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Bermuda Trust and the persons who would manage the foreign
corporation. Petitioners relied on the representations of Mr.
Pennoni as their “due diligence” regarding the annuity
transaction and did not require any security interest or guaranty
in connection with the transfer of stock.
In the years following the sale of petitioners’ and Clend’s
HouTex stock, the Melniks sought and obtained from Clend/Bermuda
Trust at least two unsecured loans, totaling $900,000, to
purchase real estate in the United States. The Melniks defaulted
on the loans, but no action had been taken by the Melniks or by
Clend or Bermuda Trust to remedy the default as of the date of
trial. The Melniks also prevailed upon Bermuda Trust, the
trustee of the foreign trusts and the entity in control of Clend,
to arrange for Clend to form a subsidiary to purchase real estate
that the Melniks wanted to acquire in the United States.
Proceeds from the HouTex stock sale were used to make investments
that were sold to cover the $1,380,000 purchase price.
As of December 31, 2001, Clend’s assets consisted of the
$900,000 loan receivable owed by the Melniks, the real estate
acquired by Clend’s subsidiary for $1,380,000, and approximately
$54,000 in cash. Of the total cash ($3,388,907) paid to Clend by
MMI in 1997, $2,200,000 or 65 percent has been used to acquire
real estate in the United States either at the Melniks’ request
or to enable the Melniks to purchase real estate directly.
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