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 81,7(' 67$7(6 2) $0(5,&$ ; 3ODLQWLII$SSHOOHH 1R Y ! /$55< 7 7$5:$7(5 'HIHQGDQW$SSHOODQW 1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI7HQQHVVHHDW.QR[YLOOH 1Rn5/HRQsRUGDQ'LVWULFWsXGJH $UJXHGsXQH 'HFLGHGDQG)LOHG2FWREHU %HIRUH0225(DQG6,/(5&LUFXLWsXGJHV67$))25' 'LVWULFWsXGJH BBBBBBBBBBBBBBBBB &2816(/ $5*8(' 'DYLG 6 :LJOHU .QR[YLOOH 7HQQHVVHH IRU $SSHOODQWsLPPLH%D[WHU$66,67$1781,7('67$7(6 $77251(< .QR[YLOOH 7HQQHVVHH IRU $SSHOOHH 7KH +RQRUDEOH :LOOLDP 6WDIIRUG 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI )ORULGD VLWWLQJ E\ GHVLJQDWLRQ 8QLWHG6WDWHVY7DUZDWHU 1R 21 %5,() 'DYLG 6 :LJOHU +HUEHUW 6 0RQFLHU .QR[YLOOH 7HQQHVVHH IRU $SSHOODQW sLPPLH %D[WHU $66,67$1781,7('67$7(6$77251(<.QR[YLOOH 7HQQHVVHHIRU$SSHOOHH 67$))25''sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQ ZKLFK6,/(5sMRLQHG0225(sSSGHOLYHUHG DVHSDUDWHGLVVHQWLQJRSLQLRQ BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB 67$))25''LVWULFWsXGJH$SSHOODQW/DUU\77DUZDWHU m7DUZDWHUlDSSHDOVKLVFRQYLFWLRQDQGVHQWHQFHIRUPDNLQJ IDOVHVWDWHPHQWVWRWKH,QWHUQDO5HYHQXH6HUYLFHm,56l:H DIILUP ,7+((9,'(1&( ,Q 7DUZDWHU D FHUWLILHG SXEOLF DFFRXQWDQW ZDV UHWDLQHGE\sHIIHUVRQ0HPRULDO+RVSLWDOms0+lWRSHUIRUP LWV DQQXDO DXGLW DQG WR SUHSDUH LWV DQQXDO 0HGLFDUH DQG 0HGLFDLG FRVW UHSRUWV $W WKH WLPH s0+ ZDV XVLQJ D FRQVXOWDQW:LOOLH'DYLVWRUHYLHZWKHKRVSLWDOjVFRVWUHSRUWV +LUHGRQDFRQWLQJHQF\IHHEDVLV'DYLVZDVSDLGIRUKLVZRUN LI LW UHVXOWHG LQ DGGLWLRQDO 0HGLFDUH DQG 0HGLFDLG UHLPEXUVHPHQWV WR WKH KRVSLWDO 7R REWDLQ KLV IHH 'DYLV VXEPLWWHG LWHPL]HG LQYRLFHV WR s0+jV &KLHI )LQDQFLDO 2IILFHU.DUHQ%UDGOH\&KDPEHUVm&KDPEHUVlH[SODLQLQJ ZKDWDPRXQWRIPRQH\WKHKRVSLWDOZRXOGEHUHFHLYLQJEDFN IURP0HGLFDUHDQGRU0HGLFDLG7KHFRVWUHSRUWVUHYLHZHG E\'DYLVIRUWKH\HDUVDIWHUZHUHSUHSDUHGE\7DUZDWHU ,Q7DUZDWHUDQG&UDLJ3HWHUVm3HWHUVlIRUPHGWKH 3HWHUV7DUZDWHU $VVRFLDWHVDFFRXQWLQJSDUWQHUVKLS7KH SDUWQHUVKLS PDLQWDLQHG LWV RQO\ EDQN DFFRXQW DW WKH +RPH )HGHUDO %DQN LQ .QR[YLOOH 7HQQHVVHH ZKHUH WKH SDUWQHUV ZHUHVXSSRVHGWRGHSRVLWDOOEXVLQHVVUHFHLSWV7KH3HWHUV 7DUZDWHUSDUWQHUVKLSODVWHGWKURXJK7DUZDWHUSUDFWLFHG 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU IDFWVLQGHWHUPLQLQJWKHDPRXQWRIORVV7KHFRXUWDQQRXQFHG DFFRXQWLQJ DV D VROH SURSULHWRU IURP sDQXDU\ XQWLO RQO\WKHIROORZLQJILQGLQJZLWKUHVSHFWWRWKHDPRXQWRIORVV $XJXVW2Q$XJXVW7DUZDWHUIRUPHGD m,jPSUHSDUHGWRUXOHRQWKHLVVXHVWKDWDUHEHIRUHWKHFRXUWDW FRUSRUDWLRQ7DUZDWHU+LQHV &RPSDQ\3&ZLWKDQRWKHU WKLVWLPHWKDWLVFRQFHUQLQJWKHDPRXQW,KDYHFDOFXODWHGWKH FHUWLILHG SXEOLF DFFRXQWDQW sHQQ\ +LQHV m+LQHVl 7KH DPRXQW ZKLFK LV QRZ PXOWLSOLHG E\ ZLOO FRUSRUDWLRQ PDLQWDLQHG LWV EXVLQHVV DFFRXQW DW WKH 7KLUG JLYHDWD[ORVVRIls$DW%HFDXVHWKHFRXUW 1DWLRQDO%DQNZKHUHDOOEXVLQHVVUHFHLSWVZHUHVXSSRVHGWR QHLWKHUGLVFXVVHGQRUUHVROYHGDQ\VSHFLILFIDFWXDOGLVSXWHV EHGHSRVLWHG7DUZDWHUSUDFWLFHGZLWK+LQHVXQWLO LWGLGQRWFRPSO\ZLWK5XOHF6HH8QLWHG6WDWHVY 0RQXV)GWK&LUFHUWGHQLHG ,QRUDERXWsXQHRI%DUQHWW%DQNRI)ORULGDQRWLILHG 86KROGLQJWKDWDFRXUWIDLOHGWRFRPSO\ZLWK &KDPEHUVWKDW'DYLVKDGSOHGJHGKLVs0+IHHUHFHLYDEOHVDV 5XOHFZKHUHLWRQO\mPDGHDQRUDOILQGLQJUHJDUGLQJ VHFXULW\IRUDORDQ%DUQHWW%DQNUHTXHVWHGWKDWDQ\PRQLHV WKHFRQWHVWHGFDOFXODWLRQRIHQKDQFHPHQWOHYHOVEDVHGRQWKH GXH'DYLVEHPDGHSD\DEOHWRERWKWKHEDQNDQGWR'DYLV YDOXHRIORVVUHVXOWLQJIURPGHIHQGDQWjVRIIHQVHl &KDPEHUVDJUHHGDQGWKHUHDIWHUZURWHDFKHFNMRLQWO\WR'DYLV DQG%DUQHWW%DQNLQWKHDPRXQWRI6RRQDIWHU :H YDFDWH D GHIHQGDQWjV VHQWHQFH DQG UHPDQG IRU VKHJDYH'DYLVWKHFKHFN&KDPEHUVZDVQRWLILHGE\WKHEDQN UHVHQWHQFLQJZKHUHDGLVWULFWFRXUWGRHVQRWmH[SODLQKRZLW WKDW'DYLVKDGDWWHPSWHGXQVXFFHVVIXOO\WRFDVKWKHFKHFN FDOFXODWHGWKHDPRXQWRIORVVRUUHVSRQGWRWKHGHIHQGDQWjV ,QIDFW'DYLVKDGDOWHUHGWKHFKHFNUHPRYLQJ%DUQHWW%DQNjV VSHFLILF IDFWXDO REMHFWLRQV WR WKH PHWKRGV RI FDOFXODWLRQ QDPHDVDSD\HH$QJHUHGE\'DYLVjVDFWLRQDQGFRQFHUQHG LQFOXGHGLQWKH36,l,GDWVHH8QLWHG6WDWHVY2VERUQH WKDW LI 'DYLV ZRXOG DOWHU D FKHFN KH PLJKW GR RWKHU )GWK&LU8QLWHG6WDWHVY2UODQGR XQDFFHSWDEOHWKLQJVDVZHOO&KDPEHUVVWRSSHGSD\PHQWRQ )GWK&LU8QLWHG6WDWHVY&RUUDGR WKH FKHFN 6KH WKHQ WROG 5REHUW )RVWHU WKH KRVSLWDOjV )GWK&LU(YHQZKHUHUHVHQWHQFLQJ DGPLQLVWUDWRUDERXW'DYLVjVFRQGXFW&KDPEHUVH[SODLQHGWR PD\QRWFKDQJHDGHIHQGDQWjVVHQWHQFHZHKDYHUHTXLUHGD )RVWHUWKDWVKHZDVXQZLOOLQJWRZRUNZLWK'DYLVDQ\ORQJHU GLVWULFWFRXUWWRmLVVXHZULWWHQILQGLQJVRIIDFWWKDWUHVSRQGWR DQGVKHUHFRPPHQGHGWKDWKLVFRQWUDFWZLWKWKHKRVSLWDOEH WKH GHIHQGDQWjV REMHFWLRQV WR WKH 36,l DQG mSXEOLVK WKH WHUPLQDWHG UHVROXWLRQRIFRQWHVWHGIDFWXDOPDWWHUVWKDWIRUPHGWKHEDVLV RILWVFDOFXODWLRQlXSRQUHPDQG0RQXV)GDW 6RRQDIWHUKHUPHHWLQJZLWK)RVWHU&KDPEHUVZDVDGYLVHG 7KHUHIRUH,ZRXOGYDFDWH7DUZDWHUjVVHQWHQFHDQGUHPDQGIRU WKDWZKLOH'DYLVjVFRQWUDFWZDVQRWEHLQJWHUPLQDWHG'DYLV UHVHQWHQFLQJVRWKDWWKHGLVWULFWFRXUWFDQUHVROYHFRQWHVWHG ZRXOG WKHUHDIWHU ZRUN WKURXJK DQG EH SDLG WKURXJK IDFWV DQG H[SODLQ LWV FDOFXODWLRQ RI WKH DPRXQW RI ORVV 7DUZDWHU)RVWHUDSSURYHGWKH7DUZDWHUWR'DYLVSD\PHQW DWWULEXWDEOHWR7DUZDWHUXQGHUWKH6HQWHQFLQJ*XLGHOLQHV DUUDQJHPHQW 7ZR FKHFNV WRWDOLQJ WKH H[DFW DPRXQW RI WKH FKHFN IURP ZKLFK 'DYLV UHPRYHG %DUQHWW %DQNjVQDPHZHUHVRRQDIWHUPDGHSD\DEOHWR7DUZDWHUIRU 'DYLV %HWW\H.LQJm.LQJlWKHs0+ERRNNHHSHUSUHSDUHGDOO FKHFNVIRUWKHKRVSLWDOEXWKDGQRVLJQDWRU\DXWKRULW\7ZR DGPLQLVWUDWLYHRIILFHUVXVXDOO\)RVWHUDQG&KDPEHUVKDGWR VLJQWKHFKHFNV7DUZDWHUURXWLQHO\JDYH.LQJLQYRLFHVWR GRFXPHQWKLVDXGLWLQJDQGFRVWUHSRUWZRUNDQGEDVHGRQ 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU WKRVHLQYRLFHV.LQJSUHSDUHGFKHFNVSD\DEOHWR7DUZDWHUjV DWD[HYDVLRQFDVHWKDWDMXU\LQVWUXFWLRQVKLIWLQJWKHEXUGHQ DFFRXQWLQJILUP%HJLQQLQJLQ$XJXVWRI.LQJPDGH RISURRIUHJDUGLQJDWD[SD\HUjVNQRZOHGJHRIWKH WD[FRGH WKHm:LOOLH'DYLVlFKHFNVSD\DEOHWR7DUZDWHULQGLYLGXDOO\ ZDVQRWKDUPOHVVHUURU $OWKRXJK'DYLVKDGSUHYLRXVO\VXEPLWWHGLWHPL]HGLQYRLFHV ZKHQs0+SDLGKLPGLUHFWO\IRUKLVZRUNQRVXFKLQYRLFHV %HFDXVH WKH MXU\ LQVWUXFWLRQ VKLIWHG WKH JRYHUQPHQWjV RU VWDWHPHQWV ZHUH VXEPLWWHG DIWHU 7DUZDWHU EHFDPH WKH EXUGHQ RI SURRI WR 7DUZDWHU DV WR D IDFW JRLQJ WR WKH RQO\ FRQGXLW IRU SD\PHQWV WR 'DYLV ,QLWLDOO\ .LQJ ZURWH WKH HOHPHQW DW LVVXH LQ WKH FDVH WKH HUURU LV VWUXFWXUDO DQG m:LOOLH 'DYLVl FKHFNV WR 7DUZDWHU DW WKH GLUHFWLRQ RI WKHUHIRUHPDQGDWHVWKDWZHYDFDWHWKHFRQYLFWLRQDQGUHPDQG &KDPEHUVRU)RVWHU/DWHU7DUZDWHUVLPSO\WROG.LQJZKDW WRWKHGLVWULFWFRXUW DPRXQWV ZHUH WR EH SDLG WR KLP RQ EHKDOI RI 'DYLV $FFRUGLQJ WR .LQJ VKH GLG QRW TXHVWLRQ WKH DEVHQFH RI ,,68)),&,(1&<2))$&78$/),1',1*6,1 GRFXPHQWDWLRQEHFDXVH7DUZDWHUZDVWKHKRVSLWDOjVDXGLWRU $66(66,1*$775,%87$%/(/266 $IWHU OHDUQLQJ DERXW WKH 7DUZDWHUWR'DYLV SD\PHQW 7KHGLVWULFWFRXUWIDLOHGWRPDNHVXIILFLHQWO\LQGHSHQGHQW DUUDQJHPHQW&KDPEHUVDWWHPSWHGWRLQVWLWXWHDQDXGLWUHYLHZ ILQGLQJV RI IDFW LQ DVVHVVLQJ WKH WRWDO DPRXQW RI WD[ ORVV SURFHVV WR GHWHUPLQH WKH FRUUHFWQHVV DQG SURSULHW\ RI WKH DWWULEXWDEOHWR7DUZDWHUDWKLVVHQWHQFLQJKHDULQJDVUHTXLUHG KRVSLWDOjVSD\PHQWVWR'DYLVWKURXJK7DUZDWHU6KRUWO\DIWHU E\)HGHUDO5XOHRI&ULPLQDO3URFHGXUHF3XUVXDQWWR VKHVWDUWHGWKHSURFHVVKRZHYHUVKHZDVLQVWUXFWHGE\)RVWHU 5XOHFIRUHDFKPDWWHUFRQWURYHUWHGDWDVHQWHQFLQJ WR FHDVH WKH ZRUN DQG WR DFFHSW WKH SD\PHQW UHTXHVWV KHDULQJ mWKH FRXUW PXVW PDNH HLWKHU D ILQGLQJ RQ WKH SUHVHQWHG E\ 7DUZDWHU &KDPEHUV FRPSODLQHG DERXW WKH DOOHJDWLRQ RU D GHWHUPLQDWLRQ WKDW QR ILQGLQJ LV QHFHVVDU\ DEVHQFH RI DQ DXGLW WUDLO EXW WR QR DYDLO $FFRUGLQJ WR EHFDXVHWKHFRQWURYHUWHGPDWWHUZLOOQRWEHWDNHQLQWRDFFRXQW &KDPEHUV7DUZDWHUGHFLGHGZKHQDQGIRUKRZPXFKFKHFNV LQRUZLOOQRWDIIHFWVHQWHQFLQJl)HG5&ULP3F ZHUH WR EH LVVXHG WR KLP IRU 'DYLV $OWKRXJK LW ZDV KHU 7KLVFRXUWKDVUHFRJQL]HGWKDWm>W@KHSULPDU\SXUSRVHIRUWKLV QRUPDO SUDFWLFH DV ZHOO DV WKH KRVSLWDOjV WR LQVLVW RQ UXOH LV WR HQVXUH WKDW VHQWHQFLQJ LV EDVHG RQ UHOLDEOH IDFWV GRFXPHQWDWLRQWRVXSSRUWDQ\SD\PHQWRIPRQLHV&KDPEHUV IRXQG E\ WKH FRXUW LWVHOI DIWHU GHOLEHUDWLRQ QRW RQ WKH VLJQHG WKH XQGRFXPHQWHG FKHFNV WR 7DUZDWHU EHFDXVH GHOHJDWLRQRIWKHIDFWILQGLQJSURFHVVWRWKHSUREDWLRQRIILFHU m7DUZDWHUZDVKLUHGE\WKH%RDUGRI'LUHFWRUV>DQG@KHFRXOG RUWKHSURVHFXWLRQl8QLWHG6WDWHVY3DUURWW)G WHOO>KHU@ZKDWWRGRls$DW)RVWHUOLNHZLVHVLJQHGWKH WK&LUVHH8QLWHG6WDWHVY%HQQHWW)G FKHFNVZLWKRXWLQVLVWLQJRQGRFXPHQWDWLRQEHFDXVHKHWUXVWHG WK &LU 7KLV FRXUW UHTXLUHV mOLWHUDO 7DUZDWHU NQHZ WKDW WKH FKHFNV ZHUH SUHSDUHG XQGHU WKH FRPSOLDQFHlZLWK5XOHF6HH%HQQHWW)GDW GLUHFWLRQRIWKHFKLHIILQDQFLDORIILFHUDQGKDGQRUHDVRQWR FLWLQJ8QLWHG6WDWHVY7DFNHWW)GWK GRXEWWKDW'DYLVZDVHQWLWOHGWRSD\PHQW &LUFHUWGHQLHG86&RQWUDU\WR WKHPDMRULW\jVFRQFOXVLRQWKDWWKHGLVWULFWFRXUWVDWLVILHGWKH 2Q 2FWREHU WKH s0+ %RDUG RI 'LUHFWRUV WKH UHTXLUHPHQWVRI5XOHFZLWKUHVSHFWWRWKHDPRXQWRI m%RDUGlKHOGDPHHWLQJDWZKLFK7DUZDWHUZDVDVNHGDERXW ORVV , EHOLHYH WKDW WKH GLVWULFW FRXUW GLG QRW PDNH VSHFLILF 'DYLV7DUZDWHUH[SODLQHGZKR'DYLVZDVZKDWKHGLGIRU ILQGLQJVDVWRFRQWURYHUWHGIDFWV WKHKRVSLWDODQGZK\PRQLHVLQWHQGHGIRU'DYLVZHUHSDVVHG WKURXJK7DUZDWHU$VUHIOHFWHGLQWKHPLQXWHVRIWKHPHHWLQJ $W WKH VHQWHQFLQJ KHDULQJ WKH GLVWULFW FRXUW KHDUG WKH%RDUGOHDUQHGWKDW 7DUZDWHUj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sHIIHUVRQ&LW\>7DUZDWHU@ZLOOSD\0U LQ7DUZDWHUjVWULDOnDQGRQHRIRQO\WZRHOHPHQWVRIWKH 'DYLVjVILUP>KLP@VHOIDQGWKHQJHWUHLPEXUVHGIURPWKH RIIHQVHLWVHOInWKHPLVGHVFULSWLRQRIWKHEXUGHQRISURRILQ KRVSLWDOQH[WWLPH>KHLV@XSKHUH,IFKHFNVZHUHPDGH WKLVFDVHKDVWKHVDPHHIIHFWDVWKHJHQHUDOPLVGHVFULSWLRQRI RXWWRWKH7DUZDWHUILUPIRU0U'DYLVjVVHUYLFHVWKHQLW WKHEXUGHQRISURRILQ6XOOLYDQ,UHFRJQL]HWKDWWKH&RXUWLQ ZRXOG FRVW KLV ILUP RII WKH WRS IRU SURIHVVLRQDO LWV VXEVHTXHQW GHFLVLRQ LQ 1HGHU OLPLWHG 6XOOLYDQ WR MXU\ OLDELOLW\ LQVWUXFWLRQ HUURUV WKDW mYLWLDW>H@ DOO WKH MXU\jV ILQGLQJVl WKHUHE\ H[HPSWLQJ WKRVH HUURQHRXV LQVWUXFWLRQV WKDW MXVW s$DW$IWHUH[SUHVVLQJFRQFHUQDERXWWKHKRVSLWDOjV mSUHYHQW>@ WKH MXU\ IURP UHQGHULQJ D µFRPSOHWH YHUGLFWj RQ IDLOXUHWRLVVXHIRUPVWRHLWKHU7DUZDWHURU'DYLVIRUWKH HYHU\HOHPHQWRIWKHRIIHQVHl1HGHU86DWTXRWLQJ DPRXQWV SDLG WR 7DUZDWHU RQ 'DYLVjV EHKDOI WKH %RDUG 6XOOLYDQ 86 DW HPSKDVLV LQ WKH RULJLQDO GHFLGHGWRVWRSDOOSD\PHQWVWR'DYLVSHQGLQJWKH%RDUGjV 1HYHUWKHOHVV EHFDXVH WKH H[LVWHQFH RI WKH SDVVWKURXJK UHYLHZ RI SURSHU GRFXPHQWDWLRQ LQFOXGLQJ SURRI RI SD\PHQWVWR'DYLVZDVWKHHVVHQWLDOIDFWWRWKHRQO\HOHPHQW 0HGLFDLG0HGLFDUHUHLPEXUVHPHQWV7KH%RDUGDOVRGHFLGHG DWLVVXHLQWKLVFDVHWKHHUURQHRXVMXU\LQVWUXFWLRQGRHVYLWLDWH WKDWLIDQ\PRQLHVZHUHWKHUHDIWHURZHGWR'DYLVWKHKRVSLWDO DOOWKHMXU\jVILQGLQJVDQGWKHUHIRUHZHVKRXOGQRWVXEMHFW ZRXOGSD\'DYLVGLUHFWO\ WKHLQVWUXFWLRQWRKDUPOHVVHUURUDQDO\VLV )ROORZLQJ WKH 2FWREHU WK %RDUG PHHWLQJ 7DUZDWHUjV (YHQ LI KDUPOHVV HUURU DQDO\VLV ZHUH DSSURSULDWH LQ WKLV VHUYLFHVWRs0+ZHUHWHUPLQDWHGDQGDQLQYHVWLJDWLRQZDV FDVHWKHHUURQHRXVLQVWUXFWLRQDWLVVXHFOHDUO\ZRXOGQRWEH EHJXQ ,Q 1RYHPEHU RI WKH %RDUG UHWDLQHG DQ KDUPOHVV7KH6XSUHPH&RXUWLQ1HGHUH[SODLQHGWKDWIRUD DFFRXQWLQJ ILUP 0RUJDQ 1HZPDQ 'DYHQSRUW 3& WR FRQVWLWXWLRQDOHUURUWREHKDUPOHVVLWPXVWDSSHDUmEH\RQGD UHYLHZDOOSD\PHQWVWKDWZHUHPDGHE\WKHKRVSLWDOWRRXWVLGH UHDVRQDEOH GRXEW WKDW WKH HUURU FRPSODLQHG RI GLG QRW FRQVXOWDQWV$VSDUWRIWKLVUHYLHZ5DOSK(UZLQ1HZPDQ FRQWULEXWHWRWKHYHUGLFWREWDLQHGl1HGHU86DW sU &3$ m1HZPDQl LQWHUYLHZHG 7DUZDWHU 7DUZDWHU TXRWLQJ &KDSPDQ Y &DOLIRUQLD 86 H[SODLQHG WKDW KH GLG QRW PDNH D QLFNHO IURP KLV 8QGHU KDUPOHVV HUURU UHYLHZ mWKH JRYHUQPHQW EHDUV WKH DUUDQJHPHQWZLWK'DYLVWKDWDOOPRQLHVLQWHQGHGIRU'DYLV EXUGHQ RI VKRZLQJ WKDW WKH HUURU KDG QR HIIHFW RQ D ZHUH SDVVHG RQ WR 'DYLV WKDW KH FRXOG GRFXPHQW DOO GHIHQGDQW>jV@VXEVWDQWLDOULJKWVl8QLWHG6WDWHVY6WHZDUW SD\PHQWVWKDWZHQWWR'DYLVWKDWKHVRPHWLPHVDGYDQFHG )G1RHWDO:/DW WK 'DYLVPRQH\RXWRIKLVRZQIXQGVUHLPEXUVLQJKLPVHOIZKHQ &LU6HSWFLWLQJ8QLWHG6WDWHVY9RQQ6&W s0+LVVXHGDFKHFNDQGWKDWKHFDVKHGFKHFNVIRU'DYLV +DGWKHMXU\IRXQGWKDW7DUZDWHUSDVVHG VHQGLQJ'DYLVHLWKHUWKHFDVKDZLUHWUDQVIHURUDFDVKLHUjV WKURXJKWR'DYLVWKHSD\PHQWVE\s0+IRU'DYLVWKHMXU\ FKHFNRQWKHQRWLQIUHTXHQWRFFDVLRQVZKHQs0+LVVXHGKLP ZRXOGKDYHKDGWRFRQFOXGHWKDW7DUZDWHUGLGQRWNQRZLQJO\ WZRFKHFNVDWDWLPH XQGHUUHSRUWKLVLQFRPH7KHUHIRUHLWVHHPVLPSRVVLEOHWKDW DMXU\LQVWUXFWLRQVWDWLQJWKDWWKHJRYHUQPHQWGLGQRWKDYHWR %HJLQQLQJ LQ WKH ,56 EHJDQ DQ LQYHVWLJDWLRQ RI SURYHWKHQRQH[LVWHQFHRIVXFKSD\PHQWVGLGQRWFRQWULEXWH 7DUZDWHUjV WD[ UHWXUQV IRU WKH \HDUV WKURXJK WRWKHYHUGLFW6HH8QLWHG6WDWHVY$OW)G :KHQ7DUZDWHUERWKGHFOLQHGWRGLVFXVVDQ\WD[PDWWHUVZLWK WK&LUFHUWGHQLHG86KROGLQJLQ WKHUHYHQXHDJHQWDQGDOVRUHIXVHGWRWXUQRYHUKLVSHUVRQDO 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU DQGFRUSRUDWHUHFRUGVDVXPPRQVZDVLVVXHGWR7DUZDWHUjV % EDQNDQGDFFRXQWLQJILUP2YHU7DUZDWHUjVPRWLRQWRTXDVK WKHUHFRUGVZHUHXOWLPDWHO\REWDLQHGE\FRXUWRUGHULQWKH\HDU ,W LV ZHOO VHWWOHG WKDW MXU\ LQVWUXFWLRQV WKDW UHOLHYH WKH 5HYLHZ RI WKRVH UHFRUGV UHVXOWHG LQ 7DUZDWHUjV SURVHFXWLRQRISURYLQJEH\RQGDUHDVRQDEOHGRXEWHYHU\IDFW LQGLFWPHQWRQWKUHHFRXQWVRIILOLQJIDOVHWD[UHWXUQVIRUWKH QHFHVVDU\WRHDFKHOHPHQWRIWKHRIIHQVHFKDUJHGYLRODWHD \HDUV DQG LQ YLRODWLRQ RI 86& GHIHQGDQWjV GXH SURFHVV ULJKWV DQG WKHUHIRUH FRQVWLWXWH FRQVWLWXWLRQDO HUURU 6HH 6DQGVWURP Y 0RQWDQD 86 UHO\LQJRQ,QUH:LQVKLS86 7DUZDWHUjV FDVH ZDV WULHG EHIRUH D MXU\ IRU ILYH GD\V %HFDXVH WKH MXU\ LQVWUXFWLRQ DW LVVXH QHJDWHG WKH EHJLQQLQJRQ$SULO7KURXJKWKHWHVWLPRQ\RIWZR JRYHUQPHQWjVEXUGHQRISURYLQJEH\RQGDUHDVRQDEOHGRXEW ,56 DJHQWV 0DU\ %DUWRQ m%DUWRQl DQG .DUHQ sDFNVRQ D IDFW QHFHVVDU\ WR DQ HOHPHQW RI WKH FKDUJHG RIIHQVH WKH msDFNVRQlWKHJRYHUQPHQWSUHVHQWHGHYLGHQFHWKDW7DUZDWHU GHWHUPLQDWLRQ RI ZKHWKHU 7DUZDWHUjV FRQYLFWLRQ VKRXOG EH GHSRVLWHGWKHPRQLHVKHUHFHLYHGIURPs0+LQWRIRXUVHSDUDWH YDFDWHGDQGWKHFDVHUHPDQGHGIRUDQHZWULDOVKRXOGWXUQRQ DFFRXQWV DW 7KLUG 1DWLRQDO %DQN LQ .QR[YLOOH 7KH ILUVW mZKHWKHUWKHHUURUKHUHLVVXEMHFWWRKDUPOHVVHUURUDQDO\VLV DFFRXQWWKH3HWHUV7DUZDWHU $VVRFLDWHV$FFRXQWZDVXVHG DQGLIVRZKHWKHUWKHHUURUZDVKDUPOHVVl1HGHUY8QLWHG E\7DUZDWHUIRUKLVDFFRXQWLQJEXVLQHVVUHFHLSWVGXULQJWKH 6WDWHV86 HDUO\SDUWVRI7KHQDPHRIWKDWDFFRXQWZDVFKDQJHGLQ $XJXVWWRWKH7DUZDWHU+LQHV &RPSDQ\$FFRXQW 3XUVXDQW WR )HGHUDO 5XOH RI &ULPLQDO 3URFHGXUH D 7KHUHPDLQLQJWKUHHDFFRXQWVZHUHWKH/DUU\77DUZDWHU m>D@Q\HUURUGHIHFWLUUHJXODULW\RUYDULDQFHZKLFKGRHVQRW &3$$FFRXQWWKH/DUU\7RUsDQLH&7DUZDWHU$FFRXQW DIIHFWVXEVWDQWLDOULJKWVVKDOOEHGLVUHJDUGHGl$FFRUGLQJWR DQG WKH /DUU\ 7 RU sDQLH & 7DUZDWHU &RQVWUXFWLRQ WKH6XSUHPH&RXUWKRZHYHUmDOLPLWHGFODVVRIIXQGDPHQWDO $FFRXQW FRQVWLWXWLRQDOHUURUVµGHI\DQDO\VLVE\mKDUPOHVVHUURUl VWDQGDUGVjl EHFDXVH WKH\ LQFOXGH mµGHIHFW>V@ DIIHFWLQJ WKH ,Qs0+LVVXHG7DUZDWHUWZHOYHFKHFNVIRUDWRWDORI IUDPHZRUNZLWKLQZKLFKWKHWULDOSURFHHGVUDWKHUWKDQVLPSO\ IRUZRUNDOOHJHGO\SHUIRUPHGE\'DYLV2IWKRVH DQ HUURU LQ WKH WULDO SURFHVV LWVHOIjl ,G DW TXRWLQJ WZHOYHFKHFNV7DUZDWHUUHFHLYHGRQHFKHFNRQHDFKRIWZR $UL]RQDY)XOPLQDQWH867KHVHHUURUV GLIIHUHQWGDWHVDQGKHUHFHLYHGWZRFKHFNVRQHDFKRIILYH DUHLQWULQVLFDOO\KDUPIXOEHFDXVHWKH\mµLQIHFWWKHHQWLUHWULDO VHSDUDWH RFFDVLRQV 2I WKH WRWDO FKHFNV LQWHQGHG IRU SURFHVVj DQG µQHFHVVDULO\ UHQGHU D WULDO IXQGDPHQWDOO\ 'DYLV7DUZDWHUGHSRVLWHGLQKLVSDUWQHUVKLSDFFRXQWV XQIDLUjl1HGHU86DWLQWHUQDOFLWDWLRQVRPLWWHG DW 7KLUG 1DWLRQDO %DQN 7KH UHPDLQLQJ ZDV GHSRVLWHGLQWRKLV7DUZDWHU&3$$FFRXQW&RQWUDU\WRZKDW 7KHHUURQHRXVMXU\LQVWUXFWLRQDWLVVXHLQWKLVFDVHVKRXOG 7DUZDWHUKDGWROG1HZPDQQRQHRIWKHWZHOYHFKHFNVZDV QRWEHVXEMHFWWRKDUPOHVVHUURUDQDO\VLV7KH6XSUHPH&RXUW FDVKHGRUHQGRUVHGRYHUWR'DYLV KDVKHOGWKDWDMXU\LQVWUXFWLRQWKDWPLVGHVFULEHVRURPLWVDQ HOHPHQWRIDQRIIHQVHLVVXEMHFWWRKDUPOHVVHUURUUHYLHZ6HH ,Qs0+LVVXHG7DUZDWHUILIWHHQFKHFNVIRUDWRWDORI 1HGHU86DW,Q6XOOLYDQWKRXJKWKH&RXUWKHOG IRU'DYLVjVZRUN:KLOHVHYHQRIWKHFKHFNVZHUH WKDWDMXU\LQVWUXFWLRQWKDWmFRQVLVWVRIDPLVGHVFULSWLRQRIWKH LVVXHG VLQJO\ RQ VHYHQ GLIIHUHQW GDWHV HLJKW RI WKH FKHFNV EXUGHQRISURRIZKLFKYLWLDWHVDOOWKHMXU\jVILQGLQJVlLVD ZHUH LVVXHG LQ SDLUV WZR HDFK RQ IRXU VHSDUDWH RFFDVLRQV VWUXFWXUDO HUURU DQG DV VXFK LW FRXOG QRW EH VXEMHFW WR 7DUZDWHU GHSRVLWHG RI WKH 'DYLV FKHFNV LQ WKH KDUPOHVVHUURUDQDO\VLV6XOOLYDQ86DWHPSKDVLV 7DUZDWHU +LQHV &RPSDQ\ $FFRXQW LQ WKH LQ WKH RULJLQDO 7KH LQVWUXFWLRQ LQ 6XOOLYDQ JHQHUDOO\ 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU DVLPLODUVLWXDWLRQZKHUHWKHFKDUDFWHUL]DWLRQRIDQLQFUHDVH 7DUZDWHU &3$ $FFRXQW DQG WKH EDODQFHLQ WKH LQ ZHDOWK DV LQFRPH ZDV GLVSXWHG ZH KHOG WKDW m>L@I WKH /DUU\ 7 RU sDQLH & 7DUZDWHU &RQVWUXFWLRQ $FFRXQW DQ PRQH\ZHUHWUXO\DORDQ>WKHGHIHQGDQW@ZRXOGKDYHEHHQ DFFRXQW XVHG IRU WKH FRQVWUXFWLRQ RI 7DUZDWHUjV XQGHUQRGXW\WRUHSRUW LWDVLQFRPHDQGKHZRXOGQRWEH KRPH$JDLQQRQHRIWKHFKHFNVZDVFDVKHGRU JXLOW\RIWKHSUHGLFDWHRIIHQVHRIILOLQJDIDOVHWD[ UHWXUQl HQGRUVHGRYHUWR'DYLV 8QLWHG6WDWHVY3DUURWW)GWK&LU %HFDXVH WKH H[LVWHQFH RI 7DUZDWHUjV DOOHJHG SD\PHQWV WR ,Q s0+ LVVXHG 7DUZDWHU WZHQW\IRXU FKHFNV IRU D 'DYLV ZDV D IDFW QHFHVVDU\ WR HVWDEOLVK ZKHWKHU 7DUZDWHU WRWDORIIRUZRUNSXUSRUWHGO\SHUIRUPHGE\'DYLV NQRZLQJO\VXEPLWWHGIDOVHUHWXUQVIRUDQG 7KH FKHFNV ZHUH LVVXHG WZR DW D WLPH RQ HDFK RI WZHOYH WKHJRYHUQPHQWZDVUHTXLUHGWRSURYHEH\RQGDUHDVRQDEOH RFFDVLRQV2IWKHZDVGHSRVLWHGLQWRWKH GRXEWWKDWKHGLGQRWSDVVWKURXJKWR'DYLVSD\PHQWVE\s0+ 7DUZDWHU +LQHV &RPSDQ\ $FFRXQW 7KH UHPDLQLQJ IRU'DYLV ZDVGHSRVLWHGLQWRWKH/DUU\7RUsDQLH&7DUZDWHU &RQVWUXFWLRQ$FFRXQW ,Q RWKHU ZRUGV WKH JRYHUQPHQW ZDV UHTXLUHG WR SURYH EH\RQGDUHDVRQDEOHGRXEWWKDWWKHSD\PHQWVE\s0+ZHUH 'XULQJWKH\HDUVWR7DUZDWHUVHQW'DYLVDWRWDO LQFRPHWR7DUZDWHU,IWKHSD\PHQWVE\s0+ZHUHIRU'DYLV RIHOHYHQFKHFNVWKUHHGUDZQRQWKH7DUZDWHU&3$$FFRXQW DQGZHUHSDVVHGWKURXJK7DUZDWHUWR'DYLVKRZHYHUWKH\ DQG HLJKW GUDZQ RQ WKH /DUU\ 7 RU sDQLH & 7DUZDWHU ZHUH QRW LQFRPH WR 7DUZDWHU 7KH PDMRULW\ VXJJHVWV WKDW &RQVWUXFWLRQ$FFRXQW,QKHVHQW'DYLVWKUHHFKHFNV 7DUZDWHUjV SD\PHQWV WR 'DYLV DUH DQDORJRXV WR RIIVHWWLQJ HDFKLQWKHDPRXQWRI,QKHJDYH'DYLVIRXU H[SHQVHVUHO\LQJRQFDVHVVWDWLQJWKDWWKHJRYHUQPHQWQHHG FKHFNV WRWDOLQJ RQH HDFK LQ WKH DPRXQWV RI QRW FRPH IRUZDUG ZLWK HYLGHQFH QHJDWLQJ DOO SRVVLEOH DQG,QWKHPHPRVHFWLRQRQWKH RIIVHWWLQJH[SHQVHVDQGQRQWD[DEOHJDLQVWRPDNHDFDVHWKDW FKHFN7DUZDWHUZURWHWKHZRUGmORDQl,Q7DUZDWHU DWD[SD\HUIDLOHGWRUHSRUWKLVJURVVLQFRPH,QWKHLQVWDQW VHQW'DYLVIRXUFKHFNVIRUDWRWDORIRQHHDFKLQWKH FDVHKRZHYHU7DUZDWHUGRHVQRWDUJXHWKDWWKHJRYHUQPHQW DPRXQWRIDQG,QWKHPHPR VKRXOGKDYHDEXUGHQWRSURGXFHWKLVHYLGHQFH5DWKHULQ VHFWLRQRQWKHDQGFKHFNV7DUZDWHUZURWHWKH FODLPLQJ WKDW WKH MXU\ LQVWUXFWLRQ VKLIWHG WKH JRYHUQPHQWjV ZRUG mORDQl 2Q WKH FKHFN KH ZURWH WKH ZRUG EXUGHQRISURRI7DUZDWHUULJKWO\DVVHUWVWKDWWKHJRYHUQPHQW mDGYDQFHl$OVRLQ7DUZDWHUVHQW'DYLVVL[:HVWHUQ KDGDEXUGHQWRVKRZWKDWWKHRQO\DOOHJHGVRXUFHRILQFRPH 8QLRQZLUHWUDQVIHUVWRWDOLQJ7KH,56IRXQGQRRWKHU LQWKLVFDVHnSD\PHQWVIURPs0+nDFWXDOO\FRQVWLWXWHG HYLGHQFHRISD\PHQWVIURP7DUZDWHUWR'DYLV LQFRPHWR7DUZDWHU%\FRQFOXGLQJWKDWWKHJRYHUQPHQWGRHV QRWKDYHWKLVEXUGHQWKHPDMRULW\LPSURSHUO\H[WHQGVWKHODZ )RUHDFKRIWKHUHOHYDQWWD[\HDUVsDFNVRQUHYLHZHGERWK RIRWKHUFLUFXLWVWRVXJJHVWWKDWWKHJRYHUQPHQWLVQRWRQO\ WKHPRQLHVGHSRVLWHGLQWRDVZHOODVWKHPRQLHVGUDZQRXWRI H[FXVHG IURP SURGXFLQJ HYLGHQFH WR QHJDWH DOO SRVVLEOH HDFKRI7DUZDWHUjVEDQNDFFRXQWVsDFNVRQIRXQGWKDWIRU RIIVHWWLQJ H[SHQVHV RU QRQWD[DEOH JDLQV EXW WKDW WKH HDFK\HDU7DUZDWHUGHSRVLWHGDJUHDWGHDOPRUHRIWKHPRQLHV JRYHUQPHQW LV IXUWKHU H[FXVHG IURP SURYLQJ EH\RQG D DOOHJHGO\LQWHQGHGIRU'DYLVWKDQKHSDLGRXWWKURXJKFKHFNV UHDVRQDEOH GRXEW WKDW D GHIHQGDQW UHFHLYHG LQFRPH WKDW KH ZULWWHQWR'DYLV(YHQZKHQsDFNVRQDGGHG7DUZDWHUjVFDVK NQRZLQJO\IDLOHGWRUHSRUW7KHUHIRUHWKHMXU\LQVWUXFWLRQDW ZLWKGUDZDOV DQG FDVK WDNHQ RXW RI GHSRVLWV WR WKH FKHFNV LVVXH LPSHUPLVVLEO\ VKLIWHG WKH EXUGHQ RI SURRI IURP WKH ZULWWHQWR'DYLVJLYLQJ7DUZDWHUWKHEHQHILWRIDQDVVXPSWLRQ JRYHUQPHQWWRWKHWD[SD\HU WKDWWKHFDVKZDVVHQWWR'DYLVsDFNVRQVWLOOIRXQGWKDWWKH PRQLHVWDNHQLQIRU'DYLVH[FHHGHGWKHPRQLHVVHQWRXWWR 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU 'DYLV$FFRUGLQJWRsDFNVRQWKHH[FHVVRIPRQLHVWDNHQLQ SURVHFXWLRQjVREOLJDWLRQWRSURYHEH\RQGDUHDVRQDEOHGRXEW IRU'DYLVRYHUPRQLHVGLVWULEXWHGRXWWR'DYLVVKRXOGKDYH ERWKWKDW7DUZDWHUVLJQHGDWD[UHWXUQXQGHUSHQDOW\RISHUMXU\ EHHQUHWDLQHGLQ7DUZDWHUjVDFFRXQWVLIWKRVHPRQLHVZHUHLQ DQG WKDW KH NQHZ WKH UHWXUQ ZDV PDWHULDOO\ LQFRUUHFW RU LQ IDFWPHDQWDVLQFRPHIRU'DYLV7DUZDWHUjVPRQWKO\HQGLQJ YLRODWLRQRIH[LVWLQJWD[ODZDWWKHWLPHKHVLJQHGLW EDQNEDODQFHVGHPRQVWUDWHGKRZHYHUWKDW7DUZDWHUGLGQRW UHWDLQ WKH XQGLVWULEXWHG PRQLHV LQWHQGHG IRU 'DYLV EXW 7KH GLVWULFW FRXUWjV MXU\ LQVWUXFWLRQV VWDWHG WKDW WKH LQVWHDGVSHQWWKRVHPRQLHV JRYHUQPHQW ZRXOG KDYH WR RYHUFRPH WKH SUHVXPSWLRQ RI 7DUZDWHUjVLQQRFHQFHZLWKSURRIEH\RQGDUHDVRQDEOHGRXEW 7KH JRYHUQPHQWjV H[SHUW ZLWQHVV %DUWRQ RSLQHG WKDW DQG IXUWKHU HPSKDVL]HG WKDW WKH mEXUGHQ VWD\V RQ WKH 7DUZDWHU GLG QRW VWDWH WKH WUXH DPRXQW RI HLWKHU KLV JURVV JRYHUQPHQW IURP WKH VWDUW WR WKH ILQLVKl sRLQW $SSHQGL[ UHFHLSWVRUKLVQHWLQFRPHIRUWKH\HDUVWKURXJK ms$lDW+RZHYHUWKHLQVWUXFWLRQVDOVRH[SODLQHGWKDW 6SHFLILFDOO\DVWRLQFRPHVKHVDLGWKDWLQ7DUZDWHU m>Z@KLOHWKHJRYHUQPHQWKDVWKHEXUGHQWRSURYHEH\RQGD XQGHUVWDWHG KLV LQFRPH E\ LQ KH UHDVRQDEOHGRXEWWKDWWKHGHIHQGDQWXQGHUVWDWHGWKHDPRXQW XQGHUVWDWHG KLV LQFRPH E\ DQG LQ KH RIJURVVUHFHLSWVRUWRWDOLQFRPHUHSRUWHGRQKLVIHGHUDO XQGHUVWDWHG KLV LQFRPH E\ ,Q 7DUZDWHUjV LQFRPHWD[UHWXUQDQGWKHDPRXQWRIKLVWRWDOLQFRPHUHSRUWHG XQGHUVWDWHPHQWRILQFRPHZDVLQSDUWH[SODLQHGE\KLVIDLOXUH RQ KLV DQG IHGHUDO LQFRPH WD[ UHWXUQV WKH WRUHSRUWRYHULQJURVVUHFHLSWVIRUWKHHLJKWPRQWKV JRYHUQPHQW LV QRW UHTXLUHG WR SURYH WKH QRQH[LVWHQFH RI WKDWKHRSHUDWHGDVDVROHSURSULHWRUVKLS%DUWRQH[SODLQHG DOOHJHG SD\PHQWV E\ WKH GHIHQGDQW WR RU RQ EHKDOI RI 0U WKDWDFRUUHFWUHSRUWRIJURVVUHFHLSWVDQGLQFRPHLVQHFHVVDU\ 'DYLVls$DW7KLVLQVWUXFWLRQLJQRUHVWKHIDFWWKDWDV WRDFRUUHFWFRPSXWDWLRQRIWD[OLDELOLW\DQGWKDWDIDOVHUHSRUW DORJLFDOPDWWHUWKHJRYHUQPHQWFRXOGQRWSURYHEH\RQGD RILQFRPHLVFDSDEOHRILQIOXHQFLQJWKH,56LQWKHDXGLWRIWD[ UHDVRQDEOHGRXEWWKDW7DUZDWHUILOHGWD[UHWXUQVNQRZLQJWKH\ UHWXUQV ZHUHPDWHULDOO\LQFRUUHFWZLWKRXWVKRZLQJWKDW7DUZDWHUGLG QRWSDVVWKHSD\PHQWVLQTXHVWLRQWKURXJKWR'DYLV 3HWHUV 7DUZDWHUjV EXVLQHVV SDUWQHU GXULQJ WKH ILUVW WKUHH DQGDKDOI\HDUVRIWKHs0+WR7DUZDWHUWR'DYLVSD\PHQW 7KH LQVWUXFWLRQ DW LVVXH KDG WKH HIIHFW RI QHJDWLQJ WKH DUUDQJHPHQWWHVWLILHGWKDW7DUZDWHUQHYHUWROGKLPWKDWKH JRYHUQPHQWjV EXUGHQ WR SURYH WKH VHFRQG HOHPHQW RI UHFHLYHGPRQH\IURPs0+RQEHKDOIRI:LOOLH'DYLV+LQHV $V WKH GLVWULFW FRXUW DFNQRZOHGJHG LQ D MXU\ 7DUZDWHUjVEXVLQHVVDVVRFLDWHGXULQJWKHODVW\HDUVRIWKHSDVV LQVWUXFWLRQLQFRPHXQGHUWKH,QWHUQDO5HYHQXH&RGHLQFOXGHV WKURXJKDUUDQJHPHQWVDLGWKDW7DUZDWHUGLGQRWWHOOKHUDERXW mDOOLQFUHDVHVLQZHDOWKFOHDUO\UHDOL]HGDQGRYHUZKLFKD KLV DUUDQJHPHQW ZLWK 'DYLV XQWLO VRPHWLPH LQ DIWHU SHUVRQ KDV FRPSOHWH FRQWURO $ JDLQ FRQVWLWXWHV WD[DEOH s0+KLUHG1HZPDQWRLQYHVWLJDWHDQGDIWHUs+0ILOHGVXLW LQFRPHZKHQLWVUHFLSLHQWKDVVXFKFRQWURORYHULWWKDWDVD DJDLQVW 7DUZDWHU $FFRUGLQJ WR +LQHV 7DUZDWHU WKHQ SUDFWLFDO PDWWHU KH GHULYHV UHDGLO\ UHFRJQL]DEOH HFRQRPLF H[SODLQHGWRKHUWKDW\HDUVHDUOLHUWKHKRVSLWDODGPLQLVWUDWRU YDOXH IURP LWl s$ DW 7DUZDWHU FRQWHQGV DQG WKH KDG DVNHG KLP WR EH WKH FRQGXLW IRU SD\PHQWV WR 'DYLV LQ WHVWLPRQ\RIDQ,56DJHQWFRQILUPVWKDWWKHSD\PHQWV RUGHUWRKHOS'DYLVDYRLGVHL]XUHRIKLVDVVHWVE\FUHGLWRUV IURP sHIIHUVRQ 0HPRULDO +RVSLWDO ms0+l ZHUH LQFRPH UHSRUWDEOHHLWKHUWR7DUZDWHURU'DYLVEXWQRWERWKDQG 7DUZDWHU QHLWKHU WHVWLILHG QRU SUHVHQWHG DQ\ H[SHUW LI7DUZDWHUSDVVHGWKURXJKWR'DYLVWKHSD\PHQWVE\s0+IRU WHVWLPRQ\ DW WULDO +H GLG KRZHYHU FDOO VHYHUDO OD\ 'DYLVWKRVHSD\PHQWVZHUHQRWLQFRPHWR7DUZDWHU7KXV LI WKH SD\PHQWV ZHUH SDVVHG WKURXJK 7DUZDWHU GLG QRW NQRZLQJO\ILOHPDWHULDOO\LQFRUUHFWRULOOHJDOWD[UHWXUQV,Q 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU BBBBBBBBBBBBBBBBB ZLWQHVVHV 2QH RI WKRVH ZLWQHVVHV ZDV &DUO &XUWLV m&XUWLVlWKHFRQWUDFWRUZKREXLOW7DUZDWHUjVKRXVH&XUWLV ',66(17 WHVWLILHGWKDW7DUZDWHUERUURZHGPRQH\IURPKLPRQILYHRU BBBBBBBBBBBBBBBBB VL[RFFDVLRQV$FFRUGLQJWR&XUWLVRQHDFKRIWZRRIWKRVH RFFDVLRQV7DUZDWHUERUURZHGIURPKLPIRU:LOOLH .$5(11(/6210225(&LUFXLWsXGJHGLVVHQWLQJ, 'DYLV&XUWLVVDLGWKDWDOWKRXJKKHGLGQRWNQRZ'DYLVKH DJUHH ZLWK WKH PDMRULW\ DV WR DOO LVVXHV H[FHSW WKH MXU\ ZDVZLOOLQJWROHQG7DUZDWHUWKHPRQH\IRU'DYLVEHFDXVHKH LQVWUXFWLRQV UHJDUGLQJ WKH EXUGHQ RI SURRI DQG WKH WUXVWHG7DUZDWHU7KHPRQH\&XUWLVVDLGZDVUHSDLG GHWHUPLQDWLRQDWVHQWHQFLQJRIWKHDPRXQWRIORVVDWWULEXWDEOH WR7DUZDWHU%HFDXVHWKHMXU\LQVWUXFWLRQVHUURQHRXVO\VKLIWHG 7DUZDWHU DOVR FDOOHG KLV QHSKHZ 0LFKDHO sRH 7DUZDWHU WKHEXUGHQRISURRIWRWKHGHIHQGDQWDQGWKLVHUURUFDQQRWEH m0LFKDHOl ZKR WHVWLILHG WKDW KH ZRUNHG SDUWWLPH LQ KLV FRQVLGHUHGKDUPOHVVDQGEHFDXVHWKHGLVWULFWFRXUWGLGQRW XQFOHjVRIILFHIRUDERXWVHYHQPRQWKVZKLOHKHZDVLQVFKRRO PDNHVXIILFLHQWILQGLQJVRIIDFWZLWKUHVSHFWWRWKHDPRXQWRI 0LFKDHO VDLG WKDW KLV XQFOH IUHTXHQWO\ DVNHG KLP WR ZLUH ORVV,UHVSHFWIXOO\GLVVHQW PRQH\ WR 'DYLV ,QGHHG DFFRUGLQJ WR 0LFKDHO 7DUZDWHU ZRXOGVHQG0LFKDHOWRZLUH'DYLVPRQH\DFRXSOHRIWLPHV ,s85<,16758&7,216 DZHHNHDFKWLPHJLYLQJKLPFDVKRUFKHFNVPDGHRXWWR 7DUZDWHUZKLFK0LFKDHOZRXOGFDVKQRUPDOO\DURXQG $ DWDWLPHDOWKRXJKVRPHWLPHVLWZRXOGEHDVPXFKDV RU 0LFKDHO VDLG WKDW ZRXOG EH D 7DUZDWHUDUJXHVWKDWWKHGLVWULFWFRXUWjVMXU\LQVWUXFWLRQV FRQVHUYDWLYHHVWLPDWHRIWKHWRWDODPRXQWKHZLUHGWR'DYLV HUURQHRXVO\ VKLIWHG WKH JRYHUQPHQWjV EXUGHQ RI SURRI GXULQJWKHPRQWKVDSSDUHQWO\LQWKDWKHZRUNHGIRU UHTXLULQJ 7DUZDWHU WR SURYH DIILUPDWLYHO\ WKDW KH GLG QRW KLVXQFOH YLRODWH86&7KHUHDUHWZRHOHPHQWVHVVHQWLDO WRVKRZLQJDYLRODWLRQRIWKHVWDWXWHVLJQLQJDWD[UHWXUQ 7KH MXU\ FRQYLFWHG 7DUZDWHU RQ DOO WKUHH FRXQWV $W D XQGHUSHQDOW\RISHUMXU\LQWKHNQRZOHGJHWKDWmDWWKH VHQWHQFLQJKHDULQJRQsXO\WKHGLVWULFWFRXUWIRXQG WLPH RI VLJQLQJ WKH UHWXUQ ZDV PDWHULDOO\ LQFRUUHFW RU LQ WKDW 7DUZDWHU ZDV UHVSRQVLEOH IRU D WD[ ORVV H[FHHGLQJ YLRODWLRQRIH[LVWLQJWD[ODZVl8QLWHG6WDWHVY0RUULV UHVXOWLQJLQDEDVHRIIHQVHOHYHORI7RWKHEDVH )GWK&LUVHHDOVR8QLWHG6WDWHVY RIIHQVH OHYHO WKH FRXUW DSSOLHG D WZROHYHO HQKDQFHPHQW %LVKRS86QRWLQJWKDWWKHGHIHQGDQW SXUVXDQWWR866*%IRUXVHRIDVSHFLDOVNLOO%DVHG DOVRPXVWZLOOIXOO\PDNHDQGVXEVFULEHDWD[UHWXUQm7KH RQ DQ DGMXVWHG RIIHQVH OHYHO RI WKH FRXUW VHQWHQFHG SURVHFXWLRQEHDUVWKHEXUGHQRISURYLQJDOOHOHPHQWVRIWKH 7DUZDWHU WR HLJKWHHQ PRQWKV LPSULVRQPHQW RQH \HDU RI RIIHQVHFKDUJHGDQGPXVWSHUVXDGHWKHIDFWILQGHUEH\RQGD VXSHUYLVHGUHOHDVHDQGUHVWLWXWLRQLQWKHDPRXQWRI UHDVRQDEOHGRXEWRIWKHIDFWVQHFHVVDU\WRHVWDEOLVKHDFKRI WREHSDLGWRWKH,56LQDOXPSVXP WKRVHHOHPHQWVl6XOOLYDQY/RXLVLDQD86 TXRWDWLRQDQGFLWDWLRQVRPLWWHGsXU\LQVWUXFWLRQV UHOLHYLQJ WKH SURVHFXWLRQ RI LWV REOLJDWLRQ WR SURYH HDFK HOHPHQWRIDQRIIHQVHYLRODWHDGHIHQGDQWjVGXHSURFHVVULJKWV &DUHOODY&DOLIRUQLD866DQGVWURP Y 0RQWDQD 86 7KHUHIRUH WR GHVFULEH FRUUHFWO\ WKH JRYHUQPHQWjV EXUGHQ RI SURRI WKH %RWK WKH JRYHUQPHQW DQG 7DUZDWHU VXESRHQDHG 'DYLVZKR ZDV SUHVHQW LQ WKH ZLWQHVV URRP WKURXJKRXW WKH WULDOEXW QHLWKHU HOHFWHG WR FDOO LQVWUXFWLRQV LQ WKLV FDVH ZRXOG KDYH WR FRQYH\ WKH KLP WR WHVWLI\ 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU ,,68)),&,(1&<2)7+((9,'(1&( ls$DW$OWKRXJK ZHFDQQRWGHWHUPLQH ZKDWWKHGLVWULFWFRXUWPD\KDYHVDLGRUKHDUGRQWKHPLVVLQJ 7DUZDWHU FRQWHQGV WKDW WKH HYLGHQFH ZDV LQVXIILFLHQW WR SDJHVRIWKHWUDQVFULSWWKHIHZSDJHVWKDWZHKDYHUHYLHZHG FRQYLFWKLPRIWKHFKDUJHGRIIHQVHV7DUZDWHUSUHVHUYHGKLV FOHDUO\UHYHDOWKDWWKHGLVWULFWFRXUWGLGQRWPHUHO\VXPPDULO\ ULJKWWRDSSHDOWKLVLVVXHE\ERWKPRYLQJIRUDMXGJPHQWRI DGRSWWKHDPRXQWRIORVVSUHVHQWHGLQWKHSUHVHQWHQFHUHSRUW DFTXLWWDODWWKHFRQFOXVLRQRIWKHJRYHUQPHQWjVFDVHDVZHOODV UHQHZLQJWKHPRWLRQDWWKHFRQFOXVLRQRIDOOWKHHYLGHQFH 7KDWWKHGLVWULFWFRXUWXQGHUVWRRGLWVUHVSRQVLELOLW\WRPDNH LQGHSHQGHQWIDFWXDOILQGLQJVZDVPDGHFU\VWDOFOHDUZKHQWKH ,QUHYLHZLQJDFODLPRILQVXIILFLHQF\RIWKHHYLGHQFHWKLV MXGJHVWDWHGDWWKHVHQWHQFLQJKHDULQJm7KH6L[WK&LUFXLWKDV FRXUWORRNVDWDOORIWKHHYLGHQFHWRGHWHUPLQHZKHWKHUDIWHU KHOGWKDWWKHGLVWULFWFRXUWPXVWPDNHVSHFLILFILQGLQJVRIIDFW YLHZLQJ WKH HYLGHQFH LQ WKH OLJKW PRVW IDYRUDEOH WR WKH DVUHTXLUHGE\5XOHFRIWKH)HGHUDO5XOHVRI&ULPLQDO SURVHFXWLRQDQ\UDWLRQDOWULHURIIDFWFRXOGKDYHIRXQGWKH 3URFHGXUHDQGPXVWQRWUHO\RQWKHSUHVHQWHQFHUHSRUWls$ HVVHQWLDOHOHPHQWVRIWKHRIIHQVHEH\RQGDUHDVRQDEOHGRXEW DW$IWHUPDNLQJWKLVVWDWHPHQWWKHGLVWULFWFRXUWVHWRXW sDFNVRQY9LUJLQLD866&W/ LWVLQGHSHQGHQWIDFWXDOILQGLQJVDVWR7DUZDWHUjVUHPDLQLQJ (GG:HPXVWYLHZWKHHYLGHQFHLQWKHOLJKW WZR REMHFWLRQV WKRVH UHJDUGLQJ WKH DGMXVWPHQWV IRU LOOHJDO PRVW IDYRUDEOH WR WKH SURVHFXWLRQ DQG m>F@LUFXPVWDQWLDO DFWLYLW\DQGIRUDEXVHRIDSRVLWLRQRIWUXVWs$DW HYLGHQFHDORQHLIVXEVWDQWLDODQGFRPSHWHQWPD\VXSSRUWD 7KHVHILQGLQJVDORQJZLWKZKDWZHNQRZDERXWWKHGLVWULFW YHUGLFW DQG QHHG QRW UHPRYH HYHU\ UHDVRQDEOH K\SRWKHVLV FRXUWjV WUHDWPHQW RI WKH DPRXQW RI ORVV VDWLVI\ WKH H[FHSWWKDWRIJXLOWl8QLWHG6WDWHVY+XPSKUH\)G UHTXLUHPHQWVRI5XOHF WK&LU 9,,&21&/86,21 7DUZDWHU ZDV FRQYLFWHG RI WKUHH FRXQWV RI YLRODWLQJ 86& ZKLFK SURYLGHV WKDW >D@Q\ SHUVRQ +DYLQJIRXQGQRPHULWWRDQ\RI7DUZDWHUj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mPDWHULDOl LI LW KDV D QDWXUDO WHQGHQF\ WR DEXVHRIDSRVLWLRQRIWUXVWSXUVXDQWWR866*%7KH LQIOXHQFHRULVFDSDEOHRILQIOXHQFLQJRUDIIHFWLQJWKHDELOLW\ GLVWULFWFRXUWKHOGDOHQJWK\VHQWHQFLQJKHDULQJRQsXO\ RI WKH ,56 WR DXGLW RU YHULI\ WKH DFFXUDF\ RI D WD[ UHWXUQ DW ZKLFK WLPH WKH ODZ\HUV SUHVHQWHG HYLGHQFH DQG 1HGHUY8QLWHG6WDWHV866&W DUJXPHQWFRQFHUQLQJ7DUZDWHUjVREMHFWLRQV /(GGTXRWLQJ8QLWHG6WDWHVY*DXGLQ 866&W/(GG,Q )URPWKHSDUWLDOWUDQVFULSWLQFOXGHGLQWKHUHFRUGEHIRUHXV DSURVHFXWLRQXQGHUDQ\IDLOXUHWRUHSRUWLQFRPH LWDSSHDUVWKDWWKHFRXUWILUVWFRQVLGHUHG7DUZDWHUjVREMHFWLRQ LVPDWHULDO8QLWHG6WDWHVY+ROODQG)G WRWKHDPRXQWRIWKHWD[ORVV2QSDJHHLJKWRIWKHWUDQVFULSW WK&LU+HUHPDWHULDOLW\ZDVHVWDEOLVKHGE\%DUWRQjV GHIHQVHFRXQVHOVWDWHGm>$@WWKLVWLPHZHZRXOGWDNHXSWKH WHVWLPRQ\WKDW7DUZDWHUjVIDLOXUHWRUHSRUWVL]HDEOHDPRXQWV FDOFXODWLRQRIWKHDPRXQWRIWKHWD[ORVVDQGWKHUHODWHGLVVXH RILQFRPHZDVFDSDEOHRILQIOXHQFLQJWKH,56LQWKHDXGLWRI RIFRXUVHRIWKHFDOFXODWLRQRIUHVWLWXWLRQls$DW2Q 7DUZDWHUjVWD[UHWXUQV SDJH WZHQW\QLQH RI WKH WUDQVFULSW WKH QH[W SDJH WR EH LQFOXGHGLQWKHUHFRUGWKHFRXUWVWDWHG 7DUZDWHU GRHV QRW GLVSXWH WKDW KH ZLOOIXOO\ PDGH DQG VXEVFULEHGDUHWXUQFRQWDLQLQJDZULWWHQGHFODUDWLRQWKDWLWZDV :KDWWKHGHIHQVHLVWU\LQJWRVXJJHVWWRWKHFRXUWLV PDGHXQGHUSHQDOWLHVRISHUMXU\+HDOVRGRHVQRWGLVSXWHWKDW WKDWDQ\WKLQJWKDWWKHJRYHUQPHQWFRXOGQRWSURYHWKDWKH DVL]HDEOHDPRXQWRIWKHPRQLHVKHUHFHLYHGIURPs0+ZHUH VKRXOGUHFHLYHDFUHGLWIRUWKHGHIHQGDQWVKRXOGUHFHLYH QRWUHSRUWHGDVJURVVLQFRPHRQKLVWD[UHWXUQV:KDWKHGRHV FUHGLW $V , XQGHUVWDQG WKH EXUGHQ RI SURRI IRU WKH GLVSXWHLVWKHJRYHUQPHQWjVHYLGHQFHRUODFNWKHUHRIWKDWWKH JRYHUQPHQWLQWKLVFDVHLVWKHJRYHUQPHQWKDGWRVKRZ m:LOOLH 'DYLVl PRQLHV FRQVWLWXWHG JURVV LQFRPH WKDW KH WKDWWKHGHIHQGDQWUHFHLYHGm;lGROODUVLQIXQGVDQGWKDW VKRXOGKDYHUHSRUWHGRQKLVWD[UHWXUQ+HVXJJHVWVLQRWKHU RIWKRVHIXQGVKHIDLOHGWRUHSRUWLWRQKLVLQFRPHWD[ ZRUGVWKDWKHGLGQRWUHSRUWWKH:LOOLH'DYLVPRQLHVEHFDXVH UHWXUQ KHGLGQRWEHOLHYHWKRVHPRQLHVFRQVWLWXWHGLQFRPHWRKLP +HWKXVFKDOOHQJHVWKHMXU\jVILQGLQJWKDWKHGLGQRWEHOLHYH 7KHJRYHUQPHQWZDVDEOHWRVKRZDQGWUDFHPRVWRI KLVUHWXUQVWREHWUXHDQGFRUUHFW WKHVHIXQGVWRWKHGHIHQGDQWjVFKHFNLQJDFFRXQWYDULRXV FKHFNLQJDFFRXQWVDQGIURPWKDW,WKLQNWKHSURRIZDV 7DUZDWHUDWWDFNVWKHWHVWLPRQ\RIWKHJRYHUQPHQWjVH[SHUW FOHDUEH\RQGDUHDVRQDEOHGRXEWWKDWWKHVHIXQGVZHUH ZLWQHVV,565HYHQXH$JHQW%DUWRQE\DUJXLQJWKDW%DUWRQ XVHGIRUKLVEHQHILW7KHMXU\ZDVVRFRQYLQFHGDQG,DP GLGQRWH[DPLQHDOORI7DUZDWHUjVOHGJHUVDQGDFFRXQWVWKDW VRFRQYLQFHG VKHPDGHPLVWDNHVLQKHUFRPSXWDWLRQVDQGWKDWKHURSLQLRQ DV WR 7DUZDWHUjV XQGHUVWDWHPHQW RI LQFRPH ZDV XQUHOLDEOH s$DW2QSDJHIRUW\VL[RIWKHWUDQVFULSWWKHQH[WSDJH EHFDXVHWKHRSLQLRQVKHJDYHDWWULDOGLIIHUHGIURPWKHRQHVKH WREHLQFOXGHGLQWKHUHFRUGWKHGLVWULFWFRXUWDJUHHGWRUHGXFH JDYHDWDSUHWULDOKHDULQJ/LNHZLVH7DUZDWHUDWWDFNV$JHQW WKH SUREDWLRQ RIILFHUjV HVWLPDWH RI 7DUZDWHUjV sDFNVRQjV WHVWLPRQ\ DUJXLQJ WKDW EHFDXVH KHU UHYLHZ RI XQGHUVWDWHPHQWRILQFRPHE\s$DW2QSDJH 7DUZDWHUjVILQDQFLDOUHFRUGVZDVLQFRPSOHWHKHUFRQFOXVLRQV VL[W\VHYHQRIWKHWUDQVFULSWWKHFRXUWVWDWHGm>&@RQFHUQLQJ ZHUH XQUHOLDEOH $W WULDO KRZHYHU GHIHQVH FRXQVHO WKH DPRXQW , KDYH FDOFXODWHG WKH DPRXQW ZKLFK LV QRZ H[WHQVLYHO\ FURVVH[DPLQHG ERWK DJHQWV TXHVWLRQLQJ WKH PXOWLSOLHG E\ ZLOO JLYH D WD[ ORVV RI 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU WKRURXJKQHVVRIWKHLUUHYLHZWKHLUFRPSXWDWLRQVDQGWKHLU 6&W/(GGDFDVHZKHUHLQWKH FRQFOXVLRQWKDW7DUZDWHUXQGHUVWDWHGKLVLQFRPHE\VL]HDEOH &RXUW KHOG FRQVWLWXWLRQDO D VWDWH VWDWXWH WKDW SHUPLWWHG D DPRXQWVLQHDFKRIWKHUHOHYDQWWD[\HDUV7KHMXURUVZHUH VHQWHQFLQJFRXUWUDWKHUWKDQDMXU\WRILQGIDFWVWKDWUDLVHG DEOH WR DVVHVV WKH FUHGLELOLW\ RI WKH DJHQWV DQGE\ WKHLU WKHPDQGDWRU\PLQLPXPVHQWHQFH0F0LOODQ86DW YHUGLFWWKHMXURUVPDGHFOHDUWKDWWKH\EHOLHYHGWKHDJHQWVj 7RJHWKHU +DUULV $SSUHQGL DQG 0F0LOODQ IRUHFORVH WHVWLPRQ\ ,W LV QRW IRU XV WR VHFRQGJXHVV WKH MXURUVj 7DUZDWHUjVFRQVWLWXWLRQDOFKDOOHQJHWRWKH*XLGHOLQHV DVVHVVPHQWRIDZLWQHVVjVFUHGLELOLW\QRULVLWIRUXVWRUH ZHLJKDQ\RIWKHHYLGHQFH 7DUZDWHUZDVFRQYLFWHGRIYLRODWLQJ86& ZKLFK SURYLGHVWKDWDQ\SHUVRQFRQYLFWHGRIYLRODWLQJWKDW 7DUZDWHU DOVR DUJXHV WKDW WKH HYLGHQFH ZDV LQVXIILFLHQW VWDWXWHmVKDOOEHILQHGQRWPRUHWKDQRULPSULVRQHG EHFDXVHKHVD\VWKHJRYHUQPHQWIDLOHGWRSURYHWKDWKHGLG QRWPRUHWKDQ\HDUVRUERWKl7DUZDWHUZDVVHQWHQFHGWR QRWPDNHVXEVWDQWLDOFDVKSD\PHQWVWRRURQEHKDOIRI'DYLV HLJKWHHQPRQWKVLPSULVRQPHQWZHOOEHORZWKHVWDWXWRU\ 7REHVXUHWKHDJHQWVDGPLWWHGWKDWLI7DUZDWHUPDGHFDVK PD[LPXP %HFDXVH QR IDFWXDO GHWHUPLQDWLRQV PDGH DW SD\PHQWVWRRURQEHKDOIRI'DYLVDQGLIWKRVHSD\PHQWVZHUH 7DUZDWHUjV VHQWHQFLQJ LQFUHDVHG KLV SHQDOW\ EH\RQG WKH UHDVRQDEO\ VXVFHSWLEOH RI EHLQJ FKHFNHG WKRVH DPRXQWV VWDWXWRU\PD[LPXPZHILQGQRPHULWWRKLVDUJXPHQWWKDWKLV ZRXOG QRW EH WD[DEOH WR 7DUZDWHU ,Q IDFW KRZHYHU WKH VHQWHQFHZDVFRQVWLWXWLRQDOO\LQILUP DJHQWV VDLG WKH\ IRXQG QR HYLGHQFH WKDW 7DUZDWHU DFWXDOO\ SDVVHGRQWKHEXONRIWKHs0+PRQLHVDOOHJHGO\LQWHQGHGIRU % 'DYLV,QGHHG7DUZDWHUjVEDQNUHFRUGVZLWKWKHLUWUDLORI GHSRVLWVZLWKGUDZDOVDQGHQGLQJEDODQFHVVXJJHVWHGWKDW 7DUZDWHU FRQWHQGV WKDW WKH GLVWULFW FRXUW GLG QRW PDNH 7DUZDWHUGLGQRWSDVVRQPRVWRIWKHm:LOOLH'DYLVlPRQLHV LQGHSHQGHQWIDFWXDOILQGLQJVIRUHDFKFRQWHVWHGPDWWHULQWKH EXW LQVWHDG XVHG WKRVH PRQLHV IRU KLV RZQ SXUSRVHV ,Q SUHVHQWHQFHUHSRUWLQYLRODWLRQRI)HGHUDO5XOHRI&ULPLQDO DGGLWLRQDOWKRXJK7DUZDWHUWROG1HZPDQWKDWKHFDVKHGRQH 3URFHGXUH F 6XFK UXOH SURYLGHV WKDW >D@W WKH FKHFN IRU 'DYLV RQ HDFK RI WKH IUHTXHQW RFFDVLRQV WKDW KH VHQWHQFLQJKHDULQJ>I@RUHDFKPDWWHUFRQWURYHUWHGWKHFRXUW UHFHLYHG WZR FKHFNV IURP WKH KRVSLWDO RQ WKH VDPH GD\ PXVW PDNH HLWKHU D ILQGLQJ RQ WKH DOOHJDWLRQ RU D 7DUZDWHUjVEDQNUHFRUGVHVWDEOLVKHGWKDWDOOVXFKFKHFNVZHUH GHWHUPLQDWLRQ WKDW QR ILQGLQJ LV QHFHVVDU\ EHFDXVH WKH LQVWHDG GHSRVLWHG LQWR RQH RI 7DUZDWHUj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jV ZRUN IDLOHG WR VXSSRUWHGE\DSUHSRQGHUDQFHRIWKHHYLGHQFH8QLWHG6WDWHV VHJUHJDWH WKH m:LOOLH 'DYLVl PRQLHV LQ D VLQJOH DFFRXQW Y&RUUDGR)GWK&LU8QLWHG6WDWHV VHSDUDWH IURP KLV RZQ SHUVRQDO DQGRU EXVLQHVV DFFRXQWV Y 7DFNHWW )G WK &LU :H UHTXLUH IDLOHG WR NHHS UHFHLSWV IRU KLV SXUSRUWHG FDVK SD\PHQWV WR OLWHUDOFRPSOLDQFHZLWK5XOHFEHFDXVHLWmKHOSVWR 'DYLV IDLOHG WR DGYLVH KLV EXVLQHVV SDUWQHUV DERXW KLV HQVXUHWKDWGHIHQGDQWVDUHVHQWHQFHGRQWKHEDVLVRIDFFXUDWH DUUDQJHPHQWZLWK'DYLVIDLOHGWRNHHSUHFHLSWVIRUPRVWRI LQIRUPDWLRQDQGSURYLGHVDFOHDUUHFRUGIRUDSSHOODWHFRXUWV WKH WZLFHZHHNO\ ZLUH WUDQVIHUV DERXW ZKLFK KLV QHSKHZ SULVRQRIILFLDOVDQGDGPLQLVWUDWLYHDJHQFLHVZKRPD\ODWHUEH WHVWLILHGDQGRWKHUZLVHIDLOHGWRSURYLGHWKH,56DJHQWVZLWK LQYROYHGLQWKHFDVH7DFNHWW)GDW 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU FKDOOHQJHG HYLGHQFH LV µLQH[WULFDEO\ LQWHUWZLQHGj ZLWK WKH NLQG RI GRFXPHQWDWLRQ WKDW DFFRXQWDQWV DUH NQRZQ WR HYLGHQFH RI WKH FULPH FKDUJHGl :H DJUHH WKDW WKH KDQGOH RQ D GDLO\ EDVLV WKH NLQG RI GRFXPHQWDWLRQ WKDW LV FKDOOHQJHG HYLGHQFH ZDV LQH[WULFDEO\ LQWHUWZLQHG ZLWK WKH UHDVRQDEO\VXVFHSWLEOHRIEHLQJFKHFNHG HYLGHQFHRIWKHFULPHVFKDUJHGDQGZHDFFRUGLQJO\ILQGQR DEXVHRIGLVFUHWLRQRQWKHSDUWRIWKHGLVWULFWFRXUWLQUHIXVLQJ 0LQGIXOWKDWVHFWLRQLVDSHUMXU\VWDWXWHUHTXLULQJ WRH[FOXGHWKHHYLGHQFH WKHJRYHUQPHQWWRSURYHWKDWDGHIHQGDQWGLGQRWEHOLHYHKLV RUKHUWD[UHWXUQWREHWUXHDQGFRUUHFWVHYHUDOFRXUWVKDYH 9,6(17(1&,1*,668(6 GHWHUPLQHGWKDWHYLGHQFHRIDGHIHQGDQWjVDWWHPSWVWRDYRLG PDNLQJ UHFRUGV WR FRQFHDO DVVHWV RU WR PLVOHDG RWKHUV LV $ SUREDWLYHRIWKHGLGQRWEHOLHYHWKHUHWXUQWREHWUXHHOHPHQW RIDVHFWLRQRIIHQVH)RUH[DPSOHLQ8QLWHG6WDWHV 7DUZDWHUILUVWFKDOOHQJHVWKHFRQVWLWXWLRQDOLW\RIWKH8QLWHG Y6FRWW)GWK&LUFHUWGHQLHG 6WDWHV6HQWHQFLQJ*XLGHOLQHVm*XLGHOLQHVl+HFRQWHQGV 866&W/(GGWKH WKDWFRQWUDU\WRZKDWWKH*XLGHOLQHVSHUPLWDMXU\VKRXOG FRXUW GHWHUPLQHG WKDW WKH MXU\ KDG D VXIILFLHQW EDVLV IURP GHFLGHEH\RQGDUHDVRQDEOHGRXEWDOOIDFWVWKDWDUHXVHGWR ZKLFKWRLQIHUWKDWWKHGHIHQGDQWGLGQRWEHOLHYHKLVWD[UHWXUQ LQFUHDVHDGHIHQGDQWj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j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sXVWLFHZKLFKmWKHMXU\ DSSOLFDWLRQ RI WKH *XLGHOLQHV GH QRYR 8QLWHG 6WDWHV Y FRXOG KDYH EHOLHYHGWR EH IDOVH H[FXOSDWRU\ VWDWHPHQWV &DQHVWUDUR)GWK&LU HYLGHQFLQJDQLQWHQWWRPLVOHDGRUFRQFHDOl6FRWW)G DW 6HH DOVR 8QLWHG 6WDWHV Y .DDW] )G ,Q$SSUHQGLY1HZsHUVH\866&W WK &LU H[SODLQLQJ WKDW WKH MXU\ FRXOG LQIHU /(GGWKH6XSUHPH&RXUWKHOGWKDW ZLOOIXOQHVVIURPHYLGHQFHWKDWWKHGHIHQGDQWVmKDQGOHGWKHLU >R@WKHU WKDQ WKH IDFW RI D SULRU FRQYLFWLRQ DQ\ IDFW WKDW DIIDLUV VR DV WR DYRLG PDNLQJ WKH UHFRUGV XVXDO WR WKH LQFUHDVHV WKH SHQDOW\ IRU D FULPH EH\RQG WKH SUHVFULEHG EXVLQHVVHVZKLFKWKH\RSHUDWHGDQGWKH\GLGQRWGLVFORVHWR VWDWXWRU\PD[LPXPPXVWEHVXEPLWWHGWRDMXU\DQGSURYHG WKHLUDFFRXQWDQWWKHUHFHLSWVZKLFKWKH\GLYHUWHGl,QERWK EH\RQGDUHDVRQDEOHGRXEW5HFHQWO\LQ+DUULVY8QLWHG 6FRWW DQG .DDW] WKH FRXUWV FLWHG WKH 6XSUHPH &RXUWjV 6WDWHV6&WILYHPHPEHUVRIWKH&RXUW GHFLVLRQLQ6SLHVY8QLWHG6WDWHV866 DJUHHGWKDWIDFWVLQFUHDVLQJWKHUDQJHRISXQLVKPHQWEHORZ &W/(GDWD[HYDVLRQFDVHZKHUHLQWKH WKHVWDWXWRU\PD[LPXPPD\EHGHWHUPLQHGE\WKHMXGJHDQG &RXUW H[SODLQHG WKDW ZKHUH D FULPLQDO WD[ VWDWXWH PDNHV QHHG QRW EH IRXQG EH\RQG D UHDVRQDEOH GRXEW E\ D MXU\ mZLOOIXOQHVVlDQHOHPHQWRIWKHRIIHQVHZLOOIXOQHVVPD\EH $PRQJ RWKHU WKLQJV WKH +DUULV &RXUW UHFRJQL]HG WKH LQIHUUHGm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jVEDQNUHFRUGVZHUH PLVOHDGRUWRFRQFHDOl DGPLWWHG LQWR HYLGHQFH ZHUH GLVFORVHG WR 7DUZDWHU ORQJ EHIRUHWULDODQGZHUHJLYHQWRWKHMXU\WRUHYLHZGXULQJWKHLU +HUHWKHMXU\KHDUGWZR,56DJHQWVWHVWLI\WKDW7DUZDWHU GHOLEHUDWLRQV0RUHRYHUWKHGLVWULFWFRXUWLQVWUXFWHGWKHMXU\ XQGHUVWDWHGKLVLQFRPHE\VL]HDEOHDPRXQWVKHDUGVHYHUDO WKDW WKH VXPPDU\ FKDUWV ZHUH QRW HYLGHQFH DQG VKRXOG EH ZLWQHVVHVWHVWLI\DERXW7DUZDWHUjVYHU\XQXVXDODQGYLUWXDOO\ GLVUHJDUGHGLIWKH\GLGQRWFRUUHFWO\UHIOHFWWKHIDFWVRUILJXUHV XQGRFXPHQWHG KDQGOLQJ RI WKH m:LOOLH 'DYLVl PRQLHV VKRZQE\WKHHYLGHQFH8QGHUWKHFLUFXPVWDQFHVZHILQG KHDUGWHVWLPRQ\UHYHDOLQJWKDW7DUZDWHUZDVDFHUWLILHGSXEOLF 7DUZDWHUjV FODLP UHJDUGLQJ WKH VXPPDU\ FKDUWV WR EH DFFRXQWDQWRQHZKRE\WUDLQLQJXQGHUVWRRGWKHLPSRUWDQFHRI IULYRORXV GRFXPHQWLQJWUDQVDFWLRQVVHJUHJDWLQJIXQGVDQGPDLQWDLQLQJ DQ DXGLW WUDLO \HW GLG QRQH RI WKRVH WKLQJV LQ UHJDUG WR WKH ( m:LOOLH 'DYLVl PRQLHV DQG KHDUG WHVWLPRQ\ GHPRQVWUDWLQJWKDW7DUZDWHUJDYHDIDOVHH[SODQDWLRQWRWKH 7DUZDWHUFRPSODLQVWKDWWKHWULDOFRXUWDEXVHGLWVGLVFUHWLRQ DFFRXQWDQWZKREHJDQWKHLQLWLDOLQYHVWLJDWLRQLQWR7DUZDWHUjV LQDGPLWWLQJHYLGHQFHRIFULPHVIRUZKLFKKHZDVQRWRQWULDO KDQGOLQJ RI WKH m:LOOLH 'DYLVl PRQLHV :H WKLQN VXFK QDPHO\0HGLFDUHDQG0HGLFDLGIUDXGLQYLRODWLRQRI5XOH WHVWLPRQ\HYLGHQFHSURYLGHGDVXIILFLHQWEDVLVIURPZKLFKWKH E,QSDUWLFXODU7DUZDWHUFRQWHQGVWKDWWKHGLVWULFWFRXUW MXU\ FRXOG LQIHU WKDW 7DUZDWHU NQHZ YHU\ ZHOO WKDW KLV WD[ DEXVHG LWV GLVFUHWLRQ ZKHQ LW UHIXVHG WR H[FOXGH WHVWLPRQ\ UHWXUQVIRUWKH\HDUVWKURXJKZHUHQRWWUXHDQG FRQFHUQLQJWKHFLUFXPVWDQFHVVXUURXQGLQJKLVUHFHLSWRIWKH FRUUHFWDVWRHYHU\PDWHULDOPDWWHU m:LOOLH 'DYLVl FKHFNV )RU H[DPSOH WKH FRXUW UHIXVHG WR H[FOXGHHYLGHQFHDERXWZKHWKHUWKHKRVSLWDOUHFHLYHGLQYRLFHV ,,,s85<,16758&7,216 IRU WKH FKHFNV ZULWWHQ WR 7DUZDWHU SHUVRQDOO\ ZKHWKHU WKH KRVSLWDO YHULILHG 0HGLFDUH RU 0HGLFDLG UHFHLSWV EHIRUH $ VLJQLQJFKHFNVWR7DUZDWHUZKHWKHU&KDPEHUVZDVLQVWUXFWHG WRFHDVHZRUNRQDUHYLHZRIWKHFRUUHFWQHVVDQGSURSULHW\RI 7DUZDWHU FRQWHQGV WKDW WKH GLVWULFW FRXUW LPSHUPLVVLEO\ PDNLQJSD\PHQWVWR'DYLVDQG7DUZDWHUDQGZKHWKHULWZDV VKLIWHGWKHEXUGHQRISURRIZKHQLWLQVWUXFWHGWKHMXU\WKDW D FXVWRPDU\ SUDFWLFH LQ 7DUZDWHUjV DQG 3HWHUVj DFFRXQWLQJ mWKHJRYHUQPHQWLVQRWUHTXLUHGWRSURYHWKHQRQH[LVWHQFHRI SUDFWLFHVWRVHQGLQYRLFHVWRFOLHQWVIRUSD\PHQW7DUZDWHU DOOHJHGSD\PHQWVE\>7DUZDWHU@WRRURQEHKDOIRI0U'DYLVl FRQWHQGVWKDWWKLVWHVWLPRQ\PD\KDYHVXJJHVWHGWRWKHMXU\ s$DW$V7DUZDWHUFRUUHFWO\VXJJHVWVWKHJRYHUQPHQW WKDWKHUHFHLYHGIXQGVXQODZIXOO\RUIUDXGXOHQWO\IURPs0+ FDUULHV WKH EXUGHQ RI SURYLQJ HDFK DQG HYHU\ HOHPHQW RI D FULPLQDO RIIHQVH EH\RQG D UHDVRQDEOH GRXEW DQG DQ\ MXU\ ,Q GHQ\LQJ 7DUZDWHUjV SUHWULDO PRWLRQ WR H[FOXGH WKLV LQVWUXFWLRQWKDWVKLIWVWKDWEXUGHQWRDGHIHQGDQWFRQVWLWXWHVD HYLGHQFHWKHGLVWULFWFRXUWIRXQGWKDWEHFDXVHWKHFKDOOHQJHG YLRODWLRQRIGXHSURFHVV&DUHOODY&DOLIRUQLD86 HYLGHQFHZDVLQH[WULFDEO\LQWHUWZLQHGZLWKHYLGHQFHRIWKH 6&W/(GG6DQGVWURPY FULPHVFKDUJHG5XOHEZDVQRWLPSOLFDWHG6HH8QLWHG 0RQWDQD866&W/(GG 6WDWHV Y (YHUHWW )G WK &LU :KHWKHUDMXU\LQVWUXFWLRQYLRODWHVDGHIHQGDQWjVGXH H[SODLQLQJ WKDW m5XOH E LV QRW DSSOLFDEOH ZKHUH WKH 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU H[SODLQLQJWKDWWKHUHLVQR%UDG\YLRODWLRQLIWKHGHIHQGDQW SURFHVVULJKWVLVUHYLHZHGGHQRYR8QLWHG6WDWHVY$PSDUR NQHZRUVKRXOGKDYHNQRZQWKHHVVHQWLDOIDFWVSHUPLWWLQJKLP )GWK&LU WR WDNH DGYDQWDJH RI WKH LQIRUPDWLRQ LQ TXHVWLRQ RU LW WKH LQIRUPDWLRQZDVDYDLODEOHWRKLPIURPDQRWKHUVRXUFH 7DUZDWHUGRHVQRWVXJJHVWWKDWWKHGLVWULFWFRXUWIDLOHGWR DFFXUDWHO\ LQVWUXFW WKH MXU\ DV WR WKH HOHPHQWV RI D VHFWLRQ 7DUZDWHUFODLPVWKDWWKHJRYHUQPHQWYLRODWHG%UDG\ZKHQ RIIHQVH,QGHHGWKHGLVWULFWFRXUWLQVWUXFWHGWKHMXU\ LWGLVFORVHGEHIRUH%DUWRQWHVWLILHGWKDW%DUWRQDWRQHWLPH WKDW WKH JRYHUQPHQW KDG WKH EXUGHQ RI SURYLQJ EH\RQG D JDYHKLPFUHGLWIRUFDUUHQWDOSD\PHQWVWKDW7DUZDWHUKLPVHOI UHDVRQDEOH GRXEW WKDW 7DUZDWHU PDGH DQG VXEVFULEHG WKH VXSSRVHGO\PDGHRQEHKDOIRI'DYLV2EYLRXVO\7DUZDWHU WKUHHWD[UHWXUQVGHVFULEHGLQWKHLQGLFWPHQWWKDWWKHUHWXUQV NQHZ ZKHWKHU KH GLG RU GLG QRW PDNH VXFK SD\PHQWV RQ FRQWDLQHG D ZULWWHQ GHFODUDWLRQ WKDW WKH\ ZHUH PDGH XQGHU EHKDOI RI 'DYLV %HFDXVH WKH LQIRUPDWLRQ DERXW ZKLFK KH SHQDOW\RISHUMXU\WKDW7DUZDWHUNQHZWKHUHWXUQVFRQWDLQHG FRPSODLQV ZDV QRW XQNQRZQ WR KLP DQG EHFDXVH WKH LQIRUPDWLRQ WKDW ZDV PDWHULDO DQG IDOVH DQG WKDW 7DUZDWHU LQIRUPDWLRQ ZDV GLVFORVHG WR KLP EHIRUH %DUWRQ WHVWLILHG ZLOOIXOO\ ILOHG WKH UHWXUQV ZLWK WKH ,56 s$ DW ,Q SHUPLWWLQJKLPWRWDNHDGYDQWDJHRIWKHLQIRUPDWLRQGXULQJ GHILQLQJ WKH WHUP mZLOOIXOO\l WKH GLVWULFW FRXUW VDLG WKDW KLVFURVVH[DPLQDWLRQRI%DUWRQZHILQGQR%UDG\YLRODWLRQ m>7DUZDWHU@PXVWKDYHDFWHGYROXQWDULO\DQGLQWHQWLRQDOO\DQG ZKDWVRHYHU ZLWK WKH VSHFLILF LQWHQW WR GR VRPHWKLQJ KH NQHZ WKH ODZ SURKLELWHGWKDWLVWRVD\ZLWKLQWHQWHLWKHUWRGLVREH\RUWR )XUWKHUPRUHZHILQGWKDWWKHGLVWULFWFRXUWGLGQRWDEXVHLWV GLVUHJDUG WKH ODZl s$ DW 7KH GLVWULFW FRXUW DOVR GLVFUHWLRQZKHQLWGHQLHG7DUZDWHUjVPRWLRQWRGLVPLVVDQGRU UHSHDWHGO\LQVWUXFWHGWKHMXU\WKDW7DUZDWHUKDGQRREOLJDWLRQ VWULNH RQ WKH JURXQGV WKDW WKH JRYHUQPHQW YLRODWHG 5XOH WRSUHVHQWDQ\HYLGHQFHDWDOOWKDWLWZDVWKHJRYHUQPHQWjV D( E\ SURGXFLQJ %DUWRQjV UHYLVHG UHSRUWV WKH GD\ EXUGHQWRSURYHEH\RQGDUHDVRQDEOHGRXEWHYHU\HOHPHQWRI EHIRUH %DUWRQ WHVWLILHG 7DUZDWHUjV FRXQVHO ZDV DEOH WR WKHFULPHFKDUJHG,QWKHGLVWULFWFRXUWjVZRUGV UHYLHZWKHUHYLVHGUHSRUWVEHIRUHH[WHQVLYHO\FURVVH[DPLQLQJ %DUWRQ DERXW WKH FKDQJHV UHIOHFWHG LQ WKRVH UHSRUWV $V >7DUZDWHU@VWDUWVRXWZLWKDFOHDQVODWHZLWKQRHYLGHQFH H[SODLQHGE\%DUWRQDWWULDOWKHFKDQJHVZHUHQHFHVVLWDWHGE\ DW DOO DJDLQVW KLP DQG WKH ODZ SUHVXPHV WKDW KH LV LQIRUPDWLRQ WKDW %DUWRQ DFTXLUHG IURP 7DUZDWHUjV RZQ LQQRFHQW7KLVSUHVXPSWLRQRILQQRFHQFHVWD\VZLWKKLP UHFRUGVQRWORQJEHIRUHWULDO7KHFKDQJHVPRUHRYHUZHUH XQOHVVWKHJRYHUQPHQWSUHVHQWVHYLGHQFHKHUHLQFRXUW ODUJHO\LQ7DUZDWHUj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jV JXLOW\DQGWKLVEXUGHQVWD\VRQWKHJRYHUQPHQWIURPWKH UHYLVHGFRPSXWDWLRQVHDUOLHUZHZLOOQRWGLVWXUEWKHGHFLVLRQ VWDUWWRWKHILQLVK RIWKHGLVWULFWFRXUW 7KH JRYHUQPHQW PXVW SURYH HYHU\ HOHPHQW RI WKH ' FULPHFKDUJHGEH\RQGDUHDVRQDEOHGRXEW 7DUZDWHU FRQWHQGV WKDW WKH GLVWULFW FRXUW DEXVHG LWV GLVFUHWLRQ E\ SHUPLWWLQJ WKH JRYHUQPHQW WR XVH VXPPDU\ 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU 7DUZDWHU@ LV DQ DFFRXQWDQW 7KH JRYHUQPHQW SURGXFHG D FRS\ RI %DUWRQjV UHYLVHG JRYHUQPHQW PXVW SURYH WR \RX EH\RQG D UHDVRQDEOH FRPSXWDWLRQV RI 7DUZDWHUjV XQGHUVWDWHPHQW RI LQFRPH GRXEWWKDW>7DUZDWHU@ZLOOIXOO\IDLOHGWRUHSRUWLQFRPHRQ ,QWHUHVWLQJO\ WKH UHYLVLRQV LQ %DUWRQjV FRPSXWDWLRQV KLV,QWHUQDO5HYHQXH6HUYLFH7D[5HWXUQ UHSUHVHQWHG D QHW HIIHFW RI DSSUR[LPDWHO\ LQ 7DUZDWHUjVIDYRU %DVHG RQ WKH JRYHUQPHQWjV ODVW PLQXWH SURGXFWLRQ RI )RU HDFK YLRODWLRQ \RX PXVW GHFLGH ZKHWKHU WKH %DUWRQjVm([SODQDWLRQRI,WHPVlDQGUHYLVHGUHSRUWV7DUZDWHU JRYHUQPHQW KDV SUHVHQWHG SURRI EH\RQG D UHDVRQDEOH PRYHG WR VWULNH %DUWRQjV WHVWLPRQ\ &ODLPLQJ %UDG\ DQG GRXEWWKDW>7DUZDWHU@LVJXLOW\RIWKDWSDUWLFXODUYLRODWLRQ 5XOHD(YLRODWLRQV7DUZDWHUDOVRPRYHGWRGLVPLVV RU WR FRQWLQXH WULDO 7KH GLVWULFW FRXUW GHQLHG 7DUZDWHUjV PRWLRQV :KLOHWKHJRYHUQPHQWKDVWKHEXUGHQWRSURYHEH\RQG 7DUZDWHU QRZ FRQWHQGV WKDW WKH GLVWULFW FRXUW HUUHG E\ D UHDVRQDEOH GRXEW WKDW WKH GHIHQGDQW XQGHUVWDWHG WKH GHQ\LQJ7DUZDWHUjVPRWLRQVWRVWULNHDQGRUWRGLVPLVV7KLV DPRXQWRIJURVVUHFHLSWVRUWRWDOLQFRPHUHSRUWHGRQKLV FRXUW UHYLHZV D GLVWULFW FRXUW V UXOLQJV RQ 5XOH D( )HGHUDO,QFRPH7D[5HWXUQDQGWKHDPRXQWRIKLV LVVXHV IRU DEXVH RI GLVFUHWLRQ 8QLWHG 6WDWHV Y $]DG WRWDO LQFRPH UHSRUWHG RQ KLV DQG )HGHUDO )GWK&LUFHUWGHQLHG86 ,QFRPH7D[5HWXUQVWKHJRYHUQPHQWLVQRWUHTXLUHGWR 6&W/(GG:HUHYLHZGHQRYR SURYH WKH QRQH[LVWHQFH RI DOOHJHG SD\PHQWV E\ WKH LVVXH RI ZKHWKHU HYLGHQFH ZLWKKHOG E\ WKH SURVHFXWLRQ >7DUZDWHU@WRRURQEHKDOIRI0U'DYLV FRQVWLWXWHV%UDG\PDWHULDO8QLWHG6WDWHVY3KLOOLS)G WK&LU$GLVWULFWFRXUW VGHQLDORID%UDG\ 'RQRWUHWXUQDJXLOW\YHUGLFWXQOHVVWKHJRYHUQPHQW FODLPLVUHYLHZHGE\WKLVFRXUWGHQRYRWRGHWHUPLQHZKHWKHU SURYHVWKHFULPHVFKDUJHGEH\RQGDUHDVRQDEOHGRXEW WKHVXSSUHVVHG%UDG\HYLGHQFHXQGHUPLQHVFRQILGHQFHLQWKH RXWFRPHRIWKHGHIHQGDQW VWULDO8QLWHG6WDWHVY0LOOHU s$DW )GWK&LU :HGRQRWDJUHHWKDWWKHGLVWULFWFRXUWLPSHUPLVVLEO\VKLIWHG 7RHVWDEOLVKDYLRODWLRQXQGHU%UDG\Y0DU\ODQG86 WKH EXUGHQ RI SURRI ZKHQ LW LQVWUXFWHG WKH MXU\ WKDW mWKH 6&W/(GGDGHIHQGDQWKDV JRYHUQPHQW LV QRW UHTXLUHG WR SURYH WKH QRQH[LVWHQFH RI WKH EXUGHQ RI HVWDEOLVKLQJ WKDW WKH SURVHFXWRU VXSSUHVVHG DOOHJHGSD\PHQWVE\>7DUZDWHU@WRRURQEHKDOIRI0U'DYLVl HYLGHQFH WKDW ZDV XQNQRZQ WR WKH GHIHQGDQW 6HH 8QLWHG s$ DW ,QGHHG RXU UHYLHZ RI WKH UHOHYDQW FDVH ODZ 6WDWHVY$JXUV866&W/ FRQYLQFHVXVWKDWWKHGLVWULFWFRXUWjVLQVWUXFWLRQZDVDFRUUHFW (GGH[SODLQLQJWKDWWKH%UDG\UXOHDSSOLHVWR VWDWHPHQWRIWKHODZ mWKH GLVFRYHU\ DIWHU WULDO RI LQIRUPDWLRQ ZKLFK KDG EHHQ ,Q8QLWHG6WDWHVY%DOODUG)GWK&LUFHUW NQRZQ WR WKH SURVHFXWLRQ EXW XQNQRZQ WR WKH GHIHQVH GHQLHG866&W/(GG 8QLWHG6WDWHVY0XOOLQV)GWK&LU WKH (LJKWK &LUFXLW FRQVLGHUHG WKH EXUGHQ SODFHG RQ WKH H[SODLQLQJWKDW%UDG\LVFRQFHUQHGRQO\ZLWKFDVHVLQZKLFK JRYHUQPHQWLQDVHFWLRQFULPLQDOSURVHFXWLRQ,QWKDW WKHJRYHUQPHQWSRVVHVVHVLQIRUPDWLRQZKLFKWKHGHIHQGDQW FDVHWKHJRYHUQPHQWSUHVHQWHGHYLGHQFHRI%DOODUGjVKDYLQJ GRHV QRW &RH Y %HOO )G WK &LU 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU 6HSWHPEHUGLVFORVLQJWR7DUZDWHUWKDW%DUWRQZRXOG GHSRVLWHG PRQLHV WKDW ZHUH QRW UHSRUWHG DV JURVV EXVLQHVV DOVRWHVWLI\WKDWDWD[SD\HUjVIDLOXUHWRLQFOXGHDOOLQFRPHRQ UHFHLSWVRQKLVWD[UHWXUQV&KDUJHGZLWKZLOOIXOO\PDNLQJ D WD[ UHWXUQ FDQ LQIOXHQFH WKH FRUUHFW FRPSXWDWLRQ RI WD[ DQG VXEVFULELQJ IDOVH LQFRPH WD[ UHWXUQV IRU WZR \HDUV OLDELOLW\DQGFDQLPSHGHWKH,56jVYHULILFDWLRQDQGRUDXGLWRI %DOODUGWHVWLILHGRQKLVRZQEHKDOIDWWULDOVWDWLQJWKDWILUHV WKHWD[UHWXUQs$DW KDG GHVWUR\HG KLV EXVLQHVV UHFRUGV WKDW KH KDGLQ IDFW VXVWDLQHG D ORVV LQ KLV EXVLQHVVHV GXULQJ WKH WZR \HDUV LQ 2Q2FWREHULQUHVSRQVHWR7DUZDWHUjVPRWLRQWR TXHVWLRQDQGWKDWKHKDGVSHQWDOORIWKHFDVKKHKDGUHFHLYHG VWULNH %DUWRQjV WHVWLPRQ\ WKH JRYHUQPHQW DJDLQ LQ RSHUDWLQJKLVEXVLQHVVHV2QDSSHDORIKLVFRQYLFWLRQV VXSSOHPHQWHG%DUWRQjVVXPPDU\GLVFORVLQJWR7DUZDWHUWKH %DOODUG DUJXHG WKDW WKH JRYHUQPHQW FRXOG QRW HVWDEOLVK LWV VSHFLILFGHWDLOVRI%DUWRQjVFRPSXWDWLRQVs$DW FDVH E\ PHUH SURRI RI JURVV UHFHLSWV EXW ZDV UHTXLUHG WR 7KH PDJLVWUDWH MXGJH GHQLHG 7DUZDWHUjV PRWLRQ WR VWULNH GHPRQVWUDWH%DOODUGjVUHFHLSWRILQFRPHPHDVXUHGE\JURVV %DUWRQjV WHVWLPRQ\ RQ sDQXDU\ UXOLQJ WKDW WKH UHFHLSWVOHVVH[SHQVHV7KH(LJKWK&LUFXLWGLVDJUHHGVWDWLQJ JRYHUQPHQWjV GLVFORVXUHV ZHUH VXIILFLHQW DQG GLG QRW FRQVWLWXWHDYLRODWLRQRI5XOHD( 7KH*RYHUQPHQWjVEXUGHQ>LQDVHFWLRQ@FDVH LV OHVV WKDQ LQ D WD[ HYDVLRQ FDVH ,Q WKH ODWWHU WKH 2Q sDQXDU\ DW WKH 'DXEHUW KHDULQJ %DUWRQ SURVHFXWLRQ PXVW VKRZ WD[SD\HUjV UHFHLSW RI WD[DEOH WHVWLILHGDVWR7DUZDWHUjVXQGHUVWDWHPHQWRILQFRPHIRUWKH LQFRPH7KHSURVHFXWLRQjVEXUGHQKHUHLVVLPLODUWRWKDW \HDUV WKURXJK JLYLQJ FRPSOHWH GHWDLOV RI KHU LQDIDLOXUHWRILOHFDVHLQZKLFKHYLGHQFHRIXQH[SODLQHG FRPSXWDWLRQV)ROORZLQJWKH'DXEHUWKHDULQJWKHPDJLVWUDWH UHFHLSWV VKLIWV WR WKH WD[SD\HU WKH EXUGHQ RI FRPLQJ GHQLHG 7DUZDWHUjV UHQHZHG PRWLRQ WR VWULNH %DUWRQjV IRUZDUGZLWKWKHDPRXQWRIRIIVHWWLQJH[SHQVHV7KXV WHVWLPRQ\DJDLQUXOLQJWKDWWKHJRYHUQPHQWKDGFRPSOLHG WKHHYLGHQFHRIXQH[SODLQHGUHFHLSWVKHUHHVWDEOLVKHGD ZLWK5XOHD(7KHFRXUWVWDWHG SULPD IDFLH FDVH RI WD[SD\HUjV IDLOXUH WR GLVFORVH VXEVWDQWLDODPRXQWVRIJURVVLQFRPH 7KH mVXPPDU\l UHTXLUHG E\ 5XOH D( LV RQO\ UHTXLUHGWRGHVFULEHWKHZLWQHVVjRSLQLRQVWKHEDVHVDQG %DOODUG )G DW 2WKHU FRXUWV KDYH VLPLODUO\ WKH UHDVRQV IRU WKRVH RSLQLRQV DQG WKH ZLWQHVVj VXJJHVWHG WKDW ZKLOH WKH JRYHUQPHQW EHDUV WKH EXUGHQ RI TXDOLILFDWLRQV,WGRHVQRWUHTXLUHWKHH[SHUWWRVHWIRUWK SURRIWKURXJKRXWDQ\FULPLQDOWD[FDVHWKHJRYHUQPHQWLVQRW DGHWDLOHGMXVWLILFDWLRQIRUKHUH[SHUWRSLQLRQ7KDWLVDQ UHTXLUHG WR QHJDWH HYHU\ SRVVLEOH VRXUFH RI QRQWD[DEOH DUHD ZKLFK PD\ EH H[SORUHG E\ FRXQVHO RQ FURVV LQFRPHWRWUDFNGRZQDOOSRVVLEOHH[SHQVHVRUWRSURYHWKH H[DPLQDWLRQDWWULDO DEVHQFH DQ\RIIVHWWLQJFRVWVRUGHGXFWLRQV6HH'DYLVY 8QLWHG 6WDWHV )G WK &LU s$DW H[SODLQLQJWKDWmHYLGHQFHRIXQH[SODLQHGIXQGVRUSURSHUW\ LQWKHKDQGVRIDWD[SD\HUHVWDEOLVKHVDSULPDIDFLHFDVHRI 7KHHYHQLQJEHIRUH%DUWRQZDVVFKHGXOHGWRWHVWLI\DWWULDO XQGHUVWDWHPHQWRILQFRPHDQGLWLVWKHQLQFXPEHQWRQ>WKH WKHJRYHUQPHQWSURGXFHGDUHSRUWHQWLWOHGm([SODQDWLRQRI WD[SD\HU@WRRYHUFRPHWKHORJLFDOLQIHUHQFHVWREHGUDZQIURP ,WHPVl3UHSDUHGE\%DUWRQWKHUHSRUWUHYHDOHGWKDWDWDQ VXFKSURRIlFHUWGHQLHG866&W HDUO\ VWDJH LQ KHU LQYHVWLJDWLRQ %DUWRQ HVWLPDWHG WKDW /(G8QLWHG6WDWHVY2UORZVNL)G 7DUZDWHU ZDV HQWLWOHG WR FUHGLWV RI SHU \HDU IRU WK&LUUHMHFWLQJWKHGHIHQGDQWjVDUJXPHQWWKDWLQD SD\PHQWVWRUHQWDOFDUFRPSDQLHVRQEHKDOIRI'DYLV%DUWRQ VHFWLRQFDVHWKHJRYHUQPHQWZDVUHTXLUHGWRSURYH ODWHUHOLPLQDWHGWKRVHFUHGLWVIURPKHUFRPSXWDWLRQV WKHQRQH[LVWHQFHRIDOOHJHGH[SHQVHVFHUWGHQLHG86 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU 6&W/(GG8QLWHG6WDWHV FURVVH[DPLQDWLRQGHIHQVHFRXQVHODVNHG%DUWRQZKHWKHUVKH Y 6WHLQ )G WK &LU UHMHFWLQJ WKH KDGWDONHGZLWK:LOOLH'DYLVVKHKDGQRWZKHWKHUVKHNQHZ GHIHQGDQWjV VXJJHVWLRQ WKDW LQ D WD[ HYDVLRQ FDVH WKH LI7DUZDWHUKDGPDGHDQ\FDVKSD\PHQWVWR:LOOLH'DYLVVKH JRYHUQPHQWZDVUHTXLUHGWRHOLPLQDWHDOOQRQLQFRPHLWHPV NQHZRQO\ZKDWZDVUHFRUGHGLQWKHERRNVDQGUHFRUGVDQG IURP LWV EDQN GHSRVLW SURRI 6LUDYR Y 8QLWHG 6WDWHV ZKHWKHUVKHGLGRUGLGQRWDQVZHUm\HVlZKHQVKHZDVDVNHG )GVW&LUH[SODLQLQJWKDWLQDVHFWLRQ LQWKHHDUOLHU'DXEHUWKHDULQJLIVKHZRXOGZDQWWRWDONZLWK FDVHmHYLGHQFHRIXQH[SODLQHGUHFHLSWVVKLIWVWRWKH :LOOLH'DYLVWRGHWHUPLQHZKHWKHUFDVKSD\PHQWVZHUHPDGH WD[SD\HUWKHEXUGHQRIFRPLQJIRUZDUGZLWKHYLGHQFHDVWR WR KLP VKH DQVZHUHG m\HVl 7DUZDWHU FRQWHQGV WKDW E\ WKHDPRXQWRIRIIVHWWLQJH[SHQVHVLIDQ\l RSLQLQJ WKDW 7DUZDWHU XQGHUVWDWHG KLV LQFRPH %DUWRQ QHFHVVDULO\FRPPXQLFDWHGKHURSLQLRQWKDW7DUZDWHUGLGQRW ,Q+ROODQGY8QLWHG6WDWHV866 PDNHVXIILFLHQWSD\PHQWVWRRURQEHKDOIRI:LOOLH'DYLV+H &W/(GWKH6XSUHPH&RXUWKHOGWKDW FRQWHQGV WKDW %DUWRQ WKXV LPSURSHUO\ mYRXFKHGl IRU WKH LQDQHWZRUWKFDVHDFDVHEXLOWmVROHO\RQWKHDSSUR[LPDWLRQV FUHGLELOLW\ RI 'DYLVjV DOOHJHG RXWRIFRXUW VWDWHPHQW WR WKH DQGFLUFXPVWDQWLDOLQIHUHQFHVRIDQHWZRUWKFRPSXWDWLRQlWKH HIIHFW WKDW KH KDG QRW UHFHLYHG DQ\ FDVK SD\PHQWV IURP JRYHUQPHQWPDNHVRXWDSULPDIDFLHFDVHRIWD[HYDVLRQZKHQ 7DUZDWHU LW KDV SURYHG WKH H[LVWHQFH RI D OLNHO\ VRXUFH RI WD[DEOH LQFRPH VXIILFLHQW WR DFFRXQW IRU D WD[SD\HUjV QHW ZRUWK :HDUHQRWSHUVXDGHGE\7DUZDWHUjVmYRXFKLQJlDUJXPHQW LQFUHDVHV DQG KDV DOVR LQYHVWLJDWHG DOO mUHOHYDQW OHDGV %DUWRQ ZDV DVNHG E\ WKH JRYHUQPHQW WR UHYLHZ WKH IXUQLVKHG E\ WKH WD[SD\HUOHDGV UHDVRQDEO\ VXVFHSWLEOH RI GRFXPHQWDU\HYLGHQFHDQGVKHUHQGHUHGDQRSLQLRQDERXWWKH EHLQJFKHFNHGZKLFKLIWUXHZRXOGHVWDEOLVKWKHWD[SD\HUjV DFFXUDF\ RI 7DUZDWHUjV WD[ UHWXUQV EDVHG RQ WKDW HYLGHQFH LQQRFHQFHl ,Q VR OLPLWLQJ WKH JRYHUQPHQWjV LQYHVWLJDWLYH 7KHMXU\ZDVFDSDEOHRIGHWHUPLQLQJWKDWLI7DUZDWHUIDLOHG UHVSRQVLELOLWLHVWKH6XSUHPH&RXUWVWDWHG WRGRFXPHQWWKHDOOHJHGFDVKWUDQVIHUVWR'DYLVWKRVHFDVK WUDQVIHUV ZRXOG QRW EH UHIOHFWHG LQ %DUWRQjV FDOFXODWLRQV $Q\ RWKHU UXOH ZRXOG EXUGHQ WKH *RYHUQPHQW ZLWK 7KDWVKHGLGQRWFRQVLGHUXQGRFXPHQWHGWUDQVIHUVLQQRZD\ LQYHVWLJDWLQJ WKH PDQ\ SRVVLEOH QRQWD[DEOH VRXUFHV RI VXJJHVWV WKDW VKH mYRXFKHGl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jVSURSRVHGWHVWLPRQ\$VUHTXLUHG +ROODQG86DWFI8QLWHG6WDWHVY/DZKRQ E\ )HGHUDO 5XOH RI &ULPLQDO 3URFHGXUH D( WKH )G WK &LUH[SODLQLQJ WKDW LQ D FDVH VXPPDU\GHVFULEHG%DUWRQjVRSLQLRQVWKHEDVHVDQGUHDVRQV ZKHUHWKHJRYHUQPHQWEDVHVLWVSURRIRQVSHFLILFLWHPVWKH IRUWKRVHRSLQLRQVDQG%DUWRQjVTXDOLILFDWLRQV7KHVXPPDU\ mOHDGVGRFWULQHlDSSOLFDEOHLQFLUFXPVWDQWLDOHYLGHQFHRUQHW DOVR GLVFORVHG WKDW %DUWRQjV RSLQLRQV ZHUH EDVHG RQ KHU ZRUWKFDVHVGRHVQRWDSSO\LQVXFKDFDVHWKHJRYHUQPHQW H[DPLQDWLRQRI7DUZDWHUjVLQFRPHWD[UHWXUQVEDQNUHFRUGV GRHVQRWEHDUWKHEXUGHQRIWU\LQJWRGLVFRYHUDQGH[FOXGHDOO EXVLQHVVUHFRUGVDQGUHFRUGVIURPs0+s$DW7KH SRVVLEOH QRQLQFRPH LWHPV IURP LWV HYLGHQFH RI WD[DEOH JRYHUQPHQW VXSSOHPHQWHG %DUWRQjV VXPPDU\ RQ 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU FRPSOLHGZLWKWKHUHTXLUHPHQWVRIWKH,QWHUQDO5HYHQXH LQFRPHFHUWGHQLHG866&W/(G &RGHWRUHSRUWDOOKLVLQFRPH G s$DW*LYHQVXFKILQGLQJVZHDUHFRQILGHQWWKDWWKH ,QWKLVFDVHWKHGLVWULFWFRXUWFRUUHFWO\LQVWUXFWHGWKHMXU\ GLVWULFW FRXUW KDG DQ DGHTXDWH EDVLV IRU FRQFOXGLQJ WKDW WKDW7DUZDWHUKDGQRREOLJDWLRQWRSUHVHQWDQ\HYLGHQFHDWDOO %DUWRQjVWHVWLPRQ\ZDVERWKUHOLDEOHDQGUHOHYDQW WKDW KH ZDV SUHVXPHG LQQRFHQW XQOHVV DQG XQWLO WKH JRYHUQPHQWSURYHGEH\RQGDUHDVRQDEOHGRXEWWKHHOHPHQWV 0RUHRYHU ZH UHMHFW 7DUZDWHUjV DVVHUWLRQ WKDW %DUWRQjV RIWKHVHFWLRQFKDUJHVDJDLQVW7DUZDWHU7KHFRXUW WHVWLPRQ\ ZDV XQUHOLDEOH EHFDXVH mEDVHG XSRQ IDFWV RU FRUUHFWO\GHILQHGWKRVHHOHPHQWVDQGFDXWLRQHGWKHMXU\WKDW DVVXPSWLRQVDERXWZKLFKVKHKDGQRNQRZOHGJHl'HIjV%U JRYHUQPHQWKDGWKHEXUGHQRISURYLQJHYHU\HOHPHQWRIWKH DW,QGHHGWKHUHFRUGUHIXWHVDQ\VXFKDVVHUWLRQ$VVWDWHG FULPHVFKDUJHGEH\RQGDUHDVRQDEOHGRXEW$VVXJJHVWHGLQ E\WKHGLVWULFWFRXUW QXPHURXV FDVHV LQFOXGLQJ %DOODUG 'DYLV 2UORZVNL DQG +ROODQG WKH JRYHUQPHQW ZDV QRW UHTXLUHG WR SURYH WKH 0V%DUWRQWHVWLILHGWKDWKHUFRPSXWDWLRQVZHUHEDVHG DEVHQFH RI SDVVWKURXJK SD\PHQWV WR 'DYLV SDUWLFXODUO\ XSRQ'HIHQGDQWjVEDQNUHFRUGVDQGEXVLQHVVUHFRUGVDQG ZKHUHDVKHUH7DUZDWHUSURYLGHGWKHJRYHUQPHQWQRKHOSLQ KHU H[SHUW RSLQLRQ WKDW 'HIHQGDQW XQGHU UHSRUWHG KLV LGHQWLI\LQJ WKH IRUP RU VRXUFH RI WKRVH SD\PHQWV :H LQFRPHLVEDVHGXSRQKHUH[DPLQDWLRQRI'HIHQGDQWjV DFFRUGLQJO\FRQFOXGHWKDWWKHGLVWULFWFRXUWLQQRZD\VKLIWHG UHFRUGKHUDELOLW\WRWUDFHWKHIORZRILQFRPHDQGWKH WKH EXUGHQ RI SURRI ZKHQ LW LQVWUXFWHG WKH MXU\ WKDW mWKH GLVEXUVHPHQW RI VDPH DV YLHZHG E\ D 5HYHQXH $JHQW JRYHUQPHQW LV QRW UHTXLUHG WR SURYH WKH QRQH[LVWHQFH RI ZLWKWZHQW\ILYH\HDUVRIH[SHULHQFHDQGWUDLQLQJDQG DOOHJHGSD\PHQWVE\>7DUZDWHU@WRRURQEHKDOIRI0U'DYLVl IURP KHU DQDO\VLV RI 'HIHQGDQWjV EDQN UHFRUGV DQG s$DW7KHGLVWULFWFRXUWFRUUHFWO\VWDWHGWKHODZDQG EXVLQHVVUHFRUGV,WDSSHDUVWRWKH&RXUWWKDW0V%DUWRQ WKHUHZDVQRYLRODWLRQRI7DUZDWHUjVGXHSURFHVVULJKWV KDVDSSOLHGWKHSULQFLSOHVDQGPHWKRGVRIKHUWHFKQLFDO H[SHUWLVHWRWKHIDFWVRIWKLVFDVH % s$DW$WWULDO%DUWRQUHLWHUDWHGWKDWKHURSLQLRQVZHUH 7DUZDWHU DOVR DUJXHV WKDW WKH GLVWULFW FRXUW HUUHG E\ QRW EDVHGXSRQ KHU UHYLHZRI7DUZDWHUjVUHFRUGVERRNVEDQN JLYLQJDJRRGIDLWKLQVWUXFWLRQDQGE\QRWJLYLQJ7DUZDWHUjV VWDWHPHQWV DQG FKHFNVDQG WD[ UHWXUQV 7DUZDWHUjV SURSRVHGLQVWUXFWLRQWKDWmDWUDQVIHURURIIXQGVGRHVQRWKDYH VXJJHVWLRQWKDW%DUWRQjVRSLQLRQLQYROYHGDGHWHUPLQDWLRQRI DQ\UHSRUWLQJUHTXLUHPHQWVXQGHUWKH,QWHUQDO5HYHQXH&RGHl WKH FUHGLELOLW\ RI WZR QRQWHVWLI\LQJ WD[SD\HUV LV ZLWKRXW s$DW:HUHYLHZIRUDEXVHRIGLVFUHWLRQWKHGLVWULFW PHULW FRXUWjVFKRLFHRILQVWUXFWLRQV8QLWHG6WDWHVY3ULQFH )G WK&LU:HPXVWFRQVLGHUWKH % LQVWUXFWLRQVDVDZKROHWRGHWHUPLQHZKHWKHUWKH\IDLUO\DQG DGHTXDWHO\VXEPLWWHGWKHLVVXHVDQGDSSOLFDEOHODZWRWKHMXU\ $V DQ H[SHUW ZLWQHVV $JHQW %DUWRQ ZDV SHUPLWWHG WR 8QLWHG 6WDWHV Y .KDOLO )G WK &LU WHVWLI\RYHU7DUZDWHUjVREMHFWLRQUHJDUGLQJKHURSLQLRQWKDW *HQHUDOO\DGHIHQGDQWLVHQWLWOHGWRDQLQVWUXFWLRQRQGHIHQVH 7DUZDWHUXQGHUVWDWHGKLVLQFRPHIRUWKH\HDUV2Q WKHRULHVWKDWDUHVXSSRUWHGE\ODZDQGUDLVHGE\WKHHYLGHQFH GLUHFWH[DPLQDWLRQWKHJRYHUQPHQWHOLFLWHGWHVWLPRQ\IURP SUHVHQWHG 8QLWHG 6WDWHV Y 'XQFDQ )G %DUWRQ UHJDUGLQJ KHU UHYLHZ RI WKH GRFXPHQWDU\ HYLGHQFH WK&LU+RZHYHUZHZLOOUHYHUVHDGLVWULFWFRXUWjV LQFOXGLQJ7DUZDWHUjVSHUVRQDODQGEXVLQHVVILQDQFLDOUHFRUGV UHIXVDO WR JLYH D UHTXHVWHG LQVWUXFWLRQ RQO\ ZKHQ WKH LQFRPH WD[ UHWXUQV EDQN UHFRUGV DQG s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m'DXEHUWjVOLVWRIVSHFLILFIDFWRUV VSHFLILFLQWHQWUHTXLUHGIRUDFRQYLFWLRQIRUILOLQJIDOVHWD[ QHLWKHUQHFHVVDULO\QRUH[FOXVLYHO\DSSOLHVWRDOOH[SHUWVRULQ UHWXUQVE\VWDWLQJ HYHU\FDVHl.XPKR86DW>:@KHWKHU'DXEHUW V VSHFLILF IDFWRUV DUH RU DUH QRW UHDVRQDEOH PHDVXUHV RI 7KHZRUGmZLOOIXOO\l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jV DUJXPHQWWKDWWKHGLVWULFWFRXUWDEDQGRQHGLWV'DXEHUWJDWH s$ DW 7KH MXU\jV FRQFOXVLRQ WKDW 7DUZDWHU DFWHG NHHSLQJIXQFWLRQE\IDLOLQJWRFRQVLGHUWKH'DXEHUWIDFWRUV ZLOOIXOO\ZRXOGQHFHVVDULO\QHJDWHDQ\SRVVLELOLW\RImJRRG 7R EH VXUH WKH FRXUW FRQFOXGHGDQG ZH DJUHHWKDW WKH IDLWKl LQ ILOLQJ IDOVH WD[ UHWXUQV 6HH 8QLWHG 6WDWHV Y 'DXEHUW IDFWRUV ZHUH RI OLPLWHG YDOXH KHUH EXW WKH FRXUW 3RPSRQLR866&W/(GG QRQHWKHOHVVFDUHIXOO\FRQVLGHUHGZKHWKHU%DUWRQjVWHVWLPRQ\ H[SODLQLQJWKDWZKHUHDGLVWULFWFRXUWLQVWUXFWVWKHMXU\ ZDVUHOLDEOHDQGUHOHYDQW7KHFRXUWVXPPDUL]HGLWVILQGLQJV WKDW WKH WHUP mZLOOIXOl DV XVHG LQ VHFWLRQ PHDQV mD DVIROORZV YROXQWDU\LQWHQWLRQDOYLRODWLRQRIDNQRZQOHJDOGXW\>D@Q DGGLWLRQDOLQVWUXFWLRQRQJRRGIDLWK>L@VXQQHFHVVDU\l8QLWHG 0V%DUWRQjVWHVWLPRQ\LVWKHSURGXFWRIZHOOHVWDEOLVKHG 6WDWHV Y (UYDVWL )G WK &LU SULQFLSOHVRIERRNNHHSLQJDQGDFFRXQWLQJDVWKRVHDUHDV KROGLQJWKDWWKHGLVWULFWFRXUWGLGQRWDEXVHLWVGLVFUHWLRQLQ RIH[SHUWLVHDUHDSSOLHGWRWKH,QWHUQDO5HYHQXH&RGH UHIXVLQJWKHGHIHQGDQWjVUHTXHVWIRUDJRRGIDLWKLQVWUXFWLRQ 0V%DUWRQGHPRQVWUDWHGDQXQGHUVWDQGLQJRIWKHUXOHV ZKHUH WKH FRXUW LQVWUXFWHG WKH MXU\ WKDW m>D@Q DFW LV GRQH DQGUHJXODWLRQVRIWKH,56&RGHWKDWUHTXLUHWKHUHSRUWLQJ ZLOOIXOO\LILWLVGRQHYROXQWDULO\DQGLQWHQWLRQDOO\ZLWKWKH RIDOOWD[DEOHLQFRPH7KHPHWKRGVHPSOR\HGE\0V SXUSRVHRIYLRODWLQJDNQRZQOHJDOGXW\l %DUWRQ LQ UHDFKLQJ KHU H[SHUW RSLQLRQ ZHUH WKH DSSOLFDWLRQ RI KHU HGXFDWLRQ WUDLQLQJ NQRZOHGJH DQG ,QVXSSRUWRIKLVSURSRVHGWUDQVIHURULQVWUXFWLRQ7DUZDWHU H[SHULHQFH WR DQDO\]H GHIHQGDQWjV WD[ UHWXUQV DQG FLWHV0DUODU,QFY8QLWHG6WDWHV)GWK&LU EXVLQHVV UHFRUGV WR GHWHUPLQH ZKHWKHU WKH GHIHQGDQW ,Q0DUODUWKHFRXUWKHOGWKDWDFOXEZKLFKWUDQVIHUUHG 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU GHFLVLRQWRDGPLWH[SHUWWHVWLPRQ\IRUDEXVHRIGLVFUHWLRQ PRQLHVIURPLWVFXVWRPHUVWRWKHFOXEjVGDQFHUVGLGQRWPDNH 8QLWHG6WDWHVY/DQJDQ)GWK&LU mSD\PHQWVlWULJJHULQJD)RUPUHSRUWLQJUHTXLUHPHQWRQ WKH SDUW RI WKH FOXE :H DUH XQFRQYLQFHG WKDW 0DUODU 7KHPDJLVWUDWHMXGJHKHOGD'DXEHUWKHDULQJRQsDQXDU\ VXSSRUWV7DUZDWHUjVDUJXPHQWWKDWWKHGLVWULFWFRXUWDEXVHGLWV %DVHGRQWKHHYLGHQFHDQGDUJXPHQWSUHVHQWHGWKH GLVFUHWLRQ LQ UHIXVLQJ WR LQVWUXFW WKH MXU\ LQ WKLV VHFWLRQ MXGJHUXOHGWKDW%DUWRQjVWHVWLPRQ\ZDVmERWKUHOHYDQWDQG FDVHWKDWmDWUDQVIHURURIIXQGVGRHVQRWKDYHDQ\ UHOLDEOHSXUVXDQWWR5XOH)HGHUDO5XOHVRI(YLGHQFHDQG UHSRUWLQJ UHTXLUHPHQWV XQGHU WKH ,QWHUQDO 5HYHQXH &RGHl VKRXOGEHDGPLVVLEOHDWWULDOls$DW,QSDUWLFXODUWKH ,QGHHGZHILQGQRVXFKDEXVH PDJLVWUDWHMXGJHIRXQGWKDWLWZDVmFOHDUIURPWKHHYLGHQFH SUHVHQWHG GXULQJ WKH 'DXEHUW KHDULQJ WKDW 0V %DUWRQ LV ,93526(&8725,$/0,6&21'8&7 TXDOLILHGWRH[SUHVVDQH[SHUWRSLQLRQRQZKHWKHUGHIHQGDQW XQGHUVWDWHG KLV WD[DEOH LQFRPH IRU WKH \HDUV l 7DUZDWHUFRQWHQGVWKDWWKHGLVWULFWFRXUWHUUHGE\GHQ\LQJ s$DW,QFRQFOXGLQJLWVWZHQW\ILYHSDJHPHPRUDQGXP KLVPRWLRQIRUDPLVWULDOEDVHGRQLPSURSHUVWDWHPHQWVPDGH DQGRUGHUWKHFRXUWZURWH E\ WKH JRYHUQPHQWj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s$ DW $IWHU UHYLHZLQJ WKH PDJLVWUDWH MXGJHjV WKH\ ZHUH IODJUDQW DQG ZDUUDQW UHYHUVDO 8QLWHG 6WDWHV Y PHPRUDQGXP DQG RUGHU WKH WUDQVFULSW RI WKH 'DXEHUW &DUUROO)GWK&LU7RGHWHUPLQH KHDULQJ DQG WKH SOHDGLQJV ILOHG E\ WKH SDUWLHV WKH GLVWULFW IODJUDQF\ZHFRQVLGHUZKHWKHUWKHVWDWHPHQWVWHQGHGWR FRXUW RYHUUXOHG 7DUZDWHUjV REMHFWLRQV DQG DSSHDO RI WKH PLVOHDGWKHMXU\RUSUHMXGLFHWKHGHIHQGDQWZKHWKHUWKH PDJLVWUDWH MXGJHjV UXOLQJ RQ WKH DGPLVVLELOLW\ RI %DUWRQjV VWDWHPHQWV ZHUH LVRODWHG RU DPRQJ D VHULHV RI LPSURSHU RSLQLRQVs$DW VWDWHPHQWV ZKHWKHU WKH VWDWHPHQWV ZHUH GHOLEHUDWHO\ RU DFFLGHQWDOO\EHIRUHWKHMXU\DQGWKHWRWDOVWUHQJWKRIWKH ,Q'DXEHUWY0HUULOO'RZ3KDUPDFHXWLFDOV,QF86 HYLGHQFHDJDLQVWWKHDFFXVHG8QLWHG6WDWHVY0RQXV 6&W/(GGWKH6XSUHPH )G WK &LU FLWLQJ 8QLWHG 6WDWHV Y &RXUWKHOGWKDW)HGHUDO5XOHRI(YLGHQFHUHTXLUHVGLVWULFW &REOHLJK)GWK&LU FRXUWVWRHQVXUHWKDWDQH[SHUWjVVFLHQWLILFWHVWLPRQ\mERWK UHVWVRQDUHOLDEOHIRXQGDWLRQDQGLVUHOHYDQWWRWKHWDVNDW 7DUZDWHU FRQWHQGV WKDW GXULQJ FORVLQJ DUJXPHQWV WKH KDQGl 'DXEHUW 86 DW 7KH &RXUW VXJJHVWHG D SURVHFXWRU LPSURSHUO\ FRPPHQWHG RQ 7DUZDWHUjV SRVW QRQH[FOXVLYH OLVW RI IDFWRUV IRU FRXUWV WR FRQVLGHU ZKHQ 0LUDQGDULJKWWRVLOHQFH6SHFLILFDOO\7DUZDWHUFRPSODLQV GHFLGLQJ ZKHWKHU SURSRVHG VFLHQWLILF H[SHUW WHVWLPRQ\ LV DERXWIRXUVWDWHPHQWVWZRPDGHE\$86$:HGGOHDQGWZR VXIILFLHQWO\UHOLDEOH6XFKIDFWRUVLQFOXGHZKHWKHUD PDGHE\$86$%D[WHULQWKHLUUHEXWWDOFORVLQJ:HGGOHVDLG WKHRU\RUWHFKQLTXHKDVEHHQRUFDQEHWHVWHGZKHWKHUWKH m0U7DUZDWHUGHFOLQHGWRGLVFXVVDQ\WD[PDWWHUVZLWKWKH WKHRU\ RU WHFKQLTXH KDV EHHQ VXEMHFWHG WR SHHU UHYLHZ DQG 8QLWHG6WDWHVY7DUZDWHU 1R 1R 8QLWHG6WDWHVY7DUZDWHU 5HYHQXH$JHQWlDQGm1RRQHLQWKHFRXUWURRPNQRZV %HIRUHWKHSURVHFXWRUVPDGHWKHFKDOOHQJHGVWDWHPHQWVLQ ZKHWKHUPRQH\ZHQWWR:LOOLH'DYLVZHOOPD\EHWKHUHLV WKHLUUHEXWWDODUJXPHQWVGHIHQVHFRXQVHODUJXHGWRWKHMXU\ RQHRWKHUSHUVRQLQWKLVFRXUWURRPZKRNQRZVls$DW %D[WHUVDLGm>'HIHQVHFRXQVHO@FRXOGKDYHEURXJKW WKH,56DJHQW@GLGQjWWDONWR0U:LOOLH'DYLVDQGWKH LVQRRWKHUH[SODQDWLRQRUGHILQLWLRQIRUMXVWLFHIRUDFULPLQDO JRYHUQPHQWKDVWKHEXUGHQRISURRI GHIHQVHODZ\HUls$DW'HIHQVHFRXQVHOREMHFWHG WR HDFK RI WKHVH VWDWHPHQWV DOEHLW ZLWKRXW HODERUDWLRQ s$DW$86$%D[WHUUHVSRQGHGWRWKLVDUJXPHQWE\ $FFRUGLQJWR7DUZDWHUEHFDXVH0LUDQGDZDUQLQJVKDGEHHQ VD\LQJm>'@HIHQVHFRXQVHO@FRXOGKDYHEURXJKW:LOOLH'DYLV JLYHQWRKLPEHIRUHKHH[HUFLVHGKLVULJKWWRVLOHQFHZKHQKH EHIRUH WKLV MXU\ MXVW OLNH WKH JRYHUQPHQWl s$ DW ZDVTXHVWLRQHGE\WKH,56DJHQWWKHSURVHFXWRUVYLRODWHGKLV %D[WHUjV FRPPHQW ZDV SURSHU DQG GLG QRW UXQ DIRXO RI ULJKWVXQGHU0LUDQGDE\UHIHUULQJWRKLVVLOHQFHRUIDLOXUHWR 7DUZDWHUjV)LIWK$PHQGPHQWULJKWV FDOOZLWQHVVHV 7R WKH H[WHQW LI DQ\ $86$ :HGGOH LPSURSHUO\ 7KH )LIWK $PHQGPHQW VWDWHV 1R SHUVRQVKDOO EH FRPPHQWHG DERXW 7DUZDWHUj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s$DW SURVHFXWLRQPD\QRWWKHUHIRUHXVHDWWULDOWKHIDFWWKDW>WKH GHIHQGDQW@VWRRGPXWHRUFODLPHGKLVSULYLOHJHLQWKHIDFHRI )LQDOO\ZHGRQRWILQG%D[WHUjVFRPPHQWDERXWGHIHQVH DFFXVDWLRQ0LUDQGDY$UL]RQD86Q FRXQVHOjVYLHZRIMXVWLFHVRIODJUDQWDVWRZDUUDQWUHYHUVDO 6 &W / (G G &RQVLVWHQW ZLWK 0LUDQGD SURVHFXWRUV PD\ QRW FRPPHQW RQ D GHIHQGDQW V 9(9,'(17,$5<,668(6 SRVWDUUHVWVLOHQFHLQWKHLUFDVHLQFKLHIRQFURVVH[DPLQDWLRQ $ RU LQ FORVLQJ DUJXPHQWV 'R\OH Y 2KLR 86 6 &W / (G G 6XFK 7DUZDWHU DUJXHV WKDW WKH GLVWULFW FRXUW VKRXOG QRW KDYH SURVFULSWLRQ KRZHYHU GRHV QRW H[WHQG WR D GHIHQGDQWjV DGPLWWHG $JHQW %DUWRQjV H[SHUW RSLQLRQ WHVWLPRQ\ WKDW IDLOXUHWRFDOODZLWQHVVRUWRRWKHUZLVHSUHVHQWH[FXOSDWRU\ 7DUZDWHUXQGHUUHSRUWHGKLVLQFRPH$FFRUGLQJWR7DUZDWHU HYLGHQFHVRORQJDVWKHSURVHFXWRUGRHVQRWWD[WKHH[HUFLVH %DUWRQjVRSLQLRQZDVXQUHOLDEOHmEHFDXVHLWZDVEDVHGXSRQ RIWKHGHIHQGDQWjVULJKWWRUHPDLQVLOHQW6HHHJ8QLWHG IDFWVRUDVVXPSWLRQVDERXWZKLFKVKHKDGQRNQRZOHGJHOHW 6WDWHV Y &DEUHUD )G WK &LU DORQH WKH µVSHFLDOL]HG NQRZOHGJHj UHTXLUHG E\ 5XOH l 8QLWHG6WDWHVY6EOHQGRULR)GWK&LU 'HIjV%UDW7DUZDWHUVXJJHVWVWKDWWKHPDJLVWUDWHMXGJH 2UGLQDULO\ ZH UHYLHZ SURVHFXWRULDO FRPPHQWV DERXW D ZKR FRQGXFWHG WKH 'DXEHUW KHDULQJ mIRFXVHG RQ %DUWRQjV GHIHQGDQW V SRVW0LUDQGD VLOHQFH XQGHU D KDUPOHVV HUURU TXDOLILFDWLRQV DQG H[SUHVVO\ DEDQGRQHG WKH JDWH NHHSLQJ VWDQGDUG6HHHJ8QLWHG6WDWHVY0RUHQR)G IXQFWLRQ RI 'DXEHUWl ,G :H UHYLHZ D GLVWULFW FRXUWjV WK&LU