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projected a “best case” scenario for the Carolco liquidation)
showed no recovery at all to the holders of Carolco securities.
On SMHC’s draft financial statements for the period ended
December 10, 1996, it reported a charge of $60,075,000, which was
the entire carrying value of the Carolco securities, and
indicated that the purpose for this charge was to write down the
Carolco securities to net realizable value due to the bankruptcy
of Carolco.158 In a June 1, 1997, accounting of SMHC’s book
accounts, Mr. Hurstel reiterated that there was a contribution by
MGM Holdings of the Carolco securities to the capital of SMHC;
however, this contribution was accounted for on SMHC’s books as
“without amount”. Similarly, on SMHC’s corporate income tax
return for the taxable period October 9 to December 31, 1996, the
Carolco securities were not listed as assets on Schedule L,
Balance Sheets, as of December 31, 1996.159 SMHC’s reporting
158 The draft financial statements state:
The aggregate carrying value of these securities on the
date contributed was $60,075,000. As Carolco is
currently in bankruptcy proceedings, the Company has
recorded a charge of $60,075,000 in these consolidated
financial statements reflecting the write-down of these
securities to net realizable value.
159 After CDR ceded control of SMHC’s tax return filing
obligations and after the bankruptcy court had confirmed the
fourth amended plan of reorganization, Mr. Lerner commenced
reporting the Carolco securities as assets with value on SMHC’s
corporate tax returns. For example, on SMHC’s corporate income
tax return for the year ended Dec. 31, 1997, the Carolco
securities were shown as an asset in the ending balance column of
(continued...)
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