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that day. If the purchaser failed to transfer the requisite
funds to the seller within the required period of time, the LPO
would cancel and the seller would retain all of the funds that
the purchaser had previously paid to purchase it.
Mr. Roven directed the trading activities of petitioner,
Kenilworth, and certain other related entities that are not
directly relevant to our decision herein. Mr. Roven caused
petitioner (or, sometimes, one of the other related entities) to
buy the positions in his recommended securities (including
LPO's), and he divided the interests in these positions among the
entities in a preset manner. All purchases of LPO's with the
funds of petitioner were contemporaneously recorded as "loans" to
Kenilworth and the other related entities to the extent that each
entity (including Kenilworth) benefited therefrom. None of these
"loans" (hereinafter referred to as advances) were evidenced by a
written agreement (e.g., a note) because Mr. Roven did not
believe that he needed to prepare one, given the fact that he
controlled all of the entities and they were commonly owned. For
the same reason, none of the advances were directly secured, and
none of the entities paid interest on any of the advances.
Petitioner and Kenilworth considered the advances to be debt
that was payable on demand without a set maturity date, and they
intended at the time of each advance that it would be repaid
shortly after it was made. Prior to October 19, 1987, Kenilworth
regularly repaid each advance shortly after it received the
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