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established with First Interstate Bank of Arizona, N.A. (FIB),
(2) petitioner and Guardian each pay 50 percent of the cost of
maintaining the Trust, and (3) securities be deposited into the
Trust to secure petitioner’s performance under the 1988
Agreement. The Trust was a security device for Guardian to
secure payment of petitioner's obligations, and it was structured
to allow Guardian to receive credit on its annual statements for
the additional capital surplus it sought to obtain.
Guardian and petitioner executed an agreement with FIB,
effective December 30, 1988, establishing the Trust. The
agreement was drafted by Guardian. Based on discussions with
Mr. Starr, Mr. Gordon estimated that petitioner’s required
deposit to the Trust as of December 31, 1988, was approximately
$850,000. Based on this estimate, petitioner transferred
securities totaling $850,397 into the Trust in early February
1989.
During the entire period that the Trust was in existence,
petitioner had a right to receive, and received on a monthly
basis, all investment income (including interest and dividends)
from the Trust’s assets.12 Petitioner also had a reversionary
interest in the Trust’s assets, and it reported these assets on
its financial statements filed with the Arizona Department of
Insurance. Guardian had the sole discretion to make withdrawals
12 From 1989 through 1992, petitioner received investment
income totaling $252,588.
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