He showed me 4 cancelled checks to "Wealth Pools International". They totalled just over $63,000. I did a search on the company, and apparently they swindled over $143 million from people in 2007 alone. He thought it was a legitimate "DVD Learning" product that he was investing in. He didn't give the checks to his friend, he wrote them directly to the company.
Is it really "fair" that he can get taxed on any earnings from this sort of "investment" yet can't claim any losses? He also has a 1099-R of over $58,000 issued to him for his early withdrawal of the reitement funds.
My guess is that the rules for casualty loss might still be gray enough to be worth chancing it, but he's probably guaranteed to be audited.