Posted Mon Jul 12, 2010 10:42 AM
Seems pretty straightforward, certain business losses are non-taxable. So, what these guys did was talk to wealthy "investors" and got them to buy video games valued at $35 (or probably $50 or $60 whatever). Then, when they sell the games for $5, or the games don't sell at all, everyone who invested get's to claim a loss of income, dropping down into a lower tax bracket or otherwise paying less taxes.
However, I think the way that everyone makes serious money on this is that the investors don't pay the full price of the game, imagine this scenerio:
The "games" are supposedly worth 50 bucks. The investor only pays 5 bucks, but get's to count his losses as 50 bucks, because that's what the game company "told" him it would sell for (really everyone involved knows what's going on). So the game company makes 5 bucks, and the investor gets to hide 50 bucks from the government.