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Representative Fees refers to all of the money SSI collected from
Chartered Representatives.
SSI represented to its Chartered Representatives that each
investment it promoted was carefully selected for its investment
potential and tax-sheltering features; forbade its Chartered
Representatives to offer to their clients any investment
opportunities other than those offered by SSI; and agreed “to
defend any suit in any federal tax court based upon an attempt by
the Internal Revenue Service to deny the tax deferring features
resulting from SSI’s investments.” SSI promoted its services as
a means of sheltering clients’ incomes from “unnecessary taxes”,
and described its products as tax shelters. Each individual
client of SSI (1) created an investment company as a sole
proprietorship that executed a Declaration of Trust naming SSI as
Trustee and (2) executed a Management Agreement naming SSI as
manager of its investment company. The purpose of the
Declaration of Trust was to allow SSI to acquire tax shelters for
the client, and the Management Agreement obligated the client to
pay SSI 1 percent of the client’s gross income on a quarterly
basis and 10 percent of the proceeds from all SSI-recommended
investments.
Under the Management Agreement, each client was to receive a
“Random Report”--a periodic statement of the client’s financial
position. Random Processing Services, Inc., a subchapter C
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Last modified: May 25, 2011