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served a purpose other than guaranteeing the investors' good faith.
Merit kept the interest generated by these deposits, during a time
when interest rates were relatively high. Merit insiders, however,
such as Dr. Richartz and Ms. Rivera, were allowed to keep the
interest on their own deposits. This practice suggests that the
margins were used as a source of interest income for Merit and its
insiders, and not as a basis for maintaining a valid market.
Additionally, there were no deliveries of the underlying
commodity in Merit's history of trading options in T-bills and T-
bond options and only two deliveries pursuant to forward contracts
in corporate stock. This suggests that Merit was not dealing in
valid trades, but rather only in made-up positions that could be
balanced as Merit (or the investment advisers) desired in order to
generate tax deductions or offsets. Petitioners argue that
deliveries of the underlying commodities are the exception to the
rule in commodity transactions, and they point out that contemporary
derivative markets have no delivery of the underlying asset at all.
We understand that, even on valid markets, most options contracts
are offset and do not result in delivery of the underlying
commodities. The fact remains, however, that evidence of a
meaningful number of deliveries of the items sold on the Merit
markets would have supported a finding that the markets possessed
economic validity. Merit has made no such showing. Its evidence
of two deliveries of stock (one of which was later undone) does not
dissuade us from the belief that the thousands of other Merit
transactions took place with no concern for delivery, or even the
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