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During August 1999, petitioner established brokerage
accounts with DLJdirect and Ameritrade for the purpose of
investing a portion of his compensation from settling the class
action suit. Petitioner deposited $5 million in each of those
accounts. Petitioner later established a brokerage account with
Terra Nova during December 1999.
During the fall of 1999, petitioner decided to wind down his
law practice and begin a new career as a securities trader.
Previously, petitioner had traded in the stock market only
irregularly. Between December 1999 and January 2000, petitioner
concluded the class action suit, transferred his remaining cases
to other attorneys, paid off the balance of the lease of his
downtown-Birmingham law office, and terminated the lease. By
late January 2000, petitioner had spent a substantial amount of
money equipping and organizing one floor of his home as a
securities trading office. Based on the volume and frequency of
petitioner’s trading, the parties have stipulated that petitioner
became engaged in the trade or business of trading securities on
January 28, 2000.
Petitioner used margin borrowing as part of his securities
trading strategy. On April 14, 2000, DLJdirect forced the
liquidation of petitioner’s entire account and terminated
petitioner’s trading on account of petitioner’s failure to cover
a margin call after technology stocks declined sharply during
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