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The offering memorandum informed investors that Foam’s
business would be conducted in accordance with the transactions
described above. The offering memorandum was replete with
warnings. The front page of the memorandum cautioned in bold
capital letters that “THIS OFFERING INVOLVES A HIGH DEGREE OF
RISK”. Significant business and tax risks associated with an
investment in the partnership were specifically enumerated in the
offering memorandum. Those risks included the following:
(1) There was a substantial likelihood of audit by the Internal
Revenue Service (IRS), and the IRS might challenge the fair
market value of the recyclers, recharacterize F&G’s lease to the
partnership as other than a bona fide lease, and assert that the
partnership transactions were not conducted with the objective of
making an economic profit exclusive of tax benefits; (2) the
partnership had no prior operating history; (3) the management of
the partnership’s business would be dependent on the services of
the general partner, who had limited experience in marketing
recycling or similar equipment and who was only required to
devote such time to the affairs of the partnership as he deemed
necessary; (4) the limited partners would have no control over
the conduct of the partnership’s business; (5) there were no
assurances that market prices for new resin pellets would remain
at the current cost per pound or that the recycled pellets would
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Last modified: May 25, 2011