Don A. Chan and Cecilia Chan - Page 23

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                  Lily received a $314,912 distribution from the First Pacific                           
            account in October 1988.  Shin's records do not show an inflow                               
            from a shareholder at that time that would indicate that Lily                                
            repaid this amount to Shin.  Shin's chief accountant, Ken Chen,                              
            who was responsible for Shin's muddled recording system, could                               
            not identify the recorded inflows that would reflect Lily's                                  
            repayment even though Ken Chen claimed it was his duty to ensure                             
            borrowers repaid the alleged loans.  We find that Lily did not                               
            repay this amount to Shin.                                                                   
                  At trial, petitioner husband claimed that he did not                                   
            question the reasons for the withdrawals, nor did he care who                                
            received the funds.  We find it hard to believe that a 30-percent                            
            shareholder would not care who was receiving the profits from his                            
            company.  This is especially so given the fact that petitioner                               
            husband never received a dividend from Shin while other                                      
            shareholders with smaller shareholdings were receiving dividends.                            
                  Lily was less than a 3-percent shareholder but was receiving                           
            substantial advances from Shin that were not repaid.  Lily                                   
            generally held the passbooks from the Coast and First Pacific                                
            accounts and never showed them to anyone at Shin.  Lily used the                             
            money from the accounts to pay the money she owed under the 1986                             
            Agreement.  In addition, the accounts were first opened when the                             
            1986 Agreement was entered into and closed when Lily finished                                
            making the payments due under that Agreement.  A distribution to                             
            a family member of the shareholder can constitute a sufficient                               




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