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associates. His testimony, however, was contradictory,
inconsistent, and unconvincing. For example, Mr. Rowe testified
that either “a handshake” or “a signature” was sufficient to bind
him to an agreement. Yet, he readily failed to honor his
“agreements” not to demand repayment. In addition, despite the
FTB loan restrictions on repayments to stockholders, when the
Rowes needed cash for personal needs, petitioner paid them on
demand. In essence, the Rowes simply wanted to receive a 10-
percent return on, and ready access to, the transferred funds.
As a result, petitioner, along with the Rowes, manipulated facts
to attempt to make the transfers appear as debt and avoid certain
legal consequences.
III. The Transactions Were Not Arm’s Length
The transfers between petitioner and the Rowes were not
arm’s-length transactions. First, because the Rowes wanted a 10-
percent return, the interest rate paid by petitioner was above
the market and prime rates for almost 12 years. Second, the
Rowes began transferring funds to petitioner in 1987 but did not
begin reducing the “handshake deals” to a writing until December
31, 1993, and the outstanding balance was not fully documented
until November 21, 1995. In 1997, the Rowes made additional
transfers, but they were not evidenced by a writing until 1998.
Third, petitioner and the Rowes executed waivers that were
violated, and, at their convenience, considered nonbinding.
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