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was knowledgeable about the supply and price movements of
petroleum products. Based on these factors, petitioner claims
that he reasonably expected to make a profit from his investment
in Clearwater and was therefore not negligent.
We fail to see how petitioner's limited experience with
plastics and plastics recycling, together with his professed
knowledge about the desirability of "effective" recycling
equipment, made it reasonable for him to invest in a partnership
designed to produce tax benefits. Although petitioner's limited
experience with plastics and plastic scrap, and his professed
awareness about the economic desirability of effective recycling
equipment, may have provided some motivation to consider the
Clearwater investment, petitioner should have thereafter
reasonably investigated his prospective investment.
There were many factors that should have alerted petitioner
to conduct an independent investigation of the Clearwater
investment. The transactions were structured in a manner such
that, with the exception of a minimal downpayment for the
Sentinel EPE recyclers, most of the purchase price was in the
form of a series of offsetting payments realized only through
bookkeeping entries. The purported price tags had nothing to do
with traditional principles of supply and demand pricing because
the Sentinel EPE recyclers were never offered on the open market,
and there is no evidence that anyone ever intended to offer them
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