Free Response to Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIM ____________ No. 05-1223 T (Judge Allegra) CLEARMEADOW INVESTMENTS, LLC, CLEARMEADOW CAPITAL CORP., Tax Matters Partner, Plaintiff, v. THE UNITED STATES, Defendant. ____________ PLAINTIFF'S RESPONSE TO DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACTS ____________ Plaintiff, Clearmeadow Investments, LLC, Clearmeadow Capital Corp., Tax Matters Partner, pursuant to RCFC 56, responds to Defendant's, United States', Proposed Findings of Uncontroverted Facts ("DPFUF") as follows: DPFUF 1. Mark Hutton (hereinafter Hutton), a resident of Wichita, Kansas

(Stoddart Decl. Ex. 31 at 4, App. B at 149), has been a licensed general contractor since 1992; he received his license while doing business through Hutton Construction Corporation. (Stoddart Decl. Ex. 31 at 44, App. B at 175.) For the last 15 years he has been president of the Hutton Construction Corporation. (Id. at 45, App. B at 176.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF 1.

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DPFUF 2.

For the 2001 taxable year, Hutton Construction Corporation was an

S-corporation; it issued a K-1 to Hutton that reported $921,885 of non-passive income. (Stoddart Decl. Ex. 29, App. B at 133.) PLAINTIFF'S RESPONSE: DPFUF 3. Plaintiff agrees with DPFUF No. 2.

During 2001, Hutton noticed that his income was increasing over

earlier years, though he did not consider the increase a "spike." (Stoddart Decl. Ex. 31 at 63, App. B at 180.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 3.

Defendant mischaracterizes the testimony. The fact is simply that the 2001 income was "showing kind of the same systematic growth in profit" as prior year. (Stoddart Decl. Ex. 31 at 63, App. B at 180.) DPFUF 4. Bryan Hanning (hereinafter Hanning) is employed with

Massachusetts Mutual Life Insurance Company and is a member of AGH Wealth Advisors in Wichita, Kansas. (Stoddart Decl. Ex. 32 at 4, App. B at 194.) PLAINTIFF'S RESPONSE: DPFUF 5. Plaintiff agrees with DPFUF No. 4.

In 2001, Hanning informed Hutton of an "investment strategy"

(hereinafter the market-linked-deposit or MLD transaction) offered through the law firm of Cantley & Sedaca, LLP. The purported investment comprised certain foreign currency transactions. (Stoddart Decl. Ex. 32A, App. B at 217.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 5.

Defendant fails to provide the court with the complete statement by investment advisor Bryan Hanning, which is: "In 2001, I approached Mark E. Hutton and informed him of an investment strategy offered through the law firm of Cantley & Sedacca, LLP that I

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thought would be a potential investment opportunity for him." (Emphasis added) (Stoddart Decl. Ex. 32A, App. B at 217.) DPFUF 6. Hanning had found Cantley & Sedacca listed under the caption

"resources for investment opportunities and tax strategies" in a binder of information issued by the National Association for Family Wealth Counselors, an organization to which Hanning belongs. (Stoddart Decl. Ex. 32 at 5-6, App. B at 195-96.) Hanning called Cantley & Sedacca to learn about their investment choices and operations. (Stoddart Decl. Ex. 32 at 8, App. B at 198.) PLAINTIFF'S RESPONSE: DPFUF 7. Plaintiff agrees with DPFUF No. 6.

Cantley & Sedacca was formed sometime in the second quarter of

2001. (Stoddart Decl. Ex. 35 at 4, App. B at 326.) The senior partner was Beckett Cantley, who was initially located in Atlanta, Georgia. (Id. at 11, App. B at 333.) Edward Sedacca was also a partner (id. at 4, App. B at 326); he was located in Dallas, Texas (id. at 11, App. B at 333). PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 7.

Pursuant to RCFC Rule 32, the deposition transcript for Edward Sedacca (Stoddart Decl. Ex. 35, App. B pgs. 323-352) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because

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Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 35 (App. B pgs. 323352) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 7 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 8. Cantley & Sedacca had over 80 clients (Stoddart Decl. Ex. 35 at

12, App. B at 334), and a very high percentage of those clients entered into MLD transactions (id. at 12-14, App. B at 334-36). All of Cantley & Sedacca's MLD transactions relied upon a similar legal theory or analysis. (Id. at 8-9, App. B at 330-31.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 8.

Pursuant to RCFC Rule 32, the deposition transcript for Edward Sedacca (Stoddart Decl. Ex. 35, App. B pgs. 323-352) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 35 (App. B pgs. 323352) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 8 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate.

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DPFUF 9.

Edward Sedacca understood that market-linked deposits were a

product of Deutsche Bank, and that the investments were executed through Dan Brooks, who had worked for Deutsche Bank. (Stoddart Decl. Ex. 35 at 19-20, App. B at 341-42.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 9.

Pursuant to RCFC Rule 32, the deposition transcript for Edward Sedacca (Stoddart Decl. Ex. 35, App. B pgs. 323-352) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 35 (App. B pgs. 323352) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 9 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. In addition, it is non-relevant as to what "Edward Sedacca understood" for purposes of this motion for summary judgment. DPFUF 10. When a client contacted Cantley & Sedacca, the firm would

arrange for the client to speak with one of their lawyers. The client was usually accompanied by his other advisors, including lawyers and tax advisors. At the meeting, the Cantley & Sedacca lawyer would explain the legal and technical issues raised by the

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MLD transaction. (Stoddart Decl. Ex. 35 at 17, App. B at 339.) The clients generally asked Cantley & Sedacca to create the entities used in the execution of the transaction; and Cantley & Sedacca gave the client a form requesting the information needed to create those entities. (Stoddart Decl. Ex. 35 at 18, App. B at 340.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 10.

Pursuant to RCFC Rule 32, the deposition transcript for Edward Sedacca (Stoddart Decl. Ex. 35, App. B pgs. 323-352) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 35 (App. B pgs. 323352) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 10 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. Plaintiff does acknowledge that in Plaintiff's case that the legal and technical issues raised by the MLD transaction were explained to him and his advisor by the Cantley & Sedacca lawyer that talked to them. DPFUF 11. To gather necessary information about Hutton, Cantley & Sedacca

sent Hanning a form captioned "Intake Summary," which Hanning helped Hutton to

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complete. Hanning then returned the form to Cantley & Sedacca. (Stoddart Decl. Ex. 32 at 14, App B at 203; Stoddart Decl. Ex. 32B, App. B at 218-20.) PLAINTIFF'S RESPONSE: DPFUF 12. Plaintiff agrees with DPFUF No. 11.

Before 2001, Hanning had sold only one investment product to

Hutton as an individual: a split-dollar variable life contract that contained mutual funds. (Stoddart Decl. Ex. 32 at 11, App. B at 200.) Hanning had also sold Hutton's business entities key-person life insurance policies and a 401(k) plan. (Id. at 12, App. B at 201.) Except for one life insurance policy, all of the products Hanning had sold to Hutton and his entities were products of Massachusetts Mutual Life Insurance Company. (Id. at 1213, App. B at 201-02.) PLAINTIFF'S RESPONSE: DPFUF 13. Plaintiff agrees with DPFUF No. 12.

The MLD transaction is very different from all the other business

Hanning has ever done with Hutton. (Stoddart Decl. Ex. 32 at 25-26, App. B at 208-09.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 13 to

the extent that Defendant is attempting to draw a negative inference that the MLD transaction required Hanning to present Hutton with different analysis regarding investment potential and tax benefit potential of the MLD Transaction. While the MLD transaction may have been functionally different from the prior investment transactions proposed by Hanning, the same analysis regarding investment potential and tax benefit potential are present in the MLD transaction, just as they were present in the prior investment opportunities Hanning presented to Hutton. (Stoddart Decl. Ex. 32 at 25-26, App. B at 208-09.) DPFUF 14. So that Hutton could understand the nature of the MLD

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transaction, Hanning arranged conference calls among himself, Hutton, Cantley & Sedacca, Marc Kaplan, and Scott Hewitt. (Stoddart Decl. Ex. 32 at 27-29, App. B at 209A-210.) Edward Sedacca represented Cantley & Sedacca. (Stoddart Decl. Ex. 33 at 49, App. B at 252.) Marc Kaplan was a CPA employed by AGH Wealth Management Solutions. (Stoddart Decl. Ex. 32 at 33, App. B at 212.) Scott Hewitt (hereinafter Hewitt) is a CPA (Stoddart Decl. Ex. 33 at 45, App. B at 248) who performs accounting and tax services for Hutton and his entities (Stoddart Decl. Ex. 33 at 46-47, App. B at 249-50). PLAINTIFF'S RESPONSE: DPFUF 15. Plaintiff agrees with DPFUF No. 14.

Because Hanning recommended Hutton as a purchaser of the MLD

transaction, Cantley & Sedacca paid a referral fee to AGH Wealth Management Solutions, an entity in which Hanning had an ownership interest. (Stoddart Decl. Ex. 32 at 14-15, App. B at 203-04.) PLAINTIFF'S RESPONSE: DPFUF 16. Plaintiff agrees with DPFUF No. 15.

Hanning disclosed to Hutton that Cantley & Sedacca had paid him

a referral fee for recommending Hutton as a purchaser of the MLD transaction. (Stoddart Decl. Ex. 32 at 15, App. B at 204.) PLAINTIFF'S RESPONSE: DPFUF 17. Plaintiff agrees with DPFUF No. 16.

On October 4, 2001, Cantley & Sedacca sent Hutton (through

Hanning) a document captioned "Agreement for Your Legal Services." Hanning gave the document to Hutton. (Stoddart Decl. Ex. 32 at 15-16, App. B at 204-05; Stoddart Decl. Ex. 32C, App. B at 221-23.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 17.

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DPFUF 18.

The October 4, 2001, Agreement required Hutton to represent: (1)

that he had relied solely upon his (and his financial advisor's) independent investigation of all matters or concerns regarding the MLD transaction; and (2) that he (or his financial advisor) possessed knowledge and experience in financial and business matters sufficient to ensure his (or his financial advisor's) capability to evaluate the merits and risks of the MLD transaction. Cantley & Sedacca stated that they were not financial advisors themselves, and that they stressed that they had expressed no opinion about the MLD transaction. (Stoddart Decl. Ex. 32C at 1, App. B at 221.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with the last sentence of

DPFUF No. 18 and agrees to the remainder of DPFUF No. 18. Defendant erroneously stated that Cantley & Sedacca stressed that they expressed no opinion about the MLD transaction when in fact the October 4, 2001 letter stated that they were to provide legal services regarding tax planning and were engaged to "review the tax ramifications of a market link deposit investment strategy...and to research and review the law supporting the issuance of a legal opinion for" the MLD transaction. (Stoddart Decl. Ex. 32C at 1, App. B at 221.) Cantley & Sedacca is a law firm and simply stated that it is not an investment advisor and does not express an opinion on the investment itself. (Stoddart Decl. Ex. 32C at 1, App. B at 221.) DPFUF 19. Hanning does not consider himself to be Hutton's investment

advisor. (Stoddart Decl. Ex. 32 at 11, App. B at 200.) PLAINTIFF'S RESPONSE: DPFUF 20. Plaintiff agrees with DPFUF No. 19.

When he discussed the MLD transaction with Hutton, Hanning did

not have the knowledge and experience in financial and business matters needed to

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evaluate the merits of the transaction. (Stoddart Decl. Ex. 32 at 16, App. B at 205.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 20.

Hanning participated in the first conference call with Cantley & Sedacca, LLP, so that he could assist Hutton in understanding the MLD transaction. (Stoddart Decl. Ex. 32-A, App. B. 217.) If Hanning did not have the knowledge and experience to properly evaluate the merits of the transaction then it was unknown to Hutton. (Stoddart Decl. Ex. 32-A, App. B. 217.) DPFUF 21. Hanning did not represent to Hutton that he had the knowledge and

experience in financial and business matters needed to evaluate the merits of the MLD transaction, and he never gave Hutton any reason to believe that he had such knowledge and experience. (Stoddart Decl. Ex. 32 at 16-17, App. B at 205-06.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 21.

Same objection as 20 above. By participating in the conference call so he could assist Hutton in understanding the MLD transaction, Hanning implicitly represented to Hutton that he had the knowledge and experience to properly evaluate the MLD transaction. (Stoddart Decl. Ex. 32-A, App. B. 217.) DPFUF 22. Hutton lacks the knowledge and experience in financial and

business matters that would permit him to evaluate the merits and risks of trading options on foreign currencies. (Stoddart Decl. Ex. 31 at 15, App. B at 160.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF 22.

Although Hutton, alone, may not have the knowledge and experience in financial and business matters that would permit him to evaluate the merits and risks of trading options

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on foreign currency, he relies on others like Scott Hewitt, his CPA and tax advisor. (Stoddart Decl. Ex. 32 at 15, App. B. 160.) DPFUF 23. Hewitt has been Hutton's accountant since 1993. (Stoddart Decl.

Ex. 33 at 5, App. B at 228.) Hutton considers Hewitt to be the financial advisor who had sufficient knowledge and experience in financial and business matters to evaluate the MLD transaction. (See Stoddart Decl. Ex. 31 at 15, App. B at 160-61.) PLAINTIFF'S RESPONSE: DPFUF 24. Plaintiff agrees with DPFUF No. 23.

Hewitt never gave Hutton any reason to think that he had the

financial and business knowledge needed to evaluate the merits of trading options on foreign currencies. (See Stoddart Decl. Ex. 31 at 15-16, App. B at 160-61.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 24.

This statement of fact is misleading and incorrect. Hewitt was Hutton's CPA and tax advisor and assisted Hutton in making his business successful through the years. Hewitt never gave Hutton any reason not to think that he had the financial and business knowledge needed to evaluate the merits of trading options on foreign currencies. (See Stoddart Decl. Ex. 31 at 15-16, App. B at 160-61) In fact, Hewitt participated in phone calls with Cantley & Sedacca, LLP (See Pliske Decl. Ex. 1, at 15-16 App. B at 7); and following the telephone call, Hewitt went back to his office doing research before advising Hutton that the investment looked good. (See Pliske Decl. Ex. 1 at 15-16, App. B at 7) DPFUF 25. Hutton never asked Hewitt whether the MLD transaction provided

a reasonable opportunity of profit apart from tax considerations. (Stoddart Decl. Ex. 31 at 16-17, App. B at 161-62.) Hutton took Hewitt's silence on the subject as a statement

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that the MLD transaction actually did provide a reasonable opportunity for profit. (Id. at 17-18, App. B at 162-63; see also id at 23-24, App. B at 168-69.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 25.

Although this is a fact as stated within the deposition, it is taken out of context. The relationship between Hutton and his business advisor, Hewitt, is such that if Hewitt, after research and investigation, did not believe that the MLD investment, or any other investment, was a viable investment, he would have relayed this to Hutton. Hewitt never told Hutton that based on his research and understanding of the MLD transaction, the MLD transaction was not a viable investment. (See Pliske Decl. Ex. 3 at 61-65, App. B at 88) DPFUF 26. Hutton can remember no occasion on which Hewitt ever gave him

an implicit opinion that a transaction would be profitable by failing to state that it would be unprofitable. (Stoddart Decl. Ex. 31 at 20, App. B at 165.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 26. The

statement of fact is unclear and confusing. Furthermore, this statement is taken out of context and draws a negative inference. As explained above, in Plaintiff's response to DPFUF 25, Hewitt would only express his opinion when he believed that the transaction would not be profitable or would not produce the tax benefits claimed. Given this context, the statement should read as follows: Because Hewitt found no problems in the profitability or the tax benefits of other investment transactions, Hutton can remember no occasion which Hewitt expressed an opposing opinion that the profitability or tax benefits of other investment transactions would not be profitable or would not produce the tax benefits claimed. (Stoddart Decl. Ex. 31 at 20, App. B at 165.)

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DPFUF 27.

Hutton never asked Hewitt to check the Black/Scholes calculations

that purported to show the MLD transaction's possibility of profit; and Hewitt had never mentioned to Hutton the Black/Scholes calculation or the valuation of options. (Stoddart Decl. Ex. 31 at 22, App. B at 167.) PLAINTIFF'S RESPONSE: DPFUF 28. Plaintiff agrees with DPFUF No. 27.

Hewitt never gave Hutton any assurance that he had a reasonable

opportunity to make a profit on the MLD transaction independent of the tax benefits claimed for the transaction. Hewitt has no expertise in that area. (Stoddart Decl. Ex. 33 at 9, App. B at 232.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 28 to

the extent that Defendant is attempting to draw a negative inference Hewitt never reviewed and approved the MLD transaction; and Plaintiff also disagrees with DPFUF No. 28 to the extent that Defendant is attempting to draw a negative inference that Hewitt was unqualified to review the MLD transaction. While the statements in DPFUF No. 28 were stated by Hewitt in his deposition, Defendant fails to provide the subsequent question/ answer exchange which explains that after reviewing the investment potential with Hutton, Hanning and Cantley and Sedacca, Hewitt believed there was a potential for a return: "Q: ...When you noted the possibility of a high return, did you yourself think that it had a possibility of a high return? A: It's like any investment, I was -- my thinking was there was potential for a return. Q: why was there potential? A: Just from the discussions that I was -- I mean, I was in the room during the discussions of the investment and I felt like there'd be a potential for -- even though risky, it had a possibility of having a return." (Stoddart Decl. Ex. 33 at 9-10, App. B at 232-233.)

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Additionally, Defendant's negative inference that Hewitt was not qualified to provide advice to Hutton regarding the MLD transaction is inaccurate because as Hewitt explains he was on the initial conference call not to provide financial analysis of the MLD transaction; but to provide advice regarding the tax aspects of the transaction: "Q: Did you ever do an independent examination of the financial aspect of this transaction? A: Of the financial side, no. That's Mark and Bryan. Q: So you never gave Mr. Hutton any assurance that he had a reasonable opportunity to make a profit independent of the tax benefits that he would get? A: I did not. I have no expertise in that area." (Stoddart Decl. Ex. 33 at 9, App. B at 232.) And Hewitt stated that his involvement in the conference call was strictly to provide tax analysis of the MLD transaction: "Q: What were your questions? A: My questions involved the tax aspects, what happens if the MLD has profit, how is that going to be taxed, what happens if has a loss and the tax aspects of that. That's pretty much my involvement in that." (Stoddart Decl. Ex. 33 at 8, App. B at 231.) DPFUF 29. Though Hewitt "noted" the possibility of profit when he discussed

the MLD transaction with Hutton, Hewitt himself accepted the possibility of profit "on faith." (Stoddart Decl. Ex. 33 at 9-10, App. B at 232-33.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 29.

Again, Defendant takes the statement provided in deposition out of context. Hewitt stated that his understanding of the MLD transaction was that "there was a potential for a return" and even acknowledged that "even though risky, it had a possibility of having a return". (See Stoddart Decl. Ex. 33 at 10, App. B at 233.) DPFUF 30. Hutton never asked anyone whether the MLD transaction had a

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reasonable possibility of producing an economic profit in excess of tax benefits and outof-pocket costs. (Stoddart Decl. Ex. 31 at 26, App. B at 171.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 30.

Again, Defendant's proposed fact is taken out of context. Hutton simply stated that he did not believe that he asked anyone the specific question as to whether "the [MLD] transaction had a reasonable probability of producing an economic profit in excess of taxes and out-of-pockets costs." His testimony goes on to state that he had discussions and asked the general question whether the MLD investment was a high risk/high reward type of investment and his reliance on his advisors with respect to such conclusions. (See Stoddart Decl. Ex. 31 at 26, App. B at 171.) DPFUF 31. When Hutton was deciding whether to enter the MLD transaction,

no one except Cantley & Sedacca led him to believe that it offered a reasonable opportunity to make a profit. (Stoddart Decl. Ex. 31 at 108, App. B at 180B.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 31.

Defendant states Hutton only relied on Cantley & Sedacca to believe that the MLD transaction offered a reasonable opportunity to make a profit and in DPFUF No. 32 Defendant proposes that Hutton only relied on his two advisors, Hanning and Hewitt, when he considered with the MLD transactions had a reasonable possibility of producing a profit. The fact is that Hutton relied on the attorneys, Cantley and Sedacca, and upon his own advisors, Hewitt, his CPA and business advisor, and Hanning, his investment advisor. (See Stoddart Decl. Ex. 31 at 108, App. B at 180B and Stoddart Decl. Ex. 31 at 26, App. B at 171.)

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DPFUF 32.

Hutton relied on the advice of no one other than Hewitt and

Hanning when he considered whether the MLD transaction had a reasonable possibility of producing a profit. (Stoddart Decl. Ex. 31 at 26, App. B at 171.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 32.

Defendant states Hutton only relied on Hanning and Hewitt that the MLD transaction offered a reasonable opportunity to make a profit and in DPFUF 31 Defendant proposes that Hutton only relied on his attorneys, Cantley & Sedacca, when he considered whether the MLD transactions had a reasonable possibility of producing a profit. The fact is that Hutton relied on the attorneys, Cantley and Sedacca, and upon his own advisors, Hewitt, his CPA and business advisor, and Hanning, his investment advisor. (See Stoddart Decl. Ex. 31 at 108, App. B at 180B and Stoddart Decl. Ex. 31 at 26, App. B at 171.) DPFUF 33. The October 4, 2001, Agreement informed Hutton that Cantley &

Sedacca would charge a flat fee of $150,000 for their services. (Stoddart Decl. Ex. 32C at 1, App. B at 221.) The fee would cover neither an audit defense if the IRS challenged Hutton's tax return nor expenses of any consequent litigation; Hutton would have to pay an additional, nonrefundable $25,000 fee if he later informed Cantley & Sedacca that he required such services. (Id. at 2, App. B at 222.) PLAINTIFF'S RESPONSE: DPFUF 34. Plaintiff agrees with DPFUF No. 33.

On October 5, 2001, Hutton signed a document dated October 5,

2001, and captioned "Agreement for your Legal Services." Except for the signature and the date, this document is identical to the Agreement dated October 4, 2001, discussed in the previous paragraph. (See Stoddart Decl. Ex. 1, App. B at 5-7.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 34.

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DPFUF 35.

On October 9, 2001, Edward Sedacca signed a certificate of

formation for Clearmeadow Investments, LLC, a Delaware limited liability company. (Stoddart Decl. Ex. 2, App. B at 9.) The Delaware Secretary of State filed the certificate on October 10, 2001. (Id., App. B at 8.) PLAINTIFF'S RESPONSE: DPFUF 36. Plaintiff agrees with DPFUF No. 35.

The initial operating agreement of Clearmeadow Investments,

LLC, dated October 10, 2001, named Hutton as the sole Member and provided that the Member would have no liability for the debts of the company except to the extent of his capital contribution. (Stoddart Decl. Ex. 3, ¶¶ 2.2, 3.2, App. B at 12.) Hutton's capital contribution was $287,500. (Id., Schedule A-1, App. B at 18.) PLAINTIFF'S RESPONSE: DPFUF 37. Plaintiff agrees with DPFUF No. 36.

On October 15, 2001, Clearmeadow Investments, LLC, deposited

$287,500 into an account with Deutsche Bank Alex Brown (hereinafter DB Alex Brown). (Stoddart Decl. Ex. 7 at 3, App. B at 26.) DB Alex Brown is a member of the New York Stock Exchange (Stoddart Decl. Ex. 37 at 6, App. B at 365) and is a brokerage (see Stoddart Decl. Ex. 34 at 87, App. B at 297). PLAINTIFF'S RESPONSE: DPFUF 38. Plaintiff agrees with DPFUF No. 37.

On October 15, 2001, Clearmeadow Investments, LLC, and

Societe Generale, New York Branch, entered an agreement captioned "Confirmation for Currency Linked Deposit Swap." The Agreement was sent to the attention of Mr. Jason Saffran, Cantley & Sedacca. (Stoddart Decl. Ex. 16 at 1, 5, App. B at 49, 53.) The Agreement named Clearmeadow as the Depositor and Societe Generale as the Deposit Recipient; the Deposit Amount and the Deposit Settlement Amount were both EUR

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(Euros) 27,472,520; and the Date of Deposit was October 16, 2001. (Id. at 2, App. B at 50.) The Agreement generally foresaw two transactions: (1) On the Maturity Date, which was to be December 14, 2001 (ibid.), Societe General would pay Clearmeadow the Deposit Settlement Amount, EUR 27,472,520, converted into US Dollars (USD) at the current spot exchange rate. Societe Generale would also pay Clearmeadow the "Fixed Yield," which the agreement defined as interest on the Deposit Amount from the Date of Deposit to the Maturity Date, calculated at the Deposit Interest Rate of 3.6650%. (Id. at 2-3, App B at 50-51.) (2) On December 18, 2001 (the Settlement Date), Societe Generale would also pay Clearmeadow an additional amount (the "Premium Yield") if on December 14, 2001 (the Expiration Date), the Reference Exchange Rate (the exchange rate of US Dollars (USD) to Japanese Yen (JPY)) was equal to or greater than the Threshold Rate (USD/JPY 124.65). (Id. at 3, App. B at 51.) The "Premium Yield" was to be EUR 4,395,604­the product of the Premium Deposit Rate (16%) and the Deposit Amount, EUR 27,472,520. (Id. at 2-3, App. B at 50-51.) As consideration for this option, Clearmeadow was to pay Societe Generale a Premium of EUR 2,747,252 (see id. at 2, App. B at 50); Societe Generale would retain the Premium if the Reference Exchange Rate was less than the Threshold Rate on December 14, 2001. (See id. at 3-4, App. B at 51-52.) PLAINTIFF'S RESPONSE: DPFUF 39. Plaintiff agrees with DPFUF No. 38.

In a legal opinion issued on January 22, 2002, Cantley & Sedacca

called the preceding transaction the "long MLD position," and it summarized the transaction as follows: Clearmeadow deposited EUR 27,427,520 with Societe Generale on October 15, 2001. On December 14, 2001, Societe Generale was to repay this amount, plus 3.67% annual interest. Societe Generale would also pay Clearmeadow an additional amount, the "Long Bonus Yield," if on December 14, 2001, the "JPY/USD [sic] spot market exchange rate is at least 124.65."1 Clearmeadow paid a premium to

1

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Societe Generale of EUR 2,747,252 for the long MLD position. (Stoddart Decl. Ex. 30 at 3, App. B at 137.) PLAINTIFF'S RESPONSE: DPFUF 40. Plaintiff agrees with DPFUF No. 39

On October 15, 2001, Clearmeadow Investments, LLC, and

Societe Generale, New York Branch, entered a second agreement captioned "Confirmation for Currency Linked Deposit Swap." The Agreement was also sent to the attention of Mr. Jason Saffran, Cantley & Sedacca. (Stoddart Decl. Ex. 17 at 1, 4, App. B at 54, 57.) In this agreement, however, the parties reversed their roles: The Agreement named Societe Generale as the Depositor and Clearmeadow as the Deposit Recipient; the Deposit Amount and the Deposit Settlement Amount were identical to the amounts in the "long MLD position" already described­EUR (Euros) 27,472,520; and the Date of Deposit was again October 16, 2001. (Id. at 2, App. B at 55.) The Agreement also foresaw two transactions, the first of which is the mirror image of the corresponding transaction in the "long MLD position" already described: (1) On the Maturity Date, which was to be December 14, 2001 (ibid.), Clearmeadow would pay Societe Generale the Deposit Settlement Amount, EUR 27,472,520, converted into US Dollars (USD) at the current spot exchange rate. Societe Generale would also pay Clearmeadow the "Fixed Yield," which the agreement defined as interest on the Deposit Amount from the Date of Deposit to the Maturity Date, calculated at the Deposit Interest Rate of 3.6650%. (Id. at 2-3, App B at 55-56.) (2) On December 18, 2001 (the Settlement Date), Clearmeadow would also pay Societe Generale an additional amount (the "Premium Yield") if on December 14, 2001 (the Expiration Date), the Reference Exchange Rate (the exchange rate of US Dollars (USD) to Japanese Yen (JPY)) was equal to or greater than the Threshold Rate (USD/JPY 124.67). (Id. at 3, App. B at 56.) The "Premium Yield" was to be EUR 4,347,352­the product of the Premium Deposit Rate (15.824%) and the Deposit Amount, EUR 27,472,520. (Id. at 2-3, App. B at 55-56.) As consideration for this option, Societe Generale was to pay Clearmeadow a Premium of EUR 2,717,033 (see id. at 2, App. B at 55); Clearmeadow would retain the

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Premium if the Reference Exchange Rate was less than the Threshold Rate on December 14, 2001. (See id. at 3, App. B at 56.)

PLAINTIFF'S RESPONSE: DPFUF 41.

Plaintiff agrees with DPFUF No. 40.

In a legal opinion issued on January 22, 2002, Cantley & Sedacca

called the preceding transaction the "short MLD position," and it summarized the transaction as follows: Societe Generale deposited EUR 27,427,520 with Clearmeadow on October 15, 2001. On December 14, 2001, Clearmeadow was to repay this amount, plus 3.67% annual interest. Clearmeadow would also pay Clearmeadow an additional amount, the "Short Bonus Yield," if on December 14, 2001, the "spot market JPY/USD [sic] exchange rate is at least equal to 124.67." Societe Generale paid a premium of EUR 2,717,033 for the short MLD position. (Stoddart Decl. Ex. 30 at 3-4, App. B at 137-38.) Cantley & Sedacca added, "We understand, and have assumed for purposes of our opinions herein, that the LLC's receipt of this premium did not constitute an income recognition event for federal income tax purposes for either the LLC or the investor [Hutton] at the time of receipt and that no income recognition event in respect of this premium will arise until the Short Maturity Date." (Id. at 4, App. B at 138.) PLAINTIFF'S RESPONSE: DPFUF 42. Plaintiff agrees with DPFUF No. 41.

On a statement of account for Clearmeadow Investments, LLC, an

entity called Clarion Capital, LLC, made an entry dated October 15, 2001, for a "Long Market Linked Deposit (MLD)." (Clarion Capital's role will be explained later.) The entry reads as follows (Stoddart Decl. Ex. 15B, App. B at 47): Fixed Interest (3.665% annualized actual/360) Deposit Amount EUR 27,472,520 Premium Paid EUR 2,747,252 Bonus Coupon (Variable Interest Income) USD 150,163 USD 25,000,000 USD 2,500,000 USD 2,800,000

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The same statement also contains an entry dated October 15, 2001, for a "Short Market Linked Deposit (MLD)." It reads as follows (ibid.): Fixed Interest (3.665% annualized actual/360) Deposit Amount EUR 27,472,520 Premium Received EUR 2,717,033 Bonus Coupon (Variable Interest Expense) PLAINTIFF'S RESPONSE: DPFUF 43. USD 150,163 USD 25,000,000 USD 2,472,500 USD 2,769,200

Plaintiff agrees with DPFUF No. 42.

Hutton did not report the $2,472,500 "premium received" on his

personal federal income tax return for 2001. (See Stoddart Decl. Ex. 29, App. B at 12634.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 43 to

the extent that Defendant is attempting to draw a negative inference that a non-taxable transaction should otherwise be reported on the Plaintiff's tax return. (See Stoddart Decl. Ex. 29, App. B at 126-34.) DPFUF 44. On October 15, 2001, Hutton sent a letter on Clearmeadow's

stationery to Craig Brubaker at DB Alex Brown concerning Clearmeadow's account. The letter states, in part (Stoddart Decl. Ex. 18, App. B at 58): This letter constitutes your authorization to transfer the necessary funds to complete the purchase of the market linked deposits in the notional amount of US $25,000,000 and also to pay premiums totaling US $2,500,000 associated therewith from the above-referenced account to Societe Generale, New York ABA. PLAINTIFF'S RESPONSE: DPFUF 45. Plaintiff agrees with DPFUF No. 44.

During the month of October, 2001, Clearmeadow's account with

DB Alex Brown, contained no more than $287,500. (Stoddart Decl. Ex. 7 at 3-4, App. B at 26-27.)

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PLAINTIFF'S RESPONSE: DPFUF 46.

Plaintiff agrees with DPFUF No. 45.

Throughout the year 2001, Clearmeadow's account with DB Alex

Brown never contained more than $287,500. (Stoddart Decl. Ex. 7 at 3-4, App. B at 2627; Stoddart Decl. Ex. 8 at 3-4, App. B at 32-33; Stoddart Decl. Ex. 9 at 3-4, App. B at 36-37.) PLAINTIFF'S RESPONSE: DPFUF 47. Plaintiff agrees with DPFUF No. 46.

Hewitt, Hutton's long-time accountant, is generally familiar with

Hutton's holdings and assets. (Stoddart Decl. Ex. 33 at 6, App. B at 229.) Hewitt is not aware that Hutton had $27.5 million to invest in the MLD transaction. (Id. at 23, App. B at 246.) PLAINTIFF'S RESPONSE: DPFUF 48. Plaintiff agrees with DPFUF No. 47.

Though Hutton claims to have believed that Deutsche Bank was

lending him $27.5 million, he cannot recall signing a promissory note. (Stoddart Decl. Ex. 31 at 30-31, App. B at 172-73.) The defendant's trial attorney asked Hutton to send him a copy of any documents he might have that reference a loan from Deutsche Bank, but Hutton has sent no such documents. (Id. at 31, App, B at 172; Stoddart Decl. ¶ 1.) Hutton considers it unlikely that he would have lost such documents had they existed. (Id. at 107-08, App. B at 180A-180B.) PLAINTIFF'S RESPONSE: DPFUF 49. Plaintiff agrees with DPFUF No. 48.

On October 15, 2001, DB Alex Brown did not transfer the sums of

$25,000,000 and $2,500,000 from Clearmeadow's account to Societe Generale. (See Stoddart Decl. Ex. 7 at 3, App. B at 26.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 49.

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DPFUF 50.

On October 16, 2001, DB Alex Brown wired $27,500 from

Clearmeadow's account to Societe Generale in New York. (Stoddart Decl. Ex. 7 at 4, App. B at 27.) That amount is the net of the premium purportedly paid by Clearmeadow for the long MLD position, $2,500,000, and the premium purportedly received on the short MLD position, $2,472,500. (See Stoddart Decl. Ex. 15B, App. B at 47; see also Stoddart Decl. Ex. 34 at 142, App. B at 302.) This amount­$27,500­is also 1.1% (110 basis points) of $2,500,000, the premium for the long MLD position; it is also the amount the bank charged to set up the option. (See Stoddart Decl. Ex. 34 at 114-15, App. B at 298-99 (discussing an MLD transaction arranged by Clarion Capital and Daniel Brooks for a Mr. Bevan); see also id. at 143, App. B at 303 (the basic terms were the same for all the MLD transactions).) PLAINTIFF'S RESPONSE: DPFUF 51. Plaintiff agrees with DPFUF No. 50.

On October 12, 2001, Robert S. Bloink, Esq., signed a certificate

of incorporation for Clearmeadow Capital Corporation. (Stoddart Decl. Ex. 4, App. B at 20.) Mr. Bloink was an attorney with the firm of Cantley & Sedacca. (Stoddart Decl. Ex. 35 at 11, App. B at 333.) PLAINTIFF'S RESPONSE: DPFUF 52. Plaintiff agrees with DPFUF No. 51.

On October 10, 2001­two days before Clearmeadow Capital

Corporation was formed­Hutton signed an election to have it treated as an S-Corporation under the Internal Revenue Code. At the time, Clearmeadow Capital Corporation already had an Employer Identification Number. Hutton listed John V. Ivsan, Attorney at Law, as the legal representative the IRS should call if it required more information. (Stoddart Decl. Ex. 5, App. B at 21.) Mr. Ivsan was an attorney with the firm of Cantley &

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Sedacca. (Stoddart Decl. Ex. 35 at 11, App. B at 333.) PLAINTIFF'S RESPONSE: DPFUF 53. Plaintiff agrees with DPFUF No. 52

The Delaware Secretary of State did not file the certificate of

incorporation for Clearmeadow Capital Corporation until November 28, 2001. (See Stoddart Decl. Ex. 6, App. B at 23.) PLAINTIFF'S RESPONSE: DPFUF 54. Plaintiff agrees with DPFUF No. 53.

On October 19, 2001, Hutton transferred his entire membership

interest in Clearmeadow Investments, LLC, to Clearmeadow Capital Corporation as a contribution to its capital. (Stoddart Decl. Ex. 21, App. B at 61-62.) He accepted the transfer as president of Clearmeadow Capital Corporation. (Id., App. B at 62.) PLAINTIFF'S RESPONSE: DPFUF 55. Plaintiff agrees with DPFUF No. 54.

On October 19, 2001, Mark E. Hutton, president of Clearmeadow

Capital Corporation, and Daniel J. Brooks, president of CF Advisors XXXVII, LLC, executed an amended and restated operating agreement for Clearmeadow Investments, LLC. (Stoddart Decl. Ex. 22 at 1, 22, App B at 63, 84.) Clearmeadow Capital Corporation contributed $287,500 in exchange for 99,000 Class A Units (id. at 24, 23, App. B at 86, 85) and became the Class A Member (id. at 3, App. B at 65). CF Advisors contributed $2,500 "out of its service fees" for 1,000 Class B Units (id. at 25, 23, App. B at 87, 85) and became the Class B Member (id. at 4, App. B at 66). The agreement limited the members' liability to the amount of their contributions. (Id. at 15, 5, App. B at 77, 67.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 55.

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DPFUF 56.

According to the restated operating agreement of Clearmeadow

Investments, LLC, the Class A Member (Hutton's S-corporation) had solicited the Class B Member (Brooks and his LLC) to obtain the Class B Member's services as an investment advisor and specialist in foreign currency and foreign currency derivative investments. The parties agreed to pay the Class B Member a front-end fee of $10,000 for his services, payable immediately, plus 2% of the company's net asset value as of the end of the fiscal year and 20% of all income and gains realized during the fiscal year. (Stoddart Decl. Ex. 22 at 14, App. B at 76.) PLAINTIFF'S RESPONSE: DPFUF 57. Plaintiff agrees with DPFUF No. 56.

The Class A Member reserved the right to terminate the services of

the Class B Member at any time after December 16, 2001, and­upon delivery of notice­ to require the Class B Member to sell all of its Class B units to the Class A member for book value. The Class B Member had no similar rights against the Class A Member. (See Stoddart Decl. Ex. 22 at 18-19, App. B at 80-81.) In general, the Class A member had the continuing power of management. (See id. at 10, ¶ 5.1 & 15, ¶ 6.2(c); App. B at 72, 77.) PLAINTIFF'S RESPONSE: DPFUF 58. Plaintiff agrees with DPFUF No. 57.

On October 10, 2001, nine days before CF Advisors became a

member, Clearmeadow Investments, LLC, authorized DB Alex Brown to wire $7,500 to CF Advisors' account with DB Alex Brown in Baltimore, Maryland. (Stoddart Decl. Ex. 19, App. B at 59.) On October 23, 2001, DB Alex Brown transferred $7,500 to CF Advisors. It charged no wire fee for the transfer. (Stoddart Decl. Ex. 7 at 4, App. B at 27.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 58.

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DPFUF 59.

On October 18, 2001, one day before CF Advisors became a

member, Clearmeadow Investments, LLC, authorized DB Alex Brown to wire $2,500 to CF Advisors' account with DB Alex Brown in Baltimore, Maryland. (Stoddart Decl. Ex. 20, App. B at 60.) On October 23, 2001, DB Alex Brown wired $2,500 to "Bankers Trust Company Deutsche Bk London/F." It charged a wire fee of $10. (Stoddart Decl. Ex. 7 at 4, App. B at 27.) Deutsche Bank had purchased Bankers Trust in 1999. (Stoddart Decl. Ex. 34 at 20, App. B at 271.) PLAINTIFF'S RESPONSE: Plaintiff agrees with DPFUF No. 59.

DPFUF 60. Daniel Brooks attended Duke University and its Fuqua School of Business, where he earned an MBA degree in investment and finance. (Stoddart Decl. Ex. 34 at 15, App. B at 266.) After leaving school he spent several years trading foreign currencies and currency options for various employers, including Bankers Trust. (Id. at 16-18, App. B at 267-69.) When Deutsche Bank bought Bankers Trust in 1999, Brooks joined DB Alex Brown (id at 20, App. B at 271), where he worked as a vice president at the currency desk in foreign exchange sales (id. at 23, App. B at 274.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 60.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live

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testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 60 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 61. In April of 2001, Brooks left DB Alex Brown and formed Clarion

Capital to do currency trading and advising. Brooks is the owner of Clarion Capital. (Stoddart Decl. Ex. 34 at 46, App. B at 285.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 61.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 61 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate.

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DPFUF 62.

Brooks met Edward Sedacca through Craig Brubaker, who worked

at DB Alex Brown in Dallas (Stoddart Decl. Ex. 34 at 52, App. B at 286) as a broker (id. at 160, App. B at 306). PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 62.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 62 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 63. Brooks was not involved in MLD transactions when he worked

with DB Alex Brown. (Stoddart Decl. Ex. 34 at 29, App. B at 277.) It was Cantley & Sedacca who introduced him to the MLD concept, because that was a structure that they were planning to use. (Id. at 53, App. B at 287.) According to Brooks, a market-linked deposit (MLD) is a combination of (1) a deposit with a fixed yield, like a CD or bank

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account; with (2) a variable component that is linked to some market­for example, currencies or equities. (Ibid.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 63.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 63 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 64. Between June and December of 2001, Brooks engaged in MLD transactions with 150 different customers; after 2001 he engaged in none. To carry out these transactions, he always joined an LLC with the customer. (Stoddart Decl. Ex. 34 at 54, 57 App. B at 288, 291.) It was Cantley & Sedacca who formed the LLCs (id. at 57, App. B at 291), and all of them were basically the same (id. at 71, App. B at 296). Brooks (through Clarion Capital) owned 1% of every such LLC and remained an owner through

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the life of the entity's MLD transaction (id. at 58, App. B at 292), but he held no interest in any of the LLC's after December 31, 2001 (ibid.). PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 64.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 64 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 65. Brooks had no role in the "deposit" portion of the MLD; his only

role was to arrange the "variable interest" portion. (Stoddart Decl. Ex. 34 at 136, App. B at 300.) "Variable interest" means the currency option that was traded in the MLD structure; it is called "variable" because the investor could win or lose on the trade. (Id. at 166-67, App. B at 307-08.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 65.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl.

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Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 65 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 66. The currency options in Brooks's MLD's were European digital

options. (Stoddart Decl. Ex. 34 at 34-35, App. B at 279-80.) A European option is exercisable only at a specific date and time. (Id. at 35, App. B at 280.) A digital option is a combination of a purchased "long" position and a sold "short" position. In the long position, the investor purchases a potential profit­up to a certain point­and in the short position the investor sells away the remaining potential profit. (Id. at 35-36, App. B at 280-81.) Brooks sees two advantages to trading currencies using digital options: (1) the investor can lose no more than the price he paid for the long position; and (2) the premium is low because the short position limits the investor's potential profit. (Id. at 3637, App. B at 281-82.) Digital options are the most commonly used derivatives in

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currency trading. (Id. at 37, App. B at 282.) (By "derivative," Brooks means "option." (Id. at 18, App. B at 269.)) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 66.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 66 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 67. Cantley & Sedacca developed the structure of the MLD

transactions, but Brooks received his instructions through DB Alex Brown. (Stoddart Decl. Ex. 34 at 144-45, App. B at 304-05.) All of his investors were clients of DB Alex Brown before coming to Brooks for advice about MLDs. (Id. at 216, App. B at 320.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 67.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to

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satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 67 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 68. On March 11, 2002, Hutton signed a document captioned "Investor

Representations" on behalf of himself, Clearmeadow Investments, LLC, and Clearmeadow Capital Corporation. (Stoddart Decl. Ex. 31A at 1, 4, App. B at 187, 190.) Dan Brooks signed the document on behalf of CF Advisors XXXVII, LLC, as "sole member." His signature is undated. (Id. at 4, App. B at 190.) PLAINTIFF'S RESPONSE: DPFUF 69. Plaintiff agrees with DPFUF No. 68.

In the Investor Representations, Hutton states that he (through

Clearmeadow Capital Corporation) formed Clearmeadow Investments, LLC, along with CF Advisors, XXXVII, LLC. He refers to CF Advisors as "CC." (Stoddart Decl. Ex. 31A at 1, App. B at 187.) Paragraph 5 of the Investor Representations provides, in part (id. at 1-2, App. B at 187-88): Based on the advice of CC and Brooks as to the probability of the Investments reaching certain price levels at which they would be

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profitable, and on the advice of my own investment advisors, I believed, and continue to believe, that I have, and continue to have, a reasonable opportunity to earn a significant economic profit from the Transactions in excess of all fees and transaction costs and without regard to tax benefits. In fact, my decision to invest in the Transactions and with CC and Brooks was based, in large part, on CC's and Brooks' representations that (a) there was an approximate 28% statistical probability (based on Black/Scholes) of realizing a 60% return on my net investment in the MLD positions, net of all my direct transaction costs associated with the positions, and an approximate 1.3% statistical probability (based on Black/Scholes) of realizing a 14,446% return on my net investment in the MLD positions, net of all my direct transaction costs associated with the positions, and (b) if I were to continue my investment in the transactions and with CC and him for at least five (5) years, I could reasonably expect that his investment strategy would yield for me an annual return on my total investment in the Transactions of somewhere between 15% and 17%, net of all my fees and expenses from the Transactions and without regard to tax benefits. It is my current intention to hold the Corporation's (and, thus, my) investment in the Transactions and with CC and Brooks for such period of time as to be able to achieve a reasonable economic return on my investment, without regard to tax benefits and net of all my fees and expenses from the Transactions. PLAINTIFF'S RESPONSE: DPFUF 70. Plaintiff agrees with DPFUF No. 69.

Brooks believed that an investor would have to stay invested for at

least five years to have a reasonable opportunity to make a 15% profit; but of the 150 investors for whom he arranged MLD's, only half held their investments for more than three months, and not one of them held his investment beyond the end of 2001. (Stoddart Decl. Ex. 34 at 202-04, App. B at 315-17.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 70.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to

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infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 70 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. DPFUF 71. The term "Black/Scholes" refers to a mathematical model that

calculates an option's value from four of five variables, including interest rates, the length of the option, and market volatility. (See Stoddart Decl. Ex. 34 at 12, 24-25, App. B at 263, 275-76.) PLAINTIFF'S RESPONSE: Plaintiff disagrees with DPFUF No. 71.

Pursuant to RCFC Rule 32, the deposition transcript for Daniel Brooks (Stoddart Decl. Ex. 34, App. B pgs. 257-322) may not be used in this case because Defendant fails to satisfy the provisions of RCFC Rule 32 in order to properly use this deposition transcript. Specifically, Defendant has failed to demonstrate in its declaration under RCFC Rule 32 that the witness is: (a) dead; (b) outside the United States; (c) unable to attend due to infirmity or imprisonment; (d) unable to attend despite the Defendant's subpoena; (e) greater than 100 miles away and a showing by defendant that the need for the live testimony is not required; and (f) subject to exceptional circumstances. Because Defendants have failed to follow RCFC Rule 32, Stoddart Decl. Ex. 34 (App. B pgs. 257-

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322) should be stricken from the record and references to this exhibit should be likewise stricken. Furthermore, Plaintiff disagrees with DPFUF No. 71 because this is not a fact that Plaintiff has any knowledge or may otherwise determine if true and accurate. In addition, this is a fact that would require expert testimony. DPFUF 72. On March 11, 2002, Hutton acknowledged that Cantley & Sedacca

would rely upon his "Investor Representations" of that date in issuing its tax opinion letter. (Stoddart Decl. Ex. 31A at 1, App. B at 187.) Cantley & Sedacca had mailed the unsigned Investor Representations to Hutton on January 23, 2002, along with their tax opinion letter and stated, "the opinion letter may not be relied upon (and is not otherwise released) unless and until we have received . . . the Investor Representations fully executed by you, the LLC, and the Corp. . . . ." (Stoddart Decl. Ex. 30A, App. B at 146A.) The opinion letter stressed that Cantley & Sedacca had not independently verified Hutton's representations, and it warned, "If any such item is inaccurate in any material respect, . . . the opinions contained herein may not be relied upon." (Stoddart Decl. Ex. 30 at 1, App. B at 135.) Like t