Opinion ID: 608149
Heading Depth: 2
Heading Rank: 1

Heading: The Cayman Islands Transaction

Text: 4 In 1981 several independent oil and gas operators and landsmen 2 from Texas (the Texas Group) approached Ritchey and proposed that Marion buy a group of oil leases known as the Jourdanton Prospect. As part of the deal at least one-half of the purchase price was to be paid in the Cayman Islands through Marion Coal, Marion's Cayman Islands subsidiary. The Texas Group promised to kick back a portion of this money to representatives of Marion. Ritchey discussed the proposed scheme with Stickelber, who agreed to it. That same day, Stickelber alerted Blohm who also agreed to the proposal. 5 The purchase price for the Jourdanton Prospect was $2,578,825. A member of the Texas Group executed a contract to sell one-half of his interest in the Jourdanton Prospect to Marion Coal for $1,289,412.50. 3 Marion Coal's president signed the contract of sale. Stickelber co-signed the check paying for the purchase. At the time of these events, Marion was a Fortune 500 company. Marion's purchase of the Jourdanton Prospect was the largest single purchase in its history. 6 On February 17, 1981, Stickelber, Ritchey and the Texas Group flew to the Cayman Islands. There they met with attorneys retained to set up several shell corporations to shield the kickback proceeds. Stickelber had arranged to have the $1,289,412.50 purchase price wire transferred to the Cayman Islands that day. The funds, however, did not arrive. Stickelber made several phone calls to ensure the money's arrival by the next day, February 18th. On the 18th, Stickelber, Ritchey and the Texas Group met again the attorneys who then established three shell corporations: San Pedro Finance Company (San Pedro), St. Lucy Investment Co., Ltd. (St. Lucy) and Linfield Investment, Ltd. (Linfield). San Pedro was owned by the Texas Group, Stickelber, Ritchey and Blohm. St. Lucy was owned one-third each by Stickelber, Ritchey and Blohm. Linfield was owned by the Texas Group. Stock certificates were issued for each owner, including Blohm who held one share of San Pedro class B stock and one ordinary share of St. Lucy stock. 7 The same day a wire transfer from Marion was received by The Bank of Nova Scotia, Cayman Islands, for the account of Marion Coal in the amount of $1,289,412.50. The next day, that money was transferred from the Marion Coal account to the San Pedro account. The following amounts were then transferred from the San Pedro account to the St. Lucy and Linfield accounts: 8 1. San Pedro to St. Lucy: $ 429,374.36 2. San Pedro to Linfield: 860,038.14 ------------- TOTAL: $1,289,412.50 9 The $429,374.36 transferred to the St. Lucy account owned by Stickelber, Ritchey and Blohm is referred to as the Cayman Islands kickback. Blohm did not travel to the Cayman Islands in 1981. 10 Stickelber, Ritchey, Blohm and each member of the Texas Group signed an indemnity agreement in favor of Cayhaven Corporate Services Ltd. (Cayhaven) as agent for San Pedro. Stickelber, Ritchey and Blohm, as beneficial owners of St. Lucy, each signed a second indemnity agreement in favor of Cayhaven as agent for St. Lucy. Cayhaven invested the St. Lucy funds in a series of short-term certificates of deposit, where they remained for about one year. Several disbursements and loans were made to Stickelber and Ritchey. No disbursements are known to have been made to Blohm. 11 In November 1982 Blohm and Stickelber signed affidavits to dissolve St. Lucy. The affidavits were notarized by Blohm's secretary. The one-page affidavits contained no corporate titles under the signatures. The Blohms did not report any portion of the Cayman Islands kickback on their 1981 joint tax return. The Promissory Notes 12 Stickelber took Blohm's share of the money in the St. Lucy account ($143,268) to satisfy a $282,750 debt Blohm owed to a trust settled by Stickelber's father of which Stickelber was co-trustee (the Stickelber Trust). In 1982 or 1983, Stickelber canceled Blohm's entire debt to the Stickelber Trust. On their joint amended federal income tax return for 1983, which was filed in 1985, the Blohms reported income totalling $282,750 from the discharge of the indebtedness to the trust.