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3. Newtowne, Inc., and Related Transactions
Newtowne, Inc. (Newtowne), an Ohio corporation founded in
1972, was the construction company which served as petitioner's
general contractor for most of his real estate projects. Phillip
Fankhauser (Fankhauser), William Riat (Riat), Steven Branam
(Branam), and Frederick Forster (Forster) were officers and
shareholders of Newtowne. Fankhauser served as Newtowne's
president during the years in issue. In 1992, Newtowne filed a
chapter 11 petition in bankruptcy. During the years in issue,
Newtowne was desperate for business from petitioner and, thus,
acceded to many of petitioner's wishes and demands. As a result
of the lack of arm's-length dealing, petitioner was able to
manipulate many of the transactions with Newtowne to his benefit.
Newtowne entered into contracts with the partnerships to
provide the latter with construction and design services.
Newtowne also entered into several "Market Research Analysis and
Ongoing Planning [Agreements]" and "Warranty Service
[Agreements]" with the partnerships. With the exception of two
contracts, petitioner signed the contracts on behalf of both
parties.
Petitioner advised representatives of Newtowne that he did
not expect to receive the services set forth in the market
research and warranty agreements. Petitioner sent messengers to
Newtowne's office with checks that were drawn on various
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