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pellets or the recycler. Bennett testified that he was motivated
by the report of Stanley M. Ulanoff (Ulanoff), a marketer, which
was attached to the offering circular, even though Ulanoff had
not done a marketing analysis or put a value on the machine. He
also testified that in his experience, the price of machinery is
generally predicated upon the performance aspects rather than the
production cost. However, such an analysis was not done by
Ulanoff. Black testified that he "relied on others" regarding
the evaluation of the recycler, but that it was "in hindsight,
not very brilliant on [his] part" to have done so. It is
questionable from the records in these cases how closely
petitioners read the offering memorandum and to what extent they
relied on the representations therein. However, even if
petitioners did thoroughly review the offering memorandum, such
reading does not relieve them of negligence.
On its face, the Empire transaction should have raised
serious questions in the minds of ordinarily prudent investors.
According to the offering memorandum, the projected benefits for
each $50,000 investor were investment tax credits in 1981 of
$86,328 plus deductions in 1981 of $39,399. In the first year of
the investment alone, petitioners each claimed an operating loss
in the amount of $20,510 and investment tax and business energy
credits related to Empire totaling $42,402, while petitioners
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