02a0315p.06

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) $0(5,&$
H[UHO%5(77 52%<
3ODLQWLII$SSHOOHH
Y
%2(,1* &2
'HIHQGDQW$SSHOODQW
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH6RXWKHUQ'LVWULFWRI2KLRDW&LQFLQQDWL
1R²6$UWKXU6SLHJHO6HQLRU'LVWULFW-XGJH
$UJXHG-DQXDU\
'HFLGHGDQG)LOHG6HSWHPEHU
%HIRUH0(55,77%2**6DQG0225(&LUFXLW
-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8('$P\56DEULQ6.$''(1$536 6/$7(
0($*+(5 )/20 //3 :DVKLQJWRQ '& IRU
$SSHOODQW 'RXJODV 1 /HWWHU 81,7(' 67$7(6
'(3$570(17 2) -867,&( &,9,/ ',9,6,21
:DVKLQJWRQ '& -DPHV % +HOPHU -U +(/0(5

-- 1 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
0$57,16 025*$1&2/3$&LQFLQQDWL2KLRIRU
$SSHOOHHV 21 %5,() $P\ 5 6DEULQ &DUO 6 5DXK
6.$''(1 $536 6/$7( 0($*+(5 )/20 //3
:DVKLQJWRQ '& 'DQLHO ( ,]HQVRQ .($7,1*
08(7+,1* ./(.$033//IRU$SSHOODQW'RXJODV
1 /HWWHU $OLFLD - %HQWOH\ 81,7(' 67$7(6
'(3$570(17 2) -867,&( &,9,/ ',9,6,21
:DVKLQJWRQ '& -DPHV % +HOPHU -U )UHGHULFN 0
0RUJDQ -U +(/0(5 0$57,16 025*$1 &2
/3$&LQFLQQDWL2KLRIRU$SSHOOHHV
0225(-GHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
0(55,77-MRLQHG%2**6- SS GHOLYHUHGD
VHSDUDWHGLVVHQWLQJRSLQLRQ
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
.$5(11(/6210225(&LUFXLW-XGJH7KLVDFWLRQ
ZDVEURXJKWXQGHUWKH)DOVH&ODLPV$FW ³)&$´ 86&
††WRUHFRYHUGDPDJHVIRUWKHORVVRIDKHOLFRSWHU
WKDW 'HIHQGDQW$SSHOODQW %RHLQJ &R ³%RHLQJ´ KDG
UHPDQXIDFWXUHGRURYHUKDXOHGIRUPLOLWDU\XVH%RHLQJQRZ
UDLVHVWKHTXHVWLRQVRIODZFHUWLILHGIRULQWHUORFXWRU\DSSHDO
E\WKHGLVWULFWFRXUWDUJXLQJWKDWWKHGLVWULFWFRXUWHUUHGLQ
KROGLQJ WKDWWKH+LJK9DOXH,WHPV&ODXVH ³+9,&´ VHW
IRUWKLQ&)5 ³)$5´ †DQGLQFRUSRUDWHG
LQWR WKH KHOLFRSWHU FRQWUDFW EHWZHHQ WKH 8QLWHG 6WDWHV
³*RYHUQPHQW´ DQG%RHLQJGRHVQRWRSHUDWHDVDGHIHQVHWR
GDPDJHVVRXJKWXQGHUWKH)&$DQG WKDWWKH*RYHUQPHQW
PD\ UHFRYHU GDPDJHV IRU WKH ORVV RI WKH KHOLFRSWHU :H
$)),50WKHMXGJPHQWRIWKHGLVWULFWFRXUW
,%$&.*5281'
,Q DQG WKH 8QLWHG 6WDWHV $UP\ ³$UP\´
DZDUGHG PXOWL\HDU SURFXUHPHQW FRQWUDFWV WRWDOLQJ
DSSUR[LPDWHO\ELOOLRQWR%RHLQJIRUWKHUHPDQXIDFWXUHRI
DOPRVW IRXU KXQGUHG %RHLQJPDQXIDFWXUHG &+$%&

-- 2 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
LQFOXGLQJXQGHUWKH)&$%HFDXVHWKHFRXUWGRHVQRWVRKROG
,PXVWUHVSHFWIXOO\GLVVHQW
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
$ ³IOLJKW FULWLFDO SDUW´ LV QHFHVVDU\ IRU IOLJKW LWV IDLOXUH FRXOG FDXVH
WKH ORVV RI WKH DLUFUDIW -$ DW *UD\ 'HS
&KLQRRNKHOLFRSWHUVWRWKH&+'FRQILJXUDWLRQ$VSDUWRI
WKHVHFRQWUDFWV%RHLQJZDVUHTXLUHGWRLQVSHFWDQGWRHQVXUH
WKH TXDOLW\ RI DOO RI WKH SDUWV XVHG IRU WKH UHPDQXIDFWXUH
LQFOXGLQJ WKRVH LWHPV SXUFKDVHG IURP LWV FKRVHQ
VXEFRQWUDFWRUV7KHFRQWUDFWVSURYLGHGZDUUDQW\FRYHUDJHIRU
WKHKHOLFRSWHUVIURPDOOGHIHFWVLQPDWHULDODQGZRUNPDQVKLS
IRU WKH OHVVHU RI WZRKXQGUHG IOLJKW KRXUV RU WZHQW\IRXU
PRQWKVDIWHUDFFHSWDQFH
2Q $XJXVW WKH $UP\ DFFHSWHG GHOLYHU\ RI D
UHPDQXIDFWXUHG &+' KHOLFRSWHU ³$LUFUDIW ´
7KHQH[WGD\%RHLQJVXEPLWWHGDFODLPIRUSD\PHQWWRWKH
*RYHUQPHQWLQWKHIRUPRIDPLOOLRQLQYRLFHIRU$LUFUDIW
2Q-DQXDU\DIWHUILIW\VL[IOLJKWKRXUV
$LUFUDIW VXIIHUHG WKH IDLOXUH RI D GHIHFWLYH IOLJKW
FULWLFDO WUDQVPLVVLRQ JHDU DQG FUDVKHG GXULQJ D ORZOHYHO
FRQWRXU IOLJKW RYHU WKH 6DXGL $UDELDQ GHVHUW DV SDUW RI
2SHUDWLRQ'HVHUW6KLHOG$LUFUDIWDQGLWVFRQWHQWV
ZHUHWRWDOO\GHVWUR\HGDWDORVVRIDWOHDVWPLOOLRQ7KH
$UP\ UHSODFHG $LUFUDIW ZLWK D QHZ &+'
KHOLFRSWHUWKDWFRVWDOPRVWPLOOLRQ
2Q0D\5HODWRU%UHWW5RE\ ³5RE\´ ILOHGDTXL
WDP DFWLRQ XQGHU VHDO SXUVXDQW WR 86& † E RQ
EHKDOIRIKLPVHOIDQGWKH*RYHUQPHQWDOOHJLQJWKDW%RHLQJ
DQGLWVVXSSOLHU6SHFR&RUS ³6SHFR´ KDGYLRODWHGWKH)&$
E\PDNLQJIDOVHVWDWHPHQWVDERXWWKHPDQXIDFWXUHDQGVDOHRI
GHIHFWLYH WUDQVPLVVLRQ JHDUV WR WKH $UP\ YLD %RHLQJ¶V
UHPDQXIDFWXUHG&+'KHOLFRSWHUV6SHFRPDQXIDFWXUHG
WKHJHDUVWKDW%RHLQJLQVWDOOHGLQWRWKH&+'KHOLFRSWHUV
EHIRUHWKHLUGHOLYHU\WRWKH$UP\2Q$SULOWKH
*RYHUQPHQW LQWHUYHQHG DQG ILOHG DQ $PHQGHG &RPSODLQW
DJDLQVW%RHLQJZKLFKZDVXQVHDOHGRQ0D\
,Q LWV $QVZHU %RHLQJ GHQLHG WKH DOOHJDWLRQV RI )&$
YLRODWLRQVDQGUDLVHGDWRWDORIWZHOYHDIILUPDWLYHGHIHQVHV
6SHFLILFDOO\%RHLQJFODLPHG WKDWWKH+9,&LQFOXGHGE\

-- 3 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
UHJXODWLRQ LQ WKH KHOLFRSWHU FRQWUDFW EDUUHG WKH GDPDJHV
VRXJKWXQGHUWKH)&$DQG WKDWFRQVHTXHQWLDOGDPDJHV
ZHUHQRWDYDLODEOHXQGHUWKH)&$
2Q'HFHPEHUWKH*RYHUQPHQWILOHGDPRWLRQIRU
SDUWLDOVXPPDU\MXGJPHQWFKDOOHQJLQJ%RHLQJ¶VDVVHUWLRQRI
WKH +9,& DV DQ DIILUPDWLYH GHIHQVH $IWHU KHDULQJ RUDO
DUJXPHQWWKHGLVWULFWFRXUWJUDQWHGWKHPRWLRQ8QLWHG6WDWHV
H[UHO5RE\Y%RHLQJ&R)6XSSG 6'
2KLR ³5RE\,´ 2Q)HEUXDU\%RHLQJILOHGD
FURVVPRWLRQIRUSDUWLDOVXPPDU\MXGJPHQWDVWRWKHPHDVXUH
RIGDPDJHV$IWHUKHDULQJRUDODUJXPHQWWKHGLVWULFWFRXUW
JUDQWHG%RHLQJ¶VPRWLRQLQSDUWZLWKUHVSHFWWRWKHJHQHUDO
LVVXHRIFRQVHTXHQWLDOGDPDJHVEXWGHQLHGWKHPRWLRQDVLW
UHODWHGWRWKH*RYHUQPHQW¶VGDPDJHVLQWKLVFDVH8QLWHG
6WDWHVH[UHO5RE\Y%RHLQJ&R)6XSSG
6'2KLR ³5RE\,,´
2Q $XJXVW EHIRUH WULDO WKH SDUWLHV UHDFKHG D
VHWWOHPHQWXQGHUZKLFK%RHLQJPDGHDQLPPHGLDWHSD\PHQW
RIPLOOLRQ7KHVHWWOHPHQWGLGQRWLQFOXGHWKH)&$FODLP
DULVLQJIURPWKH6DXGLFUDVKDQDGGLWLRQDOSD\PHQWRI
PLOOLRQLVFRQWLQJHQWXSRQWKHRXWFRPHRIWKLVDSSHDO7KH
GLVWULFW FRXUW DFFHSWHG WKH VHWWOHPHQW DQG FHUWLILHG IRU
LQWHUORFXWRU\DSSHDOWKHIROORZLQJTXHVWLRQVRIODZ
:KHWKHU WKH >*RYHUQPHQW@ FDQ UHFRYHU GDPDJHV
XQGHUWKH>)&$@IRUORVVRIDKHOLFRSWHUUHVXOWLQJ
IURP WKH IDLOXUH RI D GHIHFWLYH IOLJKWFULWLFDO
FRPSRQHQWSDUWDQG
:KHWKHUWKH>+9,&@FRQWDLQHGLQ>)$5@†
DQG LQFRUSRUDWHG LQ WKH %RHLQJ &+'
KHOLFRSWHUFRQWUDFWRSHUDWHVDVDGHIHQVHWRGDPDJHV
VRXJKWXQGHUWKH>)&$@IRUWKHORVVRIRUGDPDJHWR
DKHOLFRSWHUUHVXOWLQJIURPWKHIDLOXUHRIDGHIHFWLYH
FRPSRQHQWSDUW
-$DW 2UGHUWR$PHQGDQG&HUWLI\ 2Q6HSWHPEHU
ZHJUDQWHG%RHLQJ¶VSHWLWLRQIRUSHUPLVVLRQWRDSSHDO
:HKDYHQRTXHVWLRQEHIRUHXVFRQFHUQLQJZKHWKHUDQGWR
ZKDWH[WHQW%RHLQJ¶VFRQGXFWZDVIUDXGXOHQW5DWKHUWKH
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
)URPLWVKLVWRU\LWLVFOHDUWKDWWKH'2'¶VVHOILQVXUDQFH
SROLF\ZDVLQWHQGHGWRSUHFOXGHOLDELOLW\IRUWKHORVVRIFHUWDLQ
*RYHUQPHQWHTXLSPHQW±HYHQZKHQVXFKORVVZDVWKHUHVXOW
RI QRQPDQDJHULDO IUDXG ± VR WKDW FRQWUDFWRUV ZRXOG QRW
SXUFKDVHOLDELOLW\LQVXUDQFHZKLFKRWKHUZLVHZRXOGEHFRVWO\
DQGZRXOGEHDFRVWSDVVHGRQWRWKH*RYHUQPHQW7KHSODLQ
ODQJXDJHRIWKH+9,&DWLVVXHLQWKHSUHVHQWFDVHFRQIRUPVWR
WKDWSXUSRVH+RZHYHUWKHFRXUW¶VGHFLVLRQWRGD\GRHVQRW
XQGHULWFRQWUDFWRUVZLOOKDYHWRLQVXUHDJDLQVWSRWHQWLDO)&$
OLDELOLW\IRUWUHEOHGDPDJHVIRUWKHORVVRIKLJKYDOXHLWHPV
UHVXOWLQJIURPDFWLRQVWKDWPLJKWEHKHOGWREHIUDXGXOHQWRQ
WKH SDUW RI DQ\ SHUVRQQHO 3UHVXPDEO\ WKLV FRVW ZLOO EH
SDVVHGRQWRWKH*RYHUQPHQW
,QVXPWKHFRXUWWRGD\KROGVWKDWWKH+9,&GRHVQRWDSSO\
LQDVLWXDWLRQZKHUHLQLWVSODLQWHUPVDQGKLVWRULFDOSXUSRVH
VHHPWRVXJJHVWLWGRHVDSSO\±DFRQWUDFWRUEHLQJKHOGOLDEOH
WR UHLPEXUVH WKH *RYHUQPHQW IRU WKH ORVV RI D KLJKYDOXH
LWHP1RZWKH*RYHUQPHQWDUJXHVWKDWWKLVFDVHLVQRWDERXW
UHFRYHULQJ WKH DPRXQW ORVW ZKHQ WKH KHOLFRSWHU ZDV
GHVWUR\HGEXWLVLQVWHDGDERXWKROGLQJ%RHLQJUHVSRQVLEOHIRU
IUDXG +RZHYHU LI WKH *RYHUQPHQW ZHUH UHDOO\ RQO\
FRQFHUQHG DERXW IUDXG LW FRXOG VHHN WKH RWKHU SHQDOWLHV
SRVVLEOHXQGHUWKH)&$RUGHEDU%RHLQJIURPSDUWLFLSDWLRQLQ
IXWXUH*RYHUQPHQWFRQWUDFWV,QVWHDGWKH*RYHUQPHQWVHHNV
WUHEOHGSD\PHQWIRUWKHKHOLFRSWHU
$V H[SODLQHG DERYH LI WKLV FRXUW KDG KHOG WKH +9,&
DSSOLFDEOHWR*RYHUQPHQWDFWLRQVIRUUHLPEXUVHPHQWXQGHU
WKH)&$LWZRXOGQRWKDYHEHHQRYHUULGLQJRUSUHHPSWLQJWKH
)&$ ,W ZRXOG LQVWHDG PHUHO\ KDYH EHHQ XSKROGLQJ WKH
REYLRXV FRYHUDJH RI D VWDQGDUG DVVXPSWLRQ RI ULVN FODXVH
XQGHUZKLFKWKH*RYHUQPHQWDJUHHGQRWWRH[HUFLVHFHUWDLQ
ULJKWVLWZRXOGRWKHUZLVHKDYHLQH[FKDQJHIRUDEHQHILW7KLV
FRXUWZRXOGQRWKDYHEHHQKROGLQJWKDWWKH)&$FDQQRWEH
UHOLHGXSRQE\WKH*RYHUQPHQWLWZRXOGPHUHO\KDYHEHHQ
VD\LQJWKDWWKH*RYHUQPHQWLQDFFRUGDQFHZLWKWKHH[SUHVV
ODQJXDJHDQGKLVWRULFDOSXUSRVHRIWKH+9,&FDQQRWVHHN
FRPSHQVDWLRQIRUWKHORVVRIWKHKHOLFRSWHUXQGHUDQ\WKHRU\

-- 4 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
$VWKHGLVWULFWFRXUWLQWKLVFDVHSRLQWHGRXWDURXQGWKLV
WLPH WKH 8QLWHG 6WDWHV &RPPLVVLRQ RQ *RYHUQPHQW
3URFXUHPHQW LVVXHG D UHSRUW VWDWLQJ VLPLODUO\ WKDW GHIHQVH
FRQWUDFWRUVKDGORQJ³>X@QGHUVWRRGWKDWWKHJHQHUDOSUDFWLFHRI
WKHJRYHUQPHQWLQPLOLWDU\FRQWUDFWLQJZDVWRDFFHSWWKHULVN
IRUORVVRUGDPDJH´5RE\,)6XSSGDW6WLOO
WKH0HQDVFRFDVHVKRRNWKHIDLWKRI*RYHUQPHQWFRQWUDFWRUV
LQWKHSURWHFWLRQRIIHUHGE\WKHXQZULWWHQSROLF\,QUHVSRQVH
LQWKH'2'LVVXHG'HIHQVH3URFXUHPHQW&LUFXODU
ZKLFKDVWKHFRXUWQRWHVSXWLQZULWLQJWKLVOLPLWHGOLDELOLW\
0DMRULW\2SDWQ
7KH RULJLQDO YHUVLRQ RI WKH '2'¶V VHOILQVXUDQFH
SROLF\VWDWHGWKDWWKHFODXVHGLGQRWDSSO\³ZKHQWKHGHIHFWV
RUGHILFLHQFLHVLQVXFKVXSSOLHVUHVXOWHGIURPIUDXGRU
JURVV QHJOLJHQFH DV DPRXQWV WR IUDXG RQ WKH SDUW RI DQ\
SHUVRQQHORIWKH&RQWUDFWRU´'3&DW HPSKDVLVDGGHG
+RZHYHUDVWKHFRXUWQRWHVGHIHQVHLQGXVWU\UHSUHVHQWDWLYHV
ZDUQHGWKDWWKLVZRXOGGHIHDWWKHSXUSRVHRIWKHFODXVHDQG
ZKHQWKHFODXVHZDVUHLVVXHGLQWKHSKUDVHKDGEHHQ
UHPRYHG0DMRULW\2SDWQ,WZDVUHSODFHGZLWKDPRUH
OLPLWHGH[FHSWLRQZKLFK±PXFKOLNHWKHRQHLQWKHFXUUHQW
+9,&±H[FOXGHGRQO\³ZLOOIXOPLVFRQGXFWRUODFNRIJRRG
IDLWK RQ WKH SDUW RI DQ\ RI WKH &RQWUDFWRU¶V GLUHFWRUV RU
RIILFHUVPDQDJHUVVXSHULQWHQGHQWVRURWKHUHTXLYDOHQW
UHSUHVHQWDWLYHV´$635 -XO\
,PSRUWDQWO\WKH*RYHUQPHQWPDGHWKLVFKDQJHH[SUHVVO\
UHFRJQL]LQJLWVHIIHFW,QDPHPRUDQGXPGLVFXVVLQJSURSRVHG
UHYLVLRQV WR WKH +9,& WKH $UPHG 6HUYLFHV 3URFXUHPHQW
5HJXODWLRQV &RPPLWWHH ZKLFK SURPXOJDWHG WKH +9,&
H[SODLQHG WKDW WKH UHPRYDO RI WKH RULJLQDO IUDXG SURYLVLRQ
ZRXOG³HOLPLQDWHFRQWUDFWRU¶V>VLF@UHVSRQVLELOLW\IRUGDPDJH
WR*RYHUQPHQW3URSHUW\UHVXOWLQJIURPGHIHFWLYHLWHPVDQG
FDXVHGE\WKHIUDXGRUJURVVQHJOLJHQFHDVDPRXQWVWRIUDXG
RIDQ\SHUVRQQHORIWKHFRQWUDFWRU´-$DW -DQXDU\
,QWKH+9,&UHJXODWLRQUHOHYDQWWRWKLVFDVH
EHFDPH HIIHFWLYH DQG SURYLGHV VXEVWDQWLDOO\ WKH VDPH
SURWHFWLRQWRPLOLWDU\FRQWUDFWRUVSURYLGLQJKLJKYDOXHLWHPV
6HH&)5†
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
TXHVWLRQLVZKHWKHUWKH+9,&SUHFOXGHVOLDELOLW\XQGHUWKH
)&$DVVXPLQJWKDWOLDELOLW\ZRXOGRWKHUZLVHH[LVW
,,$1$/<6,6
,QDQLQWHUORFXWRU\DSSHDOZHUHYLHZDGLVWULFWFRXUW¶VOHJDO
FRQFOXVLRQV GH QRYR 1RUWKZHVWHUQ 2KLR $GP¶UV ,QF Y
:DOFKHU )R[,QF)G WK&LU
$0RRWQHVV
:H ILUVW FRQVLGHU VXD VSRQWH WKH MXULVGLFWLRQDO TXHVWLRQ
ZKHWKHUWKHSDUWLHV¶VHWWOHPHQWRI$XJXVWUHQGHUVWKLV
FDVHPRRW8QGHU$UWLFOH,,,RIWKH&RQVWLWXWLRQRXUH[HUFLVH
RIMXGLFLDOSRZHULVOLPLWHGWR³DFWXDOFDVHVRUFRQWURYHUVLHV´
$IIKROGHU,QFY3UHVWRQ&DUUROO&R)G WK
&LU TXRWLQJ $OOHQ Y :ULJKW 86
LQWHUQDOTXRWDWLRQPDUNVRPLWWHG ³6HWWOHPHQWRID
FODLPEHIRUHDILQDODGMXGLFDWLRQPRRWVWKHFODLPDQGGHSULYHV
WKH IHGHUDO MXGLFLDU\ RI MXULVGLFWLRQ RYHU WKH FODLP´ ,G
$JUHHPHQWVWROLPLWUHFRYHUDEOHGDPDJHVKRZHYHUGRQRW
PRRWFDVHVDQGWKHUHIRUHGRQRWDIIHFWRXUMXULVGLFWLRQ,G
7KHSDUWLHV¶VHWWOHPHQWLQWKLVFDVHLVHVVHQWLDOO\WKHVDPH
DVWKHDJUHHPHQWWROLTXLGDWHGDPDJHVWKDWZDVUHDFKHGLQ
1L[RQY)LW]JHUDOG86 ZKHUHDGLVFKDUJHG
DLU IRUFH HPSOR\HH VRXJKW FLYLO GDPDJHV IURP WKH IRUPHU
SUHVLGHQW,GDW8QGHUWKHWHUPVRIWKHDJUHHPHQWWKH
HPSOR\HHDFFHSWHGZLWKDQDGGLWLRQDODPRXQWRI
FRQWLQJHQWXSRQWKH6XSUHPH&RXUW¶VUXOLQJWKDWWKH
IRUPHUSUHVLGHQWZDVQRWHQWLWOHGWRDEVROXWHLPPXQLW\,G
DW2EVHUYLQJWKDW³>W@KHOLPLWHGDJUHHPHQWEHWZHHQWKH
SDUWLHVOHIWERWKSHWLWLRQHUDQGUHVSRQGHQWZLWKDFRQVLGHUDEOH
ILQDQFLDOVWDNHLQWKHUHVROXWLRQRIWKHTXHVWLRQSUHVHQWHGLQ
WKLV &RXUW´ WKH &RXUW FRQFOXGHG ³*LYHQ UHVSRQGHQWV¶
FRQWLQXHGDFWLYHSXUVXLWRIPRQHWDU\UHOLHIWKLVFDVHUHPDLQV
GHILQLWHDQGFRQFUHWHWRXFKLQJWKHOHJDOUHODWLRQVRISDUWLHV
KDYLQJDGYHUVHOHJDOLQWHUHVWV´,G TXRWDWLRQRPLWWHG
,QWKLVFDVH%RHLQJKDVDOUHDG\SDLGWKH*RYHUQPHQW
PLOOLRQ LW KDV DJUHHG WR SD\ DQ DGGLWLRQDO DPRXQW RI

-- 5 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
PLOOLRQFRQWLQJHQWXSRQRXUUXOLQJVZLWKUHVSHFWWRWKHVFRSH
RIWKH)&$DQGWKH+9,&7KHUHIRUHEHFDXVHWKHSDUWLHV
KDYH³DFRQVLGHUDEOHILQDQFLDOVWDNH´WKHFDVHLVQRWPRRW
DQGZHZLOOSURFHHGWRWKHPHULWVRIWKLVDSSHDO
%7KH)&$DQGWKH+9,&
7KHKLVWRU\RIWKH)&$GDWHVEDFNWRZKHQLWZDV
HQDFWHG ³ZLWK WKH SULQFLSDO JRDO RI VWRSSLQJ WKH PDVVLYH
IUDXGVSHUSHWUDWHGE\ODUJH>SULYDWH@FRQWUDFWRUVGXULQJWKH
&LYLO:DU´9W$JHQF\RI1DWXUDO5HVY8QLWHG6WDWHVH[
UHO6WHYHQV86 TXRWDWLRQRPLWWHG
7KH)&$KDVVLQFHEHFRPHWKHSULPDU\PHDQVE\ZKLFKWKH
*RYHUQPHQWFRPEDWVDQGGHWHUVIUDXG+5 5(3 12
DW $VDPHQGHGLQWKH)&$SURYLGHVIRU
DFLYLOSHQDOW\IURPWRDQGWUHEOHGDPDJHV
ZKHQ DQ LQGLYLGXDO NQRZLQJO\ DFWV WR GHIUDXG WKH
*RYHUQPHQW DQG GRHV QRW ³IXOO\ FRRSHUDWH>@ ZLWK DQ\
*RYHUQPHQW LQYHVWLJDWLRQ RI VXFK YLRODWLRQ´ 86&
† D 7KH 6XSUHPH &RXUW XQGHUVWDQGV WKH FXUUHQW
YHUVLRQ RI )&$ GDPDJHV WR EH ³HVVHQWLDOO\ SXQLWLYH LQ
QDWXUH´ 9W $JHQF\ 86 DW H[SODLQLQJ WKDW WKH
&RXUWKDG³VXJJHVWHGWKDWGDPDJHVXQGHUDQHDUOLHUYHUVLRQRI
WKH)&$ZHUHUHPHGLDOUDWKHUWKDQSXQLWLYH>EHFDXVH@WKDW
YHUVLRQRIWKHVWDWXWHLPSRVHGRQO\GRXEOHGDPDJHVDQGD
FLYLOSHQDOW\RISHUFODLP´ FLWDWLRQVRPLWWHG
:KHUHDVWKH)&$DOORZVWKH*RYHUQPHQWWRUHFRXSORVVHV
IURPIUDXGWKH+9,&KHOSVWRPDQDJHWKHFRVWVRIOLDELOLW\
LQVXUDQFH6LQFHWKH)HGHUDO$FTXLVLWLRQ5HJXODWLRQV
³)$5´ KDYHSUHVFULEHGWKHLQVHUWLRQRIWKH+9,&LQFHUWDLQ
JRYHUQPHQWFRQWUDFWVWROLPLWWKHOLDELOLW\RIFRQWUDFWRUV³IRU
ORVVRIRUGDPDJHWRSURSHUW\RIWKH*RYHUQPHQW LQFOXGLQJ
WKHVXSSOLHVGHOLYHUHGXQGHUWK>H@FRQWUDFW WKDW RFFXUV
DIWHU*RYHUQPHQWDFFHSWDQFHRIWKHVXSSOLHVGHOLYHUHGXQGHU
WK>H@FRQWUDFWDQG UHVXOWVIURPDQ\GHIHFWVRUGHILFLHQFLHV
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
GHVFULEHIUDXG7KHUHIRUHWKH+9,&H[SUHVVO\H[HPSWVIURP
SURWHFWLRQ ORVVHV GXH WR IUDXG RQ WKH SDUW RI PDQDJHULDO
SHUVRQQHO7KHQHJDWLYHSUHJQDQWWKHUHIRUHZRXOGEHWKDW
WKH+9,&GRHVSURWHFWFRQWUDFWRUVIURPORVVHVGXHWRQRQ
PDQDJHULDOIUDXG ZKLFKWKHSDUWLHVKDYHVWLSXODWHGWREHWKH
H[WHQWRIWKHIUDXGLIDQ\LQWKHSUHVHQWFDVH
6HFRQGWKHSXUSRVHRIWKHFODXVHVXSSRUWVWKHSURSRVLWLRQ
WKDWLWZDVLQWHQGHGWRSURYLGHSURWHFWLRQQRPDWWHUWKHOHJDO
WKHRU\,QRUGHUWRH[SODLQZK\KRZHYHU,SURYLGHDVOLJKWO\
EURDGHUKLVWRU\RIWKH+9,&
$V WKH GLVWULFW FRXUW LQ WKLV FDVH H[SODLQHG WKH FODXVH
UHSUHVHQWV D ORQJVWDQGLQJ 'HSDUWPHQW RI 'HIHQVH '2'
SUDFWLFHRIVHOILQVXULQJIRUGDPDJHWRKLJKYDOXHLWHPV6HH
5RE\ , ) 6XSS G DW $W ILUVW LW ZDV MXVW D
SUDFWLFHXQGHUZKLFKWKH'2'ZRXOGQRWKROGPDQXIDFWXUHUV
OLDEOH IRU WKH ORVV RI WKLV W\SH RI HTXLSPHQW UHJDUGOHVV RI
ZKHWKHUWKH'2'IRXQGDQ\IDXOWQHJOLJHQFHRUEUHDFKRI
ZDUUDQW\WRKDYHRFFXUUHGRQWKHSDUWRIWKHPDQXIDFWXUHU,G
DW7KHQLQWKHVWKHODQGLQJJHDURQDQDLUSODQH
SXUFKDVHG E\ WKH 8QLWHG 6WDWHV PLOLWDU\ DQG UHVROG WR WKH
$XVWUDOLDQ 1DY\ IDLOHG UHVXOWLQJ LQ WKH GHVWUXFWLRQ RI WKH
SODQH7KH$XVWUDOLDQJRYHUQPHQWVXHGWKHPDQXIDFWXUHU
VHHNLQJWRUWFRQWUDFWDQGSURGXFWVOLDELOLW\GDPDJHV,ELG
5HIHUULQJ WR WKH ORQJVWDQGLQJ SUDFWLFH RI WKH *RYHUQPHQW
VHOILQVXULQJ DJDLQVW WKH ORVV RI PLOLWDU\ HTXLSPHQW D
&DOLIRUQLDGLVWULFWFRXUWIRXQGWKDWWKH8QLWHG6WDWHV1DY\
FRXOGKDYHEHHQHVWRSSHGIURPSXUVXLQJDQ\FODLPEDVHGRQ
WKH ORVV RI WKH DLUFUDIW EHFDXVH WKH DLUSODQH LQGXVWU\ ZDV
DZDUH RI DQG UHOLHG XSRQ WKLV SUDFWLFH 6HH $XVWUDOLD Y
/RFNKHHG$LUFUDIW&RUS 0HQDVFR0IJ&R1R
:3* &'&DO-DQ 6SHFLILFDOO\WKHFRXUWIRXQG
WKDWWKHVHOILQVXUDQFHSUDFWLFHKDGWZRFHQWUDOSXUSRVHV
WRHQFRXUDJHPDQXIDFWXUHUVQRWWRREWDLQOLDELOLW\LQVXUDQFH
WKHFRVWRIZKLFKZRXOGEHSDVVHGRQWRWKH*RYHUQPHQWDQG
WR HQFRXUDJH WKH PDQXIDFWXUHUV WR FRRSHUDWH IXOO\ LQ
LQYHVWLJDWLQJWKHFDXVHRIHTXLSPHQWIDLOXUHV,GDW

-- 6 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
&RQWUDU\ WR WKH FRXUW¶V FRQWHQWLRQ WKH DUJXPHQW WKDW WKH
*RYHUQPHQW FDQ FRQWUDFW DZD\ SDUW RI LWV ULJKWV XQGHU WKH )&$ LV
VXSSRUWHG E\ WKH UHFHQW )RXUWK &LUFXLW GHFLVLRQ LQ 8QLWHG 6WDWHV Y
%DQNHUV ,QVXUDQFH &R )G WK &LU ,Q WKDW FDVH WKH
*RYHUQPHQW ZDV KHOG WR DQ DUELWUDWLRQ DJUHHPHQW FRQWDLQHG LQ D FRQWUDFW
LW KDG VLJQHG ZKHQ WKH *RYHUQPHQW VRXJKW LQVWHDG WR EULQJ DQ )&$ DFWLRQ
LQ FRXUW DJDLQVW WKH RWKHU SDUW\ WR WKH FRQWUDFW 7KH FRXUW WULHV WR
GLVWLQJXLVK %DQNHUV ,QVXUDQFH E\ QRWLQJ WKDW WKH FRQWUDFW DW LVVXH LQ WKDW
FDVH SHUPLWWHG WKH *RYHUQPHQW WKH XQIHWWHUHG ULJKW WR VXH XQGHU WKH )&$
DIWHU LW HQJDJHG LQ WKH UHTXLUHG DUELWUDWLRQ 0DMRULW\ 2S DW
1HYHUWKHOHVV WKH UHDVRQLQJ RI %DQNHUV ,QVXUDQFH VWLOO DSSOLHV WR WKH FDVH
DW KDQG ³>7@KH *RYHUQPHQW KDV QR VSHFLDO ULJKW WR LJQRUH LWV FRQWUDFW
UHVSRQVLELOLWLHV 7KH *RYHUQPHQW VKRXOG FRPSO\ ZLWK LWV FRQWUDFW
REOLJDWLRQV DQG LW FDQQRW DYRLG WKHP PHUHO\ E\ LQYRNLQJ D VWDWXWRU\ FLYLO
FODLP VXFK DV RQH FRQWHPSODWHG XQGHU WKH )&$´ %DQNHUV ,QVXUDQFH
)G DW
*RYHUQPHQWIHHOVWKDWLWKDVEHHQGHIUDXGHGLWPD\GHEDU
%RHLQJ IURP *RYHUQPHQW FRQWUDFWV ,Q VKRUW WKH EHWWHU
UHDGLQJRIWKH+9,&LVDVDQDVVXPSWLRQRIULVNFODXVHWKH
*RYHUQPHQWKDVFRQWUDFWXDOO\DJUHHGWRDVVXPHWKHULVNRIWKH
ORVVRIWKHKHOLFRSWHUDQGZKLOHOHJDOPHDQVUHPDLQRSHQWR
WKH*RYHUQPHQWDJDLQVW%RHLQJ LQFOXGLQJWKDWSXUVXDQWWR
WKH)&$ WKH*RYHUQPHQWFDQQRWVHHNUHFRPSHQVHIRUWKH
YDOXHRIWKHHTXLSPHQW
7KHUHLVVXSSRUWLQERWKWKHZRUGLQJDQGSXUSRVHRIWKH
+9,&IRUHQIRUFLQJDQDWXUDOUHDGLQJRIWKHFRQWUDFWXDOFODXVH
±WKDWWKH*RYHUQPHQWKDVFRQWUDFWHGDZD\LWVULJKWWRVHHN
SURSHUW\GDPDJHVIURPVXSSOLHUVRIKLJKYDOXHLWHPV
)LUVWWKHZRUGLQJRIWKH+9,&VXSSRUWVWKHSURSRVLWLRQWKDW
LWZDVLQWHQGHGLQWKHXVXDOFDVHWRSURWHFWFRQWUDFWRUVIURP
*RYHUQPHQWDFWLRQVXWLOL]LQJDIUDXGWKHRU\3XUVXDQWWRLW
FRQWUDFWRUVDUHQRWOLDEOHIRUDQ\GDPDJHVIRUWKHORVVRID
KLJKYDOXHLWHPFDXVHGE\DSURGXFWGHIHFWXQOHVVRQHRIWKH
IHZOLVWHGH[FHSWLRQVDSSOLHV$VWKHFRXUWSRLQWVRXWRQHRI
WKRVHH[FHSWLRQVLVIRU³ZLOOIXOPLVFRQGXFWRUODFNRIJRRG
IDLWK´RQWKHSDUWRIPDQDJHULDOSHUVRQQHO0DMRULW\2SDW
FLWLQJ )$5 † E 7KRXJK QRW XVLQJ WKH ZRUG
³IUDXG´ZLOOIXOPLVFRQGXFWDQGDODFNRIJRRGIDLWKIDLUO\
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
)URP WR ZKHQ WKH )$5 EHFDPH HIIHFWLYH $UPHG
6HUYLFHV 3URFXUHPHQW 5HJXODWLRQ ³$635´ UHOLHYHG FRQWUDFWRUV
RI VXFK OLDELOLW\ 6HH -$ DW 'HIHQVH 3URFXUHPHQW &LUFXODU
³'3& ´ DW
LQWKHVXSSOLHV´)$5† D 7KH+9,&FRYHUVWKH
ORVVRIRUGDPDJHWRDKLJKYDOXHLWHPGHILQHGDV³DFRQWUDFW
HQGLWHP WKDW D KDVDKLJKXQLWFRVW QRUPDOO\H[FHHGLQJ
SHUXQLW DQG E LVGHVLJQDWHGE\WKHFRQWUDFWLQJ
RIILFHUDVDKLJKYDOXHLWHP´,G†5HJDUGLQJVXFK
KLJKYDOXHLWHPVWKH*RYHUQPHQW¶VVWDWHGSROLF\LVWR³DFWDV
D VHOILQVXUHU´ DQG WR ³UHOLHYH FRQWUDFWRUV RI FRQWUDFWXDO
OLDELOLW\IRUORVVRIRUGDPDJHWRWKRVHLWHPV´,G†
,QVKRUWWKH+9,&UHSUHVHQWVWKH*RYHUQPHQW¶VDVVXPSWLRQ
RIWKHULVNWKDWDKLJKYDOXHLWHPVXFKDV$LUFUDIW
PD\EHORVWRUGDPDJHGDIWHUDFFHSWDQFHDVDUHVXOWRIDGHIHFW
RUGHILFLHQF\LQWKHLWHP,WGRHVQRWQHFHVVDULO\LPSO\WKDW
WKH*RYHUQPHQWKDVVHOILQVXUHGIRUWKHGDPDJHVWKDWUHVXOW
IURPYLRODWLRQVRIIHGHUDOODZ
%RHLQJ LWVHOI DFFHSWV WKH IDFW WKDW ³>D@VVXPLQJ WKH
JRYHUQPHQW FRXOG SURYH D IDOVH FODLP D FRQWUDFWRU ZRXOG
UHPDLQ OLDEOH IRU SHQDOWLHV DQG LI WKHUH EH DQ\ RWKHU
DSSURSULDWH )&$ GDPDJHV QRWZLWKVWDQGLQJ WKH +9,&´
$SSHOODQW¶V %U DW +RZHYHU UHO\LQJ RQ WKH WH[W DQG
KLVWRU\RIWKH+9,&%RHLQJDUJXHVWKDWWKH+9,&SURKLELWV
WKHUHFRYHU\RIGDPDJHVXQGHUDQ\DQGDOOFDXVHVRIDFWLRQ
ZKHQWKRVHGDPDJHVUHVXOWIURPWKHIUDXGRIQRQPDQDJHULDO
SHUVRQQHOPHDQLQJWKDWWKHUHZRXOGEHQRDSSURSULDWH)&$
GDPDJHV LQ WKLV FDVH 7KH LVVXH EHIRUH XV LV ZKHWKHU WKH
+9,&¶V OLPLWDWLRQ RI FRQWUDFWRU OLDELOLW\ H[WHQGV WR FDVHV
EURXJKW XQGHU WKH )&$ 6SHFLILFDOO\ ZH PXVW GHFLGH
ZKHWKHU WKH *RYHUQPHQW KDV DJUHHG WR OLPLW GDPDJHV WKDW
ZRXOGRWKHUZLVHEHUHFRYHUDEOHXQGHUWKH)&$
,QKROGLQJWKDWWKH+9,&SURYLGHVQRGHIHQVHWRFODLPVRI
)&$ YLRODWLRQV WKH GLVWULFW FRXUW ILUVW QRWHG WKDW WKH )$5
OLPLWWKHDSSOLFDWLRQRIWKH+9,&³WRFRQWUDFWXDOUHPHGLHV
DQG QRW WR FODLPV SUHPLVHG XQGHU WKH >)&$@´ LQGHHG WKH
+9,& DQG WKH )&$ DUH VLOHQW ZLWK UHVSHFW WR HDFK RWKHU

-- 7 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
:H QRWH WKDW %RHLQJ ³YLJRURXVO\ GHQLHV´ DQ\ NQRZLQJ VXEPLVVLRQ
RI D IDOVH FODLP LQ WKLV FDVH 5HSO\ %U DW +RZHYHU ZH PXVW DVVXPH
VXFK D VXEPLVVLRQ WR DGGUHVV ZKHWKHU WKH +9,& SUHFOXGHV )&$ GDPDJHV
ZKHQ LQFRUSRUDWHG DV D FRQWUDFW SURYLVLRQ
5RE\,)6XSSGDW7KHUHIRUHWKHGLVWULFWFRXUW
GHFOLQHGWRILQGWKHPLQFRQVLVWHQW,G%HFDXVH)&$FODLPV
DULVHIURPWKHVXEPLVVLRQRIDIDOVHRUIUDXGXOHQWFODLPWKH
GLVWULFW FRXUW FRQFOXGHG WKDW WKH +9,&¶V OLPLWDWLRQ RQ
FRQWUDFWXDOOLDELOLW\GLGQRWOLPLWDFRQWUDFWRU¶VOLDELOLW\XQGHU
WKH)&$ILQGLQJQRHYLGHQFHLQWKHUHFRUGRIDQ\VXFKLQWHQW
RQWKH*RYHUQPHQW¶VSDUW,GDW)LQDOO\WKHGLVWULFW
FRXUWGLVWLQJXLVKHG8QLWHG6WDWHVY8QLWHG6WDWHV&DUWULGJH
&R)G WK&LU FHUWGHQLHG86
ZKLFKKHOGWKDWDOLDELOLW\OLPLWLQJFRQWUDFWSURYLVLRQ
GLGOLPLWWKH*RYHUQPHQW¶V)&$FODLPVLGDWRQWKH
JURXQGWKDWWKHFRQWUDFWZDVPDGHLQWKHHPHUJHQF\VLWXDWLRQ
SUHFHGLQJ:RUOG:DU,,PDNLQJWKHFDVHXQLTXH5RE\,
)6XSSGDW
:HDJUHHZLWKWKHGLVWULFWFRXUWWKDWWKH+9,&GRHVQRWEDU
WKH*RYHUQPHQWIURPVXLQJ%RHLQJXQGHUWKH)&$WRUHFRYHU
GDPDJHVIRU$LUFUDIW:HORRNILUVWWRWKHODQJXDJH
RIWKH)&$ZKLFKKROGVDGHIHQGDQWOLDEOHIRUDFLYLOSHQDOW\
³SOXVWLPHVWKHDPRXQWRIGDPDJHVZKLFKWKH*RYHUQPHQW
VXVWDLQV EHFDXVH RI WKH DFW RI WKDW SHUVRQ´ 86&
† D 7KH DOOHJHGO\ IUDXGXOHQW DFW LQ WKLV FDVH LV
%RHLQJ¶V ³IDOVH>@ UHSUHVHQW>DWLRQ@ WKDW WKH KHOLFRSWHUV
FRQIRUPHGWRFRQWUDFWUHTXLUHPHQWVDQGIDLO>XUH@WRGLVFORVH
WKHLUIDXOW\PDQXIDFWXUHWRWKH8QLWHG6WDWHV*RYHUQPHQW´
-$DW $P&RPSODWˆ %HFDXVHRIWKLVIDOVHFODLP
WKH *RYHUQPHQW VXVWDLQHG WKH ORVV RI $LUFUDIW
7KHUHIRUHWKH*RYHUQPHQWDUJXHVWKDW%RHLQJLVOLDEOHXQGHU
WKH)&$IRUWUHEOHGDPDJHVDVZHOODVDFLYLOSHQDOW\
$WWKLVSRLQW%RHLQJZRXOGGLUHFWXVWRWKH+9,&ZKLFK
OLPLWVFRQWUDFWRUOLDELOLW\IRUKLJKYDOXHLWHPVLQIDLUO\EURDG
WHUPV
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
, QRWH WKDW WKH FRXUW PHQWLRQV LQ SDVVLQJ WKH GLVWULFW FRXUW¶V UHDGLQJ
RI WKH +9,& ZKLFK ZRXOG DOOHYLDWH DQ\ SHUFHLYHG WHQVLRQ EHWZHHQ WKH
+9,& DQG WKH )&$ E\ OLPLWLQJ WKH +9,&¶V HIIHFW WR RQO\ FRQWUDFWXDO
UHPHGLHV LQ WKLV UHDGLQJ WKH +9,& ZRXOG EH FRPSOHWHO\ LQDSSOLFDEOH WR
WKH *RYHUQPHQW¶V VWDWXWRU\ UHPHG\ XQGHU WKH )&$ 0DMRULW\ 2S DW
FLWLQJ 5RE\ , ) 6XSS G DW 7R WKH H[WHQW WKDW WKH FRXUW UHOLHV
RQ WKLV GLVWLQFWLRQ LW DSSHDUV LQFRUUHFW )LUVW ZKLOH WKH ZRUG FRQWUDFWXDO
LV XVHG WR PRGLI\ WKH UHPHGLHV OLPLWHG E\ WKH +9,& LQ LWV HQDEOLQJ
UHJXODWLRQ WKDW PRGLILHU GRHV QRW DSSHDU LQ WKH IRUP FRQWUDFW ODQJXDJH VHW
RXW LQ WKH UHJXODWLRQV &)5 † RU LQ WKH SDUWLHV¶ FRQWUDFW
ZKLFK LQFRUSRUDWHG WKH IRUP ODQJXDJH 7KHUHIRUH WKH FODXVH DV LW
DSSHDUV LQ WKH SDUWLHV¶ FRQWUDFW IDFLDOO\ FRYHUV DOO UHPHGLHV 6HFRQG WKH
ZRUG FRQWUDFWXDO DV XVHG LQ WKH HQDEOLQJ UHJXODWLRQ IRU WKH +9,& LV RSHQ
WR LQWHUSUHWDWLRQ ,Q DGGLWLRQ WR WKH GHILQLWLRQ WKH GLVWULFW FRXUW JDYH LW
WKDW LWV SURWHFWLRQ RQO\ DSSOLHV WR FRQWUDFW UHPHGLHV WKH *RYHUQPHQW PLJKW
KDYH DJDLQVW %RHLQJ WKH XVH RI WKH ZRUG FRQWUDFWXDO PLJKW PHUHO\ EH
VKRUWKDQG IRU DQ\ UHPHGLHV WKDW FRPH RXW RI WKH UHODWLRQVKLS HPERGLHG LQ
WKH FRQWUDFW ,QGHHG WKLV EURDGHU UHDGLQJ LV PRUH LQ OLQH ZLWK WKH KLVWRU\
RI WKH +9,& )RU H[DPSOH LQ WKH FDVH WKDW SURPSWHG WKH *RYHUQPHQW WR
WXUQ LWV XQZULWWHQ SUDFWLFH RI VHOILQVXUDQFH LQWR D IRUPDO UXOH $XVWUDOLD
Y /RFNKHHG $LUFUDIW &RUS 0HQDVFR 0IJ &R 1R :3*
&' &DO -DQ WKH SUDFWLFH ZDV GLVFXVVHG DV D GHIHQVH WR
FRQWUDFW SURGXFWV OLDELOLW\ DQG QHJOLJHQFH FODLPV 2EYLRXVO\ QHLWKHU
QHJOLJHQFH QRU SURGXFWV OLDELOLW\ FODLPV DUH FRQWUDFW UHPHGLHV LQ WKH
QDUURZ VHQVH WKH\ GR QRW DULVH IURP D FRQWUDFW MXVW DV D IUDXG FODLP GRHV
QRW +RZHYHU WKH\ FDQ DOO DULVH RXW RI D UHODWLRQVKLS EHWZHHQ WKH SDUWLHV
WKDW LV EDVHG LQ D FRQWUDFW
LVJLYHQDQDWXUDOUHDGLQJLWZLOOFRQIOLFWZLWKWKHJRDOVRIWKH
)&$0DMRULW\2SDW
+RZHYHU WKH FRXUW XQQHFHVVDULO\ FRPSOLFDWHV WKH FDVH
&RQWUDU\WRWKHFRXUW¶VUHDGLQJWKH)&$DQG+9,&FDQHDVLO\
EH UHDG LQ KDUPRQ\ 7KH +9,& GRHV QRW RYHUZULWH RU
SUHHPSW WKH )&$ E\ UHOLHYLQJ FRQWUDFWRUV RI OLDELOLW\ IRU
IUDXG7KH)&$LVVWLOODSSOLFDEOHWRWKHFRQWUDFWRUVWKHRQO\
GLIIHUHQFH PDGH E\ WKH +9,& LV WKDW WKH *RYHUQPHQW KDV
DJUHHGWKDWLWZLOOQRWKROGWKHFRQWUDFWRUVOLDEOHXQGHUDQ\
WKHRU\ IRU WKH YDOXH RI WKH KHOLFRSWHU $FFRUGLQJO\ WKH
*RYHUQPHQWFDQVXHWKHFRQWUDFWRUVXQGHUWKH)&$DQGVHHN
DILQGLQJRIOLDELOLW\IRUIUDXGWKH*RYHUQPHQWPHUHO\FDQQRW
VHHN GDPDJHV IRU WKH YDOXH RI WKH HTXLSPHQW 7KH RWKHU
SHQDOWLHV XQGHU WKH )&$ DUH VWLOO DSSOLFDEOH DQG LI WKH

-- 8 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
BBBBBBBBBBBBBBBBB
',66(17
BBBBBBBBBBBBBBBBB
%2**6&LUFXLW-XGJHGLVVHQWLQJ,UHVSHFWIXOO\GLVVHQW
IURP WKH FRXUW¶V UHVWULFWLYH UHDGLQJ RI WKH +9,& DQG LWV
UHVXOWDQWKROGLQJWKDWWKH*RYHUQPHQWFDQVXH%RHLQJXQGHU
WKH)&$WRUHFRYHUGDPDJHVIRU$LUFUDIW
$VWKHFRXUWDGPLWVWKH+9,&³OLPLWVFRQWUDFWRUOLDELOLW\
IRUKLJKYDOXHLWHPVLQIDLUO\EURDGWHUPV´0DMRULW\2SDW
HPSKDVLVDGGHG 7KHSODLQODQJXDJHRIWKH+9,&VWDWHV
WKDW ZLWK OLPLWHG H[FHSWLRQV WKDW WKH SDUWLHV DJUHH DUH QRW
DSSOLFDEOHWRWKHSUHVHQWFDVH³WKH&RQWUDFWRUVKDOOQRWEH
OLDEOHIRUORVVRIRUGDPDJHWRSURSHUW\RIWKH*RYHUQPHQW
WKDW RFFXUVDIWHU*RYHUQPHQWDFFHSWDQFHRIWKHVXSSOLHV
GHOLYHUHGXQGHUWKLVFRQWUDFWDQG UHVXOWVIURPDQ\GHIHFWV
RUGHILFLHQFLHVLQWKHVXSSOLHV´&)5†3XW
PRVWVLPSO\WKLVFDVHLVDERXWWKH*RYHUQPHQWWU\LQJWRGR
H[DFWO\ZKDWWKHSODLQDQGREYLRXVZRUGLQJRILWVFRQWUDFWXDO
WHUPVD\VLWZLOOQRWGRUHFRYHUIURP³WKH&RQWUDFWRU´IRUWKH
³ORVVRIRUGDPDJHWRSURSHUW\RIWKH*RYHUQPHQW´
7KHFRXUW¶VKROGLQJ±WKDWWKH*RYHUQPHQWFDQVHHNXQGHU
WKH)&$H[DFWO\ZKDWLWKDVFRQWUDFWHGWKURXJKWKH+9,&QRW
WR±IORZVLQODUJHSDUWIURPWKHLQKHUHQWWHQVLRQWKHFRXUW
VHHVEHWZHHQWKH)&$DQGWKH+9,&7KHFRXUWVWDWHVZHOO
WKHKLVWRU\DQGSXUSRVHRIHDFK±WKH)&$ZDVDGRSWHGWR
FRPEDW IUDXG SHUSHWUDWHG RQ WKH *RYHUQPHQW E\ LWV
FRQWUDFWRUV DQG WKH +9,& LV LQFOXGHG DV D VHOILQVXUDQFH
SURYLVLRQ LQ FHUWDLQ *RYHUQPHQW SURFXUHPHQW FRQWUDFWV WR
OLPLW WKH LQVXUDQFH WKDW FRQWUDFWRUV PXVW DFTXLUH DQG WKH
UHVXOWDQWFRVWVWKRVHFRQWUDFWRUVSDVVRQWRWKH*RYHUQPHQW
0DMRULW\2SDW7KHFRXUWWKHQH[SODLQVWKDWLIWKH+9,&
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
7KLV H[FHSWLRQ RULJLQDOO\ LQFOXGHG ³IUDXG RU JURVV QHJOLJHQFH DV
DPRXQWV WR IUDXG>@ RQ WKH SDUW RI DQ\ SHUVRQQHO RI WKH &RQWUDFWRU´ -$
DW $635 E LL 7KH GHIHQVH LQGXVWU\ REMHFWHG WR
WKLV SURYLVLRQ RQ WKH IROORZLQJ JURXQGV
7RGD\¶V H[SRVXUH WR SRVVLEOH LQILOWUDWLRQ E\ DQ\ QXPEHU RI
GLVVLGHQW IDFWLRQV LQ RXU VRFLHW\ VHUYHV WR KLJKOLJKW WKH
LPSRVVLELOLW\ RI DQ\ PDQDJHPHQW WR UHDVRQDEO\ DFFHSW DV DQ
XQLQVXUHG ULVN WKH UHVXOWV RI DQ\ LQGLYLGXDO¶V DFWLRQV UHJDUGOHVV
RI WKH H[WUHPH QDWXUH RI VXFK DFWV
7KHUHIRUH WKH LQWURGXFWLRQ RI WKLV H[FHSWLRQ JRHV D ORQJ
ZD\ WRZDUG QHJDWLQJ WKH PDLQ SXUSRVH RI '3& WKDW LV WR
UHPRYH IURP WKH &RQWUDFWRU WKH ULVN RI SRWHQWLDO OLDELOLW\ IRU
GDPDJH WR *RYHUQPHQW SURSHUW\ DQG HOLPLQDWH IURP *RYHUQPHQW
SURFXUHPHQW WKH FRVW RI &RQWUDFWRUV¶ OLDELOLW\ LQVXUDQFH DJDLQVW
VXFK OLDELOLW\ IRU GDPDJH WR *RYHUQPHQW SURSHUW\
8QOHVV WKH LQVXUDQFH H[FHSWLRQ LV VXEVWDQWLDOO\ PRGLILHG DQG
WKH H[FHSWLRQ UHJDUGLQJ IUDXG RI DQ\ SHUVRQQHO LV UHPRYHG WKHUH
LV VHULRXV TXHVWLRQ ZKHWKHU '3& LPSOHPHQWDWLRQ ZLOO KDYH
DQ\ UHDO HIIHFW XSRQ WKH FRVW RI &RQWUDFWRU LQVXUDQFH LQFOXGHG LQ
WKH RYHUDOO FRVW RI WKH *RYHUQPHQW SURFXUHPHQW SURJUDP
-$ DW /HWWHU IURP &RXQFLO RI 'HIHQVH DQG 6SDFH ,QGXVWU\
$VVRFLDWLRQV WR &DSWDLQ (& &KDSPDQ &KDLUPDQ $635 &RPPLWWHH
$XJ 7KH 'HSDUWPHQW RI 'HIHQVH HYHQWXDOO\ DFFHSWHG WKH
UHFRPPHQGDWLRQ WR GHOHWH WKH SURYLVLRQ
([FHSWDVSURYLGHGLQSDUDJUDSKV E WKURXJK H EHORZ
DQGQRWZLWKVWDQGLQJDQ\RWKHUSURYLVLRQRIWKLVFRQWUDFW
WKH&RQWUDFWRUVKDOOQRWEHOLDEOHIRUORVVRIRUGDPDJHWR
SURSHUW\ RI WKH *RYHUQPHQW LQFOXGLQJ WKH VXSSOLHV
GHOLYHUHG XQGHU WKLV FRQWUDFW WKDW RFFXUV DIWHU
*RYHUQPHQWDFFHSWDQFHRIWKHVXSSOLHVGHOLYHUHGXQGHU
WKLV FRQWUDFW DQG UHVXOWV IURP DQ\ GHIHFWV RU
GHILFLHQFLHVLQWKHVXSSOLHV
)$5† D 7KH+9,&GRHVQRWUHIHUHQFHWKH)&$
EXWLWGRHVH[SUHVVO\ UHIXVHWROLPLWDFRQWUDFWRU¶VOLDELOLW\
ZKHQ³WKH*RYHUQPHQW¶VDFFHSWDQFHRI>DKLJKYDOXHLWHP@
UHVXOWVIURPZLOOIXOPLVFRQGXFWRUODFNRIJRRGIDLWKRQWKH
SDUWRIDQ\RIWKH&RQWUDFWRU¶VPDQDJHULDOSHUVRQQHO´)$5
† E 7KH SDUWLHV KDYH VWLSXODWHG WKDW WKLV
H[FHSWLRQLVQRWDWLVVXHLQWKLVFDVH7KHUHIRUHDFFRUGLQJWR
%RHLQJWKH+9,&¶VOLPLWDWLRQRIOLDELOLW\IRUORVVRUGDPDJH

-- 9 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
,Q RWKHU ZRUGV WKH ORVV ZRXOG QRW KDYH RFFXUUHG DV LW GLG LI %RHLQJ
KDG QRW ZDUUDQWHG FRQIRUPDQFH EHFDXVH WKH *RYHUQPHQW ZRXOG KDYH
UHTXLUHG WKH FRUUHFWLRQ UHSDLU RU UHSODFHPHQW RI WKH JHDU ZKLFK ZDV
XQGHU ZDUUDQW\ 7KH +9,& LWVHOI HPSKDVL]HV WKLV REOLJDWLRQ )$5
† G
LVDEVROXWHSUHFOXGLQJWKH*RYHUQPHQWIURPUHFRYHULQJDQ\
GDPDJHV DVRSSRVHGWRDFLYLOSHQDOW\ XQGHUWKH)&$
:HFDQQRWGLVSRVHRIWKH)&$FODLPVRHDVLO\$OWKRXJK
WKH ORVV RI $LUFUDIW RFFXUUHG DIWHU *RYHUQPHQW
DFFHSWDQFHDQGUHVXOWHGIURPWKHGHIHFWLYH6SHFRJHDULWZDV
DFWXDOO\FDXVHGE\%RHLQJ¶VLQLWLDOPLVUHSUHVHQWDWLRQWKDWWKH
KHOLFRSWHU FRQIRUPHG WR FRQWUDFW UHTXLUHPHQWV 7KLV
PLVUHSUHVHQWDWLRQZKLFKWULJJHUHG)&$OLDELOLW\LVWKHNH\WR
WKLVFDVH%RHLQJDUJXHVIURPWKH³ZLOOIXOPLVFRQGXFWRUODFN
RI JRRG IDLWK´ ODQJXDJH LQ WKH PDQDJHULDO SHUVRQQHO
SURYLVLRQ )$5 † E WKDW GDPDJHV IRU )&$
YLRODWLRQV PXVW EH FRYHUHG E\ WKH JHQHUDO OLPLWDWLRQ RI
OLDELOLW\ :H GR QRW DJUHH :HUH WKH +9,& D W\SLFDO
LQVXUDQFHSROLF\ZHZRXOGFRQVLGHUUHVROYLQJWKHDPELJXLW\
LQ%RHLQJ¶VIDYRU&I1RUWK%DQNY&LQFLQQDWL,QV&RV
)G WK&LU VWDWLQJWKDW0LFKLJDQ
ODZ UHTXLUHV FRXUWV WR FRQVWUXH DPELJXRXV SURYLVLRQV DQG
H[FOXVLRQDU\FODXVHVLQLQVXUDQFHSROLFLHVDJDLQVWWKHLQVXUHU
7KHDLPRIWKH+9,&KRZHYHULVWR³UHGXF>H@*RYHUQPHQW
SURFXUHPHQWFRVWVE\OLPLWLQJWKHFRQWUDFWRU¶VULVN´-$DW
'3& DW 7KH +9,& LQVXUHV FRQWUDFWRUV RQO\
LQGLUHFWO\ LW LV E\ LWV RZQ WHUPV D VHOILQVXUDQFH SROLF\
ZKLFKPHDQVWKDWWKH*RYHUQPHQWLVERWKLQVXUHUDQGLQVXUHG
%HFDXVHQRWKLQJLQWKH+9,&VXJJHVWVWKDWLWVOLPLWDWLRQRI
FRQWUDFWRUOLDELOLW\FRYHUVVWDWXWRU\YLRODWLRQVZHKROGWKDW
WKHGLVWULFWFRXUWGLGQRWHUULQFRQFOXGLQJWKDWWKH+9,&GRHV
QRWSURYLGHDGHIHQVHWRGDPDJHVVRXJKWXQGHUWKH)&$
2QRQHOHYHOWKHGLVSXWHLQWKLVFDVHLVHVVHQWLDOO\WKHVDPH
DV WKH RQH LQ 8QLWHG 6WDWHV &DUWULGJH &R ZKHUH WKH
GHIHQGDQWRSHUDWHGD*RYHUQPHQWRZQHGDPPXQLWLRQSODQW
GXULQJ:RUOG:DU,,8QLWHG6WDWHV&DUWULGJH&R)G
DW 7KH *RYHUQPHQW DOOHJHG WKDW WKH GHIHQGDQW KDG
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
,,,&21&/86,21
)RUWKHIRUHJRLQJUHDVRQVZH$)),50WKHMXGJPHQWRI
WKHGLVWULFWFRXUW

-- 10 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
7KH )HGHUDO &LUFXLW KDV REVHUYHG WKDW WKH GLPLQLVKHGYDOXH WHVW LV
³WKH QRUPDO PHDVXUH RI GDPDJHV´ LQ )&$ FDVHV EXW KHOG WKDW ³>L@Q WKH
XQXVXDO FDVH LQ ZKLFK DFWXDO ORVV LQ YDOXH FDQQRW EH DVFHUWDLQHG WKH
LQMXUHG SDUW\ PD\ UHFRYHU WKH UHSODFHPHQW FRVW EXW RQO\ LI WKDW FRVW LV QRW
FOHDUO\ GLVSURSRUWLRQDWH WR WKH SUREDEOH ORVV LQ YDOXH FDXVHG E\ WKH GHIHFWV
LQ TXHVWLRQ´ &RPPHUFLDO &RQWUDFWRUV ,QF Y 8QLWHG 6WDWHV )G
)HG &LU ³7KH FRVW RI UHPHG\LQJ GHIHFWV LV QRW
UHJDUGHG DV GLVSURSRUWLRQDWH LI WKH GHIHFWV VLJQLILFDQWO\ DIIHFW WKH LQWHJULW\
RI D VWUXFWXUH EHLQJ EXLOW ,Q WKDW VHWWLQJ WKH LQMXUHG SDUW\ LV HQWLWOHG WR
UHFRYHU WKH FRVW RI UHPHG\LQJ WKH GHIHFWV GHVSLWH WKH IDFW WKDW WKH FRVW PD\
EH YHU\ KLJK´ ,G DW
6R LQVWUXFWHG ZH REVHUYH WKDW LI WKH DFWXDO ORVV LQ $LUFUDIW ¶V
YDOXH FRXOG QRW EH DVFHUWDLQHG WKHQ WKH *RYHUQPHQW ZRXOG EH HQWLWOHG
XQGHU &RPPHUFLDO &RQWUDFWRUV WR UHFRYHU WKH YHU\ KLJK FRVW RI UHSODFLQJ
WKH GRZQHG KHOLFRSWHU EHFDXVH WKH GHIHFW FRQFHUQHG D IOLJKW FULWLFDO JHDU
DQG VLJQLILFDQWO\ DIIHFWHG WKH VWUXFWXUDO LQWHJULW\ RI WKH KHOLFRSWHU
RIGDPDJHVIRUQRQGHOLYHU\RUUHSXGLDWLRQE\WKHVHOOHULVWKH
GLIIHUHQFH EHWZHHQ WKH PDUNHW SULFH DW WKH WLPH ZKHQ WKH
EX\HUOHDUQHGRIWKHEUHDFKDQGWKHFRQWUDFWSULFH´ ,Q
WKLVFDVHWKH*RYHUQPHQWFRQWUDFWHGIRU$LUFUDIWWR
EHUHPDQXIDFWXUHGWRVSHFLILFVWDQGDUGV7KHKHOLFRSWHUDV
UHFHLYHGE\WKH*RYHUQPHQWGLGQRWPHHWWKRVHVSHFLILFDWLRQV
7KHUHIRUHWKH*RYHUQPHQW¶VGDPDJHVHTXDOWKHGLIIHUHQFH
EHWZHHQ WKH PDUNHW YDOXH RI $LUFUDIW DV UHFHLYHG
]HUR DQGDVSURPLVHG:HGRQRWSUHVXPHWRHVWLPDWHWKH
PDUNHWYDOXHRIDUHPDQXIDFWXUHGKHOLFRSWHU)RURXUSUHVHQW
SXUSRVHVZHDQVZHUWKHTXHVWLRQFHUWLILHGIRULQWHUORFXWRU\
DSSHDO LQ WKH DIILUPDWLYH ² WKDW LV WKH *RYHUQPHQW PD\
UHFRYHUGDPDJHVXQGHUWKH)&$IRUWKHORVVRIDKHOLFRSWHU
WKDW UHVXOWV IURP WKH IDLOXUH RI D GHIHFWLYH IOLJKWFULWLFDO
FRPSRQHQWSDUW:HQRWHWKDWWKHVHGDPDJHVGRQRWUHSUHVHQW
UHSODFHPHQWFRVWV%HFDXVHWKH*RYHUQPHQWGLGQRWFRQWUDFW
IRU D QHZ KHOLFRSWHU LW PD\ QRW UHFRYHU WKH URXJKO\
PLOOLRQYDOXHRIWKHKHOLFRSWHUERXJKWWRUHSODFHWKHGHVWUR\HG
$LUFUDIW+RZHYHULWPD\UHFRYHUWKHEHQHILWRILWV
EDUJDLQZLWK%RHLQJZKLFKZRXOGEHWKHYDOXHWKDW$LUFUDIW
ZRXOG KDYH KDG LI LW KDG EHHQ RI WKH VSHFLILHG
TXDOLW\
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
SUHVHQWHG FODLPV IRU SD\PHQW WKDW ZHUH IDOVH EHFDXVH LW
³IDLO>HG@ WR PDLQWDLQ D SURSHU V\VWHP RI LQVSHFWLRQ DQG WR
SURGXFHWKHTXDOLW\RIDPPXQLWLRQFDOOHGIRUE\WKHFRQWUDFW´
,G,QLWVDQVZHUWKHGHIHQGDQWGHQLHGDQ\ZURQJGRLQJDQG
DUJXHG WKDW LWV OLDELOLW\ ZDV OLPLWHG E\ FRQWUDFWXDO WHUPV
VLPLODUWRWKH+9,&,GDW$IWHUDEHQFKWULDOWKH
GLVWULFWFRXUWGLVPLVVHGWKHFDVHQRWLQJWKDWWKHOLPLWDWLRQRI
OLDELOLW\ZDVVWDWHGLQ³EURDGWHUPV´DQGGLGQRWYLRODWHSXEOLF
SROLF\ ,G DW 7KH (LJKWK &LUFXLW DIILUPHG WKH
GLVPLVVDO,GDW
1RWVXUSULVLQJO\WKHSDUWLHVGLVDJUHHDVWRZKHWKHUDQGKRZ
WKH8QLWHG6WDWHV&DUWULGJH&RGHFLVLRQVKRXOGDIIHFWRXU
GLVSRVLWLRQ RI WKLV FDVH :H WKLQN WKDW WKH GLVWULFW FRXUW
FRUUHFWO\GLVWLQJXLVKHGWKHWZRFDVHV6HH5RE\,)6XSS
GDW HPSKDVL]LQJ³WKHHPHUJHQF\VLWXDWLRQ´RIZDU
LQ8QLWHG6WDWHV&DUWULGJH&RDQGFRQWUDVWLQJWKH³H[WHQVLYH
JRYHUQPHQWDOFRQWURORIDSULPHFRQWUDFWRU´LQWKDWFDVHZLWK
WKH³OLPLWHGJRYHUQPHQWDOPRQLWRULQJ´LQWKHFDVH DW EDU
0RUHRYHUZHEHOLHYHWKDWWKH*RYHUQPHQW¶VSXEOLFSROLF\
DUJXPHQWLQWKLVFDVHLVVWURQJHUWKDQLWZDVLQ8QLWHG6WDWHV
&DUWULGJH&RZKHUHWKH(LJKWK&LUFXLWFRQFOXGHG
,IWKLVFRQWUDFWZHUHWREHUHJDUGHGDVRQHFUHDWLQJWKH
FRQYHQWLRQDOUHODWLRQVKLSEHWZHHQWKH*RYHUQPHQWDQG
D FRPPHUFLDO FRUSRUDWH FRQWUDFWRU QRW VXEMHFW WR
*RYHUQPHQWVXSHUYLVLRQDQGFRQWUROIRUWKHVXSSO\LQJRI
JRRGVRUVHUYLFHVDQGLIWKHSURYLVLRQVOLPLWLQJOLDELOLW\
ZHUHWREHYLHZHGPHUHO\DVDQDWWHPSWWRUHOLHYHVXFKD
FRQWUDFWRU IURP OLDELOLW\ IRU LWV RZQ IUDXG WKH
*RYHUQPHQW¶VDUJXPHQW>WKDWWKHOLPLWDWLRQRIOLDELOLW\
ZDVYRLG@PLJKWSHUKDSVEHXQDQVZHUDEOH
%XWWKLVZDVQRWDFRQYHQWLRQDO*RYHUQPHQWFRQWUDFW
PDGH XQGHU QRUPDO FRQGLWLRQV LW ZDV DQ XQXVXDO
DUUDQJHPHQWPDGHWRPHHWDFULVLV³7KHLQGXVWULDO
XQLWVWKXVFUHDWHGDUHXQLTXH 7KHVHSODQWVHPERG\
D QHZ DQG WULSDUWLWH UHODWLRQVKLS DPRQJ *RYHUQPHQW
ODERUDQGPDQDJHPHQW´

-- 11 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
8QLWHG 6WDWHV &DUWULGJH &R )G DW LQWHUQDO
FLWDWLRQ RPLWWHG 7KH FRQWUDFW LQ WKLV FDVH ZDV D
FRQYHQWLRQDORQHIRUWKHUHPDQXIDFWXUHRIKHOLFRSWHUVDOPRVW
HQWLUHO\ GXULQJ SHDFHWLPH DQG %RHLQJ ZDV QRW VXEMHFW WR
*RYHUQPHQW VXSHUYLVLRQ RU FRQWURO 7KHVH GLIIHUHQFHV
VXJJHVW WKDW WKH OLPLWDWLRQ RI OLDELOLW\ LQ 8QLWHG 6WDWHV
&DUWULGJH&RDOORFDWHGULVNVLQDZD\PXFKPRUHIDYRUDEOH
WRWKHGHIHQGDQWWKDQGRHVWKH+9,&,QVKRUWZHGRQRWUHDG
WKH+9,&DVDQDJUHHPHQWE\WKH*RYHUQPHQWWRDVVXPHWKH
ULVNRIGDPDJHVWRKLJKYDOXHLWHPVWKDWLWVXVWDLQVEHFDXVHRI
)&$YLRODWLRQV
%RHLQJ LPSORUHV XV WR KROG WKH *RYHUQPHQW WR LWV
FRQWUDFWXDO UHVSRQVLELOLWLHV DQG SRLQWV XV WR WKH )RXUWK
&LUFXLW¶V UHFHQW GHFLVLRQ LQ 8QLWHG 6WDWHV Y %DQNHUV
,QVXUDQFH &R )G WK &LU ZKHUH WKH
TXHVWLRQRQDSSHDOZDV³ZKHWKHUWKHH[LVWHQFHRIDQ)&$
FODLPSUHFOXGHVDUELWUDWLRQRIDFRQWUDFWGLVSXWHLQYROYLQJWKH
*RYHUQPHQW´,GDW7KHFRQWUDFWGLVSXWHFRQFHUQHGD
IHGHUDO DJHQF\ DQG D SULYDWH LQVXUDQFH FRPSDQ\ WKDW KDG
DJUHHGWRDUELWUDWHDQ\PLVXQGHUVWDQGLQJVRUGLVSXWHV,GDW
7KH *RYHUQPHQW FRQWHQGHG WKDW WKH $WWRUQH\
*HQHUDOZDVQRWERXQGE\WKHDUELWUDWLRQDJUHHPHQWEHFDXVH
KHKDGQRWEHHQDSDUW\WRWKHDJUHHPHQWLGDWDQG
DUELWUDWLRQZRXOGLPSDLUKLVH[FOXVLYHDXWKRULW\WRHQIRUFH
WKH)&$,GDW8QSHUVXDGHGE\WKHVHDUJXPHQWVWKH
)RXUWK&LUFXLWXOWLPDWHO\UHTXLUHGWKH*RYHUQPHQWWRVXEPLW
WRQRQELQGLQJDUELWUDWLRQEHIRUHOLWLJDWLQJWKH)&$FODLP,G
DW
$FFRUGLQJWR%RHLQJWKHKROGLQJLQ%DQNHUV,QVXUDQFHWKDW
WKH *RYHUQPHQW PXVW VDWLVI\ LWV FRQWUDFWXDO REOLJDWLRQV
VXSSRUWVWKHSURSRVLWLRQLQWKLVFDVHWKDWWKH*RYHUQPHQWPD\
FRPSO\ ZLWK WKH +9,& RQO\ E\ UHIUDLQLQJ IURP VHHNLQJ
GDPDJHVXQGHUWKH)&$7KDWWKH*RYHUQPHQWLVERXQGE\
WKH FRQWUDFWV WKDW LWV DXWKRUL]HG RIILFLDOV VLJQ LV
LQFRQWURYHUWLEOH+RZHYHUZHFDQQRWDVUHDGLO\DJUHHZLWK
WKHLQIHUHQFHWKDW%RHLQJGUDZVIURP%DQNHUV,QVXUDQFHIRU
WKHUHVROXWLRQRIWKLVFDVH7KH)RXUWK&LUFXLWUHFRJQL]HGWKDW
)&$FODLPVDUH³SUHPLVHGRQDXQLTXHVWDWXWRU\ULJKW´DQG
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
8QGHU&RPSWRQWKHPDUNHWYDOXHRI$LUFUDIWDV
GHOLYHUHGZDV]HUR%RHLQJRIFRXUVHZRXOGGLVDJUHHDQG
ZHDUHDZDUHRIWKHIDFWWKDWWKH$UP\GLGJHWILIW\VL[KRXUV
RI IOLJKW WLPH IURP WKH KHOLFRSWHU ZKHQ WKH ZDUUDQW\ ZDV
JRRG IRU WZRKXQGUHG IOLJKW KRXUV +RZHYHU DV ZH
FRQFOXGHGLQ&RPSWRQ
>$@ VHWRII EDVHG RQ YDOXH SXUSRUWHGO\ UHFHLYHG ZRXOG
FUHDWHDSHUYHUVHLQFHQWLYHV\VWHPLQZKLFKJRYHUQPHQW
FRQWUDFWRUVFRXOGHQGDQJHUWKHOLYHVRI$PHULFDQVROGLHUV
E\SURYLGLQJVXEVWDQGDUGPDWHULHODQGWKH$UP\ZRXOG
EHGHWHUUHGIURPFRUUHFWLQJWKHGDQJHUEHFDXVHLWZRXOG
EHIRUFHGWREHDUWKHFRVWRIDQ\XVHLWUHFHLYHGIURPWKH
VXEVWDQGDUGJRRGVEHIRUHWKHLUGHIHFWVZHUHGLVFRYHUHG
&RPSWRQ)GDWQ:HEHOLHYHWKDWWKLVSROLF\
DUJXPHQWZKLFKZDVFRPSHOOLQJZLWKUHVSHFWWRXQWHVWHGMHHS
EUDNHVKRH NLWV LG DW KDV HYHQ PRUH IRUFH LQ WKH
FRQWH[WRIWKLVFDVH
&RPSWRQLVQRWDVKHOSIXOLQGHWHUPLQLQJWKHPDUNHWYDOXH
RI$LUFUDIWDVSURPLVHG,Q&RPSWRQZHKHOGWKDW
WKH *RYHUQPHQW FRXOG UHFRYHU WKH FRQWUDFW SULFH EHFDXVH
GDPDJHVZHUHWKHVDPHZKHWKHUZHDSSOLHGWKHGLPLQLVKHG
YDOXH WHVW DV WKH GHIHQGDQW XUJHG RU WKH 8QLIRUP
&RPPHUFLDO &RGH¶V UHMHFWLRQ SURYLVLRQ ,G DW
+RZHYHUFRQWUDU\WR%RHLQJ¶VUHDGLQJRIWKHFDVH&RPSWRQ
GRHVQRWQHFHVVDULO\VLJQLI\WKDWWKHUHFRYHU\RIGDPDJHVLQ
)&$FDVHVLV³OLPLWHGWRWKHFRQWUDFWSULFHRULJLQDOO\SDLG´
5HSO\%UDW$OWKRXJKWKH*RYHUQPHQWDSSDUHQWO\GLGQRW
FODLP WKDW LWV IXOO RU DFWXDO GDPDJHV ZHUH PRUH WKDQ WKH
FRQWUDFWSULFHLQ&RPSWRQLWGRHVVRLQWKLVFDVH
%RHLQJFKDUDFWHUL]HVWKH*RYHUQPHQW¶VFODLPDVRQHIRU
UHSODFHPHQWFRVWVZKLFKLWDUJXHVDUHFRQVHTXHQWLDOGDPDJHV
DQGWKXVXQUHFRYHUDEOHXQGHUWKH)&$:HWKLQNWKDWWKLV
FKDUDFWHUL]DWLRQFRQIXVHVWKHLVVXH8QGHUWKHGLPLQLVKHG
YDOXHWHVWWKDW%RHLQJLWVHOIIDYRUVDFWXDOGDPDJHVGHSHQGRQ
³PDUNHWYDOXH´%RUQVWHLQ86DWQ%RHLQJ
FRQIODWHVPDUNHWYDOXHDQGFRQWUDFWSULFHEXWWKHFRQFHSWVDUH
FOHDUO\GLVWLQFW&I8&&† ³>7@KHPHDVXUH

-- 12 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
VXSSOLHG WKHVH WXEHV VHQW WXEHV WKDW ZHUH IDOVHO\ PDUNHG DV PHHWLQJ WKH
*RYHUQPHQW¶V VSHFLILFDWLRQV ,G 7KH FRQWUDFWRU WKHQ LQFRUSRUDWHG WKH
IDOVHO\ PDUNHG WXEHV LQWR WKH UDGLR NLWV DQG VKLSSHG WKHP WR WKH
*RYHUQPHQW ,G 7KH FRQWUDFWRU¶V LQYRLFHV ZHUH WKXV IDOVH EHFDXVH WKH\
³LQFOXGHG FODLPV IRU SD\PHQW IRU WKH IDOVHO\ PDUNHG WXEHV WKDW KDG EHHQ
VXSSOLHG´ E\ WKH VXEFRQWUDFWRU ,G $IWHU UHFRYHULQJ GDPDJHV IRU WKH
WXEHV IURP WKH FRQWUDFWRU SUHVXPDEO\ E\ VHWWOHPHQW WKH *RYHUQPHQW
EURXJKW DQ )&$ DFWLRQ DJDLQVW WKH VXEFRQWUDFWRU ,G DW ,Q
KROGLQJ ³WKDW WKH *RYHUQPHQW¶V GDPDJHV VKRXOG EH GRXEOHG >DV WKH )&$
WKHQ SURYLGHG@ EHIRUH DQ\ FRPSHQVDWRU\ SD\PHQWV DUH GHGXFWHG´ LG DW
WKH %RUQVWHLQ &RXUW VWDWHG WKDW WKRVH GDPDJHV ZHUH ³HTXDO WR WKH
GLIIHUHQFH EHWZHHQ WKH PDUNHW YDOXH RI WKH WXEHV LW UHFHLYHG DQG UHWDLQHG
DQG WKH PDUNHW YDOXH WKDW WKH WXEHV ZRXOG KDYH KDG LI WKH\ KDG EHHQ RI WKH
VSHFLILHG TXDOLW\´ ,G DW Q
:H UHFRXQW WKHVH IDFWV LQ GHWDLO EHFDXVH WKH VLPLODULW\ EHWZHHQ
%RUQVWHLQ DQG WKLV FDVH PLJKW SURPSW WKH DOOWRRHDV\ VXEVWLWXWLRQ RI
³JHDU´ IRU ³WXEHV´ LQ WKH HTXDWLRQ TXRWHG DERYH ,Q ERWK FDVHV WKH FODLP
IRU SD\PHQW ZDV IDOVH EHFDXVH RI D GHIHFWLYH SDUW WKDW D VXEFRQWUDFWRU KDG
VXSSOLHG +RZHYHU DV WKH GLVWULFW FRXUW FRUUHFWO\ QRWHG ³%RUQVWHLQ ZDV
FRQFHUQHG RQO\ ZLWK WKH LVVXH RI GDPDJHV DQG SHQDOWLHV DJDLQVW D
VXEFRQWUDFWRU ZKR FDXVHV WKH SULPH FRQWUDFWRU WR VXEPLW IDOVH FODLPV´
5RE\ ,, ) 6XSS G DW Q 7KH GHIHQGDQW LQ WKLV )&$ DFWLRQ
RI FRXUVH LV %RHLQJ QRW 6SHFR :H FDQQRW NQRZ ZK\ WKH *RYHUQPHQW
VHWWOHG ZLWK WKH FRQWUDFWRU LQ %RUQVWHLQ IRU RQO\ WKH FRVW RI WKH IDOVHO\
PDUNHG WXEHV ZKHQ LW KDG FRQWUDFWHG DQG SDLG IRU UDGLR NLWV ² SHUKDSV
WKH WXEHV GLG QRW DIIHFW WKH UHOLDELOLW\ RI WKH UDGLRV 6HH %RUQVWHLQ
86 DW 5HKQTXLVW - FRQFXUULQJ LQ SDUW DQG GLVVHQWLQJ LQ SDUW
GHVFULELQJ WKH VXEFRQWUDFWRU¶V VFKHPH ,Q WKLV FDVH KRZHYHU WKH 6SHFR
JHDU ZDV QRW VLPSO\ RI OHVVHU TXDOLW\ WKDQ VSHFLILHG LW ZDV D GHIHFWLYH
IOLJKWFULWLFDO SDUW ZKLFK PDGH WKH ORVV RI $LUFUDIW LQHYLWDEOH
$JDLQ ZH QRWH WKDW WKH TXHVWLRQ FHUWLILHG IRU DSSHDO LV ³>Z@KHWKHU
WKH >*RYHUQPHQW@ FDQ UHFRYHU GDPDJHV XQGHU WKH >)&$@ IRU ORVV RI D
KHOLFRSWHU UHVXOWLQJ IURP WKH IDLOXUH RI D GHIHFWLYH IOLJKWFULWLFDO
FRPSRQHQW SDUW´ -$ DW 7KH DQVZHU WR WKLV TXHVWLRQ GRHV QRW
GHSHQG RQ ZKHWKHU WKH XQGHUO\LQJ FRQWUDFW ZDV IRU UHPDQXIDFWXUH RU VDOH
7KDWWKHFRQWUDFWLQWKLVFDVHZDVIRUWKHUHPDQXIDFWXUHUDWKHU
WKDQ WKH VDOH RI D KHOLFRSWHU JLYHV XV VRPH SDXVH EXW
XOWLPDWHO\ GRHV QRW DIIHFW WKH LVVXH EHIRUH XV :H ZLOO
WKHUHIRUH IUDPH WKH IROORZLQJ GLVFXVVLRQ LQ WHUPV RI WKH
PDUNHWYDOXHRIUHPDQXIDFWXUHGKHOLFRSWHUV
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
6HH DOVR 6 5(3 12 DW UHSULQWHG LQ
86&&$1 ³,Q WKH 'HSDUWPHQW RI 'HIHQVH ,QVSHFWRU
*HQHUDO -RVHSK 6KHULFN WHVWLILHG WKDW RI WKH ODUJHVW GHIHQVH
FRQWUDFWRUV LQFOXGLQJ RI WKH WRS ZHUH XQGHU LQYHVWLJDWLRQ IRU
PXOWLSOH IUDXG RIIHQVHV $GGLWLRQDOO\ WKH -XVWLFH 'HSDUWPHQW KDV
UHSRUWHG WKDW LQ WKH ODVW \HDU IRXU RI WKH ODUJHVW GHIHQVH FRQWUDFWRUV
*HQHUDO (OHFWULF *7( 5RFNZHOO DQG *RXOG KDYH EHHQ FRQYLFWHG RI
FULPLQDO RIIHQVHV ZKLOH DQRWKHU *HQHUDO '\QDPLFV KDV EHHQ LQGLFWHG DQG
DZDLWV WULDO´ FLWDWLRQV RPLWWHG
H[SOLFLWO\QRWHGWKDW³WKHVWDWXWRU\DXWKRULW\RIWKH$WWRUQH\
*HQHUDO>WRHQIRUFHWKH)&$ZRXOG@QRW>EH@FRPSURPLVHG
E\´PDNLQJWKH*RYHUQPHQWKRQRULWVSUHYLRXVDJUHHPHQWWR
DUELWUDWH%DQNHUV,QV)GDW,QRWKHUZRUGVWKH
FRQWUDFWLQ%DQNHUV,QVXUDQFHPHUHO\GHIHUUHGWKHOLWLJDWLRQ
RIWKH)&$FODLPXQWLOWKHQRQELQGLQJDUELWUDWLRQSURFHVVKDG
EHHQFRPSOHWHG
,QWKLVFDVHKRZHYHU%RHLQJ¶VLQWHUSUHWDWLRQRIWKH+9,&
ZRXOGDEVROXWHO\IRUHFORVHWKH*RYHUQPHQWIURPUHFRXSLQJ
DQ\WKLQJ PRUH WKDQ D FLYLO SHQDOW\ IRU GDPDJHV
VXVWDLQHGEHFDXVHRIDIDOVHFODLPIRUDKLJKYDOXHLWHPZKHQ
WKHGDPDJHVVXVWDLQHGFRXOGEHIDUJUHDWHUWKDQWKHJHQHUDO
WKUHVKROGIRUVXFKLWHPV*LYHQ&RQJUHVV¶VH[SOLFLW
UHFRJQLWLRQZKLOHDPHQGLQJWKH)&$³WKDWDODUJHQXPEHURI
IUDXGFDVHVDQGPDQ\RIWKHODUJHUGROODUFDVHVDULVHRXWRI
'HSDUWPHQWRI'HIHQVHFRQWUDFWV´+5 5(3 12DW
LWVWULNHVXVDVLQFRQJUXRXVWKDWWKH+9,&ZRXOGUHOLHYH
FRQWUDFWRUV IRU KLJKYDOXH LWHPV IURP WKH )&$¶V GDPDJHV
SURYLVLRQ$IWHUDOOWKHPRWLYDWLQJSXUSRVHRIWKH)&$LVWR
FRPEDWDQGWRGHWHUIUDXGZKLFKZRXOGQRWEHVHUYHGLQWKH
FRQWH[WRIGHIHQVHFRQWUDFWVE\WKHFLYLOSHQDOW\DORQH
,Q LWV EULHI %RHLQJ H[SRXQGV DW OHQJWK RQ WKH QHJDWLYH
LPSOLFDWLRQVERWKILVFDODQGRWKHUZLVHRIKROGLQJPLOLWDU\
FRQWUDFWRUVOLDEOHXQGHUWKH)&$IRUGDPDJHVWRKLJKYDOXH
LWHPV :H DJUHH ZLWK WKH *RYHUQPHQW DQG 5RE\ WKDW ZH
VKRXOG OHDYH DQ\ UHYLVLRQ RI WKH )&$ RU WKH +9,& WR
&RQJUHVV,QWKHFDVHEHIRUHXV%RHLQJZDVFRQWUDFWXDOO\
UHTXLUHG WR HQVXUH WKH TXDOLW\ RI WKH SDUWV XVHG IRU WKH
UHPDQXIDFWXUHRIWKH$UP\¶VKHOLFRSWHUVLWVIDLOXUHWRGRVR

-- 13 of 14 --

8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R 1R
UHVXOWHG LQ WKH *RYHUQPHQW¶V DFFHSWDQFH DQG XVH RI D
KHOLFRSWHUWKDWZDVQRWIOLJKWUHDG\DQGWKHVXEVHTXHQWORVVRI
WKHKHOLFRSWHU7KH+9,&GRHVQRWIRUHFORVHWKH)&$DVD
PHDQVIRUWKH*RYHUQPHQWWRUHFRYHUGDPDJHVIRUWKHORVVRI
$LUFUDIW
&)&$'DPDJHV
7KHFUX[RIWKLVFDVHLVWKHDSSURSULDWHPHDVXUHRIGDPDJHV
XQGHU WKH )&$ ZKLFK VLPSO\ SURYLGHV IRU ³ WLPHV WKH
DPRXQWRIGDPDJHVZKLFKWKH*RYHUQPHQWVXVWDLQVEHFDXVH
RI WKH DFW RI WK>H@ SHUVRQ´ ZKR VXEPLWWHG WKH IDOVH RU
IUDXGXOHQWFODLP86&† D :HKDYHSUHYLRXVO\
REVHUYHGWKDW)&$GDPDJHV³W\SLFDOO\DUHOLEHUDOO\FDOFXODWHG
WR HQVXUH WKDW WKH\ μDIIRUG WKH JRYHUQPHQW FRPSOHWH
LQGHPQLW\ IRU WKH LQMXULHV GRQH LW¶´ 8QLWHG 6WDWHV H[ UHO
&RPSWRQY0LGZHVW6SHFLDOWLHV,QF)G WK
&LU TXRWLQJ8QLWHG6WDWHVH[UHO0DUFXVY+HVV
86 ³>7@KHJRYHUQPHQWLVHQWLWOHGWRIXOO
GDPDJHVZKHUHLWSURYHVLWUHFHLYHGQRYDOXHDWDOO´,G
,Q0DUFXVWKH6XSUHPH&RXUWLQGLFDWHGWKDW³UHVWLWXWLRQWR
WKHJRYHUQPHQWRIPRQH\WDNHQ IURPLWE\IUDXG´ZDVWKH
PRWLYDWLQJ SXUSRVH RI WKH )&$ WKHUHIRUH ³WKH GHYLFH RI
>WKHQ@GRXEOHGDPDJHVSOXVDVSHFLILFVXPZDVFKRVHQWR
PDNHVXUHWKDWWKHJRYHUQPHQWZRXOGEHPDGHFRPSOHWHO\
ZKROH´0DUFXV86DW7KUHHGHFDGHVODWHULQ
8QLWHG6WDWHVY%RUQVWHLQ86 WKH6XSUHPH
&RXUWXQGHUVWRRGWKHEDVHOLQHWREH³WKH*RYHUQPHQW¶VDFWXDO
GDPDJHV´PHDVXUHGDV³HTXDOWRWKHGLIIHUHQFHEHWZHHQWKH
PDUNHWYDOXHRIWKH>JRRGV@LWUHFHLYHGDQGUHWDLQHGDQGWKH
PDUNHWYDOXHWKDWWKH>JRRGV@ZRXOGKDYHKDGLIWKH\KDGEHHQ
RIWKHVSHFLILHGTXDOLW\´,GDW Q7KH%RUQVWHLQ
&RXUW IDYRUHG WKLV IRUPXOD EHFDXVH LW ³PD[LPL]HV WKH
GHWHUUHQWLPSDFWRIWKH>WKHQ@GRXEOHGDPDJHVSURYLVLRQDQG
IL[HVWKHUHODWLYHULJKWVDQGOLDELOLWLHVRIWKHUHVSHFWLYHSDUWLHV
ZLWKPD[LPXPSUHFLVLRQ´,GDW
,Q WKLV FDVH WKH GLVWULFW FRXUW KHOG WKDW WKH *RYHUQPHQW
FRXOGUHFRYHUGDPDJHVXQGHUWKH)&$WKDWZHUH³WKHGLUHFW
SUR[LPDWHDQGIRUHVHHDEOHUHVXOWRIWKHFODLPVVXEPLWWHGE\´
1R 8QLWHG6WDWHVH[UHO5RE\Y%RHLQJ&R
6HH JHQHUDOO\ -2+1 7 %2(6( &,9,/ )$/6( &/$,06 $1' 48, 7$0
$&7,216 † >'@>@ DW WR G HG 6XSS 7KH IDFWV RI
%RUQVWHLQ ZKHUH WKH 6XSUHPH &RXUW DUWLFXODWHG WKLV UXOH DUH VLPLODU WR
WKRVH RI WKLV FDVH DQG GHVHUYH VRPH DWWHQWLRQ %RUQVWHLQ LQYROYHG D
*RYHUQPHQW FRQWUDFW IRU UDGLR NLWV ZKLFK ZHUH WR FRQWDLQ HOHFWURQ WXEHV
RI D FHUWDLQ TXDOLW\ %RUQVWHLQ 86 DW 7KH VXEFRQWUDFWRU ZKR
%RHLQJ IRU $LUFUDIW %RHLQJ KDG DUJXHG WKDW LWV
OLDELOLW\ DW PRVW ZDV OLPLWHG WR ³WKH SULFH RI D IXOO\
FRQIRUPLQJWUDQVPLVVLRQJHDU´5RE\,,)6XSSGDW
2Q DSSHDO %RHLQJ FRQWLQXHV WR PDLQWDLQ WKDW ³WKH
SURSHU PHDVXUH RI GLUHFW )&$ GDPDJHV LV WKH DPRXQW
ZURQJIXOO\SDLGRQWKHFODLP´5HSO\%UDWRUWKHYDOXH
RIWKHGHIHFWLYH6SHFRJHDU+RZHYHU%RHLQJQRZFRQFHGHV
WKDWGDPDJHVXQGHUWKH)&$FRXOGHTXDO²EXWQHYHUH[FHHG
²WKHDPRXQWRIWKHFODLPZKLFKLQWKLVFDVHZRXOGEHWKH
DSSUR[LPDWHO\ PLOOLRQ YDOXH RI %RHLQJ¶V FRQWUDFW WR
UHPDQXIDFWXUH$LUFUDIW
1HJRWLDWLRQVWUDWHJ\DVLGHZHDUHDWDFRPSOHWHORVVDVWR
KRZ%RHLQJFDQXQGHUVWDQG³WKHDPRXQWZURQJIXOO\SDLG´WR
EHOLPLWHGWR³WKHSRUWLRQRIWKHFRQWUDFWSULFHDOORFDWHGWRWKH
GHIHFWLYHJHDU´5HSO\%UDW$FFRUGLQJWRRXUUHDGLQJRI
WKH FRQWUDFW DQG WKH VXEVHTXHQW LQYRLFH %RHLQJ ELOOHG WKH
*RYHUQPHQWIRUWKHUHPDQXIDFWXUHGKHOLFRSWHUVDVXQLWVQRW
DVDVVHPEODJHVRIDVVRUWHGSDUWV&I%RUQVWHLQ86DW
LQYRLFHV IRU UDGLR NLWV WKDW FRQWDLQHG IDOVHO\ PDUNHG
HOHFWURQWXEHV³LQFOXGHGFODLPVIRUSD\PHQWIRUWKHIDOVHO\
PDUNHG WXEHV´ 7KH IDFW WKDW HYHU\ FRPSRQHQW EXW RQH
FRQIRUPHGWRFRQWUDFWUHTXLUHPHQWVLVQRWOHJDOO\VLJQLILFDQW
ZKHQ WKH GHIHFWLYH JHDU ZDV ³IOLJKW FULWLFDO´ DQG WKXV
QHFHVVDU\IRUIOLJKW%HFDXVHWKH6SHFRJHDUZDVGHIHFWLYH
$LUFUDIWZDVGHIHFWLYHPDNLQJ%RHLQJ¶VHQWLUHFODLP
IRUSD\PHQWIDOVHIRUWKHSXUSRVHVRIWKH)&$
7KLVXQGHUVWDQGLQJRI%RHLQJ¶V)&$YLRODWLRQLQIRUPVRXU
DQDO\VLVRIKRZWRFDOFXODWHGDPDJHVXQGHUWKH)&$8QGHU
WKH³GLPLQLVKHGYDOXH´RU³EHQHILWRIWKHEDUJDLQ´WHVWZKLFK
%RHLQJFLWHVDVFRQWUROOLQJZHVXEWUDFWWKHPDUNHWYDOXHRI
ZKDWWKH*RYHUQPHQWUHFHLYHGIURPZKDWLWZDVSURPLVHG

-- 14 of 14 --