-301-
transaction that actually occurred involving SMP, Corona, or the
Ackerman group, and Mr. Lerner did not testify that he
specifically relied upon it in preparing SMP’s and Corona’s
returns. We conclude that any reliance on the memorandum would
have been unreasonable.
5. February 26, 1998, Shearman & Sterling Memorandum
Alvin Knott of Shearman & Sterling prepared another
memorandum dated February 26, 1998, regarding the criteria for
recharacterizing debt as equity. Mr. Lerner testified that at
some point in early 1998, he was considering whether SMP should
capitalize the SMHC receivables. He testified: “It’s fair to
say that the debt was not performing at that time”, and he sought
and received the advice of Shearman & Sterling on the debt versus
equity issue.211
Respondent does not argue that the SMHC receivables should
be recharacterized as equity. Nonetheless, the Shearman &
Sterling memorandum addresses certain points that might be
relevant to our decision that the $79 million receivable did not
arise from a bona-fide debtor-creditor relationship. Shearman &
Sterling indicates: “Of the total amount loaned to MGM pursuant
211 Shearman & Sterling’s Feb. 26, 1998, memorandum again
relies on the same faulty factual assumptions: that SMHC held
valuable film rights estimated to have a present value of
approximately $29 million and a future value in excess of $35
million, and that SMHC was also pursuing its rights to maximize
the recovery of its investment in Carolco.
Page: Previous 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 NextLast modified: May 25, 2011