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F. Petitioner's Criminal Proceedings
In 1986, approximately 2 years before Mr. Kletnick drafted the
letter confirming the settlement, a criminal investigation into
petitioner's Arbitrage Management activities was in progress. Mr.
Kletnick is unsure of when he learned of the criminal investigation,
but believes it to be early 1987. Petitioners' negotiators knew of
the possibility of a criminal investigation as of December 1987.
The criminal charges against petitioner related to the repurchase
(repo) transactions entered into by certain Arbitrage Management
partnerships during 1982 and 1983. The primary issue in the criminal
trial was whether the repo transactions were fraudulent.
During the criminal trial in the U.S. District Court for the
Southern District of New York, petitioner sought to introduce
evidence that respondent had settled the civil tax claims against
petitioner and that these claims were based on the same facts and
theory as the criminal charges. Petitioner asserted that the
settlement constituted an admission by the Government that
petitioner was at least partially justified in deducting the losses
that were claimed to be fraudulent in petitioner's criminal trial.
The Government objected to the admission of evidence of the
settlement on the grounds that: (1) Respondent had not in fact
settled his civil tax claims against petitioner; and (2) even if
respondent had entered into such a settlement, evidence of the
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