United States v. Brogan

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21  8QLWHG6WDWHVY%URJDQ 1R 3XUVXDQW WR 6L[WK &LUFXLW 5XOH  (/(&7521,& &,7$7,21  )(' $SS 3 WK &LU RI%URJDQjVVHQWHQFHE\WZROHYHOVIRUDEXVHRIDSRVLWLRQRI )LOH 1DPH DS WUXVW DQG 5(0$1' IRU UHVHQWHQFLQJ FRQVLVWHQW ZLWK WKLV RSLQLRQ 81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB 81,7(' 67$7(6 2) $0(5,&$ ; 3ODLQWLII$SSHOOHH    1R Y  !  .(9,1 7+20$6 %52*$1  'HIHQGDQW$SSHOODQW  1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW 1Rn/DZUHQFH3=DWNRII&KLHI'LVWULFWsXGJH $UJXHG1RYHPEHU 'HFLGHGDQG)LOHGsDQXDU\ %HIRUH.(,7+%2**6DQG&2/(&LUFXLWsXGJHV BBBBBBBBBBBBBBBBB &2816(/ $5*8('6DQIRUG3ORWNLQ/$:2)),&(62)$57+85 s$< :(,66 )DUPLQJWRQ +LOOV 0LFKLJDQ IRU $SSHOODQW 3DWULFLD * *DHGHNH $66,67$17 81,7(' 67$7(6 $77251(<'HWURLW0LFKLJDQIRU$SSHOOHH21%5,() 6DQIRUG3ORWNLQ/$:2)),&(62)$57+85s$<:(,66 )DUPLQJWRQ +LOOV 0LFKLJDQ IRU $SSHOODQW  3DWULFLD * *DHGHNH $66,67$17 81,7(' 67$7(6 $77251(< 'HWURLW0LFKLJDQIRU$SSHOOHH   8QLWHG6WDWHVY%URJDQ 1R 1R 8QLWHG6WDWHVY%URJDQ  BBBBBBBBBBBBBBBBB ZLWKWKHSRZHUWRFRQFHDOWKHGLYHUVLRQ%URJDQLQLWLDWHGD FRPSOHWHO\ XOWUD YLUHV HLJKWPLOOLRQGROODU WUDQVIHU WR DQ 23,1,21 DFFRXQWLQKLVRZQQDPHFRYHUHGRYHUZLWKDQDSSDUHQWO\ BBBBBBBBBBBBBBBBB SDSHUWKLQH[SODQDWLRQEDVHGRQDQLPDJLQDU\GHEWSD\PHQW $QGLWZRUNHG%URJDQDOWKRXJKNHHSLQJKLVGD\MREZLWK %2**6&LUFXLWsXGJH.HYLQ%URJDQZDVWKHDVVLVWDQW &KDPSLRQ WKHQ VHWWOHG LQWR WKH OLIH RI ORFDO QRWDEOH WUHDVXUHU RI D 0LFKLJDQ FRUSRUDWLRQ IURP ZKRP KH SXUFKDVLQJDODUJHKRPHLQWKHDUHDDIOHHWRIOX[XU\FDUVDQG PLVDSSURSULDWHGWKURXJKPHDQVRIDIUDXGXOHQWZLUHWUDQVIHU DFRXSOHRIMHWVNLVDQGSODFLQJWKHEXONRImKLVlIRUWXQHLQ WKHVXPRIPLOOLRQ%URJDQSOHGJXLOW\WRRQHFRXQWRI ORZULVN LQYHVWPHQWV LQ WKH VDPH EDQN WR ZKLFK KH KDG EDQN IUDXG LQ YLRODWLRQ RI  86& †  DQG ZDV WUDQVIHUUHGLW2QHFDQV\PSDWKL]HZLWKWKHGLVWULFWFRXUWLQ VHQWHQFHG WR  PRQWKV LQ SULVRQ  %URJDQjV VHQWHQFH ZDV VHHNLQJDUDWLRQDOH[SODQDWLRQIRUWKHVHHYHQWVE\LQHIIHFW HQKDQFHG E\ WKH FRXUW RYHU JRYHUQPHQW REMHFWLRQ IRU KLV YLHZLQJ %URJDQjV H[SHFWDWLRQV RI VXFFHVV DV VRPHKRZ DEXVH RI D SRVLWLRQ RI WUXVW  %URJDQ DSSHDOV WKLV VHQWHQFH UHDVRQDEOH HQKDQFHPHQWFODLPLQJKLVIRUPHUMREGRHVQRWTXDOLI\DVD mSRVLWLRQ RI WUXVWl 866* † %  )RU WKH UHDVRQV JLYHQ +RZHYHU WKH UHFRUG VKRZV VRPH HYLGHQFH WKDW %URJDQ EHORZ ZH UHYHUVH %URJDQjV VHQWHQFH DQG UHPDQG IRU VXIIHUV IURP SV\FKRORJLFDO SUREOHPV YDULRXVO\ FDOOHG UHVHQWHQFLQJ mREVHVVLYHFRPSXOVLYH GLVRUGHUl RU mLPSXOVH FRQWUROl GLVRUGHU  7KHVH PD\ KDYH LQIODWHG KLV HVWLPDWH RI VXFFHVV , IURP WKDW DSSURSULDWH WR KLV SRVLWLRQ LQ WKH FRPSDQ\ RU HQFRXUDJHGKLPWRSURFHHGGHVSLWHWKHSUREDELOLW\RIEHLQJ .HYLQ %URJDQ ZDQWHG WR EH D PLOOLRQDLUH DQG IRU D IHZ FDXJKW$OWKRXJKRXUGHFLVLRQPXVWXOWLPDWHO\EHFRQWUROOHG ZHHNVLQWKHVXPPHURIKHJRWKLVZLVK%URJDQLVD E\WKHIDLOXUHRIWKHJRYHUQPHQWWRRIIHUDSUHSRQGHUDQFHRI JUDGXDWH RI WKH 8QLYHUVLW\ RI 1RUWK &DUROLQD DW &KDUORWWH HYLGHQFHVKRZLQJ%URJDQjVMREWREHDSRVLWLRQRIWUXVWWKHVH ZKHUH KH UHFHLYHG D %6 LQ %XVLQHVV $GPLQLVWUDWLRQ IDFWVPD\KHOSH[SODLQZK\%URJDQPLJKWKDYHSURFHHGHGDV )LQDQFH LQDQGREWDLQHGDMREZLWK2DNZRRG+RPHV KHGLGGHVSLWHKDYLQJQRUHDVRQDEOHH[SHFWDWLRQVRIVXFFHVV &RUSRUDWLRQ  +LV SRVLWLRQ WKHUH ZDV PDQDJHU RI ILQDQFLDO DQDO\VLVZLWKDVDODU\RI+HZRUNHGDW2DNZRRG %URJDQ GLG QRW KDYH D SRVLWLRQ RI WUXVW VR KH FRXOG QRW XQWLO0D\ DEXVH VXFK D SRVLWLRQ  (YHQ WKRXJK %URJDQjV mSRVLWLRQ VLJQLILFDQWO\DLGHGKLPLQWKHFRPPLVVLRQDQGFRQFHDOPHQWRI %URJDQ ZDV KLUHG E\ &KDPSLRQ (QWHUSULVHV RI $XEXUQ KLV RIIHQVH    >WKLV GRHV QRW@ RYHUULGH>@ WKH LQKHUHQWO\ +LOOV0LFKLJDQRQ0D\&KDPSLRQPDQXIDFWXUHV FOHULFDOQDWXUHRIKLVSRVLWLRQl7ULEEOH)GDW7KH PRELOHDQGPRGXODUKRPHVDQGKLUHG%URJDQDVLWVmDVVLVWDQW ORZHUFRXUWSODFHGWRROLWWOHHPSKDVLVRQWKHDXWKRULW\DQG WUHDVXUHUlDWDVDODU\RI2QsXQH%URJDQ GLVFUHWLRQ%URJDQjVMREDFWXDOO\HQWDLOHGZKHQLWLQTXLUHGLI ILOHG DUWLFOHV RI LQFRUSRUDWLRQ LQ 0LFKLJDQ HVWDEOLVKLQJ KH KDG YLRODWHG WKH KHLJKWHQHG GXW\ RI WUXVW LPSOLFDWHG E\ m&KDPSLRQ&RPSDQLHV,QFlZLWKKLPVHOIDVSUHVLGHQW+H †%7KLVVHQWHQFHHQKDQFHPHQWLVPHDQWWRGLVFRXUDJH RSHQHGDEDQNDFFRXQWDW)LUVW&KLFDJR1%'IRUm&KDPSLRQ YLRODWLRQVRIWKHNLQGRIWUXVWZHVKRZWRRXUILGXFLDULHVDQG SXEOLFRIILFLDOVoDQGZHFRQFOXGHWKDWWKHPLVSODFHGUHOLDQFH DQG ODFN RI VXSHUYLVLRQ &KDPSLRQ VKRZHG WRZDUG %URJDQ  ZDV QRW WKLV VRUW RI LQVWLWXWLRQDOL]HG DQG QHFHVVDU\ WUXVW 7KH FLUFXPVWDQFHV RI %URJDQjV IRUFHG WHUPLQDWLRQ IURP KLV SUHYLRXV MRE DUH WKH VXEMHFW RI D FRXQW EDQN IUDXG LQGLFWPHQW LQ WKH 0LGGOH UHODWLRQVKLS$FFRUGLQJO\ZH5(9(56(WKHHQKDQFHPHQW 'LVWULFW RI 1RUWK &DUROLQD  8QLWHG6WDWHVY%URJDQ 1R 1R 8QLWHG6WDWHVY%URJDQ  %URJDQjVMRE7KHJRYHUQPHQWLQVWHDGDQDORJL]HVWR8QLWHG &RPSDQLHVl LQIRUPLQJ EDQN RIILFLDOV KH ZDV LQWHQW RQ 6WDWHV Y 'HDO  )G   WK &LU   ZKLFK GHYHORSLQJDFKDLQRI.ULVS\.UHPHGRXJKQXWVKRSV LQYROYHGSD\PHQWRIDSKRQ\GHEWFRYHUHGRYHUE\DIDOVH H[SODQDWLRQDFFHSWHGE\VXSHULRUV+RZHYHU'HDOLQYROYHG 2QHRI%URJDQjVPDLQWDVNVDW&KDPSLRQ(QWHUSULVHVZDV WKHFKLHIILQDQFLDORIILFHURIWKHFRUSRUDWLRQZKRmGRFWRUHGl WR VHW XS ZLUH WUDQVIHUV IRU KLV HPSOR\HUV  %URJDQ ZRXOG ILQDQFLDO UHFRUGV WR FRQFHDO KLV FULPH  $VLGH IURP WKH UHFHLYHLQVWUXFWLRQVIURPKLVVXSHUYLVRUVDERXWWUDQVDFWLRQV VXEVWDQWLDOGLIIHUHQFHEHWZHHQ%URJDQjVSRVLWLRQDQGD&)2 WKH\ZDQWHGDQG%URJDQZRXOGWKHQSXWWKHVHLQWRWKHSURSHU WKHUHLVQRHYLGHQFH%URJDQDFWXDOO\mGRFWRUHGl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sXQH   DV SDUW RI D JURXS RI OHJLWLPDWH ZLUH PLVGLUHFW HOHFWURQLF IXQGV WUDQVIHUV DQG ZDV mWUXVWHG WR WUDQVIHUVKHKDGSUHSDUHG%URJDQDUUDQJHGIRUDQDGGLWLRQDO KDQGOHlPRUHPRQH\WKDQDQmRUGLQDU\EDQNWHOOHUl *RYjW WUDQVIHU RI  IURP WKH DFFRXQW RI &KDPSLRQ %ULHIDW &I8QLWHG6WDWHVY:LOOLDPV)G (QWHUSULVHVDW&RPHULFD%DQNWKLVH[WUDWUDQVIHUJRLQJWRWKH  WK &LU   UHYHUVLQJ HQKDQFHPHQW ZKHUH RWKHU DFFRXQWKHKDGVHWXSDW)LUVW&KLFDJR1%'IRU&KDPSLRQ HPSOR\HHV FRXOG DOVR KDYH FRPPLWWHG WKH FULPH   )LUVW &RPSDQLHV2QDSSHDODQGHYHQDIWHURUDODUJXPHQWZHDUH %URJDQjV SRVLWLRQ ZDV QRW mXQLTXHl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jW %ULHI DW     $FFRUGLQJ WR WKDQ WUXVW UHODWLRQVKLS VRPHZKDW PLVWDNHV RXU LQTXLU\ %URJDQjVWHVWLPRQ\WKHDVVLVWDQWFRQWUROOHUGLGVXEVHTXHQWO\ %HORZWKHJRYHUQPHQW ZKHQLWREMHFWHGWRWKHLPSRVLWLRQRI DVN%URJDQDERXWWKHWUDQVIHUEXWVHHPHGVDWLVILHGZLWKKLV WKHHQKDQFHPHQW FKDUDFWHUL]HG%URJDQDVEHLQJHVVHQWLDOO\ H[SODQDWLRQ WKDW LW ZDV D SD\GRZQ RQ D ODUJH ORDQ D D mFRPSXWHU SURJUDPPHU RU WHFKQLFLDQl  7KH JRYHUQPHQW UHYROYLQJOLQHRIFUHGLW WKDWWKHFRPSDQ\KDGZLWK31&%DQN FRQWLQXHVWRVD\FDUHIXOO\WKDW%URJDQmKDQGOHGlPLOOLRQVRI LQ3LWWVEXUJK GROODUV  %XW WKLV GLIIHUHQFH EHWZHHQ mKDQGOLQJl DQG mDGPLQLVWHULQJl SURSHUW\ LV IXQGDPHQWDO WR LGHQWLI\LQJ WKH 'XULQJWKHODVWWZRZHHNVRIsXQH%URJDQWUDQVIHUUHG GLVFUHWLRQDU\SRZHUVZKRVHDEXVHLVSXQLVKHGE\†% IURPWKH)LUVW&KLFDJR1%'DFFRXQWWRKLVSHUVRQDO 6HH7ULEEOH)GDW DFFRXQW DW 6WDQGDUG )HGHUDO %DQN  +H DOVR WUDQVIHUUHG WRWKHDFFRXQWRIDEXLOGHUIURPZKRP%URJDQZDV 8QGHUXVXDOFLUFXPVWDQFHVRQHVWLOOPLJKWEHWHPSWHGWR SXUFKDVLQJDKRPHLQWKH'HWURLWDUHD+HDSSHDUVWRKDYH ZRQGHUDW%URJDQjVFRQILGHQFHLQKLVDELOLW\WRFRPPLWWKH LQYHVWHGWKHUHPDLQGHULQFRQVHUYDWLYHFRPPHUFLDOSDSHUDW FULPHLIDVZHVKDOOKROGKHGLGQRWRFFXS\DSRVLWLRQRIWUXVW )LUVW&KLFDJR1%'%URJDQZHQWRQVRPHWKLQJRIVSHQGLQJ  8QLWHG6WDWHVY%URJDQ 1R 1R 8QLWHG6WDWHVY%URJDQ  VSUHHRXWRIKLV6WDQGDUG)HGHUDODFFRXQWSXUFKDVLQJLQWHU WUXVW7KHFRXUWWKXVORRNHGDWZKDWLQIDFWKDSSHQHGUDWKHU DOLDDQHZ%0:DQGWZRQHZ0HUFHGHV WKDQLQTXLULQJLQWRmWKHLQKHUHQWQDWXUHRIWKHZRUNl%URJDQ SHUIRUPHGDQGWKHGLVFUHWLRQKHZDVDFFRUGHGLQKLVSRVLWLRQ %URJDQZDVFDXJKWE\KLVRZQEDQNWKHORVVSUHYHQWLRQ 7KHUHLVQRGRXEWRIFRXUVHWKDW&KDPSLRQmWUXVWHGl%URJDQ RIILFHUVDW)LUVW&KLFDJR1%',QHDUO\sXO\WKH\EHJDQWREH GHVSLWHKLVVKRUWVHUYLFHZLWKWKHPRUDWOHDVWWKHFRUSRUDWH VXVSLFLRXV RI %URJDQjV &KDPSLRQ &RPSDQLHV DFFRXQW DQG RIILFHU GLG ZKR DSSURYHG WKH ZLUH WUDQVIHU DQG EHOLHYHG WUDFHGWKHRULJLQDOVRXUFHRIWKHDFFRXQWGHSRVLWV WKHZLUH %URJDQjVOLH7KLVVRPHZKDWGLVWLQJXLVKHV%URJDQIURPWKH WUDQVIHU  EDFN WR &RPHULFD %DQN  8SRQ LQYHVWLJDWLRQ GHIHQGDQWVLQ5DJODQGDQG7ULEEOHZKRVHFUHGLELOLW\ZLWKWKH &RPHULFD LGHQWLILHG .HYLQ %URJDQ DV RQH RI WKHLU OLVWHG FRPSDQ\ ZDV QHYHU PHDVXUHG EHFDXVH WKH UHOHYDQW FRQWDFWV DW &KDPSLRQ (QWHUSULVHV D  ORQJWLPH &RPHULFD WUDQVDFWLRQV ZHUH FRQFHDOHG  +RZHYHU WKH PRUH UHOHYDQW FXVWRPHU2QsXO\WKH\FRQWDFWHGWKHJHQHUDOFRXQVHO TXHVWLRQLVZKHWKHU%URJDQFRXOGKDYHH[SHFWHGWRUHFHLYH DW&KDPSLRQ(QWHUSULVHVDQGWKHVFKHPHZDVUHYHDOHGZLWK VXFK FUHGLELOLW\ JLYHQ WKH UHVSRQVLELOLWLHV RI KLV SRVLWLRQ %URJDQFRQIHVVLQJLPPHGLDWHO\ 7KHUH VHHPV WR EH LQVXIILFLHQW HYLGHQFH WKHUH H[LVWHG D mILGXFLDU\OLNHl UHODWLRQVKLS WKDW JDYH KLP WKH FDSDFLW\ WR %URJDQHQWHUHGLQWRWZR5XOHSOHDEDUJDLQVZLWKIHGHUDO SHUSHWUDWHKLVIUDXG SURVHFXWRUVLQH[FKDQJHIRUDFFHSWLQJDGHIDXOWMXGJPHQWLQ IRUIHLWXUHSURFHHGLQJVDJDLQVWKLP6HH)HG5&ULP3URF %URJDQKDGSRVVHVVLRQRIDOPRVWHLJKWPLOOLRQGROODUVIRU   7KH XQUHFRYHUHG ORVV QRZ DWWULEXWHG WR %URJDQ LV WKUHHZHHNV/LNHWKHGHIHQGDQWLQ5DJODQGWKHFULPHZDV DSSUR[LPDWHO\7KHILUVW5XOHDJUHHPHQWVHWDFDS LQHYLWDEO\JRLQJWREHGLVFRYHUHGDQGmLWZDVRQO\E\EOLQG DW  PRQWKV  7KH VHFRQG 5XOH  DJUHHPHQW WRRN LQWR OXFNWKDW>KH@ZDVQRWGLVFRYHUHGVRRQHUl)GDW DFFRXQWWKHIRXUOHYHOHQKDQFHPHQWIRUDIIHFWLQJDILQDQFLDO $OWHUQDWLYHO\ RQH FRXOG DWWULEXWH KLV WHPSRUDU\ VXFFHVV WR LQVWLWXWLRQ IRU RYHU   866* † ) E  %  OLJKWVXSHUYLVLRQRUOD[DXGLWLQJSURFHGXUHVEXWQHLWKHURI 7KLVJHQHUDWHGDJXLGHOLQHUDQJHRIPRQWKV RIIHQVH WKHVHZRXOGJHQHUDOO\EHVXIILFLHQWVWDQGLQJDORQHWRZDUUDQW OHYHO  &+& ,  EXW WKH JRYHUQPHQW DJUHHG WR FDS WKH DSSOLFDWLRQRIWKHHQKDQFHPHQW6HH7ULEEOH)GDW VHQWHQFHDWPRQWKV1HLWKHUDJUHHPHQWLQFOXGHGWKHWZR 9LVXDOLQVSHFWLRQRI%URJDQj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jVFULPH WKHSUHVHQWHQFHUHSRUWjVSRVLWLRQDQGEDVHGWKHVHQWHQFHRQ RIIHQVH OHYHO  JHQHUDWLQJ D JXLGHOLQH UDQJH RI  7KH JRYHUQPHQW DJUHHV WKDW %URJDQ mZDV QRW JLYHQ WKH PRQWKV%URJDQ GLGQRWZLWKGUDZKLVJXLOW\SOHDDQGZDV DXWKRULW\ WR WUDQVIHU PXOWLPLOOLRQ GROODU VXPV ZLWKRXW WKH VHQWHQFHGWRPRQWKV ILQDODSSURYDORIDVXSHULRUl *RYjW%ULHIDW $SSDUHQWO\ %URJDQGLGQRWHYHQKDYHWKHDELOLW\WRLQLWLDWHDZLUHWUDQVIHU 7KHFRXUWjVILQGLQJRQWKHSRVLWLRQRIWUXVWLVVXHDSSHDUVWR RIDQ\VL]H7KHMREGHVFULSWLRQRIWKHDVVLVWDQWWUHDVXUHUODWHU KDYHEHHQEDVHGRQWKUHHIDFWRUV  WKHMREGHVFULSWLRQRI SUHVHQWHG E\ &KDPSLRQ WKDW LQFOXGHV mPDQDJLQJ WKH GDLO\ %URJDQjVSRVLWLRQIRXQGLQWKHSUHVHQWHQFHUHSRUW  WKH FDVKSRVLWLRQlLVQRWDVVHUWHGE\WKHJRYHUQPHQWDVGHVFULELQJ ZLOOLQJQHVVRIKLVVXSHULRUWREHOLHYHKLVH[SODQDWLRQRIWKH  8QLWHG6WDWHVY%URJDQ 1R 1R 8QLWHG6WDWHVY%URJDQ  LQIUHTXHQWO\6HH)GDW:HUHYHUVHGWKHORZHU ZLUH WUDQVIHU DQG   WKH VKHHU VL]H RI WKH WKHIW  7KH MRE FRXUWjVDSSOLFDWLRQRID†%HQKDQFHPHQW6HHLGDW GHVFULSWLRQ DV XVHG LQ WKH SUHVHQWHQFH UHSRUW JLYHV WKH UHVSRQVLELOLWLHV RI WKH mDVVLVWDQW WUHDVXUHUl DV LQFOXGLQJ ,Q5DJODQGDEDQNWHOOHUSRFNHWHGWKHPRQH\JLYHQWRKHU mVWUXFWXULQJDQGPRQLWRULQJRIDOOIRUPVRIGHEWILQDQFLQJ E\ FXVWRPHUV IRU FHUWLILFDWHV RI GHSRVLW WKHQ IRUJHG WKH VKRUW DQG ORQJ WHUP LQYHVWPHQWV PDQDJLQJ WKH GDLO\ FDVK VLJQDWXUHVRIEDQNRIILFHUVRQWKH&'FHUWLILFDWHVmLVVXLQJl SRVLWLRQ RI WKH FRPSDQ\ PDQDJLQJ WKH ULVN PDQDJHPHQW WKHPWRWKHFXVWRPHUVZLWKRXWUHFRUGLQJWKHPZLWKWKHEDQN SURFHVV IRU WKH FRUSRUDWLRQ GHYHORSLQJ DQG DQDO\]LQJ 7KHGHIHQGDQWKDGQRDXWKRULW\WRLVVXHWKHLQVWUXPHQWVoKHU UHTXHVWV IRU SURSRVDOV IRU D UDQJH RI EDQNLQJ FDVK UROHmZDVHVVHQWLDOO\VHFUHWDULDOloEXWRYHUVHYHUDO\HDUVVKH PDQDJHPHQWDQGULVNPDQDJHPHQWVHUYLFHVDQGDFWLQJDVD VWROHRYHUDPLOOLRQGROODUV)GDW:HKHOGKHU OLDLVRQ EHWZHHQ YDULRXV ILQDQFLDO LQVWLWXWLRQVl  7KLV SRVLWLRQ ZDV QRW RQH ZDUUDQWLQJ DSSOLFDWLRQ RI WKH GHVFULSWLRQZDVJLYHQWRWKHSUHVHQWHQFHZULWHUE\&KDPSLRQ HQKDQFHPHQWUHYHUVLQJWKHORZHUFRXUW (QWHUSULVHV7KHORZHUFRXUWGLGQRWH[SOLFLWO\UHO\RQWKLV GHVFULSWLRQ EXW mDJUHH>G@ IXOO\ ZLWK WKH SUREDWLRQ RIILFHUjV :H XSKHOG XVH RI WKH HQKDQFHPHQW LQ 8QLWHG 6WDWHV Y DQDO\VLVlZKLFKLQWXUQLVEDVHGRQWKHDERYHGHVFULSWLRQ $OOLVRQ)G WK&LU $OOLVRQZDVDFDVKLHUDW 3DUWLFXODUO\GDPDJLQJWR%URJDQLVWKHGHVFULSWLRQjVDVVHUWLRQ DQLQVXUDQFHFRPSDQ\$IWHUJHWWLQJDQH[HFXWLYHVLJQDWXUH WKDWKHZDVUHVSRQVLEOHIRUPDQDJLQJWKHFRPSDQ\jVmGDLO\ RQ WKH FKHFNV VKH ZDV GUDIWLQJ IRU FRPSDQ\ FUHGLWRUV VKH FDVK SRVLWLRQl ZKLFK ZRXOG LW PDNH PRUH SODXVLEOH WKDW DOWHUHGWKHSD\HHWRKHUVHOIRUKHUSHUVRQDOFUHGLWRUV$OOLVRQ WUDQVDFWLRQV VXFK DV SD\GRZQV UHGXFLQJ WKH GHEW WKH ZDV DOVR UHVSRQVLEOH IRU UHFRQFLOLQJ FDQFHOHG FKHFNV ZLWK FRPSDQ\ FDUULHG ZHUH ZLWKLQ KLV SXUYLHZ DQG WKDW KLV WKRVHLVVXHGZKHQ KHU DOWHUHGFKHFNVFDPHEDFNIURPWKH VXSHULRUVDSSURSULDWHO\WUXVWHG%URJDQjVIDOVHH[SODQDWLRQIRU EDQNVKHVLPSO\DOWHUHGWKHSD\HHOLQHRQWKHFDQFHOHGFKHFN WKHZLUHWUDQVIHU EDFN WR WKH RULJLQDOO\ LQWHQGHG UHFLSLHQW  7KLV HIIHFWLYHO\ FRQFHDOHGKHUDFWLYLWLHVZLWKLQWKHFRPSDQ\DQGKHUVFKHPH %URJDQFRQWHQGVWKLVMREGHVFULSWLRQZDVFUHDWHGSRVWKRF QHWWHGRYHUPRQWKV6HHLGDW:HGLGQRWH E\ &KDPSLRQ (QWHUSULVHV DQG GLG QRW GHVFULEH %URJDQjV WKDW HQKDQFHPHQW ZDV ZDUUDQWHG EHFDXVH RI KHU SRVLWLRQDO DFWXDOGXWLHVZKLFKZHUHPRUHDNLQWRWKRVHRIDFRPSXWHU FDSDFLW\ WR FRQFHDO KHU WKHIW LG DW  KRZHYHU WKH SURJUDPPHU RU WHFKQLFLDQ  7KH JRYHUQPHQW DJUHHG ZLWK HQKDQFHPHQWZDVDFWXDOO\XSKHOGRQRWKHUJURXQGV $OOLVRQ %URJDQjVYLHZH[SOLFLWO\LQWKHORZHUFRXUWDQGGRHVQRWVHHP KDGDJUHHGWRLWLQKHUSOHDEDUJDLQ DQGWKHFRXUWjVILQGLQJ WRKDYHFKDQJHGLWVIXQGDPHQWDOYLHZRQDSSHDO,QVWHDGLW RQWKHPHULWVLVQRZFRQVLGHUHGGLFWD7ULEEOH)GDW DUJXHVWKHUHZDVDOHJDOEDVLVIRUWKHGLVWULFWFRXUWGHFLVLRQ  GHVSLWH DFNQRZOHGJLQJ WKDW %URJDQ KDG QR LQGHSHQGHQW DXWKRULW\WRPDNHZLUHWUDQVIHUVRIWKHW\SHDWLVVXH *RYjW %URJDQGRHVQRWDSSHDUWRPHULWDSSOLFDWLRQRIWKHDEXVHRI %ULHIDW  SRVLWLRQRIWUXVWHQKDQFHPHQWXQGHURXUFXUUHQWSUHFHGHQWV 7KHGLVWULFWFRXUWUHDVRQHGWKDWJLYHQWKHDPRXQWRIPRQH\ LQYROYHGDQGWKHZLOOLQJQHVVRI&KDPSLRQWRDFFHSW%URJDQjV ERJXVH[SODQDWLRQUHJDUGLQJLW%URJDQZDVLQDSRVLWLRQRI   5DJODQG XVHG VRPH RI WKH IXQGV LQ D 3RQ]LOLNH VFKHPH WR SD\ ,QGHHG WKH JRYHUQPHQW VXJJHVWHG EHORZ WKDW WKLV MRE GHVFULSWLRQ LQWHUHVW RQ HDUOLHU &'V LVVXHG WR mKHUl FXVWRPHUV RSHUDWLQJ DV D VRUW RI PD\ KDYH EHHQ JHQHUDWHG LQ RUGHU WR VKLHOG &KDPSLRQ (QWHUSULVHV IURP RQHSHUVRQ EDQN ZLWKLQ D EDQN SUREOHPV ZLWK LWV LQVXUHU  8QLWHG6WDWHVY%URJDQ 1R 1R 8QLWHG6WDWHVY%URJDQ  ,, SRVLWLRQVVXFKDVDQmRUGLQDU\EDQNWHOOHUlRUmKRWHOFOHUNlDUH PHQWLRQHGDVLQDSSURSULDWH6HH866*†%FRPPHQW 6WDQGDUGRI5HYLHZ Q ,QJHQHUDOWKHIRUPDWLRQRIWKHVHVRUWVRIFRQILGHQWLDO LQWHUGHSHQGHQW UHODWLRQVKLSV LV VRFLDOO\ EHQHILFLDO  6XFK 7KHGHFLVLRQRIDORZHUFRXUWWRDSSO\866*†%LV UHODWLRQVKLSVUHTXLUHKRZHYHUmIDLWKLQRQHjVIHOORZPDQl WUHDWHGDVTXHVWLRQRIODZLQWKH6L[WK&LUFXLWm:HUHYLHZGH ZKLFK LV JHQHUDOO\ XQGHUPLQHG ZKHQ DQ LQVWDQFH RI DEXVH QRYR WKH 'LVWULFW &RXUWjV GHWHUPLQDWLRQ WKDW >GHIHQGDQW@ RFFXUV5DJODQG)GDW,QHIIHFW5DJODQGVXJJHVWV RFFXSLHGDSRVLWLRQRIWUXVWIRUWKHSXUSRVHVRIWKH6HQWHQFLQJ WKDWDQLPSRUWDQWSXUSRVHRI†%LVWKHGHIHQVHRISULYDWH *XLGHOLQHVl8QLWHG6WDWHVY7ULEEOH)G WK RUGHULQJEDVHGRQWUXVW RUSUHVXPDEO\LQFDVHVZKHUHmSXEOLF &LU 6HHDOVR8QLWHG6WDWHVY5DJODQG)G WUXVWlLVYLRODWHG WKHQHFHVVDU\IDLWKFLWL]HQVPXVWKDYHLQ  WK&LU  JRYHUQPHQW IRU D ZHOO IXQFWLRQLQJ UHSXEOLF  WKLV VHSDUDWH ZURQJPHULWVDGGLWLRQDOSXQLVKPHQW $ SRVLWLRQ RI WUXVW XQGHU WKH JXLGHOLQHV LV RQH mFKDUDFWHUL]HG E\ SURIHVVLRQDO RU PDQDJHULDO GLVFUHWLRQl $QRWKHUSXUSRVHRI†%ZKLFKSRVW7ULEEOHPXVWQRZ 866*†%FRPPHQW Q 7KHJXLGHOLQHVFRQWLQXHE\ EH FRQVLGHUHG VHFRQGDU\ LV WKH SURYLVLRQ RI DGGLWLRQDO H[SODLQLQJWKDWm>S@HUVRQVKROGLQJVXFKSRVLWLRQVRUGLQDULO\ GHWHUUHQFHIRUFULPHVWKDWDUHmGLIILFXOWWRGHWHFWlGXHWRWKH DUHVXEMHFWWRVLJQLILFDQWO\OHVVVXSHUYLVLRQWKDQHPSOR\HHV GHIHQGDQWjVSRVLWLRQ6HH866*†%FRPPHQW Q  ZKRVH UHVSRQVLELOLWLHV DUH SULPDULO\ QRQGLVFUHWLRQDU\ LQ 7KLV ZRXOG SRWHQWLDOO\ VHUYH WR UDLVH WKH H[SHFWHG FRVW WR QDWXUHl,ELG$OWKRXJKDQXPEHURIFDVHVRQWKLVLVVXHORRN WKRVHWHPSWHGE\DQDELOLW\WRFRQFHDOWKHLUWUDQVJUHVVLRQV WRKRZZHOOWKHLQGLYLGXDOLQIDFWZDVVXSHUYLVHGZHKDYH +RZHYHUDFFRUGLQJWR7ULEEOHLWLVWKHmLQKHUHQWQDWXUHRI UHFHQWO\UHDIILUPHGWKDWmWKHOHYHORIGLVFUHWLRQDFFRUGHGDQ WKH ZRUNl LQYROYHG LQ ZKLFK VXEVWDQWLDO QRQPLQLVWHULDO HPSOR\HHLVWREHWKHGHFLVLYHIDFWRULQGHWHUPLQLQJZKHWKHU DJHQF\KDVEHHQEHVWRZHGWKDWVKRXOGFRQWUROWKHLQTXLU\ KLV SRVLWLRQ ZDV RQH WKDW FDQ EH FKDUDFWHUL]HG DV D WUXVW )GDW7KXV7ULEEOHGLVWLQJXLVKHVHPSOR\HHVZKR SRVLWLRQl7ULEEOH)GDW FULWLFL]LQJRYHUHPSKDVLV DGPLQLVWHUDQRWKHUjVSURSHUW\IURPWKRVHDXWKRUL]HGRQO\WR RQ WKH DPRXQW RI VXSHUYLVLRQ DQ HPSOR\HH UHFHLYHV   7KH KDQGOHLWEXWZKRDUHOLJKWO\VXSHUYLVHG6HHLELGFI8QLWHG mSRVLWLRQl PXVW EH RQH mFKDUDFWHUL]HG E\ VXEVWDQWLDO 6WDWHVY:DUG)G WK&LU  YDFDWLQJ GLVFUHWLRQDU\MXGJPHQWWKDWLVRUGLQDULO\JLYHQFRQVLGHUDEOH †%HQKDQFHPHQWDSSOLHGWRDUPRUHGFDUJXDUGZKRVWROH GHIHUHQFHl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mH[FHVVl DSDUWLFXODUSRVLWLRQFHGLQJWRWKHRWKHUjVSUHVXPHGEHWWHU FDVKLQKLVGUDZHU7ULEEOHZDVPRQLWRUHGRQDGDLO\EDVLVE\ MXGJPHQWVRPHFRQWURORYHUWKHLUDIIDLUV6HHLELG,QGHHG LQVSHFWLRQRIWKHWUDQVDFWLRQVRQKLVFRPSXWHUEXWKLVYRLGLQJ WKH JXLGHOLQH H[DPSOHV RI ZKHUH WKH HQKDQFHPHQW LV RIWKHUHFHLSWNHSWWKHFKHFNVRXWRIWKLVV\VWHP$QDXGLW DSSURSULDWH FRUUHVSRQG WR WKH W\SHV RI UHODWLRQVKLSV ZKHUH ZKLFK ZRXOG KDYH UHYHDOHG WKH WKHIW ZDV FRQGXFWHG RQO\ ILGXFLDU\GXWLHVDUHRIWHQLPSOLHGSK\VLFLDQSDWLHQWODZ\HU FOLHQWRIILFHURUJDQL]DWLRQ%\FRQWUDVWEDVLFHPSOR\PHQW