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from the broker-dealers Mr. Matthews identified. Though
petitioner’s endeavors covered a range of activities during the
relevant period, proprietary trading was responsible for most of
its revenue, and commissions generated only a small percentage.
(According to the report of petitioner’s expert, Mr. Dorf, during
the audit period petitioner reaped only 0.4 percent of its income
from commissions, whereas most of its income came from its
investments.)
Because petitioner carried on a unique mix of investment
services and trading operations, it would be difficult, if not
impossible, to neatly classify its business. Rather, at best,
petitioner could be described only as a business offering a
unique combination of financial services and investments. Thus,
in determining reasonable incentive compensation for Mr.
Wechsler, we are unable to look to the compensation practices of
any single business or any single type of business for guidance.
Rather, we must look more generally to compensation practices in
the investment industry.
As a basis for determining reasonable incentive compensation
for Mr. Wechsler, we therefore adopt Mr. Hakala’s percentage-of-
profits approach, which he argues is customary in the investment
industry. According to Mr. Hakala’s calculations, an independent
investor in petitioner would have received a reasonable return on
equity had petitioner’s incentive compensation been limited to 20
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