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FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference. Since
1982, petitioner has been engaged in the business of designing,
manufacturing, and selling personal computers. Details
concerning petitioner's business operations are set forth in T.C.
Memo. 1999-220 and are not repeated here.
Petitioner occasionally invested in the stock of other
computer companies. In 1992, petitioner held stock in Conner
Peripherals, Inc. (Conner Peripherals), a publicly traded,
nonaffiliated computer company. Petitioner sold the Conner
Peripherals stock in July 1992, recognizing a long-term capital
gain of $231,682,881.
Twenty-First Securities Corporation (Twenty-First), an
investment firm specializing in arbitrage transactions, learned
of petitioner's long-term capital gain from the sale of Conner
Peripherals, and on August 13, 1992, Steven F. Jacoby (Jacoby), a
broker and account executive with Twenty-First, mailed a letter
to petitioner soliciting petitioner's business. The letter
stated that Twenty-First "has uncovered a number of strategies
that take advantage of a capital gain", including a Dividend
Reinvestment Arbitrage Program (DRIP) and a "proprietary
variation on the DRIP", the ADR arbitrage transaction (ADR
transaction).
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