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its expertise as a market maker in convertible securities. From
1992 until 1997, petitioner listed and traded as a market maker
approximately 350 convertible securities, a far greater number of
securities than its competitors.
In 1992, petitioner moved its office from New York City to
Mt. Kisco, New York. Shortly thereafter, it outsourced its back-
office operation, resulting in a substantial reduction in the
number of its employees. Even before 1997, petitioner and Mr.
Wechsler had started to change the focus of petitioner’s business
on account of changed business conditions for market makers in
convertible securities. In 1997, petitioner sharply reduced the
number of convertible securities and stocks it listed and traded
as a market maker and decided to emphasize trading and investing
for its own account. That resulted in a further decrease in
petitioner’s employees and management team members.
In sum, both before and during the years in issue,
petitioner was a successful, well-managed, but relatively small,
investment and trading company with a very lean management team.
This factor supports petitioner.
D. Conflict of Interest
This factor examines whether a relationship exists between
the company and the employee that might permit the company to
disguise nondeductible corporate distributions as section
162(a)(1) compensation payments. Thus, close scrutiny must be
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