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Comstock Financial, was diverted to Hitech. David was placed in
county jail.
In September or October, 1987, David was released from
county jail on bail. On January 13, 1988, David pleaded guilty
to various counts of fraud involving the sale of unregistered
securities in connection with his participation in the fraudulent
investment scheme involving Comstock Financial. He was
thereafter confined in a California state prison.
On their returns for 1984 and 1985, petitioners reported an
adjusted gross income of $10,525 and $4,298, respectively, of
which approximately $9,801 in 1984 and $1,760 in 1985 represented
Margaret's wages from part-time nursing as reflected on Forms W-
2, Wage and Tax Statement, issued to her. Petitioners did not
report any wages or income from Comstock Financial on their 1984
return; petitioners reported $2,538 in wages that David had
received from Comstock Financial on their 1985 return.
During 1984, David received and retained $465,400 in
illegally diverted funds from investors of Comstock Financial.
During 1985, David received and retained $1,572,018 in illegally
diverted funds from such investors. In addition, during 1984 and
1985 David received $3,898.68 and $63,128.23, respectively, from
the sale of oil by Hitech to various oil-related companies which
he deposited in Hitech's Security Pacific account. In 1985,
David also received $6,944 of interest income from a Merrill
Lynch cash management account. The record does not disclose that
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