Belmont Investments LLC v. United States, Case No. 4 ... - Tax Trials

Case 4:07-cv-00009-DDB Document 276 Filed 08/02/10 Page 5 of 42American dollars to account for any currency risk issues associated with a potentialtakeover was in late August or early September.29. Montgomery finally settled on using long and short swaps to hedge the currency risk.30. These swaps were brokered by Deutsche Bank.31. According to Montgomery, the intent in using the swaps was to hedge additionalcapital that might be needed to fund the takeover.32. Montgomery testified that approximately $175 million would come from Beal’sresources and the additional $10 million would be funded through the swaps.33. Montgomery was also aware that using swaps could have potential tax benefits.34. Montgomery testified that certain entities were set up to pursue the possible tenderoffer. BPB Investments was capitalized with $4 million of Solution 6 stock and $5million cash. This was done around September 13, 2001.35. To facilitate the transaction, BFC paid a dividend of 7,678,467 shares of Solution 6stock to Beal. Beal then contributed the stock to BPB. All of this occurred one dayprior to the purchase of the swaps.36. On September 14, 2001, BPB entered into four digital foreign currency swaps withDeutsche Bank involving payments pegged to US dollars and Australian dollars.37. Two of the swaps were “long swaps” which called for BPB to pay Deutsche a yieldadjustment fee of $101,250,000 for each long swap or $ 202,500,000 in total. Thesecond two swaps are “short swaps” which called for Deutsche to pay BPB a yield5