63 T.C. 736">*736 OPINION

Respondent has determined a deficiency of $ 19,371 in petitioner's 1966 Federal income tax. The sole issue 63 T.C. 736">*737 presented is whether the petitioner incurred a theft loss within the meaning of section 165(c)(3)¹ in 1966.

All the facts have been stipulated and the stipulation of facts, together with the exhibits attached thereto, are found accordingly.

During the calendar year 1966 and at the time the petition was filed petitioner resided in Houston, Tex. Petitioner filed an individual income tax return for the taxable1975 U.S. Tax Ct. LEXIS 168">*171 year 1966 with the district director of internal revenue at Austin, Tex. During the taxable year 1966 petitioner was a stockbroker employed by Paine, Webber, Jackson & Curtis (hereinafter Paine, Webber) in Houston, Tex.

As of August 25, 1966, and at the end of the taxable year 1966, petitioner owned a total of 750 shares of Westec stock. Seven hundred of these shares were owned in his name and 50 were held for his beneficial interest in the name of Paine, Webber. Petitioner bought his 750 shares of Westec on the open market through Paine, Webber or by means of a joint venture with Robert Johnson.

The basis of the 750 shares of Westec owned by petitioner is as follows:

Until August 25, 1966, stock of Westec Corp. was bought and sold on the American Stock Exchange. On August 25, 1966, the Securities and Exchange Commission (hereinafter S.E.C.) suspended trading in Westec stock because of insider manipulation of its market price. Pursuant to a series of conforming suspension orders trading in Westec stock remained suspended until May 4, 1969, when the S.E.C. canceled its suspension1975 U.S. Tax Ct. LEXIS 168">*172 order. Trading in Westec was suspended in Texas in March 1967. The State Securities Board permitted trading in Westec to resume on May 5, 1969. The stock of Westec did not become worthless during the taxable year 1966.

Investigations uncovered substantial misstatements and fraudulent statements as to the true earnings and profits of 63 T.C. 736">*738 Westec; as to mineral discoveries that had been announced by Westec; as to acquisitions or sales of properties reported by Westec which had not occurred; as to false earnings projections; and as to other fraudulent statements and transactions that had been reported as being completed but had not occurred. As a specific example, the earnings per share for Westec for the year 1965 were stated in the Westec annual report as being equal to $ 1.15 per share but it was determined that a number of the transactions certified and reported in arriving at the net earnings of $ 1.15 per share were fraudulent or misstated. Furthermore, substantial mineral discoveries which were announced as being made by Westec in Colombia were, in fact, not made. Additionally, earnings projections of $ 2.65 per share for the year 1966 were in fact overstated. These1975 U.S. Tax Ct. LEXIS 168">*173 investigations also uncovered numerous other fraudulent representations, statements, public announcements, reported earnings figures, projected earnings figures, proposed acquisitions, and mergers, most of which were made publicly.

Various criminal indictments were returned against principal officers and employees of Westec, including James W. Williams, chairman of the board of Westec (hereinafter Williams), Ernest M. Hall, Jr., president of Westec (hereinafter Hall), Malcolm G. Baker, Jr. (hereinafter Baker), and Lester L. Lilley (hereinafter Lilley) for alleged violations of the Federal securities laws. As a result of these indictments Hall pleaded guilty to conspiracy to violate the Federal securities laws and the mail fraud statute. Baker and Lilley pleaded guilty to employing a manipulative and deceptive device during the spring of 1966 in the purchase and sale of Westec stock, creating a false appearance of active trading that raised its price. Williams pleaded not guilty but was found guilty of conspiracy to violate the Federal securities laws and the mail fraud statute. He was also found guilty of mail fraud.

On September 26, 1966, Westec filed a voluntary petition with1975 U.S. Tax Ct. LEXIS 168">*174 the United States District Court for the Southern District of Texas for a reorganization of the company pursuant to chapter X of the Bankruptcy Act. During the period in which trading was suspended Westec continued limited business activity in the chapter X reorganization under the strict control of its trustee. Pursuant to the trustee's plan of reorganization, Westec was reorganized and is currently in business as Tech-Sym Corp.

63 T.C. 736">*739 Petitioner filed a proof of stock interest. Paine, Webber also submitted a proof of stock interest claiming ownership in 5,950 shares. On October 4, 1972, the trustee transmitted to Paine, Webber a stock certificate in Tech-Sym Corp. for the 50 shares in which petitioner owned a beneficial interest. This stock certificate was issued to petitioner. On March 1, 1974, petitioner submitted to the trustee in bankruptcy an affidavit of lost escrow certificate. Pursuant to the affidavit the trustee in bankruptcy issued to petitioner a stock certificate in Tech-Sym for 700 shares.

Petitioner contends that he is entitled to a theft loss deduction under section 165(c)(3)²1975 U.S. Tax Ct. LEXIS 168">*176 for the amount of money he invested in 63 T.C. 736">*740 750 shares of Westec stock. 1975 U.S. Tax Ct. LEXIS 168">*175 ³ Petitioner's theory is that the corporate officers made false representations regarding the financial status of the corporation to shareholders, prospective shareholders, and the public. These misrepresentations, petitioner alleges, induced him to purchase stock in Westec at a time when the price of the stock was artificially inflated. ⁴

1975 U.S. Tax Ct. LEXIS 168">*177 Theft loss deductions have been sustained by this Court in numerous cases in which the theft consisted of false representations made to the petitioner which induced him to part with his money or property. Perry A. Nichols, 43 T.C. 842">43 T.C. 842 (1965); Michele Monteleone, 34 T.C. 688">34 T.C. 688 (1960); Morris Plan Co. of St. Joseph, 42 B.T.A. 1190">42 B.T.A. 1190 (1940). Whether or not the activity constitutes a theft is determined by the law of the State where the loss was sustained. Edwards v. Bromberg, 232 F.2d 107">232 F.2d 107 (C.A. 5, 1956). However, an actual conviction for theft under State law is not a prerequisite for a theft loss deduction. Paul C. F. Vietzke, 37 T.C. 504">37 T.C. 504 (1961).

The parties agree that whether or not the activities in question constitute a theft must be determined by reference to Texas law. Although it is clear that the corporate officers engaged in illegal activities, petitioner has failed to prove a theft occurred under the provisions of the Texas Penal Code applicable to the period here involved. ⁵ These code provisions reflect the atavistic1975 U.S. Tax Ct. LEXIS 168">*178 formalisms of the common law and statutory development of larceny and related crimes. The provisions relating to theft define 63 T.C. 736">*741 common law larceny, ⁶ including larceny by trick or false pretext, ⁷1975 U.S. Tax Ct. LEXIS 168">*179 while other provisions include embezzlement ⁸ and define "swindling" to incorporate and broaden the offense of obtaining property by false pretense. ⁹ These and other provisions filled in the definitional gaps in the traditional offenses, and broadened and adapted them to contemporary circumstances.

The leading case of Edwards v. Bromberg, 232 F.2d 107">232 F.2d 107, 232 F.2d 107">111 (C.A. 5, 1956), on which both parties place reliance, instructs that "the exact nature of the crime, 1975 U.S. Tax Ct. LEXIS 168">*180 whether larceny or embezzlement, of obtaining money under false pretenses, swindling or other wrongful deprivations of the property of another, is of little importance so long as it amounts to theft." The term "theft," as used in section 165(c)(3), is broadly defined:

the word "theft" is not like "larceny", a technical word of art with a narrowly defined meaning but is, on the contrary, a word of general and broad connotation, intended to cover and covering any criminal appropriation of another's property to the use of the taker, particularly including theft by swindling, false pretenses, and any other form of guile. [232 F.2d 107">Edwards v. Bromberg, supra at 110; fn. omitted; emphasis added.] ¹⁰

The initial difficulty petitioner confronts is that there is no evidence that the misrepresentations in question were made by the corporate officers with the specific intent of obtaining, 63 T.C. 736">*742 acquiring, or securing any property or valuable right1975 U.S. Tax Ct. LEXIS 168">*181 from petitioner and with the specific intent of criminally appropriating petitioner's property or right, or destroying petitioner's right to enjoyment. Nor did any such result occur. This is a common element of the applicable sections of the Texas Penal Code, set out in the footnotes, that collectively give meaning to the term "theft" as used in section 165(c)(3). ¹¹ Petitioner did not purchase his stock from the persons who made the misrepresentations, but on the open market. 1975 U.S. Tax Ct. LEXIS 168">*182 There is no evidence that the previous owners of the stock participated in or were even aware of the misrepresentations of Westec's officers. From all that appears in the record they simply engaged in a standard market transaction, completely devoid of any activity amounting to a criminal appropriation of petitioner's property. ¹²

Additionally, it is well settled that when a theft is accomplished through false representations, the false representations must have induced the injured party to part with his property. 1975 U.S. Tax Ct. LEXIS 168">*183 Cleveland v. State, 438 S.W.2d 807 (Tex. Crim. App. 1969); Womack v. State, 408 S.W.2d 119 (Tex. Crim. App. 1967); Noblitt v. State, 103 Tex. Crim. 550">103 Tex. Crim. 550, 281 S.W. 849">281 S.W. 849 (1926); Whitley v. State, 90 Tex. Crim. 503">90 Tex. Crim. 503, 236 S.W. 470">236 S.W. 470 (1922). Petitioner has not only failed to produce evidence that he relied on the misrepresentations, but has also failed to show that his loss was related to those misrepresentations. To establish a causal connection between the fraudulent representations and petitioner's purchase, the representations must have been made prior to the purchase. Since the record contains no evidence indicating when the stock was purchased, it is impossible to 63 T.C. 736">*743 determine whether the representations were made before or after petitioner's purchase. ¹³

1975 U.S. Tax Ct. LEXIS 168">*184 Finally, the deduction must also be denied because the petitioner has failed to produce any evidence regarding the amount of the loss. Henry Schwartz Corp., 60 T.C. 728">60 T.C. 728 (1973). The basis of the 750 shares of stock has been stipulated. The parties have also stipulated that the stock did not become worthless in 1966. There is, however, no evidence as to how much value the stock retained. Even if the decline in value were known, it would be impossible on the record of this case to estimate the specific portion of the decline attributable to the illegal activities of the corporate officers petitioner describes as "theft," as opposed to the decline that might be attributable to business risks, market decline, poor or derelict management, and other illegal acts clearly not comprising any of the elements of a theft. Thus, even if the evidence disclosed a theft, the record contains no evidence with respect to the amount of any theft loss. In fact, the record is so deficient that an estimate of the loss is impossible. J. J. Dix, Inc. v. Commissioner, 223 F.2d 436 (C.A. 2, 1955), certiorari denied 350 U.S. 894">350 U.S. 894 (1955).1975 U.S. Tax Ct. LEXIS 168">*185

We emphasize that petitioner claims a theft loss in 1966 under section 165(c)(3) deductible against ordinary income, rather than a capital loss arising from the sale or exchange of securities or from securities becoming worthless during the taxable year under the provisions of section 165(c)(2), (f), and (g). ¹⁴ While the value of petitioner's stock declined in value, probably in large measure as a result of the illegal acts of the corporation, petitioner stipulated that his investment did not become worthless in 1966 and he had a continuing investment in the reorganized corporation several years later. Petitioner has in reality attempted to convert a potential capital loss from the sale of stock into an ordinary theft loss and to accelerate the date when the loss may be deducted. Since petitioner has failed to carry his burden of proof this attempt must fail and the deduction must be denied.

1975 U.S. Tax Ct. LEXIS 168">*186 Decision will be entered for the respondent.