- 122 -
As the foregoing clearly illustrates, Saba and Otrabanda
lost at least $430,318 and $113,022, respectively, on their
purchase and sale of the PPNs and CDs. Moreover, Brunswick (and
SBC) subsequently lost nearly $5 million on the sale of the LIBOR
notes. Even considering the payments of approximately $4,700,000
that the partnerships received on the LIBOR notes, the
transactions were at best a wash. Without more, we are unable to
conclude that the CINS transactions appreciably affected the
partnerships’ beneficial interests.
Although the partnerships actually lost money on the CINS
transactions, petitioner nevertheless contends that, at the time
the CINS transactions were entered into, the partners anticipated
that the LIBOR notes would appreciate in value due to an expected
rise in interest rates. We reject this contention for two
reasons. First, neither the partnerships nor Brunswick ever
intended to hold the LIBOR notes more than a brief time and
certainly not long enough to recoup their transaction costs.
Second, we are not convinced that the profit potential of the
LIBOR notes was sufficient to imbue the CINS transactions with
objective economic substance.
We have already documented that the CINS transactions were
scripted well in advance. Brunswick and ABN understood, prior to
the formation of the partnerships, that the partnerships would
invest in PPNs and CDs for less than a month, that the PPNs and
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