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increase and protect DHL’s international market share. Although
the operating officers of DHLI were not in favor of the
expansion, DHLI benefited because it was able to offer more U.S.
delivery destinations to its customers.
On December 7, 1982, Hillblom acquired 49 percent of the
stock of Mattawan, for which he was to contribute $150,000. At
that time, DHLI had retained earnings of HK$433,521,201
(approximately US$56 million). Around that time, Hillblom
borrowed or withdrew several million dollars from DHLI, and
through the 1990-92 transactions no interest or principal was
repaid. Prior to his 1982 acquisition of Mattawan stock, it was
understood that Hillblom had some form of interest in DHLI.
Po Chung also acquired 49 percent of Mattawan’s stock, for
which he was to contribute 70 percent of the DHLI stock. The
employee trust of Mattawan held the remaining 2 percent of its
stock. On December 20, 1982, Mattawan acquired 120,000 DHLI
shares from DHLI, and on January 24, 1983, Mattawan acquired
49,900 DHLI shares from Po Chung and 99 from Helen Wong. After
August 8, 1984, Mattawan held all but 1 of DHLI’s shares. In
1989, Schwartz structured a sale of Hillblom’s 49 percent
Mattawan interest to Po Chung for US$226 million. The sale
documents were dated December 31, 1989. During the transaction
with the foreign investors, petitioner’s lawyers advised that the
sale would not be respected for U.S. tax purposes.
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