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The Private Offering Memorandum
On or about November 24, 1982, petitioner received Madison’s
private offering memorandum (POM) and an accompanying cover
memorandum from Mr. Cole. The POM informed potential investors
that Madison’s business would be conducted in accordance with the
plastics recycling transactions described above. The POM also
stated that
The [partnership] Units are being offered through * * *
[HGSC] as Placement Agent on a best efforts basis.
* * * [HGSC] will be paid a selling commission equal to
10% of the per Unit offering price for each Unit sold.
This selling commission may also be paid to other
qualified broker-dealers as selling agents for each
Unit sold by them.
Additionally, the POM listed significant business and tax risk
factors associated with an investment in Madison. Specifically,
the POM warned: (1) There was a substantial likelihood of an
audit by the Internal Revenue Service (IRS); (2) the IRS may
challenge the purchase price of the recyclers to be paid by F&G
to ECI as being in excess of the recyclers’ fair market value;
(3) the partnership had a limited operating history; (4) the
general partner had limited experience in marketing recycling or
similar equipment; (5) the limited partners would have no control
over the conduct of the partnership’s business; (6) there was no
established market for the recyclers and they had no history of
commercial use; (7) patent protection would not be sought for the
recyclers; (8) there were no assurances that market prices for
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