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about $600,000 in the lawsuit because about 60 percent of the
work had been finished. The prime contractor contended that the
total Lake Elsinore project was worth no more than $380,000.
Consequently, and as a result of the litigation, Cities was
experiencing financial problems. As a result, Ms. Jackson began
searching for additional financing to supplement Cities' working
capital.
In mid-1986, Cities had applied for a bank loan, and, while
the application was under consideration, Cities was awarded the
MCM Century Freeway project (Century project). Because Cities
was required to present insurance certificates as a prerequisite
to working on the Century project, Ms. Jackson was under
substantial pressure to obtain financing. During August 1986,
petitioner met with Ms. Jackson to discuss Cities’ financial
situation. Ms. Jackson was interested in securing assistance
with Cities’ financial needs, believing that the Century project
would make Cities viable. Petitioner was advised of the pending
Federal court litigation, and, as of mid-1986, it appeared that
Cities would prevail in that proceeding. Petitioner paid $40,000
for the insurance so that Cities' insurance certificates could be
obtained as a prerequisite to bidding on the Century project.
Ms. Jackson was not well acquainted with petitioner, and she
insisted that the business arrangement be reduced to writing.
Although petitioner advanced relatively large sums of money, he
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