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The offering memorandum was replete with caveats and
warnings regarding the business and tax risks associated with an
investment in San Nicholas. The cover page cautioned that “THIS
OFFERING INVOLVES A HIGH DEGREE OF RISK” and warned prospective
investors “NOT TO CONSTRUE THIS MEMORANDUM OR ANY PRIOR OR
SUBSEQUENT COMMUNICATIONS AS CONSTITUTING LEGAL OR TAX ADVICE.”
Potential inventors were urged “TO CONSULT THEIR OWN COUNSEL AS
TO ALL MATTERS CONCERNING THIS INVESTMENT” and were advised “TO
CONSULT WITH [THEIR] OWN TAX ADVISOR AS TO THE TAX ASPECTS.” The
single longest section of the offering memorandum was devoted to
“risk factors” and warned of numerous risks, specifically
including tax risks, the lack of a structured market and
distribution system for jojoba, and the highly speculative nature
of the investment. Petitioner ignored these warnings, reasoning
that “I felt that what I had done to investigate the thing * * *
was a reasonable amount of checking for what I invested * * * ”.
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,
21(...continued)
Pace. See supra note 6.
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