John S. and Christobel D. Rendall - Page 1

                                 T.C. Memo. 2006-174                                  

                               UNITED STATES TAX COURT                                

                  JOHN S. AND CHRISTOBEL D. RENDALL, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 16337-04.              Filed August 21, 2006.               

                    P husband (PH) was CEO and chairman of the board                  
               of SE Corp., which had developed a process for                         
               recovering synthetic crude oil and other minerals from                 
               oil sands.  In March 1997, as part of an effort to                     
               finance completion of an oil recovery plant in Canada                  
               using SE Corp.’s technology, PH lent SE Corp. $2                       
               million from funds borrowed from Merrill Lynch (ML)                    
               through his ML margin account.  PH pledged a portion of                
               his SE Corp. common stock as security for loans to him                 
               through that account.  In May 1997, ML demanded                        
               repayment of PH’s margin account loans and, upon                       
               default by PH, ML sold a portion of the pledged shares                 
               and returned the balance to PH.  In June and July 1997,                
               SE Corp. filed petitions in the U.S. and Canada for                    
               reorganization in bankruptcy.  In September 1997, SE                   
               Corp. stock was delisted by NASDAQ and thereafter was                  
               listed in the “pink sheets” and traded over the                        
               counter.  Although forced to sell its Canadian                         

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