Opinion ID: 528842
Heading Depth: 2
Heading Rank: 3

Heading: The Taxpayers' trades.

Text: 17 The Taxpayers made option trades through two companies, Nonferrous Metals Company (Nonferrous) and Export International, Inc. (Export), which were both managed by Marvin Lipschultz. Lipschultz had substantial trading experience with the Chicago Board of Options Exchange and other commodity exchanges, but had never traded on the London Metals Exchange (LME) until 1975. In November of 1975, he went to London to seek help in entering into the commodities business on the LME on behalf of the Taxpayers. He chose Butler, an options specialist at the Rudolf Wolff firm. 18 Lipschultz subsequently had the Taxpayers sign a joint venture agreement and contribute margin deposits in proportion to their interests. As of mid-1976, the option and forward contract trades produced a gain for Taxpayers. However, this gain was wiped out before the end of the year by some losing trades and currency transactions. Butler had, contrary to instructions from Lipschultz, engaged in currency hedging. In a letter to Lipschultz, Butler admitted to the hedging and then noted that this worked out reasonably satisfactorily in the end result, even though the ending balance of the account which resulted was only $48. In mid-1976, Lipschultz was forced to find another broker because the Wolff firm got out of the London options business and went to James Gourlay, the manager of Competex at the recommendation of Butler. The final result of the trades through Competex was a loss not in excess of the deposits made. 19 The details of the arrangements with Butler and Gourlay which allegedly set the Taxpayers apart from the other taxpayers in the Glass case are as follows. First, Lipschultz considered several possible brokers before deciding on Butler at the Wolff firm. Second, although Butler was legally free to make discretionary trades, Butler had agreed that Lipschultz could make suggestions about trading strategy and Lipschultz in fact did make suggestions. Lipschultz made numerous calls to Butler regarding his trading activity. Lipschultz also sent letters to Butler asking him to reexamine his strategy in order to make greater profits. 20 A third difference noted by Taxpayers is based on documentary and testimonial evidence that none of their risks of loss was limited to their margin deposits as was the risk of other taxpayers through so-called stop-loss arrangements. In addition, they later paid in additional sums through Competex, which they understood to be additional margin calls, although the government contends that these were simply payments toward the original margin account agreed to by the Taxpayers. 21