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In addition to the notes, the investors were required to put
up, in the aggregate, $770,000 in cash as the other 20 percent of
their capital investment in MIT 86. BBPA was supposed to advance
to MIT 86 the cash required of its investors in MIT 86. BBPA
issued neither cash, nor a check, nor notes to accomplish this
advance, which was, however, recorded by a journal entries on the
books of BBPA and MIT 86.
The nine investors signed General Partnership Subscription
Agreements by which they agreed to pay the 20 percent cash part
of their investment in 10 monthly installments at 15 percent
interest, commencing on January 1, 1986. The MIT 86 investors
paid the $770,000 to BBPA in cash or by offsets in 1986.
Machise made weekly transfers to the MIT 86 First Jersey
payroll accounts to cover the Machise payroll costs. During
1986, these transfers totaled a net amount of $3,983,476. The
employees and independent contractors were paid with MIT 86
checks signed by Bucci.
Although the books and records of MIT 86 and MITA reflect
payment of a management fee of $400,000 by MIT 86 to MITA, no
check for that amount appears in the record.
Under its cash method of accounting, MIT 86 claimed a net
loss of $3,850,000. This was the excess of the payroll costs
over reported partnership income.24
24The employee leasing agreement required MIT 85 to advance
(continued...)
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