William G. and Debra C. Kellen - Page 22




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         distribution system for jojoba, and the highly speculative nature            
         of the investment.  Petitioner ignored these warnings.                       
              On brief, petitioner painstakingly dissects portions of the             
         offering memorandum in an attempt to show that he carefully                  
         perused what he calls a “business plan”.  Petitioner’s piecemeal             
         approach to the offering memorandum ignores the existence of the             
         strong cautionary language.  A careful review of the offering                
         memorandum, especially the portion discussing the tax risks,                 
         would have caused a prudent investor to question the propriety of            
         the tax benefits.  We would certainly expect no less from a well-            
         educated and sophisticated individual such as petitioner.                    
              Petitioner contends that he also conducted his own analysis             
         of San Nicholas prior to investing.  However, there is no                    
         persuasive evidence that petitioner’s “analysis” was based on                
         anything other than the projections set forth in the offering                
         memorandum.  See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).            
         Investors were warned, however, that those projections had been              
         prepared for the general partner, had not been audited, and                  
         should not be relied on.  There is nothing in the record to                  
         persuade us that petitioner’s “projections” were ever audited or             
         examined by any disinterested third party.  Any reliance on those            
         projections was unreasonable.                                                
              Petitioner contends that his experience with farming and his            
         reading about jojoba gave him confidence in the viability of his             






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