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L&C Springs and the management companies relating to the L&C
Properties were not conducted in an arm's-length manner.
In order to finance L&C Springs' purchase of the L&C
Properties, SAWIA and Century Capital, as L&C Springs' general
partners, promoted investment in L&C Springs through private
placement memoranda distributed primarily to friends and family
of Kanter and Weisgal. These memoranda described generally the
significant economic risks associated with investments in L&C
Springs and explained the significant tax benefits that the
investors, as limited partners, were expected to claim on their
individual income tax returns.
L&C Springs’ private placement memorandum specifically
indicated that the projected rental revenue from the L&C
Properties would not be sufficient to cover expenses and to pay
off L&C Springs' debt obligations and that the only way an
investment in L&C Springs would be profitable would be if the
apartments were converted into condominium units and sold or if
the L&C Properties were sold for a substantial gain.
Under L&C Springs' partnership agreement, during each of the
years 1981 through 1986, each limited partner was obligated to
make additional annual capital contributions to L&C Springs in
amounts based on each limited partner’s ownership interest. The
total amount of the additional capital contributions that L&C
Springs was to receive from its limited partners equaled
$1,035,000.
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Last modified: May 25, 2011