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 '21$/' * :(;/(5 ; 3ODLQWLII$SSHOODQW 1R Y ! :+,7(j6 ),1( )851,785( ,1& 'HIHQGDQW$SSHOOHH 1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH6RXWKHUQ'LVWULFWRI2KLRDW&ROXPEXV 1RnsDPHV/*UDKDP'LVWULFWsXGJH $UJXHG0DUFK 'HFLGHGDQG)LOHGsDQXDU\ %HIRUH0$57,1&KLHI&LUFXLWsXGJH.583$16.< %2**6%$7&+(/'(5'$8*+75(<0225( &2/(&/$<DQG*,/0$1&LUFXLWsXGJHV BBBBBBBBBBBBBBBBB &2816(/ $5*8('/RXLV$sDFREV&ROXPEXV2KLRIRU$SSHOODQW sDPHV ( 'DYLGVRQ 6&+277(167(,1 =2; '811 &ROXPEXV 2KLR IRU $SSHOOHH 21 %5,() sRKQ 6 0DUVKDOO &ROXPEXV 2KLR IRU $SSHOODQW sDPHV ( 'DYLGVRQ6&+277(167(,1=2; '811&ROXPEXV 2KLRIRU$SSHOOHH :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF *,/0$1sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK BBBBBBBBBBBB 0$57,1 & s '$8*+75(< 0225( &2/( DQG &/$<ssMRLQHG.583$16.<sSSGHOLYHUHG ',66(17 D VHSDUDWH GLVVHQWLQJ RSLQLRQ %2**6 s S DOVR BBBBBBBBBBBB GHOLYHUHG D VHSDUDWH GLVVHQWLQJ RSLQLRQ LQ ZKLFK %$7&+(/'(5sMRLQHG %2**6&LUFXLWsXGJHGLVVHQWLQJ,DJUHHZLWKWKHOHJDO DQDO\VLVDQGWKHDQDO\VLVRIWKHIDFWXDOUHFRUGFRQWDLQHGLQ BBBBBBBBBBBBBBBBB sXGJH .UXSDQVN\jV GLVVHQWLQJ RSLQLRQ , WKHUHIRUH UHVSHFWIXOO\GLVVHQW 23,1,21 BBBBBBBBBBBBBBBBB 521$/' /(( *,/0$1 &LUFXLW sXGJH 'RQDOG * :H[OHUZDVKLUHGDVDVDOHVUHSUHVHQWDWLYHE\:KLWHjV)LQH )XUQLWXUH,QFLQ6HSWHPEHURI+HZDV\HDUVROGDW WKHWLPH/HVVWKDQWZR\HDUVODWHU:H[OHUZDVSURPRWHGWR EHWKHPDQDJHURIWKHFRPSDQ\jV0RUVH5RDGVWRUH:H[OHU KRZHYHUZDVGHPRWHGLQsXQHRIDIWHUVDOHVDWWKHVWRUH KDGVLJQLILFDQWO\GHFOLQHG$WDSULYDWHPHHWLQJGXULQJZKLFK :H[OHU ZDV LQIRUPHG RI KLV GHPRWLRQ WKH WZR VHQLRU FRUSRUDWH RIILFHUV PDGH VHYHUDO DGYHUVH UHIHUHQFHV WR :H[OHUjVDJH:H[OHUjVDJHZDVDJDLQPHQWLRQHGZKHQWKH FRPSDQ\jVSUHVLGHQWDQQRXQFHGWKHGHPRWLRQWRWKHVWRUHjV RWKHU HPSOR\HHV 'XULQJ WKLV VDPH VSHHFK WKH \RXWK RI :H[OHUjVVXFFHVVRUZDVHPSKDVL]HG :H[OHU ILOHG VXLW DJDLQVW :KLWHjV FODLPLQJ WKDW KLV GHPRWLRQ YLRODWHG WKH $JH 'LVFULPLQDWLRQ LQ (PSOR\PHQW $FW$'($7KHGLVWULFWFRXUWJUDQWHGVXPPDU\MXGJPHQW WR:KLWHjVDIWHUFRQFOXGLQJWKDW:H[OHUZDVQRWTXDOLILHGIRU KLV MRE DV VWRUH PDQDJHU DQG WKDW HYHQ LI :H[OHU ZHUH TXDOLILHG :KLWHjV KDG SURIIHUHG D OHJLWLPDWH QRQGLVFULPLQDWRU\UHDVRQIRUKLVGHPRWLRQ$SDQHORIWKLV FRXUW DIILUPHG WKH GLVWULFW FRXUWjV GHFLVLRQ EXW ZH VXEVHTXHQWO\ JUDQWHG :H[OHUjV SHWLWLRQ IRU D UHKHDULQJ HQ EDQFDQGYDFDWHGWKHSDQHOjVGHFLVLRQ)RUWKHUHDVRQVVHW IRUWK EHORZ ZH 5(9(56( WKH GLVWULFW FRXUWjV JUDQW RI VXPPDU\ MXGJPHQW DQG 5(0$1' WKH FDVH IRU IXUWKHU SURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF VWHUHRW\SHVl+D]HQ3DSHU&RY%LJJLQV86 ,%$&.*5281' &RQJUHVVj H[FOXVLYH DQG FRPPHQGDEOH SXUSRVH XQGHUO\LQJ WKH $'($ ZDV WR SHQDOL]H DQG WKHUHE\ GHWHU $ )DFWXDOEDFNJURXQG XQIRXQGHG LUUDWLRQDO HPSOR\PHQW GLVFULPLQDWLRQ DJDLQVW SHUVRQVZKLFKZDVDQLPDWHGSXUHO\E\ELDVSUHMXGLFHDQG :KLWHjV RZQV DQG RSHUDWHV UHWDLO IXUQLWXUH VWRUHV LQ WKH LJQRUDQFH$EVROXWHO\QRHYLGHQFHDSDUWIURPVSHFXODWLRQ JUHDWHU&ROXPEXV2KLRDUHD,Q6HSWHPEHURI:H[OHU FRQMHFWXUH LOORJLFDO mLQIHUHQFHVl LQQXHQGR KXQFKHV ZDV KLUHG E\ *RUGRQ 6FKLIIPDQ WR ZRUN DV D VDOHV LQWXLWLRQVHPSW\WKHRUL]LQJDQGFUHDWLYHJXHVVZRUNWHQGHG UHSUHVHQWDWLYH DW WKH 0RUVH 5RDG VWRUH 6FKLIIPDQ WKH WRSURYHWKDW:KLWHjVFRPPLWWHGWKDWWUDQVJUHVVLRQ,WZDVQRW SUHVLGHQW FKLHI H[HFXWLYH RIILFHU DQG D FRQWUROOLQJ &RQJUHVVjLQWHQWLRQWREHVWRZLPPXQLW\XSRQRYHUDJHIRUW\ VKDUHKROGHURI:KLWHjVZDVLQKLVPLGVL[WLHVDWWKHWLPH,Q HPSOR\HHVDJDLQVWDQ\DQGDOODGYHUVHHPSOR\PHQWGHFLVLRQV )HEUXDU\RI:H[OHUEHFDPHWKHPDQDJHURIWKH0RUVH ZKLFKDMXGJHRUMXURUPD\VXEMHFWLYHO\GHHPXQZLVHXQIDLU 5RDG VWRUH :H[OHU ZDV \HDUV ROG ZKHQ 6FKLIIPDQ RU LOOFRQVLGHUHG QRU ZDV LW &RQJUHVVj GHVLUH WR SXQLVK SURPRWHGKLP HPSOR\HUVIRUUHFRJQL]LQJWKDWDIDOWHULQJHPSOR\HHPD\EH WKH XQIRUWXQDWH YLFWLP RI VRPH DJHFRQQHFWHG GHELOLWDWLQJ 6DOHVDWWKH0RUVH5RDGVWRUHEHJDQWRGHFOLQHLQODWH FRQGLWLRQ %HWZHHQ1RYHPEHURIDQG0D\RIIRUH[DPSOH DYHUDJHPRQWKO\VDOHVDWWKHVWRUHZHUHORZHUWKDQWKH\ 7KLVFDVHLVIXQGDPHQWDOO\RQHLQZKLFKmWKHHYLGHQFH KDGEHHQWKHSUHYLRXV\HDU:H[OHUKLPVHOIVROGOHVV LVVRRQHVLGHGWKDWRQHSDUW\>WKHGHIHQGDQW@PXVWSUHYDLODV IXUQLWXUHGXULQJWKDWWLPHSHULRGWKDQKHKDGGXULQJWKHVDPH DPDWWHURIODZ$QGHUVRQY/LEHUW\/REE\86 VL[PRQWKLQWHUYDOWKHSULRU\HDU ,WLVGLIILFXOWWRLPDJLQHDPRUHFRPSHOOLQJ WH[WERRN H[HPSODU RI D SDUDGLJP DJHGLVFULPLQDWLRQLQ 6FKLIIPDQDVSUHVLGHQWDQG'DYLG/LYHO\WKHH[HFXWLYH HPSOR\PHQWFDVHZKLFKEHJVIRUWKHDSSURYDORIWKHGLVWULFW YLFHSUHVLGHQWPHWZLWK:H[OHURQsXQH'XULQJWKLV FRXUWjVGHFLVLRQ PHHWLQJ6FKLIIPDQH[SUHVVHGGLVVDWLVIDFWLRQZLWKWKHVWRUHjV GHFOLQLQJ VDOHV DQG FULWLFL]HG :H[OHU IRU IDLOLQJ WR IXOILOO $FFRUGLQJO\,ZRXOGDIILUPWKHGLVWULFWFRXUWjVVXPPDU\ FHUWDLQDVSHFWVRIKLVPDQDJHULDOGXWLHV:H[OHUUHVSRQGHGLQ MXGJPHQWIRU:KLWHjV ZULWLQJWRWKHVHFULWLFLVPVWKHIROORZLQJGD\+LVUHVSRQVH LQFOXGHG D GLVFXVVLRQ RI WKH IDFW WKDW IXUQLWXUH VDOHV ZHUH GHFOLQLQJ QDWLRQZLGH +H DOVR QRWHG WKDW LQ HDUO\ sXQH /LYHO\ KDG DGPLWWHG WKDW WKH GHFOLQLQJ VDOHV ZHUH QRW :H[OHUjVIDXOWDQGWKDW:KLWHjVKDGVFDOHGEDFNDGYHUWLVLQJ IRUWKH0RUVH5RDGVWRUH 6FKLIIPDQDQG/LYHO\DGYLVHG:H[OHUVL[GD\VODWHUWKDWWKH FRPSDQ\SODQQHGWRGHPRWHKLPWRKLVIRUPHUMREDVDVDOHV UHSUHVHQWDWLYH,QRUGHUWRHQFRXUDJH:H[OHUWRDFFHSWWKH GHPRWLRQ 6FKLIIPDQ DQG /LYHO\ RIIHUHG KLP D KLJKHU FRPPLVVLRQ RQ WKH IXUQLWXUH KH VROG WKDQ KH KDG UHFHLYHG ZKHQKHZDVRULJLQDOO\DVDOHVUHSUHVHQWDWLYH$FFRUGLQJWR :H[OHUKHKDGWKHIROORZLQJH[FKDQJHZLWK6FKLIIPDQDWWKH EHJLQQLQJRIWKLVPHHWLQJ :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF *RUGRQ>6FKLIIPDQ@KDGDVPLOHRQKLVIDFHVDLGKH RIWKHIRUELGGHQZRUGVRUHYHQIOHHWLQJFRQWHPSODWLRQRIWKH KDGUHDGWKHSDSHUWKDW,KDGJLYHQKLP>UHVSRQGLQJWR FHQVRUHGFRQFHSWoYLGHOLFHWWKDWLWPD\EHSRVVLEOHWKDWDQ 6FKLIIPDQjV FULWLFLVPV@ DQG WKDW PRVW RI ZKDW , KDG REMHFWLYHO\ IDOWHULQJ HPSOR\HHjV ZRUN SURGXFW KDV ZULWWHQ ZDV FRUUHFW +RZHYHU WKH\ KDYH GHFLGHG WR GHWHULRUDWHGEHFDXVHKHVKHLVQRORQJHUDV\RXQJDVKHVKH PDNHDFKDQJH XVHGWREHFDQEULQJUXLQWRWKHKDSOHVVVSHDNHURUWKLQNHU +HWKHQVDLG\RXjUH\HDUVROGDUHQjW\RX'RQ", LUUHVSHFWLYHRIKLVRUKHUWUXHHQWLUHO\LQQRFHQWRULPPDWHULDO VDLGQR*RUGRQ,jP,jOOEHLQsDQXDU\+HWKHQ SXUSRVHRULQWHQWLRQV:KHQDOOLVVDLGDQGGRQHWKHHQEDQF VDLGZHOOZHERWKKDYHEHHQLQWKHEXVLQHVV\HDUV FRXUWLVUHPDQGLQJ:H[OHUjVFDVHIRUDMXU\WULDOQRWEHFDXVH VLF@PDQDJHPHQWIRUDEXQFKRI\HDUVDQG,jPQRW FRQVLGHU DJH UHIHUHQFHV LQ WKH HPSOR\PHQW FRQWH[W WR EH VXUHZKDW,ZDQWWRGR0D\EH,VKRXOGMXVWEHZRUU\LQJ RIIHQVLYHHPSOR\HUVZLOOQRZEHVXEMHFWWRSHQDOL]DWLRQIRU DERXW P\ RZQ FXVWRPHU>V@ DQG QRW HYHU\RQH HOVHjV VWDWLQJWKHREYLRXV FXVWRPHUV7KLVLVJHWWLQJWREHWLULQJ $W WKDW WLPH ZH ZHUH LQWHUYLHZLQJ IRU PDQDJHUV 7R WKH FRQWUDU\ &RQJUHVV LQWHQGHG WR SXQLVK HPSOR\HUV EHFDXVHZHQHHGHGVRPHERG\IRUWKLVVWRUH%XWZH ZKR KDYH XQIDLUO\ GHSULYHG ROGHU SHUVRQV RI HPSOR\PHQW GLG LQWHUYLHZ DQRWKHU JX\ WKDW ZH WKRXJKW ZDV WRS RSSRUWXQLWLHVVROHO\E\UHDVRQRImLQDFFXUDWHDQGVWLJPDWL]LQJ :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF FRQVWUXHG PRVW IDYRUDEO\ IRU :H[OHU FDQ OHDG WR EXW RQH GUDZHU:HWKRXJKWWKDWKHZDVMXVWDEVROXWHO\DWHUULILF VXVWDLQDEOHFRQFOXVLRQoWKDWDQXQELDVHGREMHFWLYHUDWLRQDO NLG +HjV DERXW 'DYLG >/LYHO\@jV DJH EHHQ LQ WKH IDFWILQGHU NQRZOHGJHDEOH LQ WKH DSSOLFDEOH ODZ DQG IXUQLWXUHEXVLQHVVDERXWDVORQJDV'DYLG+HjVDERXWDV XQLQIOXHQFHGE\V\PSDWK\SDVVLRQRUSHUVRQDOLQWHUHVWFRXOG LQWHQVHDV'DYLGLV+HjVDILQHJX\+LVQDPHLVsRKQ QRW LQ WKH DEVHQFH RI LPSHUPLVVLEOH VSHFXODWLRQ RU 1LHOVRQ>VLF@ FRQMHFWXUH FRQFOXGH WKDW :KLWHjV KDG LQWHQWLRQDOO\ WUHDWHG , WKLQN \RX ZLOO OLNH KLP YHU\ PXFK +H LV D ILQH :H[OHUGLVSDUDWHO\EHFDXVHRIDQLPXVDJDLQVWWKHHOGHUO\ SURSHU\RXQJPDQ'RQjWEHPLVOHGE\KLV\RXWK DQ\PRUHWKDQEHLQJPLVOHGE\'DYLG/LYHO\jV\RXWK 8OWLPDWHO\MXVWDVm>W@KHWK$PHQGPHQWGRHVQRWHQDFW 0U+HUEHUW6SHQFHUjV6RFLDO6WDWLFVl/RFKQHUY1HZ:H[OHUjV@DJHl/LYHO\KDGDOVR EHWZHHQ D IRUPHUO\ SURGXFWLYH HPSOR\HHjV REMHFWLYHO\ RQFH DOOHJHGO\ GHVFULEHG :H[OHU WR D PDQXIDFWXUHUjV PHDVXUDEOHSURJUHVVLYHVNLOOVGLPLQXWLRQDQGWKDWHPSOR\HHjV UHSUHVHQWDWLYH DV mD EHDUGHG JUXPS\ ROG PDQl )LQDOO\ DGYDQFLQJDJHGHVHUYHVWREHSXQLVKHGLQFLYLOGDPDJHVIRU :H[OHUFODLPVWKDW/LYHO\KDGRFFDVLRQDOO\DGGUHVVHGKLPDV WKDWmZURQJWKLQNl1RQHWKHOHVVH[KLELWLQJDGLVUHJDUGIRU mSRSVlRUmROGPDQl/LYHO\ZDVWKHQLQKLVHDUO\WKLUWLHV IRXQGDWLRQDOFRQVWLWXWLRQDOVHSDUDWLRQRISRZHUVSUHFHSWVWKH FLUFXLW PDMRULW\ KDV H[HUFLVHG OHJLVODWLYH DXWKRULW\ E\ sRKQ1HLOVRQZKRZDVKLUHGDVWKHQHZPDQDJHURIWKH MXGLFLDOO\DPHQGLQJWKH$'($6HH+HOOHUY'RH86 0RUVH5RDGVWRUHZDVDOVRLQKLVHDUO\WKLUWLHVDWWKHWLPH H[SODLQLQJ WKDW MXULVWV ZKHQ UHYLHZLQJ 6DOHV DW WKH 0RUVH 5RDG VWRUH FRQWLQXHG WR GHFOLQH XQGHU RUGLQDU\HFRQRPLFDQGVRFLDOOHJLVODWLRQDUHQRWFKDUJHGZLWK 1HLOVRQjV VXSHUYLVLRQ DQG KH ZDV UHPRYHG DV PDQDJHU MXGJLQJmWKHZLVGRPIDLUQHVVRUORJLFRIOHJLVODWLYHFKRLFHVl DSSUR[LPDWHO\ILYHPRQWKVODWHU1HLOVRQjVVXFFHVVRU$OYLH QRUGRHVmWKHMXGLFLDU\VLWDVDVXSHUOHJLVODWXUHWRMXGJHWKH &UDQNZDVLQKLVPLGWKLUWLHVZKHQKHZDVKLUHGWRPDQDJH ZLVGRPRUGHVLUDELOLW\RIOHJLVODWLYHSROLF\GHWHUPLQDWLRQVl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jVGHFLVLRQPDNHUPDGHLQDQ\FRQWH[WRUIRUDQ\ ,Q $SULO RI :H[OHU ILOHG D RQHFRXQW FRPSODLQW UHDVRQZKLFKUHIHUHQFHVWKHDJHRIDQRYHUIRUW\ZRUNHUZKR DJDLQVW :KLWHjV LQ WKH 8QLWHG 6WDWHV 'LVWULFW &RXUW IRU WKH LVVXEVHTXHQWO\WKHVXEMHFWRIDQDGYHUVHHPSOR\PHQWDFWLRQ 6RXWKHUQ 'LVWULFW RI 2KLR DOOHJLQJ DJH GLVFULPLQDWLRQ LQ LQWR SURRI RI WKH VSHDNHUjV SHUVRQDO EHOLHI WKDW DOO SHUVRQV HPSOR\PHQW$IWHUGLVFRYHU\:KLWHjVPRYHGIRUVXPPDU\ RYHUDJHIRUW\DUHHQIHHEOHGLQFRPSHWHQWV6RSRWHQWLVWKH MXGJPHQW7KHGLVWULFWFRXUWJUDQWHGWKHPRWLRQUXOLQJWKDW H[RJHQRXVO\LPSRUWHG mDJH UHIHUHQFHl WDOLVPDQ WKDW OLNH :H[OHUjVHYLGHQFHIDLOHGWRVXSSRUWKLVSULPDIDFLHFDVHDQG VRPHP\VWLFDOLQFDQWDWLRQWKHHPSOR\HUjVVLQJXODUXWWHUDQFH HYHQ LI :H[OHU KDG HVWDEOLVKHG D SULPD IDFLH FDVH KH KDG :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF IDLOHGWRSURYHWKDWWKHFRPSDQ\jVQRQGLVFULPLQDWRU\UHDVRQ 6HH'HZV)GDW:KHWKHUWKDWEXVLQHVVMXGJPHQW IRU GHPRWLQJ KLP ZDV D SUHWH[W GHVLJQHG WR PDVN DJH ZDVVRXQGLQKLQGVLJKWRURWKHUZLVHLVLUUHOHYDQW0DMHZVNL GLVFULPLQDWLRQ$SDQHORIWKLVFRXUWWKHQDIILUPHGWKHGLVWULFW Y$XWRPDWLF'DWD3URFHVVLQJ,QF)GWK FRXUWjVGHFLVLRQ:H[OHUY:KLWHjV)LQH)XUQLWXUH,QF &LUmDVORQJDVDQHPSOR\HUKDVDQKRQHVWEHOLHILQLWV )GWK&LU,QsXO\RIKRZHYHUWKLVFRXUW SURIIHUHG QRQGLVFULPLQDWRU\ UHDVRQ IRU GLVFKDUJLQJ DQ JUDQWHG:H[OHUjVSHWLWLRQIRUDUHKHDULQJHQEDQFDQGYDFDWHG HPSOR\HHWKHHPSOR\HHFDQQRWHVWDEOLVKWKDWWKHUHDVRQZDV WKHSDQHOjVGHFLVLRQ:HQRZWDNHWKLVRSSRUWXQLW\WRFODULI\ SUHWH[WXDO VLPSO\ EHFDXVH LW LV XOWLPDWHO\ VKRZQ WR EH VHYHUDO LPSRUWDQW UHFXUULQJ LVVXHV LQ HPSOR\PHQW LQFRUUHFW$QHPSOR\HUKDVDQKRQHVWEHOLHILQLWVUHDVRQIRU GLVFULPLQDWLRQODZLQFOXGLQJWKHVDPHDFWRULQIHUHQFHWKH GLVFKDUJLQJ DQ HPSOR\HH ZKHUH WKH HPSOR\HU UHDVRQDEO\ VDPHJURXS LQIHUHQFH ZKDW LV UHTXLUHG IRU D SODLQWLII WR UHOLHGµRQWKHSDUWLFXODUL]HGIDFWVWKDWZHUHEHIRUHLWDWWKH VDWLVI\WKHTXDOLILFDWLRQSURQJRIWKHSULPDIDFLHWHVWDQGWKH WLPH WKH GHFLVLRQ ZDV PDGHjl FLWDWLRQ RPLWWHG EXVLQHVVMXGJPHQWGHIHQVH %URFNOHKXUVWY33*,QGXVWULHV,QF)GWK &LU m7KH VRXQGQHVV RI WKH HPSOR\HUjV EXVLQHVV ,,$1$/<6,6 MXGJPHQWPD\QRWEHTXHVWLRQHGDVDPHDQVRIVKRZLQJ SUHWH[WlFLWDWLRQRPLWWHG $ 6WDQGDUGRIUHYLHZ 7KHHQEDQFPDMRULW\jVGLVSRVLWLRQFRXOGEHSHUVXDVLYHLI $GLVWULFWFRXUWj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mZKHWKHUWKHHYLGHQFHSUHVHQWVDVXIILFLHQWGLVDJUHHPHQWWR UHTXLUHVXEPLVVLRQWRDMXU\RUZKHWKHULWLVVRRQHVLGHGWKDW RQH SDUW\ PXVW SUHYDLO DV D PDWWHU RI ODZl $QGHUVRQ Y 5HHYHV 86 DW LWDOLFV LQ RULJLQDO EROGIDFH DGGHG /LEHUW\/REE\,QF86 6HH DOVR 5RZH Y 0DUOH\ &R )G WK &LU % (YLGHQFHRIDJHGLVFULPLQDWLRQ m(YHQ ZKHQ D SODLQWLII GHPRQVWUDWHV D SULPD IDFLH FDVH DQG SUHWH[W KLV FODLP VKRXOG QRW EH VXEPLWWHG WR D MXU\ LI WKHUH LV HYLGHQFH WKDW SUHFOXGHV 8QGHU WKH $'($ DQ HPSOR\HU LV SURKLELWHG IURP D ILQGLQJ RI GLVFULPLQDWLRQ WKDW LV LI µQR UDWLRQDO IDFWILQGHU FRXOG FRQFOXGH WKH DFWLRQ ZDV GLVFULPLQDWRU\jl 6FKQDEOH Y $EUDPVRQ GLVFKDUJLQJ ROGHU HPSOR\HHV RQ WKH EDVLV RI WKHLU DJH )G G &LU m)ROORZLQJ 5HHYHV ZH GHFOLQH WR KROG WKDW QR 86&D$QHPSOR\HHPD\HVWDEOLVKDFODLPXQGHU $'($ GHIHQGDQW PD\ VXFFHHG RQ D VXPPDU\ MXGJPHQW PRWLRQ DV ORQJ DV WKH$'($E\RIIHULQJHLWKHUGLUHFWRUFLUFXPVWDQWLDOHYLGHQFH WKH SODLQWLII KDV HVWDEOLVKHG D SULPD IDFLH FDVH DQG SUHVHQWHG HYLGHQFH RI RIDJHGLVFULPLQDWLRQ.OLQHY7HQQ9DOOH\$XWK)G SUHWH[W 5DWKHU ZH KROG WKDW WKH 6XSUHPH &RXUWjV GHFLVLRQ LQ 5HHYHV WK&LUVHWWLQJIRUWKWKHPDQQHULQZKLFKD FOHDUO\ PDQGDWHV D FDVHE\FDVH DSSURDFK ZLWK D FRXUW H[DPLQLQJ WKH HQWLUH UHFRUG WR GHWHUPLQH ZKHWKHU WKH SODLQWLII FRXOG VDWLVI\ KLV µXOWLPDWH SODLQWLII PD\ SURYH XQODZIXO GLVFULPLQDWLRQ XQGHU WKH EXUGHQ RI SHUVXDGLQJ WKH WULHU RI IDFW WKDW WKH GHIHQGDQW LQWHQWLRQDOO\ $'($7KHUHDUHWKXVWZRDOWHUQDWLYHZD\VIRU:H[OHUWR GLVFULPLQDWHG DJDLQVW WKH SODLQWLIIjl HPSKDVLV WKH FRXUWjV :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF LQVXIILFLHQWWRZDUUDQWWKHFKDOOHQJHGFRQGXFW>DVDQH[WHQGHG PHHWKLVHYLGHQWLDU\EXUGHQWRSURYHWKDWKHZDVGHPRWHGLQ PDMRUGRZQWXUQLQVWRUHSURILWDELOLW\LVIDFLDOO\DOHJLWLPDWH YLRODWLRQRIWKH$'($'LUHFWHYLGHQFHRIGLVFULPLQDWLRQLV EXVLQHVVUHDVRQWRUHOLHYHWKHVWRUHjVPDQDJHURIKLVGXWLHV@ mWKDWHYLGHQFHZKLFKLIEHOLHYHGUHTXLUHVWKHFRQFOXVLRQWKDW XQODZIXOGLVFULPLQDWLRQZDVDWOHDVWDPRWLYDWLQJIDFWRULQWKH HPSOR\HUjVDFWLRQVlsDFNO\QY6FKHULQJ3ORXJK+HDOWKFDUH 3URGV 6DOHV &RUS )G WK &LU 0RUHRYHU HYHQ LI WKH SODLQWLII FRXOG SURYH WKDW HDFK RI WKH GHIHQGDQWjV SURIIHUHG MXVWLILFDWLRQV LQFOXGLQJ WKH VWRUHjV GHFOLQLQJ VDOHV &LUFXPVWDQWLDOHYLGHQFHRQWKHRWKHUKDQGLVSURRIWKDWGRHV ZHUH PHUH SUHWH[WV ZKLFK KH FDQQRW KH KDV QRW RIIHUHG DQ\ HYLGHQFH QRWRQLWVIDFHHVWDEOLVKGLVFULPLQDWRU\DQLPXVEXWGRHVDOORZ ZKLFK SURYHV WKDW :KLWHjV DFWXDO PRWLYDWLRQ ZDV DJHLVW ELJRWU\ 5HHYHV DIDFWILQGHUWRGUDZDUHDVRQDEOHLQIHUHQFHWKDWGLVFULPLQDWLRQ 86 DW $V GHYHORSHG KHUHLQ RQ WKH RYHUDOO UHFRUG FRQVWUXHG PRVW IDYRUDEO\ IRU WKH SODLQWLII D VRXQG IDFWILQGHU VLPSO\ FRXOG QRW RFFXUUHG.OLQH)GDW FRQFOXGH WKDW WKH GHIHQGDQW WDUJHWHG WKH SODLQWLII IRU DGYHUVH WUHDWPHQW EHFDXVH RI KLV DJH HYHQ LI LW ZHUH WR UHMHFW WKH UHDVRQV JLYHQ E\ :KLWHjV 'LUHFWHYLGHQFH IRU LWV DFWLRQ LQ FRQWURYHUV\ :HILUVWFRQVLGHUZKHWKHU:H[OHURIIHUHGGLUHFWHYLGHQFH 8QGHU WKH 6XSUHPH &RXUWjV GLFWDWHV LQ 5HHYHV VXPPDU\ MXGJPHQW RIDJHGLVFULPLQDWLRQ:H[OHUFRQWHQGVWKDWWKHIROORZLQJVL[ ZRXOG EH PDQGDWHG IRU :KLWHjV HYHQ LI :H[OHU KDG VXEPLWWHG VXIILFLHQW VWDWHPHQWV FRQVWLWXWH GLUHFW HYLGHQFH WKDW XQODZIXO HYLGHQFH ZKLFK LI FRQVLGHUHG LQ D YDFXXP FRXOG OHDG D UDWLRQDO MXU\ WR FRQFOXGH WKDW :KLWHjV SURIIHUHG UHDVRQ IRU :H[OHUjV GHPRWLRQ o GLVFULPLQDWLRQZDVDPRWLYDWLQJIDFWRULQKLVGHPRWLRQ LQDGHTXDWH VDOHV ILJXUHV o ZDV QRW WKH WUXH UHDVRQ IRU KLV UHDVVLJQPHQW EHFDXVH WKH RYHUDOO SURRI HYHQ FRQVWUXHG PRVW IDYRUDEO\ IRU :H[OHU 6FKLIIPDQjVFRPPHQWGXULQJWKHPHHWLQJLQZKLFK ZKDWHYHU :KLWHjV WUXH UHDVRQ IRU OHDGV WR WKH LQHVFDSDEOH FRQFOXVLRQ WKDW :H[OHUZDVGHPRWHGmWKDW\RXjUH\HDUVROGDUHQjW UHPRYLQJ :H[OHU IURP PDQDJHPHQW LW GHILQLWHO\ ZDV QRW PRWLYDWHG E\ \RX 'RQ" >:@HOO ZH ERWK KDYH EHHQ LQ WKH VWHUHRW\SLF DGYHUVH DVVXPSWLRQV DERXW SHUVRQV DJH IRUW\ RU PRUH JLYHQ EXVLQHVV \HDUV FLUFXPVWDQWLDO@ SULPD IDFLH FDVH FRPELQHG ZLWK VXIILFLHQW HYLGHQFH WR ILQG WKDW WKH HPSOR\HUjV DVVHUWHG /LYHO\jVVWDWHPHQWDWWKDWVDPHPHHWLQJWKDW:KLWHjV MXVWLILFDWLRQ LV IDOVH PD\ SHUPLW WKH WULHU RI IDFW WR FRQFOXGH WKDW ZDVmJRLQJWRUHDOO\EHJULQGLQJWKHLUPDQDJHUVLQWKH WKH HPSOR\HU XQODZIXOO\ GLVFULPLQDWHG IXWXUHl PDNLQJ WKHP GR WDVNV WKDW KH GLG QRW WKLQN 7KLV LV QRW WR VD\ WKDW VXFK D VKRZLQJ E\ WKH SODLQWLII ZLOO :H[OHUZRXOGZDQWWREHGRLQJ DOZD\V EH DGHTXDWH WR VXVWDLQ D MXU\jV ILQGLQJ RI OLDELOLW\ &HUWDLQO\ WKHUH ZLOO EH LQVWDQFHV ZKHUH DOWKRXJK WKH SODLQWLII 6FKLIIPDQjV FRPPHQW GXULQJ D WHOHSKRQH KDV HVWDEOLVKHG D SULPD IDFLH FDVH DQG VHW IRUWK VXIILFLHQW FRQYHUVDWLRQ ZLWK :H[OHU RQ sXQH ZKHQ KH HYLGHQFH WR UHMHFW WKH GHIHQGDQWjV H[SODQDWLRQ QR UDWLRQDO VDLGWKDWKHZRXOGH[SODLQWRWKHRWKHUHPSOR\HHVZK\ IDFWILQGHU FRXOG FRQFOXGH WKDW WKH DFWLRQ ZDV GLVFULPLQDWRU\ )RU LQVWDQFH DQ HPSOR\HU ZRXOG EH HQWLWOHG WR MXGJPHQW DV D :H[OHUZRXOGQRORQJHUEHWKHPDQDJHUE\PHQWLRQLQJ PDWWHU RI ODZ >RU VXPPDU\ MXGJPHQW@ LI WKH UHFRUG FRQFOXVLYHO\ mWKDW\RXjUHJHWWLQJROGHUDOWKRXJKQRWDVROGDV,DPl UHYHDOHG VRPH RWKHU QRQGLVFULPLQDWRU\ UHDVRQ IRU WKH HPSOR\HUjV GHFLVLRQ RU LI WKH SODLQWLII FUHDWHG RQO\ D ZHDN 6FKLIIPDQjVVWDWHPHQWGXULQJKLVDQQRXQFHPHQWRI LVVXH RI IDFW DV WR ZKHWKHU WKH HPSOR\HUjV UHDVRQ ZDV XQWUXH WKH GHPRWLRQ WKDW :H[OHU KDG FRPH WR KLP DQG VDLG DQG WKHUH ZDV DEXQGDQW DQG XQFRQWURYHUWHG LQGHSHQGHQW m,jYHEHHQLQP\>VLF@PDQDJHPHQWIRUDEXQFKRI\HDUV HYLGHQFH WKDW QR GLVFULPLQDWLRQ KDG RFFXUUHG DQG,jPQRWVXUHZKDW,ZDQWWRGR0D\EH,VKRXOGMXVW :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF EHZRUU\LQJDERXWP\RZQFXVWRPHU>V@DQGQRWHYHU\RQH FRQVLGHUHGZLWKUHJDUGWRWKHSODLQWLIIjVMRETXDOLILFDWLRQVDW HOVHjVFXVWRPHUV7KLVLVJHWWLQJWREHWLULQJl WKHSULPDIDFLHVWDJHWKHGHIHQGDQWjVSURIIHURImSHUIRUPDQFH GLVVDWLVIDFWLRQl UHPDLQV D VXIILFLHQW mOHJLWLPDWH 6FKLIIPDQjV UHSHDWHG UHIHUHQFHV GXULQJ WKH VDPH QRQGLVFULPLQDWRU\UHDVRQlMXVWLI\LQJDQDGYHUVHHPSOR\PHQW VSHHFKWRWKH\RXWKRI:H[OHUjVUHSODFHPHQW DFWLRQ ZKLFK HUDVHV WKH SUHVXPSWLRQ RI GLVFULPLQDWLRQ FUHDWHG E\ WKH SODLQWLIIjV SURRI RI KLV SULPD IDFLH 1XPHURXVSULRUUHIHUHQFHVWKDW/LYHO\PDGHDERXW FLUFXPVWDQWLDOFDVHDQGZKLFKDOOHJDWLRQWKHSODLQWLIIPXVW :H[OHUjVDJHLQFOXGLQJFRPPHQWVVXFKDVmDEHDUGHG GLVSURYH 7KH FLUFXLW PDMRULW\ KDV FRQFHGHG WKDW PXFK JUXPS\ROGPDQlmSRSVlDQGmROGPDQl +RZHYHU LW KDV LQFRUUHFWO\ FRQFOXGHG WKDW D IDFW TXHVWLRQ UHPDLQVIRUWULDOFRQFHUQLQJZKHWKHU6FKLIIPDQjVmEXVLQHVV 7KHGLVWULFWFRXUWKHOGWKDWWKHDERYHVWDWHPHQWVZHUHmWRR MXGJPHQWlWKDW:H[OHUZDVQRORQJHUVXLWHGIRUDPDQDJHULDO DEVWUDFW LUUHOHYDQW DQG SUHMXGLFLDO WR VXSSRUW D ILQGLQJ RI DVVLJQPHQWZDVDPHUHSUHWH[WPDVNLQJDFWXDOGLVFULPLQDWLRQ GLVFULPLQDWLRQl,QUHDFKLQJWKLVFRQFOXVLRQWKHFRXUWUHOLHG LQSDUWRQWKHIDFWWKDW6FKLIIPDQKDGEHHQUHVSRQVLEOHIRU 7R WKH FRQWUDU\ WKH LQVWDQW UHFRUG HYLGHQFHG EH\RQG ERWK KLULQJ DQG GHPRWLQJ :H[OHU m>,@Q FDVHV VXFK DV WKLV UHIXWDWLRQWKDW6FKLIIPDQjVHOHFWLRQWRSHUPLW:H[OHUWRUHYHUW ZKHUH WKH KLUHU DQG ILUHU DUH WKH VDPH LQGLYLGXDO DQG WKH WRDVDOHVSHUVRQVWDWXVFRQVWLWXWHGDQH[HUFLVHRIXQUHYLHZDEOH WHUPLQDWLRQRIHPSOR\PHQWRFFXUVZLWKLQDUHODWLYHO\VKRUW EXVLQHVV MXGJPHQW DV KDV DOVR EHHQ IXOO\ XQIROGHG VXSUD WLPHVSDQIROORZLQJWKHKLULQJDVWURQJLQIHUHQFHH[LVWVWKDW $FFRUGLQJO\DIRUWLRULWKHmEXVLQHVVMXGJPHQWlMXVWLILFDWLRQ GLVFULPLQDWLRQZDVQRWDGHWHUPLQLQJIDFWRUIRUWKHDGYHUVH LVDVXIILFLHQWOHJLWLPDWHUHDVRQIRU:KLWHjVIDXOWHGDFWLRQV DFWLRQWDNHQE\WKHHPSOR\HUl7KLVLQIHUHQFHLVJHQHUDOO\ ZKLFK:H[OHUPXVWGLVSURYH$WWKHSUHWH[WVWDJHWKHMXU\ UHIHUUHG WR DV WKH mVDPH DFWRUl LQIHUHQFH %XKUPDVWHU Y PD\QRWVLPSO\HOHFWWRGLVEHOLHYHWKHHPSOR\HUjVSURIIHUHG 2YHUQLWH7UDQVS&R)GWK&LU7KH OHJLWLPDWH QRQGLVFULPLQDWRU\ H[SODQDWLRQ UDWKHU WKH GLVWULFW FRXUW DOVR HPSKDVL]HG WKDW 6FKLIIPDQ ZDV DFWXDOO\ SODLQWLIIjVHYLGHQFHPXVWEHVXIILFLHQWWRGLVSURYHLW0DQ]HU ROGHUWKDQ:H[OHUZKHQKHGHPRWHG:H[OHU&RQVLGHULQJWKH Y'LDPRQG6KDPURFN&KHPLFDOV&R)G IDFWWKDWWKHGHFLVLRQPDNHULVDPHPEHURIWKHVDPHFODVVDV WK &LU m7KH MXU\ PD\ QRW UHMHFW DQ HPSOR\HUjV WKH SODLQWLII LV UHIHUUHG WR DV PDNLQJ D mVDPHJURXSl H[SODQDWLRQKRZHYHUXQOHVVWKHUHLVVXIILFLHQWEDVLVLQWKH LQIHUHQFH2QFDOHY6XQGRZQHU2IIVKRUH6HUYV,QF HYLGHQFHIRUGRLQJVR7RDOORZWKHMXU\VLPSO\WRUHIXVHWR 86 EHOLHYH WKH HPSOR\HUjV H[SODQDWLRQ ZRXOG VXEWO\ EXW LQDUJXDEO\VKLIWWKHEXUGHQRISHUVXDVLRQIURPWKHSODLQWLIIWR D 0L[HGPRWLYHDQDO\VLV WKHGHIHQGDQWZKLFKZHPXVWQRWSHUPLWl(PSKDVLVLQ RULJLQDO ,Q 3ULFH :DWHUKRXVH Y +RSNLQV WKH 6XSUHPH &RXUW DQQRXQFHGDEXUGHQVKLIWLQJIUDPHZRUNIRUFDVHVZKHUHDQ ,Q WKHDFWLRQLQVWDQWHUWKHSODLQWLIIFRXOGQRWSURYHWKDW DGYHUVHHPSOR\PHQWGHFLVLRQZDVWKHSURGXFWRIDPL[WXUHRI :KLWHjVDUWLFXODWHGUHDVRQIRUGHPRWLQJKLPZDVSUHWH[WXDO OHJLWLPDWH DQG LOOHJLWLPDWH PRWLYHV 3ULFH :DWHUKRXVH Y EHFDXVHKHFRXOGQRWSURYHWKDW:KLWHjVUHDVRQKDGQR +RSNLQV 86 GHWDLOLQJ WKH mPL[HG EDVLVLQIDFW>DVGHPRQVWUDWHGE\WKHFDVFDGLQJHVFDODWLRQLQ PRWLYHlDQDO\VLVLQD7LWOH9,,JHQGHUGLVFULPLQDWLRQDFWLRQ WKH GHFOLQLQJ VDOHV DW WKH 0RUVH 5RDG VWRUH@ GLG QRW VXSHUVHGHGE\VWDWXWHRQRWKHUJURXQGVDVVWDWHGLQ1RUEXWD DFWXDOO\PRWLYDWHWKHGHIHQGDQWjVFKDOOHQJHGFRQGXFW>DVQR Y/RFWLWH&RUS1R:/DW WK HYLGHQFH FRQWUDGLFWHG 6FKLIIPDQjV XQLPSHDFKHG WHVWLPRQ\ &LUsDQXQSXEOLVKHGWDEOHGHFLVLRQ8QGHUWKLV WKDWKHGHPRWHG:H[OHUSULPDULO\IRUWKDWUHDVRQ@RUZDV PL[HGPRWLYH DQDO\VLV WKH SODLQWLII PXVW SURGXFH GLUHFW :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF HPSOR\HUjVVXEMHFWLYHOHJLWLPDWHH[SHFWDWLRQVVXUPRXQWHGDW HYLGHQFHWKDWWKHHPSOR\HUFRQVLGHUHGLPSHUPLVVLEOHIDFWRUV WKHSULPDIDFLHVWDJHDQ\HYLGHQFHRIIHUHGE\WKHSODLQWLIIWR ZKHQ LW PDGH WKH DGYHUVH HPSOR\PHQW GHFLVLRQ DW LVVXH SURYHWKDWKHRUVKHZDVmTXDOLILHGl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j )GWK&LUmZKHQDVVHVVLQJZKHWKHUD LQSXW RQ HDFK FDQGLGDWH ZDV VROLFLWHG 5HPDUNV PDGH E\ SODLQWLIIKDVPHWKHUHPSOR\HUjVOHJLWLPDWHH[SHFWDWLRQVDWWKH VHYHUDOSDUWQHUVZKHQFRQVLGHUHGLQWKHFRQWH[WRIFRPPRQ SULPDIDFLHVWDJHRIDWHUPLQDWLRQFDVHDFRXUWPXVWH[DPLQH VWHUHRW\SHVDERXWZRPHQLQGLFDWHGWKDWDWOHDVWVRPHRIWKH SODLQWLIIjV HYLGHQFH LQGHSHQGHQW RI WKH QRQGLVFULPLQDWRU\ YRWLQJ SDUWQHUVj DFWLRQV ZHUH PRWLYDWHG E\ WKH SODLQWLIIjV UHDVRQµSURGXFHGjE\WKHGHIHQVHDVLWVUHDVRQIRUWHUPLQDWLQJ JHQGHU )RU H[DPSOH VKH ZDV FULWLFL]HG IRU mXQIHPLQLQHl SODLQWLIIl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m>D@WWKHSULPDIDFLHVWDJHDFRXUWVKRXOGIRFXVRQD SDUWQHU,GDW SODLQWLIIjVREMHFWLYHTXDOLILFDWLRQVWRGHWHUPLQHZKHWKHUKHRU VKHLVTXDOLILHGIRUWKHUHOHYDQWMRE7KHSULPDIDFLHEXUGHQ &ULWLFLVP RI DQ HPSOR\HHjV SHUIRUPDQFH HYHQ LI WUXH RIVKRZLQJWKDWDSODLQWLIILVTXDOLILHGFDQWKHUHIRUHEHPHWE\ ZKLFK LV OLQNHG WR VWHUHRW\SHV DVVRFLDWHG ZLWK D SODLQWLIIjV SUHVHQWLQJFUHGLEOHHYLGHQFHWKDWKLVRUKHUTXDOLILFDWLRQVDUH PHPEHUVKLSLQDSURWHFWHGFODVVLVWKHUHIRUHVTXDUHO\ZLWKLQ DWOHDVWHTXLYDOHQWWRWKHPLQLPXPREMHFWLYHFULWHULDUHTXLUHG WKHUXEULFRIDPL[HGPRWLYHDQDO\VLV,GDWm,WLVQRW IRUHPSOR\PHQWLQWKHUHOHYDQWILHOG$OWKRXJKWKHVSHFLILF >WKH&RXUWjV@MREWRUHYLHZWKHHYLGHQFHDQGGHFLGHWKDWWKH TXDOLILFDWLRQVZLOOYDU\GHSHQGLQJRQWKHMRELQTXHVWLRQWKH QHJDWLYH UHDFWLRQV WR +RSNLQV ZHUH EDVHG RQ UHDOLW\ RXU LQTXLU\ VKRXOG IRFXV RQ FULWHULD VXFK DV WKH SODLQWLIIjV SHUFHSWLRQRI+RSNLQVj>V@FKDUDFWHULVLUUHOHYDQW:HVLWQRW HGXFDWLRQ H[SHULHQFH LQ WKH UHOHYDQW LQGXVWU\ DQG WR GHWHUPLQH ZKHWKHU 0V +RSNLQV LV QLFH EXW WR GHFLGH GHPRQVWUDWHG SRVVHVVLRQ RI WKH UHTXLUHG JHQHUDO VNLOOVl ZKHWKHU WKH SDUWQHUV UHDFWHG QHJDWLYHO\ WR KHU SHUVRQDOLW\ 0DMRULW\ 2SLQLRQ DW &LWDWLRQV DQG SDUHQWKHWLFDOV EHFDXVH VKH LV D ZRPDQl 7KH DVVRFLDWLRQ RI WKHVH RPLWWHGHPSKDVLVLQRULJLQDO VWLJPDWL]LQJ EHOLHIV ZLWK DQ DGYHUVH HPSOR\PHQW GHFLVLRQ FUHDWHV D JHQXLQH LVVXH RI PDWHULDO IDFW DV WR ZKHWKHU WKH &RQFHGLQJ DUJXHQGR WKDW DQ HPSOR\HUjV VXEMHFWLYH HPSOR\HUZDVPRWLYDWHGDWOHDVWLQSDUWE\GLVFULPLQDWRU\ GLVVDWLVIDFWLRQZLWKWKHSODLQWLIIjVSHUIRUPDQFHVKRXOGQRWEH LQWHQWEDVHGRQWKRVHVWHUHRW\SHV,G:HEHUJY)UDQNV :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF )GWK&LUKROGLQJWKDWDVXSHUYLVRUjV LQWHQWLRQDOO\GLVFULPLQDWHGDJDLQVWKLP 5HHYHV86 LQFOXVLRQ RI D UHIHUHQFH WR WKH UDFH RI WKH SODLQWLII LQ D DW GLVFLSOLQDU\ UHSRUW FUHDWHG D JHQXLQH LVVXH RI PDWHULDO IDFW UHJDUGLQJWKHHPSOR\HUjVLQWHQWHYHQWKRXJKWKHVXSHUYLVRU $VGHYHORSHGDERYHWKHUHFRUGHYLGHQFHPXVWEHFRQVWUXHG DOVR VWDWHG LQ KLV GHSRVLWLRQ WKDW KH ZRXOG KDYH PDGH WKH LQ WKH OLJKW PRVW IDYRUDEOH WR :H[OHU WKH RSSRQHQW RI VDPHHPSOR\PHQWGHFLVLRQLUUHVSHFWLYHRIKHUUDFH%XWVHH VXPPDU\MXGJPHQW%\WKDWVWDQGDUGQRGLVSXWHH[LVWVWKDW 'LVVHQWLQJ 2S DW GHFU\LQJ WKLV EDVLF SUHFHSW RI KHFDQSURYLGHVXIILFLHQWHYLGHQFHWRVXSSRUWDWOHDVWWKUHH HPSOR\PHQWGLVFULPLQDWLRQODZDVmWKRXJKWSROLFHlSXQLVKLQJ HOHPHQWVRIKLVFLUFXPVWDQWLDOFDVHoKHZDVDPHPEHURIWKH mWKRXJKWFULPHl SURWHFWHG FODVV DJH KH ZDV VXEMHFWHG WR DQ DGYHUVH HPSOR\PHQWDFWLRQGHPRWLRQIURPPDQDJHPHQWDQGKHZDV ,QDPL[HGPRWLYHFDVHVXFKDVWKLVRQHWKHQZHDUHDVNHG UHSODFHGE\DSHUVRQZKRZDVVLJQLILFDQWO\\RXQJHUWKDQKLP WR GHWHUPLQH ZKHWKHU WKH RIILFHUVj VWDWHPHQWV UHYHDO DQ DQGQRWDPHPEHURIWKHSURWHFWHGFODVV1HLOVRQDPDQLQKLV DGKHUHQFHWRDVWLJPDWL]LQJEHOLHIDERXWROGHUHPSOR\HHVWKDW HDUO\V+RZHYHUZKHWKHUWKHSODLQWLIIFRXOGSURYHWRWKH ZDVDPRWLYDWLQJIDFWRULQWKHGHFLVLRQRI:KLWHj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jVDGKHUHGWRWKHVWHUHRW\SH VDWLVI\DUDWLRQDOMXU\RQDOOIRXUHOHPHQWVRIKLVSULPDIDFLH WKDW DQ ROGHU PDQDJHU FDQQRW SHUIRUP LQ D KLJKVWUHVV FDVHKHGLGQRWPHHWKLVEXUGHQRISURIIHULQJVXIILFLHQWSURRI PDQDJHPHQWSRVLWLRQZKHUHWKHFRPSDQ\ZRXOGEHSXVKLQJ DWWKHmSUHWH[WlVWDJH KLPWRZRUNKDUGHUDQGGRPRUH 8QGHU SULRU 6L[WK &LUFXLW DXWKRULWLHV WKH SODLQWLII PXVW 7KH HUDGLFDWLRQ RI VXFK VWLJPDWL]LQJ EHOLHIV LV SUHFLVHO\ SURYHDWWKHSULPDIDFLHVWDJHmWKDWKHZDVSHUIRUPLQJKLV ZKDWWKH$'($ZDVLQWHQGHGWRWDUJHW+D]HQ3DSHU&RY MRE DW D OHYHO ZKLFK PHW KLV HPSOR\HUjV OHJLWLPDWH %LJJLQV 86 m&RQJUHVVj>V@ H[SHFWDWLRQVlLQRUGHUWRSURYHWKDWKHZDVmTXDOLILHGlIRUWKH SURPXOJDWLRQRIWKH$'($ZDVSURPSWHGE\LWVFRQFHUQWKDW MRELQFRQWURYHUV\*RGIUHGVRQY+HVV &ODUN,QF ROGHU ZRUNHUV ZHUH EHLQJ GHSULYHG RI HPSOR\PHQW RQ WKH )GWK&LUTXRWLQJ0F'RQDOGY8QLRQ EDVLV RI LQDFFXUDWH DQG VWLJPDWL]LQJ VWHUHRW\SHVl &DPS &RUS )G WK &LU 1HYHUWKHOHVV LQVWHDG RI GUDZLQJ LQIHUHQFHV IDYRUDEOH WR &RQYHUVHO\ SURRI VXSSOLHG E\ WKH GHIHQGDQW WKDW DQ :H[OHUIURPWKHDERYHVWDWHPHQWVDVUHTXLUHGE\5XOHRI HPSOR\PHQW GLVFULPLQDWLRQ SODLQWLII KDG QRW VDWLVILHG KLV WKH)HGHUDO5XOHVRI&LYLO3URFHGXUHWKHGLVWULFWFRXUWHOHFWHG WR EHOLHYH WKH H[SODQDWLRQ RI WKH FRPSDQ\jV RIILFHUV DQG LPSRVHGLWVRZQFUHGLELOLW\DVVHVVPHQWRQERWKSDUWLHV7KH ZLGHO\ GLIIHULQJ SHUVSHFWLYHV RQ ZKHWKHU WKHVH VWDWHPHQWV m7KH XOWLPDWH TXHVWLRQ LV ZKHWKHU WKH HPSOR\HU LQWHQWLRQDOO\ UHYHDODGLVFULPLQDWRU\PRWLYDWLRQSURYLGHDFODVVLFH[DPSOH GLVFULPLQDWHG DQG SURRI WKDW WKH HPSOR\HUjV SURIIHUHG UHDVRQ LV RIDJHQXLQHLVVXHRIPDWHULDOIDFWWKDWLVGLG:KLWHjVKROG XQSHUVXDVLYH RU HYHQ REYLRXVO\ FRQWULYHG GRHV QRW QHFHVVDULO\ HVWDEOLVK VWHUHRW\SLFDOEHOLHIVDERXWWKHFDSDELOLWLHVRIROGHUPDQDJHUV WKDW WKH SODLQWLIIjV SURIIHUHG UHDVRQ LV FRUUHFW HQRXJK WR GLVEHOLHYH WKH HPSOR\HU WKH ,Q RWKHU ZRUGV LW LV QRW IDFWILQGHU PXVW EHOLHYH WKH WKDWLQIOXHQFHGLWVGHFLVLRQWRGHPRWH:H[OHU" SODLQWLIIjV H[SODQDWLRQ RI LQWHQWLRQDO GLVFULPLQDWLRQl 5HHYHV Y 6DQGHUVRQ 3OXPELQJ 3URGXFWV ,QF 86 TXRWDWLRQV EUDFNHWV DQG HOOLSVHV RPLWWHG LWDOLFV WKH &RXUWjV :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF GHIHQGDQWWRVXEPLWmDOHJLWLPDWHQRQGLVFULPLQDWRU\UHDVRQl $ IDFWILQGHU FRXOG UHDVRQDEO\ FRQFOXGH WKDW WKH DERYH IRU WDNLQJ WKH DVVDLOHG DGYHUVH HPSOR\PHQW DFWLRQ 7H[DV OLVWHGVWDWHPHQWVHYLQFHGDGLVFULPLQDWRU\LQWHQW7KH\ZHUH 'HSWRI&RPPXQLW\$IIDLUVY%XUGLQH86 PDGHE\WKHGHFLVLRQPDNHULQGLFDWHGDEHOLHIWKDWDSHUVRQjV m7KLVEXUGHQLVRQHRISURGXFWLRQQRWSHUVXDVLRQLW FDSDELOLWLHVDVDVWRUHPDQDJHUGLPLQLVKZLWKDJHDQGWKHILUVW µFDQLQYROYHQRFUHGLELOLW\DVVHVVPHQWjl5HHYHVY6DQGHUVRQ ILYHZHUHGLUHFWHGDW:H[OHUDWWKHYHU\WLPHKHZDVEHLQJ 3OXPELQJ3URGXFWV,QF86TXRWLQJ GHPRWHG 6W0DU\jV+RQRU&HQWHUY+LFNV86 2QFH WKH GHIHQGDQW mKDV PHW WKLV EXUGHQ E\ RIIHULQJ E 6DPHDFWRULQIHUHQFH DGPLVVLEOHHYLGHQFHVXIILFLHQWIRUWKHWULHURIIDFWWRFRQFOXGH WKDW SHWLWLRQHU ZDV ILUHG EHFDXVH RIl D OHJLWLPDWH 7KH GLVWULFW FRXUW FRQFOXGHG LWV DQDO\VLV E\ HPSKDVL]LQJ QRQGLVFULPLQDWRU\UHDVRQVXFKDVIRUH[DPSOHKLVmIDLOXUH WKDW WKH mVDPHDFWRUl LQIHUHQFH IDYRUHG :KLWHjV ,Q WR PDLQWDLQ DGHTXDWH DWWHQGDQFH UHFRUGVl WKH SODLQWLII %XKUPDVWHUY2YHUQLWH7UDQVSRUWDWLRQ&R)GWK IULHQGO\ SUHVXPSWLRQV RI WKH 0F'RQQHOO 'RXJODV &LU WKLV FRXUW DGRSWHG WKH VDPHDFWRU LQIHUHQFH FLUFXPVWDQWLDO HYLGHQFH SDUDGLJP GLVDSSHDU 5HHYHV mZKLFKDOORZVRQHWRLQIHUDODFNRIGLVFULPLQDWLRQIURPWKH 86DWFLWDWLRQVRPLWWHG IDFW WKDW WKH VDPH LQGLYLGXDO ERWK KLUHG DQG ILUHG WKH HPSOR\HHl,GDW%XWWKHIDFWVLQ%XKUPDVWHUGLGQRW $WWKDWSRLQWmWKHVROHUHPDLQLQJLVVXH>LV@GLVFULPLQDWLRQ FRQWDLQ DQ\ GLUHFW HYLGHQFH RI VWHUHRW\SLQJ IURP ZKLFK D YHOQRQl,GDWFLWDWLRQRPLWWHGm7KHXOWLPDWHEXUGHQ GLVFULPLQDWRU\LQWHQWFRXOGEHSURYHQ7KHHYLGHQFHDJDLQVW RISHUVXDGLQJWKHWULHURIIDFWWKDWWKHGHIHQGDQWLQWHQWLRQDOO\ WKH HPSOR\HU LQ IDFW ZDV UDWKHU ZHDN 0RUHRYHU WKH GLVFULPLQDWHGDJDLQVWWKHSODLQWLIIUHPDLQVDWDOOWLPHVZLWK %XKUPDVWHU FRXUW ZDV UHYLHZLQJ D MXU\ YHUGLFW DQG MXU\ WKHSODLQWLIIl%XUGLQH86DWFLWDWLRQVRPLWWHG LQVWUXFWLRQV 5DWKHU WKDQ ZHLJKLQJ WKH HYLGHQFH DV WKH 7RPHHWKLVRUKHUXOWLPDWHEXUGHQRISURRIWKHSODLQWLIIPXVW GLVWULFWFRXUWGLGLQWKLVFDVHWKHFRXUWLQ%XKUPDVWHUZDV SHUVXDGH WKH IDFWILQGHU YLD GLUHFW FLUFXPVWDQWLDO RU VLPSO\ HYDOXDWLQJ WKH UDWLRQDOLW\ RI WKH MXU\jV YHUGLFW DQG VWDWLVWLFDOHYLGHQFHWKDWWKHGHIHQGDQWjVWHQGHUHGOHJLWLPDWH ZKHWKHU RU QRW WKH MXU\ FRXOG SURSHUO\ DSSO\ VXFK DQ QRQGLVFULPLQDWRU\UDWLRQDOHIRUVXEMHFWLQJWKHSODLQWLIIWRDQ LQIHUHQFH DGYHUVHHPSOR\PHQWDFWLRQZDVDPHUHSUHWH[WPDVNLQJDQ DFWXDOGLVFULPLQDWRU\LQWHQW,GDWm$SODLQWLIIFDQ 2XUVLVWHUFLUFXLWVDUHVSOLWRQWKHDPRXQWRIZHLJKWWKDW GHPRQVWUDWH SUHWH[W E\ VKRZLQJ WKDW WKH SURIIHUHG UHDVRQ VKRXOG EH JLYHQ WR WKH VDPHDFWRU LQIHUHQFH 6RPH KDYH KDV QR EDVLV LQ IDFW GLG QRW DFWXDOO\ PRWLYDWH WKH IRXQG LW TXLWH SHUVXDVLYH 6HH HJ %UDGOH\ Y +DUFRXUW GHIHQGDQWjV FKDOOHQJHG FRQGXFW RU ZDV LQVXIILFLHQW WR %UDFH &R)GWK&LUKROGLQJWKDW ZDUUDQWWKHFKDOOHQJHGFRQGXFWl'HZVY$%'LFN&R WKHSODLQWLIIjVHYLGHQFHZDVLQVXIILFLHQWDVDPDWWHURIODZWR )GWK&LUFLWDWLRQRPLWWHG+RZHYHU UHEXW WKH VWURQJ VDPHDFWRU LQIHUHQFH /RZH Y s% +XQW DOWKRXJK SURRI WKDW WKH HPSOR\HUjV RIIHUHG UHDVRQ ZDV 7UDQVS,QF)GWK&LUm7KHPRVW XQZRUWK\RIFUHGHQFHPD\EHKLJKO\SUREDWLYHFLUFXPVWDQWLDO LPSRUWDQW IDFW KHUH LV WKDW SODLQWLII ZDV D PHPEHU RI WKH HYLGHQFH RI DQ DFWXDO GLVFULPLQDWRU\ PRWLYH LW LV QRW SURWHFWHGDJHJURXSERWKDWWKHWLPHRIKLVKLULQJDQGDWWKH QHFHVVDULO\VXIILFLHQWWRSURYHDFWXDO GLVFULPLQDWLRQDVWKH WLPHRIKLVILULQJDQGWKDWWKHVDPHSHRSOHZKRKLUHGKLP SODLQWLIIjV XOWLPDWH EXUGHQ LV WR SURYH WKDW WKH GHIHQGDQW DOVRILUHGKLPl3URXGY6WRQH)GWK&LU XUJLQJ WKH HDUO\ GLVPLVVDO RI FDVHV ZKHUH WKH VDPH LQGLYLGXDOERWKKLUHGDQGILUHGWKHSODLQWLII$QXPEHURI WKHVH FRXUWV KDYH FRQFOXGHG KRZHYHU WKDW WKH VDPHDFWRU :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF LQIHUHQFHZDVVXIILFLHQWWRZDUUDQWVXPPDU\MXGJPHQWRQO\ VHSDUDWLQJ KLV HOHYDWLRQ RI WKH RYHUIRUW\ SODLQWLII WR WKH ZKHUHWKHSODLQWLIIjVHYLGHQFHRIGLVFULPLQDWLRQZDVRWKHUZLVH PDQDJHUjV GHVN IURP KLV UHVWRUDWLRQ RI WKH SODLQWLII WR WKH ZHDNHYHQWKRXJKVXIILFLHQWWRVXUYLYHVXPPDU\MXGJPHQW VDOHVIORRU)LQDOO\HYHQLIWKHWHQGHUHGGLUHFWHYLGHQFHFRXOG EXWIRUWKHIDFWWKDWWKHVDPHSHUVRQERWKKLUHGDQGILUHGWKH EHFRQVWUXHGE\DUDWLRQDOIDFWILQGHUWRVXSSRUWDQLQIHUHQFH SODLQWLII%UDGOH\)GDWQRWLQJWKDWWKHSODLQWLII RI DJHGULYHQ GLVSDUDWH WUHDWPHQW ZKLFK LW GRHV QRW WKH mSURGXFHGQRPHDQLQJIXOHYLGHQFHLQGLFDWLQJHLWKHUWKDW>WKH GHIHQGDQWjV SURRI WKDW 6FKLIIPDQ H[HUFLVHG OHJLWLPDWH HPSOR\HUjV@ SURIIHUHG H[SODQDWLRQ ZDV IDOVH RU WKDW KHU EXVLQHVVMXGJPHQWE\UHSODFLQJ:H[OHUZLWKDQHZPDQDJHU VXSHUYLVRU KDUERUHG GLVFULPLQDWRU\ DQLPXV WRZDUGV KHU EHFDXVH RI WKH 0RUVH 5RDG VWRUHjV SHUVLVWHQW XQGHU EHFDXVH VKH ZDV D ZRPDQl /RZH )G DW SHUIRUPDQFHDQGSURILWDELOLW\GHFOLQHLQGHSHQGHQWO\MXVWLILHG KROGLQJ WKDW WKH VDPHDFWRU LQIHUHQFH ZDUUDQWHG VXPPDU\ WKHVXEMHFWDGYHUVHHPSOR\PHQWDFWLRQWKHUHE\GLVVLSDWLQJ MXGJPHQW EHFDXVH WKH SODLQWLIIjV HYLGHQFH RI SUHWH[W ZDV DQ\SXUSRUWHGGLVFULPLQDWRU\WDLQW2QWKHVXEMHFWUHFRUGWKH mWKLQl mEXVLQHVVMXGJPHQWlDIILUPDWLYHGHIHQVHLVXQDVVDLODEOH 2WKHUFLUFXLWVKDYHPLQLPL]HGWKHLPSRUWDQFHRIWKHVDPH 3UHFLVHO\WKHVDPHIDLOXUHVRIWKHSODLQWLIIjVPDWHULDOSURRI DFWRULQIHUHQFHHPSKDVL]LQJWKDWDOWKRXJKDFRXUWPD\LQIHU FRXSOHG ZLWK WKH VDPH RYHUZKHOPLQJ XQFRQWURYHUWHG DQDEVHQFHRIGLVFULPLQDWLRQZKHUHWKHVDPHLQGLYLGXDOKLUHG HYLGHQFHIDYRUDEOHWRWKHGHIHQGDQWDUHIDWDOWRWKHSODLQWLIIjV DQG ILUHG WKH SODLQWLII VXFK DQ LQIHUHQFH LV QRW UHTXLUHG FLUFXPVWDQWLDO FDVH 7R SURYH D SULPD IDFLH FDVH RI DJH +DXQY,GHDO,QGXV,QF)GWK&LU GLVFULPLQDWLRQLQHPSOR\PHQWIRXQGHGXSRQFLUFXPVWDQWLDO m:KLOHHYLGHQFHRI>VDPHDFWRU@FLUFXPVWDQFHVLVUHOHYDQWLQ HYLGHQFH WKH SODLQWLII PXVW VDWLVI\ WKH VWDQGDUGV ILUVW GHWHUPLQLQJZKHWKHUGLVFULPLQDWLRQRFFXUUHGZHGHFOLQHWR DUWLFXODWHGLQ0F'RQQHOO'RXJODV&RUSY*UHHQ86 HVWDEOLVKDUXOHWKDWQRLQIHUHQFHRIGLVFULPLQDWLRQFRXOGDULVH oKHPXVWHYLQFH XQGHUVXFKFLUFXPVWDQFHVl:DOGURQY6/,QGXV,QF )GQG&LUQRWLQJWKDWWKHVDPHDFWRU WKDWKHLVDPHPEHURIDSURWHFWHGJURXSWKDWKH LQIHUHQFHmLVVLPSO\HYLGHQFHOLNHDQ\RWKHUDQGVKRXOGQRWEH ZDVVXEMHFWWRDQDGYHUVHHPSOR\PHQWGHFLVLRQWKDW DIIRUGHGSUHVXPSWLYHYDOXHl KH ZDV TXDOLILHG IRU WKH SRVLWLRQ DQG WKDW KHZDV UHSODFHGE\DSHUVRQRXWVLGHRIWKHSURWHFWHGFODVV 7KLVODWWHUDSSURDFKLVPRUHFRQVLVWHQWZLWKWKHUHTXLUHPHQW WKDWLQFRQVLGHULQJDPRWLRQIRUVXPPDU\MXGJPHQWWKHFRXUW .OLQHY7HQQHVVHH9DOOH\$XWKRULW\)GWK PXVWYLHZWKHHYLGHQFHDQGGUDZDOOUHDVRQDEOHLQIHUHQFHVLQ &LU FLWDWLRQV RPLWWHG 6HH DOVR *DJQp Y IDYRURIWKHQRQPRYLQJSDUW\0DWVXVKLWD(OHF,QGXV&RY 1RUWKZHVWHUQ 1DW O ,QV &R )G WK &LU =HQLWK5DGLR&RUS86:HWKHUHIRUH UHMHFWWKHLGHDWKDWDPDQGDWRU\LQIHUHQFHPXVWEHDSSOLHGLQ IDYRURIDVXPPDU\MXGJPHQWPRYDQWZKHQHYHUWKHFODLPDQW ,IWKHSODLQWLIISURYHVWKRVHIRXUFLUFXPVWDQWLDOHOHPHQWVE\ KDV EHHQ KLUHG DQG ILUHG E\ WKH VDPH LQGLYLGXDO 6XFK DQ DSUHSRQGHUDQFHRIHYLGHQFHWKHEXUGHQRISURGXFWLRQEXW DSSURDFKVWULNHVXVDVEHLQJFRQWUDU\WRWKH6XSUHPH&RXUWjV QRWWKHEXUGHQRISURRIVHHQRWHDERYHWKHQVKLIWVWRWKH RSLQLRQLQ$QGHUVRQY/LEHUW\/REE\,QF86 m&UHGLELOLW\ GHWHUPLQDWLRQV WKH ZHLJKLQJ RI WKH HYLGHQFHDQGWKHGUDZLQJRIOHJLWLPDWHLQIHUHQFHVIURPWKH 7KH 6XSUHPH &RXUW KDV PRGLILHG WKH IRXUWK HOHPHQW WR HQFRPSDVV IDFWVDUHMXU\IXQFWLRQVQRWWKRVHRIDMXGJHZKHWKHUKHLV D UHSODFHPHQW ZRUNHU ZKR ZDV DOVR D PHPEHU WKH SURWHFWHG UXOLQJRQDPRWLRQIRUVXPPDU\MXGJPHQWRUIRUDGLUHFWHG FDWHJRUL]DWLRQ \HW VLJQLILFDQWO\ \RXQJHU WKDQ WKH SODLQWLII 2j&RQQRU Y &RQVROLGDWHG &RLQ &DWHUHUV &RUS 86 :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF SRWHQWSURGHIHQGDQWLQIHUHQFHLVPDJQLILHGZKHQDVLQWKH YHUGLFW7KHHYLGHQFHRIWKHQRQPRYDQWLVWREHEHOLHYHG FDVHDWEHQFKWKHPDWHULDOGHFLVLRQPDNHUZDVKLPVHOIROGHU DQGDOOMXVWLILDEOHLQIHUHQFHVDUHWREHGUDZQLQKLVIDYRUl WKDQ WKH SODLQWLII DQG KHQFH ZDV KLPVHOI D PHPEHU RI WKH $OWKRXJKWKHIDFWILQGHULVSHUPLWWHGWRGUDZWKLVLQIHUHQFHLW SURWHFWHGFODVV LVE\QRPHDQVDPDQGDWRU\RQHDQGLWPD\EHZHDNHQHGE\ RWKHUHYLGHQFH%XKUPDVWHUY2YHUQLWH7UDQVS&R)G ,Q VXPPDU\ WKH SODLQWLII KDV IDLOHG WR SURYH E\ GLUHFW WK&LUGHVFULELQJKRZWKHOHQJWKRIWLPH HYLGHQFHWKDW:KLWHjVLQWHQWLRQDOO\GLVFULPLQDWHGDJDLQVWKLP EHWZHHQKLULQJDQGILULQJDQHPSOR\HHPD\ZHDNHQWKHVDPH EHFDXVHRIKLVDJH7KHHYLGHQFHUHIOHFWHGWKDW6FKLIIPDQ DFWRULQIHUHQFH:HWKHUHIRUHVSHFLILFDOO\KROGWKDWZKHUH WKHSHUWLQHQWGHFLVLRQPDNHUHOHFWHGWRUHDVVLJQWKHSODLQWLII DVLQWKLVFDVHWKHIDFWILQGHUGHFLGHVWRGUDZWKHVDPHDFWRU EHFDXVHRIKLVVWRUHjVXQDFFHSWDEO\GLVPDOORQJWHUPVDOHV LQIHUHQFHLWLVLQVXIILFLHQWWRZDUUDQWVXPPDU\MXGJPHQWIRU UHFRUG 1R HYLGHQFH RI DJHLVW ELDV E\ 6FKLIIPDQ DJDLQVW WKHGHIHQGDQWLIWKHHPSOR\HHKDVRWKHUZLVHUDLVHGDJHQXLQH :H[OHURUDQ\RQHHOVHKDVEHHQRIIHUHG7KHDEVHQFH RI LVVXHRIPDWHULDOIDFW GLUHFW PDWHULDO SURRI LQ VXSSRUW RI :H[OHUjV FKDUJH RI GLVSDUDWH WUHDWPHQW LV FRPSRXQGHG E\ WKH FRPSHOOLQJ F 6DPHJURXSLQIHUHQFH LQIHUHQFH RI D QRQGLVFULPLQDWRU\ PRWLYH IRU 6FKLIIPDQjV DFWLRQ JLYHQ KLV RZQ DJH DQG WKH UHODWLYHO\ VKRUW LQWHUYDO 7KHGLVWULFWFRXUWDOVRLQYRNHGWKHmVDPHJURXSlLQIHUHQFH LQ KROGLQJ WKDW :H[OHUjV GLUHFW HYLGHQFH RI GLVFULPLQDWLRQ ZDVLQDGHTXDWHIRUKLVFODLPWRVXUYLYHVXPPDU\MXGJPHQW %\ HPSKDVL]LQJ WKDW 6FKLIIPDQ ZDV DFWXDOO\ ROGHU WKDQ VKRXOG GLVSHO WKDW GRXEW :H[OHU ZKHQ KH GHPRWHG :H[OHU WKH GLVWULFW FRXUW ZDV UHO\LQJRQWKHLGHDWKDWRQHPHPEHURIDJURXSLVXQOLNHO\WR ,QGHHG WKH )RXUWK &LUFXLW KDV FODVVLILHG WKH mVDPHDFWRUl LQIHUHQFH DV mFRPSHOOLQJl LQ PRVW FLUFXPVWDQFHV DQG KDV HQFRXUDJHG LWV DSSOLFDWLRQ GLVFULPLQDWHDJDLQVWDQRWKHUPHPEHURIWKHVDPHJURXS7KLV RQ VXPPDU\ MXGJPHQW LQIHUHQFHKDVEHHQH[SOLFLWO\UHMHFWHGE\WKH6XSUHPH&RXUW LQ WKH FRQWH[W RI UDFH DQG VH[ GLVFULPLQDWLRQ 2QFDOH Y :KLOH ZH FDQ LPDJLQH HJUHJLRXV IDFWV IURP ZKLFK D GLVFKDUJH LQ 6XQGRZQHU 2IIVKRUH 6HUYV ,QF 86 WKLV FRQWH[W >ZKHUH WKH SODLQWLII ZDV KLUHG DIWHU DJH DQG ZDV H[SODLQLQJ WKDW m>E@HFDXVH RI WKH PDQ\ IDFHWV RI KXPDQ VXEVHTXHQWO\ GLVFKDUJHG E\ WKH VDPH SHUVRQ ZKR KDG KLUHG KLP@ FRXOG VWLOO EH SURYHQ WR KDYH EHHQ GLVFULPLQDWRU\ LW LV OLNHO\ WKDW PRWLYDWLRQLWZRXOGEHXQZLVHWRSUHVXPHDVDPDWWHURIODZ WKH FRPSHOOLQJ QDWXUH RI WKH LQIHUHQFH DULVLQJ IURP IDFWV VXFK DV WKDW KXPDQ EHLQJV RI RQH GHILQDEOH JURXS ZLOO QRW WKHVH ZLOO PDNH FDVHV LQYROYLQJ WKLV VLWXDWLRQ DPHQDEOH WR GLVFULPLQDWHDJDLQVWRWKHUPHPEHUVRIWKHLUJURXSlLQWHUQDO UHVROXWLRQ DW DQ HDUO\ VWDJH TXRWDWLRQPDUNVRPLWWHG:HVHHQRUHDVRQZK\WKHVDPH UHDVRQLQJ VKRXOG QRW DSSO\ WR DJH GLVFULPLQDWLRQ FDVHV .DGDVY0&,6\VWHPKRXVH&RUS)GWK&LU 7KH UHOHYDQFH RI WKH IDFW WKDW WKH HPSOR\HH ZDV KLUHG DQG H[SODLQLQJ WKDW WKH 6HYHQWK &LUFXLWjV mHPSKDWLFl ILUHG E\ WKH VDPH SHUVRQ ZLWKLQ D UHODWLYHO\ VKRUW WLPH VSDQ UHMHFWLRQ LQ D SULRU FDVH RI WKH LGHD WKDW RQH PHPEHU RI D FUHDWHV D VWURQJ LQIHUHQFH WKDW WKH HPSOR\HUjV VWDWHG UHDVRQ IRU SURWHFWHG FODVV LV XQOLNHO\ WR GLVFULPLQDWH DJDLQVW DQRWKHU DFWLQJ DJDLQVW WKH HPSOR\HH LV QRW SUHWH[WXDO PHPEHURIWKHVDPHSURWHFWHGFODVVLQ UDFHGLVFULPLQDWLRQ FDVHV mDSSOLHV ZLWK HTXDO IRUFH WR SURRI RI DJH )G WK &LU HPSKDVLV DGGHG 3URXG Y 6WRQH +RZHYHU LW LV XQQHFHVVDU\ WR DFFRUG mFRPSHOOLQJl ZHLJKW WR WKDW GLVFULPLQDWLRQl 7KXV WKH GLVWULFW FRXUW HUUHG ZKHQ LW LQIHUHQFH VWDQGLQJ DORQH WR UHVROYH WKH FDVH SUHVHQWO\ RQ HQ EDQF UHYLHZ LQYRNHGWKHVDPHJURXSLQIHUHQFHDWWKHVXPPDU\MXGJPHQW WKHUHIRUH WKLV FRXUW QHHG QRW QRZ DGGUHVV WKH TXHVWLRQ RI WKH SUHFLVH VWDJH ZHLJKW WR EH DFFRUGHG WR WKDW LQIHUHQFH :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF &LUFXPVWDQWLDOHYLGHQFH WHQ\HDUVROGHUWKDQ:H[OHUPDGHDOOGHFLVLRQVSHUWLQHQWWR :H[OHUjV HPSOR\PHQW LQFOXGLQJ KLV LQLWLDO KLULQJ KLV $OWKRXJK ZH EHOLHYH WKDW WKLV FDVH LV SURSHUO\ DQDO\]HG SURPRWLRQWRPDQDJHPHQWDQGKLVUHDVVLJQPHQWWRDVDOHV XQGHUWKH3ULFH:DWHUKRXVHPL[HGPRWLYHIUDPHZRUNWKHUH UHSUHVHQWDWLYHVORWIROORZLQJKLVXQLPSUHVVLYHWZR\HDUDQG LV DOVR VXIILFLHQW HYLGHQFH WR VXSSRUW WKH FRQFOXVLRQ WKDW IRXUPRQWKVWLQWDVDVWRUHPDQDJHU7KRVHXQGLVSXWHGIDFWV :H[OHU VDWLVILHG WKH EXUGHQVKLIWLQJ DQDO\VLV IRU JHUPLQDWH WZR SRZHUIXO HYLGHQWLDU\ LQIHUHQFHV o WKH FLUFXPVWDQWLDO HYLGHQFH RXWOLQHG LQ 0F'RQQHOO 'RXJODV mVDPHDFWRUlLQIHUHQFHZKLFKVXSSRUWVWKHFRQFOXVLRQWKDWD &RUS Y *UHHQ 86 $ WKUHHVWHS SHUVRQZKRKLUHGDQDJHSURWHFWHGHPSOR\HHEXWZKRODWHU IUDPHZRUNJXLGHVWKHDQDO\VLVRIDJHGLVFULPLQDWLRQFODLPV GHPRWHVRUGLVFKDUJHVWKDWVDPHHPSOR\HHSUREDEO\ZDVQRW EDVHGXSRQFLUFXPVWDQWLDOHYLGHQFH(UFHJRYLFKY*RRG\HDU PRWLYDWHGE\DJHLVWELDVDQGWKHmVDPHJURXSlLQIHUHQFH 7LUH 5XEEHU &R )G WK &LU ZKLFK EXWWUHVVHV WKH FRQFOXVLRQ WKDW DQ DJHSURWHFWHG H[SODLQLQJWKHEXUGHQVKLIWLQJDQDO\VLVIRU$'($FODLPV GHFLVLRQPDNHU ZKR KLUHV DQG VXEVHTXHQWO\ GHPRWHV RU 7KLV IUDPHZRUN ILUVW UHTXLUHV DQ HPSOR\HH WR HVWDEOLVK D GLVFKDUJHV DQ DJHSURWHFWHG HPSOR\HH SUREDEO\ GLG QRW SULPDIDFLHFDVHRIDJHGLVFULPLQDWLRQ,G,IWKHHPSOR\HH GLVFULPLQDWHDJDLQVWWKHHPSOR\HHE\UHDVRQRIDJH PHHWVWKLVEXUGHQWKHHPSOR\HUPD\UHVSRQGE\RIIHULQJD OHJLWLPDWH QRQGLVFULPLQDWRU\ UHDVRQ IRU WKH DGYHUVH m>:@KHUHWKHKLUHUDQGILUHUDUHWKHVDPHLQGLYLGXDODQGWKH HPSOR\PHQW DFWLRQ DW LVVXH ,G $VVXPLQJ WKDW VXFK D WHUPLQDWLRQRIHPSOR\PHQWRFFXUVZLWKLQDUHODWLYHO\VKRUW UHVSRQVH LV PDGH WKH HPSOR\HH WKHQ EHDUV WKH EXUGHQ RI WLPHVSDQIROORZLQJWKHKLULQJDVWURQJLQIHUHQFHH[LVWVWKDW UHEXWWLQJWKLVSURIIHUHGUHDVRQE\SURYLQJWKDWLWZDVDSUHWH[W GLVFULPLQDWLRQZDVQRWDGHWHUPLQLQJIDFWRUIRUWKHDGYHUVH GHVLJQHGWRPDVNDJHGLVFULPLQDWLRQ,G DFWLRQ WDNHQ E\ WKH HPSOR\HUl %XKUPDVWHU Y 2YHUQLWH 7UDQVS&R)GWK&LUm,WLVVLPSO\ D 3ULPDIDFLHFDVH LQFUHGLEOHWKDWWKHFRPSDQ\RIILFLDOVZKRKLUHGDQHPSOR\HH DWDJHILIW\RQHKDGVXGGHQO\GHYHORSHGDQDYHUVLRQWRROGHU 7KH GLVWULFWFRXUWKHOGWKDW:H[OHUFRXOGQRWHVWDEOLVKD SHRSOHWZR\HDUVODWHUl ,G HOOLSVHDQGEUDFNHWVRPLWWHG SULPDIDFLHFDVHEHFDXVHKHZDVQRWTXDOLILHGIRUKLVMREDV TXRWLQJ/RZHYs%+XQW7UDQVSRUW,QF)G PDQDJHURIWKH0RUVH5RDGVWRUH7KLVFRQFOXVLRQZDVEDVHG WK&LU6HHDOVR3URXGY6WRQH)G XSRQWKHXQGLVSXWHGIDFWWKDWWKHVWRUHjVVDOHVZHUHGHFOLQLQJ WK &LU ,Q VKRUW HPSOR\HUV ZKR NQRZLQJO\ KLUH IURPZKLFKWKHFRXUWLQIHUUHGWKDW:H[OHUmGLGQRWPHHWKLV ZRUNHUV ZLWKLQ D SURWHFWHG JURXS VHOGRPZLOO EH FUHGLEOH HPSOR\HUjV OHJLWLPDWH H[SHFWDWLRQVl 7KLV FRQFOXVLRQ LV WDUJHWV IRU FKDUJHV RI SUHWH[WXDO ILULQJ 7KDW DOUHDG\ IODZHGIRUWZRUHDVRQV )LUVW D FRXUW PD\ QRW FRQVLGHU WKH HPSOR\HUjV DOOHJHG QRQGLVFULPLQDWRU\UHDVRQIRUWDNLQJDQDGYHUVHHPSOR\PHQW 7KH FRXUW PDMRULW\ KDV FRUUHFWO\ FRQFOXGHG WKDW DV D JHQHUDO UXOH WKH mVDPHDFWRUl LQIHUHQFH LV SHUPLVVLYH UDWKHU WKDQ PDQGDWRU\ DQG WKDW DFWLRQZKHQDQDO\]LQJWKHSULPDIDFLHFDVH7RGRVRZRXOG WKH mVDPHJURXSl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m>:@KHQDVVHVVLQJZKHWKHUDSODLQWLIIKDV KDV SURIIHUHG QR SUREDWLYH GLUHFW HYLGHQFH RI GLVFULPLQDWLRQ DQG WKHUHIRUH WKH SURGHIHQGDQW LQIHUHQFHV DUH XQQHFHVVDU\ +RZHYHU WR WKH PHWKHUHPSOR\HUjVOHJLWLPDWHH[SHFWDWLRQVDWWKHSULPDIDFLH H[WHQW WKDW DQ\ GRXEW PD\ OLQJHU LQ DQ\ SHUVRQjV PLQG FRQFHUQLQJ WKH VWDJHRIDWHUPLQDWLRQFDVHDFRXUWPXVWH[DPLQHSODLQWLII V VXLWDELOLW\ RI VXPPDU\ MXGJPHQW IRU WKH GHIHQGDQW WKH VXEMHFW LQIHUHQFHV :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF DQ HPSOR\HH ZKRVH SURGXFWLYLW\ RU SHUIRUPDQFH LV HYLGHQFH LQGHSHQGHQW RI WKH QRQGLVFULPLQDWRU\ UHDVRQ XQVDWLVIDFWRU\WRWKHHPSOR\HU µSURGXFHGj E\ WKH GHIHQVH DV LWV UHDVRQ IRU WHUPLQDWLQJ SODLQWLIIl 0RUHRYHUWKHFRQFOXVLRQWKDWWKHIRXUDYHUUHGUHPDUNVE\ 6FKLIIPDQDQGWZRE\/LYHO\ZHUHIDFLDOO\LQVXIILFLHQWWR 6HFRQGWKHUHLVLQVXIILFLHQWSURRILQWKHUHFRUGIRUXVWR GLUHFWO\SURYHDJHPRWLYDWHGHPSOR\PHQWGLVFULPLQDWLRQLV FRQFOXGH WKDW :H[OHU ZDV XQTXDOLILHG DV D PDWWHU RI ODZ SRZHUIXOO\ UHLQIRUFHG E\ WKH LQFRQWURYHUWLEOH FRXQWHU EHFDXVHRIWKHVWRUHjVGHFOLQLQJVDOHV7KHGLVWULFWFRXUWFLWHV LQIHUHQFHVZKLFKDQ\UDWLRQDOWULHURIIDFWZRXOGEHFRPSHOOHG 0F'RQDOGY8QLRQ&DPS&RUS)GWK WRPDNHRQWKHWRWDOSURRIVXEMXGLFHHVSHFLDOO\JLYHQWZR &LU TXRWDWLRQ PDUNV RPLWWHG IRU WKH UXOH WKDW D XQFRQWHVWHGPDWHULDOIDFWV:H[OHUZDV\HDUVROGDWWKH TXDOLILHGLQGLYLGXDOPXVWSHUIRUPmDWDOHYHOZKLFKPHWKLV WLPHRIKLVLQLWLDOKLULQJDVD:KLWHjVVDOHVUHSUHVHQWDWLYHDQG HPSOR\HUjVOHJLWLPDWHH[SHFWDWLRQVl,Q0F'RQDOGKRZHYHU ZDV\HDUVROGZKHQHOHYDWHGWRPDQDJHPHQWOHVVWKDQRQH WKHSODLQWLIIFRQFHGHGWKDWKHZDVQRWSHUIRUPLQJDWWKLVOHYHO DQGRQHKDOI\HDUVODWHUDQG6FKLIIPDQZKRZDVDOPRVW 6HHLG:H[OHURQWKHRWKHUKDQGGLVSXWHVWKHFRQWHQWLRQ WKDWKHZDVXQTXDOLILHG+HDUJXHVWKDWWKHGURSLQVDOHVZDV GXH WR IDFWRUV RWKHU WKDQ KLV SHUIRUPDQFH DQG IXUWKHU KH SURIIHUHGHYLGHQFHFKDOOHQJLQJWKHFULWLFLVPVRIKLVVNLOOVWKDW PDWHULDO LVVXH RI IDFW RQ WKH TXHVWLRQ RI KLV ZRUN PHUHO\ E\ :KLWHjVLQLWLDOO\UDLVHGDVWKHUHDVRQWRGHPRWHKLP FKDOOHQJLQJ WKH MXGJPHQW RI KLV VXSHUYLVRUVl ,Q*RGIUHGVRQY+HVV &ODUN,QF)GWK&LU 0F'RQDOG Y 8QLRQ &DPS &RUS )G WK &LU HOOLSVH LQ RULJLQDO FLWDWLRQV RPLWWHG EUDFNHWV DGGHG D PDQDJHUjV HPSOR\PHQW ZDV WHUPLQDWHG ZKHQ WKH SRUWLRQ RI WKH EXVLQHVV RYHU ZKLFK KH KDG FRQWURO ZDV )RU WKDW UHDVRQ WHVWLPRQ\ E\ WKH SODLQWLII DQG KLV IRUPHU GURSSHGGXHWRORZUHYHQXH7KHHPSOR\HU+HVV &ODUN VXERUGLQDWHV ZKLFK JDLQVDLG WKH VRXQGQHVV RI 6FKLIIPDQjV EXVLQHVV DUJXHGWKDWWKHGHFUHDVHLQUHYHQXHZDVHQRXJKWRILQGWKDW MXGJPHQW RU TXHVWLRQHG WKH GHIHQGDQWjV PRWLYDWLRQV ZDV LUUHOHYDQW DV WKH WKH PDQDJHU ZDV QRW mPHHWLQJ KLV HPSOR\HUjV OHJLWLPDWH RSLQLRQV DQG MXGJPHQWV RI WKH SODLQWLII DQG KLV IRUPHU FRZRUNHUV FDQQRW H[SHFWDWLRQVl ,G DW %XW EHFDXVH WKH WHUPLQDWHG FUHDWH D WULDEOH LVVXH RI IDFW UHJDUGLQJ ZKHWKHU WKH HPSOR\HU ZDV MXVWLILHG PDQDJHUKDGSURRIWKDWKHZDVQRWVROHO\UHVSRQVLEOHIRUWKH LQ FRQFOXGLQJ WKDW LWV HPSOR\HHjV SHUIRUPDQFH ZDV XQVDWLVIDFWRU\ 6HH HJ sRKQVRQ Y 8QLWHG 6WDWHV 'HSW RI +HDOWK DQG +XPDQ 6HUYLFHV GURS LQ UHYHQXH WKLV FRXUW KHOG WKDW WKHUH ZDV VXIILFLHQW )G WK &LU 2j6KHD Y 'HWURLW 1HZV )G HYLGHQFH WR FUHDWH D JHQXLQH LVVXH RI PDWHULDO IDFW RQ WKH WK &LU :UHQQ Y *RXOG )G WK &LU TXDOLILFDWLRQVSURQJRIWKHSULPDIDFLHFDVH6HHLGDW *RGIUHGVRQjVDQDO\VLVRIWKLVLVVXHGLUHFWO\DSSOLHVWRWKHFDVH :H[OHU KDV DUJXHG XQFRQYLQFLQJO\ WKDW WKH DIILGDYLWV RI KLV IRUPHU DWEDU VXERUGLQDWHV DUH SUREDWLYH RI WKH IDFWXDO TXHVWLRQ ZKHWKHU KH DFWXDOO\ FRPPLWWHG WKH FKDUJHG VSHFLILF DFWV RI XQVDWLVIDFWRU\ PDQDJHULDO SHUIRUPDQFH VXFK DV SRRU UHFRUGNHHSLQJ IDLOXUH WR PDLO mWKDQN\RXl :KHWKHU*RGIUHGVRQZDVVRTXDOLILHGDWWKHWLPHRIKLV FDUGV WR EX\HUV LQDGHTXDWH DWWHQWLRQ WR VDOHVSHUVRQ WUDLQLQJ DQG WHUPLQDWLRQLVDFORVHTXHVWLRQ&HUWDLQO\>WKH@WHVWLPRQ\ FRXQVHOLQJ DQG IDLOXUH WR PDLQWDLQ WKH VWRUH SUHPLVHV +RZHYHU QR >RI WKH PDQDJHU ZKR WHUPLQDWHG *RGIUHGVRQ@ DQG WKH JHQXLQH PDWHULDO MXU\ TXHVWLRQ H[LVWV FRQFHUQLQJ WKRVH LVVXHV EHFDXVH VLJQLILFDQWORVVHVVXIIHUHGE\+HVV &ODUNVXSSRUW HYHQ LI 6FKLIIPDQjV VSHFLILF FKDUJHV RI LQFRPSHWHQW SHUIRUPDQFH DJDLQVW D ILQGLQJ WKDW *RGIUHGVRQ ZDV QRW PHHWLQJ KLV :H[OHU ZHUH QRW ERUQH RXW E\ UHFRUG HYLGHQFH WKH FUXFLDO IDFW LV WKDW WKH HYLGHQFH LV XQFRQWHVWHG WKDW :H[OHUjV VWRUH VXIIHUHG D FDWDVWURSKLF HPSOR\HUjVOHJLWLPDWHH[SHFWDWLRQV>7KH@WHVWLPRQ\>RI HQGXULQJ UHWUDFWLRQ LQ VDOHV WUDIILF GXULQJ KLV ILQDO VHYHQ PRQWKV DV LWV WKH SUHVLGHQW RI +HVV &ODUN@ KRZHYHU UHYHDOV WKDW PDQDJHU 7KDW IDFW LQGHSHQGHQWO\ VXSSOLHG D VXIILFLHQW EXVLQHVV *RGIUHGVRQZDVQRWQHFHVVDULO\WKHVROHSDUW\DWIDXOWIRU MXVWLILFDWLRQ IRU SXUJLQJ :H[OHU IURP WKH UDQNV RI PDQDJHPHQW :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF WKLVIDLOXUH0RUHRYHU*RGIUHGVRQZRUNHGVDWLVIDFWRULO\ 2IJUHDWHUFRQFHUQKRZHYHULVWKHFRQYH\HGLQIHUHQFHWR DW+HVV &ODUNIRU\HDUVSULRUWRWKHSHWIRRGEXVLQHVVjV MXURUVWKDWLQDJHGLVFULPLQDWLRQFDVHVLWLVSHUPLVVLEOHWR IDLOXUHDQGRQHFDQLQIHUWKDWKHZRXOGQRWKDYHEHHQ FRQGXFWWZHOYHYRWHSOHELVFLWHVRQWKHVRFLDOSROLWLFDODQG JLYHQ VLJQLILFDQW UHVSRQVLELOLW\ LI KLV SHUIRUPDQFH HFRQRPLF HYLOV RI DJHUHODWHG HPSOR\PHQW GLVFULPLQDWLRQ KDGEHHQXQDFFHSWDEOH)RUWKHVHUHDVRQVZHDJUHHZLWK DQGFRQVHTXHQWO\UHWXUQDSROLWLFL]HGYHUGLFWIDVKLRQHGDVD WKHGLVWULFWFRXUWWKDW*RGIUHGVRQKDGUDLVHGDJHQXLQH YRLFHRIWKHFRPPRQPDQVW\OHmPHVVDJHlWRHPSOR\HUV7R LVVXHRIPDWHULDOIDFWDVWRWKLVLVVXH WKHFRQWUDU\WKHRQO\SHUPLVVLEOHREMHFWLYHRIDMXU\YHUGLFW LVWKHHIIHFWXDWLRQRIDMXVWDQGODZIXOUHVROXWLRQRIDQDFWXDO ,G)RUHVVHQWLDOO\WKHVDPHUHDVRQVZHFRQFOXGHWKDWWKH FDVHLQFRQWURYHUV\EHWZHHQVSHFLILFOLWLJDQWV,IDmUDWLRQDOl GLVWULFW FRXUW HUUHG LQ GHWHUPLQLQJ WKDW :H[OHU ZDV MXU\ FRXOG LQ WKH FDVH QRZ EHIRUH WKLV FRXUW MXVWLILDEO\ XQTXDOLILHGDVDPDWWHURIODZ GLVFRXQW RU LJQRUH WKH PRXQWDLQ RI XQGLVSXWHG SURRI VXSSRUWLYH RI WKH GHIHQGDQW DQG GUDZ OLDELOLW\WULJJHULQJ *LYHQ WKH GLVWULFW FRXUWjV FRQIXVLRQ UHJDUGLQJ ZKDW LQIHUHQFHV DJDLQVW WKH GHIHQGDQW EDVHG XSRQ H[FHHGLQJO\ HYLGHQFHZDVUHOHYDQWWRWKHTXHVWLRQRIZKHWKHU:H[OHUZDV ZHDNRUQRQH[LVWHQWSURRIWKHQWKHUHLVQRDJHGLVFULPLQDWLRQ TXDOLILHGZHWDNHWKLVRSSRUWXQLW\WRH[SOLFLWO\VHWIRUWKZKDW LQHPSOR\PHQWFDVHWKDWDQ\RYHUIRUW\ZRUNHUFRXOGLQYHQW LVUHTXLUHGIRUDSODLQWLIIWRVDWLVI\WKHTXDOLILFDWLRQSURQJRI ZKLFKZRXOGQRWSRVHDQHVVHQWLDOMXU\TXHVWLRQXQUHVROYDEOH WKHSULPDIDFLHWHVW$WWKHSULPDIDFLHVWDJHDFRXUWVKRXOG E\SUHWULDOVXPPDU\SURFHGXUHV IRFXV RQ D SODLQWLIIjV REMHFWLYH TXDOLILFDWLRQV WR GHWHUPLQH ZKHWKHUKHRUVKHLVTXDOLILHGIRUWKHUHOHYDQWMRE6HH$NDY &RQWUDU\ WR WKH HQ EDQF PDMRULW\jV FRQFOXVLRQ DQ :DVKLQJWRQ+RVS&WU)G'&&LU HPSOR\HHjV UHDVVLJQPHQW LQVWLJDWHG E\ WKH HPSOR\HUjV HQEDQFQRWLQJWKDWmFRXUWVWUDGLWLRQDOO\WUHDWH[SODQDWLRQV VXEMHFWLYH EXVLQHVV MXGJPHQW VXSSRUWHG E\ REMHFWLYH WKDWUHO\KHDYLO\RQVXEMHFWLYHFRQVLGHUDWLRQVZLWKFDXWLRQl HYLGHQFH WKDW WKH HPSOR\HHjV DFWXDO SHUIRUPDQFH ZDV DQGWKDWmDQHPSOR\HUjVDVVHUWHGVWURQJUHOLDQFHRQVXEMHFWLYH VXEVWDQGDUGVKRXOGFRQVWLWXWHDQLQVXUPRXQWDEOHDIILUPDWLYH IHHOLQJV DERXW WKH FDQGLGDWHV PD\ PDVN GLVFULPLQDWLRQl GHIHQVHWRDmGLUHFWHYLGHQFHlRUmPL[HGPRWLYHlFKDUJHRI 0DF'RQDOGY(:\R0HQWDO+HDOWK&WU)G DJHLQVSLUHGLQWHQWLRQDOO\GLVSDUDWHWUHDWPHQWLUUHVSHFWLYHRI WK&LUKROGLQJWKDWDSODLQWLIIFDQVKRZWKDW ZKHWKHUWKHHPSOR\HUPD\KDYHEHOLHYHGWKDWWKHSHUFHLYHG VKH LV TXDOLILHG E\ SUHVHQWLQJ mFUHGLEOH HYLGHQFH WKDW VKH LQDGHTXDF\RIWKHSODLQWLIIjVDFWXDOMRESHUIRUPDQFHPD\KDYH FRQWLQXHG WR SRVVHVV WKH REMHFWLYH TXDOLILFDWLRQV VKH KHOG EHHQ LQIOXHQFHG LQ ZKROH RU LQ SDUW E\ DJHUHODWHG ZKHQ VKH ZDV KLUHGl HPSKDVLV DGGHG 7KH SULPD IDFLH GLVDELOLWLHV6HH$QJY3URFWHU *DPEOH&R)G EXUGHQRIVKRZLQJWKDWDSODLQWLIILVTXDOLILHGFDQWKHUHIRUHEH WK&LUSRVLWLQJWKDWDQHPSOR\HHLVQRWTXDOLILHG PHW E\ SUHVHQWLQJ FUHGLEOH HYLGHQFH WKDW KLV RU KHU IRU KLV MRE LIKH mZDV QRW SHUIRUPLQJ WR KLV HPSOR\HUjV TXDOLILFDWLRQVDUHDWOHDVWHTXLYDOHQWWRWKHPLQLPXPREMHFWLYH VDWLVIDFWLRQl &RQJUHVVGLGQRWLQWHQGWRSURWHFWWKHMRERI FULWHULD UHTXLUHG IRU HPSOR\PHQW LQ WKH UHOHYDQW ILHOG $OWKRXJKWKHVSHFLILFTXDOLILFDWLRQVZLOOYDU\GHSHQGLQJRQ WKHMRELQTXHVWLRQWKHLQTXLU\VKRXOGIRFXVRQFULWHULDVXFK DV WKH SODLQWLIIjV HGXFDWLRQ H[SHULHQFH LQ WKH UHOHYDQW 7KLV FRXUW KDV DOVR SURSRXQGHG LQGXVWU\DQGGHPRQVWUDWHGSRVVHVVLRQRIWKHUHTXLUHGJHQHUDO ,Q RUGHU WR VKRZ WKDW KH ZDV TXDOLILHG >WKH SODLQWLII@ PXVW VNLOOV SURYH WKDW KH ZDV SHUIRUPLQJ KLV MRE mDW D OHYHO ZKLFK PHW KLV HPSOR\HUjV OHJLWLPDWH H[SHFWDWLRQVl 0RUHRYHU mLI >WKH SODLQWLII@ ZDV QRW GRLQJ ZKDW KLV HPSOR\HU ZDQWHG KLP WR GR KH ZDV QRW GRLQJ KLV MRE >7KH SODLQWLII@ GRHV QRW UDLVH D :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF QRW UHOHYDQW WR WKLV FDVH QRU GLG WKH DOOHJHG FRPSDUDWLYH E 3UHWH[W GHILFLHQFLHVLQWKHSHUIRUPDQFHRIWKH\RXQJHUPDQDJHUVZKR VXFFHHGHG :H[OHU UHWURDFWLYHO\ WUDQVPXWH WKH HPSOR\HUjV 7KHGLVWULFWFRXUWDOVRKHOGWKDWHYHQDVVXPLQJWKDW:H[OHU HDUOLHUXQELDVHGEXVLQHVVMXGJPHQWLQWRDJHLVWGLVFULPLQDWLRQ KDGFUHDWHGDJHQXLQHLVVXHRIPDWHULDOIDFWRQWKHLVVXHRI /LNHZLVHFRQMHFWXUHWKDW6FKLIIPDQPLJKWKDYHWUHDWHGWKH TXDOLILFDWLRQV :KLWHjV KDG DUWLFXODWHG D OHJLWLPDWH SODLQWLII PRUH JHQHURXVO\ LI KH KDG EHHQ \RXQJHU ZDV QRQGLVFULPLQDWRU\ UHDVRQ IRU KLV GHPRWLRQ QDPHO\ WKH XQIRXQGHGLQDQ\DGPLVVLEOHSURRIDQGKHQFHQRJHQXLQHDQG VWRUHjV GHFOLQLQJ VDOHV $FFRUGLQJ WR WKH GLVWULFW FRXUW PDWHULDODQGWKXVWULDEOHMXU\TXHVWLRQH[LVWHGRQWKDWLVVXH :H[OHUjVmDWWHPSWVWRH[SODLQWKHGHFOLQHLQVDOHVLVQRWKLQJ 6HH0XOKDOOY$VKFURIW)GWK&LU PRUH WKDQ D FKDOOHQJH WR WKH VRXQGQHVV RI KLV HPSOR\HUjV UXOLQJ LQ DQ HPSOR\PHQW UHWDOLDWLRQ FDVH LQ ZKLFK QR MXGJPHQWLQKROGLQJKLPUHVSRQVLEOHIRUWKHSHUIRUPDQFHRI HYLGHQFHKDGFRQWUDGLFWHGWKHWHVWLPRQ\RIWKHHPSOR\HUjV WKHVWRUHZKLOHXQGHUKLVPDQDJHPHQWl7KHGLVWULFWFRXUW GHFLVLRQPDNHUVWKDWWKH\GLGQRWNQRZDERXWWKHSODLQWLIIjV WKXVKHOGWKDW:H[OHUmIDLOHGWRSURGXFHVXIILFLHQWHYLGHQFH SURWHFWHG DFWLYLW\ ZKHQ WKH\ LPSRVHG WKH IDXOWHG DGYHUVH IURPZKLFKDMXU\FRXOGILQGWKDWWKHDUWLFXODWHGUHDVRQZDV HPSOR\PHQWDFWLRQDJDLQVWKLPWKDWVXPPDU\MXGJPHQWIRU SUHWH[WXDOl WKHGHIHQGDQWZDVPDQGDWHGEHFDXVHmWKHLQIHUHQFHVSODLQWLII VRXJKWWRGUDZIURPHYLGHQFHZHUHDNLQWRIOLJKWVRIIDQF\ :KLWHjV PDLQWDLQV WKDW WKH SULPDU\ UHDVRQ IRU GHPRWLQJ VSHFXODWLRQV KXQFKHV LQWXLWLRQV RU UXPRUV DERXW PDWWHUV :H[OHU ZDV WKDW WKH VWRUH ZDV H[SHULHQFLQJ ORZ UHYHQXH UHPRWHIURPSHUVRQDOH[SHULHQFHl&LWDWLRQEUDFNHWVDQG $OWKRXJK D UDWLRQDO WULHU RI IDFW PLJKW EHOLHYH WKLV TXRWDWLRQPDUNVRPLWWHG H[SODQDWLRQWKHUHLVVXIILFLHQWFRQWUDU\HYLGHQFHWRVXSSRUW WKHFRQFOXVLRQWKDWWKLVUHDVRQZDVDSUHWH[WGHVLJQHGWRKLGH $UDWLRQDOMXU\FDQQRWVLPSO\GLVFUHGLWRULJQRUHVWLSXODWHG GLVFULPLQDWLRQ $ SODLQWLII FDQ UHIXWH WKH OHJLWLPDWH XQFRQWHVWHG RU XQLPSHDFKHG PDWHULDO HYLGHQFH PHUHO\ QRQGLVFULPLQDWRU\UHDVRQWKDWDQHPSOR\HURIIHUVWRMXVWLI\DQ EHFDXVH LW VXSSRUWV WKH FDXVH RI D GLVIDYRUHG OLWLJDQW 6HH DGYHUVHHPSOR\PHQWDFWLRQmE\VKRZLQJWKDWWKHSURIIHUHG 5HHYHV 86 DW GLUHFWLQJ WKDW D MXU\ PXVW FUHGLW UHDVRQKDVQREDVLVLQIDFWGLGQRWDFWXDOO\PRWLYDWH HYLGHQFHmWKDWLVXQFRQWUDGLFWHGDQGXQLPSHDFKHGDWOHDVWWR WKHGHIHQGDQWjVFKDOOHQJHGFRQGXFWRUZDVLQVXIILFLHQWWR WKH H[WHQW WKDW WKDW HYLGHQFH FRPHV IURP GLVLQWHUHVWHG ZDUUDQWWKHFKDOOHQJHGFRQGXFWl'HZVY$%'LFN&R ZLWQHVVHVl1/5% Y *DURQ )G WK &LU )GWK&LU UHFRJQL]LQJ WKDW D FUHGLELOLW\ LVVXH IRU IDFWILQGHU UHVROXWLRQH[LVWVRQO\ZKHQWKHUHFRUGFRQWDLQVFRQIOLFWLQJ 7KH GLVWULFW FRXUW EDVHG LWV FRQFOXVLRQ WKDW WKH UHDVRQ HYLGHQFH$OWKRXJK6FKLIIPDQZDVDQmLQWHUHVWHGZLWQHVVl SURIIHUHGE\:KLWHjVZDVQRWSUHWH[WXDORQDQXQZDUUDQWHG WKHPDMRULW\jVVXJJHVWLRQWKDWDMXU\PLJKWHOHFWWRGLVEHOLHYH GHIHUHQFHWRWKHmEXVLQHVVMXGJPHQWlGHIHQVH6LPLODUO\WKH 6FKLIIPDQjVVWDWHGUHDVRQIRUUHDVVLJQLQJ:H[OHULUUHVSHFWLYH GLVVHQWLQVLVWVUHSHDWHGO\WKDWEHFDXVH:KLWHjVGLGLQIDFW RI:H[OHUjVFRQFHVVLRQRIWKHREMHFWLYHIDFWXDOWUXWKRIKLV H[SHULHQFHGHFOLQLQJVDOHVIDLOXUHWRJUDQWVXPPDU\MXGJPHQW VWRUHjV GHFOLQLQJ VDOHV ZKLFK LV D IDFLDOO\ VXIILFLHQW WR :KLWHjV mLQYLWHV LPSHUPLVVLEOH MXU\ QXOOLILFDWLRQ RI WKH MXVWLILFDWLRQIRU:H[OHUjVUHDVVLJQPHQWLQYLWHVLPSHUPLVVLEOH ODZl 'LVVHQWLQJ 2S DW $Q HPSOR\HUjV EXVLQHVV MXU\ QXOOLILFDWLRQ RI WKH ODZ DQG D FRQFRUGDQW ZURQJIXO MXGJPHQWKRZHYHULVQRWDQDEVROXWHGHIHQVHWRXQODZIXO LPSRVLWLRQ RI D PRQHWDU\ SHQDOW\ DJDLQVW DQ HPSOR\HU IRU GLVFULPLQDWLRQ((2&YW@KH EH FRQVWUXHG WR LPSXJQ LQ DQ\ ZD\ 6FKLIIPDQjV JHQHUDO IDFWWKDWDFRXUWPD\WKLQNWKDWWKHHPSOR\HUPLVMXGJHGWKH FKDUDFWHU SHUVRQDO LQWHJULW\ RU UHSXWDWLRQ RI KRQHVW\ DQG TXDOLILFDWLRQVRIWKHDSSOLFDQWVGRHVQRWLQLWVHOIH[SRVHKLP YHUDFLW\ $FFRUGLQJO\ QR FUHGLELOLW\ LVVXH DZDLWV MXURU WR 7LWOH 9,, OLDELOLW\ DOWKRXJK WKLV PD\ EH SUREDWLYH RI UHVROXWLRQ ZKHWKHU WKH HPSOR\HUjV UHDVRQV DUH SUHWH[WV IRU GLVFULPLQDWLRQl(PSKDVLVDGGHG 7KHUHIRUH ZKHWKHU 6FKLIIPDQjV GHFLVLRQ ZDV IXQGDPHQWDOO\VRXQGLQWKHVHQVHRIEHLQJUDWLRQDORUIDLULV 6HYHUDORIRXUVLVWHUFLUFXLWVKDYHVLPLODUO\FRQFOXGHGWKDW WKH UHDVRQDEOHQHVV RI D EXVLQHVV GHFLVLRQ LV FULWLFDO LQ GHWHUPLQLQJ ZKHWKHU WKH SURIIHUHG MXGJPHQW ZDV WKH DJHLQVSLUHG GLVSDUDWH WUHDWPHQW DQG :KLWHjV GHFLVLRQ WR LQGXOJH PRUH HPSOR\HUjVDFWXDOPRWLYDWLRQ$NDY:DVKLQJWRQ+RVS&WU WROHUDQFH WRZDUGV &UDQNjV XQGHUDFKLHYHPHQW WKDQ LW KDG VKRZQ WKH SULRU )G '& &LU HQ EDQF m,I D WZR PDQDJHUV :H[OHU DQG 1HLOVRQ ZDV D EXVLQHVV MXGJPHQW PDGH LQ WKH IDFWILQGHU FDQ FRQFOXGH WKDW D UHDVRQDEOH HPSOR\HU ZRXOG OLJKW RI H[SHULHQFH JDLQHG FRQVHTXHQW WR DQ H[WHQGHG SHULRG RI GHSUHVVHG KDYHIRXQGWKHSODLQWLIIWREHVLJQLILFDQWO\EHWWHUTXDOLILHGIRU VDOHV XQGHU WKH WZR SUHGHFHVVRU PDQDJHUV ZKLFK EHQHILW RI H[SHULHQFH WKH MRE EXW WKLV HPSOR\HU GLG QRW WKH IDFWILQGHU FDQ :KLWHjV GLG QRW KDYH DW WKH WLPH WKDW LW PDGH LWV LQLWLDO EXVLQHVV MXGJPHQW WKDW :H[OHUjV SHUIRUPDQFH ZDV XQDFFHSWDEOH 6HH 0LWFKHOO Y 7ROHGR OHJLWLPDWHO\ LQIHU WKDW WKH HPSOR\HU FRQVFLRXVO\ VHOHFWHG D +RVSLWDO )G WK &LU H[SODLQLQJ WKDW HYLGHQFH OHVVTXDOLILHGFDQGLGDWHnVRPHWKLQJWKDWHPSOR\HUVGRQRW WKDW D QRQSURWHFWHG mFRPSDUDEOHl HPSOR\HH ZDV DFFRUGHG FRPSDUDWLYHO\ XVXDOO\GRXQOHVVVRPHRWKHUVWURQJFRQVLGHUDWLRQVXFKDV VXSHULRU WUHDWPHQW LV SUREDWLYH RQO\ LI WKH DOOHJHG mFRPSDUDEOHl ZDV VLPLODUO\ VLWXDWHG WR WKH SODLQWLII LQ DOO PDWHULDO UHVSHFWV :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 7RWKHFRQWUDU\WKHUHFRUGHYLGHQFHZDVXQFRQWURYHUWHG GLVFULPLQDWLRQHQWHUVLQWRWKHSLFWXUHlIRRWQRWHRPLWWHG WKDWGXULQJWKHILQDOVHYHQPRQWKVRI:H[OHUjVPDQDJHULDO 5\WKHU Y .$5( )G WK &LU DGPLQLVWUDWLRQ WKH 0RUVH 5RDG RXWOHWjV WRWDO UHYHQXHV KROGLQJWKDWWKHIDFWILQGHUZDVDOORZHGWRFRQVLGHUZKHWKHU GHFOLQHGDQG:H[OHUjVSHUVRQDOVDOHVGHFUHDVHG WKHVXUYH\WKDWWKHHPSOR\HUUHOLHGXSRQDVWKHEDVLVIRULWV YLVDYLVWKHFRQJUXHQWSHULRGGXULQJWKHSUHFHGLQJWZHOYH GHFLVLRQ WR ILUH WKH SODLQWLII mZDV DFWXDOO\ D VRXQGnDV PRQWK LQWHUYDO )XUWKHUPRUH :H[OHU KDV FRQFHGHG KLV RSSRVHG WR SUHWH[WXDOnEDVLV XSRQ ZKLFK WR PDNH XQGHUVWDQGLQJ WKDW WKH FRPSDQ\ ZRXOG GHHP KLP WR EH HPSOR\PHQWGHFLVLRQVl'LVWHUY&RQWjO*URXS,QF SHUVRQDOO\UHVSRQVLEOHIRUKLVVWRUHjVWUDQVDFWLRQILJXUHV )GG&LUm7KXVIDFWVPD\H[LVWIURP ZKLFKDUHDVRQDEOHMXU\FRXOGFRQFOXGHWKDWWKHHPSOR\HUjV )HGHUDOODZGRHVQRWLPPXQL]HHOGHUO\ZRUNHUVIURPDOO µEXVLQHVV GHFLVLRQj ZDV VR ODFNLQJ LQ PHULW DV WR FDOO LQWR IRUPVRIXQIDLUHPSOR\PHQWWUHDWPHQWSHUVHUDWKHULWVKLHOGV TXHVWLRQLWVJHQXLQHQHVVl/RHEY7H[WURQ,QF)G WKHP RQO\ IURP XQIDLU WUHDWPHQW LQFLWHG E\ DJHUHODWHG QVW&LUm7KHUHDVRQDEOHQHVVRIWKH SUHMXGLFH ,I WKH IDFWV ZKLFK IRUP WKH EDVLV RI DQ HPSOR\HUjVUHDVRQVPD\RIFRXUVHEHSUREDWLYHRIZKHWKHU WKH\DUHSUHWH[WV7KHPRUHLGLRV\QFUDWLFRUTXHVWLRQDEOHWKH HPSOR\HUjV UHDVRQ WKH HDVLHU LW ZLOO EH WR H[SRVH LW DV D $00 2QFDOH Y 6XQGRZQHU 2IIVKRUH 6HUYLFHV ,QF 86 SUHWH[Wl SRVLWLQJ WKDW IHGHUDO HPSOR\PHQW GLVFULPLQDWLRQ ODZV KDYH FUHDWHG QR mJHQHUDO FLYLOLW\ FRGH IRU WKH $PHULFDQ ZRUNSODFHl EXW LQVWHDG 7KHGLVWULFWFRXUWWKHUHIRUHHUUHGE\LQYRNLQJWKHEXVLQHVV SURVFULEH RQO\ GLVFULPLQDWLRQ IRU VWDWXWRULO\ VSHFLILHG UHDVRQV +DUWVHO MXGJPHQWUXOHWRH[FOXGHFRQVLGHUDWLRQRIHYLGHQFHUHOHYDQW Y .H\V )G WK &LU m7KH ODZ GRHV QRW UHTXLUH WR WKH TXHVWLRQ RI SUHWH[W $V D UHVXOW WKH GLVWULFW FRXUW HPSOR\HUV WR PDNH SHUIHFW GHFLVLRQV QRU IRUELG WKHP IURP PDNLQJ GHFLVLRQV WKDW RWKHUV PD\ GLVDJUHH ZLWK 5DWKHU HPSOR\HUV PD\ QRW KLUH LJQRUHGLQIHUHQFHVLQIDYRURI:H[OHUWKDWFDQEHGUDZQIURP ILUH RU IDLO WR SURPRWH IRU LPSHUPLVVLEOH GLVFULPLQDWRU\ UHDVRQVl %DWWV WKHHYLGHQFHDERXWZKHWKHULWZDVUHDVRQDEOHWREODPHKLP Y 1/7 &RUS )G WK &LU m7KH XOWLPDWH TXHVWLRQ IRUWKH0RUVH5RDGVWRUHjVGHFOLQLQJVDOHV:H[OHUSURGXFHG WR EH UHVROYHG LV ZKHWKHU WKH HPSOR\HU WUHDWHG VRPH SHRSOH OHVV IDYRUDEO\ HYLGHQFHLQGLFDWLQJWKDW:KLWHjVZDVDZDUHWKDWWKHGHFOLQHLQ WKDQ RWKHUV EHFDXVH RI WKHLU UDFH >RU RWKHU OHJDOO\ SURWHFWHG FKDUDFWHULVWLF@ UHYHQXHZDVQRWKLVIDXOW+HSRLQWHGWRHYLGHQFHVKRZLQJ QRW ZKHWKHU WKH HPSOR\HU WUHDWHG DQ HPSOR\HH OHVV IDYRUDEO\ WKDQ WKDW WKH PDQDJHPHQW RI :KLWHjV NQHZ WKDW WKH FRPSDQ\jV VRPHRQHjV JHQHUDO VWDQGDUG RI HTXLWDEOH WUHDWPHQWl EUDFNHWV DGGHG FLWDWLRQ RPLWWHG :UHQQ Y *RXOG )G WK &LU DGYHUWLVLQJ VWUDWHJ\ KDG KXUW VDOHV WKURXJKRXW WKH FKDLQ FRPPHQWLQJ WKDW PHUHO\ TXHVWLRQLQJ WKH GHIHQGDQWjV EXVLQHVV MXGJPHQW LQFOXGLQJ D GHFUHDVH LQ VDOHV DW WKH 0RUVH 5RDG VWRUH ,I GRHV QRW FRPSULVH HYLGHQFH WKDW WKH GHIHQGDQW DFWHG IRU D GLVFULPLQDWRU\ EHOLHYHG D WULHU RI IDFW FRXOG UHDVRQDEO\ LQIHU WKDW WKH UHDVRQ MXVWLILFDWLRQ IRU :H[OHUjV GHPRWLRQ ZDV LQVXIILFLHQW WR ZDUUDQWWKHDGYHUVHGHFLVLRQ:KHQFRPELQHGZLWKWKHDJH $FFRUGLQJO\ WKH HYLGHQFH FLWHG E\ WKH FRXUW PDMRULW\ WKDW $OYLH &UDQN D PDQ LQ KLV PLGWKLUWLHV ZKR UHSODFHG 1HLOVRQ LQ DSSUR[LPDWHO\ UHODWHG VWDWHPHQWV RI 6FKLIIPDQ DQG /LYHO\ D UHDVRQDEOH 1RYHPEHU RU 'HFHPEHU DV WKH 0RUVH 5RDG VWRUH PDQDJHU KDG OLNH IDFWILQGHU FRXOG LQIHU WKDW LPSHUPLVVLEOH FRQVLGHUDWLRQV :H[OHU DQG 1HLOVRQ DOVR SUHVLGHG RYHU FRQWLQXRXVO\ GLVDSSRLQWLQJ VDOHV WDLQWHGWKHLUDVVHVVPHQWRI:H[OHUjVSHUIRUPDQFHDVWKHVWRUH WDOOLHV EXW QRQHWKHOHVV UHPDLQHG WKH VWRUH PDQDJHU DW WKH WLPH RI PDQDJHU 6FKLIIPDQjV 'HFHPEHU GHSRVLWLRQ ZDV HQWLUHO\ QRQSUREDWLYH RI WKH TXHVWLRQ RI 6FKLIIPDQjV PRWLYDWLRQV IRU GHPRWLQJ :H[OHU LQ sXQH )LQDOO\ :H[OHU SXW IRUWK HYLGHQFH WKDW $OYLH &UDQN D IRU DW OHDVW WKUHH UHDVRQV &UDQN GLG QRW UHSODFH :H[OHU DQG WKHUHIRUH KLV FLUFXPVWDQFHV ZHUH WRR UHPRWH LQ WLPH WR SURYLGH D YDOLG VXEVHTXHQWDQGPXFK\RXQJHUPDQDJHUZDVUHWDLQHGGHVSLWH FRPSDUDEOH LI :KLWHjV KDG WUHDWHG &UDQN PRUH IDYRUDEO\ WKDQ :H[OHU VLPLODUO\GLVPDOSURILWV7KHGLVWULFWFRXUWGLGQRWFRQVLGHU LW KDG DOVR WUHDWHG KLP PRUH IDYRUDEO\ WKDQ 1HLOVRQ D PDQ RI &UDQNjV UHWHQWLRQ DV WKH VWRUHjV PDQDJHU WR EH PDWHULDO DSSUR[LPDWHO\ HTXLYDOHQW DJH DV &UDQN ZKLFK GLVSHOV DQ\ LQIHUHQFH RI :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF KRZHYHUEHFDXVHWKHLQWHUYHQLQJUHSODFHPHQW1HLOVRQZKR SRVLWLRQGHVSLWHKLV\RXWKZKLFKKHEHOLHYHGVKRXOGQRWEH ZDVDOVR\RXQJHUWKDQ:H[OHUZDVILUHGDIWHUDSSUR[LPDWHO\ GHHPHGDOLDELOLW\ ILYHPRQWKV$OWKRXJKWKHHYLGHQFHUHJDUGLQJ&UDQNLVQRWDV SHUVXDVLYH DV LW ZRXOG KDYH EHHQ KDG KH GLUHFWO\ UHSODFHG 7KHPHUHUHFRJQLWLRQE\DQHPSOR\HURIWKHXQLYHUVDOO\ :H[OHUWKDWGRHVQRWGLPLQLVKWKHIDFWWKDWWKHFRPSDQ\jV NQRZQ WUXWK WKDW FHUWDLQ LQGLYLGXDOV DV RSSRVHG WR HYHU\ ZLOOLQJQHVVWRUHWDLQ&UDQNLQWKHIDFHRIGHFOLQLQJVDOHVFDOOV LQGLYLGXDO LQ WKH SURWHFWHG DJHGHILQHG FDWHJRU\ PD\ LQWRTXHVWLRQ6FKLIIPDQjVYHUDFLW\ZKHQKHFODLPHGWKDWKH H[SHULHQFHGHFOLQLQJSHUVRQDOFDSDELOLWLHVDVWKH\DSSURDFK ZRXOGKDYHUHWDLQHG:H[OHUEXWIRUWKHUHYHQXHSUREOHPV WKHWUDGLWLRQDODJHRIUHWLUHPHQWLVQRWLOOHJDOQRUGRHVDQ 7KH UHWHQWLRQ RI &UDQN DV :H[OHUjV UHSODFHPHQWRQFH HPSOR\HUjVH[SUHVVLRQRIEHOLHIWKDWD\RXWKIXOHPSOR\PHQW UHPRYHGWKXVXQGHUPLQHVWKHH[SODQDWLRQWKDWVWRUHUHYHQXH FDQGLGDWHLVTXDOLILHGIRUDSDUWLFXODUMRELUUHVSHFWLYHRIKLV LV FULWLFDO WR D VWRUH PDQDJHUjV MRE VHFXULW\ 7KLV LV DQ \HDUVFRQVWLWXWHSURRIRIELDVDJDLQVWWKHHOGHUO\1RWKLQJLQ LQIHUHQFHWKDWPXVWEHGUDZQDWVXPPDU\MXGJPHQWLQIDYRU 6FKLIIPDQjVVWDWHPHQWVVXJJHVWHGGLUHFWO\RULQGLUHFWO\WKDW RIWKHQRQPRYDQW KHUHDVVLJQHG:H[OHUEHFDXVHRIKLVDJHLQWKHDEVWUDFWDV RSSRVHGWRKLVGHFOLQLQJDFWXDOSHUIRUPDQFH6HH.LPHOY ,QVXPWKLVLVDFDVHWKDWRQLWVIDFWVFRXOGJRHLWKHUZD\ )ORULGD %G RI 5HJHQWV 86 mWKH 7KLVPHDQVWKDWDMXU\jVYHUGLFWLQDSURSHUO\WULHGFDVHZRXOG HPSOR\HUFDQQRWUHO\RQDJHDVDSUR[\IRUWKHHPSOR\HHjV OLNHO\EHVXVWDLQHGUHJDUGOHVVRIZKHWKHUWKHYHUGLFWZDVLQ UHPDLQLQJ FKDUDFWHULVWLFV VXFK DV SURGXFWLYLW\ EXW PXVW IDYRURI:H[OHURULQIDYRURI:KLWHjV%XWWKDWLVSUHFLVHO\ LQVWHDGIRFXVRQWKRVHIDFWRUVGLUHFWO\lHPSKDVHVDGGHG WKHSRLQW7KHFRQIOLFWLQJSURRIDQGWKHLQIHUHQFHVWKDWFDQEH EUDFNHWVRPLWWHGTXRWLQJ+D]HQ3DSHU&RY%LJJLQV GUDZQ WKHUHIURP UDLVH JHQXLQH LVVXHV RI PDWHULDO IDFW WKDW 868QOLNHWKHSODLQWLIILQ(UFHJRYLFKY SUHFOXGHWKHJUDQWRIVXPPDU\MXGJPHQWLQWKHFDVHEHIRUHXV *RRG\HDU7LUHDQG5XEEHU&R)GWK&LU $OWKRXJKWKHGLVVHQWODERUVORQJDQGKDUGLQPDUVKDOLQJDOO :H[OHUKDVSURGXFHGQRHYLGHQFHWKDWDQ\PDWHULDOGHFLVLRQ WKHIDFWVDQGLQIHUHQFHVLQVXSSRUWRI:KLWHjVWKLVGRHVQRW PDNHUVKDGE\ZRUGRUGHHGHYLGHQFHGDVWHUHRW\SHGULYHQ LQRXURSLQLRQGLPLQLVKWKHFRQWUDU\HYLGHQFHWRWKHSRLQW ELDV RU SUHMXGLFH DJDLQVW PHPEHUV RI KLV OHJDOO\ SURWHFWHG WKDWmLWLVVRRQHVLGHGWKDW>:KLWHjV@PXVWSUHYDLODVDPDWWHU FODVV ZKLFK PD\ KDYH SUHMXGLFHG WKH GHOLEHUDWLYH SURFHVV RIODZl$QGHUVRQY/LEHUW\/REE\,QF86 XQGHUO\LQJWKHDGYHUVHHPSOR\PHQWDFWLRQ ,,,&21&/86,21 )RUDOORIWKHUHDVRQVVHWIRUWKDERYHZH5(9(56(WKH 7KH SHUWLQHQW VHJPHQW RI 6FKLIIPDQjV DGGUHVV WR KLV HPSOR\HHV GLVWULFWFRXUWjVJUDQWRIVXPPDU\MXGJPHQWDQG5(0$1' EHDUV UHLWHUDWLRQ WKHFDVHIRUIXUWKHUSURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ :H WKRXJKW WKDW KH ZDV MXVW DEVROXWHO\ D WHUULILF NLG +HjV DERXW 'DYLGjV DJH EHHQ LQ WKH IXUQLWXUH EXVLQHVV DERXW DV ORQJ DV 'DYLG +HjV DERXW DV LQWHQVH DV 'DYLG LV +HjV D ILQH JX\ +LV QDPH LV sRKQ 1LHOVRQ >VLF@ , WKLQN \RX ZLOO OLNH KLP YHU\ PXFK +H LV D ILQH SURSHU \RXQJ PDQ 'RQjW EH PLVOHG E\ KLV \RXWK DQ\PRUH WKDQ EHLQJ PLVOHG E\ 'DYLG /LYHO\jV \RXWK (PSKDVLV DGGHG :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF ELJRWU\RULOOZLOOWRZDUGVWKHHOGHUO\QRUGLGWKH\EHWUD\DQ\ BBBBBBBBBBBBB DGYHUVHMXGJPHQWVFRQFHUQLQJ:H[OHUjVVXLWDELOLW\IRUKLV PDQDJHULDO DVVLJQPHQW ZKLFK PD\ KDYH JHUPLQDWHG IURP ',66(17 QHJDWLYH VWHUHRW\SLFDO DVVXPSWLRQV DJDLQVW SHUVRQV RI BBBBBBBBBBBBB DGYDQFLQJ\HDUV .583$16.<&LUFXLWsXGJHGLVVHQWLQJ,QWKLVDFWLRQ 7RWKHFRQWUDU\6FKLIIPDQjVVWDWHPHQWVUHYHDOHGQRWKLQJ FRPPHQFHG SXUVXDQW WR WKH $JH 'LVFULPLQDWLRQ LQ PRUH WKDQ D GHVLUH WR IXUQLVK :H[OHU ZLWK D JUDFHIXO H[LW (PSOR\PHQW $FW m$'($l 86& HW VHT WKH VXSSRUWHGE\DGLJQLILHGRIILFLDOSUHGLFDWHH[SODQDWLRQIRUKLV SODLQWLIIDSSHOODQW 'RQDOG * :H[OHU m:H[OHUl KDV UHDVVLJQPHQW ,QGHHG :H[OHU FKDUDFWHUL]HG 6FKLIIPDQjV FKDOOHQJHG WKH GLVWULFW FRXUWjV VXPPDU\ MXGJPHQW IRU WKH DQQRXQFHPHQW WR WKH HPSOR\HHV UHJDUGLQJ KLV MRE GHIHQGDQWDSSHOOHH:KLWHjV)LQH)XUQLWXUH,QFm:KLWHjV UHDVVLJQPHQWDVmJUDFLRXVl)XUWKHUPRUHWKDWDQQRXQFHPHQW E\ZKLFKLWUHVROYHGWKDWWKHSODLQWLIIKDGIDLOHGWRSURIIHU FRXOGQRWEHUHDVRQDEO\FRQVWUXHGWRUHYHDODQ\MXGJPHQWE\ OHJDOO\VXIILFLHQWGLUHFWRUFLUFXPVWDQWLDOHYLGHQFHWRVXSSRUW 6FKLIIPDQ WKDW 1HLOVRQ :H[OHUjV UHSODFHPHQW SRVVHVVHG KLVSULPDIDFLHFDVH$OWHUQDWLYHO\WKHWULDOFRXUWGLUHFWHG VXSHULRUDVVHWVRUTXDOLILFDWLRQVEHFDXVHRIKLVFRPSDUDWLYH WKDW HYHQ DVVXPLQJ DUJXHQGR WKH H[LVWHQFH RI DGHTXDWH FDOORZQHVVUDWKHU6FKLIIPDQXQDPELJXRXVO\H[SUHVVHGWKH FLUFXPVWDQWLDO SURRI EXWWUHVVLQJ WKH SODLQWLIIjV DJH RSLQLRQ WKDW 1HLOVRQ ZDV TXDOLILHG IRU WKH PDQDJHPHQW GLVFULPLQDWLRQ FKDUJH WKH GHIHQGDQW KDG SURIIHUHG D YDOLG QRQGLVFULPLQDWRU\UHDVRQIRULWVVXEMHFWDFWLRQVZKHUHDVWKH SODLQWLII KDG QRW FRXQWHUHG WKDW UHDVRQ ZLWK HYLGHQFH RI UHPDUNVl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l ZDV VDOHVSHRSOHjVSUREOHPVl*6FKLIIPDQ LUUHOHYDQWWRWKHMXGLFLDOREOLJDWLRQWRHQIRUFHRWKHUZLVHYDOLG OHJLVODWLRQ GXO\ HQDFWHG E\ WKH SHRSOHjV HOHFWHG 'DYLG /LYHO\jV UHIHUHQFHV WR 0U :H[OHUjV DJH UHSUHVHQWDWLYHV UHIHUULQJWRKLPDVDQmROGPDQlDQGDmJUXPS\ROG PDQl $W DOO WLPHV PDWHULDO WR WKLV DFWLRQ :KLWHjV RZQHG DQG RSHUDWHGVHYHUDOUHWDLOIXUQLWXUHRXWOHWVLQWKH&ROXPEXV2KLR 0U/LYHO\WROG0U:H[OHUDVKHZDVGHPRWHGWKDW YLFLQLW\ 2Q 6HSWHPEHU *RUGRQ 6FKLIIPDQ :KLWHjV ZDV UHDOO\ JRLQJ WR EH mJULQGLQJl WKHLU m6FKLIIPDQlZKRZDV:KLWHjVSUHVLGHQWFKLHIH[HFXWLYH PDQDJHUVPDNLQJWKHPGRmVWXII,GRQjWWKLQN\RXjG RIILFHU DQG WRJHWKHU ZLWK KLV WZR VRQV WKH FRQWUROOLQJ ZDQWWREHGRLQJl VKDUHKROGHUKLUHG:H[OHUWRZRUNDVDVDOHVUHSUHVHQWDWLYHDW WKH SUHGRPLQDQWO\ IDPLO\RZQHG FRPSDQ\jV 0RUVH 5RDG 7KHMREZDVmJHWWLQJWREHWLULQJlIRU0U:H[OHU VWRUH2QWKDWGDWH:H[OHUZDV\HDUVROGDQG6FKLIIPDQ *6FKLIIPDQ ZDVDSSUR[LPDWHO\\HDUVRIDJH$VDIORRUVDOHVPDQ :H[OHUUHFHLYHG:KLWHjV VWDQGDUGFRPSHQVDWLRQSDFNDJH *RUGRQ 6FKLIIPDQjV UHSHDWHG UHIHUHQFHV WR sRKQ QDPHO\VL[SHUFHQWFRPPLVVLRQRQDOOGHOLYHUHGVDOHVZLWKD 1HLOVRQjV \RXWK ZKHQ DQQRXQFLQJ 0U :H[OHUjV JXDUDQWHHGPLQLPXPDQQXDOVDODU\RILQFUHDVHGLQ GHPRWLRQ WR $Q\ SHULRGLF VDODU\ SD\PHQW ZKLFK H[FHHGHGDFFUXHGFRPPLVVLRQVZDVGLVWULEXWHGDVDGUDZRU (YHQ LI WKRVH VL[ ELWV RI HYLGHQFH DUH FRQVWUXHG PRVW DGYDQFHDJDLQVWXQHDUQHGIXWXUHFRPPLVVLRQV IDYRUDEO\ IRU :H[OHU WKH\ GR QRW FROOHFWLYHO\ VXSSRUW DQ\ UDWLRQDO LQIHUHQFH RI DJHUHODWHG ELDV HVSHFLDOO\ LQ WKH IXOO :H[OHUj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sDQXDU\ 6FKLIIPDQjV DIILGDYLW IDXOWHG HPSOR\PHQW GHFLVLRQ WKH FLWHG VWDWHPHQWV DWWULEXWHG WR KLP GLVFORVHG WKDW KH ZDV \HDUV ROG GXULQJ sDQXDU\ EXW LW GLG QRW GLVFORVHG QR DJHUHODWHG DQLPXV 2QH RI WKHP QR DERYH GLG QRW UHYHDO KLV SUHFLVH ELUWK GDWH UHIHUHQFH DJH 7KH RWKHU QR DSSDUHQWO\ UHIHUUHG WR DQ XQNQRZQ QXPEHU RI LVRODWHG LQQRFXRXV UHPDUNV SDWHQWO\ PDGH LQ MHVW LQFOXGLQJ 7KH SRSXODWLRQ VHJPHQW SURWHFWHG E\ WKH $'($ HQFRPSDVVHV RQH XWWHUHG GXULQJ D FRQYHUVDWLRQ RI XQVSHFLILHG GDWH DPRQJ /LYHO\ SHUVRQV DJHG IRUW\ RU PRUH 86& D 0DQ]HU Y 'LDPRQG :H[OHU DQG D PDQXIDFWXUHUjV UHSUHVHQWDWLYH ZKLFK KDG QR UHODWLRQVKLS 6KDPURFN &KHPLFDOV &R )G Q WK &LU WR WKH GHPRWLRQ GHFLVLRQ m>0@HUHO\ YDJXH DPELJXRXV RU LVRODWHG :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF PRWLYDWLRQV IRU UHOLHYLQJ KLP RI KLV PDQDJHULDO LGHQWLILFDWLRQ DQG FRUUHFWLRQ RI HPSOR\HH SHUIRUPDQFH UHVSRQVLELOLWLHV SUREOHPV DQG WKH UHSODFHPHQW RI PDOSHUIRUPLQJ RU XQFRRSHUDWLYHVDOHVUHSUHVHQWDWLYHVDVZHOODVWKHFUHDWLRQRI m,jOO MXVW PHQWLRQ >DV WKH UHDVRQ IRU :H[OHUjV DWWUDFWLYHIXUQLWXUHGLVSOD\VWKHPDLQWHQDQFHRIWKHIDFLOLW\jV GHPRWLRQ@ WKDW \RXjUH JHWWLQJ ROGHUl *RUGRQ RYHUDOO DSSHDUDQFH WKH DFFXUDWH UHFRUGLQJ RI VDOHV 6FKLIIPDQ WUDQVDFWLRQVDQGWKHSURPRWLRQRISRVLWLYHFXVWRPHUUHODWLRQV LQFOXGLQJWKHPDLOLQJRIDmWKDQN\RXlQRWHWRHDFKEX\HU 0U:H[OHULVWROGDVKHLVGHPRWHGmRU ZRXOG DFFUXH DQ HLJKW SHUFHQW FRPPLVVLRQ RQ HDFK RI KLV DJH@ SOD\HG D PRWLYDWLQJ SDUW LQ DQ HPSOR\PHQW GHFLVLRQ SHUVRQDOO\FRQVXPPDWHGVDOHVUDWKHUWKDQWKHVWDQGDUGVL[ >WKHQ@WKHGHIHQGDQWPD\DYRLGDILQGLQJRIOLDELOLW\RQO\E\ SHUFHQW DOORWWHG WR HDFK RI :KLWHjV RWKHU VDOHVSHUVRQV SURYLQJWKDWLWZRXOGKDYHPDGHWKHVDPHGHFLVLRQHYHQLILW 0RUHRYHU WKH FRPSDQ\ DJUHHG WR IRUJLYH LQ SDVW KDGQRWDOORZHGJHQGHU>RUDJH@WRSOD\VXFKDUROHl,WDOLFV DQGEUDFNHWVDGGHGQRWHRPLWWHG ,Q WKH OLWLJDWLRQ LQVWDQWHU :H[OHU YLD KLV EULHIV KDV :H[OHU FRQFHGHG WKDW WKURXJKRXW KLV WHQXUH DV D VWRUH PDQDJHU KH RIIHUHGIRXUVWDWHPHQWVE\6FKLIIPDQDQGWZRE\/LYHO\DV KDG UHSHDWHGO\ EHHQ UHSULPDQGHG IRU KLV IDLOXUHV WR SURSHUO\ GRFXPHQW WUDQVDFWLRQV KLVIRXQGDWLRQDOGLUHFWSURRIRI:KLWHjVDOOHJHGDJHDQLPDWHG )ROORZLQJ WKH FULWLFLVP RI KLV SHUIRUPDQFH DV D VWRUH PDQDJHU :H[OHU GUDIWHG D VL[SDJH KDQGZULWWHQ UHVSRQVH ZKHUHLQ KH DVVLJQHG EODPH IRU KLV PDQDJHULDO IDLOXUHV WR RWKHU SHUVRQV DQGRU H[WHUQDO FLUFXPVWDQFHV DOOHJHGO\ EH\RQG KLV FRQWURO :H[OHU JDYH WKDW VWDWHPHQW 7KLV FRXUW KDV GLVWLQJXLVKHG WKH GHIHQGDQWjV EXUGHQ RI WR 6FKLIIPDQ RQ sXQH GLVSURYLQJ LQWHQWLRQDO GLVFULPLQDWLRQ VXSSRUWHG E\ WKH SODLQWLIIjV GLUHFW HYLGHQFH $OWKRXJK JHQHUDOO\ VHOIVHUYLQJ WKDW GRFXPHQW RSHQHG ZLWK D IURP WKH GHIHQGDQWjV EXUGHQ RI SURGXFWLRQ WR UHEXW D VXVWDLQDEOH FRQFHVVLRQ E\ :H[OHU WKDW KLV PDQDJHPHQW SHUIRUPDQFH KDG EHHQ FLUFXPVWDQWLDO LQIHUHQFH RI LQWHQWLRQDO GLVFULPLQDWLRQ GHILFLHQW DQG WKDW :KLWHjV KDG GXO\ ZDUQHG KLP RI KLV VKRUWFRPLQJV m>2@QFH WKH GLVWULFW FRXUW DFFHSWV WKH SODLQWLIIjV GLUHFW HYLGHQFH , E\ QR PHDQV SXUSRUW WKDW P\ PDQDJHPHQW VW\OH LV SHUIHFW WKH HPSOR\HUjV DVVHUWHG QRQGLVFULPLQDWRU\ UHDVRQ ZKLFK LV , KDYH PDGH PLVWDNHV DV WKH\ KDYH EHHQ EURXJKW WR P\ PHUHO\ D EXUGHQ RI SURGXFWLRQ XQGHU WKH 0F'RQQHOO 'RXJODV DWWHQWLRQ WULHG WR FRUUHFW WKHP >FLUFXPVWDQWLDO HYLGHQFH@ IUDPHZRUN >GLVFXVVHG HVVHQWLDOO\ EHFRPHV DQ DIILUPDWLYH GHIHQVH XSRQ ZKLFK WKH LQIUD@ HPSOR\HU EHDUV WKH EXUGHQ RI SURRIl 9LD DIILGDYLW 6FKLIIPDQ DWWHVWHG WKDW m>D@OWKRXJK :H[OHU KDG VHYHUDOSHUIRUPDQFHGHILFLHQFLHVWKHSULPDU\UHDVRQIRUUHSODFLQJKLP>DV :HEHUJ Y )UDQNV )G WK &LU HPSKDVHV DQG WKH VWRUH PDQDJHU@ ZDV WKH GUDPDWLF IDOORII LQ WKH VWRUHjV VDOHV DQG KLV EUDFNHWV DGGHG SDUDSKUDVLQJ 7HUERYLW] Y )LVFDO &RXUW RI $GDLU &W\ SHUVRQDO VDOHVl )G WK &LU :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF DUHLQVXIILFLHQWWRVXSSRUWDQLQIHUHQFHRIDJHGLVFULPLQDWLRQl VDODU\ DGYDQFHG WR :H[OHU DV D GUDZ DJDLQVW KLV DV\HW &KDSSHOOY*7(3URGXFWV&RUS)GWK&LU XQHDUQHGFRPPLVVLRQVGHVSLWHLWVORQJVWDQGLQJSROLF\DQG FLWDWLRQRPLWWHG SUDFWLFH RI GHELWLQJ VXFK H[FHVV SD\PHQWV DJDLQVW WKH HPSOR\HHjVXQDFFUXHGIXWXUHFRPPLVVLRQV2QWKHIROORZLQJ m'LUHFWHYLGHQFH>RIHPSOR\PHQWGLVFULPLQDWLRQ@µLVWKDW GD\sXQH:H[OHUDFFHSWHGWKDWJHQHURXVRIIHUDQG HYLGHQFH ZKLFK LI EHOLHYHG UHTXLUHV WKH FRQFOXVLRQ WKDW FRQWLQXHG ZRUNLQJ LQ WKDW FDSDFLW\ ZLWKRXW LQWHUUXSWLRQ DW XQODZIXOGLVFULPLQDWLRQZDVDWOHDVWDPRWLYDWLQJIDFWRULQWKH OHDVWXQWLOWKHGDWHRIRUDODUJXPHQWEHIRUHWKHLQLWLDOSDQHORQ HPSOR\HUjVDFWLRQVjl:HEHUJ)GDWHPSKDVLVDQG 2FWREHU EUDFNHWV DGGHG TXRWLQJ sDFNO\Q Y 6FKHULQJ3ORXJK +HDOWKFDUH3URGV6DOHV&RUS)GWK&LU $V SXUSRUWHG VXSSRUW IRU KLV DOOHJDWLRQ WKDW 6FKLIIPDQ m6XFKHYLGHQFHZRXOGWDNHWKHIRUPIRUH[DPSOHRI GHPRWHG KLP E\ UHDVRQ RI DJHGULYHQ DQLPXV :H[OHU DQHPSOR\HUWHOOLQJDQHPSOR\HHµ,ILUHG\RXEHFDXVH\RXDUH WHVWLILHGWKDWQHDUWKHVWDUWRIWKHsXQHDVVHPEO\ GLVDEOHG>RUHOGHUO\@jl6PLWKY&KU\VOHU&RUS)G WK&LU,IWKHSODLQWLIISURGXFHVVXIILFLHQW *RUGRQ>6FKLIIPDQ@KDGDVPLOHRQKLVIDFHVDLGKHKDG GLUHFWHYLGHQFHRIGLVFULPLQDWLRQm>W@KHEXUGHQRISHUVXDVLRQ UHDG WKH SDSHU WKDW , KDG JLYHQ KLP DQG WKDW PRVW RI WKHQ VKLIWV WR WKH GHIHQGDQW WR VKRZ WKDW LW ZRXOG KDYH ZKDW , KDG ZULWWHQ ZDV FRUUHFW +RZHYHU WKH\ KDYH WHUPLQDWHG WKH SODLQWLIIjV HPSOR\PHQW DEVHQW WKH GHFLGHGWRPDNHDFKDQJH +HWKHQVDLG\RXjUH\HDUVROGDUHQjW\RX'RQ", VDLGQR*RUGRQ,jP,jOOEHLQsDQXDU\+HWKHQ VDLGZHOOZHERWKKDYHEHHQLQWKHEXVLQHVV\HDUV VLF@IRUDEXQFKRI\HDUVDQG,jPQRW FLUFXPVWDQWLDO HYLGHQFH SDWKV DUH PXWXDOO\ H[FOXVLYH WKH VXUHZKDW,ZDQWWRGR0D\EH,VKRXOGMXVWEHZRUU\LQJ SODLQWLIIFDQPHHW>KLV@EXUGHQZLWKHLWKHUPHWKRGRISURRIl DERXW P\ RZQ FXVWRPHU DQG QRW HYHU\RQH HOVHjV ,G DW EUDFNHWV DGGHG FLWDWLRQ DQG QRWH RPLWWHG FXVWRPHUV7KLVLVJHWWLQJWREHWLULQJ 1RQHWKHOHVVLUUHVSHFWLYHRIZKHWKHUWKHSODLQWLIIjVSURRIRI GLVSDUDWH WUHDWPHQW LV GLUHFW RU FLUFXPVWDQWLDO WKH XOWLPDWH $WWKDWWLPHZHZHUHLQWHUYLHZLQJIRUPDQDJHUVEHFDXVH OLDELOLW\TXHVWLRQLVWKHVDPHomµOLDELOLW\GHSHQGVRQZKHWKHU ZHQHHGHGVRPHERG\IRUWKLVVWRUH%XWZHGLGLQWHUYLHZ WKHSURWHFWHGWUDLWXQGHUWKH$'($DJHDFWXDOO\PRWLYDWHG DQRWKHUJX\WKDWZHWKRXJKWZDVWRSGUDZHU:HWKRXJKW WKH HPSOR\HUjV GHFLVLRQj 7KDW LV WKH SODLQWLIIjV DJH PXVW WKDW KH ZDV MXVW DEVROXWHO\ D WHUULILF NLG +HjV DERXW KDYHµDFWXDOO\SOD\HGDUROHLQWKHHPSOR\HUjVGHFLVLRQPDNLQJ 'DYLGjVDJHEHHQLQWKHIXUQLWXUHEXVLQHVVDERXWDVORQJ SURFHVVDQGKDGDGHWHUPLQDWLYHLQIOXHQFHRQWKHRXWFRPHjl DV'DYLG+HjVDERXWDVLQWHQVHDV'DYLGLV+HjVDILQH 5HHYHVY6DQGHUVRQ3OXPELQJ3URGXFWV,QF86 JX\+LVQDPHLVsRKQ1LHOVRQ>VLF@ EUDFNHWV RPLWWHG SDUHQWKHVHV LQ RULJLQDO TXRWLQJ +D]HQ 3DSHU &R Y %LJJLQV 86 ,WKLQN\RXZLOOOLNHKLPYHU\PXFK+HLVDILQHSURSHU m0HUHSHUVRQDOEHOLHIVFRQMHFWXUHDQGVSHFXODWLRQ \RXQJPDQ'RQjWEHPLVOHGE\KLV\RXWKDQ\PRUHWKDQ EHLQJPLVOHGE\'DYLG/LYHO\jV\RXWK :H[OHUFRQFHGHGDWGHSRVLWLRQWKDW6FKLIIPDQjVsXQH H[LVW VXFK WKDW UHDVRQDEOH PLQGV ZRXOG QRW GLIIHUl VXPPDU\ MXGJPHQW RU SUHVHQWDWLRQGXULQJZKLFKKHGLGQRWGLUHFWO\UHIHUHQFH MXGJPHQW DV D PDWWHU RI ODZ VKRXOG EH DZDUGHG :H[OHUjVDJHZDVmJUDFLRXVl 7KH KLJK &RXUW LQ #00;08 VXVWDLQHG D WULDO FRXUWjV SRVWYHUGLFW GHQLDO $VDGGLWLRQDOHYLGHQFHRIWKHGHIHQGDQWjVSXUSRUWHGDJH RI WKH GHIHQGDQWjV )HG 5 &LY 3 PRWLRQ IRU MXGJPHQW DV D PDWWHU RI DQLPDWHGELDV:H[OHUDWWHVWHGWKDW'DYLG/LYHO\RQFHRQDQ ODZ $OWKRXJK #00;08 ZDV QRW D )HG 5 &LY 3 VXPPDU\ MXGJPHQW XQVSHFLILHGGDWHKDGRIIHUHGmRXWRIUHVSHFWIRU>:H[OHUjV@ FDVH WKH &RXUW UHPDUNHG WKDW 5XOH DQG 5XOH VWDQGDUGV mPLUURUl HDFK RWKHU mVXFK WKDW µWKH LQTXLU\ XQGHU HDFK LV WKH VDPHjl #00;08 ; DJHl WR UHWULHYH D SHQ IURP WKH IORRU ZKLFK :H[OHU KDG 6DQGHUVRQ 3OXPELQJ 3URGXFWV ,QF 86 TXRWLQJ :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF GURSSHG KDG RQ DQRWKHU XQGDWHG RFFDVLRQ GHVFULEHG WKH SODLQWLII WR DQ RXWVLGH PDQXIDFWXUHUjV UHSUHVHQWDWLYH DV mD EHDUGHGJUXPS\ROGPDQlDQGKDGRFFDVLRQDOO\DGGUHVVHG WR EH GUDZQ LQ KLV IDYRUl $QGHUVRQ Y /LEHUW\ /REE\ 86 KLPDVmSRSVlRUmROGPDQl+RZHYHU:H[OHUFRQFHGHG FLWDWLRQ RPLWWHG 6HH DOVR (DVWPDQ .RGDN &R Y ,PDJH 7HFKQLFDO 6HUYLFHV ,QF 86 WKDWKHLQWXUQKDGRFFDVLRQDOO\UHIHUUHGWR/LYHO\DVmWKH $GDPV Y 0HWLYD )G WK &LU NLGl $OO OHJDO FRQFOXVLRQV E\ ORZHU FRXUWV DUH VFUXWLQL]HG GH )XUWKHUPRUH :H[OHU FKDOOHQJHG WKH YHUDFLW\ RI :KLWHj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jV MXGJPHQW SRVHV D TXHVWLRQ RI ODZ 6HH 'RH Y &ODLERUQH PLVPDQDJHPHQW$FFRUGLQJWRWKHSODLQWLIIWKHPDMRUFDXVHV &RXQW\ )G WK &LU 7KH WRXFKVWRQH LV RIKLVVWRUHjVIODJJLQJSURILWDELOLW\ZHUHDmVRIWPDUNHWlLQ ZKHWKHU WKH HYLGHQFH SUHVHQWV D VXIILFLHQW GLVDJUHHPHQW WR UHTXLUH VXEPLVVLRQ WR D MXU\ RU ZKHWKHU LW LV VR RQHVLGHG WKDW UHWDLOIXUQLWXUHDUHGXFWLRQLQFRPSDQ\DGYHUWLVLQJIHDWXULQJ %RRNHU Y %URZQ RQH SDUW\ PXVW SUHYDLO DV D PDWWHU RI ODZ WKH 0RUVH 5RDG VWRUH LQ GHIHUHQFH WR FRQFHQWUDWLRQ XSRQ :LOOLDPVRQ 7REDFFR &R )G WK &LU SURPRWLRQRIWZRUHFHQWO\RSHQHG:KLWHjVRXWOHWVDQGWKH TXRWLQJ $QGHUVRQ 86 DW DVVLJQPHQWRIDQH[FHVVLYHQXPEHURILQH[SHULHQFHGWUDLQHHV *UDKDP+XPSKUH\V Y 0HPSKLV %URRNV 0XVHXP RI $UW ,QF )G Q WK &LU HOOLSVH LQ RULJLQDO ,W VKRXOG EH HPSKDVL]HG WKDW FRXUWV DUH FKDUJHG ZLWK WKH GXW\ RI 7KH FLUFXLW PDMRULW\ KDV FKDUDFWHUL]HG WKRVH LVRODWHG YDJXH DQG DZDUGLQJ VXPPDU\ MXGJPHQW IRU D GHIHQGDQW ZKHQ mD IDLUPLQGHG MXU\ IDFLDOO\ LQQRFXRXV UHPDUNV E\ /LYHO\ DV ZHOO DV 6FKLIIPDQjV sXQH FRXOG >QRW@ UHWXUQ D YHUGLFW IRU WKH SODLQWLII 7KH PHUH H[LVWHQFH RI D SXEOLF FRPPHQWV DERXW :H[OHU DV mSHMRUDWLYHl DQG DV EHWUD\LQJ VFLQWLOOD RI HYLGHQFH LQ VXSSRUW RI WKH SODLQWLIIjV SRVLWLRQ ZLOO EH mVWLJPDWL]LQJ EHOLHIVl 3ODLQO\ VWDWHG LW LV GLIILFXOW WR XQGHUVWDQG KRZ LQVXIILFLHQW WKHUH PXVW EH HYLGHQFH RQ ZKLFK WKH MXU\ FRXOG UHDVRQDEO\ WKRVH UHPDUNV FRXOG EH GHHPHG WR UHIOHFW GLVSDUDJHPHQW RI :H[OHUjV ILQG IRU WKH SODLQWLII 7KH MXGJHjV LQTXLU\ WKHUHIRUH XQDYRLGDEO\ DVNV VNLOOV DV D VDOHV PDQDJHU DQLPDWHG E\ ELDVHG VWHUHRW\SLF DVVXPSWLRQV ZKHWKHU UHDVRQDEOH MXURUV FRXOG ILQG E\ D SUHSRQGHUDQFH RI WKH HYLGHQFH DERXW ROGHU SHUVRQV ,QGHHG LQ LPSXWLQJ WR /LYHO\ DQG 6FKLIIPDQ DJHLVW WKDW WKH SODLQWLII LV HQWLWOHG WR D YHUGLFW o ZKHWKHU WKHUH LV HYLGHQFH XSRQ ELDV LQ WKHLU HPSOR\PHQW MXGJPHQWV LUUHVSHFWLYH RI WKH FRPSOHWH DEVHQFH ZKLFK D MXU\ FDQ SURSHUO\ SURFHHG WR ILQG D YHUGLFW IRU WKH SDUW\ SURGXFLQJ RI SUREDWLYH HYLGHQFH WKDW DJHLVW SUHMXGLFH LQIOXHQFHG WKHLU GHFLVLRQV LW XSRQ ZKRP WKH RQXV RI SURRI LV LPSRVHGl $QGHUVRQ 86 DW UHJDUGLQJ :H[OHU WR DQ\ GHJUHH WKH FRXUW PDMRULW\ KDV HQJDJHG LQ WKH LWDOLFV LQ RULJLQDO LQWHUQDO TXRWDWLRQV DQG FLWDWLRQ RPLWWHG EUDFNHWV DGGHG VDPH IDFWXDOO\ XQVXSSRUWHG K\SRWKHVL]LQJ RI ZKLFK LW KDV DFFXVHG WKH LQ SDUW DQG RPLWWHG LQ SDUW 7KH SDUW\ RSSRVLQJ VXPPDU\ MXGJPHQW PXVW SODLQWLIIjV VXSHULRUV o LW KDV DVVXPHG WKDW DQ\ SHUVRQ ZKR UHFRJQL]HV WKH SUHVHQW mVLJQLILFDQW SUREDWLYH HYLGHQFHl QRW mPHUHO\ FRORUDEOHl HYLGHQFH IDFW RI DQRWKHUjV DJH LQ DQ\ FRQWH[W RU IRU DQ\ UHDVRQ LQFOXGLQJ WKH ZKLFK LV VXIILFLHQW WR FUHDWH PRUH WKDQ mVRPH PHWDSK\VLFDO GRXEW DV WR WKH FRPPRQ VHQVH XQGHUVWDQGLQJ WKDW WKH REMHFWLYHO\PHDVXUDEOH GHFOLQLQJ PDWHULDO IDFWVl 0RRUH Y 3KLOLSV 0RUULV &RV )G WK SHUIRUPDQFH RI D IRUPHUO\ SURGXFWLYH ZRUNHU PD\ EH DWWULEXWDEOH WR VRPH &LU m7KH VXPPDU\ MXGJPHQW SDUDGLJP UHTXLUHV D FRXUW WR GUDZ H[WHQW WR WKDW HPSOR\HHjV DGYDQFLQJ \HDUV LV WKH W\SH RI SHUVRQ ZKR DQG UHVSHFW RQO\ UHDVRQDEOH LQIHUHQFHV D FRXUW QHHG QRW UHJDUG WKDW ZKLFK HPEUDFHV RYHUDOO QHJDWLYH VWHUHRW\SLFDO RSLQLRQV RI WKH HOGHUO\ DQG *DOH\ Y 0D\ 'HSDUWPHQW 6WRUHV &R LV IDUIHWFKHG RU IDQWDVWLFl )HG FRQVHTXHQWO\ PDNHV ZURQJKHDGHG HPSOR\PHQW GHFLVLRQV GULYHQ E\ SHU FXULDP 6HH $SS[ WK &LU 0DUFK XQSXEjG LUUDWLRQDO SUHMXGLFHV :KLOH WKDW GRFWULQDLUH V\OORJLVP PD\ EH FRQVLGHUHG DOVR sDFNVRQ Y 4XDQH[ &RUS )G WK &LU WDXWRORJLFDO LQ FHUWDLQ LGHRORJLFDO FLUFOHV LW GRHV QRW FRQVWLWXWH SUREDWLYH DVVHUWLQJ WKDW ZKHQ mWKHUH LV D FRPSOHWH DEVHQFH RI SOHDGLQJ RU SURRI RQ HYLGHQFH XSRQ ZKLFK D SURSHUO\LQVWUXFWHG UDWLRQDO MXU\ FRXOG ILQG DQ LVVXH PDWHULDO WR WKH FDXVH RI DFWLRQ RU ZKHQ QR GLVSXWHG LVVXHV RI IDFW FRPSHQVDEOH HPSOR\PHQW GLVFULPLQDWLRQ XQGHU IHGHUDO ODZ :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF 1R 1R :H[OHUY:KLWHjV)LQH)XUQLWXUH,QF WR:H[OHUjVVWRUHZKRZRXOGODWHUEHUHGHSOR\HGDWWKHWZR 2Q $SULO :H[OHU LQVWLWXWHG KLV RQHFRXQW QHZORFDWLRQV FRPSODLQWDJDLQVW:KLWHjVLQIHGHUDOGLVWULFWFRXUWE\ZKLFK KH DOOHJHG WKDW KLV GHPRWLRQ IURP VWRUH PDQDJHU WR IORRU $GGLWLRQDOO\WKHSODLQWLIIjVHYLGHQFHLQFOXGLQJFRZRUNHU VDOHVPDQ FRQVWLWXWHG DJH GLVFULPLQDWLRQ LQ HPSOR\PHQW DIILGDYLWV DQG KLV RZQ VHOIVHUYLQJ DWWHVWDWLRQV ODXGHG $IWHU GLVFRYHU\ WKH GHIHQGDQW PRYHG IRU VXPPDU\ VHOHFWHGDVSHFWVRIKLVPDQDJHULDOSHUIRUPDQFH7KHSODLQWLII MXGJPHQW 6HH )HG 5 &LY 3 2Q sXO\ DQG KLV ZLWQHVVHV JHQHUDOO\ DVVHUWHG WKDW WKH SODLQWLII KDG PDGHVRPHHIIRUWVWRWUDLQDQGFRXQVHOKLVVXERUGLQDWHVWR LPSURYHHQIRUFHPHQWRIVWRUHFOHDQOLQHVVDQGPDLQWHQDQFH VWDQGDUGVWRHQVXUHWKHSURPSWFRPSOHWLRQRIPHUFKDQGLVH LQVWUXFWLQJ WKDW ZKHQ UHYLHZLQJ D VXPPDU\ MXGJPHQW mWKH FRXUW PXVW FRQVLGHU DOO WKH HYLGHQFH LQ LWV IXOO FRQWH[W LQ GHFLGLQJ ZKHWKHU WKH GHOLYHULHVDQGWKHPDLOLQJRIIROORZXSmWKDQN\RXlQRWHVWR SODLQWLII KDV PHW KLV EXUGHQ RI VKRZLQJ WKDW D UHDVRQDEOH MXU\ FRXOG HOHYDWHVDJJLQJZRUNHUPRUDOHDQGWRUHGXFHWKHLQFLGHQWVRI FRQFOXGH WKDW KH KDG VXIIHUHG GLVFULPLQDWLRQ DQG DFFRUGLQJO\ VXPPDU\ UHFRUGNHHSLQJHUURUV7KHSODLQWLIIjVZLWQHVVHVSUDLVHGKLP MXGJPHQW LV LQDSSURSULDWHl HPSKDVHV DGGHG IRUKLVSXUSRUWHGKDUGZRUNDQGPDQDJHULDOSURIHVVLRQDOLVP )LQDOO\ :H[OHU KDV FRQWHQGHG WKDW KLV LPPHGLDWH 7KH $JH 'LVFULPLQDWLRQ LQ (PSOR\PHQW $FW FRPPDQGV LQ PDWHULDO SDUW VXFFHVVRUsRKQ1HLOVRQSHUIRUPHGHYHQOHVVHIIHFWLYHO\WKDQ KH KDG DV WKH 0RUVH 5RDG VWRUH PDQDJHU DQG H[KLELWHG ,W VKDOO EH XQODZIXO IRU DQ HPSOR\HU o FRPSDUDWLYHO\LQIHULRUPDQDJHULDOSURZHVV6WRUHUHYHQXHV FRQWLQXHG WR GHFOLQH GXULQJ 1HLOVRQjV DGPLQLVWUDWLRQ WR IDLO RU UHIXVH WR KLUH RU WR GLVFKDUJH DQ\ LQGLYLGXDO RU +RZHYHU :KLWHjV WHUPLQDWHG 1HLOVRQjV HPSOR\PHQW RWKHUZLVH GLVFULPLQDWH DJDLQVW DQ\ LQGLYLGXDO ZLWK UHVSHFW WR KLV FRPSHQVDWLRQ WHUPV FRQGLWLRQV RU SULYLOHJHV RI HPSOR\PHQW DSSUR[LPDWHO\ ILYH PRQWKV DIWHU KLULQJ KLP DV WKH 0RUVH EHFDXVH RI VXFK LQGLYLGXDO V DJH>@ 5RDG VWRUH PDQDJHU LQ WKH IDFH RI FRQWLQXDOO\ GHFUHDVLQJ UHYHQXHV ZKLFK ZDV WKH VDPH UHDVRQ WKDW LW KDG HDUOLHU 86& D SHUPLWWHG:H[OHUWRUHVXPHKLVSRVLWLRQDVDVDOHVSHUVRQ,W EHDUV HPSKDVLV WKDW XQOLNH :H[OHU 1HLOVRQ ZDV QRW UH m7KH >VXPPDU\@ MXGJPHQW VRXJKW VKDOO EH UHQGHUHG IRUWKZLWK LI WKH DVVLJQHGZLWKLQWKHFRPSDQ\RUJDQL]DWLRQ SOHDGLQJV GHSRVLWLRQV DQVZHUV WR LQWHUURJDWRULHV DQG DGPLVVLRQV RQ ILOH WRJHWKHU ZLWK WKH DIILGDYLWV LI DQ\ VKRZ WKDW WKHUH LV QR JHQXLQH LVVXH DV WR DQ\ PDWHULDO IDFW DQG WKDW WKH PRYLQJ SDUW\ LV HQWLWOHG WR D MXGJPHQW DV D PDWWHU RI ODZl )HG 5 &LY 3 F EUDFNHWV DGGHG ,W VKRXOG EH QRWHG WKDW WKH UHFLWDWLRQ RI WKH UHFRUG HYLGHQFH 7KH IDPLOLDU VWDQGDUGV JRYHUQLQJ VXPPDU\ MXGJPHQWV KDYH EHHQ FRQWDLQHG LQ WKH PDMRULW\ RSLQLRQ GRHV QRW PHUHO\ UHIOHFW WKH WRWDOLW\ RI WKH DUWLFXODWHG E\ WKLV FRXUW DV IROORZV IDFWV DV FRQVWUXHG PRVW IDYRUDEO\ IRU WKH SODLQWLII DV WKH RSSRQHQW RI VXPPDU\ MXGJPHQW EXW LQVWHDG FRQVWLWXWHV DQ H[FOXVLYH VXPPDU\ RI RQO\ $ FRXUW PD\ JUDQW VXPPDU\ MXGJPHQW XQGHU )HG 5 &LY 3 WKH HYLGHQFH ZKLFK IDYRUV WKH SODLQWLIIj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mPXVW UHYLHZ WKH UHFRUG µWDNHQ DV D ZKROHjl ZKLFK PHDQV m&UHGLELOLW\ GHWHUPLQDWLRQV WKH ZHLJKLQJ RI WKH mDOO RI WKH HYLGHQFH LQ WKH UHFRUGl HPSKDVLV DGGHG TXRWLQJ 0DWVXVKLWD HYLGHQFH DQG WKH GUDZLQJ RI OHJLWLPDWH LQIHUHQFHV IURP WKH IDFWV (OHF ,QGXVWULDO &R Y =HQLWK 5DGLR &RUS 86 DUH MXU\ IXQFWLRQV QRW WKRVH RI D MXGJH 7KH HYLGHQFH RI WKH $ND Y :DVKLQJWRQ +RVSLWDO &HQWHU )G '& &LU QRQPRYDQW LV WR EH EHOLHYHG DQG DOO MXVWLILDEOH LQIHUHQFHV DUH