Michael C. Giambrone, T. C. Memo. 2024-47, filed 4/18/24, says he and brother Bill were robbed by Fraudster Farkas, who went down in USDCEDVA for 30 (count ’em, thirty) years on bank and securities fraud. Fraudster Farkas was ordered to pay $3.5 billion-with-a-b in restitution to 20 (count ’em, 20) named victims of his larcenous shennigans.

But neither Mike nor Bill was among the named, or did they appear and claim losses in USDCEDVA. They only took theft losses on their 1040s the next year, for which IRS whangs them, in amounts shown on table at T.C. Memo. 2024-47, pp. 18-19.

Problem is, Mike’s and Bill’s IL bank was on the rocks, with the Federales on the doorstep, when Bill and Mike sold control of their bank holding corporation to Fraudster Farkas.

But corporate control doesn’t exist separate from the shares, and Fraudster Farkas bought newly-issued shares of bank holding corporation. So, says Judge Patrick J. (“Scholar Pat”) Urda, if anyone was defrauded it was the bank holding corporation, not Bill or Mike. Judge Scholar Pat refuses to play grin-without-a-cat with IL law. Corporate control without stock ownership is not the same as theft of services by fraudulently refusing to pay for a hotel stay.

And the bank holding corporation did get cash from Fraudster Farkas for the stock it issued. To prove theft, Mike and Bill had to show deceptive conduct induced the issuance. The bank, which was the bank holding corporation’s sole asset, was floundering, Fraudster Farkas’ offer was a good one, and the Federales were beating down the door. Whatever lies Fraudster Farkas told were “the cherry-on-top”, T. C. Memo. 2024-47, at p. 14, and weren’t the real inducement.

“Although control is certainly valuable, the Giambrones have failed to point us to any Illinois law (and we have not found any) suggesting that a controlling interest in a company can be considered property in a vacuum, divorced from the shares undergirding it. To the contrary, control stems from assembling enough shares to direct a company’s affairs, and the value of a controlling interest, i.e., the control premium, is impounded into the value of shares sufficient to obtain such an interest.” T. C. Memo. 2024-47, at p. 13. (Copious citations and footnote omitted).

But even if Bill and Mike were robbed, they picked the wrong year to claim it. The restitution hearing in USDCEDVA took place the year before the year at issue. At that hearing, both the USDCJ and counsel for Fraudster Farkas agreed that, given Fraudster Farkas’ age, the thirty-year stretch he was serving, and whatever assets could be found, nobody was gettin’ nuthin’. And Bill and Mike didn’t put in any claims.

They do point to some discussions with FDIC in year at issue about recouping losses from some assets of bank and bank holding corporation, arguing possibility-of-recovery in year at issue, but advance no theory how these are tied to what Fraudster Farkas did. Judge Scholar Pat isn’t buying.

“The Giambrones have shown, at best, a nebulous and speculative hope that they could obtain some of the assets of [bank] and [bank holding corporation] in compensation for the theft they believed that they had suffered. This vague and subjective belief falls far short of establishing that they had a reasonable prospect of recovery from the assets of [bank] or [bank holding corporation] at any point.” T. C. Memo. 2024-47, at p.17.

And Mike and Bill fold reasonable reliance, so Section 6662 five-and-ten substantial understatement chops are in.