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During the years in issue, petitioner's close friend Ignacio
Cisneros (Cisneros) was involved in insulation manufacturing. In
November 1984, Cisneros introduced petitioner to Dwight Chester
Wheeler (Wheeler). Cisneros, Wheeler, and petitioner were
interested in constructing an insulation manufacturing plant (the
plant). Hoping to generate revenue for the construction of the
plant, petitioner, Cisneros, and Wheeler met on several occasions
to discuss investment opportunities. On April 1, 1985, the three
formed a partnership called Permian Energy Co. (the partnership)
to invest in producing oil and gas properties.
Over a period of several months, Wheeler showed petitioner
various oil wells2 (the wells) which were producing very little
oil and encouraged petitioner to put money into the partnership
so that the wells could be "worked over". Wheeler advised
petitioner that oil and gas production would increase if the
wells were "worked over" by perforating different zones in the
geological formation. In order for the partnership to work over
the wells, petitioner contributed additional funds to the
company.
The partnership's checks required at least two signatures to
draw on its account. Petitioner, Cisneros, and Wheeler had the
authority to sign the checks. During initial operations of the
2 It is not clear from the record, but it appears that
Wheeler initially owned the oil leases and he contributed them to
the partnership.
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