Attorney-at-Law

A TALE OF TWO EXPERTS

In Uncategorized on 10/13/2020 at 18:27

IRS is trying to toss two (count ’em, two) of petitioner’s experts in YA Global Investments, LP f.k.a. Cornell Capital Partners, LP, et al., Docket No. 14546-16, filed 10/13/20, but Judge James S (“Big Jim”) Halpern won’t let them.

The issues are whether YA was in a trade or business, and, if so, were they dealers in securities, such that Section 475 required YA to recognize unrealized gains and losses at year-end.

IRS’ expert says all YA Expert Numero Uno (hereinafter “Uno”), a rebuttal expert, is doing is giving conclusions of law, and going beyond the scope of IRS’ expert’s report. IRS’ expert says he isn’t giving legal conclusions, but it looks like YA is an investment banker.

Uno runs a consulting firm, is former chair of SEC, former SEC general counsel, and has practiced securities law for fifty years. He says the difference between investing and underwriting is whether the entity acquires stock to hold and eventually sell, or to distribute to investors as soon as possible.

Judge Big Jim: “Notwithstanding Mr. [IRS’ expert]’s disclaimers that he is not a lawyer nor expressing any legal opinion, his conclusions go to what respondent describes as ‘ultimate determinations for the court to make’, viz. whether ‘YA Global is an investment banking firm, a securities dealer or an underwriter.’ Mr. [IRS’ expert] includes within his description of investment banking activities ‘underwriting, advisory services, securities brokerage, direct investing and lending activities.’ With respect to ATM offerings and YA Global’s SEDAs, he does speak about the issuer selling the securities ‘through a broker-dealer–typically an investment bank’. Respondent may attempt to qualify Mr. [IRS’ expert] as an expert on securities industry practices and investment banking. Nevertheless, ‘testimony encompassing an ultimate legal conclusion based upon the facts of the case is not admissable [sic], and may not be made so simply because it is presented in terms of industry practice.'” Order, at p. 7. (Citation omitted).

Anyway, Judge Big Jim isn’t prepared to say that either expert is useful. He understands where they’re coming from, and how they differ, but both are in, for now.

YA’s second expert is the subject of the next succeeding blogpost.

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