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On November 30, 1982, petitioner signed MADISON RECYCLING
ASSOCIATES SUBSCRIPTION AGREEMENT AND PURCHASER SUITABILITY
REPRESENTATIONS (agreement), agreeing to purchase 1-1/2 units of
Madison for $75,000. Petitioner was aware of the risks addressed
in the POM when he signed the agreement. Petitioner was also
aware that if he invested in Madison, he would receive tax
benefits greater than the amount of his investment.
Petitioner’s Investigation of Madison
In addition to reading the POM and cover letter, petitioner
performed an economic analysis, using information in the POM, to
determine whether it was reasonable for him to invest in Madison.
Petitioner calculated the potential return on the investment to
both Madison and himself, as well as the financial incentives of
the other companies involved in the venture to participate in the
investment. Petitioner also calculated the expenses he believed
end users would save by disposing of polystyrene foam using
Madison rather than transporting the foam by truck. Petitioner
concluded that there would be a good return for all of the
parties he considered, and he hoped for an 18-percent return on
his investment. Although petitioner had no expertise in
marketing plastics or the recycled resin pellets Madison was
supposed to produce, he performed the calculations regarding the
investment himself because he believed he could address them
better than most people.
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