- 124 -
and broker commissions paid to Merrill Lynch. In light of our
holding in these cases, we need not address this particular
contention.
Considering all the evidence, we are convinced that
Brunswick was cognizant of the costs associated with the CINS
transactions and accepted those costs as a "fee" for obtaining
tax benefits. Given the substantial costs associated with the
transactions, there was no possibility that the transactions
would generate a profit over the short period that the LIBOR
notes were intended to be held.
Another aspect of the CINS transactions that bolsters our
conclusion that neither the partnerships nor Brunswick intended
to profit from their investment in the LIBOR notes relates to the
timing of the transactions. In particular, the partnerships were
investing in new LIBOR notes, and Brunswick was increasing its
interest in those notes, during a period when O'Brien's view of
the direction of interest rates was changing. From June through
September 1990, O'Brien's interest rate forecast was in
"transition". By September 1990, O'Brien had abandoned the view
that interest rates would rise and came to believe that interest
rates would fall. Because the value of the LIBOR notes would
decline with falling interest rates, we are not convinced that
either the partnerships or Brunswick reasonably expected to
profit from the CINS transactions.
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