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$2,355,319 which Northwest’s audit could not trace, and only
$8,639,511 could be attributable to losses in the stock market.
Northwest’s auditors never were able to determine what petitioner
had done with the $2,355,319 cash withdrawn from the contested
accounts. Shortly after conclusion of the audit, on or about
September 2, 1988, Northwest reiterated to petitioner that he and
his corporations could no longer sell Northwest’s tickets.
Disbursements From ANB Accounts During Northwest Litigation
During the pendency of the Northwest litigation (June 20,
1988, through its settlement on December 31, 1990), Northwest did
not receive any amount from the ANB accounts. Northwest asked
petitioner and Belofsky to release the funds in the ANB accounts
to it during 1988, but petitioner refused because he wanted to
keep control over the funds for purposes of negotiating a
settlement.
In August 1989, with Northwest’s permission, Belofsky used
$7,313 of the funds in ANB No. 3 to redeem petitioner’s personal
residence from sale for back taxes. Petitioner did not report
the $7,313 as income on his 1989 return.
Settlement of the Northwest Litigation
Petitioner and Northwest agreed to settle the Northwest
litigation and executed an agreement to that effect (settlement
agreement) on December 31, 1990. In the settlement agreement,
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