New York Attorney General Eric Schneiderman has subpoenaed documents from several private equity firms, including Bain Capital, as part of an investigation into whether the firms circumvented tax law. The Times reports that the tax strategy of converting management fees into investments taxed as capital gains (at the rate of 15% instead of 35%) "came to light" when Gawker published a trove of Bain documents last month, but that the subpoenas predated the article. Bain partners were able to save more than $200 million in federal income taxes and more than $20 million in Medicare taxes using the strategy.

But because Schneiderman's office is unable to enforce federal tax law, executives at the firms speculated that he may be attempting to recoup funds owed to the state, or that it's a cynical, politically motivated investigation.

Romney's investment manager and attorney, R. Bradford Malt, told the paper that "neither he nor the trust has ever done [the tax strategy], whether before or after he retired from Bain Capital," despite records showing that Bain executives utilized the strategy. Though the tacic not uncommon, some private equity firms decline to wield it because it is extremely complex or considered unsavory.

In 2007 the IRS announced that it was looking into alleged tax evasion at private equity firms but no firms were ever prosecuted. At issue is whether or not the investment managers are taking a sufficient amount of risk when they covert the fees into investments to receive the capital gains rate of 15%. Victor Fleischer, a law professor at the University of Colorado, believes that in Bain's case, there wasn't.

“There is a tension between economic risk and tax risk that is supposed to be inversely proportional,” he says. “The way Bain set it up there’s not much risk at all, so it’s hard to see how this income should receive capital gains treatment.” In related Bain-bashing news, Matt Taibbi has written a scathing indictment of Romney's tenure at Bain Capital in the most recent issue of Rolling Stone, asserting that his campaign strategy of pounding the "debt drum" (and choosing Paul Ryan as his VP) is based on a fundamental lie:

By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions - placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place.

It's worth noting that back in January, Taibbi told us that's Schneiderman's "impact remains to be seen. He still has an opportunity to prosecute banks that broke the law. But if nobody goes to jail, he's a failure and a fake." As far as we know, Schneiderman's mortgage crisis unit hasn't made waves since it was announced, with much fanfare, during the State of the Union.