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purported losses based on vastly exaggerated valuations of
recycling machinery.
Petitioners did not seriously educate themselves in, or
personally investigate, the plastics recycling transactions, nor
did they consult any plastics materials or plastics recycling
experts regarding the business prospects for such a venture.
Alter stipulated that prior to investing in Clearwater: He knew
nothing about the business of PI; he did not inquire as to
whether there were any other competing machines; he was unaware
of any suitable end-users; and he knew nothing about resin
prices. Friedman stipulated that prior to investing in Poly
Reclamation: He did not investigate whether there were any other
competing machines; he did not investigate how the Sentinel EPE
recycler functioned; he did not investigate the uniqueness of the
machine or whether its purported value was bona fide; and he did
not investigate whether there were any suitable end-users for the
recyclers. Petitioners did not attempt to resolve the numerous
business-related caveats and warnings in the offering memoranda.
We are not convinced that petitioners gave sufficient
consideration to the business aspects of the Partnerships to show
that they intended and reasonably expected to make an economic
profit from the transactions, regardless of the so-called oil
crisis.
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