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Beginning in January 1985 and until May 26, 1989, petitioner
was employed by Drexel as a stockbroker in its retail securities
operation. During petitioner’s employment, Drexel and its
subsidiaries were engaged in the business of providing
investment, banking, securities brokerage, trading, merchant
banking, and other financial services. During his employment
with Drexel, petitioner was primarily engaged in the trading of
corporate bonds for Drexel’s individual and corporate clients and
was not involved in the high-yield, or “junk bond” underwriting
facet of Drexel’s business.
Petitioner’s Acquisition and Sale of the Shares
During 1985 and 1986, Drexel privately sold its common stock
to certain employees and Drexel insiders. By letter dated April
25, 1985, Drexel offered to sell to petitioner, as part of its
employee stock purchase plan, 700 shares of its common stock at
the December 31, 1984, book value of $67.04 per share. On that
date, petitioner acquired the 700 shares for a total purchase
price of $46,928. By letter dated April 30, 1986, Drexel offered
to sell to petitioner an additional 600 shares of its common
stock at the fixed price of $115.96 per share. On that date,
petitioner acquired the additional 600 shares for a total
purchase price of $69,576. On two occasions after April 1986,
petitioner’s 1,300 shares of Drexel stock split 2-for-1, giving
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