00a0408p.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
,QUH*(25*( ' 1(:32:(5
-5
'HEWRU
BBBBBBBBBBBBBBBBBBBBBBBB
52%(57 .,7&+(1 +$55,(7
.,7&+(1 1(: 3523(57,(6
,1&
0RYDQWV$SSHOOHHV
&URVV$SSHOODQWV
Y
-$0(6 : %2<'&KDSWHU
7UXVWHH
5HVSRQGHQW$SSHOODQW
&URVV$SSHOOHH
;!

1
1RV
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQDW*UDQG5DSLGV
1R²'RXJODV:+LOOPDQ'LVWULFW-XGJH
$UJXHG-XQH
'HFLGHGDQG)LOHG'HFHPEHU

-- 1 of 12 --

,QUH1HZSRZHU 1RV
%HIRUH.(11('<%2**6DQG%$7&+(/'(5
&LUFXLW-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 5RQDOG $ 6FKXNQHFKW /(:,6
6&+8.1(&+7 7UDYHUVH &LW\ 0LFKLJDQ IRU $SSHOODQW
-RQDWKDQ 5 0RRWKDUW %2:(50$1 %2:'(1
0227+$57 7UDYHUVH &LW\ 0LFKLJDQ IRU $SSHOOHHV
21 %5,() 5RQDOG $ 6FKXNQHFKW /(:,6
6&+8.1(&+7 7UDYHUVH &LW\ 0LFKLJDQ IRU $SSHOODQW
-RQDWKDQ 5 0RRWKDUW %2:(50$1 %2:'(1
0227+$577UDYHUVH&LW\0LFKLJDQIRU$SSHOOHHV
.(11('<-GHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
%2**6 DQG %$7&+(/'(5 -- FRQFXUUHG H[FHSW DV WR
SDUW ,,,% %$7&+(/'(5 - SS GHOLYHUHG D
VHSDUDWH RSLQLRQ LQ ZKLFK %2**6 - FRQFXUUHG ZKLFK
FRQVWLWXWHVWKHRSLQLRQRIWKHFRXUWZLWKUHVSHFWWRWKHLVVXH
DGGUHVVHGLQSDUW,,,%
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
.(11('<&LUFXLW-XGJH5REHUW.LWFKHQ ³.LWFKHQ´
DQG1HZ3URSHUWLHV,QF ³13,´ FROOHFWLYHO\UHIHUUHGWRDV
³PRYDQWV´ PRYHGWKHEDQNUXSWF\FRXUWWROLIWWKH86&
†DXWRPDWLFVWD\LQEDQNUXSWF\ZLWKUHVSHFWWRPRQH\WKDW
GHEWRU*HRUJH'1HZSRZHU-U ³1HZSRZHU´RU³GHEWRU´
HPEH]]OHG0RYDQWVDUJXHGWKDWWKHHPEH]]OHGIXQGVZHUH
QRWSURSHUW\RI1HZSRZHU¶VEDQNUXSWF\HVWDWHEHFDXVHDVD
WKLHI1HZSRZHUGLGQRWWDNHWLWOHWRWKHIXQGVKHHPEH]]OHG
1HZSRZHUZDVDFWLQJDVDQDJHQWDQGWKXVQHYHUKDGWLWOHWR
PRQH\ ORDQHG WR 13, PRQH\ ZDV KHOG E\ 1HZSRZHU
SXUVXDQWWRDQH[SUHVVWUXVW7KHEDQNUXSWF\FRXUWKHOGWKDW
WKHWKDW1HZSRZHUWUDQVIHUUHGGLUHFWO\WRWKLUG
SDUWLHVIURP13,ZDVQRWSURSHUW\RI1HZSRZHU¶VHVWDWHEXW
1RV ,QUH1HZSRZHU
HDFK RI WKRVH XQVHFXUHG FUHGLWRUV ZRXOG UXVK WR WKH
EDQNUXSWF\FRXUWWRDUJXHWKDWGHEWRU¶VGHDOLQJVZLWKLWZHUH
PRUH HJUHJLRXV WKDQ KLV GHDOLQJV ZLWK WKH RWKHUV DQG WKH
GHEWRU¶V EDG FRQGXFW MXVWLILHG VSHFLDO WUHDWPHQW LH WKH
LPSRVLWLRQRIDFRQVWUXFWLYHWUXVWE\WKHEDQNUXSWF\FRXUW,Q
UH 2PHJDV VSRNH GHILQLWLYHO\ WR TXDVK VXFK SRVWSHWLWLRQ
VFUDPEOLQJE\FUHGLWRUVSXVKLQJWRDSODFHDWWKHKHDGRIWKH
OLQH
:HUHFRJQL]HWKDW,QUH2PHJDVVSHDNVQHJDWLYHO\RIWKH
UROH RI FRQVWUXFWLYH WUXVWV LQ EDQNUXSWF\ SURFHHGLQJV LQ
JHQHUDO+RZHYHUWKHFDVHEHIRUHXVWRGD\UDLVHVWZRGLVWLQFW
LVVXHVQHLWKHURIZKLFKZDVEHIRUHWKH2PHJDVFRXUWILUVW
ZKHWKHUWKHDXWRPDWLFVWD\PD\EHOLIWHGWRSHUPLWWKHYLFWLP
RIWKHGHEWRU¶VWKHIWWRSXUVXHDVWDWHFRXUWDFWLRQLQLWLDWHG
SUHSHWLWLRQWRWUDFHWKHVWROHQIXQGVDQGREWDLQDMXGJPHQW
RI FRQVWUXFWLYH WUXVW DQG VHFRQG ZKHWKHU LQ VXFK D
FLUFXPVWDQFHWKHEDQNUXSWF\FRXUWPD\JLYHHIIHFWWRDVWDWH
FRXUWMXGJPHQWLPSRVLQJDFRQVWUXFWLYHWUXVW:HH[SUHVVQR
RSLQLRQRQZKHWKHULQWKHHYHQWWKH.LWFKHQVZHUHVXFFHVVIXO
LQREWDLQLQJVXFKDMXGJPHQWLWZRXOGKDYHDQHIIHFWLYHGDWH
SULRUWRWKHILOLQJRIWKHEDQNUXSWF\SHWLWLRQ²DPDWWHUWKDWLV
JRYHUQHGE\VWDWHODZ:HVLPSO\KROGWKDWWKH.LWFKHQVDUH
HQWLWOHGWRDOLIWLQJRIWKHVWD\LQRUGHUWKDWWKH\PD\SXUVXH
WKHLUVWDWHFRXUWDFWLRQDQGWKDWLQWKHHYHQWWKH\DUHDEOHWR
SUHYDLO LQ WKDW DFWLRQ ,Q UH 2PHJDV GRHV QRW EDU WKH
HQIRUFHPHQW RI VXFK D MXGJPHQW E\ WKH EDQNUXSWF\ FRXUW
7KHUHIRUH DV WR WKLV VSHFLILF SURSHUW\ ZH UHYHUVH WKH
EDQNUXSWF\FRXUWGHFLVLRQDQGRUGHUWKHVWD\WREHOLIWHGWR
DOORZWKH.LWFKHQVWRFRQWLQXHWKHLUVWDWHFRXUWDFWLRQDQG
VHHN ZKDWHYHU UHPHG\ LV DYDLODEOH WR WKHP LQFOXGLQJ WKH
UHPHG\RIDFRQVWUXFWLYHWUXVW

-- 2 of 12 --

,QUH1HZSRZHU 1RV
,Q RXU YLHZ WKH VWDWH FRXUW ZKHUH WKH .LWFKHQV LQLWLDWHG WKHLU DFWLRQ
EHIRUH WKH EDQNUXSWF\ SHWLWLRQ ZDV ILOHG LV EHVW VXLWHG WR GHWHUPLQH ZKR
KROGV WKH HTXLWDEOH LQWHUHVW LQ WKH SURSHUW\ DW LVVXH XQGHU 0LFKLJDQ ODZ
%HFDXVH WKH EDQNUXSWF\ FRGH LV FOHDU WKDW SURSHUW\ LV
LQFOXGDEOHRQO\WRWKHH[WHQWRIWKHGHEWRU¶VOHJDOWLWOHDQGQRW
WRWKHH[WHQWRIDQ\HTXLWDEOHLQWHUHVWWKDWWKHGHEWRUGRHVQRW
KDYHVHH86&† G WKLVTXHVWLRQPXVWEHDQVZHUHG
LQRUGHUWRGHWHUPLQHWRZKDWH[WHQWWKHJRRGVSXUFKDVHGZLWK
VWROHQPRQH\DUHLQFOXGDEOHLQWKHGHEWRU¶VEDQNUXSWF\HVWDWH
,QUH2PHJDVSUHFOXGHVWKHEDQNUXSWF\FRXUWIURPLPSRVLQJ
D FRQVWUXFWLYH WUXVW RQ WKH SURSHUW\ SRVWSHWLWLRQ EXW
RZQHUVKLS RI WKH HTXLWDEOH WLWOH LQ WKH SURSHUW\ PXVW
QRQHWKHOHVVEHDVVLJQHG7RKROGDV-XGJH.HQQHG\ZRXOG
WKDWWKHOLIWLQJRIWKHVWD\VHUYHVQRSXUSRVHEHFDXVH,QUH
2PHJDV SUHFOXGHV WKH HQIRUFHPHQW RI D FRQVWUXFWLYH WUXVW
LPSUHVVHGE\WKHVWDWHFRXUWXQGHUWKHFLUFXPVWDQFHVRIWKLV
FDVHDQGWKDWKHUHEDUHOHJDOWLWOHLVVXIILFLHQWWREULQJWKLV
SURSHUO\HQWLUHO\ZLWKLQWKHEDQNUXSWF\HVWDWHLVWRSHUPLWD
UHVXOW FOHDUO\ SURKLELWHG E\ WKH %DQNUXSWF\ &RGH 6HH
86&† G )XUWKHUPRUHWRSUHFOXGHWKH.LWFKHQVIURP
FRQWLQXLQJWKHLUVWDWHFRXUWDFWLRQWRGHWHUPLQHWKHLUHTXLWDEOH
LQWHUHVW LQ WKH SURSHUW\ ZRXOG DOORZ D WKLHI VXFK DV
1HZSRZHUXQLODWHUDOO\WRFRQYHUWVWROHQIXQGVLQZKLFKWKH
GHEWRU KDV QR WLWOH LQWR SURSHUW\ RI WKH EDQNUXSWF\ HVWDWH
VLPSO\E\SXUFKDVLQJJRRGVIURPDQXQNQRZLQJVHOOHU
:HGLVDJUHHZLWK-XGJH.HQQHG\¶VFRQWHQWLRQWKDW,QUH
2PHJDV EDUV WKH EDQNUXSWF\ FRXUW¶V HQIRUFHPHQW RI DQ\
FRQVWUXFWLYHWUXVWWKDWWKHVWDWHFRXUWPLJKWHQWHURQEHKDOIRI
WKH.LWFKHQV ,QUH2PHJDV GLG QRWSUHVHQWDVLWXDWLRQLQ
ZKLFKWKHGHEWRUZDVDWKLHIDQGLWGLGQRWSXUSRUWWRDQVZHU
WKH TXHVWLRQ RI WKH HQIRUFHPHQW RI D VWDWH FRXUW MXGJPHQW
XQGHUWKHFLUFXPVWDQFHVSUHVHQWHGE\WKLVFDVH,QUH2PHJDV
SUHVHQWHG WKH PRUH FRPPRQ VLWXDWLRQ LQ ZKLFK DOO WKH
FUHGLWRUV KDYH FRPH WR WKH EDQNUXSWF\ FRXUW DIWHU KDYLQJ
WUDQVIHUUHGSURSHUW\WRWKHGHEWRULQWKHRUGLQDU\FRXUVHRI
EXVLQHVVRQO\WRGLVFRYHUWKDWWKHGHEWRUZDVXQDEOHWRSD\
WKHPEDFNDQGZDVDZDUHRILWVLQDELOLW\WRSD\HYHQZKLOH
HQJDJLQJLQWKHEXVLQHVVWUDQVDFWLRQV%HIRUH,QUH2PHJDV
1RV ,QUH1HZSRZHU
GHFOLQHG WR OLIW WKH VWD\ RQ WKH UHPDLQLQJ 7KH
.LWFKHQVDQG13,DSSHDOHGWKHEDQNUXSWF\FRXUW¶VUXOLQJWR
WKH GLVWULFW FRXUW ZKLFK KHOG WKDW QRQH RI WKH HPEH]]OHG
IXQGVZHUHSURSHUW\RI1HZSRZHU¶VEDQNUXSWF\HVWDWHDQG
WKXVZHUHQRWVXEMHFWWRWKHDXWRPDWLFVWD\LQEDQNUXSWF\
)RUWKHUHDVRQVWKDWIROORZZHVKDOODIILUPLQSDUWDQGUHYHUVH
LQSDUW
,
7KH IDFWV RI WKLV FDVH ZHUH H[WHQVLYHO\ GHWDLOHG E\ WKH
GLVWULFWFRXUWLQ,QUH1HZSRZHU%5 :'0LFK
+RZHYHUIRUWKHSXUSRVHRIDQDO\VLVZHLQFOXGHD
VXPPDU\RIWKRVHIDFWVFULWLFDOWRWKHGHFLVLRQ
,Q -DQXDU\ RI .LWFKHQ DQG 1HZSRZHU D OLFHQVHG
0LFKLJDQUHDOHVWDWHEURNHUHQWHUHGDQDJUHHPHQWWRIRUP
13,7KHFRUSRUDWLRQ¶VSXUSRVHZDVWRSXUFKDVHDQGGHYHORS
UHDO HVWDWH LQ QRUWKHUQ 0LFKLJDQ .LWFKHQ DQG 1HZSRZHU
ZHUHWKHVROHVKDUHKROGHUVDQGGLUHFWRUVRIWKHFRUSRUDWLRQ
.LWFKHQ ZDV QDPHG YLFH SUHVLGHQW DQG VHFUHWDU\ DQG
1HZSRZHUZDVQDPHGSUHVLGHQWDQGWUHDVXUHU
.LWFKHQ DQG 1HZSRZHU DJUHHG WKDW 1HZSRZHU ZRXOG
LGHQWLI\SURSHUWLHVLQ0LFKLJDQIRUSXUFKDVHDQGGHYHORSPHQW
E\WKHFRUSRUDWLRQ,IERWKVKDUHKROGHUVDJUHHGWRSXUFKDVH
WKHSURSHUW\13,ZRXOGGRVRZLWKDORDQLQWKHDPRXQWRI
RI WKH SXUFKDVH SULFH WR WKH FRUSRUDWLRQ E\ HDFK
VKDUHKROGHU $W WKH WLPH WKH DJUHHPHQW ZDV HQWHUHG LQWR
.LWFKHQOLYHGLQ$ODVNDDQG1HZSRZHUOLYHGLQ0LFKLJDQ
7KHILUVWSURSHUW\WKDWWKHVKDUHKROGHUVDJUHHGWRSXUFKDVH
ZDVDQHLJKW\DFUHSDUFHOLQ.DONDVND&RXQW\0LFKLJDQ7KH
SULFHRIWKHSURSHUW\ZDVDQGDVDJUHHG.LWFKHQ
DQGKLVZLIH WKH³.LWFKHQV´ VHQWDFKHFNWR1HZSRZHUIRU
7KH PHPR SRUWLRQ RI WKH FKHFN VWDWHG WKDW WKH
FKHFN ZDV IRU 13, DQG FRQWDLQHG D SRUWLRQ RI WKH OHJDO
GHVFULSWLRQRIWKHSURSHUW\WREHSXUFKDVHG,QVWHDGRIXVLQJ
WKHPRQH\WRSXUFKDVHWKHDJUHHGXSRQSURSHUW\1HZSRZHU
GHSRVLWHG WKH FKHFN LQ KLV SHUVRQDO DFFRXQW DQG XVHG WKH
IRUKLVRZQSXUSRVHV

-- 3 of 12 --

,QUH1HZSRZHU 1RV
7KHUHDIWHU IRU WKH UHPDLQGHU RI .LWFKHQ DQG
1HZSRZHUFRQGXFWHGUHJXODUWHOHSKRQHGLVFXVVLRQVUHJDUGLQJ
WKH.DONDVNDSURSHUW\DVZHOODVIRXURWKHUSDUFHOV3ULRUWR
HDFK FORVLQJ 1HZSRZHU ZRXOG WHOO .LWFKHQ KRZ PXFK
PRQH\ZDVQHHGHGWRSXUFKDVHWKHVSHFLILHGSURSHUW\7KH
.LWFKHQV ZRXOG WKHQ ZLUH IXQGV WRWDOLQJ RQHKDOI RI WKH
SXUFKDVHSULFHRIWKHSURSHUW\WRWKHFRUSRUDWHDFFRXQWRQ
ZKLFK 1HZSRZHU ZDV WKH VROH DXWKRUL]HG VLJQDWRU\
1HZSRZHU FRQWLQXHG KLV SUDFWLFH RI PLVDSSURSULDWLQJ WKH
IXQGVIRUKLVRZQXVHZLWKUHVSHFWWRWKHVHWUDQVIHUVDVZHOO
$W WKH VDPH WLPH 1HZSRZHU UHSRUWHG WR .LWFKHQ WKDW
HYHU\WKLQJZDVSURJUHVVLQJDVSODQQHGDQGHYHQZHQWVRIDU
DV WR WUDYHO WR $ODVND WR PHHW ZLWK .LWFKHQ DQG GHOLYHU
IUDXGXOHQWFRSLHVRIGHHGVIRUWKHDJUHHGXSRQSURSHUWLHV
:KHQWKH.LWFKHQVWUDYHOHGWR0LFKLJDQLQ'HFHPEHU
WR FKHFN RQ WKH VWDWXV RI WKH SURSHUWLHV WKH\ TXLFNO\
GLVFRYHUHGWKDWQRSURSHUWLHVKDGDFWXDOO\EHHQSXUFKDVHGE\
1HZSRZHU%\LQYHVWLJDWLQJ1HZSRZHU¶VILQDQFLDOUHFRUGV
WKH .LWFKHQV ZHUH DEOH WR GHWHUPLQH ZKDW 1HZSRZHU KDG
GRQH ZLWK WKHLU PRQH\ $PRQJ RWKHU WKLQJV 1HZSRZHU
ERXJKW D &RUYHWWH D IRXUZKHHO GULYH SLFNXS WUXFN DQG D
SRZHU ERDW EXLOW D QHZ KRXVH IRU KLV JLUOIULHQG ORDQHG
WR D IRUPHU ILDQFH LQYHVWHG LQ WKH
SURGXFWLRQRIDPXVLF&'IRUDQRWKHUJLUOIULHQGVSHQWWHQVRI
WKRXVDQGVRIGROODUVLQ³ORDQUHSD\PHQWV´WRFXVWRPHUWUXVW
DFFRXQWV IRU 1HZSRZHU¶V UHDO HVWDWH EXVLQHVV DQG PDGH
WKRXVDQGV RI GROODUV RI FDVK GLVWULEXWLRQV WR KLPVHOI IRU
³ZDONLQJDURXQGPRQH\´
7KH .LWFKHQV DOVR ILOHG D FRPSODLQW ZLWK WKH 0LFKLJDQ
$WWRUQH\ *HQHUDO¶V RIILFH DQG D 0LFKLJDQ 6WDWH 3ROLFH
LQYHVWLJDWLRQZDVFRPPHQFHG1HZSRZHULQLWLDOO\IOHGEXW
HYHQWXDOO\WXUQHGKLPVHOILQDQGSOHGJXLOW\WRHPEH]]OHPHQW
+HZDVVHQWHQFHGWRVL[WRWHQ\HDUVLQSULVRQDQGRUGHUHGWR
SD\ LQ UHVWLWXWLRQ WR WKH .LWFKHQV 6KRUWO\
WKHUHDIWHU1HZSRZHUILOHGIRUEDQNUXSWF\DQGWKH.LWFKHQV¶
ODZVXLWDJDLQVWWKHWUDQVIHUHHVRIWKHHPEH]]OHGIXQGVZDV
DXWRPDWLFDOO\VWD\HGE\WKHEDQNUXSWF\FRXUWRQ1RYHPEHU
SXUVXDQWWRWKHDXWRPDWLFVWD\SURYLVLRQVRI86&
1RV ,QUH1HZSRZHU
UHDVRQWKDWWKHVWDWHFRXUWKDVQRW\HWLVVXHGDGHFLVLRQLVWKH
VWD\ LPSRVHG E\ WKH EDQNUXSWF\ FRXUW 8QGHU WKHVH
FLUFXPVWDQFHVQRWKLQJLQ,QUH2PHJDVSUHYHQWVWKHOLIWLQJRI
WKH DXWRPDWLF VWD\ VR WKDW WKH VWDWH FRXUW DFWLRQ PD\ JR
IRUZDUG
-XGJH .HQQHG\ DUJXHV LQ VHFWLRQ ,,,% WKDW WKHUH LV QR
SXUSRVHLQOLIWLQJWKHVWD\EHFDXVHHYHQLIWKH.LWFKHQVZHUH
DEOHWRREWDLQDVWDWHFRXUWMXGJPHQWLPSUHVVLQJWKHSURSHUW\
ZLWKDFRQVWUXFWLYHWUXVWXQGHU ,QUH2PHJDV ³WKHUHLVQR
DFWLRQ WKDW WKH VWDWH FRXUW FRXOG WDNH ZKLFK ZRXOG DIIHFW
GLVSRVLWLRQ>RIWKHVHSURFHHGV@´7KLVVWDWHPHQWKRZHYHU
IDLOVWRUHFRJQL]HWKHFUXFLDOGLVWLQFWLRQEHWZHHQWKLVFDVHDQG
,QUH2PHJDVDQGWKHFDVHVFLWHGWKHUHLQ,QUH2PHJDVGHDOW
ZLWKDVLWXDWLRQZKHUHLQWKHGHEWRUREWDLQHGSURSHUW\IURPD
FUHGLWRU LQ WKH RUGLQDU\ FRXUVH RI EXVLQHVV 7KHUH ZDV QR
TXHVWLRQWKDWWKHGHEWRUKDGOHJDOWLWOHWKHFUHGLWRULQWHQGHG
VXFK WLWOH WR SDVV WR WKH GHEWRU 7KH GHEWRU DOVR KDG D
FRORUDEOH FODLP DV WR WKH HTXLWDEOH WLWOH LQ WKH SURSHUW\ DW
LVVXH7KHTXHVWLRQLQ,QUH2PHJDVDQGWKHRWKHUFDVHVFLWHG
WKHUHLQZDVZKHWKHUVRPHIUDXGXOHQWRURWKHUEDGDFWRIWKH
GHEWRULQWKHFRXUVHRIWKRVHEXVLQHVVGHDOLQJVMXVWLILHGWKH
EDQNUXSWF\FRXUWLQVWULSSLQJWKHGHEWRURIWKHHTXLWDEOHWLWOH
LQWKHSURSHUW\:HKHOGWKDWLWZDVQRWWKHSURYLQFHRIWKH
EDQNUXSWF\FRXUWWRLPSRVHDFRQVWUXFWLYHWUXVWEXWZHZHUH
QRWIDFHGZLWKWKHTXHVWLRQRIHLWKHUREWDLQLQJRUHQIRUFLQJD
VWDWH FRXUW MXGJPHQW KROGLQJ WKDW WKH HTXLWDEOH LQWHUHVW
EHORQJHG WR VRPHRQH RWKHU WKDQ WKH GHEWRU 6HH ,Q UH
2PHJDV)GDW
7KH VLWXDWLRQ SUHVHQWHG E\ WKLV FDVH LV VLJQLILFDQWO\
GLIIHUHQW +HUH 1HZSRZHU LV D WKLHI 7KH FULWLFDO LVVXH
WKHUHIRUHLVQRWRQO\ZKRKDVOHJDOWLWOHWRWKHSURSHUW\EXW
DOVRZKRKDVHTXLWDEOHWLWOHWRWKHSURSHUW\SXUFKDVHGZLWKWKH
VWROHQIXQGV:HKHOGLQSDUW,,,$WKDWDVDWKLHI1HZSRZHU
KDG QR WLWOH LQ WKH PRQH\ KH VWROH IURP WKH .LWFKHQV DQG
ZKLOH 1HZSRZHU REWDLQHG EDUH OHJDO WLWOH LQ WKH JRRGV KH
SXUFKDVHG ZLWK WKH VWROHQ IXQGV KH FOHDUO\ GLG QRW REWDLQ
HTXLWDEOHWLWOHLQWKHJRRGV 7KHTXHVWLRQWKHUHIRUHUHPDLQV
LQ ZKRP GRHV WKH HTXLWDEOH LQWHUHVW LQ WKHVH JRRGV OLH"

-- 4 of 12 --

,QUH1HZSRZHU 1RV
,Q UH /HLWQHU XOWLPDWHO\ FRQFOXGHV WKDW D VWDWH FRXUW FRQVWUXFWLYH
WUXVW XQGHU .DQVDV ODZ ZRXOG UHODWH EDFN WR WKH GDWH RI WKH ZURQJGRLQJ
WKXV UHPRYLQJ WKH SURSHUW\ IURP WKH GHEWRU¶V HVWDWH DOWRJHWKHU 6HH
%5 DW +RZHYHU WKH DSSHDO EHIRUH XV GRHV QRW SUHVHQW WKH TXHVWLRQ
RI WKH HIIHFW RI D VWDWH FRXUW MXGJPHQW LPSUHVVLQJ D FRQVWUXFWLYH WUXVW XSRQ
FHUWDLQ SURSHUW\ LQ WKH GHEWRU¶V SRVVHVVLRQ EHFDXVH WKH .LWFKHQV KDYH QRW
\HW REWDLQHG VXFK D MXGJPHQW
7KHDXWRPDWLFVWD\LPSRVHGE\WKHILOLQJRIDEDQNUXSWF\
SHWLWLRQVKDOOEHOLIWHGXSRQPRWLRQE\DSDUW\LQLQWHUHVWLQ
FDVHVZKHUH WKHSDUW\FDQVKRZFDXVHLQFOXGLQJWKHODFN
RIDGHTXDWHSURWHFWLRQRIDQLQWHUHVWLQSURSHUW\RIVXFKSDUW\
LQLQWHUHVWRU ZKHUHWKHGHEWRUGRHVQRWKDYHDQHTXLW\
LQWHUHVWLQWKHSURSHUW\DQGWKHSURSHUW\LVQRWQHFHVVDU\WRDQ
HIIHFWLYH UHRUJDQL]DWLRQ 6HH 86& † G 7KH
.LWFKHQV TXDOLI\ XQGHU WKH VHFRQG FRQGLWLRQ VHW IRUWK LQ
† G $VZHKDYHDOUHDG\KHOGWKHGHEWRUGLGQRWREWDLQ
HTXLWDEOH WLWOH WR WKHVH SURFHHGV DQG WKLV FDVH GRHV QRW
LQYROYHDUHRUJDQL]DWLRQEHFDXVHWKHGHEWRULVOLTXLGDWLQJKLV
DVVHWVXQGHU&KDSWHU6HHDOVR,QUH/HLWQHU%5
'.DQ KROGLQJ LW HQWLUHO\ SURSHU WR OLIW WKH
DXWRPDWLFVWD\WRDOORZYLFWLPRIHPEH]]OHPHQWWRSURFHHG
ZLWK VWDWH FRXUW DFWLRQ LQLWLDWHG EHIRUH WKH ILOLQJ RI WKH
EDQNUXSWF\SHWLWLRQ
7KH WUXVWHH LQ WKLV FDVH DUJXHV WKDW XQGHU ,Q UH 2PHJDV
*URXS,QF)G WK&LU WKHEDQNUXSWF\
FRXUWPD\QRWLPSRVHDFRQVWUXFWLYHWUXVWDQGWKHUHIRUHWKH
.LWFKHQV FDQQRW UHFRYHU WKHLU SURSHUW\ DKHDG RI WKH RWKHU
FUHGLWRUV+RZHYHU,QUH2PHJDVVLPSO\KHOGWKDWEHFDXVH
D FRQVWUXFWLYH WUXVW LV D UHPHG\ WKDW GRHV QRW FRPH LQWR
H[LVWHQFHXQWLOLWLVMXGLFLDOO\ GHFODUHGDFUHGLWRUFODLPLQJ
WKDW D FRQVWUXFWLYH WUXVW VKRXOG EH LPSUHVVHG RQ SDUWLFXODU
SURSHUW\GRHVQRWKDYHDQHTXLWDEOHLQWHUHVWLQWKDWSURSHUW\
DQG86&† G GRHVQRWSHUPLWWKHEDQNUXSWF\FRXUW
WRH[FOXGHWKRVHDVVHWVIURPWKHHVWDWHE\LPSUHVVLQJWKHP
ZLWKDFRQVWUXFWLYHWUXVWSRVWSHWLWLRQ7KLVLVQRWWKHVLWXDWLRQ
SUHVHQWHGE\WKH.LWFKHQV¶DSSHDO,QWKLVFDVHWKH.LWFKHQV
LQLWLDWHG D VWDWH FRXUW DFWLRQ WR UHFRYHU WKH VWROHQ SURSHUW\
EHIRUHWKHGHEWRUILOHGKLVEDQNUXSWF\SHWLWLRQDQGWKHVROH
1RV ,QUH1HZSRZHU
7KH .LWFKHQV KDYH \HW WR UHFRYHU D WRWDO RI WKDW WKH\
ORDQHG WR 13, 7KH EDQNUXSWF\ FRXUW RQO\ DGGUHVVHG ZKHWKHU WKH
DXWRPDWLF VWD\ ZDV DSSURSULDWH IRU KRZHYHU DSSHOOHHV GR
QRW GLVSXWH WKH GLIIHUHQFH DV WKH\ FRQFHGHG GXULQJ RUDO DUJXPHQW WKDW LW
UHSUHVHQWHG WKH RQO\ YDOLG WUDQVDFWLRQV WKDW GHEWRU PDGH RQ EHKDOI RI 13,
†7KH.LWFKHQVDQG13,PRYHGWROLIWWKHVWD\RURUGHU
DQDEDQGRQPHQWVRWKDWWKH\FRXOGSURFHHGZLWKWKHLUVWDWH
FRXUWDFWLRQ
)ROORZLQJ D KHDULQJ RQ PRYDQWV¶ PRWLRQ WR OLIW WKH
DXWRPDWLFVWD\WKHEDQNUXSWF\FRXUWJUDQWHGPRYDQWV¶PRWLRQ
LQSDUWDQGGHQLHGLWLQSDUW7KHEDQNUXSWF\FRXUWFRQFOXGHG
WKDWWKHIXQGVZKLFKZHUHWUDQVIHUUHGE\1HZSRZHUGLUHFWO\
IURPWKH13,DFFRXQWWRDWKLUGSDUW\ZLWKRXWSDVVLQJWKURXJK
1HZSRZHU¶V SHUVRQDO DFFRXQW ZHUH QRW SURSHUW\ RI WKH
HVWDWH$FFRUGLQJO\WKHFRXUWFRQFOXGHGWKDWWKH.LWFKHQV
ZHUHHQWLWOHGWRSURFHHGRQWKHLUDFWLRQVWRUHFRYHUVXFKIXQGV
IURP WKH UHFLSLHQWV +RZHYHU DV WR PRQH\ WKDW SDVVHG
WKURXJK1HZSRZHU¶VKDQGVLQDQ\ZD\RUWKDWZDVXVHGWR
SXUFKDVH DVVHWV WLWOHG LQ 1HZSRZHU¶V QDPH WKH FRXUW
FRQFOXGHG WKDW LW ZDV SURSHUW\ RI WKH HVWDWH 7KXV WKH
EDQNUXSWF\FRXUWOLIWHGWKHVWD\RQRIDVVHWVWKDW
1HZSRZHUWUDQVIHUUHGGLUHFWO\WRWKLUGSDUWLHVIURP13,EXW
GHFOLQHGWROLIWWKHVWD\RQWKHUHPDLQLQJRIDVVHWV
WUDFHDEOHWRWKHPRQH\WKDWWKH.LWFKHQVORDQHG13,
.LWFKHQDQG13,DSSHDOHGWKHEDQNUXSWF\FRXUW¶VUXOLQJWR
WKHGLVWULFWFRXUW7KHGLVWULFWFRXUWKHOGWKDWWKHEDQNUXSWF\
FRXUW HUUHG LQ FRQFOXGLQJ WKDW SURSHUW\ WUDFHDEOH WR WKH
.LWFKHQV¶ HPEH]]OHG IXQGV ZHUH SURSHUW\ RI 1HZSRZHU¶V
HVWDWH &RQVHTXHQWO\ WKH GLVWULFW FRXUW UHYHUVHG WKH
EDQNUXSWF\FRXUW¶VGHFLVLRQWRWKHH[WHQWWKDWLWGHFOLQHGWROLIW
WKHDXWRPDWLFVWD\XQGHU86&†ZLWKUHVSHFWWRWKH
UHPDLQLQJRISURSHUW\WUDFHDEOHWRPRYDQWV¶IXQGV

-- 5 of 12 --

,QUH1HZSRZHU 1RV
,,
,Q FRQVLGHULQJ DQ DSSHDO IURP D GHFLVLRQ RI WKH GLVWULFW
FRXUWZKLFKUHYLHZHGDGHFLVLRQRIWKHEDQNUXSWF\FRXUWWKLV
FRXUWLQGHSHQGHQWO\UHYLHZVWKHEDQNUXSWF\FRXUW¶VGHFLVLRQ
,QUH.RHQLJ6SRUWLQJ*RRGV,QF)G WK
&LU ,QGRLQJVRZHZLOOUHYLHZWKHEDQNUXSWF\FRXUW V
ILQGLQJVRIIDFWIRUFOHDUHUURUDQGLWVFRQFOXVLRQVRIODZGH
QRYR ,Q UH &HQWXU\ %RDW &R )G WK
&LU %HFDXVHWKHRQO\TXHVWLRQSUHVHQWHG²ZKHWKHU
WKHHPEH]]OHGIXQGVDWLVVXHDQGSURFHHGVWKHUHRIDUHSDUWRI
GHEWRU¶VEDQNUXSWF\HVWDWHSXUVXDQWWR86&†²LVD
OHJDORQHZHUHYLHZWKHEDQNUXSWF\FRXUW¶VGHFLVLRQGHQRYR
,,,
$
7KLV DSSHDO UDLVHV WKH TXHVWLRQ RI ZKHWKHU WKH PRQH\
PLVDSSURSULDWHGE\GHEWRUPRQH\DQGSURSHUW\WUDFHDEOHWR
WKHPLVDSSURSULDWHGIXQGVDQGFODLPVRUFDXVHVRIDFWLRQWR
UHFRYHUPRQH\DQGSURSHUW\WUDFHDEOHWRWKHPLVDSSURSULDWHG
IXQGV DUH SURSHUW\ RI GHEWRU¶V EDQNUXSWF\ HVWDWH ,I WKH
RIDVVHWVWUDFHDEOHWRWKHPRQH\WKH.LWFKHQVOHQW
13,LVHVWDWHSURSHUW\WKHQSXUVXDQWWR86&†WKH
WUXVWHHPXVWFROOHFWDQGGLVWULEXWHWKHPRQH\LQSURSRUWLRQDO
VKDUHVWRDOOFUHGLWRUVRIWKHEDQNUXSWF\HVWDWH
6HFWLRQSURYLGHV³ D 7KHFRPPHQFHPHQWRIDFDVH
XQGHUVHFWLRQRURIWKLVWLWOHFUHDWHVDQHVWDWH
6XFK HVWDWH LV FRPSULVHG RI DOO WKH IROORZLQJ SURSHUW\
ZKHUHYHU ORFDWHG DQG E\ ZKRPHYHU KHOG ([FHSW DV
SURYLGHGLQVXEVHFWLRQV E DQG F RIWKLVVHFWLRQDOOOHJDO
RU HTXLWDEOH LQWHUHVWV RI WKH GHEWRU LQ SURSHUW\ DV RI WKH
FRPPHQFHPHQW RI WKH FDVH´ 86& † D :KDW
TXDOLILHVDVDSURSHUW\LQWHUHVWLVGHWHUPLQHGE\UHIHUHQFHWR
VWDWH ODZ XQOHVV VRPH IHGHUDO LQWHUHVW UHTXLUHV D GLIIHUHQW
UHVXOW%XWQHUY8QLWHG6WDWHV86±
7KH GLVWULFW FRXUW FRQFOXGHG WKDW QRQH RI WKH IXQGV DQG
SURSHUW\ DW LVVXH ZHUH SDUW RI GHEWRU¶V EDQNUXSWF\ HVWDWH
1RV ,QUH1HZSRZHU
BBBBBBBBBBBBBBBBB
&21&855(1&(
BBBBBBBBBBBBBBBBB
$/,&(0%$7&+(/'(5&LUFXLW-XGJHZULWLQJIRUWKH
FRXUWDVWRSDUW,,,%DQGFRQFXUULQJLQWKHUHPDLQGHURIWKH
PDMRULW\RSLQLRQ:HKHOGLQSDUW,,,$WKDWDVWRWKHDVVHWV
SXUFKDVHGZLWKWKHVWROHQIXQGVWKHGHEWRUREWDLQHGRQO\EDUH
OHJDOWLWOHWKDWWKRVHDVVHWVDUHLQFOXGDEOHLQWKHEDQNUXSWF\
HVWDWHDQGWKDWWKHDVVHWVDUHWKXVVXEMHFWWRDQDXWRPDWLFVWD\
LQ EDQNUXSWF\ XQGHU 86& † :H DJUHH ZLWK WKLV
KROGLQJ DV IDU DV LW JRHV EXW LW GRHVQ¶W JR IDU HQRXJK
$OWKRXJKSURSHUW\LQZKLFKDGHEWRUKROGVRQO\EDUHOHJDO
WLWOHPD\LQVRPHFDVHVEHSURWHFWHGE\WKHDXWRPDWLFVWD\
LQWKLVFDVHWKHDSSHOOHHV¶HTXLWDEOHLQWHUHVWLQWKHSURSHUW\
1HZSRZHU ERXJKW ZLWK HPEH]]OHG IXQGV SUHFOXGHV VXFK
SURWHFWLRQ
7KH EDQNUXSWF\ HVWDWH FRPSULVHV DOO OHJDO RU HTXLWDEOH
LQWHUHVWV RI WKH GHEWRU XQOHVV VSHFLILFDOO\ H[FHSWHG E\ WKH
&RGHDVRIWKHFRPPHQFHPHQWRIWKHEDQNUXSWF\FDVH6HH
86&† D +RZHYHU³>S@URSHUW\LQZKLFKWKHGHEWRU
KROGVDVRIWKHFRPPHQFHPHQWRIWKHFDVHRQO\OHJDOWLWOH
DQGQRWDQHTXLWDEOHLQWHUHVWEHFRPHVSURSHUW\RIWKH
HVWDWHRQO\WRWKHH[WHQWRIWKHGHEWRU¶VOHJDOWLWOHWRVXFK
SURSHUW\EXWQRWWRWKHH[WHQWRIDQ\HTXLWDEOHLQWHUHVWLQVXFK
SURSHUW\WKDWWKHGHEWRUGRHVQRWKROG´86&† G
HPSKDVLVDGGHG $QGWKHGHWHUPLQDWLRQRIRZQHUVKLSRI
WKHHTXLWDEOHLQWHUHVWLQWKHJRRGVSXUFKDVHGE\WKHGHEWRU
ZLWK WKH HPEH]]OHG IXQGV LV D TXHVWLRQ RI VWDWH ODZ 6HH
%XWQHU Y 8QLWHG 6WDWHV 86 7KH
.LWFKHQV DQG 1HZ 3URSHUWLHV ,QF FROOHFWLYHO\ ³WKH
.LWFKHQV´ PRYHGWKHEDQNUXSWF\FRXUWIRUDQRUGHUOLIWLQJWKH
DXWRPDWLFVWD\VRWKH\FRXOGSURFHHGZLWKWKHLUDFWLRQLQVWDWH
FRXUW±ILOHGSULRUWR1HZSRZHU¶VSHWLWLRQLQEDQNUXSWF\±
FODLPLQJLQWHUDOLD1HZSRZHU¶VFRQYHUVLRQRIWKHLUIXQGV
DQG VHHNLQJ WKH UHFRYHU\ RI WKRVH IXQGV IURP 1HZSRZHU
DQGRUWKLUGSDUWLHVDQGWKHLPSRVLWLRQRIDFRQVWUXFWLYHWUXVW
RQWKHSURSHUW\1HZSRZHUSXUFKDVHGZLWKWKHVWROHQIXQGV

-- 6 of 12 --

,QUH1HZSRZHU 1RV
KDYH DXWKRULW\ WR GR ZLWK WKH IXQGV DV KH ZLVKHG DV DOO
HYLGHQFHLQGLFDWHGWKDWWKH.LWFKHQVVHQWWKHPRQH\WRKLP
IRU WKH VROH DQG H[SUHVV SXUSRVH RI GHSRVLWLQJ LW ZLWK WKH
&RUSRUDWLRQ RQFH LW IRUPDOO\ FDPH LQWR EHLQJ 8QGHU WKH
FLUFXPVWDQFHVZHDJUHHZLWKWKHGLVWULFWFRXUW¶VFRQFOXVLRQ
WKDW DQ DJHQF\ UHODWLRQVKLS H[LVWHG ZLWK UHVSHFW WR WKH
WKDW WKH .LWFKHQV LQLWLDOO\ VHQW WKH GHEWRU
&RQVHTXHQWO\WKHEDQNUXSWF\FRXUWHUUHGLQFRQFOXGLQJWKDW
WKHVH IXQGV ZHUH SDUW RI GHEWRU¶V EDQNUXSWF\ HVWDWH
+RZHYHUDVGLVFXVVHGDERYHGHEWRUZRXOGKDYHOHJDOWLWOHWR
DQ\SURFHHGVREWDLQHGZLWKWKHVHHPEH]]OHGIXQGVUHQGHULQJ
VXFKSURFHHGVSDUWRIGHEWRU¶VEDQNUXSWF\HVWDWH
'
,W LV XQQHFHVVDU\ WR DGGUHVV DSSHOOHH¶V FRQWHQWLRQ WKDW
GHEWRUZDVDQDJHQWRI13,RUWKDWGHEWRUKHOGIXQGVLQDQ
H[SUHVVWUXVWIRUERWK13,DQGWKH.LWFKHQVZLWKUHVSHFWWR
LWHPVWRZKLFKKHKDGOHJDOWLWOHVLQFHOHJDOWLWOHSODFHVWKRVH
LWHPVLQWKHGHEWRU¶VHVWDWH
,9
,Q VXP ZH $)),50 WKH GLVWULFW FRXUW¶V FRQFOXVLRQ WKDW
QRQHRIWKHPRQH\PLVDSSURSULDWHGE\GHEWRUZDVSURSHUW\RI
WKHGHEWRU¶VEDQNUXSWF\HVWDWHDOWKRXJKVRPHRIWKHSURFHHGV
DUH :H 5(9(56( WKH GLVWULFW FRXUW WR WKH H[WHQW LW
FRQFOXGHGWKDWGHEWRU¶VEDQNUXSWF\HVWDWHGLGQRWKDYHOHJDO
WLWOHWRWKHSURSHUW\WKDWGHEWRUERXJKWZLWKVXFKIXQGVDQG
WKDW KH VWLOO SRVVHVVHG DW WKH WLPH KH ILOHG KLV EDQNUXSWF\
SHWLWLRQ)XUWKHUZH$)),50WKHGLVWULFWFRXUW¶VGHFLVLRQWR
OLIWWKH86&†DXWRPDWLFVWD\ZLWKUHVSHFWWRWKH
DWLVVXHDVZHOODVIXQGVRUSURSHUW\WUDFHDEOHWR
WKLVPRQH\7KH.LWFKHQVDUHIUHHWRVHHNWRUHFRYHUVXFK
IXQGVRUSURFHHGVWKHUHRIZKHUHYHUWKH\PD\EHIRXQGWRWKH
H[WHQWWKDWWKHODZDOORZV:H5(0$1'WKLVFDVHWRWKH
EDQNUXSWF\FRXUWZLWKGLUHFWLRQVWROLIWWKHDXWRPDWLFVWD\DQG
IRUIXUWKHUSURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ
1RV ,QUH1HZSRZHU
EHFDXVH DV D WKLHI GHEWRU WRRN QR WLWOH WR WKH IXQGV DQ
H[SUHVVWUXVWH[LVWHGXQGHUWKHFLUFXPVWDQFHVDQGGHEWRUKHOG
WKHHPEH]]OHGIXQGVDVDQDJHQW%DVHGRQLWVFRQFOXVLRQV
WKHGLVWULFWFRXUWUHYHUVHGWKHEDQNUXSWF\FRXUW¶VRUGHUDQG
UHPDQGHGIRUHQWU\RIDQRUGHUJUDQWLQJUHOLHIIURPVWD\DVWR
WKHDQGFDXVHVRIDFWLRQWRUHFRYHUWKDWVXP
8QOHVV D FRXQWHUYDLOLQJ IHGHUDO LQWHUHVW H[LVWV VWDWH ODZ
GHWHUPLQHV ZKHWKHU D GHEWRU KDV D SURSHUW\ LQWHUHVW IRU
SXUSRVHVRI† D %XWQHUY8QLWHG6WDWHV86
,Q UH 9DQ 'UHVVHU &RUS )G WK &LU
6XFKSURSHUW\PD\WDNHWKHIRUPRIOHJDORUHTXLWDEOH
LQWHUHVW LQ SURSHUW\ KHOG E\ WKH GHEWRU DV RI WKH
FRPPHQFHPHQWRIWKHFDVH,QUH9DQ'UHVVHU&RUS
)GDW,IGHEWRU¶VHVWDWHKDGDSURSHUW\LQWHUHVWLQWKH
IXQGVDWLVVXHWKHQDVDIXQGDPHQWDOSULQFLSOHRIEDQNUXSWF\
ODZWKHIXQGVVKRXOGEHUDWDEO\GLVWULEXWHGWRWKHFUHGLWRUVRI
WKHEDQNUXSWHVWDWH,QUH2PHJDV*URXS,QF)G
WK&LU
0RYDQWVDUJXHGWKDWGHEWRUVWROHWKHIXQGVHPEH]]OHGIURP
13,DQGIXUWKHUDVVHUWWKDWEHFDXVHDWKLHIWDNHVQRWLWOHXQGHU
0LFKLJDQODZHPEH]]OHGIXQGVRUSURFHHGVWKHUHRIDUHQRW
SURSHUW\RIGHEWRU¶VEDQNUXSWF\HVWDWH:KLOHWKHEDQNUXSWF\
FRXUWUHFRJQL]HGWKDWVWDWHODZZRXOGGHWHUPLQHWKHH[WHQWRI
GHEWRU¶VSURSHUW\LQWHUHVWLQWKHPRQH\KHHPEH]]OHGLWGLG
QRWVSHFLILFDOO\UHYLHZ0LFKLJDQODZPHUHO\FRQFOXGLQJWKDW
³WKLV ZDV QRW D WUXH WKHIW´ 2Q DSSHDO PRYDQWV UHO\ RQ
0RUJDQY+RGJHV1: 0LFK LQVXSSRUWRI
WKHLUSRVLWLRQWKDWXQGHU0LFKLJDQODZGHEWRU¶VEDQNUXSWF\
HVWDWH GLG QRW KDYH D SURSHUW\ LQWHUHVW LQ WKH IXQGV KH
HPEH]]OHG
,Q0RUJDQWKHSODLQWLIIOHDVHGKRUVHVDKDUQHVVEXJJ\
UREHVDQGDZKLSWR6HDPDQ6HDPDQUHQWHGWKHKRUVHVDQG
JHDU IRU WKH SXUSRVH RI GULYLQJ WR )UDQNIRUW 0LFKLJDQ
,QVWHDGKRZHYHU6HDPDQGURYHWR*UDQG5DSLGVDQGVROGWKH
KRUVHVDQGJHDUWRGHIHQGDQWVZKRNQHZ6HDPDQDQGKDGQR
UHDVRQWRGRXEWKLVUHSUHVHQWDWLRQVRIRZQHUVKLS%\WKHWLPH
SODLQWLIIILQDOO\WUDFHGKLVSURSHUW\WRGHIHQGDQWV¶SRVVHVVLRQ

-- 7 of 12 --

,QUH1HZSRZHU 1RV
GHIHQGDQWVKDGVROGWKHKRUVHVEXWVWLOOUHWDLQHGWKHUHVWRI
SODLQWLII¶VSURSHUW\3ODLQWLIILQIRUPHGGHIHQGDQWVWKDWWKH\
KDGKLVVWROHQSURSHUW\DQGSURSRVHGWKDWLIWKHEXJJ\UREH
DQGKDUQHVVZHUHUHWXUQHGKHZRXOGQRWSXUVXHDFODLPIRU
WKHYDOXHRIWKHKRUVHVDVGHIHQGDQWVKDGSXUFKDVHGWKHPLQ
JRRG IDLWK 'HIHQGDQWV DJUHHG DQG UHWXUQHG SODLQWLII¶V
SURSHUW\WRKLP3ODLQWLIIWKHQVXHGGHIHQGDQWVIRUWKHYDOXH
RIWKHKRUVHV,QUHVSRQVHGHIHQGDQWVDUJXHGWKDWWKH\KDG
HQWHUHG LQWR D FRQWUDFW ZLWK SODLQWLII E\ DJUHHLQJ WR JLYH
SODLQWLIIWKHKRUVHDQGEXJJ\LQH[FKDQJHIRUKLVSURPLVHQRW
WR VXH +RZHYHU WKH 0LFKLJDQ 6XSUHPH &RXUW KHOG WKDW
SODLQWLIIZDVHQWLWOHGWRSXUVXHWKHLUFODLPIRUWKHYDOXHRIWKH
KRUVHVVWDWLQJWKDWGHIHQGDQWV³RQO\GLGWKDWLQVXUUHQGHULQJ
WKHSURSHUW\ZKLFKLQODZWKH\ZHUHFRPSHOOHGWRGRDQG
WKHUHIRUHWKHUHZDVQRFRQVLGHUDWLRQIRUWKHSURPLVHRQWKH
SDUWRIWKHSODLQWLIIQRWWRUHFODLPWKHKRUVH>V@´0RUJDQ
1: DW :KLOH WKH RSLQLRQ LV VKRUW LQ UHYHUVLQJ WKH
ORZHU FRXUW DQG FRQFOXGLQJ WKDW GHIHQGDQWV JDYH QR
FRQVLGHUDWLRQ LQ H[FKDQJH IRU SODLQWLII¶V SURPLVH QRW VHHN
UHPXQHUDWLRQ IRU WKH YDOXH RI KLV KRUVHV WKH 0LFKLJDQ
6XSUHPH&RXUWDSSDUHQWO\FRQFOXGHGWKDW6HDPHQDVDWKLHI
QHYHU KDG WLWOH WR WKH KRUVHV DQG WKXV FRXOG QRW KDYH
FRQYH\HGWLWOHWRGHIHQGDQWV7KLVDSSHDUVWREHWKHRQO\
H[SODQDWLRQ IRU WKH FRXUW¶V VWDWHPHQW LQGLFDWLQJ WKDW DV
DJDLQVWSODLQWLIIWKHWUXHRZQHUGHIHQGDQWVKDGQRLQWHUHVWLQ
WKHEXJJ\DQGHTXLSPHQWWRH[FKDQJHIRUSODLQWLII¶VSURPLVH
QRWWRVHHNWRUHFRYHUWKHYDOXHRIWKHKRUVHV
:KLOH0RUJDQLVDQROGFDVHDVIDUDVZHZHUH DEOHWR
GHWHUPLQH LW UHPDLQV JRRG ODZ LQ WKH VWDWH RI 0LFKLJDQ
0RUJDQ VWDQGV IRU WKH SURSRVLWLRQ ORQJ HVWDEOLVKHG DW
FRPPRQODZWKDWDWKLHIKDVQRWLWOHLQWKHSURSHUW\WKDWKH
VWHDOV 6HH 5HVWDWHPHQW 6HFRQG RI 7RUWV † FPW G
%RJHUW 7UXVW 7UXVWHHV † G HG
%RJHUW7UXVW 7UXVWHHVGLVFXVVHVWKLVUXOHDVLWDSSOLHVWR
SURFHHGV IURP ODUFHQ\ HPEH]]OHPHQW RU FRQYHUVLRQ
SURYLGLQJ
$ WKLHI GRHV QRW RUGLQDULO\ EHFRPH WKH RZQHU RI
SURSHUW\KHVWHDOVKHKDVPHUHSRVVHVVLRQ,IWKHVWROHQ
1RV ,QUH1HZSRZHU
&ROOLHURQ%DQNUXSWF\ˆ>@>D@ WKHG 7KXV
LIDSSHOOHHVDUHFRUUHFWLQDUJXLQJWKDWGHEWRUZDVWKHLUDJHQW
ZLWKUHVSHFWWRWKHWKH\LQLWLDOO\WUDQVIHUUHGWRKLP
WKHQWKHPRQH\ZRXOGQRWEHSURSHUW\RIGHEWRU¶VEDQNUXSWF\
HVWDWH
,QGHWHUPLQLQJZKHWKHUDQDJHQF\KDVEHHQFUHDWHGXQGHU
0LFKLJDQODZWKH0LFKLJDQ6XSUHPH&RXUWKDVVWDWHGWKDWLW
ZLOOFRQVLGHU³WKHUHODWLRQVRIWKHSDUWLHVDVWKH\LQIDFWH[LVW
XQGHU WKHLU DJUHHPHQWV RU DFWV´ 6DLQW &ODLU ,QWHUPHGLDWH
6FKRRO'LVWY,QWHUPHGLDWH(GXF$VV¶Q1:G
0LFK LQWHUQDOTXRWDWLRQVRPLWWHG 7KHFRXUW
IXUWKHUSURYLGHG
>,@QLWVEURDGHVWVHQVHDJHQF\³LQFOXGHVHYHU\UHODWLRQLQ
ZKLFKRQHSHUVRQDFWVIRURUUHSUHVHQWVDQRWKHUE\KLV
DXWKRULW\´6DXPVY3DUIHW0LFK
1: :HIXUWKHUUHFRJQL]HGLQ6DXPVWKDW
³>W@KHFKDUDFWHULVWLFRIWKHDJHQWLVWKDWKHLVDEXVLQHVV
UHSUHVHQWDWLYH+LVIXQFWLRQLVWREULQJDERXWPRGLI\
DIIHFWDFFHSWSHUIRUPDQFHRIRUWHUPLQDWHFRQWUDFWXDO
REOLJDWLRQVEHWZHHQKLVSULQFLSDODQGWKLUGSHUVRQV´,G
DW1:$OVRIXQGDPHQWDOWRWKHH[LVWHQFH
RI DQ DJHQF\ UHODWLRQVKLS LV WKH ULJKW WR FRQWURO WKH
FRQGXFWRIWKHDJHQW&DSLWRO&LW\/RGJH1R)23
Y0HULGLDQ7ZS0LFK$SS1:G
ZLWKUHVSHFWWRWKHPDWWHUVHQWUXVWHGWRKLP
6DLQW&ODLU,QWHUPHGLDWH6FKRRO'LVW1:GDW
:KLOHWKHEDQNUXSWF\FRXUWFRQFOXGHGWKDWGHEWRUZDVQRW
DQ DJHQW RI 13, LW QHYHU DGGUHVVHG WKH LVVXH RI ZKHWKHU
GHEWRUZDVDQDJHQWRIWKH.LWFKHQVZLWKUHVSHFWWRWKHIXQGV
WKH\VHQWGLUHFWO\WRGHEWRUSULRUWR13,¶VIRUPDWLRQ$VWKH
EDQNUXSWF\ FRXUW REVHUYHG WKH PLQXWHV UHIOHFWHG WKDW WKH
LQLWLDOVHQWWR1HZSRZHUE\WKH.LWFKHQVZDVDORDQ
WR13,7KHSDUWLHVDOVRFRQVLVWHQWO\UHIHUUHGWRWKLVPRQH\DV
DORDQWRWKHFRUSRUDWLRQDQGWKHPHPRVHFWLRQRIWKHFKHFN
VWDWHGWKDWWKHPRQH\ZDVIRU13,)XUWKHUGXULQJVHQWHQFLQJ
IRUWKHFULPLQDOFKDUJHRIHPEH]]OHPHQWGHEWRUDGPLWWHGWKDW
KHRSHUDWHGDVWKH.LWFKHQ¶VDJHQW'HEWRUFOHDUO\GLGQRW

-- 8 of 12 --

,QUH1HZSRZHU 1RV
WKDW WKH PRQH\ WKH .LWFKHQV VHQW ZDV D ORDQ WR WKH
FRUSRUDWLRQWKHIDFWWKDWWKHFRUSRUDWHPLQXWHVQRWHGWKDWLW
ZDV D ORDQ WR WKH FRUSRUDWLRQ DQG WKH IDFW WKDW WKH PHPR
VHFWLRQRIWKHFKHFNWKDWWKH.LWFKHQVVHQWVWDWHGWKDWFKHFN
ZDV IRU 13, DQG EULHIO\ GHVFULEHG WKH SURSHUW\ WR EH
SXUFKDVHG+RZHYHUGHVSLWHWKHIDFWWKDWWKHFRXUWIRXQGWKDW
WKHZDVDORDQWRWKHFRUSRUDWLRQLWFRQFOXGHGWKDW
WKH PRQH\ ZDV SURSHUW\ RI GHEWRU¶V EDQNUXSWF\ HVWDWH
EHFDXVHGHEWRUGHSRVLWHGWKHPRQH\LQKLVSHUVRQDODFFRXQW
$SSHOOHHVGLVDJUHHDUJXLQJWKDWGHEWRUZDVDFWLQJDVWKHLU
DJHQW ZLWK UHVSHFW WR WKH PRQH\ WKH\ ORDQHG WR WKH
FRUSRUDWLRQ$VDUHVXOWDSSHOOHHVFRQWHQGWKDWWKHIXQGVDW
LVVXHUHPDLQHGWKHLUSURSHUW\ZKLOHLQWKHKDQGVRIGHEWRU
DQGWKXVFRXOGQRWEHLQFOXGHGLQGHEWRU¶VEDQNUXSWF\HVWDWH
,Q VXSSRUW DSSHOOHHV FLWH VHYHUDO FDVHV LQFOXGLQJ ,Q UH
=ZDJHUPDQ%5 %DQNU:'0LFK ,Q
UH&URXWKDPHO3RWDWR&KLS&R%5 ('3HQQ
DQG,QUH*UHHQILHOG'LUHFW5HVSRQVH,QF%5
1' ,OO ZKLFK VXSSRUW WKLV SURSRVLWLRQ
$SSHOOHHV DUH FRUUHFW LQ SRLQWLQJ RXW WKDW LW LV JHQHUDOO\
UHFRJQL]HG WKDW DQ DJHQW GRHV QRW WDNH WLWOH WR IXQGV RU
SURSHUW\ HQWUXVWHG WR KLP E\ KLV SULQFLSDO &ROOLHU RQ
%DQNUXSWF\DGGUHVVHVWKHLQWHUDFWLRQRIWKLVSULQFLSOHZLWKWKH
EDQNUXSF\FRGHLQVRPHGHWDLOREVHUYLQJ
>$@QDJHQF\LVDUHODWLRQVKLSDULVLQJIURPDFRQWUDFW
H[SUHVVRULPSOLHGE\ZKLFKRQHRIWKHSDUWLHVFRQILGHV
WR WKH RWKHU WKH WUDQVDFWLRQ RU PDQDJHPHQW RI VRPH
EXVLQHVVRURWKHUDFWLYLW\LQWKHSULQFLSDO¶VQDPHRURQ
WKHSULQFLSDO¶VEHKDOIDQGZKHUHE\WKHDJHQWSHUIRUPV
WKHDQWLFLSDWHGDFWDQGUHQGHUVDQDFFRXQWWKHUHRI>7@KH
WLWOHWRWKHSURSHUW\UHPDLQVLQWKHSULQFLSDODQGWKH
DJHQWKROGVWKHSURSHUW\IRUWKHRZQHU¶VEHQHILW
&RQVHTXHQWO\ LW KDV EHHQ VHWWOHG XQGHU WKH &RGH DQG
SULRU ODZ WKDW DEVHQW VWDWH VWDWXWRU\ HQDFWPHQW WR WKH
FRQWUDU\LISURSHUW\ZDVLQDGHEWRU¶VKDQGVDVEDLOHHRU
DJHQWWKHGHEWRU¶VHVWDWHKROGVRQO\WKHVDPHLQWHUHVW
DQGWKHEDLORURUSULQFLSDOFRXOGUHFRYHUWKHSURSHUW\RU
LWVSURFHHGV
1RV ,QUH1HZSRZHU
SURSHUW\LVIRXQGLQKLVKDQGVLWLVUHFRYHUDEOHE\WKH
LQMXUHGSDUW\LQDSRVVHVVRU\DFWLRQDWODZ7KHUHLVQR
EDVLVIRUDFRQVWUXFWLYHWUXVWDVWRWKHVWROHQSURSHUW\LQ
WKHKDQGVRIWKHWKLHIEHFDXVHRIKLVODFNRIDSURSHUW\
LQWHUHVW
%RJHUW7UXVW 7UXVWHHV†DW GHG 6XSS
FLWLQJFDVHVUHFRJQL]LQJWKLVSULQFLSOH
$SSHOOHHVDUJXHKRZHYHUWKDWXQGHU0LFKLJDQODZZKHQ
WLWOHWRSURSHUW\LVREWDLQHGE\IUDXGWKHWLWOHLVYRLGDEOHQRW
YRLG,QVXSSRUWDSSHOOHHVFLWH-RQHVY+LFNV1:G
0LFK DQG &RFKUDQ7LPEHU&RY)LVKHU
1: 0LFK ZKLFKGRFRQWDLQVWDWHPHQWVWRWKLV
HIIHFW $SSHOOHHV DUJXH WKDW WKLV LV VLJQLILFDQW EHFDXVH
1HZSRZHU SOHG JXLOW\ WR HPEH]]OHPHQW ZKLFK LQFOXGHV
LQWHQWWRGHIUDXGDVDQHFHVVDU\HOHPHQW6HH0LFK&RPS
/DZV†$VDFRQVHTXHQFHDSSHOOHHVFRQFOXGHWKDW
1HZSRZHU REWDLQHG YRLGDEOH WLWOH WR WKH PRQH\ KH
HPEH]]OHG,QVXSSRUWE\ZD\RIDQDORJ\DSSHOOHHVSRLQW
RXWWKDWXQGHU0LFKLJDQ¶VFULPHRIIDOVHSUHWHQVHVZLWKLQWHQW
WRGHIUDXG²ZKLFKDOVRFRQWDLQVIUDXGDVDQHOHPHQWRIWKH
RIIHQVH²WLWOHWRWKHVWROHQSURSHUW\LVYLHZHGDVSDVVLQJWR
WKH GHEWRU 7KXV DSSHOOHHV UHDVRQ E\ GHIUDXGLQJ WKH
.LWFKHQVDQG13,GHEWRUREWDLQHGDWOHDVWYRLGDEOHWLWOHWRWKH
IXQGVKHVWROH
$SSHOOHHVFRUUHFWO\REVHUYHWKDWXQGHU0LFKLJDQODZWKH
FULWLFDOGLIIHUHQFHEHWZHHQODUFHQ\FULPHVDQGIDOVHSUHWHQVH
FULPHVLVWKHSDVVDJHRIWLWOH6HHHJ3HRSOHY0DODFK
1:G 0LFK&W$SS GLVFXVVLQJSULRU
FDVHODZDQGREVHUYLQJWKDW³>W@KHGLVWLQFWLRQEHWZHHQWKHWZR
RIIHQVHVGHSHQGVHQWLUHO\XSRQWKHLQWHQWRIWKHYLFWLPLI
WKH RZQHU RI WKH JRRGV LQWHQGV WR NHHS WLWOH EXW SDUW ZLWK
SRVVHVVLRQWKHFULPHLVODUFHQ\LIWKHRZQHULQWHQGVWRSDUW
ZLWKERWKWLWOHDQGSRVVHVVLRQDOEHLWIRUWKHZURQJUHDVRQV
WKHFULPHLVIDOVHSUHWHQVHV +RZHYHUDSSHOOHHV¶DWWHPSWWR
DQDORJL]HWKHRIIHQVHRIHPEH]]OHPHQWWRIDOVHSUHWHQVHVIDLOV
$V WKH 0DODFK FRXUW REVHUYHG DQ LQGLYLGXDO FRPPLWV WKH
FULPH RI IDOVH SUHWHQVHV ZKHQ KH IUDXGXOHQWO\ FRQYLQFHV

-- 9 of 12 --

,QUH1HZSRZHU 1RV
7KLV ILJXUH UHSUHVHQWV WKH ZKLFK WKH EDQNUXSWF\ FRXUW KHOG
ZDV VXEMHFW WR WKH DXWRPDWLF VWD\ PLQXV WKH WKDW WKH .LWFKHQV
VHQW GLUHFWO\ WR 1HZSRZHU DV D ORDQ WR 13, SULRU WR LWV IRUPDO
DQRWKHUWRSDUWZLWKERWKSRVVHVVLRQRIDQGWLWOHWRSURSHUW\
,QVXFKDVLWXDWLRQWKHRIIHQGHUREWDLQVYRLGDEOHWLWOHWRWKH
SURSHUW\&I5HVWDWHPHQW 6HFRQG RI7RUWV†FPWG
REVHUYLQJWKDWZKLOHDSXUFKDVHUIURPRUGRQHHRID
WKLHIQRUPDOO\WDNHVQRWLWOHWRWKHJRRGVVWROHQJRRGIDLWK
SXUFKDVHUV PD\ DFTXLUH D OHJDO LQWHUHVW IURP D WKLHI WKDW
IUDXGXOHQWO\SXUFKDVHGDFKDWWHO
,Q FRQWUDVW WKH RIIHQVH RI HPEH]]OHPHQW LQYROYHV WKH
IUDXGXOHQWDSSURSULDWLRQRISURSHUW\RIZKLFKWKHHPEH]]OHU
LVULJKWIXOO\LQSRVVHVVLRQWKHRZQHURIWKHSURSHUW\UHWDLQV
WLWOHWRWKHIXQGVEHFDXVHKHQHYHULQWHQGVIRULWWRSDVVWRWKH
HPEH]]OHU6HH0DODFK1:GDWVHHDOVR-$
%U\DQW-U$QQRWDWLRQ,PSRVLWLRQRI&RQVWUXFWLYH7UXVWLQ
3URSHUW\%RXJKWZLWK6WROHQRU(PEH]]OHG)XQGV$/5
REVHUYLQJWKDWDWKLHIWDNHVQRWLWOHWRVWROHQRU
HPEH]]OHGIXQGV 7KXVIRUSXUSRVHVRIRXUDQDO\VLVLWLV
LUUHOHYDQW ZKHWKHU D WKLHI REWDLQV JRRGV WKURXJK
HPEH]]OHPHQW RU ODUFHQ\ DV QHLWKHU FULPH LQYROYHV WKH
YROXQWDU\SDVVDJHRIWLWOHWRWKHWKLHI6HH$&-6/DUFHQ\
† $&-6(PEH]]OHPHQW† )XUWKHU
ERWK TXDOLI\ DV WKHIW FULPHV XQGHU WKH FRPPRQ ODZ 6HH
%ODFN¶V /DZ 'LFWLRQDU\ WK HG GHILQLQJ
FRPPRQODZWKHIWWRLQFOXGHVZLQGOLQJDQGHPEH]]OLQJDQG
REVHUYLQJWKDW³RQHZKRREWDLQVSURSHUW\E\ODZIXOPHDQV
DQGWKHUHDIWHUDSSURSULDWHVWKHSURSHUW\WRWKHWDNHU¶VRZQXVH
LVJXLOW\RIDμWKHIW¶´ %RJHUW7UXVW 7UXVWHHV†DW
GHG 6XSS WUHDWLQJODUFHQ\HPEH]]OHPHQW
DQGFRQYHUVLRQLQWKHVDPHPDQQHU
0RUHRYHUUHJDUGOHVVRIZKDWFULPHGHEWRUSOHGJXLOW\WRLW
LV FOHDU WKDW 13, QHYHU LQWHQGHG WR SDVV WLWOH LQ WKH
DSSURSULDWHGIXQGVWRGHEWRU$VWKHGLVWULFWFRXUWREVHUYHG
1HZSRZHU KDG RQO\ OLPLWHG DXWKRULW\ WR PRYH FRUSRUDWH
IXQGVIRUDXWKRUL]HGFRUSRUDWHSXUSRVHVLHWRSXUFKDVHWKH
DJUHHG XSRQ SURSHUWLHV 7KXV WKH WKDW GHEWRU
1RV ,QUH1HZSRZHU
VXEVHTXHQWO\ LPSRVHG FRQVWUXFWLYH WUXVW GRHV QRW UHPRYH
SURSHUW\IURPWKHEDQNUXSWF\HVWDWH
-XGJH %DWFKHOGHU DWWHPSWV WR GUDZ D IDFWXDO GLVWLQFWLRQ
EHWZHHQWKLVFDVHDQG,QUH2PHJDVLQWKDW³,QUH2PHJDV
GHDOWZLWKDVLWXDWLRQZKHUHLQWKHGHEWRUREWDLQHGSURSHUW\
IURPDFUHGLWRULQWKHRUGLQDU\FRXUVHRIEXVLQHVV´ZKHUHDV
KHUHWKHGHEWRUZDVDWKLHIDQGQHYHUKDGDQ\FODLPWR DQ
HTXLWDEOH LQWHUHVW %XW WKH GHEWRU LQ ,Q UH 2PHJDV ZDV
DOOHJHGWREHJXLOW\RIIUDXGDJDLQVWWKHFUHGLWRUDQGDOVRGLG
QRWKDYHHTXLWDEOHWLWOH7KXVWKHUHGRHVQRWDSSHDUWREHD
UHOHYDQWGLVWLQFWLRQKHUH
-XGJH %DWFKHOGHU DOVR DSSHDUV WR GUDZ D GLVWLQFWLRQ
EHWZHHQZKHWKHURUQRWWKHEDQNUXSWF\FRXUWFDQLPSRVHD
FRQVWUXFWLYH WUXVW DQG ZKHWKHU WKH EDQNUXSWF\ FRXUW FDQ
HQIRUFH D VWDWH FRXUW MXGJPHQW 6KH VD\V LQ KHU RSLQLRQ
UHIHUULQJ WR ,Q UH 2PHJDV ³>Z@H KHOG WKDW LW ZDV QRW WKH
SURYLQFH RI WKH EDQNUXSWF\ FRXUW WR LPSRVH D FRQVWUXFWLYH
WUXVW EXW ZH ZHUH QRW IDFHG ZLWK WKH TXHVWLRQ RI HLWKHU
REWDLQLQJRUHQIRUFLQJDVWDWHFRXUWMXGJPHQWKROGLQJWKDWWKH
HTXLWDEOHLQWHUHVWEHORQJHGWRVRPHRQHRWKHUWKDQWKHGHEWRU´
7KLVVXSSRVHGGLVWLQFWLRQFDQQRWPDWWHUKRZHYHUEHFDXVH
WKH,QUH2PHJDVFRXUWVSHFLILFDOO\KHOGWKDW³>X@QOHVVDFRXUW
KDVDOUHDG\LPSUHVVHGDFRQVWUXFWLYHWUXVWXSRQFHUWDLQDVVHWV
WKHFODLPDQWFDQQRWSURSHUO\UHSUHVHQWWRWKHEDQNUXSWF\
FRXUWWKDWKHZDVDWWKHWLPHRIWKHFRPPHQFHPHQWRIWKH
FDVHDEHQHILFLDU\RIDFRQVWUXFWLYHWUXVWKHOGE\WKHGHEWRU´
)G DW 5HJDUGOHVV RI ZKR PLJKW DXWKRUL]H WKH
FRQVWUXFWLYHWUXVW,QUH2PHJDVKHOGWKDWDFRQVWUXFWLYHWUXVW
LPSRVHG DIWHU WKH EDQNUXSWF\ SHWLWLRQ ZLOO QRW UHPRYH
SURSHUW\IURPWKHEDQNUXSWF\HVWDWH
&
:HQH[WDGGUHVVWKHWKDWWKH.LWFKHQVWUDQVIHUUHG
WR1HZSRZHUGLUHFWO\LQKLVQDPHSULRUWRWKHIRUPDWLRQRI
13,7KHEDQNUXSWF\FRXUWIRXQGWKDWWKHWKDWWKH
.LWFKHQVVHQW1HZSRZHUZDVDORDQWRWKHFRUSRUDWLRQHYHQ
WKRXJK WKH FRUSRUDWLRQ ZDV QRW \HW LQ H[LVWHQFH 7KH
EDQNUXSWF\FRXUWUHDFKHGWKLVFRQFOXVLRQGXHWRWHVWLPRQ\

-- 10 of 12 --

,QUH1HZSRZHU 1RV
SURFHHGLQJ ,Q UH 2PHJDV )G DW ± ,Q ,Q UH
2PHJDVWKHFRXUWH[SODLQHGWKDW
%HFDXVHDFRQVWUXFWLYHWUXVWXQOLNHDQH[SUHVVWUXVWLVD
UHPHG\ LW GRHV QRW H[LVW XQWLO D SODLQWLII REWDLQV D
MXGLFLDOGHFLVLRQILQGLQJKLPWREHHQWLWOHGWRDMXGJPHQW
³LPSUHVVLQJ´ GHIHQGDQW¶V SURSHUW\ RU DVVHWV ZLWK D
FRQVWUXFWLYH WUXVW 7KHUHIRUH D FUHGLWRU¶V FODLP RI
HQWLWOHPHQWWRDFRQVWUXFWLYHWUXVWLVQRWDQ³HTXLWDEOH
LQWHUHVW´ LQ WKH GHEWRU¶V HVWDWH H[LVWLQJ SUHSHWLWLRQ
H[FOXGHGIURPWKHHVWDWHXQGHU† G
,GDW7KLVDSSDUHQWO\UHPDLQVWKHFDVHHYHQLIWKHVWDWH
ZRXOGYLHZWKHFRQVWUXFWLYHWUXVWDVFRPLQJLQWRH[LVWHQFHRQ
WKHGDWHWKHZURQJIXODFWVZKLFKJDYHULVHWRLWWRRNSODFH,G
DW VWDWLQJWKDW³>X@QOHVVDFRXUWKDVDOUHDG\LPSUHVVHG
DFRQVWUXFWLYHWUXVWXSRQFHUWDLQDVVHWVRUDOHJLVODWXUHKDV
FUHDWHGDVSHFLILFVWDWXWRU\ULJKWWRKDYHSDUWLFXODUNLQGVRI
IXQGV KHOG DV LI LQ WUXVW WKH FODLPDQW FDQQRW SURSHUO\
UHSUHVHQWWRWKHEDQNUXSWF\FRXUWWKDWKHZDVDWWKHWLPHRI
WKHFRPPHQFHPHQWRIWKHFDVHDEHQHILFLDU\RIDFRQVWUXFWLYH
WUXVWKHOGE\WKHGHEWRU´
%HFDXVHWKH.LWFKHQVFOHDUO\KDYHQRWKDGDFRXUWGHFODUH
DFRQVWUXFWLYHWUXVWDVWRWKHVHSURFHHGVSUHSHWLWLRQWKHUHLV
QRDFWLRQWKDWWKHVWDWHFRXUWFRXOGWDNHZKLFKZRXOGDIIHFW
WKHLUGLVSRVLWLRQ(YHQLIDVWDWHFRXUWZHUHWRILQGWKDWWKH
FRQVWUXFWLYHWUXVWDURVHDWWKHWLPHRIWKHWKHIW,QUH2PHJDV
VWDWHVWKDWWKLVLVLUUHOHYDQWDVEDQNUXSWF\ODZFRQWUROV6HH
LG DW ± FRQFOXGLQJ WKDW IRU WKH SXUSRVHV RI
%DQNUXSWF\ ODZ D FRQVWUXFWLYH WUXVW GRHV QRW H[LVW XQWLO
MXGLFLDOO\ GHFUHHG VHH DOVR LG DW ± *X\ -
&RQFXUULQJ GLVDJUHHLQJZLWKWKHPDMRULW\¶VDSSURDFKDQG
LQVWHDG UHO\LQJ RQ KLV EHOLHI WKDW XQGHU .HQWXFN\ ODZ
FRQVWUXFWLYHWUXVWVGRQRWFRPHLQWRH[LVWHQFHXQWLOLPSUHVVHG
E\DFRXUW &RQVHTXHQWO\,PXVWGLVDJUHHZLWKWKHPDMRULW\
RSLQLRQRQWKLVLVVXH,ZRXOGUHWDLQWKHVWD\LQEDQNUXSWF\DV
WRWKHVHSURFHHGV7RGRRWKHUZLVHLVWRLJQRUH,QUH2PHJDV
7KH GHEWRU KDG OHJDO WLWOH WKDW LV HQRXJK WR LQFOXGH VXFK
SURFHHGVLQWKHEDQNUXSWF\HVWDWH8QGHU,QUH2PHJDVD
1RV ,QUH1HZSRZHU
LQFRUSRUDWLRQ 7KH SURSHU GLVSRVLWLRQ RI WKH ZLOO EH GLVFXVVHG
IXUWKHU EHORZ
HPEH]]OHGGLUHFWO\IURP13,ZDVQHYHUSURSHUW\RIGHEWRU¶V
HVWDWH&I0DODFK1:GDW'HQQLVY8QLWHG
6WDWHV)6XSS ('9D REVHUYLQJWKDW
³>D@WFRPPRQODZWKHSDVVLQJRIWLWOHWXUQVDVDJHQHUDOUXOH
RQ WKH LQWHQW RI WKH RULJLQDO RZQHU´ +RZHYHU WKH VDPH
FDQQRWEHVDLGRISURSHUW\WKDWGHEWRUSXUFKDVHGIRUKLPVHOI
ZLWKWKHVWROHQPRQH\7KHJRRGIDLWKVHOOHUIURPZKLFKWKH
WKLHI SXUFKDVHV SURSHUW\ LQWHQGV WR SDVV ERWK WLWOH DQG
SRVVHVVLRQRIWKHSURSHUW\VROGWRWKHWKLHIDQGREWDLQVJRRG
WLWOHWRWKHPRQH\WKHWKLHISURYLGHV6HHHJ$$P-XU
G6WROHQ0RQH\† $FFRUGLQJO\WKHWKLHIREWDLQV
OHJDOWLWOHWRWKHJRRGVSXUFKDVHGZKLFKWKHUHE\EHFRPHSDUW
RIKLVHVWDWH6HH0LFK&RPS/DZV† SURYLGLQJ
WKDW ³>D@ SXUFKDVHU RI JRRGV DFTXLUHV DOO WLWOH ZKLFK KLV
WUDQVIHURU KDG´ 7KRPDV 0 4XLQQ 4XLQQ¶V 8QLIRUP
&RPPHUFLDO &RGH &RPPHQWDU\ DQG /DZ 'LJHVW ˆ
>$@>@ GHG ³7KLVLVWKHEDVLFUXOHDQGVLPSO\
SXWLWSURYLGHVWKDWWKHSXUFKDVHUJHWVZKDWHYHUKLVVHOOHUKDG
WR JLYH´ -$ %U\DQW -U $QQRWDWLRQ ,PSRVLWLRQ RI
&RQVWUXFWLYH 7UXVW LQ 3URSHUW\ %RXJKW ZLWK 6WROHQ RU
(PEH]]OHG)XQGV$/5 VWDWLQJWKDW³LID
WKLHIVWHDOVIXQGVDQGXVHVWKHPWRSXUFKDVHRWKHUSURSHUW\WKH
RZQHUFDQQRWIROORZWKHIXQGVDQGKHLVOHIWWRKLVUHPHG\
DJDLQVWWKHWKLHIZKRDOWKRXJKKHKDGQRWLWOHWRWKHVWROHQ
IXQGVGRHVKDYHWLWOHWRWKHSURSHUW\SXUFKDVHGWKHUHZLWK´
8QLWHG6WDWHVY%ULPEHUU\)G± WK&LU
REVHUYLQJWKDW³ZKHQDQHPEH]]OHUSXUFKDVHVSURSHUW\
ZLWK VWROHQ IXQGV WKH SURSHUW\ PD\ EH VXEMHFWHG WR D
FRQVWUXFWLYHWUXVWLQIDYRURIWKHYLFWLP´EXWFRQFOXGLQJWKDW
XQWLO WKLV RFFXUV WKH YLFWLP PHUHO\ KDV D FODLP WR²UDWKHU
WKDQDQLQWHUHVWLQ²VXFKSURSHUW\ &RVWHOOY)LUVW1DWLRQDO
%DQNRI0RELOH6RG $OD QRWLQJWKDW
ZKLOHDWKLHIFRXOGQRWDFTXLUHWLWOHWRVWROHQPRQH\WKHWKLHI
FRXOGDFTXLUHWLWOHWRODQGSXUFKDVHGZLWKWKHVWROHQPRQH\
7KH5HVWDWHPHQW )LUVW RI5HVWLWXWLRQ&RQVFLRXV:URQJGRHU
† SURYLGLQJ WKDW ZKHQ ³D SHUVRQ ZURQJIXOO\

-- 11 of 12 --

,QUH1HZSRZHU 1RV
:H QRWH WKDW 0RUJDQ Y +RGJHV GRHV QRW SURYLGH DXWKRULW\ WR WKH
FRQWUDU\ $V GLVFXVVHG DERYH LQ 0RUJDQ WKH RULJLQDO RZQHU ZDV VXLQJ
WKH SXUFKDVHUV WR UHFRYHU WKH YDOXH RI JRRGV WKDW WKH SXUFKDVHU ERXJKW
IURP WKH WKLHI 7KH SXUFKDVHUV GHIHQGHG RQ WKH JURXQGV WKDW WKH RULJLQDO
RZQHU KDG HQWHUHG LQWR D FRQWUDFW QRW WR VXH WKH SXUFKDVHUV IRU WKH YDOXH
RI WKH VWROHQ KRUVHV LI WKH\ KDQGHG RYHU WKH RULJLQDO RZQHU¶V EXJJ\ DQG
UHODWHG HTXLSPHQW 7KH WULDO MXGJH LQVWUXFWHG WKH MXU\ WKDW VXFK D FRQWUDFW
FRXOG EH IRXQG ELQGLQJ RQ WKH SDUWLHV 7KH 0LFKLJDQ 6XSUHPH &RXUW
UHYHUVHG DQG RUGHUHG D QHZ WULDO KROGLQJ WKDW QR FRQWUDFW FRXOG H[LVW DV
WKH SXUFKDVHUV RQO\ GLG WKDW ZKLFK WKH\ ZHUH UHTXLUHG E\ ODZ WR GR LH
UHWXUQ WKH VWROHQ EXJJ\ WR WKH RULJLQDO RZQHU 6HH 0RUJDQ 1: DW
7KXV WKH FDVH PHUHO\ VWDQGV IRU WKH JHQHUDO FRPPRQ ODZ UXOH WKDW
D WKLHI RU VRPHRQH KROGLQJ XQGHU D WKLHI WDNHV QR WLWOH LQ WKH VWROHQ JRRGV
DV DJDLQVW WKH WUXH RZQHU 6HH -$ %U\DQW -U $QQRWDWLRQ ,PSRVLWLRQ RI
&RQVWUXFWLYH 7UXVW LQ 3URSHUW\ %RXJKW ZLWK 6WROHQ RU (PEH]]OHG )XQGV
$/5 G ³>$@ VDOH E\ D WKLHI RU E\ DQ\ SHUVRQ FODLPLQJ
XQGHU D WKLHI GRHV QRW YHVW DQ\ WLWOH LQ WKH SXUFKDVHU DV DJDLQVW WKH
RZQHU´ HPSKDVLV DGGHG 7KH FDVH GRHV QRW VSHDN WR WKH LVVXH RI WKH
WLWOH D WKLHI KDV LQ WKH SURFHHGV REWDLQHG ZLWK VWROHQ IXQGV
GLVSRVHVRISURSHUW\RIDQRWKHUNQRZLQJWKDWWKHGLVSRVLWLRQ
LV ZURQJIXO DQG DFTXLUHV LQ H[FKDQJH RWKHU SURSHUW\´ WKH
RWKHUVUHPHG\LVWKHHQIRUFHPHQWRIHLWKHUDFRQVWUXFWLYHWUXVW
RUDQHTXLWDEOHOLHQXSRQWKHSURFHHGV
7KHRULJLQDORZQHUZRXOGQRUPDOO\QRWEHZLWKRXWUHPHG\
LQVXFKDVLWXDWLRQDVDFRQVWUXFWLYHWUXVWPD\EHLPSRVHGRQ
WKHSURFHHGVKHOGE\WKHWKLHIRUHPEH]]OHU%RJHUW7UXVW
7UXVWHHV†DWQ GHG 6XSS FROOHFWLQJ
FDVHVVWDQGLQJIRUWKLVSURSRVLWLRQ +RZHYHUXQGHU,QUH
2PHJDV D FRQVWUXFWLYH WUXVW LV DQ HTXLWDEOH LQWHUHVW WKDW
H[HPSWVSURSHUW\IURPWKHEDQNUXSW¶VHVWDWHXQGHU† G
RQO\LIWKHWUXVWLVGHFODUHGE\DFRXUWLQDVHSDUDWHSUHSHWLWLRQ
SURFHHGLQJRUDVWDWHVWDWXWHSURYLGHVWKDWWKHSURSHUW\LVWREH
KHOGLQWUXVWIRUDSDUWLFXODUSXUSRVH,QUH2PHJDV)G
DW±
7KXVZHKROGWKDWWKHEDQNUXSWF\FRXUWHUUHGLQFRQFOXGLQJ
WKDWPRQH\ZKLFKGHEWRUHPEH]]OHGIURP13,ZDVSDUWRI
GHEWRU¶VEDQNUXSWF\HVWDWH&RQVHTXHQWO\ZHDOVRKROGWKDW
WKHGHEWRU¶VEDQNUXSWF\HVWDWHKDVQRSURSHUW\LQWHUHVWLQVXFK
HPEH]]OHGIXQGVZKLFKDUHQRZLQWKHKDQGVRIWKLUGSDUWLHV
1RV ,QUH1HZSRZHU
,Q GUDZLQJ WKLV FRQFOXVLRQ ZH PHUHO\ KROG WKDW GHEWRU¶V EDQNUXSWF\
HVWDWH KDV QR SURSHUW\ LQWHUHVW LQ VXFK IXQGV DQG H[SUHVV QR RSLQLRQ DV WR
PRYDQWV¶ ULJKW YLVDYLV WKLUG SDUWLHV WR VXFK IXQGV RU SURSHUW\ WUDFHDEOH
WR WKHP
$VGLVFXVVHGGHEWRUQHYHUKDGDOHJDOLQWHUHVWLQVXFKIXQGV
DQG DSSHOODQWV VKRXOG EH DOORZHG WR SXUVXH WKLUG SDUW\
UHFLSLHQWVWRUHFRYHUHPEH]]OHGIXQGVDQGSURSHUW\WUDFHDEOH
WRVXFKIXQGVWRWKHH[WHQWWKDWWKHODZDOORZV)LQDOO\ZLWK
UHVSHFWWRLWHPVGHEWRUREWDLQHGZLWKWKHHPEH]]OHGIXQGV
ZKLOHGHEWRUGLGQRWREWDLQHTXLWDEOHWLWOHWRWKHVHSURFHHGV
KHGLGREWDLQOHJDOWLWOHDOOWKDWLVQHFHVVDU\WRLQFOXGHWKRVH
DVVHWVLQWKHEDQNUXSWF\HVWDWH&RQVHTXHQWO\ZHFRQFOXGH
VXFKSURFHHGVDUHSDUWRIGHEWRU¶VEDQNUXSWF\HVWDWHDQGDUH
WKXV VXEMHFW WR DQ DXWRPDWLF VWD\ LQ EDQNUXSWF\ XQGHU
86&†6HH,QUH2PHJDV)GDW±
%
, PXVW GLVDJUHH ZLWK P\ FROOHDJXHV KRZHYHU LQ WKHLU
DVVHUWLRQWKDWWKHDXWRPDWLFVWD\VKRXOGEHOLIWHGZLWKUHVSHFW
WRSURSHUW\WKDWGHEWRUSXUFKDVHGZLWKVWROHQIXQGV,QKHU
VHSDUDWHRSLQLRQZKLFKLVWKHRSLQLRQRIWKHFRXUWRQWKLV
LVVXH -XGJH %DWFKHOGHU REVHUYHV WKDW DQ DXWRPDWLF VWD\ LQ
EDQNUXSWF\PD\EHOLIWHG³ZKHUHWKHGHEWRUGRHVQRWKDYHDQ
HTXLW\ LQWHUHVW LQ WKH SURSHUW\ DQG WKH SURSHUW\ LV QRW
QHFHVVDU\ WR DQ HIIHFWLYH UHRUJDQL]DWLRQ´ 6HH 86&
† G $V-XGJH%DWFKHOGHU¶VQRWHVZHKDYHFRQFOXGHG
WKDWWKHGHEWRUGLGQRWREWDLQHTXLWDEOHWLWOHWRWKHSURFHHGVDW
LVVXH DQG ³WKHUH LV QR UHRUJDQL]DWLRQ SUHVHQW LQ WKLV FDVH
EHFDXVH GHEWRU LV OLTXLGDWLQJ KLV DVVHWV XQGHU &KDSWHU ´
+RZHYHUUHPRYLQJWKHDXWRPDWLFVWD\LQEDQNUXSWF\VHUYHV
QRSXUSRVHZLWKUHVSHFWWRSURSHUW\GHEWRUSXUFKDVHGZLWK
VWROHQIXQGV$VZHQRWHGDERYHGHEWRUFOHDUO\KDVOHJDOWLWOH
WRVXFKIXQGV:KLOHWKH.LWFKHQVFRXOGKDYHWKHVHSURFHHGV
LPSUHVVHG ZLWK D FRQVWUXFWLYH WUXVW LQ WKH VWDWH FRXUW
SURFHHGLQJWKLVZRXOGQRWUHPRYHVXFKSURFHHGVIURPWKH
EDQNUXSWF\HVWDWH8QGHU,QUH2PHJDVDFRQVWUXFWLYHWUXVW
PXVWEHLPSUHVVHGE\DFRXUWSUHSHWLWLRQWRKDYHDQ\HIIHFWRQ
WKH RZQHUVKLS RI WKH SURSHUW\ DW LVVXH LQ D EDQNUXSWF\

-- 12 of 12 --