Securities Regulation Keyed to Coffee
Randall v. Loftsgaarden
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Investors bought interests in Alotel Associates, a limited partnership created to build and supervise a hotel. Loftsgaarden sold the interests, who promoted their sale as a “tax shelter” that would provide limited partners with significant tax savings. Investors contributed between $35K and $52K each to the venture and when Associates started to experience financial difficulties, Loftsgaarden requested the investors contribute additional money. The investors gave the extra money but at the same time started an investigation into Associates. The motel was foreclosed due to Associates not meeting their requirements so the investors began suit alleging violations of § 12(2) of the Securities Act of 1933, § 10(b) of the Act of 1934 and securities fraud. The district court ruled in favor of investors and awarded rescission. The court of appeals reversed the award and remanded on the issue of damages. The district court, on remand, held the appropriate recovery for to consist of the price paid plus interest, less any tax benefits gleaned. Both parties appealed. The court of appeals held that granting rescissory damages to a tax shelter investor in an action for fraud should be lessened by the tax benefits the investor gleaned from said investment. The Supreme Court granted review.
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