- 38 -
b. Loans
During March 1986, LTD began making loans to clients. The
loans were collateralized by the clients' own certificates of
deposit. LTD verified the availability of funds and then
transferred the funds to the borrowers, usually by wire. LTD
lent the money to the client at the prime rate plus a maximum
amount of 2 percent. Accounting loans that were used to finance
purchases in other funds, however, were charged the interest rate
that the collateral was carrying, with the result that LTD did
not receive any income. Loans made to clients were not reflected
on the books of LTD but were recorded against a particular
client's account. In documents for a loan to its clients, LTD
listed the San Antonio office as its return address.
c. Non-U.S. Certificates of Deposit
and Term Deposits
During its taxable year ended 1989, LTD began offering its
clients the opportunity to place their funds in pooled
investments outside the United States. Such non-U.S.
certificates of deposit and non-U.S. term deposits program used
the same mechanics for investment as the pooled purchases of U.S.
certificates of deposit. LTD pooled clients’ funds and either
purchased non-U.S. certificates of deposit or made non-U.S. term
deposits in its own name, as attorney in fact, in accordance with
the clients' authorization provided to LTD in the discretionary
authorizations. Accordingly, the client, not LTD, bore the risk
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011