Free Motion to Stay - District Court of Federal Claims - federal

Case 1:05-cv-00999-MMS
02/15/2005 14: 54 FAX 202 514 9649

Document 10-12

Filed 01/13/2006

Page 1 of 20
I4 046/050

US DEPT OF JUSTICE. TAX

..
Lindquist, John A. ~ :2)

To: Cc:

Sent:

From:

dgronsmanlæsidley.com
Tuesday. June 29, 2004 3:04 PM Lindquist, John A. (TAX) wcònlon(§Sldley.com; rpietnak(gsidley.com; TMiller~Sidley.com SAB&W Tax Matter - Final Disclosure

Subject:

11

tm.hlm (1 KB)556780_1.DO C (40 KB)

ti

~'ohn: attached is the balance of the names and addresses of the interveners in the J )hn Doe action. Please let me know if you have any questions.
~~5567780 1.DOC~~

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EXHIBIT

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I

r

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02/15/05 TU 15:47 (TX/RX NO 9275)

Case 1:05-cv-00999-MMS
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US DEPT OF JUSTICE. TAX

6/29/04

Arhur Anderse il

Chenery - CARIlS

Diversifed - Spi ead Options

CONFIDENTIAL - ATTORNEY/CLIENT PRIVILEGE - ATTORNEY WORK PRODUCT
02/15/05 TU 15: 47 (TX/RX NO 9275)

Case 1:05-cv-00999-MMS
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US DEPT OF JUSTICE. TAX

6/29/04

Mr. Keith Tuckl~r

c/o Waddell & Reed Financial, Inc.

6300 Laar k'l ~nue Shawanee Missi on, KS 66202
Multi-National ~;trategies - COMMON TRUST

Valdez - 43549.1

CONFIDENTIAL - ATTORNEY/CLIENT PRIVILEGE - ATTORNEY WORK PRODUCT
2

02/15/05 TU 15:47 (TX/RX NO 9275)

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Id 049/050

US DEPT OF JUSTICE. TAX

6/29/04

CONFIDENTIA.. - ATTORNEY/CLIENT PRIVILEGE - ATTORNEY WORK PRODUCT
3

02/15/05 TUE 15: 47 (TX/RX NO 9275)

Case 1:05-cv-00999-MMS
02/15/2005 14:55 FAX 202 514 9649

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US DEPT OF JUSTICE. TAX

6/29/04

CONFIDENTiAl.. - ATTORNEY/CLIENT PRIVILEGE - ATTORNEY WORK PRODUCT
4

02/15/05 TU 15:47 (TX/RX NO 9275)

Case 1:05-cv-00999-MMS

Document 10-12

EXHIBIT G Filed 01/13/2006 Page 6 of 20 Docket No. 12307-04

. Epsolon Limited
Sligo (2000) Company Inc.
1) Epsolon Limited, an Irsh Pnvate Limited Company ("Epsolon"), was fonned on November

6, 2000. It was owned 100% by Curberdale Investments Limited ("Cumberdae").

2) On December 18, 2000, Cumberdale sold to Sligo (2000) Company Inc. ("Sligo") 99% of
Epsolon for $10,000.

3) On December 18,2000, Cumberdae and Sligo entered into a Shareholders Agreement
wherein Sligo agreed to contrbute capital of$1,514,700 and Cumberda1e $15,300 for a total of$1,530,00.
("digital")
4) On December 20, 200Ö, Epsolon entered into eight European-style single-payoff

19-dayoptions with Lehman Brothers as follows:

Premium .:Paid;;fReceived
$i.U
J

Potential
Proceed to be

Strike Price (USD/Euro)

.:Paid;:/Received
$187,637,704
.9208 .9207

" ,i

Call Spread I

Purhaed euro call (Option #1182384) Sold eur call (Option #1182386)

-c56,451,951::
57,000,000

.:189,827,513::
187,445,332

Put
Spread I

Purhaed eur put

.:56,451,284::
57,000,000
fol'

.8914
.8915

(Option #1182380) Sold euro put (Option #1182381)
Purchased euro call
(Ûption #1182391)

':189,635,141::
71,710,943

Call
Spread II

.: 1,568,993;:

.9208
.9207

Sold euro call
(Option #1182392)

21,750,000
.: 1,568,773::

.:72,434,183;;
71,637,538

Purhased eur put Put Spread n (Option #1182388)
Sold eur put

.8914
.8915

21,750,000
,

.:72,360,777;;

(Option #1182389)

Total:
5)
The spot rate at time of

$1,458,999

the trades was .9056 and Epsolon was required to post a margi of the options would have

$1,448,986 plus the net premium received, wruch on termination of

grown (with interest on the $1,448,986) to $2,913,047, the maximum grss amount that Epsolon could owe. Epsolon could realize a net profit of$1,458,999 on the trades olus $5,062

in interest. The probability that this would occur was approximately 39.92 %. ~
~

EXHIBIT

I c¡
1lTTr.OOl 230

Case 1:05-cv-00999-MMS

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Filed 01/13/2006

Page 7 of 20

the euro was at .9208 and above at expiration,
.:. The terms orCaU Spread I were that if

Epsolon would owe $2,189,809 and ifit was below .9208 (Le., at .9207 and below), then
Epsolon would retai a $548,049 net premium.
Put Spread I were that if

the euro was at .8914 and below at expirtion,

.:. The term of

Epsolon would owe $2,189,809, and ifit was above .8914 (Le., at .8915 and above),
Epsolon would retai a $548,716 net premium.
Call Spread II were that if

the euro was at .9208 and àbove at expirtion,

.:. The term or

Epsolon would owe $723,239 and ifit was below .9208 (i.e., at. 9201 and below), then
Epsolon would retai a $181.007 net premium.
Put Spread II were that if

the euro was at .8914 and below at expirtion,

.:. The terms of

Epsolon would owe $723,239, and ifit was above .8914 (Le., at .8915 and above).
Epsolon would reta a $181.227 net premium.

6) As the result of

the trades entered into on December 20. 2000. the options would have the following net ecnomic consequences for Epso\on:

USDlEuro at

Net Gain
$1,458,999

Net Loss

Probabilty
40%

Expiration Betwee .8915 and
)
.9207 Below.8915 Above .9207

$1,454,039 1,454,030

30% 30%

7) In addition, on December 21, 2000, Sligo (2000) LLC, a limted liability company whose sole

member interest was owned by Keith Tucker ("Tucker"), entered into the followig two
European-style 365-day options:

Premium .:Paid:;/Received
(Usn Equivalent)
Purchaed Yen put

.:$51,000,000:;
50,490,000
.

Stnke Price Potential Proceeds (YenlSD) to be .:Paid:;/Received (Usn Equivalent) 108.96 $132,089,680

(Option #1185473 ) Sold Yen put

-:131,020,972:;
.'

108;91

(Option #1185472)

Total:

.:510,000:;

$1,068,708

the trades was 1 \2.3. Sligo (2000) LLC could realize a net profit
8) The spot rate at the time of

of$558,708 on the trdes. The probability that this would occur was 40%.

2 . KTTC001231

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 8 of 20

.:. If

the Yen was above 108.96 (i.e., at 108.97 and above) at expirtion, Sligo (2000) LLC would receive a net payment of Japanese yen equivalent to $1,068,708 and ifit was at 108.95 and below, Sligo (2000) LLC would lose the $510,000 net premium.
the Yen was at precisely 108.96 at expiration, Sligo (2000) LLC would receive Japanese yen equivalent to $132,089,680 and not owe anytg on the short position.

.:. If

9) In connection with the tres (including the replacement tres described below) entere into
by Epsolon and Sligo (2000) LLC, Tucker or his controlled entities incur fees of
$1,270,000 (inclusive of$250,000 of of

the acunting fees incured to KPMG). After payment

these fee, the intial Epsolon trades and the Sligo (2000) LLC tres could result in a net $747,707. pre-tax profit of
out its

10). On December 21,2000, Epsolon sold options #s 1182384 and 1182391 and closed

short positions in options #s 11823&1 and 1182389, recgning gain and loss as follows:

Trade Original Proceeds Gain/.cLoss:; PreDUum Actually
.cPaid:;/Received .cPaid:;/Received

Long euro call 1(#1182384) ;(56,451,951:; $75,714,627

Short eur ut I (#1182381) 57,000,000 .c38,155,202:;
Long euro call II (#1182391) .:1,568,993:; 28,131,028

Short euro put n (#1182389) 21,750,000 .c15,159,054:;
.J

)

Total: $729,056 $50,531,399. $51,260,455

'~
2.1406 (.9137) 2.1406 (.9137)

11) On December 21, 2000, Epsolon entered into the following four Eurpean-style 18-day options: Spot Price Strke Price Potential Premium . (DEMlSD) (DEMJSD) Proceeds to be .cPaid:;/Received ((USDlEuro)) .cPaid;./Received

Purchaed DEM
call I (Option
#11&4107)

.:75,760,627:;

$187,751,702 .

2.1241

Sold DEM put I (Option #1183924)

38,156,20&

0:189,640,141:;

2.1939

Purhaed DEM
call II (Option # 1185263 ) Sold DEM put II (Option , # 1185254)

.:8,157,866;.

71,779,358
.\

2.1241

..~
..

2.1424 (.9129)
2.1424 (.9129)

15,159,892

0:72,364,777:;

2.1939

Ttftal:
'.

0:50,602,393;'

KTTC001232

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 9 of 20

12) The DEMluro exchange rate was 1.95583 and was expected to remain fied for the duration
ofthe options.

13) The euro had rallied agaist the dollar since the date of

the intial tres. The acuisition of

the new options required Epsolon to pay a net premium of $70,994 plus an additional margi of $9,006.

14) As a result of the trades entered into on December 21, all 0 f the options curently held would have the following economic consequences for Epsolon:
USD/Euro at
Net Gain

Net Loss

Probabilty
39%
40%

Exviration
Between .8915
and .9207

$1,051,771

Between .8915
and .9207

336,235
$1,143,038 391,004

Below.8915 Below.8915 Above .9207 Above .9207
15) In sumar, Epsolon increased its potential loss if

1,024,04
318,590

20% 21% 41% 39%

the euro was below .8915 from $1,454,049

to $1,534,042 (a potential increase of$79,993). The probability that ths loss would occur the euro was in excess of .9207 was
) decreased from 30% to 20%. The potential net loss if

decreed frm $1,454,050 to $1,342,630, a potential reduction of$111,420. The probability in the .8915
that ths loss would occur increased frm 30% to 40%. The potential gross payoff

to .9207 range decreaed frm $1,458,999 to $1,388,006. Overall, these tres increased

Epsolon's exposure to the risk of a declie in the eur versus the dollar and decreased its
exposur to the risk of a subsequent declie in the dollar versus the eur.

16) On December 26, 2000, Tucker assigned his membership interet in Sligo (2000) LLC to
Sligo.

17) On December 28,2000, Epsolon sold option #s 1184107 and 182380 and closed out its short positions in option #s 1183924 and 1182386, recogrzing gai and loss as follows:

Trade
umg DEM call 1(#1184107)
Short eur call I (#1182386) Long euro put I (#1182380) Short DEM put I (#1183924)

Proceeds Actually o:Paid~lReceived o:Faid~lReceived $124,340,670 .(75,760,627)0:125,715,39~ 57,000,000 4,565,799 0:56,451 ,28~

Original Premium

Gainl-:LosP

38,156,208

0:4,619,260~

Total:

0:37,055,703::

0:1,428,190::

$48,580,043 0:68,715,399~ -:51,885,485:: 33,536,948 -:$38,483,893::

4 KTTC001233

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 10 of 20

18) At the time of

the trade, the spot rate was .92855 USDÆuro (2.1063 OEMlSD).

19) As the result of the $38,483,893 loss realized on Call Spread I and Put Spread I on December realized on Call Sprea I and Put Spread I on 28 and the $38,107,474 ga previously
December 21, Epsolon had thus far recogned a net economic loss of $3 76,419 from these

positions.
20) When the remag positions expired on Janua 8,2001, the spot rate of and of

the euro was .9500

the OEM was 2.0588; the EurlDEM exchange rate was unchaIged frm its position
the remaig call positions as

on December 21,2000.

21) At expiration, Epsolon recgnzed gain or loss on eah of

follows:

Trade
Lon~ OEM call II (#1185263) Short euro cal II (#1182392) Long euro put II (#1182388) Short DEM put II (#1185254)

Origial
Premium
.cPaid;:/ReceIved

Proceeds Actualy
.cPaid;:/Received
$71,779,358

Gain.cLoss;:

.:28,157,866;
21,750,000
-c 1 ,568,773;:

42,434,183;:
0 0

$43,621,492 .c50,684,183
.c1 ,568,773;:

15,159,892

15,159,892

Total:

-:12,816,747;:

-:654,825;:

-:13,471,572;:

./

i
22) As the result of

the $51,260,455 gai realized on December 21, the $38,483,893 loss on
the above trsactions.

December 28, and the 13,471,572 loss realized on Janua 8, 2001, Epsolon recogned a net
economic loss of$695,Oio from all of

.\

5 - KTTC001234

Case 1:05-cv-00999-MMS
GD&C - DA
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~

9/2/2003 4: 45 PAGE 3/83
WADDELL&REED FINACIAL INC. SEC

Document 10-12

Filed 01/13/2006

Page 11 of 20
P.2

RightFax
NO. 89

346 Piuk Avenue
NswYork, NY i0164102

Telepnone
Fiix

:m 768 97DC

2.127589a19

to Eueene Schorr

Dllte Janua 18, 2001

PERONAL & CONFENT FILE
Memoranduiu FOT Re Re: Keith Tucker
Ref TuclcclnnQy..tiveTiidoc

From

Inovative Tax Solutions Calndar Year Zoot
The Intern Revenue Setoe li bc:en aggressively adviing th public that uliovavo Tax Shelter

Solutions" wi be a priority for IRS scrtiy in the )feat 2001 and for The IR ha publicized this.via vaous nl'spa.per arcleø. anouncements suoh aii 2000-44 an vaOll othr p~blic

dialogues. Accordinly, I believe it prunt to sU1 KPMG activity with ~. Keth Tuke
(Chairan Wadell & Re for the yea 2000 whch resuwd iii KPMG imleentig an
"inovative tax. soluton" at the en of

December 2000 for Mr. Tuker.

Backgound
Keith Tucker is a ta an ficial planing clien ofKPMG far oalendar yeat' 2000 p~t to the
Waddell & Reed tax and fiancial pliig progr. We provide tax. preparation sercea, mcome
and estate planning, et. In the sprig of

2000. I icùntied Mr.1"ker as a poteal client for our'

resutig from the increasing vaue of

Waddell & Red iiwes, Mr. Tuclcer earnd substatial incometrm th exerise of options in August of 2000.
Accordingly, I asked Mr. Timothy ßpeiSB, the northast PIC of

iiovative ta sttegies group. Mr. Tuker ancipated sqbstatial income for the year 2000

Inovative Strtegies. to meet with

Mr. Thcker to di~uss cert XPMG strtegies to mitigate hi year 2000 ta libilties. Mr. Speiss met with Mr. Tucker to prsent varo1l KPMG 8tttegies. Af viuotJ meetigs an conferce

calls, Mr. Speiss an Mr. Tuker agr that the "sho options" strtegy woul be the appprite
agreed that KPMO would issue an engagemet let.

KPMG solution for Mr. Tiker. Mr. Speiss ha a fi meetig in July with Mr. Tuke EId it wa

Durg the fist week of Atlt 2000 an enageeit letr for the short optiCn sQlution was issued

to Mr. Tucker. Subsequent to issqig the engagcent letl'e, th Internal Reenue Serce issued

imnouuceieii 2000-44. I wa on vacation in Blope begig Augut 10. Durg the week of the followig: Augist 14 Tim Speis8 advised me in Europe of
. KPMG withdreW the short options soluton as a fi strategy.

. KPMG withw our engagement letter to Mr. Tuckc.
. KPMG did not have any other solutions for Mr. Tucker.
. As a result of

the Pnoe Watcihouac/OSS publiity and IR announcèIent 2000-4, KPMG
.. ..
¡

advlled Mr. Tuoke that we would not be able to imlement a stategy for MT. Tukt iii the

calen year 2000.

.;

EXHIBIT IrJ

¡

KTTC000588

Case 1:05-cv-00999-MMS
GD&.C - DA
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Page 12 of 20
894

9/2/2003 4:45 PAGE 4/83
WRDDELL&REED FINANCIAL INC. SEC

RightFax
NO.

~

P.3

Mr. Tucker understood our decision. Hc requested that Mr. Speiss advise him of any other appropriate "non KPMG" strategies in the market place with which we were comfortable. We
a.dvied Larr Scheineld (former KP:tG parer) an principal of QuaB that KPMG was not able

to provide a. year ;WOO inova.tive ta solution fol' l\. Tucker. We asked Lar to let Mr. Tucker know if an approprite solution was available with Quadra. Mr. Soheineid previously presented a
solution to Mr, 'tker at th same tie we presented the "short options" strategy. MI. Tucker

selected the "sbort options" strategy over Mr. Schemfelds for 1racnon.
Quadra For Tra.tion
Lany Sclieinfeld prcsented th fort traction agai to Mr. Tuke in the fil1 of 2000. Mr, Tuker agreed to proceed with ths iivestment (fort) whicl: offed strg potential for t:g profits 81d

also could result in tax benefitii. Mr, Saheineld requested tbt KPMG' s role be lited to acting as

a ta advior with respect to Mr. Tu1cr's persona ta sitution. Mr. Sohein)d requested that the
detals of

the forts transaction not be divuged to KPMG. Mr. Speiss acted as an ad"Vor to Mr.

Tucker and consulted with Quadr to en,ure that the investent was handled appropria.tely from a
ta viewpoint for Mr. Tuoker.

On December 1 i, 2000, Quaa. faed KPMG a dooument sumarzing tho IJteps to implement the
fort investt. Mr. Tucke's ~t stage investment was due on December 18, 2000. On
December 12, Lar Scheineld called and ;\Am.ed me tna.t the ficig for ths investment was in jeopårdy and the traetion mightnat CIOBC. Af\ receivig ths call from La Scbcield, I adv.sed Ti Speiss of th potential tlt th for trsacon might not cloi;e. I asked 'l to chek

with the fi' B ta leadcrsbip and our investment parers (HeliosIiversified, etc.) to detere
whether KPMG could provide a. ta solution for M1. Tucker.
On December 14, Lar Scheinfeld advied Mr. TuclceT and rcPMG tht they had to tete the fort traction because of the inabilty to fie the investt

KPMO Inova.tive Tax Solution for Mr. Thcker

On or about Decmbe 14,2000, Tim Speiss advsed ni tht he had diSOuaBed propo~iig a ta soMion for Mr. Tucker with the ta leadship (Messrs. J'effBischied, Lari DeLa.p,' Washigton
National Tax, Neil Tender, Doug Aniirm, JeffRoscmth and Joff Stein) end they agred that
Tim could develop a "customized solution" for Mr. Tucker. Tim indica.ted that the fu's policy of
not sellin ta solutions had not changed. However, the ta leaderp ofKPMG felt that if

he could

create with Diversified an economic tranaction that WI\ approprite he could proceed. Tim

uidicated that the potential for a substatial fee wa.s considered since PFP revenue WIB substatially lower tha the prior year. I personally ciied Mi. Tendler (norteast PFP PIC) to detere tht Tim had the support of tax leadershp for this tranaction bccause I did not wat to disappoùit Mr. Tucker
again. Neil ~vised me that r could depend on Mr. SpeillB to complete this 1rliaotion and it was a.pproved.
Ti confered with Diverifed and Bro\V & Wood to cWvelop a tlautomid solution" for Mr.

Tueker. Tim Üldioated tht an approprite solution 'Was a.vElilble b~cd on his discusirons with
Diversifed and Brown & Wood. In light of

the need tQ complet tbe trsaction in tbe la.st two

weeks of calendar year 2000 Ti toolc the followig steps:
2

Tucl'er!nnovativcTai,doc

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WADDELL&REED FINACIAL INC. SEe

RightFax
NO. 894

~

.. Tim developed th ta an investent strctue with Helios and Bi:own &, Wood,

II Ti obtained KPMG approva for this "custoiied solution" for Mr. Tucker.
II Tim communcated the transacj:on to Mr. Tiker.
.. Tim orchestted the transaction includig engaging Fran Montgomery to pl'ovid¡ the iegal serices necessar to complete the ttanaotion.

. Tim issued an engagement lett mider my signatu as engagement parter (I did not sign the
letter).
II Tim coordin~ed the trsaction for Mr. Tucker durg Chtmas week while Mr. Tucker was on

vacation.
II TI reviewed all investment decisions VJtl Dive:&ied,

. Tim aranged for the wie trsfer offeei; to KPMG,
RC'rcsentations to Mr. Tuoker Re~ardi~ Tax Aseots of

the KPMG Customized Solution

I partcipated in telephone calls with Ti and Mr, Tuck regarding the deoiiiion forstrtegy. Ti ths ¥I. Tucke to
invest in th "custmid solutioi" Kei~ reauested our view of th tax risk of

responded as follows:

&I Mr. Tucker could rely on the more liely than not ti opinn oflhown & Wood;
. Absent 4.Y chages in talawi KPMG would sign lús ta retump.

. KPMG (T) would issue a separate memo or opinion to ence Keith's ta position since he
believed the customized sttegy had stong economics.
&I Tim inc1cated tht he beüe'Ved th worS( case scenaro was tht Mr. Tu.ker would have to pay

the taes and interest on ths transaction if the ms disalowed it.

&I Mr. Tucker indcated tht ho would not pursue ths customid stra.tegy uiess we believed that
penalties were not an issue. Penlties could be as much BS $4.000,000. TiI indicated tht in

order to ensure tht penties wo\Ud not be an \95\1e, he suggested that Iv. Tuker invest
approxiately SS,OOO,OOO in Sligo with Diversified whioh would, in his opinon. provide the
economics to avoid penalty. Keith asked if

the $5,0001000 could be invested with Waddell &

Reed. Ti initilly relied tha.t the investment had to be i:ade with Diveufied. Keith agreed to
the $5,000,000 investment suggested by Tim IlO as to a.void tho possibilty of

IR penalties. Ti

advied Keith tht ths woùl be a long te mveent. lCth agreed to follow KPMG advioe

to avoid 'Penalties. Ultiately, with Tim's and Diversified's blessig, the investmt was made though Sligo for Wadell & Red to invest in high yield øeeuntieri in keepÌIg with Sligo's high
risk investmt strategy. Th traction wa implemented and ooinpleted by the end of

calendar yea 2000 resultig in a $38,000,000 ta loss for Mr. 'Icker.
3

Tuc;kc.rlnnovativeT¡i.doc

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WADDELL&REED FINANCIAL INe. SEe

RightFax

~
Fee

1'0.894

Tim an I discussed the fees for th transaction. If our role was limted to tax advisor, Tim felt we shoqldjust chage 01. tie wbioh probably woul b~ $2$0.000 to $300.000. However, Tim felt that

we had actually crte and inlemented th trae¡tion frm begúg to end and should be paid a
lager fee liimlar to th ofsbort option. Accordingly, he biled $500,000.

On Monday, Janua 15, Nei Tender caled me an asked tht th i:re $500,000 fee be move to Ti SpCiSB since be did aU tbc wok an imlemented the 1rimtion. I agr tht Tim did al the

work in the last two wee on th "cumi soluon" Howeve, Bru an i would need some
"short option" an "for" and thugt a par of the fees should be kept úi PFP core pratice. Neil

of the fee for ta prepartion an other 1'ttrs. Adtily. we had worke aIost iU month on
agreed to move 50% of the fees to Tim as engemt parer and give Ti 50% cross sellg so

tht h,e would receive 100% otth credit for ths Ucustomi solution."

'l''**.''**.***
The above sumnies the calendar year 2000 "irovative tax i;trategy" work done with Keit Tuclcer by KPMG.

TiclerlnnovatveTidoc

4

KTTC000591

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 15 of 20

---

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KPMG App. 1144

EXHIBIT

GXHIBIT :J

Docket No. 12307-04

l
KTC001310

II

X 055986

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 16 of 20

e
Private and Confidential

Transmit by Fax - 9 pages
Decber 16, 2000

To :
From:

Keith Tucker Timothy Speiss

Keith,
As prepared by the Helios and Diversified Group (Heliosliversified) and as we
discussed today, enclosed is the profit

and loss s~ar depictig a net payoff of $ 827,464 assuing a $ 50 milion notional amount (an actual $ 60 millon notional will
2000 and 2001). The

be entered into, with approxiately $ 30 milion closed in each of

depiction assumes the euro curency tres with .8859 and .9082 in relation to the U.S. dollar between December 18, 2000 and Janua 8, 2001 (a 30% probability).

e

Alo enclosed is a suar of our understading of the

the KPMG review points we are consilerig basd upon
Heliosliverified investment and afer oud:eview of a ta

memorardum (prepared by others) discussing the U.S. ta consequences of

the

trsaction. Our comments include points which we would expect to be cited in a tax

opinon issued with regard to this trsaction. Whle we have not reviewed a completed
tax opinion with regard to ths trsaction, we have been advied today that a dr Bryan Cave tax opinion would be available on or about December 22, 2000 or the followig

week. KPMG ta professionals will be reviewing the trsaction components, based upon
their specific area of expertse.
Separately I will provide you with a diagr of

the trsaction and entities, as described

to us by HelioslDiverified and as cited in our comments attched

Please contact me dire~tly at 212-872-7901 with your comments. Otherwise I will spea
with you agai on December 18.

At ths tie, the investment entities are scheduled to be formed on December 18, 2000 your actual notional amount) scheduled and your initial invesent (approximately 2% of

to be trsmitted also on December 18. On Decmber 18 Heliosliverifed wil
communcate to you additional investment steps.

e

Bes Regars,

¿¡I)M~
KTTC001311

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 17 of 20

e
2000 Investment Transaction

Review Points

1. IRC Sec. 338 election by Sligo (a Texas S corporation formed 12/18/2000 and electig S sttu on the same date, wholly owned by KT thugh a single member
lited liabilty corporation (SMLLC) formed 12118/2000). The election is effective
12/18/2000 in connection with Sligo's acquisition of

Epsolon Ltd (an Irsh entity C

corporation)

2. Additiona capital contrbutions to Sligo by KT and to Epsolon by Sligo (post
12/18/2000)
3. On or about 12118/2000 Epsolon will enter into approximately 8 option tres (see
attached depiction of aggrgate trade reslt forecasts using 12115/2000 market quotes)

The depiction assumes the purchase of long ($ 50 millon) and sae of short ($ 49.6

-

milion) digital Eurpea customized option puts that expire 1/8/2001. These options

are euro-denomiated and.ar not listed on an exchange. The spot is .8964, the
forward is .8974, the dép rate is 6.66% and (the) vol is 13.45%. You should review" these factors agai with the investment advisor. The loss point is .8858 and below.

(measured at the expirtion or earlier ifthe position is closed) and the probabilty of
loss is 35.06%. The bid-ask is a negative $ 67,402 and the theoretical procee are

$ 481,584. The theoretica value is 34.93%. The payout amount if the euro trades
withn the rage (a 30% probability) is $ 1,376,931 however you would subtrct from
ths amount your intial deposit of $ 549,466 with a resltig net payoff of
$ 827,461.Consider ths tranaction with the context of investment purose,

likelihood of profit, and related matters

4. Epsolon's sale of options that have increased in value, for example the long option
(the gain leg), whie retag the short option (the loss leg). Whle the gain leg is
sold,

a new long position will be acqui potentially based upn a non-euro

curency; the expirtion and stre pnce will be the same as the ongial long position.

One half of an ordinar loss position would be reaized in each of 2000 and 2001

5. Epsolon will file form 8832 electing (withn 75 days of a December, 2000 effective date; see Reg. Sec. 301.7701-3) to be classified as a parerhip

.

6. 2000 short yea and 2001 (12 month) tax retu filings for Sligo and Epsolon
7. 2000 and 2001 tax accunting and taxable

year end considertions for Sligo and

Epsolon

KTTC001312

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 18 of 20

e

8. Formation of Sligo and its capitaization under See 351, notig See 1371, in
stock on 12118/2000)

combination with its acquisition of Epsolon (Sligo wil purchase 98% of Epsolon

9. Review Sligo's Form 5471 fig with regar to its investment in Epsolon
10. Epsolon's statu as a Contrlled Foreign Corpration (CFC, see See. 957 and 958) in
2000 and 2001

11. Epsolon's statu as a Peronal Foreign Investment Company (pFIC) with respect to Sligo in 2000 and 2001
12. Epsolon's sttu as a parership for U.S. ta puroses effective December, 2000 with

respect to its check the box election to be taed as a U.S. parerhip
13. Review investor's tax basis in Sligo. Consider War Finacial as a Sligo shareholder
and the election to treat Sligo as a qualfied S corporation subsidiar of

War

14. Investor representations to be cited in the tax opinion and the .conclusion therein. The
tax opinion wi be prear by Bryan Cave or Proskauer or Brown & Wood. The

e

Bryan Cave dr opinon is expected to be available on or about December 22, 2000. KPMG has a ta memoradum as prepared by the investent advìr .~ ~..
15. Investment advisor representations to be cited in me ta opinio~ prepared by Bryan
Cav.e or Proskauer or Brown & Wood.
16. Investor's ta basis in Sligo

17. Applicability and commentar regardig IR Notices 99-14, 99-59, 2000-4; Selen,

Helmer, Deput; Rev. Ruls. 95-26, 95-45, 88-77, 73-301; definition of a liabilty for Sec. 752 puroses; related matter
18. SMLLC and parership classification subject to Reg. Sec. 301-7701-3(b)(1)(i)
19. Sec. 465

20. Sec 469

21. Anti-abuse rues under Reg. Sec. 1.701-2

17.) . .

22. Business purose and substace over form (see 3.) and step tranaction

- .\

23. Consider Scully, ACM Partership, SchoenberJt. Contrt to CottaJte SavinJ!s (see

KTTC001313

Case 1:05-cv-00999-MMS
DEC-21-2BØ0 18:55
p.

Document 10-12

Filed 01/13/2006

Page 19 of 20 P.Bl

95 Th AYSue 23 Aa
NiYcñ NY 100

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~ (22) 181'

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aNCOfn::~C)RA,TE 0

Fa
Tr. K8 Tucer - 970 926-73

Fro Ja Ha

91323193
Tir Sp - 212872-318

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o~

.\

)( 041182

KTTC001315

/

Case 1:05-cv-00999-MMS

Document 10-12

Filed 01/13/2006

Page 20 of 20
Page 1 of 2

email addresses
Speiss, Timothy P From: Speiss, Timothy P
Sent: Monday, Decmber 18, 200010:02 PM
To: 'Mox Tan'; 'Frank Montgomei; Speiss, Timothy P
Cc: '(OGI) Phil Kampf; '(OG!) Jimmy Habet

Subject: RE: Contact List - Project Epsolon and Haliday - REVISED DRAFT

Gentlemen:

. This was done, sent via email to Mox. We wil teleconference at 8:30 am on 12119. I wil initiate the call.

. What form of engagement letter will our clients receive from Diverifed wr services to be rendered specifically, we would like a tax opinion to be included as a services deliverble.
. Finally. we were able to speak with RJ. Ruble this evening and he answered our questions wrt opinion

matters.

Thanks
TPS

--nginal MesgeFrom: Max Tan (m~ilt:moxtn(gheliosnancil.comJ

To: Frnk Montg; (KPMG) Tim Sp
Cc: (OGI) Ph" Kampf; (DG) Jimmy Habe

Sent: Monday, Debe 18, 200 7:28 PM

Subje Fw: Contact üs - Projec Epson and Haliday - ,RfSED DRAFT

Tim and Frank:
W.e left Tim a voice mail

requesting a time tomorrow morning when we can' have an all-hands

kick-off conference call first thing ¡nthe morning. Please call me on my cell phone at 312-399-

3620 tonight with a time that works for you so we can coordinate.

In order to open accounts with Lehman Brothers, please provide us with the addresses of the
two S-corps and the three single member LLCs. Also, please provide us with the names of the single member LlCs for each IndividuaL.
Max

Sligo (2000)Companv Inc. FEIN: 51-0405078 (Tucker 100% owner) - Project Epsolon Address: Use Tuckets home address?

Addres: Use Tucker' Keith Tucker (5S# 4 Home addresss/Resid
Fax: 913-236-1939

NEED NAME OF SINGLE MEMBER LtC

es? ) Vine Street, Apt 253 , Dallas, Texas 75204

Phone: 913-236-1915
Clare (2000) Company Inc. FEIN: 51-0405076 (Herrmann 64% and Hechler 36% owner) -

Project I-Jaliday

08/20/2001

..
.f
!i

i

EXHIBIT
KPMG App. 1374
/ :J

~

~XHIBIT Ð
Docket No. 12307-04

X 056216

KTTC3217