- 14 - Of 76 participants in the initial Merit T-bill market, only one had a gain, of $961, at the end of the first taxable year of investing. Upon completion of their T-bill trading, only 12 of the participants had earned overall profits; however, these were generally very small.4 (b) T-bond Transactions Merit also offered a market in T-bond options for which it issued a separate PPM. This PPM advised that "there are material income tax considerations involved". The material under the heading "Federal Income Tax Aspects" provided an explanation of tax aspects of trading in options. It traced the provisions of Rev. Rul. 78-182, 1978-1 C.B. 265, which discussed trading commodity options on the Chicago Board of Exchange. It discussed the "special rules relating to the tax treatment accorded to the writer of an option on inter alia, securities such as T-Bonds". It explained that-- gain or loss recognized by a writer resulting from the sale of T-Bonds pursuant to the exercise of a call would be taxable as capital gain or loss. Such gain or loss will be characterized as long-term * * * where the T- Bonds sold have been held for a period of at least one year * * *. 4 One notable exception was Case Enterprises, an offshore entity set up by the Carabini family, who also controlled Monex. In its first participating transaction, Case Enterprises deposited $1 million with Merit in September 1981, the last month of its fiscal year, incurring losses of $7,200, and in October 1981 (the beginning of its next taxable year), it withdrew $992,800. In September 1982, it again deposited $1 million, incurred substantial gains, and, 10 days later, in October 1982 (the beginning of its third taxable year), it withdrew $1,255,000.Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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