Simmons-Harris v. Zelman

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH  (/(&7521,& &,7$7,21  )(' $SS 3 WK &LU )LOH 1DPH DS 81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB '25,6 6,00216+$55,6 ; 0$5/$ )5$1./,1 67(9(1  %(+55HY68( *$7721   1RV 0$5< 0853+< 0,&+$(/   '(%26( &+(5@jlRIWKHDLGUHFLSLHQWV6HH0LWFKHOO +DQGERRN   6&WDW FLWDWLRQRPLWWHG LGDW 2j&RQQRUs FRQFXUULQJ $JRVWLQL86DW=REUHVW86DW ,Q SULRU OLWLJDWLRQ 'RULV 6LPPRQV+DUULV RQH RI WKH :LWWHUV86DW0XHOOHU86DW 3ODLQWLIIVKHUHLQEURXJKWDVWDWHFRXUWODZVXLWFKDOOHQJLQJWKH  FRQVWLWXWLRQDOLW\ RI WKH YRXFKHU SURJUDP XQGHU PXOWLSOH SURYLVLRQV RI WKH 2KLR &RQVWLWXWLRQ DQG XQGHU WKH 2KLRjVYRXFKHUSURJUDPHDVLO\PHHWVWKLVWHVW%HIRUHD (VWDEOLVKPHQW&ODXVHRIWKH8QLWHG6WDWHV&RQVWLWXWLRQ2Q YRXFKHULVmVSHQWlDWDUHOLJLRXVVFKRRO&OHYHODQGSDUHQWV 0D\WKH2KLR6XSUHPH&RXUWLVVXHGDMXGJPHQWLQ PXVWLQGHSHQGHQWO\PDNHWZRLPSRUWDQWFKRLFHV IDYRURI3ODLQWLIIVKROGLQJWKDWWKHYRXFKHUSURJUDPKDG EHHQHQDFWHGLQYLRODWLRQRIWKHRQHVXEMHFWUXOHRIWKH2KLR )LUVW WKH\ PXVW GHFLGH ZKHWKHU WKHLU FKLOG ZLOO WDNH &RQVWLWXWLRQDQGmPXVWEHVWULFNHQlIURPWKH2KLRVWDWXWH DGYDQWDJHRIWKHYRXFKHUDOWHUQDWLYHVDWDOORUVHOHFWDQRWKHU ERRNV6HH6LPPRQV+DUULVY*RII1(G RSWLRQ VXFK DV UHPDLQLQJ LQ WKH &OHYHODQG VFKRROV 2KLR    +RZHYHU D PDMRULW\ RI WKH MXVWLFHV UHMHFWHG XQGHUWDNLQJKRPHVFKRROLQJRUDWWHQGLQJRQHRI&OHYHODQGjV 3ODLQWLIIVjFODLPVWKDWWKHSURJUDPYLRODWHGWKH(VWDEOLVKPHQW ZHOO UHJDUGHG FRPPXQLW\ VFKRROV  6HFRQG LI D FKLOGjV &ODXVH,GDW7KRVHMXVWLFHVUHDVRQHGWKDW SDUHQWVFKRRVHWKHYRXFKHURSWLRQWKH\PXVWPDNHWKHIXUWKHU m>W@KH1\TXLVWKROGLQJ>KDGEHHQ@XQGHUPLQHGlE\VXEVHTXHQW mJHQXLQHO\LQGHSHQGHQWDQGSULYDWHFKRLFH>@lZKHWKHUWRXVH FDVHV DQG ZDV WKXV QR ORQJHU JRRG ODZ  ,G DW   $ WKHYRXFKHUDWDSULYDWHVFKRROQRQUHOLJLRXVRUUHOLJLRXVRU FRQFXUULQJRSLQLRQQRWHGWKDWm>Z@LWKUHJDUGWRWKHUHVWRIWKH IRU VSHFLDO WXWRULQJ LQ WKH &OHYHODQG SXEOLF VFKRROV  7KH PDMRULW\RSLQLRQ>WKHVHFWLRQQRWGHDOLQJZLWKWKHRQHVXEMHFW YRXFKHUXVH FKRLFH RI DWWHQGLQJ D SXEOLF VFKRRO LQ D UXOH@    , ILQG D QXPEHU RI WKH RWKHU DVVHUWLRQV E\ WKH QHLJKERULQJGLVWULFWLVQRWSUHVHQWO\DYDLODEOHWR&OHYHODQG PDMRULW\WREHDGYLVRU\LQQDWXUHl,GDW 'RXJODVs SDUHQWV EHFDXVH QR QHLJKERULQJ GLVWULFW KDV RSWHG LQWR WKH MRLQHG E\ 5HVQLFN DQG 6ZHHQH\ ss FRQFXUULQJ LQ WKH YRXFKHUSURJUDP MXGJPHQWRQO\ 6LQFHWKLVFDVHWKH2KLR/HJLVODWXUHKDVUH HQDFWHGWKHYRXFKHUSURJUDPLQDPDQQHUUHPHG\LQJWKHRQH ,WLVGLIILFXOWWRLPDJLQHKRZ D YRXFKHUVWDWXWHFRXOGEH VXEMHFWSUREOHPKRZHYHUWKHSURJUDPLVLQDOOUHOHYDQW FUDIWHG WKDW PRUH FOHDUO\ DQG GHFLVLYHO\ IRUHFORVHV WKH JRYHUQPHQW IURP KDYLQJ DQ\ UROH LQ WKH UHOLJLRXV  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO RUQRWsXVWLFH2j&RQQRUFRQFOXGHGWKDWWUXHSULYDWHFKRLFH DVSHFWVWKHVDPHDVWKHRULJLQDOSLORWVFKRODUVKLSSURJUDP SURJUDPVZHUHPRUHOLNHO\WRVXUYLYH(VWDEOLVKPHQW&ODXVH HQDFWHGE\WKH/HJLVODWXUHLQ FKDOOHQJHVHYHQWKRXJKJRYHUQPHQWDLGZDVGLYHUWHGWRWKH UHOLJLRXV VFKRROV EHFDXVH mµ>D@Q\ DLG    WKDW XOWLPDWHO\ 2QsXO\6LPPRQV+DUULVWKHSDUHQWRIDPLQRU IORZVWRUHOLJLRXVLQVWLWXWLRQVGRHVVRRQO\DVDUHVXOWRIWKH FKLOGHQUROOHGLQWKH&OHYHODQG&LW\6FKRRO'LVWULFWIRUWKH JHQXLQHO\LQGHSHQGHQWDQGSULYDWHFKRLFHVRIDLGUHFLSLHQWVjl  VFKRRO \HDU 0DUOD )UDQNOLQ D WHDFKHU LQ WKH ,GDW TXRWLQJ:LWWHUV86DW  2j&RQQRUs /RUDLQ&LW\6FKRRO'LVWULFWDQG6WHYHQ%HKUSDVWRURI2XU FRQFXUULQJ  6DYLRU1XHVWUR6DOYDGR&KXUFKLQ/RUDLQ2KLRILOHGVXLWLQ &DVH 1R FY DJDLQVW 'HIHQGDQW 'U 6XVDQ 7DYH 7UXHSULYDWHFKRLFHSURJUDPVE\WKHLUYHU\QDWXUHFDQQRW =HOPDQLQKHURIILFLDOFDSDFLW\DV6XSHULQWHQGHQWRI3XEOLF KDYH WKH IRUELGGHQ mSULPDU\ HIIHFWl RI WKH JRYHUQPHQW ,QVWUXFWLRQIRUWKH2KLR'HSDUWPHQWRI(GXFDWLRQVHHNLQJWR mDGYDQFLQJUHOLJLRQlEHFDXVHWKHDLGLVJLYHQGLUHFWO\WRWKH HQMRLQDSRUWLRQRIWKHSURJUDPRQWKHJURXQGWKDWLWYLRODWHG EHQHILFLDU\ DQG WKDW VWXGHQW RU SDUHQW UHWDLQV FRQWURO RYHU WKH(VWDEOLVKPHQW&ODXVHRIWKH)LUVW$PHQGPHQW2QsXO\ ZKHUHWKHDLGZLOOEHDSSOLHGm7KHIDFWWKDWDLGIORZVWRWKH 6XH*DWWRQFKDLURI&LWL]HQV$JDLQVW9RXFKHUV UHOLJLRXVVFKRRODQGLVXVHGIRUWKHDGYDQFHPHQWRIUHOLJLRQ 0DU\ 0XUSK\ D WHDFKHU LQ WKH &OHYHODQG &LW\ 6FKRRO LV WKHUHIRUH ZKROO\ GHSHQGHQW RQ WKH VWXGHQWjV SULYDWH 'LVWULFW0LFKDHO'HERVHDSDVWRULQ&X\DKRJD&RXQW\2KLR GHFLVLRQl,GDW)XUWKHUPRUHZKHQJRYHUQPHQWDLG &KHU\O 'HERVH DQG *OHQQ $OWVFKXOG 2KLR 7D[SD\HUV DQG IORZV WR D UHOLJLRXV VFKRRO DV D UHVXOW RI mLQGHSHQGHQW 'HLGUD3HDUVRQWKHSDUHQWRIDFKLOGHQUROOHGLQWKH&OHYHODQG GHFLVLRQVPDGHE\QXPHURXVLQGLYLGXDOV>Q@RUHDVRQDEOH &LW\ 6FKRRO 'LVWULFW ILOHG VXLW LQ &DVH 1R FY REVHUYHULVOLNHO\WRGUDZIURPWKHIDFWVDQLQIHUHQFHWKDW DJDLQVW'HIHQGDQWV'U6XVDQ7DYH=HOPDQLQKHURIILFLDO WKH6WDWHLWVHOILVHQGRUVLQJDUHOLJLRXVSUDFWLFHRUEHOLHIl,G FDSDFLW\ DV 6XSHULQWHQGHQW WKH 6WDWH RI 2KLR WKURXJK LWV LQWHUQDOTXRWDWLRQPDUNVDQGFLWDWLRQRPLWWHG  *HQHUDO$VVHPEO\*RYHUQRUDQGRWKHUDJHQWVDQG6DXQGUD %HUU\LQKHURIILFLDOFDSDFLW\DV3URJUDP$GPLQLVWUDWRURIWKH 7KH PDMRULW\ RSLQLRQ LQ WKLV FDVH FODLPV WKH YRXFKHU 2KLR3LORW6FKRODUVKLS3URJUDPVHHNLQJWKHVDPHLQMXQFWLYH SURJUDP mLQYROYHV WKH JUDQW RI VWDWH DLG GLUHFWO\ DQG UHOLHIDVLQ&DVH1RFY SUHGRPLQDQWO\WRWKHFRIIHUVRIWKHSULYDWHUHOLJLRXVVFKRROVl 6OLS RS DW   )XUWKHUPRUH DFFRUGLQJ WR WKH PDMRULW\ 3URSRVHG,QWHUYHQRUV6HQHO7D\ORUsRKQQLHWWD0F*UDG\ m>W@KHUHLVQRQHXWUDODLGZKHQWKDWDLGSULQFLSDOO\IORZVWR &KULVWLQH6XPD$UNHOD:LQVWRQDQG$P\+XGRFNRQWKHLU UHOLJLRXVLQVWLWXWLRQVl,GDW7KHPDMRULW\LJQRUHV RZQ EHKDOI DQG DV QDWXUDO JXDUGLDQV RI WKHLU UHVSHFWLYH WKDWWKLVYLHZKDVEHHQIODWRXWUHMHFWHGE\WKH6XSUHPH&RXUW FKLOGUHQILOHGDQDQVZHUWR6LPPRQV+DUULVjFRPSODLQWRQ LQWKHGHFLVLRQV,KDYHGLVFXVVHGZKLFKPDNHLWYHU\FOHDUWKDW sXO\3URSRVHG,QWHUYHQRUV+DQQD3HUNLQV6FKRRO WKHQXPEHURIUHOLJLRXVVFKRROVSDUWLFLSDWLQJLQWKHYRXFKHU ,Y\ &KDPEHUV &DURO /DPEHUW 2XU /DG\ RI 3HDFH 6FKRRO SURJUDPWKHWKRURXJKQHVVRIWKHUHOLJLRXVWUDLQLQJWKDWRFFXUV :HVWSDUN /XWKHUDQ 6FKRRO $VVRFLDWLRQ ,QF /XWKHUDQ WKHUHDQGWKHXVHWRZKLFKVXFKVFKRROVPLJKWSXWWKHIXQGV 0HPRULDO$VVRFLDWLRQRI&OHYHODQGDQG'HORUHVsRQHVILOHG DUHDOOWRWDOO\LUUHOHYDQWWRWKHTXHVWLRQRIWKHJRYHUQPHQWjV DQDQVZHUWR6LPPRQV+DUULVjFRPSODLQWRQ$XJXVW QHXWUDOLW\ZKHQWKHJRYHUQPHQWDLGUHDFKHVDUHOLJLRXVVFKRRO RQO\DVDUHVXOWRIWKHUHFLSLHQWjVmµJHQXLQHO\LQGHSHQGHQWDQG 2Q$XJXVWWKHGLVWULFWFRXUWKHOGDSUHOLPLQDU\ SULYDWHFKRLFH>@jl6HH0LWFKHOO6&WDW FLWDWLRQ LQMXQFWLRQ KHDULQJ LQ ERWK FDVHV DQG RQ $XJXVW   RPLWWHG =REUHVW86DW:LWWHUV86DW%\ JUDQWHG3ODLQWLIIVWKHLQMXQFWLYHUHOLHIVRXJKW,QWKHVDPH  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO RUGHUWKHGLVWULFWFRXUWFRQVROLGDWHGWKHWZRFDVHVDQGIRXQG WKHJRYHUQPHQWjVUROHLQWKHSURJUDPLVQHXWUDO1HXWUDOLW\ WKDWWKH2KLR6XSUHPH&RXUWjVGHFLVLRQLQ6LPPRQVY*RII H[LVWV LI WKH mJRYHUQPHQWDO DLG WKDW JRHV WR D UHOLJLRXV  1(G  2KLR   GLG QRW SUHFOXGH IHGHUDO LQVWLWXWLRQ GRHV VR µRQO\ DV D UHVXOW RI WKH JHQXLQHO\ FRQVLGHUDWLRQRIWKHFRQVWLWXWLRQDOFKDOOHQJHWRWKHYRXFKHU LQGHSHQGHQWDQGSULYDWHFKRLFHVRILQGLYLGXDOVjl,G TXRWLQJ SURJUDPEHFDXVHWKH2KLRFRXUWjVGHFLVLRQUHVWHGRQDVWDWH $JRVWLQL  86 DW    sXVWLFH 7KRPDV ZURWH WKDW JURXQGZKLFKLQGHSHQGHQWO\VXSSRUWHGLWVUHVROXWLRQRIWKH mVLPSO\EHFDXVHDQDLGSURJUDPRIIHUVSULYDWHVFKRROVDQG FDVH  7KHUHDIWHU RQ $XJXVW   WKH GLVWULFW FRXUW WKXVUHOLJLRXVVFKRROVDEHQHILWWKDWWKH\GLGQRWSUHYLRXVO\ JUDQWHG LQ SDUW 'HIHQGDQWVj PRWLRQ IRU D VWD\ RI WKH UHFHLYHGRHVQRWPHDQWKDWWKHSURJUDPE\UHGXFLQJWKHFRVW SUHOLPLQDU\LQMXQFWLRQ RIVHFXULQJDUHOLJLRXVHGXFDWLRQFUHDWHVDQµLQFHQWLYHj IRUSDUHQWVWRFKRRVHVXFKDQHGXFDWLRQIRUWKHLUFKLOGUHQl 2Q$XJXVWWKHVDPHGD\WKDWWKHGLVWULFWFRXUW ,GDW)LQDOO\sXVWLFH7KRPDVFRQFOXGHGWKDWWKH JUDQWHG3ODLQWLIIVjPRWLRQIRUDSUHOLPLQDU\ LQMXQFWLRQWKH SRVVLELOLW\ WKDW JRYHUQPHQW DLG PLJKW EH GLYHUWHG E\ D 6WDWH DQG WKH WZR LQWHUYHQLQJ 'HIHQGDQWV DSSHDOHG WKDW VHFWDULDQVFKRROWRZDUGVVRPHUHOLJLRXVHQGLVLUUHOHYDQWIRU GHFLVLRQWRWKLV&RXUW$IWHUWKHGLVWULFWFRXUWjV$XJXVW (VWDEOLVKPHQW &ODXVH SXUSRVHV LI WKH JRYHUQPHQW DLG  RUGHU JUDQWLQJ D OLPLWHG VWD\ RI LWV SUHOLPLQDU\ SURJUDPSURYLGHVWKHDLGLQDQHXWUDOPDQQHU6HHLGDW LQMXQFWLRQDOO'HIHQGDQWVILOHGUHYLVHGEULHIVZLWKWKLV&RXUW DSSHDOLQJWKHSUHOLPLQDU\LQMXQFWLRQZLWKUHJDUGWRVWXGHQWV ,QKHUFRQFXUULQJRSLQLRQLQ0LWFKHOOsXVWLFH2j&RQQRU ZKRZHUHQHZWRWKHYRXFKHUSURJUDPLHWKHSRUWLRQRI MRLQHG E\ sXVWLFH %UH\HU DJUHHG WKDW mQHXWUDOLW\ LV DQ WKHSUHOLPLQDU\LQMXQFWLRQQRWVWD\HGE\WKHGLVWULFWFRXUWjV LPSRUWDQW UHDVRQ IRU XSKROGLQJ JRYHUQPHQWDLG SURJUDPVl $XJXVWRUGHU:KLOHWKRVHDSSHDOVZHUHSHQGLQJ DJDLQVW(VWDEOLVKPHQW&ODXVHFKDOOHQJHVEXWVKHUHLWHUDWHG WKH 6WDWH ILOHG D PRWLRQ IRU D VWD\ RI WKH SUHOLPLQDU\ WKDW LW ZDV MXVW RQH IDFWRU WR FRQVLGHU LQ FKDOOHQJHV WR LQMXQFWLRQZLWKWKH8QLWHG6WDWHV6XSUHPH&RXUWZKLFKWKH JRYHUQPHQW VFKRRODLG SURJUDPV DQG QRW D mIDFWRU >RI@ 6XSUHPH &RXUW JUDQWHG E\ D YRWH RI  RQ 1RYHPEHU  VLQJXODU LPSRUWDQFHl  ,G DW  2j&RQQRU s  SHQGLQJ WKLV &RXUWjV ILQDO GLVSRVLWLRQ RI WKH HQWLUH FRQFXUULQJ (YHQsXVWLFH6RXWHUjVGLVVHQWLQJRSLQLRQZKLFK DSSHDO  6HH 6LPPRQV+DUULV Y =HOPDQ  6 &W  sXVWLFHV 6WHYHQV DQG *LQVEXUJ MRLQHG FRQFHGHG WKDW WKH  7KHUHDIWHUWKLV&RXUWHQWHUHGDQRUGHURQ1RYHPEHU (VWDEOLVKPHQW&ODXVHSUHVHQWVQRREVWDFOHWRJRYHUQPHQWDLG   FRQFOXGLQJ WKDW WKH 6XSUHPH &RXUWjV GHFLVLRQ LILWUHDFKHVVHFWDULDQVFKRROVDVDUHVXOWRIWKHSULYDWHFKRLFHV JUDQWLQJ WKH 6WDWHjV PRWLRQ IRU D VWD\ UHQGHUHG PRRW RIDLGUHFLSLHQWV6HHLGDW 6RXWHUsGLVVHQWLQJ  'HIHQGDQWVjSHQGLQJPRWLRQVIRUDVWD\LQWKLV&RXUW7KH FDVHSURFHHGHGLQWKHGLVWULFWFRXUWRQDQH[SHGLWHGEDVLV sXVWLFH2j&RQQRUHPSKDVL]HGWKHGLVWLQFWLRQEHWZHHQmWUXH SULYDWHFKRLFH SURJUDPVl DQG mSHUFDSLWD VFKRRODLG 2Q 2FWREHU   DOO SDUWLHV VWLSXODWHG WKDW WKH SURJUDPVl,GDW 2j&RQQRUsFRQFXUULQJ 7KH2KLR KDQGERRNVPLVVLRQVWDWHPHQWVDQGEURFKXUHVRIWKHVFKRROV YRXFKHUSURJUDPOLNHWKHSURJUDPVLQ=REUHVWDQG:LWWHUVLV SDUWLFLSDWLQJ LQ WKH &OHYHODQG VFKRODUVKLS SURJUDP DUH DWUXHSULYDWHFKRLFHSURJUDPEHFDXVHWKHDLGLVJLYHQGLUHFWO\ mDXWKHQWLFVSHDNIRUWKHPVHOYHVKDYHEHHQPDGHDYDLODEOHWR WRHOLJLEOHLQGLYLGXDOVZKRLQWXUQGHFLGHZKHUHWRVSHQGLW WKHSDUHQWVRIWKHVFKRODUVKLSVWXGHQWVDQGDUHQRWIDOVHRU 7KH SURJUDPV FRQVLGHUHG LQ 0LWFKHOO DQG $JRVWLQL ZHUH PLVOHDGLQJ  6RPH RI WKHVH GRFXPHQWV KRZHYHU PD\ QRW H[DPSOHVRISHUFDSLWDVFKRRODLGSURJUDPVEHFDXVHDLGZDV DFFXUDWHO\UHIOHFWDGPLVVLRQVWDQGDUGVWKDWKDGWREHUHYLVHGl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jVPRWLRQWRKDYHWKHIROORZLQJTXHVWLRQFHUWLILHGWRWKH RIFRQWLQXLQJLQWKHFLW\jVIDLOHGSXEOLFVFKRROV 2KLR6XSUHPH&RXUWm'RHV2KLRODZJLYHSUHFOXVLYHHIIHFW WR WKH UHVROXWLRQ RI WKH (VWDEOLVKPHQW &ODXVH FODLP LQ %XWPRUHLPSRUWDQWWKDQDOORIWKLVVSHFXODWLRQLVWKHUHDOLW\ 6LPPRQV+DUULVY*RII1(G 2KLR "l WKDWWKHPDMRULW\jVmQHXWUDORQO\LIDIIRUGDEOHWRDOOlWHVWLV XWWHUO\PHULWOHVVDVDPDWWHURIODZEHFDXVHWKHQRZVHWWOHG 7KHGLVWULFWFRXUWJUDQWHG3ODLQWLIIVjPRWLRQIRUVXPPDU\ (VWDEOLVKPHQW &ODXVH MXULVSUXGHQFH LV WKDW ZKHWKHU DLG LV MXGJPHQW RQ 'HFHPEHU   ILQGLQJ WKDW WKH YRXFKHU DOORFDWHGRQWKHEDVLVRIQHXWUDOVHFXODUFULWHULDLVWKHNH\ SURJUDP YLRODWHG WKH (VWDEOLVKPHQW &ODXVH HQMRLQHG GHWHUPLQDQWRIZKHWKHUKDYLQJPDGHWKHDLGDYDLODEOHWKH 'HIHQGDQWV IURP DGPLQLVWHULQJ WKH SURJUDP DQG GHQLHG VWDWHKDVHQJDJHGLQJRYHUQPHQWDOLQGRFWULQDWLRQLQUHOLJLRQ 'HIHQGDQWVjPRWLRQIRUVXPPDU\MXGJPHQW6HH6LPPRQV 6HH$JRVWLQL86DW +DUULVY=HOPDQ)6XSSG 1'2KLR  7KHFRXUWVWD\HGLWVVXPPDU\MXGJPHQWRUGHUZLWK3ODLQWLIIVj ,I WKH VLPSOLFLW\ DQG FODULW\ RI WKH 6XSUHPH &RXUWjV FRQVHQW SHQGLQJ UHYLHZ E\ WKLV &RXUW  'HIHQGDQWV DQG ODQJXDJHLQ$JRVWLQLLVQRWVXIILFLHQWWRGHPRQVWUDWHWKDWWKH ,QWHUYHQRUVDSSHDOHGWRWKLV&RXUWRQsDQXDU\ 2KLR VWDWXWH GRHV QRW LQ DQ\ UHVSHFW RSHUDWH WR DGYDQFH UHOLJLRQFRQILUPDWRU\ODQJXDJHRIFU\VWDOFODULW\DSSHDUVLQ ,, WKH6XSUHPH&RXUWjVUHFHQWGHFLVLRQLQ0LWFKHOO,QDSDVVDJH LQKLVRSLQLRQZKLFKHQMR\VWKHVXSSRUWRIDPDMRULW\RIWKH :HUHFRJQL]HWKHVLJQLILFDQFHWKDWWKLVLVVXHKROGVIRUPDQ\ sXVWLFHV DQG DUJXDEO\ HYHQ WKH VXSSRUW RI WKH GLVVHQWHUV PHPEHUVRIRXUVRFLHW\7KHLVVXHRIVFKRROYRXFKHUVKDV s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jV mLPSHUPLVVLEOH RPQLSRWHQW MXGJPHQW DV WR WKH HIILFDF\ RI RQH VFKHPH RU LQFHQWLYHl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mDIIRUGlWRGRVR7KHLPSRUWRI WKHGHWHUPLQDWLRQVRIVWDWHVDQGVFKRROERDUGVFDQQRWLQIULQJH WKLVDUJXPHQWDVEHVW,FDQXQGHUVWDQGLWLVWKDWWKHSDUHQWV XSRQWKHQHFHVVDU\VHSDUDWLRQEHWZHHQFKXUFKDQGVWDWH:H RI WKH &OHYHODQG VFKRRO FKLOGUHQ KDYH DQ mLQFHQWLYHl WR WKHUHIRUHFRQVLGHUWKHSURJUDPSUHVHQWHGEHIRUHXVXQGHUWKH FKRRVH&OHYHODQGjVUHOLJLRXVVFKRROVEHFDXVHWKHUHDUHQRW FRQWUROOLQJSUHFHGHQWVRIWKH8QLWHG6WDWHV6XSUHPH&RXUW HQRXJKQRQUHOLJLRXVVFKRROVSDUWLFLSDWLQJLQWKHSURJUDP2I DQGWKLV&RXUWWRGHWHUPLQHZKHWKHUVXFKLQIULQJHPHQWKDV FRXUVHWKHUHLVQRHYLGHQFHRIWKDWHLWKHU$QGWKHUHLVQR RFFXUUHG HYLGHQFHWKDWDQ\RIWKHVHYHUDOQRQUHOLJLRXVSULYDWHVFKRROV SDUWLFLSDWLQJ LQ WKH SURJUDP KDYH HYHU UHMHFWHG D VLQJOH 7KLV&RXUWUHYLHZVWKHGLVWULFWFRXUWjVJUDQWRIVXPPDU\ YRXFKHU DSSOLFDQW IRU DQ\ UHDVRQ LQFOXGLQJ D VXSSRVHG MXGJPHQWGHQRYR6HH&ROHVY&OHYHODQG%GRI(GXF LQDELOLW\ WR DIIRUG WKH GLIIHUHQWLDO EHWZHHQ WKH YDOXH RI D )G WK&LU 6XPPDU\MXGJPHQWLVSURSHU YRXFKHUDQGWKHDFWXDOFRVWRIDQRQUHOLJLRXVSULYDWH ZKHQWKHSOHDGLQJVGHSRVLWLRQVDQVZHUVWRLQWHUURJDWRULHV VFKRROHGXFDWLRQ DQGDGPLVVLRQVRQILOHWRJHWKHUZLWKWKHDIILGDYLWVLIDQ\ VKRZWKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQG :KLOH,KHVLWDWHWRGLJQLI\WKHPDMRULW\jVVSHFXODWLRQZLWK WKDWWKHPRYLQJSDUW\LVHQWLWOHGWRMXGJPHQWDVDPDWWHURI VSHFXODWLRQRIP\RZQZKDWLVDWVWDNHLQWKLVFDVHLVWRR ODZ )HG 5 &LY 3  F   7KHUH LV QR JHQXLQH LVVXH RI LPSRUWDQWWROHWDQ\RIP\FROOHDJXHVjPHULWOHVVDUJXPHQWVJR PDWHULDOIDFWZKHQWKHmUHFRUGWDNHQDVDZKROHFRXOGQRWOHDG XQDQVZHUHG D UDWLRQDO WULHU RI IDFW WR ILQG IRU WKH QRQPRYLQJ SDUW\l 0DWVXVKLWD(OHF,QGXV&RY=HQLWK5DGLR&RUS86 ,WLVLQGLVSXWDEOHWKDWQRQRQUHOLJLRXVSULYDWHVFKRRORUDQ\    RWKHUVFKRROIRUWKDWPDWWHUKDVHYHUEHHQGLVFRXUDJHGIURP SDUWLFLSDWLQJLQWKH&OHYHODQGYRXFKHUSURJUDPDQGWKHUHLV 7KH (VWDEOLVKPHQW &ODXVH SURYLGHV WKDW m&RQJUHVV VKDOO QRHYLGHQFHWKDWDQ\SULYDWHVFKRROUHOLJLRXVRUQRQUHOLJLRXV PDNHQRODZUHVSHFWLQJDQHVWDEOLVKPHQWRIUHOLJLRQl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jVQRQUHOLJLRXVSULYDWHVFKRROVLVSURKLELWLYH WKH (VWDEOLVKPHQW &ODXVH  ,G  7KH 6XSUHPH &RXUW KDV $JDLQLWLVRIQRVPDOOLPSRUWDQFHWKDWWKHUHLVDEVROXWHO\QR DSSOLHGWKH/HPRQWHVWUHJXODUO\LQWKHFRQWH[WRIVFKRROVDQG HYLGHQFHLQWKHUHFRUGWKDWDQ\&OHYHODQGSXEOLFVFKRROSDUHQW HGXFDWLRQ6HHHJ.LU\DVs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jVGHFLVLRQDOSUHPLVH SDUWLFLSDWLQJ LQ IHGHUDOO\ IXQGHG SURJUDP  (GZDUGV Y LVWKDWWKLVFDVHLVFRQWUROOHGE\1\TXLVWDQGLPSOLFLWO\WKDW $JXLOODUG 86   RYHUWXUQLQJVWDWXWHZKLFK DOOHOVHLVLUUHOHYDQW  UHTXLUHG WKH WHDFKLQJ RI &UHDWLRQLVP LQ SXEOLF VFKRROV  $JXLODUY)HOWRQ86   SD\LQJSXEOLFVFKRRO 0\ FROOHDJXHVj QH[W QRQ1\TXLVW DUJXPHQW LV WKDW WKH HPSOR\HHV WR WHDFK LQ SDURFKLDO VFKRRO YLRODWHV WKH mVFKRROYRXFKHUSURJUDPLVQRWQHXWUDOLQWKDWLWGLVFRXUDJHV (VWDEOLVKPHQW&ODXVH RYHUUXOHGE\$JRVWLQLY)HOWRQ WKH SDUWLFLSDWLRQ E\ VFKRROV QRW IXQGHG E\ UHOLJLRXV 86  *UDQG5DSLGV6FK'LVWY%DOO86 LQVWLWXWLRQVl6OLSRSDW7KLVVWDWHPHQWLQWKHPDMRULW\    ILQGLQJDVKDUHGWLPHSURJUDPWREHDYLRODWLRQ RSLQLRQZKLFKOLNHVRPDQ\RWKHUVLQWKHRSLQLRQLVWRWDOO\ RI (VWDEOLVKPHQW &ODXVH RYHUUXOHG E\ $JRVWLQL Y )HOWRQ ZLWKRXW DQ\ EDVLV LQ WKH HYLGHQFH LV WKHQ IRUWLILHG E\ P\  86    0XHOOHU Y $OOHQ  86  EURWKHUVjLSVHGL[LWWKDWmUHOLJLRXVVFKRROVRIWHQKDYHORZHU  SHUPLWWLQJWD[SD\HUVWRGHGXFWIURPVWDWHLQFRPHWD[ RYHUKHDGFRVWVVXSSOHPHQWDOLQFRPHIURPSULYDWHGRQDWLRQV H[SHQVHVLQFXUUHGLQVHQGLQJFKLOGUHQWRSDURFKLDOVFKRROV DQGFRQVHTXHQWO\ORZHUWXLWLRQQHHGVl,GDW7KHRQO\ GRHVQRWYLRODWH(VWDEOLVKPHQW&ODXVH 5RHPHUY%GRI3XE DXWKRULW\ P\ FROOHDJXHV RIIHU IRU WKLV VSHFXODWLRQ LV D :RUNV  86   ILQGLQJ QR YLRODWLRQ RI )RUGKDP8QLYHUVLW\/DZ5HYLHZDUWLFOH,FDQRQO\VXUPLVH (VWDEOLVKPHQW&ODXVHLQ SURYLGLQJJRYHUQPHQWDLGWRERWK WKDW WKH SRLQW P\ FROOHDJXHV ZLVK WR PDNH KHUH LV WKDW SXEOLFDQGSULYDWHXQLYHUVLWLHV  QRQUHOLJLRXVVFKRROVZLOOQRWSDUWLFLSDWHLQ2KLRjVYRXFKHU SURJUDP EHFDXVH WKH YRXFKHU ZLOO QRW FRYHU WKH FRVW RI 7KH6XSUHPH&RXUWDQGLQGLYLGXDOMXVWLFHVKDYHLQWURGXFHG HGXFDWLQJ D VWXGHQW LQ D QRQUHOLJLRXV VFKRRO  7KLV P\ YDULDWLRQVRQ WKH/HPRQWHVWLQRWKHUFRQWH[WV6HH/HHY EURWKHUVUHDVRQFUHDWHVDQmLQFHQWLYHlIRUWKHSDUHQWVWRVHQG :LVHPDQ86   XVLQJFRHUFLRQWHVW WKHLU FKLOGUHQ WR WKH UHOLJLRXV VFKRROV ZKHUH WKH\ FDQ EH GHYHORSHGE\sXVWLFH.HQQHG\WRKROGWKDWVFKRROFRXOGQRW HGXFDWHGPRUHHIILFLHQWO\DQGIRUIHZHUGROODUV SURYLGHIRUQRQVHFWDULDQSUD\HUWREHJLYHQDWJUDGXDWLRQE\ VFKRROVHOHFWHGFOHUJ\PDQ &RXQW\RI$OOHJKDQ\Y$&/8 7KHUHLVDEVROXWHO\QRHYLGHQFHLQWKHUHFRUGWRVXSSRUWWKH 86   XVLQJWZRSDUWWHVW PDMRULW\jVDUJXPHQWWKDWWKH2KLRVWDWXWHFUHDWHVDILQDQFLDO GHYHORSHGE\sXVWLFH2j&RQQRUn(VWDEOLVKPHQW&ODXVHLV mGLVLQFHQWLYHlIRU&OHYHODQGjVQHLJKERULQJVXEXUEDQSXEOLF YLRODWHGZKHQ JRYHUQPHQWLVH[FHVVLYHO\HQWDQJOHGZLWK VFKRRO GLVWULFWV WR SDUWLFLSDWH LQ WKH SURJUDP  7KHUH LV QR UHOLJLRQRU JRYHUQPHQWHQGRUVHVRUGLVDSSURYHVRIUHOLJLRQ HYLGHQFHWRVXSSRUWZKDWWKHPDMRULW\VHHPVWRLPSO\nWKDW nDVSDUWRIWKH/HPRQWHVWUHJDUGLQJJRYHUQPHQWGLVSOD\VRI ZLVKLQJWRXVHDYRXFKHUFKRRVHQRWWRGRVREHFDXVHRWKHU REMHFWV ZLWK UHOLJLRXV FRQQRWDWLRQV LQWURGXFLQJ sXVWLFH &OHYHODQG DUHD SXEOLF VFKRROV DUH QRW SDUWLFLSDWLQJ  $QG .HQQHG\jVWZRSDUWFRHUFLRQWHVW JRYHUQPHQWPD\QRW WKHUH LV QR HYLGHQFH WKDW LI D SXEOLF VFKRRO FKRRVHV WR FRHUFHSDUWLFLSDWLRQLQUHOLJLRQDQG JRYHUQPHQWPD\QRW SDUWLFLSDWH LQ WKH YRXFKHU SURJUDP LW ZLOO ORVH LWV VWDWH GLUHFWO\ EHQHILW UHOLJLRQ  LQ KLV FRQFXUUHQFH  :DOODFH Y IXQGLQJ sDIIUHH  86    Q   XVLQJ sXVWLFH 2j&RQQRUjVWZRSDUWWHVWDVSDUWRIWKH/HPRQDQDO\VLVDQG 7KHVHDUJXPHQWVDUHEXLOWRQDmIDFWXDOlSUHGLFDWHWKDWKDV ILQGLQJLWDSSURSULDWHWRGHWHUPLQHZKHWKHUWKHJRYHUQPHQWjV DEVROXWHO\QREDVLVLQWKHUHFRUG7KHUHLVQRWDVFLQWLOODRI SXUSRVH LV WR HQGRUVH RU GLVDSSURYH RI UHOLJLRQ  /\QFK Y HYLGHQFHLQWKLVFDVHWKDWDQ\VFKRROSXEOLFRUSULYDWHKDV  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO 'RQQHOO\86   LQWURGXFLQJsXVWLFH WKHSURJUDPDUHWRRUHOLJLRXV,QVXSSRUWRIWKLVSURSRVLWLRQ 2j&RQQRUjVWZRSDUWWHVW  WKH PDMRULW\ GHYRWHV FRQVLGHUDEOH DWWHQWLRQ WR WKH PLVVLRQ VWDWHPHQWV RI VHYHUDO UHOLJLRXV VFKRROV ZKLFK LQGLFDWH WKH ,Q $JRVWLQL Y )HOWRQ  86    WKH &RXUW SHUYDVLYHO\ UHOLJLRXV FKDUDFWHU RI WKHLU SURJUDPV  0\ UHDIILUPHGWKHLPSRUWDQFHRIWKH/HPRQWHVWLQ(VWDEOLVKPHQW EURWKHUV FRQFOXGH WKHUHIURP WKDW WKHVH VFKRROV mEHOLHYH LQ &ODXVH FDVHV LQYROYLQJ VFKRRO DLG EXW QRWHG WKDW WKH LQWHUZHDYLQJ UHOLJLRXV EHOLHIV ZLWK VHFXODU VXEMHFWVl DQG HQWDQJOHPHQWSURQJFRXOGEHFRQVLGHUHGDVDQDVSHFWRIWKH mLQFRUSRUDWH>LQWKHLUFXUULFXOXP@UHOLJLRXVFRQFHSWVPRWLYHV HIIHFWVLQTXLU\$JRVWLQLIRXQGmWKUHHSULPDU\FULWHULDlXVHG DQGWKHPHVl6OLSRSDW,PDJLQHUHOLJLRXVVFKRROV E\WKH&RXUWLQHYDOXDWLQJZKHWKHUJRYHUQPHQWDLGKDVWKH WKDWDUHWUXO\UHOLJLRXV HIIHFWRIDGYDQFLQJUHOLJLRQZKHWKHUWKHVWDWXWHRUSURJUDPV LQTXHVWLRQmUHVXOWLQJRYHUQPHQWDOLQGRFWULQDWLRQGHILQHLWV 7KLVSODLQO\KRVWLOHDWWDFNRQWKHUHOLJLRXVVFKRROVLQWKH UHFLSLHQWV E\ UHIHUHQFH WR UHOLJLRQ RU FUHDWH DQ H[FHVVLYH 2KLRYRXFKHUSURJUDPLVRQH,ZRXOGRIWKRXJKWXQZRUWK\RI HQWDQJOHPHQWl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jVIOH[LELOLW\DQG KRQHVWO\JHQXLQHO\DQGHVVHQWLDOO\UHOLJLRXVWKHVWDWXWHLV LWV HYROXWLRQ IURP WKH UHODWLYHO\ ULJLG WKUHHSDUW WHVW WR DQ WKHUHIRUH LQYDOLG DV mDGYDQFLQJ UHOLJLRQl  7KLV PRVW DSSURDFK LQ ZKLFK WKH YDU\LQJ FRPSRQHQWV RI D SDUWLFXODU XQDWWUDFWLYHDUJXPHQWZDVXWWHUO\UHMHFWHGLQ:LWWHUV86 SURJUDPRUVWDWXWHDUHDQDO\]HGZLWKUHJDUGWRWKHLULPSDFWRQ DWDQG0XHOOHU86DWDQGDOVRZDV LQ WKH FRQWH[W RI VFKRROV WKH UHOHYDQW VWXGHQWV RU UHMHFWHG LQ sXVWLFH 3RZHOOjV FRQFXUULQJ RSLQLRQ LQ :LWWHUV FRPPXQLWLHV  :H WKHUHIRUH ORRN WR WKHVH FRPSRQHQWV DV 6HH :LWWHUV  86 DW  3RZHOO s FRQFXUULQJ  DVSHFWVRIWKHSURSHUDQDO\VLVXQGHU/HPRQEXWDFNQRZOHGJH 0RUHRYHUsXVWLFH7KRPDVZULWLQJIRUDFOHDUPDMRULW\RQWKLV WKDWSUHFHGHQWGRHVQRWOLPLWLWVHOIWRRQO\WKHVHFRPSRQHQWV SRLQWLQ0LWFKHOOVWDWHG VKRXOGRWKHUFRPSRQHQWVSUHYLRXVO\XWLOL]HGE\WKH&RXUWEH UHOHYDQW VXFK DV FRHUFLRQ RI FLWL]HQV HQGRUVHPHQW RI ,QVKRUWQRWKLQJLQWKH(VWDEOLVKPHQW&ODXVHUHTXLUHV UHOLJLRQDQGGLUHFWEHQHILWWRUHOLJLRQ6HH0LWFKHOOY+HOPV WKH H[FOXVLRQ RI SHUYDVLYHO\ VHFWDULDQ VFKRROV IURP  6 &W     2j&RQQRU s FRQFXUULQJ RWKHUZLVHSHUPLVVLEOHDLGSURJUDPVDQGRWKHUGRFWULQHV ILQGLQJ WKDW $JRVWLQL UHSUHVHQWV D JHQHUDO IUDPHZRUN IRU RI WKLV &RXUW EDU LW  7KLV GRFWULQH ERUQ RI ELJRWU\ DSSURDFKLQJ TXHVWLRQV FRQFHUQLQJ QHXWUDO VFKRRODLG VKRXOGEHEXULHGQRZ SURJUDPVEXWUHFRJQL]LQJWKDWWKHVHW\SHRIFDVHVGHSHQGRQ WKHSDUWLFXODUIDFWVRIHDFKFDVH  0LWFKHOO6&WDW  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO LQFHQWLYH WR XQGHUWDNH UHOLJLRXV LQGRFWULQDWLRQl  $JRVWLQL 2I WKH FDVHV ZKLFK IROORZ /HPRQ ZH ILQG WKH PRVW 86DW7KH&RXUWQRWHGWKDWDILQDQFLDOLQFHQWLYHWR SHUVXDVLYHLQWKDWLWLVRQSRLQWZLWKWKHPDWWHUDWKDQGWREH FKRRVHDUHOLJLRXVVFKRRORYHUDQRQUHOLJLRXVVFKRROLVQRW &RPPLWWHH IRU 3XEOLF (GXFDWLRQ Y 1\TXLVW  86  SUHVHQWmZKHUHWKHDLGLVDOORFDWHGRQWKHEDVLVRIQHXWUDO    ,Q 1\TXLVW D 1HZ WKH@SURILOHlLQVWLWXWLRQVZKLFKTXDOLILHGIRUDVVLVWDQFH XQGHUVWDQGLWWKH\UHVWWKLVFRQFOXVLRQnXQVXSSRUWHGWKRXJK XQGHUWKHVWDWXWHZHUHRQHVWKDWLQFOXGHGUHOLJLRXVLQVWUXFWLRQ LW LV E\ DQ\ HYLGHQFH LQ WKH UHFRUGnRQ WZR IXUWKHU DQGUHTXLUHPHQWVDVSDUWRIWKHLUDFDGHPLFFXUULFXOXP6HH FRQFOXVLRQV7KHILUVWLVWKDWEHFDXVHWKHYDVWPDMRULW\n LGDW SHUFHQWnRI WKH SULYDWH VFKRROV SDUWLFLSDWLQJ LQ WKH 2KLR SURJUDPDUHUHOLJLRXVWKHSHRSOHRI&OHYHODQGDUHGHQLHGD )ROORZLQJ/HPRQWKH1\TXLVW&RXUWIRXQGWKDWWKH1HZ mJHQXLQHl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l86DW ZKHQWKH2KLRVWDWXWHZDVHQDFWHGHLWKHUWKHOHJLVODWRUVRUWKH 7KH&RXUWRSLQHGWKDWWKHIDFWWKDWSURJUDPJUDQWVZHUH JRYHUQRUKDGDQ\LGHDWKDWWKHSXEOLFVFKRROGLVWULFWVDGMDFHQW GHOLYHUHGWRSDUHQWVUDWKHUWKDQVFKRROVZDVmRQO\RQHDPRQJ WR&OHYHODQGZRXOGQRWSDUWLFLSDWH:KDWZHPHDVXUHWRGD\ PDQ\IDFWRUVWREHFRQVLGHUHGl,GDW7KH&RXUWUHVWHG LV QRW ZKHWKHU WKH FKLOGUHQ LQ &OHYHODQG KDYH WKH IXOOHVW LWVDQDO\VLVRQWKHSUHPLVHWKDWWKHUHKDGEHHQmµQRHQGHDYRU FRQFHLYDEOHUDQJHRIRSWLRQVDYDLODEOHWRWKHPWKDWDSDQHORI WR JXDUDQWHH WKH VHSDUDWLRQ EHWZHHQ VHFXODU DQG UHOLJLRXV IHGHUDOMXGJHVPLJKWWKLQNWREHLGHDOEXWUDWKHUZKHWKHUWKH HGXFDWLRQDO IXQFWLRQV DQG WR HQVXUH WKH 6WDWH ILQDQFLDO DLG VWDWXWH DV HQDFWHG KDV WKH SULPDU\ HIIHFW RI DGYDQFLQJ VXSSRUWVRQO\WKHIRUPHUjl,GDW TXRWLQJ/HPRQ UHOLJLRQE\LQYROYLQJWKHVWDWHLQJRYHUQPHQWDOLQGRFWULQDWLRQ 86DW m%\UHLPEXUVLQJSDUHQWVIRUDSRUWLRQRIWKHLU XQGHU$JRVWLQLjVILUVWFULWHULRQ6HH0LWFKHOO6&WDW WXLWLRQELOOWKH6WDWHVHHNVWRUHOLHYHWKHLUILQDQFLDOEXUGHQV 7RP\NQRZOHGJHQRIHGHUDOFRXUWKDVHYHUKHOG VXIILFLHQWO\WRDVVXUHWKDWWKH\FRQWLQXHWRKDYHWKHRSWLRQWR WKDW D VFKRROFKRLFH YRXFKHU SURJUDP LV XQFRQVWLWXWLRQDO VHQG WKHLU FKLOGUHQ WR UHOLJLRQRULHQWHG VFKRROVl  ,G  7KH EHFDXVHWKHUDQJHRIFKRLFHVGRHVQRWLQFOXGHDSXEOLFVFKRRO &RXUWQRWHGWKDWmZKLOHWKHRWKHUSXUSRVHVIRUWKDWDLGoWR RSWLRQFHUWDLQO\WKHPDMRULW\GRHVQRWFLWHVXFKDFDVH SHUSHWXDWH D SOXUDOLVWLF HGXFDWLRQDO HQYLURQPHQW DQG WR SURWHFWWKHILVFDOLQWHJULW\RIRYHUEXUGHQHGSXEOLFVFKRROVo % DUH FHUWDLQO\ XQH[FHSWLRQDEOH WKH HIIHFW RI WKH DLG LV XQPLVWDNDEO\ WR SURYLGH GHVLUHG ILQDQFLDO VXSSRUW IRU 1HLWKHU GRHV WKH 2KLR SURJUDP mGHILQH LWV UHFLSLHQWV E\ QRQSXEOLFVHFWDULDQLQVWLWXWLRQVl,G UHIHUHQFHWRUHOLJLRQlWKHVHFRQG$JRVWLQLIDFWRUIRUWHVWLQJ IRUmLPSHUPLVVLEOHHIIHFWl$JRVWLQL86DW7KH 7KH1\TXLVW&RXUWDOVRUHFRJQL]HGDQGGLVFDUGHGWKHVWDWHjV SURJUDP GHILQHV WKH ILUVWSULRULW\ YRXFKHU UHFLSLHQWV E\ DUJXPHQWV WKDW LW ZDV RI FRQWUROOLQJ VLJQLILFDQFH WKDW 1HZ UHIHUHQFHWR  WKHLUDWWHQGDQFHLQRQHRI&OHYHODQGjVSXEOLF ,@IWKHJUDQWVDUHRIIHUHGDVDQLQFHQWLYHWRSDUHQWVWRVHQG D UHOLJLRXV WHVW IRU DGPLVVLRQ WR D SDUWLFLSDWLQJ VFKRRO WKHLUFKLOGUHQWRVHFWDULDQVFKRROVE\PDNLQJXQUHVWULFWHGFDVK LQFOXGLQJUHOLJLRXVVFKRROV6HHLGDW† $  $ SD\PHQWVWRWKHPWKH(VWDEOLVKPHQW&ODXVHLVYLRODWHG SDUHQW KDV WKH FKRLFH RI XVLQJ WKH YRXFKHU LQ D SULYDWH :KHWKHUWKHJUDQWLVODEHOHGDUHLPEXUVHPHQWDUHZDUGRUD UHOLJLRXVVFKRRODSULYDWHQRQUHOLJLRXVVFKRROIRUWXWRULQJLQ VXEVLG\LWVVXEVWDQWLYHLPSDFWLVVWLOOWKHVDPHl,GDW WKH SXEOLF VFKRRO RU LQ D SXEOLF VFKRRO LQ D QHLJKERULQJ 7KH&RXUWDOVRUHMHFWHGWKHVWDWHjVDUJXPHQWWKDWWKHSODQSDLG GLVWULFWLIDQ\ZLVKWRSDUWLFLSDWH7KHVWDWXWHH[SUHVVHVQR IRURQO\DSRUWLRQRIWKHWXLWLRQDWDVHFWDULDQVFKRROVD\LQJ SUHIHUHQFHH[SOLFLWO\RULPSOLFLWO\HLWKHUDVWRWKHUHOLJLRQRI mLIDFFHSWHGWKLVDUJXPHQWZRXOGSURYLGHWKHIRXQGDWLRQIRU WKHYRXFKHUUHFLSLHQWVRULIWKHUHFLSLHQWFKRRVHVDSULYDWH PDVVLYH GLUHFW VXEVLGL]DWLRQ RI VHFWDULDQ HOHPHQWDU\ DQG VFKRRO ZKHWKHU WKH YRXFKHU LV DSSOLHG WR D UHOLJLRXV RU VHFRQGDU\VFKRROVl,GDW QRQUHOLJLRXVVFKRRO 7KHFDVHVRI(YHUVRQY%RDUGRI(GXFDWLRQ86 7KH $JRVWLQL &RXUW UHFRJQL]HG RI FRXUVH WKDW WKH  DQG%RDUGRI(GXFDWLRQY$OOHQ86  HOLJLELOLW\UHTXLUHPHQWVRIDJRYHUQPHQWDLGSURJUDPFRXOG ZHUHFDUHIXOO\GLVWLQJXLVKHGE\WKH&RXUW,Q(YHUVRQWKH mKDYHWKHHIIHFWRIDGYDQFLQJUHOLJLRQE\FUHDWLQJDILQDQFLDO  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO ,GDW LQWHUQDOTXRWDWLRQPDUNVDQGFLWDWLRQRPLWWHG ,I &RXUWXSKHOGWD[GHGXFWLRQVIRUSDUHQWVZKRH[SHQGHGEXV WKHUHFLSLHQWVKDYHVXFKDQLQGHSHQGHQWDQGSULYDWHFKRLFH IDUHIRUFKLOGUHQZKRDWWHQGHGUHOLJLRXVVFKRROVUHDVRQLQJ WKHQWKHJRYHUQPHQWjVGHFLVLRQWRSURYLGHWKHPRQH\WRIXQG WKDWWKHEXVIDUHSURJUDPZDVDQDORJRXVWRWKHSURYLVLRQRI WKDW FKRLFH GRHV QRW KDYH WKH HIIHFW RI DGYDQFLQJ UHOLJLRQ VHUYLFHVVXFKDVSROLFHDQGILUHSURWHFWLRQVHZDJHGLVSRVDO 7KH JRYHUQPHQW LV RI QHFHVVLW\ QHXWUDO LQ WKH PDWWHU KLJKZD\VDQGVLGHZDONVIRUSDURFKLDOVFKRROV6HH86 ,PSOLFLWLQWKDWFRQVWLWXWLRQDOUXOHRIODZDVLWDSSOLHVLQWKLV DW7KH&RXUWIRXQGWKDWWKHVHVHUYLFHVFRPPRQWRDOO FDVHLVWKDWWKHUHPXVWEHDJHQXLQHFKRLFHIURPDPRQJD FLWL]HQVDUHmVRVHSDUDWHDQGVRLQGLVSXWDEO\PDUNHGRIIIURP UDQJHRIDOWHUQDWLYHVWKDWLQGLFDWHFRPSOHWHQHXWUDOLW\RQWKH WKH UHOLJLRXV IXQFWLRQ WKDW WKH\ PD\ IDLUO\ EH YLHZHG DV SDUWRIWKHJRYHUQPHQWDVWRZKHUHWKHUHFLSLHQWSDUHQWVPD\ UHIOHFWLRQVRIDQHXWUDOSRVWXUHWRZDUGUHOLJLRXVLQVWLWXWLRQVl FKRRVH WR VSHQG WKH JRYHUQPHQWDLG IXQGV  7KH YRXFKHU ,GDW,Q$OOHQWKH&RXUWXSKHOGDVWDWXWHZKLFKDOORZHG SURJUDPGRHVQRWRIIHQGWKH(VWDEOLVKPHQW&ODXVHEHFDXVH VHFXODU WH[WERRNV WR EH SURYLGHG WR FKLOGUHQ DWWHQGLQJ WKHVWDWXWHDOORZVSDUHQWVWRPDNHDJHQXLQHFKRLFHIRUWKHLU UHOLJLRXVVFKRROVILQGLQJWKDWmWKH6WDWHFODLPVQRULJKWWR FKLOGUHQZKRDUHFXUUHQWO\LQ&OHYHODQGSXEOLFVFKRROV GLVWULEXWH UHOLJLRXV OLWHUDWXUHl DQG QRWLQJ WKDW mZH FDQQRW DVVXPHWKDWVFKRRODXWKRULWLHVDUHXQDEOHWRGLVWLQJXLVK :KDW DUH WKH FKRLFHV 2KLR KDV JLYHQ WKHVH &OHYHODQG EHWZHHQVHFXODUDQGUHOLJLRXVERRNVl86DW SDUHQWV" 7KH 1\TXLVW &RXUW GLVWLQJXLVKHG WKHVH WZR FDVHV QRW RQO\ EDVHGRQWKHLUQHXWUDOSRVWXUHWRZDUGUHOLJLRQEXWRQWKHIDFW  7R SHUPLW WKHLU FKLOGUHQ WR UHPDLQ LQ WKH WKDWLQERWKRIWKRVHFDVHVmWKHFODVVRIEHQHILFLDULHVLQFOXGHG &OHYHODQGSXEOLFVFKRROVDVEHIRUH DOOVFKRROFKLOGUHQWKRVHLQSXEOLFDVZHOODVWKRVHLQSULYDWH VFKRROVl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mJUDQWV WR WXWRULDOKHOSLQWKH&OHYHODQGVFKRROVRU SDUHQWVRISULYDWHVFKRROFKLOGUHQDUHJLYHQLQDGGLWLRQWRWKH  7RDFFHSWDYRXFKHUIRUWKHPWRDWWHQGDSXEOLF ULJKWWKDWWKH\KDYHWRVHQGWKHLUFKLOGUHQWRSXEOLFVFKRROV VFKRRO LQ D GLVWULFW DGMDFHQW WR &OHYHODQG WRWDOO\ DW VWDWH H[SHQVHl   86 DW  Q LQWHUQDO DOWKRXJK IRU WKH SUHVHQW WKHVH GLVWULFWV KDYH TXRWDWLRQPDUNVRPLWWHG 7KH&RXUWDGGLWLRQDOO\GHWHUPLQHG GHFOLQHGWRSDUWLFLSDWHLQWKHSURJUDP WKDWWKLVDUJXPHQWRIQHXWUDOLW\LIXSKHOGZRXOGEHRYHUO\ EURDGSURYLGLQJmDEDVLVIRUDSSURYLQJWKURXJKWXLWLRQJUDQWV 6HH2KLR5HY&RGH†† WKH FRPSOHWH VXEVLGL]DWLRQ RI DOO UHOLJLRXV VFKRROV RQ WKH JURXQGWKDWVXFKDFWLRQLVQHFHVVDU\LIWKH6WDWHLVIXOO\ WR ,W LV GLIILFXOW WR LPDJLQH D VWDWXWH WKDW FRXOG DIIRUG LWV HTXDOL]HWKHSRVLWLRQRISDUHQWVZKRHOHFWVXFKVFKRROVoD YRXFKHUUHFLSLHQWVDEURDGHUVSHFWUXPRIHGXFDWLRQDOFKRLFH UHVXOWZKROO\DWYDULDQFHZLWKWKH(VWDEOLVKPHQW&ODXVHl,G ,WLVWUXHRIFRXUVHWKDWWKHSXEOLFVFKRROGLVWULFWVDGMDFHQWWR &OHYHODQG KDYH GHFOLQHG WR SDUWLFLSDWH LQ WKH YRXFKHU  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO 7KH6XSUHPH&RXUWKDVUHYLVLWHGPDQ\RIWKHLVVXHVUDLVHG 7KHILUVWRIWKH/HPRQFULWHULDWKDWPXVWEHPHWLIDVWDWXWH LQ1\TXLVW,Q$JRVWLQLY)HOWRQ86   LVWRVXUYLYHDQ(VWDEOLVKPHQW&ODXVHFKDOOHQJHLVWKDWLWKDYH WKH&RXUWVWDWHGWKDWm>Z@HGRQRWDFNQRZOHGJHDQGZHGR DmVHFXODUSXUSRVHl7KH2KLRYRXFKHUSURJUDPPHHWVWKLV QRWKROGWKDWRWKHUFRXUWVVKRXOGFRQFOXGHRXUPRUHUHFHQW FULWHULRQ DQG WKH SODLQWLIIV DJUHH WKDW LW GRHV  7KH VROH FDVHVKDYHE\LPSOLFDWLRQRYHUUXOHGDQHDUOLHUSUHFHGHQWl SXUSRVHRIWKHYRXFKHUSURJUDPLVWRVDYH&OHYHODQGjVPRVWO\ 7KH&RXUWFRQWLQXHGWRUHDIILUPmWKDWLIDSUHFHGHQWRIWKLV SRRU PRVWO\ PLQRULW\ SXEOLF VFKRRO FKLOGUHQ IURP WKH &RXUWKDVGLUHFWDSSOLFDWLRQLQDFDVH\HWDSSHDUVWRUHVWRQ GHYDVWDWLQJFRQVHTXHQFHVRIUHTXLULQJWKHPWRUHPDLQLQWKH UHDVRQVUHMHFWHGLQVRPHRWKHUOLQHRIGHFLVLRQVWKH&RXUWRI IDLOHG&OHYHODQGVFKRROVLIWKH\ZLVKWRHVFDSH7KHUHLVDOVR $SSHDOV VKRXOG IROORZ WKH FDVH ZKLFK GLUHFWO\ FRQWUROV QR VHULRXV FODLP WKDW WKH VWDWXWH LV FRQVWLWXWLRQDOO\ LQYDOLG OHDYLQJ WR WKLV &RXUW WKH SUHURJDWLYH RI RYHUUXOLQJ LWV RZQ VROHO\EHFDXVHLWIRVWHUVDQmH[FHVVLYHHQWDQJOHPHQWlEHWZHHQ GHFLVLRQVl,G HPSKDVLVDGGHG 7KH6XSUHPH&RXUWKDV JRYHUQPHQWDQGUHOLJLRQ5DWKHUWKHRQO\LVVXHLQWKHFDVHLV UHIUDLQHG IURP RYHUUXOLQJ 1\TXLVW DQG KDV LQVWHDG ZKHWKHU WKH YRXFKHU SURJUDP KDV WKH IRUELGGHQ mSULPDU\ GLVWLQJXLVKHGYDULRXVFDVHVRQWKHEDVLVRIWKHLUIDFWV WKLV HIIHFWl RI DGYDQFLQJ UHOLJLRQ  7KLV FRXUWjV ILUVW GXW\ &RXUW KDV DFFRUGLQJO\ IROORZHG WKDW DSSURDFK  m$ VLQJOH WKHUHIRUH DIWHU UHFRJQL]LQJ WKDW 1\TXLVWjV IDFWXDOO\ DQG IDFWXDOGLIIHUHQFHFRQVHTXHQWO\FDQVHUYHWRHQWDQJOHRUIUHH OHJDOO\ RXWGDWHG GHFLVLRQ LV RI QR KHOS LV WR SURFHHG WR D SDUWLFXODU JRYHUQPHQWDO SUDFWLFH IURP WKH UHDFK RI WKH H[DPLQHWKHILUVWWZRFULWHULDIURP$JRVWLQLjVmLPSHUPLVVLEOH >(VWDEOLVKPHQW@&ODXVHjVFRQVWLWXWLRQDOSURKLELWLRQl&ROHV HIIHFWlWHVWWRGHWHUPLQHZKHWKHUWKHHIIHFWRI2KLRj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jVILUVWFULWHULRQIRUWHVWLQJDVWDWXWHjV /HPRQWHVWWKH&RXUWDJUHHGWKDWWKHVWDWXWHKDGWKHVHFXODU FODLPHG LPSHUPLVVLEOH HIIHFW ZH PXVW DVN ZKHWKHU WKH SXUSRVH RI GHIUD\LQJ WKH FRVW RI HGXFDWLRQ IRU DOO SDUHQWV JRYHUQPHQWDLGLQWKHIRUPRIWKHWXLWLRQYRXFKHUUHVXOWVLQ UHJDUGOHVVRIWKHW\SHRIVFKRROWKHLUFKLOGUHQDWWHQG,GDW mJRYHUQPHQWDOLQGRFWULQDWLRQl,WLVREYLRXVWKDWWKH2KLR $QDO\]LQJWKHHIIHFWRIWKHVWDWXWHWKH&RXUWKHOGWKDW VWDWXWH GRHV QRW KDYH WKH UHPRWHVW HIIHFW RI SURYLGLQJ WKH SURJUDP GLG QRW KDYH D SULPDU\ HIIHFW RI DGYDQFLQJ JRYHUQPHQWDOLQGRFWULQDWLRQLQDQ\UHOLJLRQWRVD\QRWKLQJRI UHOLJLRQEHFDXVHWKHWD[GHGXFWLRQZDVDWUDGLWLRQDODUHDIRU KDYLQJVXFKDSULPDU\HIIHFW VWDWH OHJLVODWXUHV WR FRGLI\ SROLFLHV ZKLFK mDFKLHYH DQ HTXLWDEOH GLVWULEXWLRQ RI WKH WD[ EXUGHQl DQG EHFDXVH WKH 7KH 6XSUHPH &RXUW GHFLVLRQV VLQFH /HPRQ DQG 1\TXLVW GHGXFWLRQZDVDYDLODEOHIRUHGXFDWLRQDOH[SHQVHVLQFXUUHGE\ KDYH HPSKDVL]HG WKDW WKH FULWLFDO TXHVWLRQ LQ GHWHUPLQLQJ DOOSDUHQWVZKHWKHUWKHLUFKLOGUHQDWWHQGHG SXEOLFVFKRROV ZKHWKHU JRYHUQPHQW DLG XOWLPDWHO\ IORZLQJ WR UHOLJLRXV QRQVHFWDULDQSULYDWHVFKRROVRUFKXUFKDIILOLDWHGVFKRROV,G VFKRROV UHVXOWV LQ JRYHUQPHQWDO LQGRFWULQDWLRQ LV LI WKH DW UHFLSLHQW EHQHILFLDULHV PDNH D mJHQXLQHO\ LQGHSHQGHQW DQG SULYDWHFKRLFH>@lWRmVSHQGlWKHIXQGVLQDUHOLJLRXVVFKRRO  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO DQGSULYDWHVFKRROVERWKUHOLJLRXVDQGQRQUHOLJLRXVsXVWLFH 7KH &RXUW IRXQG LW FRPSHOOLQJ WKDW WKH GHGXFWLRQ ZDV 7KRPDV HPSKDVL]HG WKDW WKH VWDWXWH GLG QRW KDYH DQ DYDLODEOHIRUDOOSDUHQWVZLWKVFKRRODJHFKLOGUHQVWDWLQJWKDW mLPSHUPLVVLEOHHIIHFWlEHFDXVHWKHmSULQFLSOHVRIQHXWUDOLW\ WKLV DVSHFW ZDV mYLWDOO\ GLIIHUHQW IURP WKH VFKHPH VWUXFN DQGSULYDWHFKRLFHDQGWKHLUUHODWLRQVKLSWRHDFKRWKHU>WKDW@ GRZQ LQ 1\TXLVW  7KHUH SXEOLF DVVLVWDQFH DPRXQWLQJ WR ZHUH>DOVR@SURPLQHQWlLQWKH&RXUWjVGHFLVLRQVLQ$JRVWLQL WXLWLRQ JUDQWV ZDV SURYLGHG RQO\ WR SDUHQWV RI FKLOGUHQ LQ =REUHVW:LWWHUVDQG0XHOOHUZHUHSUHVHQW,GDW QRQSXEOLFVFKRROVl,GDW7KH&RXUWDQDORJL]HGWKHWD[ GHGXFWLRQVFKHPHDVVLPLODUWRWKH*,%LOORURWKHUIRUPVRI ,, mSXEOLFDVVLVWDQFHPDGHDYDLODEOHJHQHUDOO\ZLWKRXWUHJDUGWR WKHVHFWDULDQQRQVHFWDULDQRUSXEOLFQRQSXEOLFQDWXUHRIWKH ,W LV DJDLQVW WKLV EDFNJURXQG RI FKDQJHG 6XSUHPH &RXUW LQVWLWXWLRQEHQHILWWHGl,G7KH&RXUWIRXQGLWVLJQLILFDQWWKDW (VWDEOLVKPHQW &ODXVH MXULVSUXGHQFH WKDW ZH PXVW WHVW WKH XQGHU WKH 0LQQHVRWD SODQ JRYHUQPHQWDO DLG ZDV RQO\ FRQVWLWXWLRQDOLW\RIWKH2KLRYRXFKHUSURJUDP FKDQQHOHGWKURXJKWKHSDUHQWVUDWKHUWKDQGLUHFWO\SDLGWRWKH SDURFKLDOLQVWLWXWLRQVDQGQRWHG WKDWLWZRXOGQRWEDVHWKH 7KH2KLRVWDWXWHLVWKHSURGXFWRIDRUGHULVVXHGE\ FRQVWLWXWLRQDOLW\RIDVWDWXWHRQ WKH FRQVLGHUDWLRQRI\HDUO\ WKH8QLWHG6WDWHV'LVWULFW&RXUWLQ&OHYHODQGGLUHFWLQJWKH VWDWLVWLFDOHYLGHQFHFRQFHUQLQJZKLFKQRQVHFWDULDQVFKRROVo 2KLR6XSHULQWHQGHQWRI(GXFDWLRQWRDGGUHVVWKHHGXFDWLRQDO UHOLJLRXVRURWKHUZLVHoEHQHILWWHGIURPWKHWD[GHGXFWLRQ,G FULVLVLQ&OHYHODQGjVSXEOLFVFKRROV6HH5HHGY5KRGHV DW7KH&RXUWVWDWHGWKDWWKH(VWDEOLVKPHQW&ODXVHLVQRW )6XSS 1'2KLR 7KH2KLROHJLVODWXUHDQGWKH DEDUWRmWKHVRUWRIDWWHQXDWHGILQDQFLDOEHQHILWXOWLPDWHO\ VWDWHjVJRYHUQRUUHVSRQGHGZLWKWKHYRXFKHUSURJUDPWKDWLV FRQWUROOHGE\WKHSULYDWHFKRLFHVRILQGLYLGXDOSDUHQWVWKDW EHIRUHXVWRGD\6HH2KLR5HY&RGH†† HYHQWXDOO\ IORZV WR SDURFKLDO VFKRROV IURP WKH QHXWUDOO\ :HPD\VDIHO\DVVXPHWKDWLQIDVKLRQLQJWKHQHZODZWKH DYDLODEOHWD[EHQHILWDWLVVXHLQWKLVFDVHl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jVSXUSRVH FRQVWLWXWLRQDO6HH0F'RQDOGY%RDUGRI(OHFWLRQ&RPPjUV mXQPLVWDNDEO\ VHFXODUl LG DW  DQG IRXQG WKDW XQOLNH  86     +DUWIRUG )LUH ,QV &R Y 1\TXLVWmDQ\DLGSURYLGHGXQGHU:DVKLQJWRQjVSURJUDPWKDW /DZUHQFH'\NHV*RRGHQEHUJHU%RZHU &ODQF\)G XOWLPDWHO\ IORZV WR UHOLJLRXV LQVWLWXWLRQV GRHV VR RQO\ DV D  WK&LU 7KLVSUHVXPSWLRQLVQRWDPHUH UHVXOWRIWKHJHQXLQHO\LQGHSHQGHQWDQGSULYDWHFKRLFHVRIDLG OLWHUDU\ ILJXUH IRU URWH UHFLWDWLRQ LQ DOO DSSHOODWH RSLQLRQV UHFLSLHQWVl,GDW7KHIDFWWKDWWKHYRFDWLRQDODVVLVWDQFH DGGUHVVLQJWKHFRQVWLWXWLRQDOLW\RIOHJLVODWLYHHQDFWPHQWVLWLV ZDV SDLG GLUHFWO\ WR WKH VWXGHQW ZKR FRXOG H[SHQG WKH DEHGURFNUXOHRIVWDWXWRU\FRQVWUXFWLRQRQHZHDUHERXQG HGXFDWLRQDOIXQGVRQmZKROO\VHFXODUHGXFDWLRQlSHUVXDGHG DVVLGXRXVO\ WR KRQRU DV ZH EHJLQ RXU DVVHVVPHQW RI WKH WKH&RXUWWRILQGWKDWWKHSURJUDPGLGQRWFUHDWHDQLQFHQWLYH YDOLGLW\RIWKH2KLRVWDWXWH WRDSSO\WKHDLGWRUHOLJLRXVHGXFDWLRQ,Gm$LGUHFLSLHQWVj FKRLFHVDUHPDGHDPRQJDKXJHYDULHW\RISRVVLEOHFDUHHUVRI ZKLFKRQO\DVPDOOKDQGIXODUHVHFWDULDQ1RWKLQJLQWKH  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO UHFRUG LQGLFDWHV WKDW    DQ\ VLJQLILFDQW SRUWLRQ RI WKH DLG XQGHUVWDQGLQJRIWKHFULWHULDIRUGHWHUPLQLQJZKHWKHULQDQ\ H[SHQGHGXQGHUWKH:DVKLQJWRQSURJUDPDVDZKROHZLOOHQG VSHFLILFSURJUDPJRYHUQPHQWDLGKDVWKHSULPDU\HIIHFWRI XSIORZLQJWRUHOLJLRXVHGXFDWLRQl,G7KH&RXUWDOVRIRXQG DGYDQFLQJUHOLJLRQKDGmFKDQJHGl,QGHHGLQ$JRVWLQLWKH WKDWmWKHPHUHFLUFXPVWDQFHWKDWSHWLWLRQHUKDVFKRVHQWRXVH 6XSUHPH&RXUWZHQWVRIDUDVWRPRGLI\WKH/HPRQWHVWLWKDG QHXWUDOO\ DYDLODEOH VWDWH DLG WR KHOS SD\ IRU KLV UHOLJLRXV UHOLHG XSRQ LQ 1\TXLVW  7KH $JRVWLQL &RXUW EHJDQ E\ HGXFDWLRQ>GRHVQRW@FRQIHUDQ\PHVVDJHRIVWDWHHQGRUVHPHQW UHFDVWLQJ/HPRQjVmHQWDQJOHPHQWlLQTXLU\DVDIDFWRUXQGHU RIUHOLJLRQl,GDW WKHmLPSHUPLVVLEOHHIIHFWlSURQJUDWKHUWKDQDVDVHSDUDWHDQG LQGHSHQGHQWFULWHULRQ6HH$JRVWLQL86DW,W ,Q$JRVWLQLY)HOWRQWKH&RXUWKHOGWKDWWKH(VWDEOLVKPHQW WKHQ LGHQWLILHG WKUHH QHZ VXEFULWHULD WR FRQVLGHU ZKHQ &ODXVHGLGQRWEDUD1HZDUHYDOLGGHSDUWXUHVIURPWKHJHQHUDOUXOH@WKDWDOO 6HHLGDW JRYHUQPHQWDLGWKDWGLUHFWO\DLGVWKHHGXFDWLRQDOIXQFWLRQRI UHOLJLRXVVFKRROVLVLQYDOLGl,GDW5HO\LQJRQDQHDUOLHU 8VLQJWKLVPRGLILHG/HPRQWHVWWKH$JRVWLQL&RXUWIRXQG FDVHZKLFKKDGIRXQGLWSHUPLVVLEOHWRSODFHDSXEOLFVFKRRO FRQVWLWXWLRQDODIHGHUDOO\PDQGDWHG1HZH@VHFWDULDQVFKRROV DW  RIFRVWVWKH\RWKHUZLVHZRXOGKDYHERUQHLQHGXFDWLQJWKHLU )LQDOO\ LQ 0LWFKHOO Y +HOPV  6 &W    D VWXGHQWVl  ,G DW   7KH &RXUW FRQFOXGHG WKDW WKH 1HZ SOXUDOLW\RSLQLRQZULWWHQE\sXVWLFH7KRPDVWKH&RXUWXSKHOG L@IDLGWRVFKRROVHYHQ GLVSHUVHG GLUHFWO\ WR WKH HOLJLEOH DSSOLFDQWV ZKR PDGH WKH GLUHFW DLG LV QHXWUDOO\ DYDLODEOH DQG EHIRUH UHDFKLQJ RU FKRLFHRIZKHUHWRH[SHQGWKHHGXFDWLRQDOIXQGVWKHUHIRUH EHQHILWWLQJDQ\UHOLJLRXVVFKRROILUVWSDVVHVWKURXJKWKHKDQGV m>D@Q\DLGWKDWXOWLPDWHO\IORZ>HG@WRUHOLJLRXVLQVWLWXWLRQV OLWHUDOO\RUILJXUDWLYHO\ RIQXPHURXVSULYDWHFLWL]HQVZKRDUH >GLG@ VR RQO\ DV D UHVXOW RI WKH JHQXLQHO\ LQGHSHQGHQW DQG IUHH WR GLUHFW WKH DLG HOVHZKHUH WKH JRYHUQPHQW KDV QRW SULYDWHFKRLFHVRIDLGUHFLSLHQWVl,GDW SURYLGHG DQ\ VXSSRUW RI UHOLJLRQl   6 &W DW  LQWHUQDOFLWDWLRQVRPLWWHG 7KHRSLQLRQUHFRJQL]HVWKDWWKHUH ,Q=REUHVWY&DWDOLQD)RRWKLOOV6FKRRO'LVWULFW86 H[LVWmVSHFLDO(VWDEOLVKPHQW&ODXVHGDQJHUVZKHQPRQH\LV   WKH&RXUWXSKHOGWKHFRQVWLWXWLRQDOLW\RIDSURJUDP JLYHQWRUHOLJLRXVVFKRROVRUHQWLWLHVGLUHFWO\UDWKHUWKDQDVLQ SURYLGLQJDVLJQODQJXDJHLQWHUSUHWHUIRUDGHDIVWXGHQWLQD :LWWHUV DQG 0XHOOHU LQGLUHFWO\l  ,G DW  LQWHUQDO &DWKROLFKLJKVFKRRO5HO\LQJXSRQ:LWWHUVDQG0XHOOHUWKH FLWDWLRQV RPLWWHG   ,Q D IRRWQRWH sXVWLFH 7KRPDV =REUHVW &RXUW FRQFOXGHG WKDW WKH VWDWXWH JDYH SDUHQWV WKH K\SRWKHVL]HG mWKDW WKH SULQFLSOHV RI QHXWUDOLW\ DQG SULYDWH FKRLFHRIZKHUHWRVHQGWKHLUHOLJLEOHFKLOGUHQWRVFKRRODQG FKRLFHZRXOGEHDGHTXDWHWRDGGUHVVWKRVHVSHFLDOULVNVl,G mGLVWULEXWHV EHQHILWV QHXWUDOO\    ZLWKRXW UHJDUG WR WKH DWQ+HFRQWLQXHGWRILQGWKDWDWOHDVWLQUHJDUGVWR µVHFWDULDQQRQVHFWDULDQ RU SXEOLFQRQSXEOLF QDWXUHj RI WKH 1\TXLVWWKHSURKLELWLRQDJDLQVWGLUHFWSD\PHQWVZDVOLQNHGWR VFKRROl,GDW TXRWLQJ:LWWHUV86DW  mVHULRXV FRQFHUQV DERXW ZKHWKHU WKH SD\PHQWV ZHUH WUXO\ QHXWUDOl,G 7KLVOLQHRIFDVHVFXOPLQDWHGLQWKH$JRVWLQLGHFLVLRQLQ  LQ ZKLFK WKH 6XSUHPH &RXUW GHFODUHG WKDW LWV  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO $OWKRXJKsXVWLFH2j&RQQRUFRQFXUUHGLQWKHMXGJPHQWVKH VWDWXWH PXVW QRW IRVWHU DQ H[FHVVLYH JRYHUQPHQW ZURWHVHSDUDWHO\LQ0LWFKHOOEDVHGXSRQKHUEHOLHIWKDWmWKH HQWDQJOHPHQWZLWKUHOLJLRQ SOXUDOLW\DQQRXQFHVDUXOHRIXQSUHFHGHQWHGEUHDGWKIRUWKH HYDOXDWLRQRI(VWDEOLVKPHQW&ODXVHFKDOOHQJHVWRJRYHUQPHQW ,GDW HPSKDVLVDGGHG  LQWHUQDOTXRWDWLRQPDUNVDQG VFKRRODLG SURJUDPVl   6 &W DW   sXVWLFH FLWDWLRQRPLWWHG  2j&RQQRUjVFRQFXUULQJRSLQLRQVKRZVGLVDJUHHPHQWQRWRQO\ ZLWKWKHmH[SDQVLYHVFRSHRIWKHSOXUDOLW\jVUXOH>@lEXWZLWK 7KH1\TXLVW&RXUWUXOHGWKDWWKH1HZLQJ@WKHUHOLJLRXVPLVVLRQ RI DFWXDO GLYHUVLRQ RI JRYHUQPHQW DLG WR UHOLJLRXV RIVHFWDULDQVFKRROVl,GDW%XWWKUHH\HDUVDJRLQ LQGRFWULQDWLRQ LV LQ WHQVLRQ ZLWK RXU SUHFHGHQWV DQG    $JRVWLQLY)HOWRQ86  WKH6XSUHPH&RXUW XQQHFHVVDU\WRGHFLGHWKHLQVWDQWFDVHl,G GHFODUHGXQPLVWDNDEO\WKDWmZHKDYHGHSDUWHGIURPWKHUXOH WKDWDOOJRYHUQPHQWDLGWKDWGLUHFWO\DVVLVWVWKHHGXFDWLRQDO :KLOHDJUHHLQJZLWKsXVWLFH7KRPDVWKDWmQHXWUDOLW\LVDQ IXQFWLRQ RI UHOLJLRXV VFKRROV LV LQYDOLGl  ,G DW   7KH LPSRUWDQW UHDVRQ IRU XSKROGLQJ JRYHUQPHQWDLG SURJUDPV $JRVWLQL &RXUW WKHQ SURFHHGHG WR UHGHILQH DQG QDUURZ WKH DJDLQVW(VWDEOLVKPHQW&ODXVHFKDOOHQJHVlsXVWLFH2j&RQQRU FULWHULDIRUGHWHUPLQLQJZKHQJRYHUQPHQWDLGWKDWILQGVLWV RSLQHGWKDWmQHXWUDOLW\LVQRWDORQHVXIILFLHQWWRTXDOLI\WKHDLG ZD\WRDUHOLJLRXVVFKRROKDVWKHSULPDU\HIIHFWRIDGYDQFLQJ DV FRQVWLWXWLRQDOl   6 &W DW   6KH FULWLFL]HG UHOLJLRQ sXVWLFH7KRPDVjVRSLQLRQIRUUHO\LQJRQORJLFZKLFKZRXOG VXSSRUWGLUHFWJRYHUQPHQWDLGWRUHOLJLRXVRUJDQL]DWLRQVEDVHG $JDLQ,GRQRWTXHVWLRQIRUDPRPHQWWKHFRUUHFWQHVVRI RQ WKH QXPEHU RI SHUVRQV EHORQJLQJ WR HDFK RUJDQL]DWLRQ WKH 6XSUHPH &RXUWjV GHFLVLRQ LQ 1\TXLVW  , DFFHSW LW ERWK m>7@KHSOXUDOLW\RSLQLRQIRUHVKDGRZVWKHDSSURYDORIGLUHFW DQDO\WLFDOO\DQGSUHFHGHQWLDOO\DVDIDLWKIXODSSOLFDWLRQ PRQHWDU\VXEVLGLHVWRUHOLJLRXVRUJDQL]DWLRQVHYHQZKHQWKH\ RIWKHmSULPDU\HIIHFWlWHVWRI/HPRQ+RZHYHU1\TXLVWZDV XVHWKHPRQH\WRDGYDQFHWKHLUUHOLJLRXVREMHFWLYHVl,GDW QRW DQDO\]HG DQG GHFLGHG XQGHU ZKDW WKH $JRVWLQL &RXUW   sXVWLFH 2j&RQQRU UHMHFWHG DQ RXWULJKW EDQ RQ DQ\ FDOOHGLWVmFKDQJHGXQGHUVWDQGLQJRIWKHFULWHULDXVHGWR GLYHUVLRQRIJRYHUQPHQWIXQGVWRVHFWDULDQXVHVEXWZRXOG DVVHVVZKHWKHUDLGWRUHOLJLRQKDVDQLPSHUPLVVLEOHHIIHFWl HQDFWDUXOHZKLFKUHTXLUHVSODLQWLIIVWRSURYHWKDWWKHDLGLQ ,GDW6LQFHWKLVDSSHDOLVDOVRDQmLPSHUPLVVLEOHHIIHFWl TXHVWLRQ LV RU KDV EHHQ XVHG IRU UHOLJLRXV SXUSRVHV DQG FDVHRXUGHFLVLRQFDQQRWEHFRQWUROOHGE\1\TXLVW IRXQG WKDW mSUHVXPSWLRQV RI UHOLJLRXV LQGRFWULQDWLRQ DUH QRUPDOO\ LQDSSURSULDWH ZKHQ HYDOXDWLQJ QHXWUDO VFKRRODLG % SURJUDPVXQGHUWKH(VWDEOLVKPHQW&ODXVHl,GDW :KDW WKHQ LV WKH 6XSUHPH &RXUWjV mFKDQJHG    sXVWLFH 2j&RQQRU FRQFOXGHG WKDW EHFDXVH WKH VFKRRODLG XQGHUVWDQGLQJlRIWKHSURSHUWHVWIRUGHWHUPLQLQJZKHWKHUD SURJUDPLQ$JRVWLQLZDVVLPLODUWRWKDWDWLVVXHLQ0LWFKHOO ODZKDVWKHSULPDU\HIIHFWRIDGYDQFLQJUHOLJLRQ" WKH$JRVWLQLFULWHULDVKRXOGFRQWUROWKHRXWFRPHRIWKHFDVH KRZHYHU VKH QRWHG WKDW WKH mVFKRRODLG FDVHV RIWHQ SRVH ,Q0XHOOHUY$OOHQ86  WKH&RXUWKHOG WKDW D 0LQQHVRWD VWDWXWH DXWKRUL]LQJ D WD[ GHGXFWLRQ IRU  6LPPRQV+DUULVHWDO 1RV 1RV 6LPPRQV+DUULVHWDO  Y=HOPDQHWDO Y=HOPDQHWDO 7KLUGWKH1HZZ@KHQDIUDJPHQWHG&RXUWGHFLGHVDFDVHDQGQR SURYLVLRQ H[SOLFLWO\ IRUELGGLQJ SDUWLFLSDWLQJ VFKRROV IURP VLQJOHUDWLRQDOHH[SODLQLQJWKHUHVXOWHQMR\VWKHDVVHQWRIILYH GLVFULPLQDWLQJ DJDLQVW SURVSHFWLYH VWXGHQWV RQ WKH EDVLV RI sXVWLFHV WKH KROGLQJ RI WKH &RXUW PD\ EH YLHZHG DV WKDW UHOLJLRQ6HH2KLR5HY&RGH† $   SRVLWLRQ WDNHQ E\ WKRVH 0HPEHUV ZKR FRQFXUUHG LQ WKH MXGJPHQWV RQ WKH QDUURZHVW JURXQGVjl  0DUNV Y 8QLWHG ,WLVFOHDUWKDWWKH1HZD@VLQJOHIDFWXDO DV LW XWLOL]HV WKH VWDQGDUG RI $JRVWLQL EDVHG RQ D IDFWXDO GLIIHUHQFH FRQVHTXHQWO\ FDQ VHUYH WR HQWDQJOH RU IUHH D VLPLODULW\ UDWKHU WKDQ FUHDWLQJ D QHZ VWDQGDUG FHQWHUHG RQ SDUWLFXODU JRYHUQPHQWDO SUDFWLFH IURP WKH UHDFK RI WKH QHXWUDOLW\WKHUHE\PDNLQJLWVPDQGDWHVFRQWUROOLQJ >(VWDEOLVKPHQW@&ODXVHjVFRQVWLWXWLRQDOSURKLELWLRQl6OLSRS DWBB LQWHUQDOTXRWDWLRQPDUNVDQGFLWDWLRQRPLWWHG $FDVH ,,, FRQVWUXLQJ D VWDWXWH VR PDQLIHVWO\ GLIIHUHQW WKDQ WKH RQH EHIRUH XV FRXOG KDUGO\ DV D IDFWXDO PDWWHU EH D ELQGLQJ :HQRZDSSO\WKHIUDPHZRUNHVWDEOLVKHGE\SUHFHGHQWWR SUHFHGHQWRQWKLVFRXUW WKHFDVHEHIRUHXVUHFRJQL]LQJWKHSUHGRPLQDWLQJWKHPHLQ WKLVDUHDRIODZWREHWKHQHHGIRUFDUHIXOMXGLFLDODWWHQWLRQWR  WKHIDFWXDOGHWDLOLQWKHFKDOOHQJHGVWDWXWRU\VFKHPH 7KHVXEVWDQWLDOGLIIHUHQFHVLQWKHSXUSRVHDQGDSSOLFDWLRQ $W WKH RXWVHW ZH QRWH WKDW 'HIHQGDQWVj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mSULPDU\ EHIRUHWKLV&RXUW7KH'HIHQGDQWVjDUJXPHQWZRXOGUHZULWH HIIHFWl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l,GDW GRLQGHHGRFFXS\VHSDUDWHVHFWLRQVLQWKH2KLR&RGH7KH VFKRROYRXFKHUSURJUDPLVHQDFWHGDVDFRPSOHWHSURJUDPLQ 7KH2KLRYRXFKHUSURJUDPZKLFKLVDGHTXDWHO\GHVFULEHG WKH2KLR5HYLVHG&RGH6HH2KLR5HY&RGH†† LQWKHPDMRULW\RSLQLRQFRXOGQRWEHPRUHXQOLNHWKH1HZ 7KHSURJUDPLVHQDFWHGDVDSDUWRIWKHFKDSWHURQ DVLQDOOWKUHH@WKHVXEVWDQWLYHLPSDFWLVVWLOOWKHVDPHl EXLOGLQJPDLQWHQDQFHDQGUHSDLUVIRUSULYDWHVFKRROEXLOGLQJV 86DW$VLQ1\TXLVWWKH2KLRSURJUDPFRQWDLQVQR  WXLWLRQUHLPEXUVHPHQWJUDQWVIRUVRPHORZLQFRPHSDUHQWV mHIIHFWLYH PHDQV RI JXDUDQWHHLQJ WKDW WKH VWDWH DLG GHULYHG RIFKLOGUHQDOUHDG\DWWHQGLQJWKHSULYDWHVFKRROVDQG  D IURP SXEOLF IXQGV ZLOO EH XVHG H[FOXVLYHO\ IRU VHFXODU IRUPRIWD[UHOLHIIRUSDUHQWVZKRIDLOHGWRTXDOLI\IRUWXLWLRQ QHXWUDODQGQRQLGHRORJLFDOSXUSRVHVl,GDW+HUHWKHUH UHLPEXUVHPHQWXQGHUWKHVWDWXWH6HH1\TXLVW86DW LVFOHDUO\mQRHQGHDYRUWRJXDUDQWHHWKHVHSDUDWLRQEHWZHHQ  VHFXODU DQG UHOLJLRXV IXQFWLRQV DQG WR HQVXUH WKDW 6WDWH ILQDQFLDODLGVXSSRUWVRQO\WKHIRUPHUl,GDW,QERWK 7KH1HZZDV@ LQVWLWXWLRQVDQGWKH&OHYHODQGSURJUDPOLPLWVWKHVFKRROVWR XQPLVWDNDEO\ WR SURYLGH GHVLUHG ILQDQFLDO VXSSRUW IRU ZKLFKDSDUHQWFDQDSSO\WKHYRXFKHUIXQGVWRWKRVHZLWKLQ QRQSXEOLFVHFWDULDQLQVWLWXWLRQVl,GDW)XUWKHUPRUH WKH SURJUDP  3UDFWLFDOO\ VSHDNLQJ WKH WXLWLRQ UHVWULFWLRQV WKH 1\TXLVW &RXUW FRQFOXGHG WKDW m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mDSSUR[LPDWH>@ WKH WXLWLRQ OHYHO VHW E\ SDURFKLDO DQWLYRXFKHUPDQWUDWKDWYRXFKHUSURJUDPVDUHQRPRUHWKDQ VFKRROV>ZKLFK@UHIOHFWVVXEVLGLHVIURPRWKHUVRXUFHVl ,Q DVFKHPHWRIXQQHOSXEOLFIXQGVLQWRUHOLJLRXVVFKRROV IDFW 'HIHQGDQWV DGPLW WKDW WKHUH LV LQFHQWLYH IRU SULYDWH QRQVHFWDULDQVFKRROVWRSDUWLFLSDWHLQWKHFRPPXQLW\VFKRROV , SURJUDPUDWKHUWKDQLQWKHVFKRROYRXFKHUSURJUDP6HH%ULHI RI6WDWHDW7KHHYLGHQFHLOOXVWUDWHVWKLVSRLQWLQWKDW ,W LV LPSOLFLW LQ WKH PDMRULW\jV UHDVRQLQJ WKDW WKHUH LV QR RISDUWLFLSDWLQJVFKRROVDUHVHFWDULDQMXVWDVLQ1\TXLVWZKHUH QHHGIRUDQ\LQGHSHQGHQWDQDO\VLVZKHWKHU2KLRjVYRXFKHU RIWKHSDUWLFLSDWLQJVFKRROVZHUHVHFWDULDQ%H\RQGWKDW SURJUDPYLRODWHVWKH(VWDEOLVKPHQW&ODXVHEHFDXVH1\TXLVW ZHQRWHWKDWWKHQXPEHURIDYDLODEOHSODFHVIRUVWXGHQWVLQ LVmRQSRLQWZLWKWKHPDWWHUDWKDQGl6OLSRSDW,QP\ VHFWDULDQVFKRROVLVKLJKHUWKDQDVPDQ\RIWKHVHFWDULDQ MXGJPHQWWKHPDMRULW\LVPLVWDNHQDVDPDWWHURIIDFW WKHWZR VFKRROVDUHODUJHUDQGSURYLGHDJUHDWHUQXPEHURISODFHVIRU VWDWXWHV DUH WRWDOO\ GLIIHUHQW  DQG DV D PDWWHU RI ODZ WKH FKLOGUHQLQWKHYRXFKHUSURJUDP0RUHRYHUFORVHWRRI UHOHYDQW (VWDEOLVKPHQW &ODXVH MXULVSUXGHQFH KDV FKDQJHG WKHVWXGHQWVHQUROOHGLQWKHSURJUDPIRUWKHVFKRRO VLQFH 1\TXLVW   $V WR WKH ODWWHU D UHDGLQJ RI WKH 6XSUHPH \HDUDWWHQGHGVHFWDULDQLQVWLWXWLRQV &RXUWjV (VWDEOLVKPHQW &ODXVH FDVHV GHFLGHG VLQFH  PDNHVLWXQPLVWDNDEO\FOHDUWKDWWKHYRXFKHUSURJUDPSDVVHV 7KHDOOHJHGFKRLFHDIIRUGHGERWKSXEOLFDQGSULYDWHVFKRRO FRQVWLWXWLRQDOPXVWHU,GRQRWFODLPWKDWWKH1\TXLVWGHFLVLRQ SDUWLFLSDQWVLQWKLVSURJUDPLVLOOXVRU\LQWKDWWKHSURJUDPjV KDV EHHQ RYHUUXOHG DOWKRXJK VRPH RI WKH UHDVRQLQJ LQ WKH GHVLJQ GRHV QRW UHVXOW LQ WKH SDUWLFLSDWLRQ RI WKH DGMDFHQW 1\TXLVWRSLQLRQKDVEHHQmXQGHUPLQHGlDVWKH2KLR6XSUHPH SXEOLFVFKRROVIURPRXWVLGHWKH&OHYHODQGVFKRROGLVWULFW3HU &RXUWSXWLWLQ6LPPRQV+DUULVY*RII1(G SXSLOH[SHQGLWXUHVLQWKHSXEOLFVFKRROVDUHEDFNHGE\ 2KLR 1\TXLVWLVVLPSO\LQDSSRVLWHWRWKHDSSHDOEHIRUH LQSXEOLFIXQGLQJ6HH%ULHIRI6HQHO7D\ORU,QWHUYHQRUVDW XV $WDPD[LPXPRIWKHUHLVDILQDQFLDOGLVLQFHQWLYH IRUSXEOLFVFKRROVRXWVLGHWKHGLVWULFWWRWDNHRQVWXGHQWVYLD 7KH1HZZHUH@SURYLGHGRQO\WRSDUHQWVRIFKLOGUHQLQ WKH2KLRVWDWXWHEHIRUHXVDUHWRWDOO\GLIIHUHQWLQDOORIWKHLU QRQSXEOLF VFKRROVl   7KH LGHD RI SDUHQWDO FKRLFH DV D HVVHQWLDOUHVSHFWVERWKLQWKHLUSXUSRVHVDQGWKHLUSURYLVLRQV GHWHUPLQLQJIDFWRUZKLFKEUHDNVDJRYHUQPHQWFKXUFKQH[XV IRUFDUU\LQJRXWWKHLUUHVSHFWLYHSXUSRVHV,WLVLPSRVVLEOHWR LVLQDSSURSULDWHLQWKHFRQWH[WRIJRYHUQPHQWOLPLWDWLRQRIWKH WDNHVHULRXVO\WKHPDMRULW\jVFODLPWKDW1\TXLVWJRYHUQVRXU DYDLODEOHFKRLFHVWRRYHUZKHOPLQJO\VHFWDULDQSULYDWHVFKRROV UHVXOW DQG IRU WKDW UHDVRQ UHTXLUHV WKDW WKH 2KLR YRXFKHU ZKLFKFDQDIIRUGWKHWXLWLRQUHVWULFWLRQVSODFHGXSRQWKHPDQG SURJUDPPXVWEHVWUXFNGRZQ ZKLFKKDYHUHJLVWHUHGZLWKWKHSURJUDP7KHDEVHQFHRIDQ\ PHDQLQJIXO SXEOLF VFKRRO FKRLFH IURP WKH GHFLVLRQ PDWUL[ 0RUHRYHUWKHPDMRULW\jVUHIXVDOWRFRQGXFWDQ\PHDQLQJIXO \LHOGV D OLPLWHG DQG UHVWULFWHG SDOHWWH IRU SDUHQWV ZKLFK LV DQDO\VLVRIWKH6XSUHPH&RXUWj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jV SXEOLF VFKRROV KDYH HQUROOHG QRU DUH OLNHO\ WR HQUROO RUGHUILQGLQJWKHVFKRROYRXFKHUSURJUDPXQFRQVWLWXWLRQDODV 6LPLODUO\$JRVWLQLLVLQDSSRVLWHEHFDXVHWKHVHUYLFHVPDGH ZHOO DV WKH FRXUWjV GHWHUPLQDWLRQ WKDW 3ODLQWLIIV DUH QRW DYDLODEOH WR VWXGHQWV DW SDURFKLDO VFKRROV WKURXJK WKH FROODWHUDOO\HVWRSSHG SODFHPHQWRISXEOLFVFKRROWHDFKHUVWRWHDFKVHFXODUVXEMHFWV ZHUHDYDLODEOHWRDOOTXDOLI\LQJVWXGHQWVZLWKRXWUHJDUGWRWKH QDWXUH RI WKH LQVWLWXWLRQ WKH\ DWWHQGHG   86 DW  ILQGLQJ WKDW XQGHU WKH 1HZ