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We hold that petitioners' failure to look beyond the
Northeast offering memorandum and the representations by two
insiders of Northeast was unreasonable and not in keeping with
the standard of the ordinarily prudent person. See LaVerne v.
Commissioner, 94 T.C. 637 (1990); Marine v. Commissioner, 92 T.C.
958 (1989). We find no merit in petitioners' argument about
their supposed faith in the representations in the offering
memorandum allegedly based on the concept that Federal and State
securities laws discourage false and misleading statements.
Petitioners' educational backgrounds and professional experience
belie such feigned naivety. Likewise, since petitioners were
experienced attorneys familiar with offering memoranda, we are
unconvinced by their contention that they reasonably disregarded
the cautionary language and risk alerts because they believed
such admonitions were inserted for the benefit of the promoter.
On its face, the cautionary language is directed to the investor.
Petitioners have presented no reason for us to doubt that the
cautionary language means what it says.
Petitioners' reliance on Heasley v. Commissioner, 902 F.2d
380 (5th Cir. 1990), revg. T.C. Memo. 1988-408, and Ewing v.
Commissioner, 91 T.C. 396 (1988), affd. without published opinion
940 F.2d 1534 (9th Cir. 1991), is misplaced. The facts in the
Heasley case are distinctly different from the facts of these
cases. In the Heasley case, the taxpayers were not educated
beyond high school and had limited investment experience, while
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