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Crispin also maintained that Koehler was in the “driver’s
seat” because petitioner needed to have CKS, a securities dealer,
in the transaction. Contrary to Crispin’s and petitioner’s
claim, the record reflects that Crispin and/or petitioner had
practical control of CKH and Koehler. As discussed earlier, Cap
Corp. was insolvent and could not continue operating without
capital from petitioner. As of September 30, 1996, Cap Corp.
purportedly owed petitioner approximately $2.287 million. By the
time Crispin and Koehler formed CKH on October 22, 1996, they
realized that Cap Corp. was insolvent. In the December 2, 1996,
debt conversion transaction petitioner permitted CKH to acquire
CKS from Cap Corp. by means of petitioner’s cancellation of
$2.1599 million of Cap Corp.’s obligation regarding the advances.
Even after the debt conversion, CKH and Koehler were at the mercy
of Crispin and/or petitioner for funds, as CKS continued to incur
considerable monthly expenses and suffer substantial operating
losses.
In addition to effective control over CKH and Koehler,
petitioner held a large preferred stock interest in CKH. Koehler
estimated that petitioner’s preferred stock represented 98
percent of the equity in CKH. We conclude that CKH and
petitioner did not enter into a fee-splitting agreement regarding
the NSI fee.
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