Attorney-at-Law

MOVERS AND SHAKERS

In Uncategorized on 05/10/2021 at 19:10

Randy Jenkins, 2021 T. C. Memo. 54, filed 5/10/21, tried to help his buddy Ira W. Gentry, Jr., with whom he is conjoined in said opinion, become a mover in the world of shakers, but both went down for numerous fraud counts.

The “shakers” were a new concept to me, until Judge Mark V Holmes man-‘splained. Shakers play a major role in product development and quality control, especially in the field of electronics. One needs to know what causes these expensive articles to fail. Dropping them from heights is expensive, and doesn’t answer all questions.

“While some electronics can be tested by dropping, others (like car headlights) can’t–they must instead be shaken. A headlight, for example, needs to withstand a substantial amount of road vibration to be useful. To test its durability, a ‘shaker system’ simulates road vibrations. A shaker system has three parts. The first is the shaker itself, and the second is an amplifier that runs the shaker. The third is software that can program the other two parts to simulate different road conditions.” 2021 T. C. Memo. 54, at p. 4.

Ira claimed he had some great software that would revolutionize shaking. He put together a corporate structure whereby he controlled a public company. He and Randy ran a “pump-and-dump,” putting out false statements that they were making millions, selling their stock at the top, and bailing when the lies were exposed, netting themselves millions. Judge Holmes has tables; oh, does he have tables! Meantime, Ira stashed the cash in corporations domiciled, respectively, in AZ, the Bahamas, and Belize, each of which traded through the same Canadian brokerage house.

The point is what these corporations, controlled by Ira, are. IRS doesn’t claim they’re shams. IRS wants to claim they’re alter egos for Ira. But whose law defines “alter ego”? IRS claims AZ, where Ira resides. Judge Holmes isn’t happy with the record; the stock that was traded had no particular location. So both nominee theory and sham are off the table.

Now we get vintage Holmes, a March-of-the-Penguins through the concept of Federal common law (blown up by the Erie Railroad case, known to every first-year law student), Restatement of Conflict of Laws One and Two, and a “flexible” approach which is now the flavor du jour.

How I miss that towering figure from the Hill Far Above, the late Professor Rudolph Berthold Schlessinger. That he could pound these concepts into my thick skull bespeaks him a grand master.

But Judge Holmes comes back to AZ. “… most states have adopted a policy that their own law should apply when third parties are affected by those using corporations as their alter egos. This makes some sense–alter-ego doctrine protects those outside the corporation, and if most state courts have come around to the view that they will apply their own alter-ego law in their own courts, it also means that adoption of Arizona law here would ‘further the needs of the interstate and international systems and likewise the values of certainty, predictability and uniformity of result.” See Second Restatement, sec. 6(2) cmt. d.” 2021 T. C. Memo. 54, at p. 40.

And the Bahamas and Belize corporations never did business in their nations of incorporation.  “Perhaps even a new rule that reflects the change, in the decades since the First Restatement’s publication, to newer and easier methods of incorporation in jurisdictions that have no connection whatsoever to where a corporation is active.”2021 T. C. Memo. 54, at p. 41, footnote 23.

So back in AZ, the corporations are alter egos of Ira.

Randy ran his money through some trusts, so again we have tables.

IRS Boss Hossed the fraud chop, but conceded it post-trial.

 

 

 

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