, optimism, a propensity to work hard, entrepreneurship and so on,'' he said.

To the extent that the economy rewards those traits, he added, ''you'd expect the incomes of children to track more with that of their parents.''

The small fraction of poor children who earn college degrees are likely to rise well above their parents' status, the study showed.

More than half the children born to upper-income parents, those in the top fifth, who finish college remain in that top group. Nearly one in four remains in the top fifth even without completing college.

Evidence from model programs shows that early childhood education can have lasting benefits, Mr. Haskins said, although the Head Start program is too uneven to produce widespread gains.

In addition, he said, studies show that many poor but bright children do not receive good advice about applying for college and scholarships, or do not receive help after starting college.

''If we did more to help them complete college,'' Mr. Haskins said, ''there's no question it would improve mobility.''

URL: http://www.nytimes.com
SUBJECT: CHILDREN (91%); RESEARCH REPORTS (91%); FAMILY (90%); POOR POPULATION (90%); RESEARCH INSTITUTES (89%); AFRICAN AMERICANS (89%); TRENDS (78%); US REPUBLICAN PARTY (77%); RESEARCH (77%); CHARITIES (77%); EDUCATION (76%); HISPANIC AMERICANS (76%); TRUST ARRANGEMENTS (72%); FOUNDATIONS (72%); POLLS & SURVEYS (71%); COLLEGES & UNIVERSITIES (71%); CAUCASIAN AMERICANS (77%)
ORGANIZATION: BROOKINGS INSTITUTION (58%)
GEOGRAPHIC: MICHIGAN, USA (79%) UNITED STATES (95%)
LOAD-DATE: February 20, 2008
LANGUAGE: ENGLISH
GRAPHIC: CHART: UPWARD MOVEMENT: A person born into a poor family who graduates from college has a 19 percent chance of entering the top fifth of earners in adulthood. (Source: Economic Mobility Project, Pew Charitable Trusts) Chart showing economic mobility at a standstill.
PUBLICATION-TYPE: Newspaper

Copyright 2008 The New York Times Company

1060 of 1231 DOCUMENTS

The New York Times
February 18, 2008 Monday

Late Edition - Final

A Start-Up Says It Can Predict Others' Fate
BYLINE: By MATT RICHTEL
SECTION: Section C; Column 0; Business/Financial Desk; Pg. 4
LENGTH: 559 words
DATELINE: SAN FRANCISCO
Is your start-up worthy of investment? Ask the venture investor in a box.

Two former Oxford University students are getting attention (and seed money) in Silicon Valley for developing new technology that automates aspects of the venture capital decision-making process.

Kirill Makharinsky, 21, and Bob Goodson, 27, call their software a ''start-up predictor,'' and they say their company, YouNoodle.com, might give an edge to venture capitalists and other investors trying to decide whether to sink money into an early-stage company.

''We don't want to replace investors,'' Mr. Goodson said. ''We simply believe that industries of comparable size have utilized artificial intelligence to inform decision-making.''

''Give us some information, and we'll give you some idea of what the company will be worth in five years,'' he said.

Starting Monday, the company is emerging from a private test and is opening up parts of its Web site and services to the public.

The idea of a start-up predictor has drawn skepticism. Some venture capitalists say that the idea of using formulas or historical data from past deals to predict how other start-ups will do in the future has been tried many times in vain.

Paul S. Kedrosky, a venture capitalist and the author of the Infectious Greed blog, said that his industry was indeed inefficient at picking winners; typically, 90 percent of venture investments are not home runs. But he does not particularly trust a company that professes to be able to do better than venture capitalists.

''If their tool did such a good job, they'd raise a fund themselves and beat the tar out of us,'' Mr. Kedrosky said. ''It's hard to imagine what they're mathematical combination of factors is.''

On that point, the founders of YouNoodle.com are not forthcoming. They say their algorithm uses sophisticated modeling pertaining to how social capital and networks can affect an organization's performance.

They also say that they are focusing in general on assessing the experiences and social and business contacts of entrepreneurs who start a company, and on how the entrepreneurs within that company might fit with one another. They will not disclose precisely what factors they use to predict a start-up's success, or how their algorithm processes those factors.

They certainly have their own well-heeled network. YouNoodle's financial backers include Paypal co-founders Max Levchin and Peter Thiel, and the Founders Fund, a venture capital firm. YouNoodle has not disclosed the amount of its seed financing.

The company is also is trying to build a network of early-stage companies, and to provide tools that can be used for business plan competitions, businesses school classes and other emerging entrepreneurial ventures. It provides those tools free, but in so doing the users provide data about their new ventures that YouNoodle uses to refine its predictor algorithm.

The company plans to give away a simple version of its predictor but will charge investors who want the newer and more powerful version of the software.

So the question arises: Has YouNoodle used the predictor to determine if it will itself succeed?

''So far, we haven't run ourselves through it,'' Mr. Goodson said, adding that the results could prove baffling. ''If it says we'll fail, and it's right, that's something of a paradox.''

URL: http://www.nytimes.com
SUBJECT: VENTURE CAPITAL (93%); STARTUPS (89%); ENTREPRENEURSHIP (89%); HISTORY (78%); STUDENTS & STUDENT LIFE (78%); ARTIFICIAL INTELLIGENCE (69%); BLOGS & MESSAGE BOARDS (67%); BUSINESS PLANS (73%); COMPUTER SOFTWARE (71%)
COMPANY: PAYPAL INC (51%)
TICKER: PYPL (NASDAQ) (51%)
PERSON: MICHAEL MCMAHON (53%)
GEOGRAPHIC: SAN FRANCISCO BAY AREA, CA, USA (90%) CALIFORNIA, USA (90%) UNITED STATES (90%)
LOAD-DATE: February 18, 2008
LANGUAGE: ENGLISH
GRAPHIC: PHOTO: Bob Goodson, left, and Kirill Makharinsky will examine if a company deserves start-up money. (PHOTOGRAPH BY PETER DASILVA FOR THE NEW YORK TIMES)
PUBLICATION-TYPE: Newspaper

Copyright 2008 The New York Times Company

1061 of 1231 DOCUMENTS

The New York Times
February 18, 2008 Monday

Late Edition - Final

Tax Scandal in Germany Fans Complaints of Inequity
BYLINE: By CARTER DOUGHERTY and MARK LANDLER; Nicholas Kulish contributed reporting from Berlin.
SECTION: Section C; Column 0; Business/Financial Desk; Pg. 1
LENGTH: 1483 words
DATELINE: FRANKFURT
For wealthy Germans, many of whom have long hidden their money outside the country to avoid its high taxes, this has been a weekend of high anxiety. For their fellow citizens, it has been a riveting spectacle, dominating the public discussion for days.

Prosecutors are investigating hundreds of people, including several who are household names in Germany, on suspicion that they evaded taxes by steering money to Liechtenstein, a postage-stamp principality known for its striking Alpine scenery and discreet banks.

The fast-spreading scandal has already brought down one of Germany's most powerful business figures, Klaus Zumwinkel, who resigned Friday as the chief executive of the German postal service after the police raided his home. He is suspected of evading $1.46 million in taxes.

The scandal bears the hallmarks of a Robert Ludlum novel, with a mysterious informant who was paid by German intelligence to turn over a data disc containing evidence of tax fraud on a vast scale.

The ripples are extending far beyond Germany's moneyed elite, inflaming the suspicions many ordinary Germans have long felt toward well-paid corporate bosses and the free market in general.

A leftist party that campaigns against the excesses of business has made notable inroads in recent German state elections, raising hurdles for the government of Chancellor Angela Merkel, who is viewed as pro-business but has been sharply critical of the suspected tax evasion.

Evidence that Germany's rich tucked away their cash in Liechtenstein and other tax havens is creating a new narrative in German politics: the betrayal of the elites, who have spent the last decade calling for a painful reform of the welfare state, even as they apparently avoided paying their fair share.

''The political implications of this are going to be great,'' said John C. Kornblum, a former American ambassador to Germany who is a banker here. ''In the U.S., we send people off to prison and say 'good riddance,' but it doesn't actually shake people's belief in the system. Here, it does.''

German authorities say they began unraveling the scandal in 2006, when a person, whose identity has not been disclosed, approached the country's Federal Intelligence Service, its equivalent of the Central Intelligence Agency, offering a CD-ROM with data on German clients of a bank in Liechtenstein.

After checking out a sample of the information on the CD, the German finance minister, Peer Steinbruck, authorized a payment of about 5 million euros ($7.3 million) for the information.

By late last year, the material had passed through the tax agency in the state of North Rhine-Westphalia, officials said, and landed on the desk of a special financial crimes group in Bochum, a gritty industrial city.

There, the investigators recognized a kind of tax dodge they knew existed but could seldom document.

Liechtenstein, a tiny German-speaking principality wedged between Switzerland and Austria, has strict banking secrecy laws and grants favorable treatment to foundations. Many are filled with cash spirited out of Germany through various means, some as crude as stuffing a suitcase with cash and driving across the border. Smugglers are arrested regularly.

Foundations are taxed in the low single digits and are permitted to disburse money to their founders and to founders' family members. The foundations are also permitted to open bank accounts in their own names outside the principality, which gives the owners access abroad to their cash.

Any effort to trace the owners of the foundations runs up against Liechtenstein's tough banking secrecy laws.

Data from the LGT Group, a Liechtenstein bank with a subsidiary that specializes in foundations, appears to have formed the basis of the German investigation. The bank, which is owned by the royal family of Liechtenstein, has said it cannot confirm its part in the investigation.

But on Friday, the bank said that the German scandal might be linked to data stolen by a disgruntled employee in 2002, and it conceded that it was not sure how many clients had been exposed. ''The scope of the presumed data transfer cannot be determined,'' LGT said.

In Bochum, the prosecutors had enough information to obtain 13 search warrants against three people, Mr. Zumwinkel among them. With television cameras in tow, they arrived at his villa in an affluent suburb of Cologne on the morning of Feb. 14 and carted away boxes of documents.

Prosecutors announced that they had obtained an arrest warrant for Mr. Zumwinkel but did not execute it after he agreed to cooperate with them and posted a large bond.

The warrant outlined a typical Liechtenstein tax fraud, according to the German magazine Focus and the paper Bild am Sonntag: a foundation with the mailing address of Mr. Zumwinkel's Italian vacation home, filled with 12 million euros ($17.5 million) that he obtained by selling 10 family businesses.

Mr. Zumwinkel, who helped transform Deutsche Post, the German postal service, from a stodgy state bureaucracy into a publicly listed logistics and freight-delivery powerhouse, initially tried to cling to his job. But after pressure from Chancellor Merkel and others, he stepped down.

The prosecutors announced that they had evidence against ''several hundred'' other German tax evaders, and an official said there would be additional raids in the coming week. Mr. Steinbruck, the finance minister, urged suspects to surrender to avoid jail time.

''The authorities are telling people even destroying documents will do them no good,'' said Rudolf Schwenger, a former tax investigator in Frankfurt. ''The best they can do is turn themselves in and get away with only a financial penalty.''

This latest scandal has echoes of one several years ago, in which an anonymous whistle-blower gave Bochum prosecutors a CD with names of 200 Germans who worked with a Liechtenstein citizen to hide money. The man, Herbert Batliner, who also worked with the financier Marc Rich, was a pioneer in the use of the foundation as a tax dodge.

The German Tax Union, an advocacy group, estimates that Germany loses 30 billion euros ($43.8 billion) a year to tax evasion. The government tried to recoup some of that with a 15-month tax amnesty program that ended in mid-2005. But it brought in only a fifth of the 5 billion euros ($7.3 billion) that the finance ministry had hoped for when it took the controversial step.

Spiriting money across the border is a deeply rooted tradition in Germany. During and after World War II, many wealthy Germans stashed assets in Switzerland to escape the political turmoil here -- first under the Nazi regime, then under the threat of the Soviet army at their border.

They continued to take suitcases of cash to Liechtenstein, Switzerland and other havens through the postwar economic boom, when tax rates became some of the highest in Europe.

In 2002, analysts estimated that 300 billion euros ($438 billion) was hidden from tax authorities in Switzerland, Luxembourg, Liechtenstein and Austria. These four nations are more convenient for Germans to visit, and place assets in, than other tax havens, like those in the Caribbean.

But Austria and Luxembourg are now members of the European Union, making them less attractive. Like Switzerland, Liechtenstein is outside the union and depends on foreign deposits in its banks.

Several German celebrities have been caught trying to evade taxes. In 2002, the tennis champion Boris Becker was found guilty of claiming residency in Monaco when he was living in Munich.

The tax scandal comes at a moment when Germany is undergoing what analystsdescribe as a shift to the left politically. Despite rising employment, many Germans are dissatisfied with stagnant wage growth and do not feel that they are sharing in the gains, according to surveys.

The starkest example of this shift was the surprising strength of the Left Party in recent regional elections. The party, which brings together disaffected Social Democrats, hard-core leftists and former Communists, moved beyond its strongholds in the states that made up the former East Germany to wins seat in the state Parliaments in Lower Saxony and Hesse, for the first time.

Next Sunday, voters in the city-state of Hamburg go to the polls, and conservatives fear a rout if the public seizes on the election as a chance to vent frustrations about tax evasion and what it seems to symbolize.

Even a few German business leaders ventured their own harsh words for tax evasion over the weekend.

''Not only family entrepreneurs but also the overwhelming majority of business executives is rightly worried in light of the damage that is being inflicted on the entire profession by the misbehavior of a small group,'' the head of the German Chamber of Industry and Commerce, Ludwig Georg Braun, said in an open letter published in the German news media.
URL: http://www.nytimes.com
SUBJECT: TAX FRAUD (93%); FRAUD & FINANCIAL CRIME (90%); TAX LAW (89%); TAXES & TAXATION (89%); INVESTIGATIONS (89%); BANKING & FINANCE (89%); PUBLIC FINANCE AGENCIES & TREASURIES (78%); TAX AUTHORITIES (78%); JUSTICE DEPARTMENTS (77%); INTELLIGENCE SERVICES (75%); BANKING & FINANCE AGENCIES (75%); EMBASSIES & CONSULATES (72%); ELECTIONS (71%); CAMPAIGNS & ELECTIONS (71%); PUBLIC FINANCE (68%)
PERSON: KLAUS ZUMWINKEL (57%); ANGELA MERKEL (54%); PEER STEINBRUECK (51%)
GEOGRAPHIC: NORTH RHINE-WESTPHALIA, GERMANY (92%); FRANKFURT, GERMANY (79%) GERMANY (96%); LIECHTENSTEIN (94%); UNITED STATES (92%); CENTRAL EUROPE (91%)
LOAD-DATE: February 18, 2008
LANGUAGE: ENGLISH
GRAPHIC: PHOTO: Klaus Zumwinkel was the first to fall in the tax investigation. (PHOTOGRAPH BY INA FASSBENDER/REUTERS)
PUBLICATION-TYPE: Newspaper

Copyright 2008 The New York Times Company

1062 of 1231 DOCUMENTS

The New York Times
February 18, 2008 Monday

Late Edition - Final

After China Ships Out iPhones, Smugglers Make It a Return Trip
BYLINE: By DAVID BARBOZA; John Markoff contributed reporting from San Francisco.
SECTION: Section A; Column 0; Business/Financial Desk; Pg. 1
LENGTH: 1151 words
DATELINE: SHANGHAI
Factories here churn out iPhones that are exported to the United States and Europe. Then thousands of them are smuggled right back into China.

The strange journey of Apple's popular iPhone, to nearly every corner of the world, shows what happens when the world's hottest consumer product defies a company's attempt to slowly introduce it in new markets.

The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing that leads friends to ask friends, ''While you're in the U.S., would you mind picking up an iPhone for me?''

These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are actually registered on the networks of its wireless partners in the United States and Europe?

The answer now seems clear. For months, tourists, small entrepreneurs and smugglers of electronic goods have been buying iPhones in the United States and then shipping them overseas.

There the phones' digital locks are broken so they can work on local cellular networks, and they are outfitted with localized software, essentially undermining Apple's effort to introduce the phone with exclusive partnership deals, similar to its primary partnership agreement with AT&T in the United States.

''There's no question many of them are ending up abroad,'' said Charles R. Wolf, an analyst who follows Apple for Needham & Company.

For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.

But those economic realities do not play into the mind of Daniel Pan, a 22-year-old Web site designer in Shanghai who says a friend recently bought an iPhone for him in the United States.

He and other people here often pay $450 to $600 to get a phone that sells for $400 in the United States. But they are happy.

''This is even better than I thought it would be,'' he said, toying with his iPhone at an upscale coffee shop. ''This is definitely one of the great inventions of this century.''

Mr. Pan is among the new breed of young professionals in China who can afford to buy the latest gadgets and the coolest Western brands. IPhones are widely available at electronic stores in big cities, and many stores offer unlocking services for imported phones.

Chinese sellers of iPhones say they typically get the phones from suppliers who buy them in the United States, then have them shipped or brought to China by airline passengers.

Often, they say, the phones are given to members of Chinese tourist groups or Chinese airline flight attendants, who are typically paid a commission of about $30 for every phone they deliver.

Although unlocking the phone violates Apple's purchase agreement, it does not appear to violate any laws here, though many stores may be avoiding import duties.

Considering China's penchant for smuggling and counterfeiting high-quality goods, the huge number of iPhones being sold here is not surprising, particularly given the popularity of the Apple brand in China.

Indeed, within months of the release of the iPhone in the United States last June, iPhone knockoffs, or iClones as some have called them, were selling here for as little as $125. But most people opt for the real thing.

''A lot of people here want to get an iPhone,'' says Conlyn Chan, 31, a lawyer who was born in Taiwan and now lives in Shanghai. ''I know a guy who went back to the States and bought 20 iPhones. He even gave one to his driver.''

Negotiations between Apple and China Mobile, the world's biggest mobile-phone service operator with more than 350 million subscribers, broke down last month, stalling the official release of the iPhone in China. Long before that, however, there was a thriving gray market.

''I love all of Apple's products,'' said a 27-year-old Beijing engineer named Chen Chen who found his iPhone through a bulletin board Web site. ''I bought mine for $625 last October, and the seller helped me unlock it. Reading and sending Chinese messages is no problem.''

An iPhone purchased in Shanghai or Beijing typically costs about $555. To unlock the phone and add Chinese language software costs an additional $25.

For Apple, the sale of iPhones to people who ship them to China is a source of revenue. But the company is still losing out, because its exclusive deals with phone service providers bring in revenue after the phone is sold. If the phones were activated in the United States, Apple would receive as much as $120 a year per user from AT&T, analysts say.

But there are forces working against that. Programmers around the world collaborate on and share programs that unlock the iPhone, racing to put out new versions when Apple updates its defenses.

While Apple has not strongly condemned unlocking, it has warned consumers that this violates the purchase agreement and can cause problems with software updates.

Some analysts say abandoning the locked phone system and allowing buyers to sign up with any carrier they choose, in any country, could spur sales.

''The model is threatened,'' Mr. Wolf, the analyst, said. But ''if they sold the phone unlocked with no exclusive carrier, demand could be much higher.''

An Apple spokeswoman declined to comment on the proliferation of iPhones in China. When asked about the number of unlocked iPhones during a conference call with analysts last month, Timothy D. Cook, Apple's chief operating officer, said it was ''significant in the quarter, but we're unsure how to reliably estimate the number.''

The copycat models are another possible threat to Apple. Not long after the iPhone was released, research and development teams in China were taking it apart, trying to copy or steal the design and software for use in knockoffs.

Some people who have used the clones say they are sophisticated and have many functions that mimic the iPhone.

In Shanghai, television advertisements market the Ai Feng, a phone with a name that sounds like iPhone but in Chinese translates roughly as the Crazy Love. That phone sells for about $125.

Some of the sellers of the copycats admit the phones are a scam.

''It's a fake iPhone, but it looks nearly the same,'' said a man who answered the phone last week at the Shenzhen Sunshine Trade Company, in southern China's biggest electronics manufacturing area. ''We manufacture it by ourselves. We have our own R. &D. group and manufacturing plant. Most of our products are for export.''

Most people here seem to want the glory that comes with showing off a real iPhone to friends.

''My friends envy me a lot,'' says Mr. Pan, the Web designer. ''They say, ''Wow, you can get an iPhone.' ''

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