Michelson

BACKGROUND

The SDI and Odora Transactions In or about mid-November 2001, Ernst & Young (EY), an accounting firm with which Michelson already had a relationship, solicited Michelson regarding participation in a program called Strategically Diversified Investment or SDI. EY suggested SDI as a means for Michelson to reduce his tax liability on his substantial 2001 earnings. SDI, a complex transaction involving investments in foreign currency options, was structured to create large losses the investor could claim immediately to offset ordinary income. Moreover, EY projected the proceeds from the later sale of the investment would be taxed more favorably than ordinary income. Before investing in SDI, Michelson sought advice from several individuals and firms in addition to EY (where his principal contact was partner Tom Dougherty). Michelson’s longtime attorneys at Jeffer Mangels Butler & Mitchell (Jeffer Mangels), specifically Burton Mitchell, the head of the tax practice at Jeffer Mangels, advised him regarding the SDI transaction. Michelson also sought advice from his longtime personal tax accountant, Stephen Collett.

1 Dr. Michelson is a spinal surgeon and inventor who holds…