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was investing and managing nearly $3 billion of client funds. In
view of their impressive investment experience and skill, there
is little doubt that if petitioners themselves had thoroughly
investigated the Plastics Recycling transactions before
investing, they surely would have learned that the recyclers were
overvalued and therefore the tax benefits flowing from the
Partnerships were illusory.
Spears testified that his firm's policy for investigating
investment opportunities was to rely heavily on people who had
studied the subject industry in depth. Yet Becker was not an
expert in plastics materials or plastics recycling, and he did
not study the plastics recycling industry in depth. Becker's
"investigation" did not even uncover that competing, less
expensive recyclers were already on the market. Even though
Spears knew that Becker had no expertise in plastics materials or
plastics recycling, he never asked Becker if he had consulted any
plastics experts who were independent of the transactions.
Spears testified that he simply assumed Becker had consulted the
appropriate experts.
While Farrell was at Smith, Barney, he did not perform any
due diligence for any proposed investments because such work was
done by the department or committee proposing or sponsoring the
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