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Friedman testified that he was an active investor from 1973
to 1981, and that it was his established practice to read the
accompanying prospectus or offering memorandum and investigate
the risks that were described therein. With respect to
Clearwater, however, Friedman did not investigate the risks
described in the offering memorandum or even seek to verify the
purported value or uniqueness of a Sentinel EPE recycler. Alter
testified that he was not concerned by the risk factors described
in the Poly Reclamation offering memorandum, and commented that
he had "seen similar disclaimers in other red herrings or
offering memoranda." Asked what he did to confirm the value of
the machine, Alter testified "I had no competence to do that, to
do any comparison." Alter did not hire an expert to value the
Sentinel EPE recycler, and he knew that Feinstein and Lauren had
not made a judgment as to the value of the machine. The records
in these cases do not reflect a careful and studied consideration
of the offering memoranda by either petitioner.
The projected tax benefits in the Clearwater and Poly
Reclamation offering memoranda exceeded petitioners' investments.
According to the Clearwater and Poly Reclamation offering
memoranda, for each $50,000 investor, the projected first-year
tax benefits were investment tax credits in the amount of $86,328
for each partnership, plus deductions in the amounts of $39,399
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