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regulations, and closely supervised all of its investment and
trading activities. In essence, Mr. Wechsler single-handedly
managed the business during the years at issue, and an
independent investor holding equity in petitioner would have been
investing predominantly, if not exclusively, in the trading and
business judgment of Mr. Wechsler.
3. Reasonable Compensation
We believe that the foregoing analysis justifies more
compensation to Mr. Wechsler than that determined by Mr. Hakala,
and an appropriate method for reasonably compensating Mr.
Wechsler for each of the years in issue should be based upon his
receiving (1) an annual salary and (2) an annual bonus that (A)
reflects his virtually exclusive responsibility for petitioner’s
achievements and (B) is closely tied to petitioner’s earnings and
profitability for each year.
In evaluating petitioner’s annual financial performance
during the years in issue, all three experts (Messrs. Dorf,
Hakala, and Matthews) used the earnings reported in petitioner’s
annual FOCUS reports, recognizing that those earnings were
computed by marking to market all securities petitioner then
held, including those held for investment. Messrs. Dorf, Hakala,
and Matthews each considered petitioner’s annual FOCUS report
earnings to be a more accurate indicator of petitioner’s
financial performance in a given year than the earnings reported
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