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and 1993, respectively. Petitioners prepared their returns with
the help of a certified public accountant.
Pharmacare, Inc. (Pharmacare), was a Delaware corporation
engaged in the business of manufacturing unit dose pharmaceutical
products and packaging cosmetic products and lotions. The main
manufacturing facility for Pharmacare was located in Largo,
Florida (Largo facility).
During 1978, Pharmacare was in serious financial difficulty
and was looking for investors to provide working capital for the
company. A group of investors led by Stelios Vavlitis (Vavlitis)
agreed to invest funds in Pharmacare in exchange for a
controlling interest in the outstanding stock of the corporation.
Vavlitis planned to rebuild Pharmacare under his management and
to attract other investors to provide working capital. Vavlitis
created Pharmaco Trust, which bought an 87.6-percent interest in
the outstanding stock of Pharmacare and held the acquired stock
for management and sales purposes. Vavlitis was made president,
chief executive officer, and chairman of the board of directors
of Pharmacare.
In 1978, Vavlitis persuaded petitioner to purchase three
units of Pharmaco Trust for $99,000. In doing so, Vavlitis made
material false representations and misstatements about his prior
business experience, his educational background, Pharmacare’s
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