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attributable to these transfers was posted to PK Ventures’
general ledger or reported in its audited financial statements.
Furthermore, there is no indication that any accrued interest
attributable to these transfers was reported in PKV&S’s
consolidated income tax returns for 1987, 1988, 1989, 1990, or
1991.
Fifth, no evidence indicates that PK Ventures had the right
to enforce the payment of principal and interest with respect to
its transfers to the Zephyr purchasers.
Sixth, 9 of the 10 Zephyr purchasers were shareholders of
PK Ventures. As of August 20, 1987, these nine Zephyr purchasers
owned 99.47 percent of the stock of PK Ventures. Of the
$1 million transferred from PK Ventures to the Zephyr purchasers,
Rose received $400,000, an amount proportional to his 40-percent
interest in PK Ventures. There is no evidence of the specific
amounts transferred from PK Ventures to each of the nine other
Zephyr purchasers.
Seventh, based upon Rose’s experience in corporate finance,
we are convinced that he could have documented the transfers from
PK Ventures to the Zephyr purchasers with promissory notes and
arranged for these transfers to occur under terms significantly
closer to arm’s length than those that were actually chosen.
This conclusion is bolstered by our consideration of the
structure and formality of (1) the financing arrangements into
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