- 24 -
Gilmores', Wilson's, and G&W's investments in Southeast. Because
Stewart was paid to sell the investment, his advice was suspect.
The Gilmores, Wilson, and G&W (through Gilmore and Wilson)
contend that they reviewed Southeast's offering memorandum. The
extent of their review of the offering memorandum is unclear;
however, a review of that document would have indicated the
numerous business and tax risks associated with an investment.
The preface to the offering memorandum warned the potential
investor not to consider its contents as expert advice and to
seek advice from the investor's own advisers. The offering
memorandum also clearly stated that the transactions involved
significant tax risks and that in all likelihood the IRS would
challenge the validity of the transactions and the purported
value of the recycling machines. The "business risks" section of
the offering memorandum warned that there was no history for
Southeast and that there was no established market for the
recyclers or pellets produced therefrom. The Gilmores, Wilson,
and G&W failed to carefully consider the offering memorandum and
to take into account its warnings. Statements regarding the
business and tax risks and the warnings placed on the front page
of the offering memorandum would have alerted a prudent and
reasonable investor to the questionable nature of the promised
deductions and credits. See Collins v. Commissioner, 857 F.2d
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011