Leema Enterprises, Inc. - Page 21




                                       - 21 -                                         

          any agreed modifications of the spread price made earlier in the            
          day of the trade or after 11 a.m. on the day before.  Merit printed         
          and provided to customers a record of transactions.                         
               Forward spread positions had the potential for returning               
          economic profits if the underlying stock market prices moved in             
          advantageous directions.                                                    
               Merit engaged an accounting firm that reviewed its system of           
          control and records, finding them adequate.  The accountants did            
          not, however, audit each trade shown on Merit's books.                      
          II.  Trading Activity of Individual Petitioners                             
               A.  K. Richard Keeler                                                  
               Petitioner Keeler is a professional trader who has traded              
          commodities for his own account and for the accounts of clients.            
          In all of such trading, Mr. Keeler has never taken delivery of the          
          underlying commodity.                                                       
               Mr. Keeler opened a T-bill option account on November 20,              
          1980.  He deposited a $150,000 check with Merit and established a           
          combination spread of options in Merit's account No. 139. On                
          December 29, 1980, the T-bills were switched.  As a result, Mr.             
          Keeler's account reflected deductible option losses of $689,600,            
          and unrealized gains of $667,685, carried over into the next year.7         


               7    Mr. Keeler's taxable year 1980 is not at issue in this            
          case, but the trading is set forth as background for the trades             
          executed in 1981 and thereafter which are at issue.                         




Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011