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the allocation of royalty payments and PI’s record-keeping system
in general. In Provizer v. Commissioner, supra, though, this
Court found that “PI had no cost accounting system or records.”
Becker confirmed in his testimony that he relied on the
memorandum and discussions with PI personnel to establish the
value and purported uniqueness of the recyclers. Becker
testified that he relied upon the reports of Ulanoff and Burstein
contained in the offering materials, despite the fact that: (1)
Ulanoff’s report did not contain any hard data to support his
opinion; (2) Ulanoff was not an economics or plastics expert; (3)
Becker did not know whether Burstein was an engineer; and (4)
Burstein was a client of Miller’s and was not an independent
expert.
Becker further explained in his testimony that in the course
of his practice when evaluating prospective investments for
clients, he focuses on the economics of the transaction and
investigates whether there is a need or market for the product or
service. The records indicate, though, that Becker overlooked
several red flags regarding the economic viability of and market
for the recyclers. The memorandum warned that there was no
established market for the recyclers. Becker never saw any
marketing plans for selling the pellets (the product of the
recyclers) or leasing the recyclers. He accepted representations
by PI personnel that they would be marketing the recyclers to
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