Inverworld, Inc., et al. - Page 186

                                                 - 41 -                                                   
            approximately 18 months before it was closed.  In a basic back-                               
            to-back operation, a client’s funds deposited with LTD were used                              
            as collateral for loans to a related client account.  More                                    
            specifically, the mechanism took the following form:  a client,                               
            usually a Mexican corporation, placed U.S. dollars in LTD's MMA                               
            II fund.  The money was then lent to the owner of the client                                  
            corporation (MMA II notes).  The dollars were exchanged by the                                
            owner of the client corporation into pesos, and the pesos were                                
            used to buy Mexican Treasury bills or "cetes", which were lent to                             
            the client corporation.  The Treasury bills were sold by the                                  
            client corporation and exchanged into dollars, and the dollars                                
            were deposited into the client corporation's MMA II fund with                                 
            LTD.  LTD charged its client corporations 1 percent more for the                              
            loan than the interest rate paid on the MMA II notes.                                         
                  One of LTD’s "Direct Costs" of its interest income is an                                
            item entitled "Interest Expense - Special Accounts".  Such                                    
            expense represents the amount that LTD paid to LTD accounts such                              
            as, inter alia,7 FEIM Fund, Currency Fund, and TVA, for their                                 
            positions in, inter alia, Eurodeposits, IFF, Pace Investments,                                
            and InverCedes.                                                                               
                  The gross receipts and direct costs relating to LTD’s                                   
            "Interest Income" for each taxable year are as follows:                                       


            7                                                                                             
                  We note that LTD had more investment products and investment                            
            funds during the taxable years in issue than the parties have                                 
            addressed.                                                                                    




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