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that she would be able to recover the investors' principal from
either the assets or the operations of M&L, which was then in a
Chapter 11 corporate reorganization proceeding.
Second, when Ms. Jobin discovered the ponzi scheme, she saw
other avenues for recovering assets for the bankruptcy estate.
Those avenues indeed proved fruitful. In particular, Ms. Jobin
instituted adversary proceedings against certain recipients of
M&L transfers on the basis of preferential transfers and
fraudulent conveyances. These proceedings were not filed until
September 1992, because the trustee encountered difficulties in
obtaining data pertaining to the transfers and conveyances from
M&L. As a result of these suits, the trustee had already
recovered $8.5 million for the M&L bankruptcy estate by the time
the instant cases were tried, and she estimated that
approximately $14 million will eventually be recovered. She also
estimated that the total recovery will result in the general
unsecured creditors, including petitioners, receiving about one
third of their M&L losses, probably sometime in late 1996.
Although at the end of 1990 none of the relevant information
for bringing the adversary proceedings had been obtained, this is
not the issue for Federal income tax purposes. The facts and
events which formed the bases of these adversary suits and upon
which the recovery could be based under Federal and State law
existed at the end of 1990. Therefore, the existence of such
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