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During most of the 1980s, Mr. Wechsler and Elroy Krumholz
(Mr. Krumholz) were involved in the management of petitioner.
Mr. Krumholz was the son of a partner in the partnership
(petitioner’s predecessor). Mr. Krumholz joined petitioner as an
employee in June 1967 and became an officer of petitioner in June
1967 and a shareholder in petitioner in 1969. As of August 1972,
Mr. Wechsler’s father, Mr. Krumholz’s father, Mr. Wechsler, and
Mr. Krumholz each owned 80 shares, or 25 percent, of petitioner’s
then-outstanding common stock. Mr. Krumholz’s father died in
September 1978, at which time petitioner redeemed all of the
common and preferred stock that Mr. Krumholz’s father had owned
in petitioner. Mr. Wechsler’s father died in June 1986 and
bequeathed his 80 shares of common stock in petitioner to Mr.
Wechsler, making Mr. Wechsler the owner of 160 of petitioner’s
then 255 outstanding shares of common stock. After Mr. Krumholz
died in 1988, petitioner redeemed all of Mr. Krumholz’s common
and preferred stock in petitioner.
Petitioner’s Business From 1991 Through 1999
By 1991, petitioner functioned primarily as a market maker,
or “specialist”, in convertible bonds, as a broker-dealer in
convertible bonds, and as an investor for its own account in
convertible bonds, with a portion of its portfolio in hedged
positions. A specialist serves to “make a market”, particularly
for thinly traded securities, standing ready to buy or sell the
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Last modified: May 25, 2011