About MyTurn

Here is the part of the story that I find most interesting and it is what distinguishes a “pump and dump” from a Ponzi scheme.  There was a real company there and unlike your Madoff account, the stock was really worth something and you can imagine a scenario in which it might have been a winner.

It was 2000 and I remember people talking about the digital divide.  MyTurn.com was meant to be a solution to that.  It had a computer with no peripherals at all called GlobalPC, that ran on an operating system called GEOS, rather than Windows.  It could give internet access to the left behind masses who would hook it up to their television sets.  Neil Weinberg in an article titled The Un-PC wrote:

MyTurn certainly has some interesting pieces. Its operating system and applications take just 10 megabytes to store. The latest version of Microsoft Word alone requires ten times the space. That means the Geoworks system can run blazingly fast on cheap, archaic chips. Or, the company hopes, become the guts of superthin name-brand notebook PCs with 40 hours of battery life.

Maybe the Justice Department is the least of Bill Gates’ worries.

So there you go, it could have been the next Microsoft, the essence of the New Economy.  Now we call it the dot.com bubble and think of MyTurn.com as a tulip bulb.  Here is the MyTurn.com obituary from the SEC written in 2010.

MyTurn.com, Inc. (CIK No. 1028079) is a void Delaware corporation located in Alameda, California with a class of securities registered with the Commission pursuant to Exchange Act Section 12(g). MyTurn.com is delinquent in its periodic filings with the Commission, having not filed any periodic reports since it filed a Form 10-QSB for the period ended September 30, 2000, which reported a net loss of $128,360,574 for the prior nine months. On March 2, 2001, the company filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of California, and the case was terminated on December 13, 2005.

If you want to follow the drama, check out this bulletin board on MyTurn that starts on 12/6/1999 and ends in the following September.  One of the last posts from someone who goes by Deeber reads:

All I read on this Co. smells bad, and they have NO other products in the works. Take your long shares and hang the certs on the wall, cause in 1 year thats all it’ll be worth.

This may account for the fact that when the Justice Department went to work on jailing the Donald & Company boys MyTurn.com was not one of the stocks that they brought up.  That was one of the factors that Mr. Adkins considered in deciding that he did not have any hope of recovery.

Theft Loss Not Capital Loss

Probably most of the people who invested in MyTurn.com ended up with a capital loss rather than a theft loss.  The reason Mr. Adkins qualified for a theft loss is that the broker who convinced him to borrow money to buy the stock was working for a company that owned the shares being sold.  The hard sell techniques of Donald & Company were not the only pumping that was going on and for investors caught up in the irrational exuberance of the time, there was no theft loss.

Here is an example of someone who tried to claim a theft loss on their WorldCom losses.  The people who were purportedly lying to him were not themselves trying to steal from him, so he was stuck with a capital loss.

But When?

Judge Sweeney did not rule that the Adkins were not entitled to a theft loss.  Just not a theft loss in 2004, since there was still hope of recovery.

Unquestionably, plaintiffs are the victims of a theft and have not subsequently recovered their losses. What remains in dispute is whether plaintiffs claimed the theft loss deduction in the proper year, in other words, the year that they sustained the loss. Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovery. However, the evidence in the record reflects that plaintiffs had three avenues to recover their losses in 2004—an open arbitration claim against Donald & Co. and three of its principals, a possible claim against a fourth Donald & Co. principal, and criminal restitution— and that plaintiffs’ reasonable prospect of recovery via these avenues was simply unknowable in that year. The evidence in the record further reflects that plaintiffs had two avenues to recover their losses in 2003—the open arbitration claim and possible claims against the individuals with whom plaintiffs dealt with at Donald & Co.—and that plaintiffs’ reasonable prospect of recovery via these avenues was simply unknowable in that year.

Indeed, the record contains evidence that other individuals were able to obtain awards against Donald & Co. and associated individuals via arbitration, both in 2003 before the government initiated criminal proceedings against Donald & Co. principals and employees, and in 2005 while those proceedings were pending. The record also contains evidence that many of the criminals who participated in the pump-and-dump scheme had financial resources available to pay part or all of a judgment against them (e.g., the proceeds of the scheme, real property, and a boat). In contrast, the record lacks any evidence that plaintiffs or their arbitration attorneys sought to determine whether they could actually recover their losses from the criminals involved in the pump-and-dump scheme by ascertaining the criminals’ true financial conditions.

Frankly, my own view is that it was more likely in January of 2000, that MyTurn.com was poised to be the next Microsoft than that the Adkins had a prospect of recovering anything from the boiler room boys.

What Next?

The Adkins commenced this journey with amended returns filed in 2006.  After not being able to settle with IRS, they filed with Court of Claims in late 2010.  They got a decision they did not like in 2013.  In 2016, they appealed to the United States Court of Federal Claims, which in 2017 ruled that the Court of Claims had to take another look.  That got done in less than twenty months, so we are going at a blinding pace now.  Now it has been determined that there was a theft loss, but it is only deductible in a year after 2004.  What year?  Come on.  They have only had twelve years to work on this.

I asked attorney John Rodgers what the next step might be.  He wrote me:

We were disappointed in the decision of the trial court.  We are assessing our options, an appeal is likely.  Assuming that the Adkins had jumped through all of the theoretical hoops urged on the Court by the Government, my clients would have spent more money to get nothing.  And there was still no reasonable likelihood of recovery after 2004.

The thing that started bothering me was whether there had to have been a protective refund claim filed for each of the subsequent years before the statute was barred on them.  For example a refund claim for 2005 to be filed in 2009 and one for 2006 to be filed in 2010.  Probably not.  At the suggestion of one of my brain trust, I took a look at Section 1311 and Section 1312, which mitigate the statute of limitations in situations like this.  So the theft loss should be allowed in one of the many years between 2004 and 2018.  I asked Mr. Rodgers about that and he responded:

We haven’t gotten into the weeds on that issue yet.  That would probably be a remand issue.

If I were the accountant involved in this, I would have run the numbers on all the subsequent years.  And they may well have done that.  Based on the refund claims 2004 was a high-income year for the Adkins, so a later deduction might hurt.  Better than being poked in the eye with a sharp stick though.  Just saying.