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By 1981 Friedman was very familiar with the typical content
of a prospectus or private offering memorandum. In addition to
his professional experience, Friedman has been an active investor
since 1973. From 1973 to 1981 Friedman invested in a "great
number" of publicly traded stocks and private placements. His
approach to those investments was thorough and methodical:
Friedman read the prospectus or private offering memorandum,
spoke to an expert in the pertinent industry, investigated the
risk factors described in the offering materials, consulted
industry reports, and spoke to other active investors or lawyers.
Friedman is "sophisticated enough to know that in any tax
investment the underlying economics have to be legitimate."
In 1981 Friedman acquired a 1.547-percent1 interest in
Clearwater for $12,500. As a result of his investment in
Clearwater, on his 1981 Federal income tax return Friedman
claimed an operating loss in the amount of $10,002. Of a total
of $21,584 in investment tax and business energy credits,
1 The parties stipulated that Friedman owned 25 percent of the
profits, losses, and capital of Clearwater during taxable year
1981. However, Friedman's 1981 Schedule K-1, Partner's Share of
Income, Credits, Deductions, etc., attached to Clearwater's 1981
partnership return, reports that he owned a 1.547-percent
interest in Clearwater.
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