Joseph B. Leonard and Dorothy A. Cole Leonard - Page 6

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          Access to Funds Terminated                                                  
               In July of 1983, petitioners discontinued their transactions           
          with Robert when they learned that he might not be able to repay            
          them.  In the fall of that year, petitioners learned that Robert no         
          longer worked at Prudential Bache.                                          
               Petitioners never attempted to obtain a note from Robert.              
          They did not contact Katherine Gatto to learn about her business            
          dealings with Robert.  Nor did petitioners file a civil action              
          against Robert or contact authorities about any possible crime.             
               In early 1984, Robert told petitioners that he and Suzette             
          were under criminal investigation related to banking activities.            
          At the request of Robert and Suzette, petitioners provided Suzette          
          with money to pay her attorney’s fees.  On November 9, 1984, Robert         
          and Suzette were indicted on bank larceny and conspiracy charges            
          concerning transactions that occurred beginning July 14, 1983, at           
          the Mechanics Bank in Richmond, California.  Although the                   
          indictment against Robert and Suzette did not involve any                   
          transaction with petitioners, Mrs. Leonard was notified that some           
          of her account records were subpoenaed with respect to the                  
          investigation.  On February 21, 1985, Robert pleaded guilty to bank         
          larceny.  The indictment against Suzette was eventually dismissed.          
               By early 1984, petitioners were aware that Robert and Suzette          
          had little money, that they were selling their personal property,           
          that they had borrowed money from Robert’s parents, and that their          
          residence and the Willow Creek property were in foreclosure.                

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