01a0135p.06

7KH +RQRUDEOH &XUWLV / &ROOLHU 8QLWHG 6WDWHV 'LVWULFW -XGJH IRU WKH
(DVWHUQ 'LVWULFW RI 7HQQHVVHH VLWWLQJ E\ GHVLJQDWLRQ

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
81,7(' 67$7(6 2) $0(5,&$
3ODLQWLII$SSHOOHH
Y
&+5,6723+(5 0$56+$//
'HIHQGDQW$SSHOODQW
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW&OHYHODQG
1R²/HVOH\%URRNV:HOOV'LVWULFW-XGJH
$UJXHG)HEUXDU\
'HFLGHGDQG)LOHG$SULO
%HIRUH'$8*+75(<DQG*,/0$1&LUFXLW-XGJHV
&2//,(5'LVWULFW-XGJH
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 0DUJDUHW 6 2¶'RQQHOO 0F1$//<
2¶'211(//)UDQNIRUW.HQWXFN\IRU$SSHOODQW*DU\'
$UEH]QLN $66,67$17 81,7(' 67$7(6 $77251(<

-- 1 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
&OHYHODQG2KLRIRU$SSHOOHH21%5,()0DUJDUHW6
2¶'RQQHOO 0F1$//< 2¶'211(// )UDQNIRUW
.HQWXFN\IRU$SSHOODQW*DU\'$UEH]QLN$66,67$17
81,7(' 67$7(6 $77251(< &OHYHODQG 2KLR IRU
$SSHOOHH
*,/0$1-GHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
'$8*+75(< - MRLQHG &2//,(5 ' - SS
GHOLYHUHGDVHSDUDWHRSLQLRQFRQFXUULQJLQSDUWDQGGLVVHQWLQJ
LQSDUW
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
521$/' /(( *,/0$1 &LUFXLW -XGJH 7KLV FDVH
LQYROYHVWKHWKHIWRIIURPDEDQN¶VDXWRPDWHGWHOOHU
PDFKLQH $70 E\ &KULVWRSKHU 0DUVKDOO D 3LQNHUWRQ
6HFXULW\&RPSDQ\FRXULHU0DUVKDOOZDVFRQYLFWHGRQWZR
FRXQWV RI EDQN ODUFHQ\ DQG SRVVHVVLQJ VWROHQ PRQH\ LQ
YLRODWLRQRI86&† E DQG† F RQHFRXQWRI
HQJDJLQJ LQ DQ XQODZIXO PRQHWDU\ WUDQVDFWLRQ H[FHHGLQJ
LQ YLRODWLRQ RI 86& † WKUHH FRXQWV RI
PRQH\ ODXQGHULQJ LQ YLRODWLRQ RI 86&
† D % L DQGRQHFRXQWRIILOLQJDIDOVHVWDWHPHQW
RQ D IHGHUDO FXUUHQF\ WUDQVDFWLRQ UHSRUW LQ YLRODWLRQ RI
86& † DQG† D +HZDVVHQWHQFHGWR
PRQWKV RI LPSULVRQPHQW RQ HDFK FRXQW WR EH VHUYHG
FRQFXUUHQWO\ ZLWK D \HDU SHULRG RI VXSHUYLVLRQ DIWHU KLV
UHOHDVH)RUWKHUHDVRQVVHWIRUEHORZZH9$&$7(KLVWKUHH
86&† D % L PRQH\ODXQGHULQJFRQYLFWLRQV
DQGZLWKWKHFRQVHQWRIWKHJRYHUQPHQWZHDOVR9$&$7(
0DUVKDOO¶V86&† F FRQYLFWLRQ7KHVHFRXQWVRI
WKHLQGLFWPHQWDUH5(0$1'('WRWKHGLVWULFWFRXUWIRUHQWU\
RIDMXGJPHQWRIDFTXLWWDO:H$)),50WKHUHPDLQLQJWKUHH
FRQYLFWLRQV

-- 2 of 22 --

1R 8QLWHG6WDWHVY0DUVKDOO
,%$&.*5281'
$ )DFWXDOEDFNJURXQG
6RFLHW\ %DQN QRZ NQRZQ DV .H\ %DQN KDG D FRQWUDFW
ZLWK 3LQNHUWRQ WR PDLQWDLQ WKH FDVK VXSSO\ RI 6RFLHW\¶V
$70V0DUVKDOO DORQJZLWKKLVSDUWQHU-LP0\HUVZHUH
3LQNHUWRQ FRXULHUV ZKR SHUIRUPHG $70 PDLQWHQDQFH
WKURXJKRXWWKH$NURQ&DQWRQDUHDLQ2KLR7RJHWKHUWKH\
VHUYLFHGEHWZHHQWHQDQGWZHOYHORFDWLRQVHDFKGD\
7KH SURFHGXUHV IRU VHUYLFLQJ HDFK $70 ZHUH UDWKHU
HODERUDWHDVZDVWKHV\VWHPIRUDFFHVVLQJWKH$70YDXOW$W
HDFKPDFKLQHEHLQJVHUYLFHGWKHSDLURIFRXULHUVZRXOGKDYH
DPDVWHUNH\DOORZLQJHQWU\LQWRWKHUHVWULFWHGDFFHVVSRUWLRQ
RIWKH$70EXLOGLQJ2QFHWKHRXWVLGHGRRUZDVRSHQHGWKH
FRXULHUVKDGWRSXQFKLQDVHFXULW\FRGHWRGLVDUPWKHDODUP
V\VWHP 7KH FRXULHUV ZHUH WKHQ UHTXLUHG WR FDOO D FHQWUDO
$70 VHFXULW\ VHUYLFH LQ 'D\WRQ LQ RUGHU WR LGHQWLI\
WKHPVHOYHV DQG DGYLVH WKH VHUYLFH RI WKHLU SUHVHQFH DW WKH
$702QFHLQVLGHWKH$70EXLOGLQJWKHFRXULHUVRSHQHG
WKH$70YDXOW7KLVZDVGRQHE\XVLQJDFRPELQDWLRQORFN
XQLTXH WR HDFK $70 DGMXVWLQJ WKH KDQGOH LQ D VSHFLILF
PDQQHUDQGLQVHUWLQJDYDXOWFRPELQDWLRQNH\LQWRWKHYDXOW
GRRUGLDOWRDOORZWKHGRRUWRUHOHDVH7KHPRPHQWLWZDV
RSHQHG WKH VHFXULW\ VHUYLFH LQ 'D\WRQ ZDV DOHUWHG E\ DQ
HOHFWURQLFVLJQDOQRWLI\LQJWKHVHUYLFHWKDWWKHYDXOWKDGEHHQ
DFFHVVHG
0DUVKDOO DQG 0\HUV VHUYLFHG WKH $70 DW WKH &X\DKRJD
)DOOV $YHQXH ORFDWLRQ RI WKH 6RFLHW\ %DQN $70 RQ
'HFHPEHU$IWHUSHUIRUPLQJWKHLUYDULRXVGXWLHV
WKH\OHIWRI³H[WUDPRQH\´LQWKHYDXOWDSUDFWLFHWKDW
DOORZVWKH$70WREHVHUYLFHGDIWHUQRUPDOEDQNLQJKRXUV
0DUVKDOO WHVWLILHG DW WULDO WKDW WKLV ZDV DQ XQXVXDOO\ ODUJH
DPRXQW RI H[WUD PRQH\ WR OHDYH LQ WKH YDXOW 7KLV H[WUD
PRQH\KDGEHHQSUHSDFNDJHGLQWREULFNVDWWKHEDQN(DFK
EULFNFRQWDLQHGELOOVDQGZDVLQGLYLGXDOO\SDFNDJHGLQ
VKULQNZUDSSODVWLF7KUHHRIWKHEULFNVFRQWDLQHG
HDFKLQELOOVDQGWKUHHRIWKHEULFNVFRQWDLQHG
HDFKLQELOOV0DUVKDOOWHVWLILHGWKDWKHSODFHGWKHH[WUD

-- 3 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
PRQH\LQWKHYDXOWZLWKRXWGLVWXUELQJWKHSODVWLFSDFNDJLQJ
2QFHWKHVHUYLFLQJZDVFRPSOHWHWKHYDXOWZDVFORVHGWKH
DODUPZDVDFWLYDWHGDQGWKHRXWVLGHGRRUZDVORFNHG
7KUHH GD\V ODWHU RQ -DQXDU\ WKH FHQWUDO $70
VHFXULW\ VHUYLFH LQ 'D\WRQ UHFRUGHG DQ HOHFWURQLF VLJQDO DW
SP LQGLFDWLQJ WKDW WKH YDXOW DW 6RFLHW\ %DQN¶V
&X\DKRJD)DOOV$70KDGEHHQDFFHVVHG7KHVLJQDOVKRZHG
WKDWWKHYDXOWGRRUUHPDLQHGRSHQIRUVHFRQGVZDVFORVHG
DQGWKHQUHRSHQHGIRUJRRGVHFRQGVODWHU$OWKRXJKWKH
$70 VHFXULW\ VHUYLFH LV VXSSRVHG WR UHVSRQG WR DQG
LQYHVWLJDWHXQDXWKRUL]HGRSHQLQJVRIWKHYDXOWQRVXFKDFWLRQ
ZDVWDNHQ7LQD$GROSKVRQZDVWKHILUVWSHUVRQWRXVHWKH
$70 DIWHU LW ZDV RSHQHG RQ -DQXDU\ $W WULDO
$GROSKVRQWHVWLILHGWKDWVKHQRWLFHGWKDWWKH$70UHVWULFWHG
DFFHVV GRRU ZDV DMDU ZKHQ VKH ZDV FRQGXFWLQJ KHU
WUDQVDFWLRQ EXW WKDW VKH GLG QRW VHH DQ\RQH DURXQG WKH
PDFKLQHHLWKHUEHIRUHRUDIWHU
0DUVKDOODQG0\HUVGLGQRWUHWXUQWRVHUYLFHWKH&X\DKRJD
)DOOV$70DJDLQXQWLOWKHIROORZLQJGD\-DQXDU\
8SRQ DSSURDFKLQJ WKH $70 0\HUV QRWLFHG WKDW WKH
UHVWULFWHGDFFHVVGRRUWRWKHEXLOGLQJKDGEHHQOHIWVOLJKWO\
DMDUEXWKHVDZQRRWKHUSHUVRQLQVLGH$IWHUFKHFNLQJWKH
YDXOWKHUHDOL]HGWKDWWKHWKUHHEULFNVZHUHPLVVLQJ
0\HUVWHVWLILHGDWWULDOWKDWWKHUHZHUHQRVLJQVRIIRUFHGHQWU\
RQWKH$70UHVWULFWHGDFFHVVGRRURUWKHYDXOW5DWKHUWKH
YDXOWDODUPKDGEHHQGHDFWLYDWHG+HDOVRWHVWLILHGWKDWWKH
RQO\SK\VLFDOHYLGHQFHDWWKHVFHQHFRQVLVWHGRIWKHSODVWLF
VKULQNZUDSWKDWKDGEHHQUHPRYHGIURPWKHSXUORLQHGPRQH\
7KHRQO\LQWDFWILQJHUSULQWVWKDWZHUHIRXQGRQWKHGLVFDUGHG
SODVWLFEHORQJHGWR0DUVKDOO
$OPRVWIRXU\HDUVSULRUWRWKLVLQFLGHQW0DUVKDOOKDGILOHG
IRUEDQNUXSWF\,QWKHVXEVHTXHQW\HDUVKLVDQQXDOUHSRUWHG
LQFRPHUDQJHGIURPWR+HUDUHO\KDGPRUH
WKDQWZRWKRXVDQGGROODUVLQWKHEDQNDQGDVRI'HFHPEHU
KH KDG DFFXPXODWHG LQ FUHGLW FDUG GHEW
,PPHGLDWHO\DIWHUWKHODUFHQ\KRZHYHU0DUVKDOO¶VILQDQFHV
LPSURYHG GUDPDWLFDOO\ 2Q -DQXDU\ 0DUVKDOO
1R 8QLWHG6WDWHVY0DUVKDOO
WKH GLDPRQG EUDFHOHW DQG WKH FROOHFWLEOH ZLQHV ZHUH
PRWLYDWHGDWOHDVWLQSDUWE\DGHVLJQRULQWHQWWRFRQFHDORU
GLVJXLVHWKHQDWXUHWKHORFDWLRQWKHVRXUFHWKHRZQHUVKLSRU
WKHFRQWURORIWKHEDQNODUFHQ\SURFHHGV)XUWKHUPRUHIRUWKH
UHDVRQV VWDWHG , EHOLHYH WKH FDVHV FLWHG E\ WKH PDMRULW\ LQ
VXSSRUWRILWVFRQFOXVLRQDUHIDFWXDOO\GLVWLQFWIURPWKHFDVH
DW KDQG DQG GR QRW PDQGDWH YDFDWXU RI 0DUVKDOO¶V PRQH\
ODXQGHULQJ FRQYLFWLRQV &RQVHTXHQWO\ , PXVW UHVSHFWIXOO\
GLVVHQWIURPWKDWSRUWLRQRIWKHPDMRULW\¶VRSLQLRQYDFDWLQJ
0DUVKDOO¶VFRQYLFWLRQVRQ&RXQWV
,,,&RQFOXVLRQ
)RU WKH UHDVRQV GLVFXVVHG LQ SDUW , DERYH DQG IRU WKH
UHDVRQVSXWIRUWKLQWKHPDMRULW\¶VRSLQLRQ,FRQFXULQWKH
GHFLVLRQWR5(9(56(0DUVKDOO¶VFRQYLFWLRQIRUSRVVHVVLQJ
RUFRQFHDOLQJVWROHQEDQNSURSHUW\LQYLRODWLRQRI86&
† F ,DOVRFRQFXUJHQHUDOO\ZLWKSDUWV,,$,,%,,&
DQG ,,' RI WKH PDMRULW\¶V RSLQLRQ , PXVW UHVSHFWIXOO\
GLVVHQWKRZHYHUIURPWKHPDMRULW\¶VKROGLQJZLWKUHVSHFWWR
0DUVKDOO¶V PRQH\ ODXQGHULQJ FRQYLFWLRQV XQGHU 86&
† D % L DV,ZRXOG$)),50WKRVHFRQYLFWLRQVIRU
WKHUHDVRQVVWDWHGLQSDUW,,DERYH

-- 4 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
WKHSDVW+HUHLQFRQWUDVW0DUVKDOOKDGQHYHUEHIRUHPDGH
SXUFKDVHVVXFKDVWKHWKUHHVXSSRUWLQJKLVPRQH\ODXQGHULQJ
FRQYLFWLRQV $OWKRXJK KH ERXJKW ZLQH IURP WKH VDPH
PHUFKDQWSUHYLRXVO\KHKDGQHYHUSXUFKDVHGFROOHFWLEOHZLQH
7KHIDFW0DUVKDOOKDGQHYHUFRQGXFWHGVLPLODUWUDQVDFWLRQV
SUHYLRXVO\ZKHQYLHZHGLQWKHFRQWH[WRIWKHRWKHUHYLGHQFH
GLVFXVVHGDERYHZHLJKVLQIDYRURIKLVFRQYLFWLRQVRQWKHVH
FRXQWV
,DJUHHZLWKWKHVHQWLPHQWH[SUHVVHGE\WKH6DQGHUVFRXUW
DQGWKHPDMRULW\LQWKLVFDVHWKDWVHFWLRQLVDPRQH\
ODXQGHULQJVWDWXWHQRWD³PRQH\VSHQGLQJVWDWXWH´)G
DW+DGWKHHYLGHQFHRQO\EHHQVXIILFLHQWWRHVWDEOLVK
0DUVKDOOSXUFKDVHGFRQVXPDEOHVZLWKWKHODUFHQ\SURFHHGV
LQVWHDG RI DOVR VXSSRUWLQJ D FRQFOXVLRQ KH ZDV PDNLQJ
LQYHVWPHQWV,ZRXOGJODGO\MRLQWKHPDMRULW\¶VRSLQLRQ,IWKH
HYLGHQFH KDG HVWDEOLVKHG 0DUVKDOO PHUHO\ PDGH
VWUDLJKWIRUZDUGSXUFKDVHVZLWKWKHODUFHQ\SURFHHGV,ZRXOG
KDYHFRQVLGHUHGYDFDWLQJWKHVHFRQYLFWLRQV,PLJKWDOVRKDYH
MRLQHG LQ WKH GHFLVLRQ WR YDFDWH LI WKH HYLGHQFH KDG QRW
HVWDEOLVKHG0DUVKDOOFOHDUO\H[SUHVVHGDGHVLUHDQGLQWHQWWR
FRQFHDO RU GLVJXLVH ERWK WKH ODUFHQ\ SURFHHGV DQG KLV
FRQQHFWLRQZLWKWKHPERWKEHIRUHDQGDIWHU WKHSXUFKDVHV
)LQDOO\,PLJKWQRWKDYHGLVVHQWHGLQWKLVFDVHLIWKHHYLGHQFH
KDGQRWEHHQVXIILFLHQWWRSURYHEH\RQGDUHDVRQDEOHGRXEW
0DUVKDOOOLHGDERXWKRZKHDFTXLUHGWKH5ROH[DQGOLHGDERXW
KLV UHDVRQV IRU SXUFKDVLQJ WKH GLDPRQG EUDFHOHW ,Q P\
RSLQLRQ KRZHYHU WKH HYLGHQFH LQ WKLV FDVH SUHFOXGHV P\
FRQFXUUHQFH LQ WKH PDMRULW\¶V KROGLQJ ZLWK UHVSHFW WR WKLV
LVVXH
$VWKH7HQWK&LUFXLWVWDWHGLQ*DUFLD(PPDQXHO³,IZH
KDG VDW RQ WKH MXU\ ZH PLJKW QRW KDYH FRQYLFWHG >WKH
GHIHQGDQW@ IRU PRQH\ ODXQGHULQJ %XW LQ UHYLHZLQJ >KLV@
FRQYLFWLRQRQDSSHDOZHDUHXQDEOHWRKROGWKDWWKHMXU\¶V
FRQFOXVLRQ ZDV XQUHDVRQDEOH´ )G DW LQWHUQDO
TXRWDWLRQ PDUNV RPLWWHG $IWHU FDUHIXOO\ UHYLHZLQJ WKH
UHFRUGGHYHORSHGDWWULDO,EHOLHYHWKHHYLGHQFHZKHQYLHZHG
LQWKHOLJKWPRVWIDYRUDEOHWRWKHJRYHUQPHQWZRXOGDOORZD
UDWLRQDOMXU\WRFRQFOXGH0DUVKDOO¶VSXUFKDVHVRIWKH5ROH[
1R 8QLWHG6WDWHVY0DUVKDOO
GHSRVLWHGFDVKLQWRDQDFFRXQWDWWKH2KLR6DYLQJV
%DQN0DUVKDOOERXJKWDFDVKLHU¶VFKHFNWKDWVDPHGD\IURP
)LUVW1DWLRQDO%DQNIRUZKLFKKHXVHGWRSD\RII
KLVFUHGLWFDUGEDODQFHLQIXOOIRXUGD\VODWHU2Q-DQXDU\
0DUVKDOOPDGHDFDVKGHSRVLWRILQWRKLVFUHGLW
XQLRQDFFRXQWEULQJLQJKLVEDODQFHWR
7KH IROORZLQJ GD\ 0DUVKDOO WUDYHOHG IURP $NURQ WR
&OHYHODQGWRFDOORQKLVVWHSEURWKHU-RKQ:HVWRQ:HVWRQ
ZDVDQDFFRXQWH[HFXWLYHDW2OGH'LVFRXQWDEURNHUDJHILUP
0DUVKDOOKDGQHYHUEHHQWR:HVWRQ¶VRIILFHEHIRUHWKLVYLVLW
RQ -DQXDU\ 8SRQ KLV DUULYDO DW :HVWRQ¶V RIILFH
0DUVKDOO WROG :HVWRQ WKDW KH ZDQWHG WR LQYHVW PRQH\ LQ
³VKRUWWHUPVSHFXODWLYHDJJUHVVLYHWUDGLQJ´+HLPSOLHGWKDW
WKH PRQH\ KH ZLVKHG WR LQYHVW EHORQJHG WR 5RELQ 0LOOHU
0DUVKDOO¶V JLUOIULHQG 0DUVKDOO WROG :HVWRQ WKDW KH KDG
LQ FDVK ORFDWHG LQ WKH WUXQN RI KLV FDU WR ZKLFK
:HVWRQ¶VILUVWUHDFWLRQZDV³ZKDWWKHKHOOLV5RELQGRLQJZLWK
LQFDVK"´:HVWRQWROG0DUVKDOOWKDWKHFRXOGQRW
DFFHSWFDVKDQGGLUHFWHG0DUVKDOOWRREWDLQDFDVKLHU¶VFKHFN
0DUVKDOO WKHQ SURFHHGHG GLUHFWO\ WR D %DQN 2QH EUDQFK
ZKHUHKHWROG-HDQ'DYLVDWHOOHUWKDWKHZDQWHGWRH[FKDQJH
LQ FDVK IRU D FHUWLILHG FKHFN SD\DEOH WR 2OGH
'LVFRXQW 'DYLV WHVWLILHG WKDW WKH ZDV DOO LQ
ELOOV
8QGHU IHGHUDO ODZ FXUUHQF\WUDQVDFWLRQ UHSRUWV PXVW EH
FRPSOHWHG IRU DOO EDQN WUDQVDFWLRQV LQYROYLQJ PRUH WKDQ
6HH &)5 † E ³(DFK ILQDQFLDO
LQVWLWXWLRQ RWKHU WKDQ D FDVLQR VKDOO ILOH D UHSRUW RI HDFK
GHSRVLWZLWKGUDZDOH[FKDQJHRIFXUUHQF\RURWKHUSD\PHQW
RUWUDQVIHUE\WKURXJKRUWRVXFKILQDQFLDOLQVWLWXWLRQZKLFK
LQYROYHVDWUDQVDFWLRQLQFXUUHQF\RIPRUHWKDQ´
%HFDXVH RI WKH DPRXQW LQYROYHG 'DYLV FDOOHG RYHU KHU
VXSHUYLVRU'LDQH$OGULGJH$OGULGJHWROG0DUVKDOOWKDWVKH
ZRXOGKDYHWRVSHDNZLWK:HVWRQWRREWDLQ LGHQWLILFDWLRQ
DSSDUHQWO\ WR IDFLOLWDWH WKH FRPSOHWLRQ RI WKH WUDQVDFWLRQ
UHSRUW0DUVKDOOWKHQVWHSSHGRXWRIWKHWHOOHUOLQHWRXVHKLV
FHOOXODUSKRQH+HVKRZHG$OGULGJHD)ORULGDGULYHU¶VOLFHQVH
ZLWK D )ORULGD DGGUHVV HYHQ WKRXJK KH DOVR KDG DQ 2KLR

-- 5 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
GULYHU¶VOLFHQVH$OWKRXJK$OGULGJHEHOLHYHGWKLVWREHDQ
XQXVXDO WUDQVDFWLRQ VKH FRPSOHWHG WKH UHSRUW XVLQJ WKH
LQIRUPDWLRQWKDW0DUVKDOOKDGSURYLGHG
,Q KHU WHVWLPRQ\ DW 0DUVKDOO¶V WULDO $OGULGJH VDLG WKDW
0DUVKDOOKDGWROGKHUWKDW³>K@HZDVQRWWKHRZQHURIWKLV
FXUUHQF\DQGWKDWKHZDVPHUHO\GURSSLQJWKHPRQH\RIIIRU
WKLVRWKHUFXVWRPHU-RKQ:HVWRQDQGLWZDVQRWKLVPRQH\´
$IWHU0DUVKDOOWROGKHUWKLVVKHVSRNHZLWK:HVWRQDFFHSWHG
WKH FDVK DQG JDYH 0DUVKDOO D FDVKLHU¶V FKHFN
SD\DEOHWR2OGH'LVFRXQW7KHFXUUHQF\WUDQVDFWLRQUHSRUW
OLVWLQJ:HVWRQDVWKHRZQHURIWKHFDVKZDVWKHQILOHGDVDQ
RIILFLDOEDQNUHFRUG
0DUVKDOO UHWXUQHG WR :HVWRQ¶V RIILFH ZLWK WKH FKHFN
UHPDUNLQJWKDW³RQHRIWKHJLUOVDWWKHEDQNZDVDZHGE\WKH
IDFWWKDWVKHKDGQHYHUVHHQVRPXFKPRQH\EHIRUHLQKHUOLIH
LQ V´ $W 0DUVKDOO¶V GLUHFWLRQ :HVWRQ RSHQHG D MRLQW
DFFRXQWZLWKULJKWVRIVXUYLYRUVKLSZLWK0LOOHUOLVWHGILUVW
DQG0DUVKDOOVHFRQG7KHMRLQWDFFRXQWOLVWHG0LOOHU¶VDQQXDO
LQFRPHDVDQG0DUVKDOO¶VDV:HVWRQWKHQ
XVHG WKH DFFRXQW WR SXUFKDVH VWRFNV 6XEVHTXHQW WR WKH
DFFRXQW¶VFUHDWLRQSKRQHFDOOVPDGHE\:HVWRQWR0LOOHULQ
RUGHUWRGLVFXVVSRWHQWLDOWUDQVDFWLRQVZRXOGEHGLUHFWHGE\
0LOOHU WR 0DUVKDOO ZKR ZRXOG DSSURYH RU GLVDSSURYH RI
:HVWRQ¶VVXJJHVWLRQV
0DUVKDOOZLWKGUHZIURPWKHEURNHUDJHDFFRXQWRQ
-DQXDU\ZKLFKKHXVHGWRSXUFKDVHD5ROH[ZDWFK
DIHZZHHNVODWHU:KHQ:HVWRQVXEVHTXHQWO\DGPLUHGWKH
ZDWFK0DUVKDOOIDOVHO\WROGKLPWKDWWKH5ROH[KDGEHHQD
JLIW IURP 0LOOHU 0DUVKDOO DOVR SXUFKDVHG D WKUHHFDUDW
GLDPRQGWHQQLVEUDFHOHWIRURQ)HEUXDU\DQG
ZLQH ZRUWK DW OHDVW RQ -XO\ DQG -XO\ RI WKDW
VDPH\HDU7KHEUDFHOHWDQGWKHZLQHZHUHSXUFKDVHGZLWK
0DUVKDOO¶VFUHGLWFDUGWKHEDODQFHRIZKLFKZDVSDLGE\XVLQJ
IXQGV WKDW 0DUVKDOO ODWHU ZLWKGUHZ IURP WKH EURNHUDJH
DFFRXQW%RWKWKH5ROH[VDOHVPDQDQGWKHZLQHPHUFKDQW
NQHZ0DUVKDOOSULRUWRWKHSXUFKDVHVLQTXHVWLRQ7KHZLQH
1R 8QLWHG6WDWHVY0DUVKDOO
WKHHYLGHQFHUHODWLQJWR0DUVKDOO¶VLQWHQWZLWKUHVSHFWWRDQ
RYHUDOOSDWWHUQRIFRQGXFWZRXOGDOORZDUHDVRQDEOHMXURUWR
FRQFOXGHHDFKRIWKHSXUFKDVHVDWLVVXHKHUHZHUHGHVLJQHGWR
FRQFHDOWKHVRXUFHRURULJLQRIWKHEDQNODUFHQ\SURFHHGV
6DQGHUVDOVRGLIIHUVIURPWKLVFDVHLQWKDWWKHFDUSXUFKDVHV
LQYROYHGLQ6DQGHUVZHUHSXEOLFDQGFRQVSLFXRXV6HHDOVR
5RFNHOPDQ)GDW$VDUHVXOWWKHWUDQVDFWLRQVZHUH
OHVVXVHIXODVDPHDQVIRUKLGLQJLOOJRWWHQZHDOWK0DUVKDOO¶V
SXUFKDVHV KRZHYHU LQYROYHG LWHPV WKDW FRXOG EH HDVLO\
KLGGHQ WUDQVSRUWHG RU VWRUHG $Q\ IXWXUH WUDQVIHU RI
RZQHUVKLSIRUWKHSXUSRVHRIFRQYHUWLQJWKHLWHPVEDFNLQWR
FDVKFRXOGDOVREHFRQGXFWHGSULYDWHO\7KHFLUFXPVWDQFHV
SUHVHQWKHUHDUHWKXVPRUHSUREDWLYHRIDQLQWHQWWRFRQFHDO
WKDQZDVWKHVLWXDWLRQLQ6DQGHUV6HH1RUPDQ)GDW
LQGLFDWLQJ SULYDWH WUDQVDFWLRQV DUH PRUH LQGLFDWLYH RI
PRQH\ODXQGHULQJWKDQDUHWKRVHRISXEOLFUHFRUG
$ILQDOLPSRUWDQWGLVWLQFWLRQWKDWFDQEHGUDZQEHWZHHQWKLV
FDVH DQG WKH IDFWXDO VFHQDULRV RI 6DQGHUV DQG *DUFLD
(PPDQXHOLVEDVHGRQWKHIDFWHDFKRIWKHWUDQVDFWLRQVDW
LVVXHKHUHZDVXQLTXHLQ0DUVKDOO¶VH[SHULHQFH,Q*DUFLD
(PPDQXHO WKH FRXUW RYHUWXUQHG PRQH\ ODXQGHULQJ
FRQYLFWLRQVSUHPLVHGXSRQWKHGHIHQGDQW¶VSD\PHQWRIKLV
UHVLGHQWLDOPRUWJDJHZLWKDFDVKLHU¶VFKHFNGUDZQLQKLVRZQ
QDPHDQGKLVSDUWLDOFDVKSD\PHQWIRUDWKRURXJKEUHGKRUVH
*DUFLD(PPDQXHO)GDW,QHDFKLQVWDQFHWKH
FRXUW FRQFOXGHG WKHVH ZHUH VWUDLJKWIRUZDUG FRPPHUFLDO
WUDQVDFWLRQV HQWHUHG LQWR IRU WKH GHIHQGDQW¶V LPPHGLDWH
SHUVRQDOEHQHILWRIDW\SHZKLFKWKHGHIHQGDQWKDGFRQGXFWHG
SUHYLRXVO\ ,G 6LPLODUO\ LQ 6DQGHUV ERWK DXWRPRELOHV
VLPSO\UHSODFHGROGHUDXWRPRELOHVRIWKHVDPHPDNHDOUHDG\
RZQHGE\WKHGHIHQGDQWDQGKLVZLIH6DQGHUV)GDW

*DUFLD(PPDQXHO DQG 6DQGHUV WKHUHIRUH LQYROYHG
WUDQVDFWLRQVWKDWZHUH³RUGLQDU\´QRWRQO\EHFDXVHWKH\GLG
QRWLQYROYHDQ\VRUWRIFRPSOH[ILQDQFLQJVFKHPHGHVLJQHG
WRFRQFHDOWKHSXUFKDVHU¶VWUXHLGHQWLW\EXWDOVREHFDXVHWKH\
ZHUHRIDW\SHWKHGHIHQGDQWVLQWKRVHFDVHVKDGFRQGXFWHGLQ

-- 6 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
ZDWFKSULRUWRWKHWKHIW$OWKRXJK0DUVKDOOZDVVHHQZHDULQJ
WKHZDWFKDIWHUWKHSXUFKDVHKHZDVVWLOOLQDSRVLWLRQWRGHQ\
WKHUHODWLRQVKLSEHWZHHQWKHZDWFKDQGWKHODUFHQ\SURFHHGV
LQ SDUW EHFDXVH KH XVHG KLV FUHGLW FDUG WR EX\ WKH ZDWFK
0RUHRYHULQOLJKWRIDGGLWLRQDOHYLGHQFH0DUVKDOOVRXJKWWR
FRQFHDOWKHVRXUFHRIWKHZDWFKE\VD\LQJLWZDVDJLIWIURP
KLV JLUOIULHQG D UHDVRQDEOH MXURU FRXOG KDYH FRQFOXGHG
0DUVKDOO SXUFKDVHG WKH ZDWFK DORQJ ZLWK WKH RWKHU LWHPV
ZLWKDQLQWHQWWRFRQYHUWSURFHHGVIURPWKHEDQNODUFHQ\LQWR
DVVHWVQRWLPPHGLDWHO\WUDFHDEOHWRKLVFULPHWKDWFRXOGEH
KHOGIRUDORQJSHULRGRIWLPHDQGWKHQUHFRQYHUWHGLQWRFDVK
ZKHQWKHQHHGDURVH(YHQWKRXJKWKHVWDWHPHQWZDVPDGH
VXEVHTXHQWWRWKHSXUFKDVHRIWKHZDWFKWKHMXU\FRXOGKDYH
FRQFOXGHGWKHVWDWHPHQWZDVLQGLFDWLYHRI0DUVKDOO¶VLQWHQW
DWWKHWLPHRIWKHWUDQVDFWLRQ
,QUHDFKLQJDFRQFOXVLRQFRQWUDU\WRWKHRQH,UHDFKKHUH
WKHPDMRULW\KDVUHOLHGXSRQWZRFDVHVLQSDUWLFXODU8QLWHG
6WDWHV Y 6DQGHUV )G WK &LU DQG WKH
SUHYLRXVO\FLWHG*DUFLD(PPDQXHO:KLOH,GRQRWGLVDJUHH
ZLWK WKH PDMRULW\¶V LQWHUSUHWDWLRQ RI WKHVH WZR FDVHV , GR
EHOLHYHWKHFDVHVPD\EHGLVWLQJXLVKHGIDFWXDOO\LQVHYHUDO
FUXFLDO ZD\V IURP WKH FDVH DW KDQG 6LJQLILFDQWO\ , QRWH
6DQGHUVLQYROYHGDGHIHQGDQWHQJDJHGLQDQRQJRLQJGUXJ
WUDIILFNLQJ HQWHUSULVH ZKR ZDV FRQYLFWHG RI PRQH\
ODXQGHULQJRQWKHEDVLVRIWZRLVRODWHGILQDQFLDOWUDQVDFWLRQV
)GDWVHHDOVR8QLWHG6WDWHVY5RFNOHPDQ
)G WK&LU ,QFRQWUDVWWKLVFDVHLQYROYHVD
GHIHQGDQW ZKR FRPPLWWHG RQH VSHFLILHG XQODZIXO DFW WKH
EDQN ODUFHQ\ DQG WKHQ HQJDJHG LQ RQJRLQJ HIIRUWV RYHU D
SHULRG RI VHYHUDO PRQWKV WR GLVJXLVH FRQFHDO DQG XVH WKH
SURFHHGV RI WKDW VLQJOH FULPH $OWKRXJK WKH PRQH\
ODXQGHULQJVWDWXWHLVQRWGHVLJQHGWRSXQLVKDQRQJRLQJFRXUVH
RI FRQGXFW WKH FRXUVH RI FRQGXFW PD\ VWLOO EH UHOHYDQW WR
GHWHUPLQLQJDGHIHQGDQW¶VLQWHQWZLWKUHJDUGWRDSDUWLFXODU
WUDQVDFWLRQ 6HH 6DQGHUV )G DW Q GLVWLQJXLVKLQJ
8QLWHG6WDWHVY)UDQNOLQ)G WK&LU RQ
WKHEDVLV³GHIHQGDQW¶VDFWLYLWLHVLQ)UDQNOLQLQYROYHGERWKD
JUHDWHU TXDQWLW\ RI DFWLYLW\ DQG DFWLYLW\ RI D TXDOLWDWLYHO\
GLIIHUHQWQDWXUHWKDQWKDWSUHVHQWHGKHUH´ +HUH,EHOLHYH
1R 8QLWHG6WDWHVY0DUVKDOO
PHUFKDQWKDGLQIDFWIUHTXHQWO\VROGZLQHWR0DUVKDOOLQWKH
SDVW
:HVWRQ ILUVW OHDUQHG DERXW WKH -DQXDU\ $70
ODUFHQ\RQ$XJXVWZKHQKHDOVRGLVFRYHUHGWKDW
0DUVKDOOZDVDVXVSHFW:RUULHGWKDWKHZRXOGEHLPSOLFDWHG
LQWKHFULPH:HVWRQVHFUHWO\PHWZLWK0LOOHUDQGLQTXLUHGDV
WRWKHVRXUFHRIWKH:HVWRQWKHQPHWZLWKDQ)%,
DJHQW D IHZ GD\V ODWHU WR GLVFXVV WKH EURNHUDJH DFFRXQW
0DUVKDOO VXEVHTXHQWO\ YLVLWHG :HVWRQ DQG GHPDQGHG DQ
H[SODQDWLRQ IRU WKH PHHWLQJ ZLWK WKH )%, 'XULQJ WKH
GLVFXVVLRQWKDWHQVXHG0DUVKDOOLQGLFDWHGWKDWKHZDQWHGWKH
DFFRXQWWR³GLVDSSHDU´,QUHVSRQVH:HVWRQWROGKLPWKDW³LI
WKHSROLFHRUZKDWKDYH\RXFRPHLQDQGWDNHDORRNDWWKH
DFFRXQW,FDQPDNHWKHDFFRXQWORRNDVLIWKHUHLVQRWKLQJ
WKHUHDQGDOOWKHDVVHWVDUHJRQH´
0DUVKDOOWKHQLQVWUXFWHG:HVWRQWRWUDQVIHUWKHPRQH\IURP
WKHMRLQWDFFRXQWLQWRDQLQGLYLGXDODFFRXQWLQ0LOOHU¶VQDPH
RQO\ :HVWRQ FRQWLQXHG WR TXHVWLRQ 0DUVKDOO DERXW WKH
VRXUFHRIWKHIXQGVZLWK0DUVKDOOILQDOO\DGPLWWLQJWKDWWKH
PRQH\ZDVKLV$FFRUGLQJWR0DUVKDOO¶VH[SODQDWLRQKHKDG
DFFXPXODWHGWKHRYHUDORQJSHULRGRIWLPHDQGKDG
WDNHQ RXW ODUJH FDVK DGYDQFHV RQ FUHGLW FDUGV ZLWK WKH
LQWHQWLRQRIPD[LQJWKHPRXWVRWKDWKLVWKHQZLIHFRXOGQRW
XVHWKHFDUGV+HFODLPHGWKDWKHKDGODWHUSDLGRIIWKHFUHGLW
FDUGEDODQFHVZKLOHNHHSLQJWKHEXONRIWKHPRQH\KLGGHQ
DZD\
% 3URFHGXUDOEDFNJURXQG
$IWHUVHYHUDO\HDUVRILQYHVWLJDWLRQ0DUVKDOOZDVILQDOO\
LQGLFWHGRQ'HFHPEHU+HZDVFKDUJHGZLWKEDQN
ODUFHQ\PRQH\ODXQGHULQJDQGFDXVLQJDEDQNWRILOHDIDOVH
FXUUHQF\WUDQVDFWLRQUHSRUW3ULRUWRKLVWULDO0DUVKDOOILOHG
D PRWLRQ LQ OLPLQH VHHNLQJ WR H[FOXGH HYLGHQFH RI KLV
³ZHDOWK DQG DVVHWV DIWHU WKH DOOHJHG ODUFHQ\ WRRN SODFH RQ
-DQXDU\´0DUVKDOOFODLPHGWKDWVXFKHYLGHQFHZDV
LUUHOHYDQWDQGXQGXO\SUHMXGLFLDO7KHGLVWULFWFRXUWGHQLHG
0DUVKDOO¶VPRWLRQ

-- 7 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
0DUVKDOOWHVWLILHGLQKLVRZQGHIHQVHDWWULDOZKLFKEHJDQ
LQ0DUFKRI+HFODLPHGWRKDYHHDUQHGDSSUR[LPDWHO\
LQXQUHSRUWHGLQFRPHPDLQO\GXULQJ7KLV
PRQH\ KH VDLG KDG EHHQ VWRUHG LQ KLV FORVHW GXH WR KLV
GLVWUXVWRIDEDQN¶VDELOLW\WRNHHSWKHFDVKIURPKLVH[ZLIH
0DUVKDOO FODLPHG WKDW WKHVH IXQGV ZHUH WKH VRXUFH RI WKH
LQLWLDOGHSRVLWLQWRWKHEURNHUDJHDFFRXQW+HDOVRSURIIHUHG
VHYHUDOH[KLELWVWRVXSSRUWKLVH[SODQDWLRQDVWRWKHVRXUFHRI
WKH PRQH\ DW LVVXH 7KH H[KLELWV LQFOXGHG D UHFHQW
&UXLVLQ¶7LPHVPDJD]LQHLQZKLFK0DUVKDOODGYHUWLVHGKLV
EXVLQHVVRIIL[LQJXSROGFDUVDQGVHOOLQJDXWRSDUWV KDQG
SULQWHGUHFHLSWVIURPLQGLFDWLQJZRUNWKDW0DUVKDOO
KDGGRQHRQVHYHUDOFDUVDQGWKHPRQH\KHKDGUHFHLYHGIURP
WKRVHMREV HYLGHQFHUHJDUGLQJWKHPDUNHWIRUVLPLODUO\
UHVWRUHG YHKLFOHV HYLGHQFH WKDW 0DUVKDOO KDG VROG D
UHVWRUHGDQWLTXHYHKLFOHWR6X]DQQH6WHSKHQVLQ D
EDQNDFFRXQWVWDWHPHQWIURPWKDWDOOHJHGO\UHIOHFWHGKLV
SURSHQVLW\WRVDYHPRQH\DQG SD\UROOVWXEVIURPWKHMRE
0DUVKDOO KHOG DW WKH WLPH RI KLV WULDO (DFK RI WKH
JRYHUQPHQW¶VREMHFWLRQVWRWKHVHH[KLELWVZDVVXVWDLQHGE\
WKHGLVWULFWFRXUWRQWKHJURXQGWKDWWKH\ZHUHWRRUHPRWHLQ
WLPHIURPWKHODUFHQ\WREHRIDQ\UHOHYDQFH7KHGLVWULFW
FRXUW GLG KRZHYHU DOORZ 0DUVKDOO WR SXW RQ HYLGHQFH
UHJDUGLQJKLVHDUQLQJVDQGILQDQFLDOVWDWXVSULRUWR
$WWKHFRQFOXVLRQRI0DUVKDOO¶VWHVWLPRQ\RQ:HGQHVGD\
0DUFKDV0DUVKDOOZDVVWHSSLQJ RII WKHZLWQHVV
VWDQGWKHGLVWULFWFRXUWLQVWUXFWHGWKHSDUWLHVDQGWKHMXU\WR
EHSUHVHQWDWDPWKHQH[WPRUQLQJIRUWKHFRQWLQXDWLRQ
RIWKHWULDO:KHQFRXUWUHFRQYHQHGWKHQH[WGD\0DUVKDOO¶V
FRXQVHOLQIRUPHGWKHFRXUWWKDW0DUVKDOOZDVQRWSUHVHQWDQG
WKDW KH FRXOG QRW EH ORFDWHG +LV FRXQVHO WKHQ ZDLYHG
0DUVKDOO¶VSUHVHQFHDQGWKHFRXUWEHJDQWRGLVFXVVWKHMXU\
LQVWUXFWLRQVZLWKWKHODZ\HUV1RWKLQJLQWKHUHFRUGLQGLFDWHV
LI RU ZKHQ 0DUVKDOO UHDSSHDUHG DOWKRXJK WKH JRYHUQPHQW
PDLQWDLQVWKDWKHDUULYHGVKRUWO\DIWHUDP
2Q $SULO WKH MXU\ UHWXUQHG D YHUGLFW DJDLQVW
0DUVKDOORQDOOVHYHQFRXQWV+HZDVODWHUVHQWHQFHGWR
PRQWKV RI LQFDUFHUDWLRQ RQ HDFK FRXQW WR EH VHUYHG
1R 8QLWHG6WDWHVY0DUVKDOO
DQG VHUYLFHV DV D ZD\ RI FRQFHDOLQJ RU GLVJXLVLQJ WKH
ZHOOVSULQJRIWKHFDVK6HH 8QLWHG6WDWHVY-DFNVRQ
)G WK&LU FLWHGZLWKDSSURYDOLQ8QLWHG
6WDWHVY6DPRXU)G WK&LU RYHUUXOHG
RQRWKHUJURXQGVE\8QLWHG6WDWHVY5HHG)G WK
&LU 1RUPDQ)G WK&LU VHH
DOVR8QLWHG6WDWHVY&HQFHU)G WK&LU
KROGLQJHYLGHQFHEDURZQHUXVHGGUXJSURFHHGVWRUXQ
KLV EXVLQHVV ZDV VXIILFLHQW WR VXSSRUW PRQH\ ODXQGHULQJ
FRQYLFWLRQ
5DWKHU WKDQ YLHZLQJ WKHVH SXUFKDVHV DV ³ZHDUDEOH RU
FRQVXPDEOHLWHPV´RUDV³RUGLQDU\FRPPHUFLDOWUDQVDFWLRQV´
HQWHUHG LQWR IRU 0DUVKDOO¶V ³SUHVHQW SHUVRQDO EHQHILW´ ,
EHOLHYH D MXU\ ORRNLQJ DW WKH HYLGHQFH LQ WKH OLJKW PRVW
IDYRUDEOH WR WKH JRYHUQPHQW DQG FRQVLGHULQJ 0DUVKDOO¶V
DGPLVVLRQVRQWKHVWDQGFRXOGKDYHIRXQGWKHWKUHHSXUFKDVHV
LQYROYHG³LQYHVWPHQWV´RIZKLFKWKH7HQWK&LUFXLWVDLGLQ
*DUFLD(PPDQXHO ³2Q WKH RQH KDQG FDVHV LQYROYLQJ
LQYHVWPHQWVPDGHZLWKLOOHJDOSURFHHGVDUHFORVHWRWKHFRUH
RIWKHVWDWXWH¶VSXUSRVHRIFULPLQDOL]LQJFKDQJLQJFDVKLQWRDQ
μRVWHQVLEO\OHJLWLPDWHIRUPVXFKDVEXVLQHVVSURILWVRUORDQV
EHIRUHXVLQJWKRVHIXQGVIRUSHUVRQDOEHQHILW¶´)G
HPSKDVLVLQRULJLQDO
7KHHYLGHQFHDGGXFHGDWWULDOLQGLFDWHG0DUVKDOOGLGQRW
SXUFKDVH WKH ZLQH IRU FRQVXPSWLRQ DQG LQ IDFW GLG QRW
FRQVXPHWKHZLQHLPPHGLDWHO\EXWUDWKHULQWHQGHGWRKROGLW
DVDQLQYHVWPHQWDVKHDGPLWWHG7KHHYLGHQFHDOVRLQGLFDWHG
0DUVKDOOKDGQHYHUSUHYLRXVO\SXUFKDVHGFROOHFWLEOHZLQHV
:KHQKHSXUFKDVHGWKHGLDPRQGEUDFHOHW0DUVKDOOWROGWKH
VWRUHFOHUNKHZDVEX\LQJLWIRUKLVJLUOIULHQGLQZKRVHQDPH
KHDWWHPSWHGWRKLGHWKHEURNHUDJHDFFRXQW\HWQRWKLQJLQWKH
UHFRUGLQGLFDWHVWKHEUDFHOHWZDVHYHUJLYHQWRKHU$JDLQWKH
MXU\FRXOGKDYHFRQFOXGHGRQWKHEDVLVRIWKHUHFRUGWKDW
0DUVKDOOKDGQHYHUPDGHDVLPLODUSXUFKDVHSULRUWRWKHEDQN
ODUFHQ\
6LPLODUO\LQWKHFDVHRIWKH5ROH[ZDWFKQRHYLGHQFHZDV
SUHVHQWHG WR LQGLFDWH 0DUVKDOO KDG HYHU SXUFKDVHG VXFK D

-- 8 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
$OWKRXJK 0DUVKDOO DGPLWWHG WKH ZLQH ZDV SXUFKDVHG DV DQ
LQYHVWPHQW VHH VXSUD QRWH LW LV FOHDU IURP 0DUVKDOO¶V WHVWLPRQ\ DQG WKH
WHVWLPRQ\ RI 5RQ .RO\ WKH ZLQH PHUFKDQW WKDW WKHVH ZLQHV PD\ IDLUO\ EH
FKDUDFWHUL]HG DV ³FROOHFWLEOH´
,WKLQNLWZHLJKVMXVWDVKHDYLO\LQVXSSRUWRIDIILUPLQJWKH
PRQH\ODXQGHULQJFRQYLFWLRQV0DUVKDOOKDGHQRXJKPRQH\
LQ WKH EURNHUDJH DFFRXQW WR PDNH WKH SXUFKDVHV GLUHFWO\
,QVWHDG DIWHU XVLQJ FUHGLW FDUGV WR PDNH WKH SXUFKDVHV
0DUVKDOOXVHGIXQGVIURPWKHEURNHUDJHDFFRXQWWRSD\WKH
FUHGLWDFFRXQWEDODQFH
7KLV HYLGHQFH ZRXOG KDYH DOORZHG D UHDVRQDEOH MXU\ WR
FRQFOXGH0DUVKDOOPDGHDQHIIRUWWRSODFHGLVWDQFHEHWZHHQ
WKH LOOJRWWHQ JDLQV IURP WKH ODUFHQ\ DQG WKH DVVHWV KH
SXUFKDVHGWRUHSODFHWKHFDVK6HH1RUPDQ)GDW
KROGLQJLQWHQWWRFRQFHDOFRXOGEHLQIHUUHGE\IXQQHOLQJRI
PRQH\WKURXJKVHYHUDOVRXUFHVSULRUWRXOWLPDWHSXUFKDVH
0RUHRYHU WKH XVH RI WKH FUHGLW FDUG FUHDWHG GRFXPHQWDU\
HYLGHQFHRIKRZKHDFTXLUHGWKHDVVHWVDQGWKHSDSHUWUDLO
FRXOG EH XVHG WR PLVOHDG DQ LQYHVWLJDWRU 6HH *DUFLD
(PPDQXHO)GDW ILQGLQJVXFKHYLGHQFHZDV
SUREDWLYH RI LQWHQW WR FRQFHDO DQG VXSSRUWHG PRQH\
ODXQGHULQJFRQYLFWLRQV ,QWKHHYHQWODZHQIRUFHPHQWWKH
EDQN RU 0DUVKDOO¶V IRUPHU HPSOR\HU KDG GLVFRYHUHG WKH
SXUFKDVHVRULQTXLUHGDERXWWKHP0DUVKDOOZRXOGKDYHEHHQ
DEOHWRDQVZHUKHPDGHWKHSXUFKDVHVZLWKKLVFUHGLWFDUGDQG
WRSURGXFHFUHGLWFDUGUHFHLSWVWRVXSSRUWKLVVWRU\
$GGLWLRQDOO\ , DP XQDEOH WR DJUHH ZLWK WKH PDMRULW\¶V
FKDUDFWHUL]DWLRQ RI WKH DFTXLVLWLRQ RI D 5ROH[ ZDWFK D
GLDPRQGWHQQLVEUDFHOHWDQGVHYHUDOWKRXVDQGGROODUVZRUWK
RIFROOHFWLEOHZLQHZLWKLQDUHODWLYHO\VKRUWSHULRGRIWKH
ODUFHQ\ DV D ³IHZ LVRODWHG SXUFKDVHV RI ZHDUDEOH RU
FRQVXPDEOH LWHPV´ WKDW GR QRW IDOO ZLWKLQ WKH SXUYLHZ RI
† ,Q HDFK LQVWDQFH 0DUVKDOO FRQYHUWHG WKH ³GLUW\´
SURFHHGVIURPWKHEDQNUREEHU\LQWRD³FOHDQ´DVVHWWKDWFRXOG
EHKHOGIRUDVXEVWDQWLDOSHULRGRIWLPHZLWKRXWVLJQLILFDQW
GHSUHFLDWLRQ LQ YDOXH $ FHQWUDO IRFXV RI VXEVHFWLRQ
D % L LVWRFULPLQDOL]HWKHFRQYHUVLRQRIFDVKLQWRJRRGV
1R 8QLWHG6WDWHVY0DUVKDOO
FRQFXUUHQWO\ IROORZHG E\ \HDUV RI VXSHUYLVHG UHOHDVH
0DUVKDOOILOHGDWLPHO\QRWLFHRIDSSHDOWKUHHGD\VODWHU+H
FKDOOHQJHV KLV FRQYLFWLRQV RQ PXOWLSOH JURXQGV )LUVW KH
DUJXHVWKDWWKHGLVWULFWFRXUWHUUHGLQDGPLWWLQJHYLGHQFHRI
WKH GUDPDWLF LPSURYHPHQW LQ KLV ILQDQFLDO VWDWXV DIWHU WKH
PRQH\ ZDV VWROHQ +H WKHQ DVVHUWV WKDW WKH FRXUW ZDV
PLVWDNHQZKHQLWH[FOXGHGHYLGHQFHRIKLVDOWHUQDWLYHVRXUFHV
RILQFRPHDIWHU0DUVKDOOQH[WFODLPVWKDWWKHGLVWULFW
FRXUW HUUHG ZKHQ LW SURFHHGHG ZLWK WKH FKDUJH FRQIHUHQFH
GHVSLWHKLVDEVHQFHIURPWKHFRXUWURRPDWWKHWLPH)LQDOO\
KHFKDOOHQJHVWKHVXIILFLHQF\RIWKHHYLGHQFHVXSSRUWLQJKLV
FRQYLFWLRQVIRUODUFHQ\IRUILOLQJDIDOVHFXUUHQF\WUDQVDFWLRQ
UHSRUW DQG IRU WKH WKUHH PRQH\ODXQGHULQJ FRQYLFWLRQV
UHODWLQJWRWKHSXUFKDVHVRIWKHZDWFKEUDFHOHWDQGZLQH
,,$1$/<6,6
$ 7KHGLVWULFWFRXUWGLGQRWDEXVHLWVGLVFUHWLRQZKHQLW
DGPLWWHGHYLGHQFHRI0DUVKDOO¶V³VXGGHQZHDOWK´
,QVXSSRUWRIWKHFKDUJHWKDW0DUVKDOOZDVWKHSHUSHWUDWRU
RI WKH ODUFHQ\ WKH JRYHUQPHQW SURIIHUHG HYLGHQFH RI
0DUVKDOO¶VVXGGHQXQH[SODLQHGZHDOWKLQWKHGD\VIROORZLQJ
WKH FULPH 0DUVKDOO RZHG RYHU RQ KLV FUHGLW FDUG
LPPHGLDWHO\SULRUWR-DQXDU\DQGKDGUHSRUWHGKLV
DQQXDOLQFRPHWREHEHWZHHQDQGIRUWKH
SDVWVHYHUDO\HDUV1HYHUWKHOHVVZLWKLQDIHZGD\VIROORZLQJ
WKH ODUFHQ\ KH SDLG RII KLV FUHGLWFDUG EDODQFH LQ IXOO DQG
GHSRVLWHGRYHULQFDVKZLWKWZRILQDQFLDOLQVWLWXWLRQV
DQGDEURNHUDJHILUP0DUVKDOOFKDOOHQJHVWKHGLVWULFWFRXUW¶V
GHQLDO RI KLV PRWLRQ LQ OLPLQH VHHNLQJ WR H[FOXGH WKLV
HYLGHQFHRIKLVVXGGHQXQH[SODLQHGZHDOWKFODLPLQJWKDWLW
ZDVLUUHOHYDQWDQGXQGXO\SUHMXGLFLDO
,Q8QLWHG6WDWHVY$PHULQH)G WK&LU
WKLV FRXUW DGGUHVVHG WKH UHOHYDQFH DQG DGPLVVLELOLW\ RI
VXGGHQZHDOWKHYLGHQFHLQDFDVHLQYROYLQJDGHOLYHU\WUXFN
GULYHU FKDUJHG ZLWK VWHDOLQJ RYHU WKDW KH ZDV
VXSSRVHG WR GHOLYHU DV SDUW RI KLV MRE $OWKRXJK WKH
JRYHUQPHQW KDG QR GLUHFW SURRI RI KLV JXLOW LW SUHVHQWHG
HYLGHQFHRIWKHGHIHQGDQW¶VRSSRUWXQLW\WRFRPPLWWKHFULPH

-- 9 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
7KHJRYHUQPHQWWKHQLQWURGXFHGHYLGHQFHRIWKHGHIHQGDQW¶V
PRGHVWPHDQVSULRUWRWKHGDWHRIWKHODUFHQ\DVFRQWUDVWHG
ZLWKKLVSD\PHQWRIROGGHEWVDQGDGRZQSD\PHQWRQ
DQHZFDULQWKHIRUPRIELOOV WKHVDPHGHQRPLQDWLRQDV
WKHPRQH\VWROHQ LPPHGLDWHO\DIWHUWKHPRQH\GLVDSSHDUHG
,GDW7KLVFRXUWKHOGWKDW³XQGHUWKHWRWDOIDFWVRI
WKLVFDVHZKHUHWKHUHZDVPXFKRWKHUHYLGHQFHRIJXLOWWKLV
WHVWLPRQ\ ZDV UHOHYDQW DQG DGPLVVLEOH´ ,G DW
)XUWKHUPRUHWKHFRXUWDOVRGHFODUHGWKDWLWZDVSURSHUIRUWKH
MXU\WRLQIHUIURPWKLVHYLGHQFHWKDW³WKHIXQGVHPSOR\HGE\
>WKHGHIHQGDQW@WRSD\GHEWVDQGWREX\DFDUFDPHIURPWKH
PLVVLQJ´,GVHHDOVR8QLWHG6WDWHVY2¶1HDO
)G WK &LU KROGLQJ VXGGHQZHDOWK
HYLGHQFH ZDV DGPLVVLEOH ZKHUH PRQH\ LQ WKH VDPH
GHQRPLQDWLRQ DV WKDW ZKLFK ZDV VWROHQ ZDV IRXQG RQ WKH
GHIHQGDQWVKRUWO\DIWHUWKHWKHIW
0DUVKDOOVHHNVWRGLVWLQJXLVK$PHULQHE\FODLPLQJWKDWLQ
WKHSUHVHQWFDVHWKHUHZDVLQVXIILFLHQW³RWKHUHYLGHQFH´WR
VXSSRUWWKHDGPLVVLRQRIWKHVXGGHQZHDOWKHYLGHQFH:H
GLVDJUHH,Q$PHULQHWKHJRYHUQPHQW¶VRQO\RWKHUHYLGHQFH
EHVLGHV WKH GHIHQGDQW¶V XQH[SODLQHG LQFUHDVH LQ ILQDQFLDO
UHVRXUFHVZDVKLVRSSRUWXQLW\WRFRPPLWWKHFULPHDQGKLVXVH
RI FXUUHQF\ LQ WKH VDPH GHQRPLQDWLRQ DV WKDW ZKLFK ZDV
VWROHQ 6LPLODUO\ WKH JRYHUQPHQW LQ WKH SUHVHQW FDVH
SURGXFHG HYLGHQFH RI 0DUVKDOO¶V RSSRUWXQLW\ WR VWHDO WKH
PRQH\ DQG WKH IDFW WKDW KH VWDUWHG WKH EURNHUDJH
DFFRXQWXVLQJWZRWKRXVDQGELOOV
7KHFLUFXPVWDQWLDOHYLGHQFHDJDLQVW0DUVKDOOLQIDFWZDV
HYHQJUHDWHUWKDQWKDWZKLFKZDVDYDLODEOHLQ$PHULQH)RU
H[DPSOHWKHUHZDVHYLGHQFHWKDWWKHRQO\ILQJHUSULQWVRQWKH
VKULQNZUDSZHUHWKRVHRI0DUVKDOODVZHOODVWKHWHVWLPRQ\
RI YDULRXV ZLWQHVVHV GHWDLOLQJ 0DUVKDOO¶V HUUDWLF EHKDYLRU
LQFRQVLVWHQWVWDWHPHQWVDQGKLVQHUYRXVQHVVDERXWWKH)%,
LQYHVWLJDWLRQ:HWKHUHIRUHFRQFOXGHWKDWWKHGLVWULFWFRXUW
GLGQRWDEXVHLWVGLVFUHWLRQLQGHQ\LQJ0DUVKDOO¶VPRWLRQLQ
OLPLQHRULQDGPLWWLQJHYLGHQFHRIKLVVXGGHQZHDOWK6HH
7UHSHOY5RDGZD\([SUHVV,QF)G WK&LU
1R 8QLWHG6WDWHVY0DUVKDOO
LQ WKLV FDVH ZRXOG DOORZ D UHDVRQDEOH MXURU WR FRQFOXGH
0DUVKDOOZDVPRWLYDWHGIURPLPPHGLDWHO\DIWHUWKHUREEHU\
XQWLO DW OHDVW $XJXVW E\ D GHVLUH WR GLVWDQFH KLPVHOI
IURPWKHODUFHQ\SURFHHGVWKDWLVWR³FRQFHDO>DQG@GLVJXLVH
WKH QDWXUH WKH ORFDWLRQ WKH VRXUFH WKH RZQHUVKLS RU WKH
FRQWURO´ RI WKH ODUFHQ\ SURFHHGV 86&
† D % L )RUH[DPSOHRQ-DQXDU\ZKHQ
0DUVKDOODWWHPSWHGWRH[FKDQJHDODUJHSRUWLRQRIWKHODUFHQ\
SURFHHGVLQWRDFDVKLHU¶VFKHFNVRKHFRXOGRSHQDEURNHUDJH
DFFRXQWLQKLVJLUOIULHQG¶VQDPHKHHQFRXQWHUHGVXVSLFLRQ
DQG WKRURXJK TXHVWLRQLQJ IURP WKH EDQN WHOOHU +H DOVR
OHDUQHGODUJHWUDQVDFWLRQVKDGWREHUHSRUWHGWRWKHIHGHUDO
JRYHUQPHQW
)URPWKLVHYLGHQFHWKHMXU\FRXOGKDYHLQIHUUHGDPRWLYH
RQ 0DUVKDOO¶V SDUW WR FRQYHUW WKH FDVK LQWR RWKHU IRUPV RI
DSSUHFLDEOHDVVHWVEHFDXVHKHNQHZLIKHSODFHGWKHSURFHHGV
LQ D EDQN KH PLJKW KDYH WR DQVZHU VRPH XQFRPIRUWDEOH
TXHVWLRQV DERXW WKH PRQH\¶V RULJLQV )XUWKHUPRUH LQ
UHVSRQVHWRTXHVWLRQLQJDERXWKLVLGHQWLW\DQGWKHVRXUFHRI
WKH IXQGV 0DUVKDOO SURFHHGHG WR SURGXFH KLV )ORULGD
LGHQWLILFDWLRQUDWKHUWKDQKLV2KLROLFHQVHDQGLQIRUPHGWKH
WHOOHUWKHPRQH\EHORQJHGWRKLVVWHSEURWKHU0RQWKVODWHU
LQ$XJXVWZKHQ0DUVKDOOOHDUQHGWKH)%,KDGEHHQ
DVNLQJ TXHVWLRQV DERXW WKH EURNHUDJH DFFRXQW KH WROG KLV
VWHSEURWKHUWRPDNHWKHDFFRXQW³GLVDSSHDU´7DNLQJLQWR
DFFRXQWDOOWKHHYLGHQFHRIWKLVQDWXUHLQWKHUHFRUG,EHOLHYH
DMXU\FRXOGKDYHGHWHUPLQHGLWZDVSUREDWLYHRIWKHW\SHRI
³GHVLJQWRFRQFHDO´ERWKWKHDVVHWVWKHPVHOYHVDVZHOODVWKHLU
LOOHJDORULJLQVZKLFKWKH8QLWHG6WDWHV&RXUWRI$SSHDOVIRU
WKH7HQWK&LUFXLWIRXQGUHOHYDQWLQ8QLWHG6WDWHVY*DUFLD
(PPDQXHO)G WK&LU DQRWKHUFDVH
FLWHGE\WKHPDMRULW\2QFHWKHMXU\UHDFKHGWKLVFRQFOXVLRQ
LW FRXOG KDYH ORJLFDOO\ LQIHUUHG 0DUVKDOO DFWHG ZLWK WKDW
GHVLJQWRFRQFHDOLQWKHWUDQVDFWLRQVLQYROYHGKHUH
,QVXSSRUWRILWVKROGLQJWKHPDMRULW\UHOLHVLQSDUWRQWKH
IDFW0DUVKDOOSXUFKDVHGWKHZLQHDQGWKHGLDPRQGEUDFHOHW
XVLQJYDOLGFUHGLWFDUGVLVVXHGLQKLVRZQQDPH9LHZLQJWKLV
IDFWLQWKHOLJKWPRVWIDYRUDEOHWRWKHJRYHUQPHQWKRZHYHU

-- 10 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
1RUPDQ)G WK&LU DFDVHFLWHGE\WKH
PDMRULW\VWDWHG
7KHVWDWXWHGRHVQRWUHTXLUHWKDWWKHUHEHDQ\LQWHQWLRQRU
GHVLJQWRFRQFHDOWKHLGHQWLW\RIWKHSHUVRQGHDOLQJZLWK
WKHSURSHUW\,WUHTXLUHVLQVWHDGWKDWDGHIHQGDQWNQRZ
WKDW WKH WUDQVDFWLRQ LV GHVLJQHG LQ ZKROH RU LQ SDUW WR
FRQFHDORUGLVJXLVHWKHQDWXUHWKHORFDWLRQWKHVRXUFH
WKHRZQHUVKLSRUWKHFRQWURORIWKHSURFHHGVRIVSHFLILHG
XQODZIXODFWLYLW\7KHUHLVQRFRQWHQWLRQWKDWWKHPRQH\
XVHG WR EX\ WKH FDU ZDV QRW WKH SURFHHGV RI VSHFLILHG
XQODZIXODFWLYLW\7KHFRQWHQWLRQLVUDWKHUWKDWWKHUH
ZDV QR SURRI WKDW 1RUPDQ LQWHQGHG WR GLVJXLVH WKH
QDWXUH ORFDWLRQ VRXUFH RZQHUVKLS RU FRQWURO RI WKH
PRQH\:HGLVDJUHH7KHSRLQWLVQRWZKHWKHUWKHVHOOHU
RIWKHFDULVGHFHLYHGDVWRZKR1RUPDQZDVEXWUDWKHU
WKDWE\FKDQJLQJWKHSURFHHGVRIXQODZIXODFWLYLW\IURP
WKHIRUPRIPRQH\ RUPRUHSURSHUO\DEDQNDFFRXQW ²
WKURXJKWKHXVHRIRWKHUXQGLVFORVHGEXVLQHVVDFFRXQWV
²LQWRWKHIRUPRIDQDXWRPRELOH1RUPDQPDGHLWPRUH
GLIILFXOWIRUWKHWUXHRZQHURIWKHPRQH\WRWUDFHZKDW
KDGKDSSHQHGWRLW
8QGHURXUFDVHVWKLVLVVXIILFLHQWWRPDNHRXWDYLRODWLRQRI
WKHVWDWXWH
,GDW,QWKLVFDVHWKHHYLGHQFHZDVLQDOOOLNHOLKRRG
LQVXIILFLHQWWRDOORZDFRQFOXVLRQ0DUVKDOOZDVPRWLYDWHGE\
DGHVLUHWRFRQFHDOKLVRZQLGHQWLW\GXULQJWKHWUDQVDFWLRQVDW
LVVXH 7KH UHFRUG KRZHYHU DPSO\ VXSSRUWV D FRQFOXVLRQ
0DUVKDOO HQJDJHG LQ WKRVH WUDQVDFWLRQV LQ DQ DWWHPSW WR
FRQFHDORUGLVJXLVHKLVFRQQHFWLRQZLWKWKHODUFHQ\SURFHHGV
IURP ODZ HQIRUFHPHQW WKH YLFWLP EDQN DQG KLV IRUPHU
HPSOR\HU
7KHVWDUWLQJSRLQWIRUP\DQDO\VLVLVDQH[DPLQDWLRQRIWKH
WRWDOLW\RIWKHHYLGHQFHSODFHGEHIRUHWKHMXU\DQGWKHORJLFDO
LQIHUHQFHV WKH MXU\ FRXOG KDYH GUDZQ IURP WKDW HYLGHQFH
:LWKWKLVVWDUWLQJSRLQW,GRQRWORRNDWHDFKWUDQVDFWLRQLQ
LVRODWLRQ,QVWHDG,VHHHDFKRIWKHWKUHHSXUFKDVHVZLWKLQWKH
FRQWH[WRIDOOWKHHYLGHQFH9LHZHGDVDZKROHWKHHYLGHQFH
1R 8QLWHG6WDWHVY0DUVKDOO
KROGLQJWKDWHYLGHQWLDU\UXOLQJVDUHUHYHUVHGRQO\LIWKH
GLVWULFWFRXUWDEXVHVLWVGLVFUHWLRQ
0DUVKDOO¶VEULHIDOVRLQFOXGHGDVXPPDU\FKDOOHQJHWRWKH
MXU\ LQVWUXFWLRQV WKDW SHUPLWWHG WKH MXU\ WR LQIHU IURP WKH
VXGGHQZHDOWK HYLGHQFH WKDW 0DUVKDOO¶V H[SHQGLWXUHV
LPPHGLDWHO\ DIWHU WKH ODUFHQ\ ZHUH IXQGHG E\ WKH VWROHQ
PRQH\7KHGLVWULFWFRXUW¶VLQVWUXFWLRQVKRZHYHUDFFXUDWHO\
UHIOHFWHGWKHKROGLQJLQ$PHULQH6HH$PHULQH)GDW
:HDOVRFRQFOXGHWKDWWKH\GLGQRWKDYHWKHSRWHQWLDO
WRFRQIXVHRUPLVOHDGWKHMXU\6HH,QQHVY+RZHOO&RUS
)G WK&LU GHFODULQJWKDWMXU\LQVWUXFWLRQV
DUH WR EH ³UHYLHZHG DV D ZKROH WR GHWHUPLQH ZKHWKHU WKH\
DGHTXDWHO\ LQIRUP WKH MXU\ RI UHOHYDQW FRQVLGHUDWLRQV DQG
SURYLGH D EDVLV LQ ODZ IRU WKH MXU\ WR UHDFK LWV GHFLVLRQ´
LQWHUQDOTXRWDWLRQVRPLWWHG
% 7KHGLVWULFWFRXUWGLGQRWDEXVHLWVGLVFUHWLRQZKHQLW
H[FOXGHG HYLGHQFH RI 0DUVKDOO¶V RWKHU VRXUFHV RI
LQFRPH EHJLQQLQJ PRUH WKDQ WKUHH \HDUV DIWHU WKH
WKHIW
0DUVKDOO WHQGHUHG QXPHURXV H[KLELWV UHODWLQJ WR KLV
OHJLWLPDWH VRXUFHV RI LQFRPH RIIHUHG IRU WKH SXUSRVH RI
H[SODLQLQJWKHVRXUFHRIWKHPRQH\WKDWKHZDVLQYHVWLQJDQG
VSHQGLQJLQHDUO\7KHVHH[KLELWVUDQJHGIURPKDQG
SULQWHGUHFHLSWVVKRZLQJWKDWKHKDGIL[HGXSYDULRXVROGFDUV
LQ H[FKDQJH IRU PRQH\ WR D EDQN DFFRXQW VWDWHPHQW WKDW
0DUVKDOOFODLPHGUHIOHFWHGKLVSURSHQVLW\WRVDYHPRQH\$OO
RI WKLV SURIIHUHG HYLGHQFH KRZHYHU LQYROYHG DOWHUQDWLYH
VRXUFHVRILQFRPHIURPRQZDUGPRUHWKDQWKUHH\HDUV
DIWHUWKHODUFHQ\KDGRFFXUUHG$OWKRXJKWKHGLVWULFWFRXUW
DOORZHG 0DUVKDOO WR LQWURGXFH H[KLELWV DQG WHVWLPRQ\
UHJDUGLQJKLVILQDQFHVSULRUWRWKHHYLGHQFHDWLVVXHZDV
H[FOXGHGDVLUUHOHYDQW%HFDXVHSURRIRI0DUVKDOO¶VILQDQFHV
IURP RQZDUG DSSHDUV WR KDYH QR UHOHYDQFH WR KLV
ILQDQFLDO WUDQVDFWLRQV LQ HDUO\ ZH FRQFOXGH WKDW WKH
GLVWULFWFRXUW¶VH[FOXVLRQRIVXFKHYLGHQFHZDVQRWDQDEXVH
RIGLVFUHWLRQ6HH7UHSHOY5RDGZD\([SUHVV,QF)G

-- 11 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
WK &LU KROGLQJ WKDW DOO HYLGHQWLDU\
UXOLQJVDUHVXEMHFWWRUHYLHZIRUDEXVHRIGLVFUHWLRQ
& 7KH GLVWULFW FRXUW¶V GHFLVLRQ WR FRQGXFW WKH FKDUJH
FRQIHUHQFH DQG SRVVLEO\ D SRUWLRQ RI WKH FORVLQJ
DUJXPHQWVLQ0DUVKDOO¶VDEVHQFHGRHVQRWFRQVWLWXWH
UHYHUVLEOHHUURU
0DUVKDOO FKDOOHQJHV WKH GHFLVLRQ RI WKH GLVWULFW FRXUW WR
DFFHSW KLV ODZ\HU¶V ZDLYHU RI KLV SUHVHQFH DW WKH
FRPPHQFHPHQWRIWKHFKDUJHFRQIHUHQFHRQ$SULO
$FFRUGLQJ WR 0DUVKDOO KH ZDV DEVHQW IURP WKH FKDUJH
FRQIHUHQFH DQG IRU D SRUWLRQ RI WKH FORVLQJ DUJXPHQWV
DOWKRXJKWKHUHLVQRGRFXPHQWDWLRQRIZKHQKHDUULYHGQRU
DQ\ H[SODQDWLRQ IRU ZK\ KH ZDV DEVHQW 7KH JRYHUQPHQW
PDLQWDLQVWKDWKHDUULYHGLQWKHFRXUWURRPVKRUWO\DIWHUWKH
FKDUJHFRQIHUHQFHEHJDQ1HLWKHU0DUVKDOOQRUKLVODZ\HU
ORGJHGDQ\REMHFWLRQZLWKWKHGLVWULFWFRXUWFRQFHUQLQJWKLV
DOOHJHGHUURU
7KHUHLVQRGRXEWWKDWWKHDFFXVHGKDVDFRQVWLWXWLRQDOULJKW
WR EH SUHVHQW DW DOO WKH FULWLFDO VWDJHV RI KLV WULDO 6HH
.HQWXFN\ Y 6WLQFHU 86 ³>'@XH
SURFHVV FOHDUO\ UHTXLUHV WKDW D GHIHQGDQW EH DOORZHG WR EH
SUHVHQW WR WKH H[WHQW WKDW D IDLU DQG MXVW KHDULQJ ZRXOG EH
WKZDUWHGE\KLVDEVHQFH´ FLWDWLRQVDQGLQWHUQDOTXRWDWLRQV
RPLWWHG 7KLVULJKWKRZHYHULVDZDLYDEOHRQHVRORQJDV
WKHGHIHQGDQW¶VZDLYHULVNQRZLQJDQGYROXQWDU\6HH'LD]Y
8QLWHG6WDWHV86 7REHDNQRZLQJ
DQG YROXQWDU\ ZDLYHU D GHIHQGDQW ³PXVW EH DZDUH RI WKH
SURFHVVHVWDNLQJSODFHRIKLVULJKWDQGRIKLVREOLJDWLRQWREH
SUHVHQW DQG KH PXVW KDYH QR VRXQG UHDVRQ IRU UHPDLQLQJ
DZD\´6HH7D\ORUY8QLWHG6WDWHV86Q
FLWDWLRQVDQGLQWHUQDOTXRWDWLRQVRPLWWHG
,Q)LQQH\Y5RWKJHUEHU)G WK&LU WKLV
FRXUWGHWHUPLQHGWKDWWKHGLVWULFWFRXUWVKRXOGKDYHKHOGDQ
HYLGHQWLDU\KHDULQJWRGHFLGHZKHWKHUWKHGHIHQGDQW¶VDEVHQFH
ZDVYROXQWDU\VRWKDW³WKHLVVXHPLJKWKDYHEHHQIRUHFORVHG
DQG IXUWKHU OLWLJDWLRQ DYRLGHG´ ,G DW ,I QR VXFK
ILQGLQJLVPDGHKRZHYHUDVLQ)LQQH\ZHORRNWRWKHUHFRUG
1R 8QLWHG6WDWHVY0DUVKDOO
:KRHYHU NQRZLQJ WKDW WKH SURSHUW\ LQYROYHG LQ D
ILQDQFLDO WUDQVDFWLRQ UHSUHVHQWV WKH SURFHHGV RI VRPH
IRUP RI XQODZIXO DFWLYLW\ FRQGXFWV RU DWWHPSWV WR
FRQGXFW VXFK D ILQDQFLDO WUDQVDFWLRQ ZKLFK LQ IDFW
LQYROYHVWKHSURFHHGVRIVSHFLILHGXQODZIXODFWLYLW\
NQRZLQJWKDWWKHWUDQVDFWLRQLVGHVLJQHGLQZKROHRULQ
SDUWWRFRQFHDORUGLVJXLVHWKHQDWXUHWKHORFDWLRQWKH
VRXUFHWKHRZQHUVKLSRUWKHFRQWURORIWKHSURFHHGVRI
VSHFLILHGXQODZIXODFWLYLW\VKDOOEH>JXLOW\RIDFULPH@
7KHXQGHUO\LQJFRQGXFWIRU&RXQWLV0DUVKDOO¶VSXUFKDVHRI
WKH5ROH[&RXQWVWHPVRXWRIKLVSXUFKDVHRIWKHGLDPRQG
WHQQLV EUDFHOHW DQG &RXQW LQYROYHV KLV SXUFKDVH RI WKH
ZLQH7KHPDMRULW\KDVFRUUHFWO\VWDWHGWKHWKUHHHVVHQWLDO
HOHPHQWVRIWKHFULPH
XVHRIIXQGVWKDWDUHSURFHHGVRIXQODZIXODFWLYLW\
NQRZOHGJHWKDWWKHIXQGVDUHSURFHHGVRIXQODZIXO
DFWLYLW\DQG
FRQGXFWLQJ RU DWWHPSWLQJ WR FRQGXFW D ILQDQFLDO
WUDQVDFWLRQNQRZLQJWKDWWKHWUDQVDFWLRQLVGHVLJQHGLQ
ZKROH RU LQ SDUW WR FRQFHDO RU GLVJXLVH WKH QDWXUH
ORFDWLRQVRXUFHRZQHUVKLSRUFRQWURORIWKHSURFHHGV
8QLWHG6WDWHVY3ULQFH)G WK&LU ,
DJUHHZLWKP\IHOORZSDQHOLVWVWKDWWKHILUVWWZRHOHPHQWVDUH
QRW DW LVVXH KHUH 5DWKHU 0DUVKDOO¶V FKDOOHQJH WR WKHVH
FRQYLFWLRQVDVVHUWVDODFNRIHYLGHQFHSHUWDLQLQJWRWKHWKLUG
HOHPHQWLQWHQWWRFRQFHDORUGLVJXLVH
$IWHUYLHZLQJWKHHYLGHQFHSUHVHQWHGDWWULDODVDZKROHLQ
WKHOLJKWPRVWIDYRUDEOHWRWKHSURVHFXWLRQ,KDYHFRQFOXGHG
DQG D MXU\ FRXOG KDYH IRXQG WKH UHFRUG ZRXOG VXSSRUW D
ILQGLQJRQWKHWKLUGHOHPHQWEH\RQGDUHDVRQDEOHGRXEW7KH
IDFW 0DUVKDOO FKRVH QRW WR FRQFHDO KLV LGHQWLW\ IURP WKRVH
ZKRP KH PDGH WKH SXUFKDVHV DOWKRXJK D UHOHYDQW
FRQVLGHUDWLRQLVQRWGLVSRVLWLYH,QUHVSRQVHWRDQDUJXPHQW
VLPLODUWRWKDWSUHVHQWHGE\$SSHOODQWKHUHWKH8QLWHG6WDWHV
&RXUWRI$SSHDOVIRUWKH(LJKWK&LUFXLWLQ8QLWHG6WDWHVY

-- 12 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
D IDFW ZKLFK VXSSRUWV WKH FRQFOXVLRQ 0DUVKDOO¶V LQWHQW ZDV WR FRQYHUW WKH
³GLUW\´ EDQN ODUFHQ\ SURFHHGV LQWR ³FOHDQ´ DVVHWV WKDW FRXOG QRW EH WUDFHG
GLUHFWO\ WR KLV FULPH 0DUVKDOO KLPVHOI DGPLWWHG DV PXFK GXULQJ KLV
WHVWLPRQ\ DW WULDO
4 -XVW WKH ZLQH \RX SXUFKDVHG \RX VDLG \RX VWLOO KDYH LW"
$ <HV , GR
4 'LG \RX SXUFKDVH WKDW ZLQH DV DQ LQYHVWPHQW"
$ , SXUFKDVHG LW DQG WKH ZDWFKHV DV DQ LQYHVWPHQW 7KDW¶V
FRUUHFW
7KLV WHVWLPRQ\ FRQVWLWXWHV GLUHFW HYLGHQFH 0DUVKDOO VDZ WKH ZLQH DQG WKH
5ROH[ DV LQYHVWPHQWV 6LQFH WKH RQO\ RWKHU SXUFKDVH DW LVVXH LQYROYHG WKH
GLDPRQG WHQQLV EUDFHOHW RQH FRXOG ORJLFDOO\ SUHVXPH WKH SOXUDO ³ZDWFKHV´
LQFOXGHV WKH EUDFHOHW
DEVHQFH RI HYLGHQFH LQGLFDWLQJ DQ LQWHQW WR FRQFHDO KLV
LGHQWLW\,GRQRWEHOLHYHLWLVGLVSRVLWLYHKHUH
2QDSSHDO0DUVKDOOFODLPVWKHHYLGHQFHSUHVHQWHGGXULQJ
KLVWULDOZDVLQVXIILFLHQWWRVXSSRUWKLVWKUHHFRQYLFWLRQVIRU
PRQH\ODXQGHULQJ,ILQGLWQHFHVVDU\DWWKLVSRLQWWRUHLWHUDWH
WKH VWDQGDUG RI UHYLHZ WR EH DSSOLHG LQ WKLV FRQWH[W $Q
DSSHOODWHFRXUWUHYLHZLQJDFKDOOHQJHWRWKHVXIILFLHQF\RIWKH
HYLGHQFHDGGXFHGDWWULDOPXVWGHWHUPLQHZKHWKHUYLHZLQJ
WKHWULDOWHVWLPRQ\DQGH[KLELWVLQWKHOLJKWPRVWIDYRUDEOHWR
WKHSURVHFXWLRQDQ\UDWLRQDOWULHURIIDFWFRXOGKDYHIRXQGWKH
HVVHQWLDOHOHPHQWVRIWKHFULPHEH\RQGDUHDVRQDEOHGRXEW
-DFNVRQY9LUJLQLD86 7KHDSSHOODWH
FRXUW PD\ QRW UHZHLJK WKH HYLGHQFH UHHYDOXDWH WKH
FUHGLELOLW\RIZLWQHVVHVRUVXEVWLWXWHLWVMXGJPHQWIRUWKDWRI
WKHMXU\8QLWHG6WDWHVY+LOODUG)G WK&LU
0RVWLPSRUWDQWO\WKHUHYLHZLQJFRXUWPXVWORRNDW
WKHHYLGHQFHDVDZKROH3RZHUVY%D\OLQHU0DULQH&RUS
)G WK&LU KROGLQJMXU\YHUGLFWPXVWEH
H[DPLQHGLQOLJKWRIHQWLUHUHFRUGZKHQGHWHUPLQLQJZKHWKHU
LWPD\EHDOORZHGWRVWDQG
0DUVKDOOZDVFRQYLFWHGRQ&RXQWVDQGZLWKPRQH\
ODXQGHULQJLQYLRODWLRQRI86&† D % L
1R 8QLWHG6WDWHVY0DUVKDOO
DVDZKROHWRGHWHUPLQHZKHWKHURUQRWDGHIHQGDQWNQRZLQJO\
DQGYROXQWDULO\ZDLYHGKLVULJKWWREHSUHVHQWDWKLVWULDO6HH
LG
%HFDXVH0DUVKDOOGLGQRWWLPHO\REMHFWWRKLVDEVHQFHDW
WULDO ZH PD\ UHYHUVH KLV FRQYLFWLRQ EDVHG RQ WKLV DOOHJHG
YLRODWLRQRIKLVGXHSURFHVVULJKWVRQO\LIZHGHWHUPLQHWKH
GLVWULFWFRXUW¶VDFWLRQFRQVWLWXWHGSODLQHUURU6HH)HG5&LY
3 E 7KLVFRXUWKDVGHVFULEHGWKHSODLQHUURUDQDO\VLVDV
FRQVLVWLQJ RI IRXU LQTXLULHV ZKHWKHU DQ HUURU DFWXDOO\
RFFXUUHGLQWKHGLVWULFWFRXUW WKHREYLRXVQHVVRIWKDWHUURU
ZKHWKHU WKH HUURU DIIHFWHG VXEVWDQWLDO ULJKWV DQG
ZKHWKHUWKHFRPSURPLVHRIVXEVWDQWLDOULJKWV VHULRXVO\
DIIHFWHGWKHIDLUQHVVLQWHJULW\RUSXEOLFUHSXWDWLRQRIMXGLFLDO
SURFHHGLQJV6HH8QLWHG6WDWHVY7KRPDV)G
WK&LU
0DUVKDOOFKDOOHQJHVWKHIDFWWKDWKLVODZ\HUFRPPXQLFDWHG
WKHZDLYHUWRWKHMXGJHZLWKRXW0DUVKDOO¶VFRQVHQW,WLVWUXH
WKDW D ZDLYHU FDQQRW EH EDVHG RQ VWDWHPHQWV PDGH E\ D
GHIHQGDQW¶VODZ\HUZKRKDVQRWILUVWFRQVXOWHGZLWKKLVRUKHU
FOLHQW6HH&DUWHUY6RZGHUV)G WK&LU
³(YHQ LI GHIHQVH FRXQVHO FRXOG KDYH YDOLGO\ ZDLYHG
GHIHQGDQW¶VULJKWWREHSUHVHQWIRUWKHFRQFOXVLRQRIKLVWULDO
ZKHUH GHIHQVH FRXQVHO GLG QRW FRQVXOW ZLWK GHIHQGDQW
FRQFHUQLQJWKHZDLYHUDQGGLGQRWREWDLQGHIHQGDQW¶VFRQVHQW
WKHZDLYHUZLOOQRWEHELQGLQJRQGHIHQGDQW´ 1HYHUWKHOHVV
WKLV LV QRW WKH RQO\ ZD\ LQ ZKLFK 0DUVKDOO¶V ULJKW WR EH
SUHVHQWPD\KDYHEHHQZDLYHG:DLYHUPD\DOVREHLPSOLHG
IURPWKHGHIHQGDQW¶VFRQGXFW6HH)LQQH\Y5RWKJHUEHU
)G WK &LU KROGLQJ WKDW GHVSLWH WKH
GHIHQGDQW¶VIDLOXUHWRH[SUHVVO\ZDLYHKLVSUHVHQFHZDLYHU
ZDVHIIHFWHGEHFDXVH³>L@WLVZKROO\LQFUHGLEOHWRVXJJHVWWKDW
SHWLWLRQHU ZKR ZDV DW OLEHUW\ RQ EDLO KDG DWWHQGHG WKH
RSHQLQJVHVVLRQRIKLVWULDODQGKDGDGXW\WREHSUHVHQWDWWKH
WULDOHQWHUWDLQHGDQ\GRXEWVDERXWKLVULJKWWREHSUHVHQWDW
HYHU\VWDJHRIKLVWULDO´ LQWHUQDOFLWDWLRQRPLWWHG
$IWHU UHYLHZLQJ WKH UHFRUG ZH FRQFOXGH WKDW OLNH WKH
GHIHQGDQWLQ)LQQH\0DUVKDOO¶VDEVHQFHIURPWKHFRXUWURRP

-- 13 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
FRQVWLWXWHG D NQRZLQJ DQG YROXQWDU\ ZDLYHU RI KLV
FRQVWLWXWLRQDOULJKWWREHSUHVHQW0DUVKDOOOLNH)LQQH\ZDV
IUHHRQEDLO+HKDVRIIHUHGQRH[SODQDWLRQIRUKLVDEVHQFH
GXULQJWKHFKDUJHFRQIHUHQFH(YHQPRUHSUREOHPDWLFIRUKLV
FODLP0DUVKDOOGRHVQRWGLVSXWHWKDWKHZDVSUHVHQWLQWKH
FRXUWURRP ZKHQ WKH GLVWULFW FRXUW DQQRXQFHG WKH WLPH DW
ZKLFK FRXUW SURFHHGLQJV ZRXOG UHVXPH WKH QH[W GD\ :H
WKHUHIRUHFRQFOXGHWKDW0DUVKDOO¶VULJKWWREHSUHVHQWDWKLV
WULDOZDVYROXQWDULO\ZDLYHGE\KLVFRQGXFW7KHUHLVWKXVQR
QHHG WR DGGUHVV ZKHWKHU KLV ODZ\HU¶V FRPPXQLFDWLRQ RI D
ZDLYHUWRWKHGLVWULFWFRXUWZDVYDOLGQRUGRZHQHHGWRDSSO\
WKHSODLQHUURUDQDO\VLVDQ\IXUWKHU:HQRWHKRZHYHUWKDW
HYHQLIZHKDGIRXQGHUURULQKLVKDYLQJEHHQDEVHQWGXULQJ
WKHFKDUJHFRQIHUHQFH0DUVKDOOKDVSURGXFHGQRHYLGHQFH
WKDW WKLV DEVHQFH VXEVWDQWLDOO\ DIIHFWHG KLV ULJKWV RU WKH
IDLUQHVVRIWKHWULDOSURFHHGLQJV
' 6XIILFLHQF\RIWKHHYLGHQFH
0DUVKDOOQH[WFKDOOHQJHVWKHVXIILFLHQF\RIWKHHYLGHQFH
VXSSRUWLQJWKHWZRODUFHQ\FRQYLFWLRQVWKHIDOVHFXUUHQF\
WUDQVDFWLRQUHSRUWFRQYLFWLRQDQGWKHWKUHH† D % L
PRQH\ODXQGHULQJFRQYLFWLRQV $OWKRXJK0DUVKDOOZDVDOVR
FRQYLFWHGRIYLRODWLQJ86&†ZKLFKSXQLVKHVD
SHUVRQZKR³NQRZLQJO\HQJDJHVRUDWWHPSWVWRHQJDJHLQD
PRQHWDU\WUDQVDFWLRQLQFULPLQDOO\GHULYHGSURSHUW\RIDYDOXH
JUHDWHU WKDQ ´ UHVXOWLQJ IURP KLV RSHQLQJ WKH
EURNHUDJHDFFRXQWZLWKRIVWROHQPRQH\KHGRHVQRW
GLUHFWO\FKDOOHQJHWKDWFRQYLFWLRQRQDSSHDO
,Q RXU UHYLHZ RI KLV FODLP WKDW WKHUH ZDV LQVXIILFLHQW
HYLGHQFHWRVXSSRUWKLVRWKHUFRQYLFWLRQVZHPXVWGHWHUPLQH
³ZKHWKHU DIWHU YLHZLQJ WKH HYLGHQFH LQ WKH OLJKW PRVW
IDYRUDEOHWRWKHSURVHFXWLRQDQ\UDWLRQDOWULHURIIDFWFRXOG
KDYH IRXQG WKH HVVHQWLDO HOHPHQWV RI WKH FULPH EH\RQG D
UHDVRQDEOHGRXEW´-DFNVRQY9LUJLQLD86
HPSKDVLV LQ RULJLQDO $V ZH UHYLHZ 0DUVKDOO¶V
FODLPVRILQVXIILFLHQWSURRIKRZHYHUZHPD\QRW³ZHLJKWKH
HYLGHQFHFRQVLGHUWKHFUHGLELOLW\RIZLWQHVVHVRUVXEVWLWXWH
1R 8QLWHG6WDWHVY0DUVKDOO
$OWKRXJK WKH PDMRULW\ FKDUDFWHUL]HV 0DUVKDOO¶V SXUFKDVH RI WKH
ZLQHV D 5ROH[ DQG D GLDPRQG WHQQLV EUDFHOHW DV D ³IHZ LVRODWHG SXUFKDVHV
RI ZHDUDEOH RU FRQVXPDEOH LWHPV´ , WKLQN WKH HYLGHQFH ZDV VXIILFLHQW WR
DOORZ D MXU\ WR FRQFOXGH 0DUVKDOO PDGH HDFK SXUFKDVH DV DQ LQYHVWPHQW
WKDWFRQYLFWLRQDQGKLVFRQYLFWLRQDQGVHQWHQFHXQGHU
86&† G IRUDUPHGUREEHU\PXVWVWDQG
*HQWU\)GDW
,QWKLVFDVHWKHHYLGHQFHVXEPLWWHGDWWULDOZDVVXIILFLHQWWR
VXSSRUW0DUVKDOO¶VFRQYLFWLRQVXQGHUERWK&RXQWVDQG
7KH HYLGHQFH RQ ERWK FRXQWV LV DOVR FRQVLVWHQW LH D
UHDVRQDEOH MXU\ FRXOG EHOLHYH ERWK WKDW 0DUVKDOO ZDV WKH
EXUJODUDQGWKDWKHODWHUSRVVHVVHGRUFRQFHDOHGWKHVWROHQ
IXQGV,IWKHHYLGHQFHSUHVHQWHGDWWULDOKDGEHHQPXWXDOO\
H[FOXVLYH ZLWK UHVSHFW WR WKHVH WZR FRXQWV WKDW LV LI D
UHDVRQDEOHMXURUFRXOGQRWKDYHIRXQG0DUVKDOOZDVWKHWKLHI
ZLWKRXWDOVRUXOLQJRXWWKHSRVVLELOLW\KHZDVWKHVXEVHTXHQW
UHFHLYHURUSRVVHVVRUWKHQRQO\DQHZWULDOZRXOGFRUUHFWWKH
VXEVWDQWLYH HUURU +HUH KRZHYHU 0DUVKDOO¶V HUURQHRXV
FRQYLFWLRQ RQ &RXQW GRHV QRWKLQJ WR FDVW GRXEW RQ KLV
ODUFHQ\FRQYLFWLRQ&RQVHTXHQWO\WKHDSSURSULDWHUHPHG\LQ
WKLV FDVH DFFRUGLQJ WR WKH UXOH DQQRXQFHG LQ *DGGLV DV
LQWHUSUHWHG LQ *HQWU\ DQG 0RRUH LV YDFDWXU RI WKH VHFWLRQ
F FRQYLFWLRQ &RXQW UDWKHUWKDQUHPDQGIRUDQHZ
WULDORQ&RXQWVDQG
,,0DUVKDOO¶V&RQYLFWLRQV8QGHU86&
† D % L
,GRQRWGLVDJUHHZLWKWKHIDFWVDQGWKHODZDVVHWIRUWKLQ
WKHSRUWLRQRIWKHPDMRULW\¶VRSLQLRQGHDOLQJZLWK0DUVKDOO¶V
PRQH\ODXQGHULQJFRQYLFWLRQV:KHUH,SDUWFRPSDQ\ZLWK
WKHPDMRULW\LVLQWKHUHODWLYHVLJQLILFDQFH,EHOLHYHVKRXOGEH
SODFHGRQWKHDEVHQFHRIHYLGHQFH LQGLFDWLQJDQLQWHQWRQ
0DUVKDOO¶VSDUWWRFRQFHDOKLVLGHQWLW\DWWKHWLPHHDFKRIWKH
GLVSXWHG WUDQVDFWLRQV ZDV FRQVXPPDWHG DQG RQ ZKHWKHU
WKRVHWUDQVDFWLRQVZHUHRUGLQDU\FRPPHUFLDOWUDQVDFWLRQVRU
LQYHVWPHQWV$OWKRXJK$SSHOODQWHPSKDVL]HVLQKLVEULHIWKH

-- 14 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
FRQYLFWLRQDQGVHQWHQFHRQWKHSRVVHVVLRQFKDUJHDUHQRWVHW
DVLGHZHQRWHWKDWμ,WLVZHOOXQGHUVWRRGWKDWDPXOWLSOLFLW\RI
VHQWHQFHV LPSDLUV D SULVRQHU¶V RSSRUWXQLWLHV IRU SDUGRQ RU
SDUROH¶´,G FLWLQJ+LEGRQY8QLWHG6WDWHV)G
WK&LU DQG0DFKLEURGDY8QLWHG6WDWHV
)G WK&LU 7KHHYLGHQWLDU\IRXQGDWLRQ
IRUWKHGHIHQGDQW¶VFRQYLFWLRQVLQ*HQWU\ZDVVLPLODUWRWKDW
SUHVHQWKHUH
8SRQWKHWULDORIWKHFDVH WKHHYLGHQFHUHIOHFWHGPRVW
FOHDUO\WKDWXSRQ'HFHPEHUWKHSHWLWLRQHUDQG
KLV FRGHIHQGDQW &OD\WRQ XVLQJ D VWROHQ DXWRPRELOH
DUPHGZLWKVKRWJXQVDQGZHDULQJVNLPDVNVUREEHGDW
JXQSRLQWDEDQNVHFXULW\RIILFHURIDVWKH
RIILFHUZDVLQWKHSURFHVVRIGHOLYHULQJFDVKWRWKHEDQN
8SRQ -DQXDU\ VHDUFK ZDUUDQWV OHG WR WKH
UHFRYHU\RIRIWKHSURFHHGVRIWKHUREEHU\
IURP WKH SHWLWLRQHU¶V KRPH DQG WKH UHFRYHU\ RI
RIWKHSURFHHGVRIWKHUREEHU\IURPWKHKRPH
RIWKHFRGHIHQGDQW&OD\WRQWRJHWKHUZLWKWKHZHDSRQV
DQGRWKHUSDUDSKHUQDOLDXVHGLQWKHUREEHU\7KHMXU\
UHWXUQHGDYHUGLFWILQGLQJDOOGHIHQGDQWVJXLOW\DVFKDUJHG
LQHDFKRIWKHWZRFRXQWVRIWKHLQGLFWPHQW
*HQWU\Y8QLWHG6WDWHV)6XSS ('
7HQQ 7KH HYLGHQFH ZDV WKHUHIRUH VXIILFLHQW WR
HVWDEOLVKERWK*HQWU\¶VSDUWLFLSDWLRQLQWKHWKHIWDVZHOODVKLV
VXEVHTXHQW SRVVHVVLRQ RI VWROHQ SURSHUW\ 2Q DSSHDO WKH
SDQHOKHOGWKHHUURUHQWLWOHGKLPWRYDFDWXURIKLVFRQYLFWLRQ
XQGHUVHFWLRQ F EXWGLGQRWMXVWLI\DQHZWULDORQERWK
WKHUREEHU\DQGWKHUHFHLSWDQGSRVVHVVLRQFRXQWV
:H ILQG *DGGLV FRQWUROOLQJ ZLWK UHJDUG WR *HQWU\¶V
FRQWHQWLRQ WKDW KH LV HQWLWOHG WR D QHZ WULDO XQGHU
0LODQRYLFKVXSUD$VLQ*DGGLVWKHHYLGHQFHVKRZHG
WKDW*HQWU\ZDVDGLUHFWSDUWLFLSDQWLQWKHEDQNUREEHU\
DQGWKHUHLVQRHYLGHQFHWKDWKHUHFHLYHGWKHSURFHHGV
IURP D GLIIHUHQW EDQN UREEHU 7KXV WKH HUURU RI WKH
GLVWULFW MXGJH LQ DOORZLQJ KLP WR EH FRQYLFWHG IRU
YLRODWLRQRI† F FDQEHIXOO\FRUUHFWHGE\YDFDWLQJ
1R 8QLWHG6WDWHVY0DUVKDOO
RXUMXGJPHQWIRUWKDWRIWKHMXU\´8QLWHG6WDWHVY+LOOLDUG
)G WK&LU
7KHODUFHQ\FRQYLFWLRQV
0DUVKDOOZDVFRQYLFWHGRIEDQNODUFHQ\LQYLRODWLRQRI
86& † E ³:KRHYHU WDNHV DQG FDUULHV DZD\ ZLWK
LQWHQWWRVWHDORUSXUORLQDQ\SURSHUW\RUPRQH\RUDQ\RWKHU
WKLQJRIYDOXHH[FHHGLQJEHORQJLQJWRDQ\EDQN
VKDOOEHILQHGXQGHUWKLVWLWOHRULPSULVRQHGQRWPRUHWKDQ
WHQ \HDUV RU ERWK´ +H ZDV DOVR FRQYLFWHG RI UHFHLYLQJ
PRQH\VWROHQIURPDEDQNLQYLRODWLRQRI86&† F
³:KRHYHUUHFHLYHVSRVVHVVHVFRQFHDOVVWRUHVEDUWHUVVHOOV
RUGLVSRVHVRIDQ\SURSHUW\RUPRQH\RURWKHUWKLQJRIYDOXH
ZKLFKKDVEHHQWDNHQRUVWROHQIURPDEDQNLQYLRODWLRQ
RIVXEVHFWLRQ E NQRZLQJWKHVDPHWREHSURSHUW\ZKLFKKDV
EHHQVWROHQVKDOOEHVXEMHFWWRWKHSXQLVKPHQWSURYLGHGLQ
VXEVHFWLRQ E IRUWKHWDNHU´
7KH8QLWHG6WDWHV6XSUHPH&RXUWKDVKHOGWKDWVXFKDGXDO
FRQYLFWLRQLVLPSURSHU,Q8QLWHG6WDWHVY*DGGLV86
WKH&RXUWFRQFOXGHGWKDWLQHQDFWLQJ† F
³&RQJUHVVZDVWU\LQJWRUHDFKDQHZJURXSRIZURQJGRHUV
QRWWRPXOWLSO\WKHRIIHQVHRIWKHEDQNUREEHUVWKHPVHOYHV´
,G DW FLWDWLRQV DQG LQWHUQDO TXRWDWLRQV RPLWWHG ,W
GHWHUPLQHG WKDW ³† F UHDFKHV D GLIIHUHQW JURXS RI
ZURQJGRHUVLHWKRVHZKRUHFHLYHWKHORRWIURPWKHUREEHU´
,GDW1RQHWKHOHVVGHVSLWHWKHUXOHRI*DGGLV0DUVKDOO
ZDVFRQYLFWHGXQGHUERWK† E DQG† F IRUWKH
VDPHLOOHJDODFW
7KHJRYHUQPHQWVWDWHGDWRUDODUJXPHQWWKDWWKHLQFOXVLRQ
RI WKH † F FKDUJH ZDV WR VHUYH DV DQ DOWHUQDWLYH WR
0DUVKDOO¶V LQGLFWPHQW XQGHU † E EDVHG RQ WKH
SRVVLELOLW\WKDWWKHSURRIPLJKWVKRZWKDW0\HUV0DUVKDOO¶V
IRUPHUFRXULHUSDUWQHUDW3LQNHUWRQZDVDSDUWLFLSDQWLQWKH
ODUFHQ\1RVXFKSURRIZDVIRUWKFRPLQJ1HYHUWKHOHVVWKH
GLVWULFWFRXUWIDLOHGWRLQVWUXFWWKHMXU\WKDWLWFRXOGQRWFRQYLFW
0DUVKDOOXQGHUERWK† E DQG† F EDVHGRQWKH
IDFWV EHIRUH LW 7KHUHIRUH ZLWK WKH FRQVHQW RI WKH

-- 15 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
JRYHUQPHQW ZH VHW DVLGH 0DUVKDOO¶V FRQYLFWLRQ XQGHU
86&† F EHFDXVHRIWKHSODLQHUURUSUHVHQWHG
7KH UHPDLQLQJ ODUFHQ\ FRQYLFWLRQ XQGHU 86&
† E KDVWZRNH\HOHPHQWV WKHFDUU\LQJDZD\RI
EDQN SURSHUW\ RU PRQH\ H[FHHGLQJ DQG WKH
VSHFLILFLQWHQWWRVWHDO7KHUHLVQRGLVSXWHDVWRWKHYDOXHRI
WKHSURSHUW\VWROHQQRUWKDWWKHZDVWDNHQDQGFDUULHG
DZD\5DWKHU0DUVKDOO¶VDUJXPHQWLVEDVHGRQWKHODFNRI
GLUHFWHYLGHQFHWKDWKHZDVWKHRQHZKRWRRNWKHPRQH\
,W LV D[LRPDWLF WKDW ³>F@LUFXPVWDQWLDO HYLGHQFH DORQH LV
VXIILFLHQWWRVXVWDLQDFRQYLFWLRQDQGVXFKHYLGHQFHQHHGQRW
UHPRYH HYHU\ UHDVRQDEOH K\SRWKHVLV H[FHSW WKDW RI JXLOW´
8QLWHG 6WDWHV Y 9DQQHUVRQ )G WK &LU
,QWKLVFDVHWKHFLUFXPVWDQWLDOHYLGHQFHVXSSRUWLQJ
WKHMXU\¶VYHUGLFWLVVXEVWDQWLDO7KHUHZHUHQRVLJQVRIIRUFHG
HQWU\LQWRWKH$70DIDFWVWURQJO\LPSOLFDWLQJVRPHRQHZKR
KDGDFFHVVWRWKHNH\VDQGVHFXULW\FRGHVQHHGHGWRDFFHVVWKH
YDXOW0DUVKDOOZDVRQHRIDYHU\VPDOOQXPEHURISHRSOH
ZLWK WKDW NLQG RI DFFHVV DQG IXUWKHU KH NQHZ KRZ PXFK
PRQH\ZDVLQWKHYDXOWJLYHQWKDWKHKDGVHUYLFHGWKHVDPH
$70RQO\WZRGD\VHDUOLHU+LVILQJHUSULQWVZHUHWKHRQO\
RQHV IRXQG RQ WKH GLVFDUGHG VKULQNZUDS WKDW KDG RQFH
FRQWDLQHGWKHVWROHQPRQH\)XUWKHUPRUHWKHHYLGHQFHRI
0DUVKDOO¶VVXGGHQDQGXQH[SODLQHGZHDOWKLPPHGLDWHO\DIWHU
WKHWKHIWDVZHOODVKLVSRVVHVVLRQRIWZRWKRXVDQGELOOV
WKHGD\KHRSHQHGKLVEURNHUDJHDFFRXQWDOVRSRLQWVWRKLV
JXLOW)LQDOO\YDULRXVZLWQHVVHVWHVWLILHGDERXW0DUVKDOO¶V
HYDVLYH DQG LQFRQVLVWHQW VWDWHPHQWV ZLWK UHIHUHQFH WR WKH
EURNHUDJH DFFRXQW DW 2OGH 'LVFRXQW D IHZ GD\V DIWHU WKH
PRQH\ZDVWDNHQIURPWKH$70
7KLVFLUFXPVWDQWLDOHYLGHQFHWDNHQWRJHWKHUZDVPRUHWKDQ
VXIILFLHQW IRU D UDWLRQDO WULHU RI IDFW WR ILQG EH\RQG D
UHDVRQDEOHGRXEWWKDW0DUVKDOOZDVJXLOW\RIEDQNODUFHQ\
$FFRUG8QLWHG6WDWHVY0XQGW)G WK
&LU DIILUPLQJDJXLOW\YHUGLFWIRUEDQNODUFHQ\EDVHG
RQ HYLGHQFH WKDW WKH GHIHQGDQW KDG EHHQ H[SHULHQFLQJ
ILQDQFLDOGLIILFXOWLHVWKDWKHKDGDFFHVVWRWKHPRQH\DQGWKH
1R 8QLWHG6WDWHVY0DUVKDOO
,GDW FLWDWLRQVDQGIRRWQRWHRPLWWHG ,QUHDFKLQJWKDW
KROGLQJWKH6HYHQWK&LUFXLWGLVWLQJXLVKHG0LODQRYLFK
0RRUHUHOLHVXSRQ0LODQRYLFKY8QLWHG6WDWHVVXSUDLQ
ZKLFK WKH 6XSUHPH &RXUW GLG RUGHU D QHZ WULDO DIWHU
KROGLQJWKDWUREEHU\DQGSRVVHVVLRQRIIHQVHVFRXOGQRW
EHFXPXODWHG86DW6&WDW
,QKLVRSLQLRQIRUWKH&RXUWLQ8QLWHG6WDWHVY*DGGLV
866&W/
(GG WKH DXWKRU RI 0LODQRYLFK -XVWLFH
6WHZDUWGHVFULEHGLWDVKDYLQJ³YHU\XQXVXDOIDFWV´DQG
GLVWLQJXLVKHGLW,QDFRQFXUULQJRSLQLRQ-XVWLFH:KLWH
MRLQHGE\WKH&KLHI-XVWLFHVWDWHGWKDWKHGLG³QRWUHDG
WKH &RXUW¶V RSLQLRQ DV UHDIILUPLQJ LQ DGGLWLRQ WR
GHVFULELQJ WKH 0LODQRYLFK UXOH WKDW D QHZ WULDO LV
UHTXLUHG ZKHQ D MXU\ LV HUURQHRXVO\ SHUPLWWHG WR
FRQYLFW D GHIHQGDQW ERWK RI EDQN UREEHU\ 86&
† D E RU G DQGRINQRZLQJSRVVHVVLRQRIWKH
SURFHHGV RI WKDW UREEHU\ 86& † F DQG
WKHUHLVHYLGHQFHWRVXSSRUWERWKFRQYLFWLRQV´,GDW
6&WDW+HDOVRSRLQWHGRXWWKDWLIWKH
MXU\LVHUURQHRXVO\DOORZHGWRFRQVLGHUDQGFRQYLFWRQ
WKHSRVVHVVLRQFRXQWDIWHUKDYLQJGHFLGHGWRFRQYLFWRQ
WKHUREEHU\FRXQWWKHFRQYLFWLRQIRUSRVVHVVLRQ³FDVWV
DEVROXWHO\ QR GRXEW RQ WKH YDOLGLW\ RI WKH UREEHU\
FRQYLFWLRQ´DQGDQHZWULDOVKRXOGQRWEHUHTXLUHG,G
DW 6 &W DW -XVWLFH 6WHZDUW GLG QRW
GLVFODLP-XVWLFH:KLWH¶VLQWHUSUHWDWLRQRIWKHPDMRULW\
RSLQLRQ
,G
,Q*HQWU\Y8QLWHG6WDWHV)G WK
&LU DSDQHORIWKLV&RXUWDSSO\LQJ*DGGLVKHOGWKH
SHWLWLRQHU¶V GXDO FRQYLFWLRQV IRU ERWK EDQN UREEHU\ DQG
UHFHLSW RU SRVVHVVLRQRIVWROHQEDQNSURSHUW\FRXOGQRWEH
DOORZHG WR VWDQG HYHQ ZKHUH WKH GXDO FRQYLFWLRQV KDG QR
LPSDFWDWVHQWHQFLQJEHFDXVHWKHVHQWHQFHVLPSRVHGRQHDFK
FRXQWZHUHWREHUXQFRQFXUUHQWO\³$OWKRXJK*HQWU\KDVQRW
VKRZQVSHFLILFDGYHUVHFRQVHTXHQFHVZKLFKPLJKWDULVHLIKLV

-- 16 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
&RXQWVDQG+HVKRXOGRQO\KDYHEHHQFRQYLFWHGRIRQH
RUWKHRWKHU
7KH *DGGLV &RXUW IXUWKHU KHOG ZKHUH WKH HYLGHQFH
LQWURGXFHG DW WULDO ZDV FOHDUO\ LQVXIILFLHQW WR VXSSRUW D
FRQYLFWLRQ XQGHU VHFWLRQ F EXW ZDV DGHTXDWH ZLWK
UHJDUG WR WKH WKHIW FRQYLFWLRQ WKH DSSURSULDWH UHPHG\ RQ
DSSHDOZDVVLPSOHYDFDWXURIWKHVHFWLRQ F FRQYLFWLRQ
7KHWKHIWFRQYLFWLRQFRXOGEHDOORZHGWRVWDQG,GDW
*DGGLVGLGQRWKRZHYHURYHUUXOH0LODQRYLFKY8QLWHG
6WDWHV86 LQZKLFKWKH6XSUHPH&RXUWKHOG
ERWK WKH WKHIW FRQYLFWLRQ DQG WKH UHFHLSW RU SRVVHVVLRQ
FRQYLFWLRQVKRXOGEHYDFDWHGZKHUHWKHHYLGHQFHZRXOGRQO\
VXSSRUWDFRQYLFWLRQRQRQHFRXQWRUWKHRWKHUEXWQRWERWK
,GDW6&W
,Q8QLWHG6WDWHVY0RRUH)G WK&LU
WKH8QLWHG6WDWHV&RXUWRI$SSHDOVIRUWKH6HYHQWK&LUFXLW
SURYLGHGDKHOSIXOFODULILFDWLRQRI*DGGLVLQGLFDWLQJ*DGGLV
UDWKHUWKDQ0LODQRYLFKZRXOGSURYLGHWKHDSSURSULDWHUHPHG\
LQPRVWFDVHVSUHVHQWLQJWKLVLVVXH,Q0RRUHWKH6HYHQWK
&LUFXLWZDVIDFHGZLWKDVLWXDWLRQZKHUH³WKHHYLGHQFHZDV
DPSOHWRVXVWDLQDFRQYLFWLRQRQERWKFRXQWV´RIWKHIWDQG
SRVVHVVLRQRI8QLWHG6WDWHV3RVWDO6HUYLFHIXQGV,GDW
7KH6HYHQWK&LUFXLWGLGQRWKRZHYHUWKLQNDQHZWULDOZDV
ZDUUDQWHGXQGHUWKHFLUFXPVWDQFHV
7KHUH LV QR UHDVRQ WR UHTXLUH D QHZ WULDO XQGHU WKH
FLUFXPVWDQFHVSUHVHQWLQWKLVFDVH%\LWVYHUGLFWWKHMXU\
IRXQG RQ WKH EDVLV RI DGHTXDWH HYLGHQFH WKDW 0RRUH
UREEHGWKHSRVWDOHPSOR\HHDQGODWHUKDGSLHFHVRIPDLO
IURPWKHUREEHU\LQKLVSRVVHVVLRQ7KHVHILQGLQJVDUHRI
FRXUVHSHUIHFWO\FRQVLVWHQWZLWKRQHDQRWKHU7KHUHDVRQ
WKH\ZLOOQRWVXSSRUWFRQYLFWLRQVIRUERWKUREEHU\DQG
SRVVHVVLRQLVDOHJDORQHZHZLOOQRWLPSXWHWR&RQJUHVV
DQLQWHQWLRQWRSXQLVKWKHWKLHIWZLFH7KLVREYLRXVO\LV
DUHDVRQIRUYDFDWLQJWKHFRQYLFWLRQIRUWKHSRVVHVVLRQ
WKDW LQHYLWDEO\ IROORZV WKH UREEHU\ EXW HTXDOO\
REYLRXVO\QRWIRUUHTXLULQJDQHZWULDO
1R 8QLWHG6WDWHVY0DUVKDOO
RSSRUWXQLW\WRVWHDODQGWKDWKLVZHDOWKVXGGHQO\LQFUHDVHG
LPPHGLDWHO\ DIWHU WKH ODUFHQ\ $FFRUGLQJO\ DOWKRXJK KLV
FRQYLFWLRQIRUYLRODWLQJ86&† F LVVHWDVLGHZH
DIILUP 0DUVKDOO¶V FRQYLFWLRQ IRU YLRODWLQJ 86&
† E
7KHFRQYLFWLRQIRUILOLQJDIDOVHFXUUHQF\WUDQVDFWLRQ
UHSRUW
)HGHUDOODZUHTXLUHVDEDQNWRILOHDFXUUHQF\WUDQVDFWLRQ
UHSRUW ZLWK WKH 6HFUHWDU\ RI &RPPHUFH IRU HYHU\ FDVK
WUDQVDFWLRQ RI PRUH WKDQ LQ ZKLFK WKDW ILQDQFLDO
LQVWLWXWLRQSDUWLFLSDWHV6HH86&† UHTXLULQJWKH
ILOLQJRIDFXUUHQF\WUDQVDFWLRQUHSRUWIRUDWUDQVDFWLRQLQDQ
DPRXQWJUHDWHUWKDQZKDWHYHUILJXUHLVVHWE\WKH6HFUHWDU\RI
WKH 7UHDVXU\ &)5 † VHWWLQJ WKDW DPRXQW DW
,WLVDFULPHWRFDXVHDILQDQFLDOLQVWLWXWLRQWRPDNH
PDWHULDO PLVVWDWHPHQWV RU RPLVVLRQV RQ DQ\ FXUUHQF\
WUDQVDFWLRQUHSRUWPDGHSXUVXDQWWRWKHVHSURYLVLRQV6HH
86&† D VHHDOVR86&† F FRGLI\LQJ
WKHSHQDOW\IRUYLRODWLQJWKLVVHFWLRQ
0DUVKDOO¶VFRQYLFWLRQXQGHU†DQG† D ZDV
EDVHGRQWKHIDOVHLQIRUPDWLRQKHJDYHWRRIILFLDOVDW%DQN
2QHZKHUHKHSURFXUHGDFDVKLHU¶VFKHFNLQH[FKDQJHIRUWKH
LQVWROHQ FDVK 7KHIRUPILOHGE\WKHEDQNOLVWHG
:HVWRQDVWKHRZQHURIWKHFDVKZLWK0DUVKDOODVDFRXULHU
LQ WKH HPSOR\ RI :HVWRQ 7KHUH LV QR GLVSXWH WKDW WKLV
LQIRUPDWLRQ ZDV D PDWHULDO PLVVWDWHPHQW RI WKH IDFWV
$OGULGJH WKH %DQN 2QH VXSHUYLVRU ZKR KDQGOHG WKLV
WUDQVDFWLRQWHVWLILHGDWWULDOWKDW³LI\RXORRNRQWKHIRUP,
EHOLHYH,FKHFNHGRIIWKDWKHZDVWKHFRXULHUDQGKLVQDPH
ZRXOGKDYHEHHQLQERWKSODFHVLIKHZDVWKHRZQHURIWKH
FDVK´6KHDOVRVDLGWKDW0DUVKDOOWROGKHUWKDW³>K@HZDVQRW
WKHRZQHURIWKLVFXUUHQF\DQGWKDWKHZDVPHUHO\GURSSLQJ
WKHPRQH\RIIIRUWKLVRWKHUFXVWRPHU-RKQ:HVWRQDQGLW
ZDVQRWKLVPRQH\´
0DUVKDOO¶VFODLPRIHUURUEDVHGRQWKLVHYLGHQFHLVVLPSO\
DFKDOOHQJHWRWKHZHLJKWWKDWWKHMXU\DVVLJQHGWR$OGULGJH¶V
WHVWLPRQ\+HGHQLHVWKDWKHHYHUVDLGWKHVHWKLQJV WRWKH

-- 17 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
%DQN 2QH RIILFLDO RU WKDW KH FRPPXQLFDWHG DQ\
PLVLQIRUPDWLRQ ZKHQ SURFXULQJ WKH FDVKLHU¶V FKHFN 7KLV
FODLPRIHUURULVQRWWKHUHIRUHDFKDOOHQJHWRWKHVXIILFLHQF\
RI WKH HYLGHQFH 5DWKHU 0DUVKDOO LV FKDOOHQJLQJ WKH
GHWHUPLQDWLRQRIWKHMXU\WREHOLHYH$OGULGJH
$ FUHGLELOLW\ GHWHUPLQDWLRQ PDGH E\ WKH ILQGHU RI IDFW
KRZHYHULVUDUHO\UHYHUVLEOHHUURU6HH%XHQRY0DWWQHU
)G WK &LU ³>:@KHUH WKHUH DUH WZR
SHUPLVVLEOHYLHZVRIWKHHYLGHQFHWKHIDFWILQGHU¶VFKRLFH
EHWZHHQWKHPFDQQRWEHFOHDUO\HUURQHRXV´ FLWDWLRQVDQG
LQWHUQDOTXRWDWLRQVRPLWWHG $FFRUGLQJO\ZHILQGQRHUURU
LQ 0DUVKDOO¶V FRQYLFWLRQ IRU FDXVLQJ %DQN 2QH WR ILOH D
FXUUHQF\WUDQVDFWLRQ UHSRUW FRQWDLQLQJ PDWHULDO
PLVVWDWHPHQWV
7KH† D % L PRQH\ODXQGHULQJFRQYLFWLRQV
0DUVKDOO ZDV FRQYLFWHG RQ WKUHH FRXQWV RI PRQH\
ODXQGHULQJLQYLRODWLRQRI86&† D % L EDVHG
RQ KLV SXUFKDVHV RI D 5ROH[ ZDWFK D WHQQLV EUDFHOHW DQG
H[SHQVLYH ZLQH ,Q KLV FKDOOHQJH WR WKHVH FRQYLFWLRQV
0DUVKDOODVVHUWVWKDWWKHJRYHUQPHQWSURIIHUHGLQVXIILFLHQW
HYLGHQFHWRVXSSRUWWKHMXU\¶VYHUGLFWDJDLQVWKLP
7KHVWDWXWHXQGHUZKLFK0DUVKDOOZDVFRQYLFWHGSURYLGHV
DVIROORZV
D :KRHYHUNQRZLQJWKDWWKHSURSHUW\LQYROYHGLQD
ILQDQFLDO WUDQVDFWLRQ UHSUHVHQWV WKH SURFHHGV RI VRPH
IRUP RI XQODZIXO DFWLYLW\ FRQGXFWV RU DWWHPSWV WR
FRQGXFW VXFK D ILQDQFLDO WUDQVDFWLRQ ZKLFK LQ IDFW
LQYROYHVWKHSURFHHGVRIVSHFLILHGXQODZIXODFWLYLW\±±

D % NQRZLQJ WKDW WKH WUDQVDFWLRQ LV GHVLJQHG LQ
ZKROHRULQSDUW L WRFRQFHDORUGLVJXLVHWKHQDWXUHWKH
ORFDWLRQWKHVRXUFHWKHRZQHUVKLSRUWKHFRQWURORIWKH
SURFHHGVRIVSHFLILHGXQODZIXODFWLYLW\

VKDOOEHVHQWHQFHGWRDILQHRIQRWPRUHWKDQ
RU WZLFH WKH YDOXH RI WKH SURSHUW\ LQYROYHG LQ WKH
1R 8QLWHG6WDWHVY0DUVKDOO
BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
&21&855,1*,13$57',66(17,1*,13$57
BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
&857,6/&2//,(5'LVWULFW-XGJHFRQFXUULQJLQSDUW
DQGGLVVHQWLQJLQSDUW,FRQFXULQSDUWV,,$,,%,,&DQG
,,' RI WKH PDMRULW\¶V ZHOOUHDVRQHG DQG ZHOOZULWWHQ
GHFLVLRQ,ZULWHVHSDUDWHO\WRH[SODLQPRUHFRPSOHWHO\P\
FRQFXUUHQFHLQSDUW,,'DQGEHFDXVH,PXVWUHVSHFWIXOO\
GLVVHQWIURPWKHPDMRULW\¶VKROGLQJLQSDUW,,'ZLWKUHVSHFW
WR WKH PRQH\ ODXQGHULQJ FRXQWV XQGHU 86&
† D % L ,DJUHHZLWKWKHIDFWVDQGWKHODZDVVHW
IRUWKLQWKHPDMRULW\¶VRSLQLRQKRZHYHU,GLVDJUHHZLWKWKHLU
FRQFOXVLRQ³QRUDWLRQDOWULHURIIDFWFRXOGFRQYLFW0DUVKDOORI
YLRODWLQJ † D % L ´ RQ WKH EDVLV RI WKH HYLGHQFH
SUHVHQWHGDWWULDO
,0DUVKDOO¶V&RQYLFWLRQ8QGHU86& F
, FRQFXU ZLWK WKH PDMRULW\¶V FRQFOXVLRQ WKDW 0DUVKDOO¶V
FRQYLFWLRQ SXUVXDQW WR VHFWLRQ F IRU UHFHLYLQJ RU
SRVVHVVLQJVWROHQJRRGVVKRXOGEHYDFDWHGDQGUHPDQGHGIRU
GLVPLVVDOE\WKHGLVWULFWFRXUW,EHOLHYHKRZHYHUWKDWIXUWKHU
H[SODQDWLRQ RI WKH UHDVRQLQJ EHKLQG WKLV UHVXOW ZLOO SURYH
KHOSIXOLQWKHIXWXUHWRFRXUWVDGGUHVVLQJWKLVTXHVWLRQ$V
VWDWHGHDUOLHUE\WKHPDMRULW\LQ8QLWHG6WDWHVY*DGGLV
86 WKH8QLWHG6WDWHV6XSUHPH&RXUWKHOG³>$@
SHUVRQFRQYLFWHGRIUREELQJDEDQNLQYLRODWLRQRI86&
†† D E DQG G FDQQRWDOVREHFRQYLFWHGRIUHFHLYLQJ
RUSRVVHVVLQJWKHSURFHHGVRIWKDWUREEHU\LQYLRODWLRQRI
86&† F ´,GDW6&WDW³5HFHLSWRU
SRVVHVVLRQRIWKHSURFHHGVRIDEDQNUREEHU\LQYLRODWLRQRI
† F LVVLPSO\QRWDOHVVHULQFOXGHGRIIHQVHZLWKLQWKH
WRWDOIUDPHZRUNRIWKHEDQNUREEHU\SURYLVLRQVRI†
5DWKHU† F UHDFKHVDμGLIIHUHQWJURXSRIZURQJGRHUV¶
LHμWKRVHZKRUHFHLYHWKHORRWIURPWKHUREEHU¶´,G
7KHUXOHHQXQFLDWHGLQ*DGGLVZKHQDSSOLHGWRWKHIDFWVRI
WKLV FDVH WKXV SUHFOXGHV 0DUVKDOO¶V FRQYLFWLRQ RQ ERWK

-- 18 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
GLVSRVLWLRQ ZLOO QRW DIIHFW WKH RYHUDOO WLPH RI 0DUVKDOO¶V
LQFDUFHUDWLRQ
1R 8QLWHG6WDWHVY0DUVKDOO
WUDQVDFWLRQZKLFKHYHULVJUHDWHURULPSULVRQPHQWIRUQRW
PRUHWKDQWZHQW\\HDUVRUERWK
86&†$YLRODWLRQRI† D % L WKHQ
FRQVLVWVRIWKHIROORZLQJWKUHHHOHPHQWV³ XVHRIIXQGVWKDW
DUH SURFHHGV RI XQODZIXO DFWLYLW\ NQRZOHGJH WKDW WKH
IXQGVDUHSURFHHGVRIXQODZIXODFWLYLW\DQG FRQGXFWRU
DWWHPSWWRFRQGXFWDILQDQFLDOWUDQVDFWLRQNQRZLQJWKDWWKH
WUDQVDFWLRQLVGHVLJQHGLQZKROHRULQSDUWWRGLVJXLVHWKH
VRXUFHRZQHUVKLSRUFRQWURORIWKHSURFHHGV´8QLWHG6WDWHV
Y3ULQFH)G WK&LU $WLVVXHLQWKLV
DSSHDOLVWKHWKLUGHOHPHQWWKHLQWHQWWRGLVJXLVHWKHIXQGV
WKDW0DUVKDOOVWROHIURP6RFLHW\%DQN
,Q8QLWHG6WDWHVY6DQGHUV)G WK&LU
WKH7HQWK&LUFXLWDGGUHVVHGWKHTXHVWLRQRIKRZPXFKDQG
ZKDW NLQG RI HYLGHQFH LV VXIILFLHQW WR VXSSRUW D PRQH\
ODXQGHULQJ FRQYLFWLRQ XQGHU † D % L 6DQGHUV
LQYROYHGWKHGHIHQGDQW¶VSXUFKDVHRIWZRFDUVXVLQJLOOHJDOO\
REWDLQHGPRQH\7KHGHIHQGDQWZDVSHUVRQDOO\LQYROYHGLQ
ERWK WUDQVDFWLRQV DQG ZDV UHDGLO\ LGHQWLILDEOH WR WKH VDOHV
UHSUHVHQWDWLYHV$OWKRXJKWKHGHIHQGDQWSXWWKHWLWOHRIWKH
VHFRQG FDU LQ KLV GDXJKWHU¶V QDPH WKH IDFW WKDW VKH ZDV
SUHVHQW DW WKH VDOH VKDUHG WKH VDPH ODVW QDPH DV WKH
GHIHQGDQWDQGWKDWWKHGHIHQGDQWXVHGWKHFDUFRQVSLFXRXVO\
DIWHULWZDVSXUFKDVHGDOO³XQGHUPLQH>G@WKHJRYHUQPHQW¶V
DUJXPHQWWKDWWKH/LQFROQSXUFKDVHLQYROYHGWKHUHTXLVLWH
GHVLJQRIFRQFHDOPHQW´6DQGHUV)GDW7KHFRXUW
FRQFOXGHG WKDW &RQJUHVV GLG QRW LQWHQG IRU WKLV ODZ WR EH
WUHDWHGDVD³PRQH\VSHQGLQJVWDWXWH´,GVHHDOVRLGDW
Q TXRWLQJ VHOHFWHG SRUWLRQV RI WKH VWDWXWH¶V OHJLVODWLYH
KLVWRU\ WKDW VXJJHVW WKDW &RQJUHVV GLG QRW LQWHQG WR
FULPLQDOL]HHYHU\WUDQVDFWLRQXVLQJLOOHJDOO\REWDLQHGPRQH\
7KHUHIRUHXQGHU6DQGHUVWKHJRYHUQPHQWPXVWSURGXFHPRUH
HYLGHQFH WKDQ WKH VLPSOH IDFW RI D UHWDLO SXUFKDVH XVLQJ
LOOHJDOO\ REWDLQHG PRQH\ LQ RUGHU WR SURYH WKH ³LQWHQW WR
GLVJXLVH´HOHPHQWRI† D % L
7KH³PRVWREYLRXVW\SH´RIHYLGHQFHWKDWZRXOGVXSSRUWD
ILQGLQJRILQWHQWWRGLVJXLVHWKHSURFHHGVRIXQODZIXODFWLYLW\

-- 19 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
LV ³WKDW RI HPSOR\LQJ D WKLUG SDUW\ LQ RUGHU WR FRQFHDO WKH
GHIHQGDQW¶VLGHQWLW\IURPRWKHUV´8QLWHG6WDWHVY/RYHWW
)G Q WK &LU DFFRUG 8QLWHG
6WDWHV Y %HGGRZ )G WK &LU
KROGLQJWKDWWKHGHIHQGDQWLQWHQGHGWRGLVJXLVHWKHVRXUFHRI
WKHSURFHHGVEDVHGLQSDUWRQHYLGHQFHWKDWKHXVHG³IURQW
PHQ´ WR SXUFKDVH WKH LWHPV DW LVVXH 7KH IDFW WKDW D
GHIHQGDQWSHUVRQDOO\HQJDJHVLQDWUDQVDFWLRQZLWKRXWWU\LQJ
WRGLVJXLVHKLVRUKHULGHQWLW\KRZHYHUGRHVQRWQHJDWHWKH
HIIHFWRIRWKHUHYLGHQFHSRLQWLQJWRDQLQWHQWWRFRQFHDO6HH
/RYHWW)GDWQ8QLWHG6WDWHVY1RUPDQ
)G WK &LU KROGLQJ WKDW WKHUH ZDV
VXIILFLHQWHYLGHQFHWRVXSSRUWDILQGLQJRILQWHQWWRGLVJXLVH
WKHSURFHHGVHYHQWKRXJKWKHGHIHQGDQWXVHGKLVRZQQDPH
DQGZDVUHDGLO\LGHQWLILDEOHWRWKHVDOHVSHUVRQ
1HYHUWKHOHVVLIDGHIHQGDQWLVUHDGLO\LGHQWLILDEOHWRWKH
VDOHVSHUVRQDQGGRHVQRWXVHDWKLUGSDUW\WRGLVJXLVHKLVRU
KHU LGHQWLW\ WKHUH PXVW EH RWKHU HYLGHQFH WR VXSSRUW WKLV
HOHPHQWRIPRQH\ODXQGHULQJ6HH8QLWHG6WDWHVY*DUFLD
(PDQXHO )G WK &LU DSSO\LQJ WKH
6DQGHUV UXOH WR YDULRXV WUDQVDFWLRQV WKDW WKH JRYHUQPHQW
DOOHJHGZHUHHQJDJHGLQE\WKHGHIHQGDQWZLWKWKHLQWHQWWR
GLVJXLVH WKH QDWXUH RI KLV LOOJRWWHQ JDLQV ,Q *DUFLD
(PDQXHOWKHFRXUWGHFODUHG
>$@YDULHW\RIW\SHVRIHYLGHQFHKDYHEHHQFLWHGE\WKLV
DQGRWKHUFLUFXLWVDVVXSSRUWLYHRIHYLGHQFHRILQWHQWWR
GLVJXLVH RU FRQFHDO 7KH\ LQFOXGH DPRQJ RWKHUV
VWDWHPHQWVE\DGHIHQGDQWSUREDWLYHRILQWHQWWRFRQFHDO
XQXVXDOVHFUHF\VXUURXQGLQJWKHWUDQVDFWLRQVWUXFWXULQJ
WKHWUDQVDFWLRQLQDZD\WRDYRLGDWWHQWLRQGHSRVLWLQJ
LOOHJDO SURILWV LQ WKH EDQN DFFRXQW RI D OHJLWLPDWH
EXVLQHVV KLJKO\ LUUHJXODU IHDWXUHV RI WKH WUDQVDFWLRQ
XVLQJWKLUGSDUWLHVWRFRQFHDOWKHUHDORZQHUDVHULHVRI
XQXVXDOILQDQFLDOPRYHVFXPXODWLQJLQWKHWUDQVDFWLRQRU
H[SHUWWHVWLPRQ\RQSUDFWLFHVRIFULPLQDOV
,GDW FLWDWLRQVRPLWWHG $FFRUGLQJO\EHFDXVHZH
EHOLHYH WKDW WKH DQDO\VLV LQ 6DQGHUV DQG *DUFLD(PDQXHO
1R 8QLWHG6WDWHVY0DUVKDOO
FLUFXPVWDQFHV SUHVHQW WKLV VLQJOH PLVUHSUHVHQWDWLRQ FDQ
DPRXQW WR VXEVWDQWLDO HYLGHQFH WKDW WKH WUDQVDFWLRQ ZDV
GHVLJQHGWRFRQFHDOLOOHJDOIXQGV´,G,QFRQWUDVWWKH7HQWK
&LUFXLWKHOGLQDODWHUFDVHWKDWZKHUHDGHIHQGDQWLVHQJDJHG
LQ D VHULHV RI FRPSOH[ WUDQVDFWLRQV LQ RUGHU WR SXUFKDVH D
KRXVHZLWKLOOHJDOO\REWDLQHGPRQH\PXOWLSOHPLVVWDWHPHQWV
DERXWWKHVRXUFHRIWKHPRQH\WREDQNRIILFHUVUHVSRQVLEOHIRU
WKHWUDQVDFWLRQVLQTXHVWLRQGLGFRQVWLWXWHVXIILFLHQWHYLGHQFH
RIDQLQWHQWWRGLVJXLVHWKHVRXUFHRIWKHPRQH\6HH8QLWHG
6WDWHVY/RYHWW)G WK&LU
8QOLNH /RYHWWDQGVLPLODUWR *DUFLD(PDQXHO0DUVKDOO
PDGH RQO\ RQH PLVVWDWHPHQW UHJDUGLQJ WKH ZDWFK
)XUWKHUPRUHLQFRQWUDVWWRWKHVLWXDWLRQLQERWK/RYHWWDQG
*DUFLD(PDQXHO0DUVKDOOOLHGWRDQLQGLYLGXDOFRPSOHWHO\
XQUHODWHGWRWKHSXUFKDVHLQTXHVWLRQDQGHYHQWKLVZDVDIWHU
WKHIDFW $OWKRXJK VXFK D PLVVWDWHPHQW PLJKW VXSSRUW D
ILQGLQJRILQWHQWWRFRQFHDOZKHQFRPELQHGZLWKDGGLWLRQDO
HYLGHQFHWKLVRQHOLHLVLQVXIILFLHQWVWDQGLQJDORQHWRVXSSRUW
D UDWLRQDO WULHU RI IDFW¶V FRQFOXVLRQ WKDW 0DUVKDOO YLRODWHG
† D % L ZKHQKHSXUFKDVHGWKH5ROH[ZDWFK:H
WKHUHIRUH VHW DVLGH 0DUVKDOO¶V FRQYLFWLRQ IRU PRQH\
ODXQGHULQJEDVHGRQWKH5ROH[ZDWFKWUDQVDFWLRQIRUWKHVDPH
UHDVRQVZHGRVRLQUHODWLRQWRWKHWHQQLVEUDFHOHWDQGZLQH
,,,&21&/86,21
)RU DOO RI WKH UHDVRQV VHW IRUWK DERYH ZH 9$&$7(
0DUVKDOO¶V86&† F FRQYLFWLRQIRUSRVVHVVLRQRI
VWROHQPRQH\DQGDOOWKUHHRIKLV† D % L PRQH\
ODXQGHULQJFRQYLFWLRQVDQG5(0$1'ZLWKLQVWUXFWLRQVIRU
WKH GLVWULFW FRXUW WR HQWHU D MXGJPHQW RI DFTXLWWDO RQ WKHVH
FRXQWVRIWKHLQGLFWPHQW:H$)),50WKHUHPDLQLQJWKUHH
FRQYLFWLRQV IRU EDQN ODUFHQ\ XQGHU 86& † E
HQJDJLQJLQDQXQODZIXOPRQH\WUDQVDFWLRQXQGHU86&
† DQG FDXVLQJ D EDQN WR ILOH D IDOVH VWDWHPHQW RQ D
FXUUHQF\WUDQVDFWLRQ UHSRUW XQGHU 86& † DQG
† D %HFDXVHDOOVHYHQRIKLVFRQYLFWLRQVUHVXOWHGLQ
VHQWHQFHVRIWKHVDPHOHQJWKWREHVHUYHGFRQFXUUHQWO\WKLV

-- 20 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
DFFRPSDQLHGWKH6HQDWHYHUVLRQRIWKHELOOHYHQWXDOO\FRGLILHG
LQ†
$OWKRXJKWKHGLVVHQWFKDUDFWHUL]HV0DUVKDOO¶VSXUFKDVHRI
EHWZHHQDQGZRUWKRIZLQHDVD³FROOHFWLEOH´
WUDQVDFWLRQ ZH ILQG QRWKLQJ LQ WKH UHFRUG WR LQGLFDWH WKDW
0DUVKDOO LQWHQGHG WR KROG WKHVH ERWWOHV RI ZLQH DV DQ
LQYHVWPHQW IRU WKH SXUSRVHV RI DSSO\LQJ † 2QH FDQ
ORRVHO\VD\WKDWHYHU\SXUFKDVHQRWLPPHGLDWHO\FRQVXPDEOH
LVDQLQYHVWPHQWEXWWKHDFTXLVLWLRQRIDFRQVXPHULWHPVXFK
DV ZLQH SURYLGHV QR LQGLFDWLRQ RI DQ LQWHQW WR FRQFHDO WKH
VRXUFHRIWKHIXQGV7KHZLQHSXUFKDVHGE\0DUVKDOOZDV
LQGHHG H[SHQVLYH DQG SXUFKDVHG LQ D VRPHZKDW JUHDWHU
TXDQWLW\WKDQLQKLVSDVWGHDOLQJVZLWKWKLVVDPHPHUFKDQWEXW
WKHUH ZDV QR HYLGHQFH EH\RQG WKLV IDFW WR LQGLFDWH DQ\
PRWLYDWLRQEH\RQGSHUVRQDOFRQVXPSWLRQ0DUVKDOO¶VRIIKDQG
DIILUPDWLYHUHVSRQVHWRDTXHVWLRQDVNHGE\WKHJRYHUQPHQW
RQUHFURVVH[DPLQDWLRQDVWRZKHWKHUKHSXUFKDVHGWKHZLQH
DVDQLQYHVWPHQWLVQRWDQLQGLFDWLRQWKDWKHGLGQRWLQWHQGWR
FRQVXPHLW$GHIHQGDQW¶VDFNQRZOHGJPHQWWKDWDSXUFKDVH
LVDQLQYHVWPHQWFRXOGEHHTXDOO\DSSOLHGWRDQ\DFTXLVLWLRQ
QRW LPPHGLDWHO\ FRQVXPHG $FFRUGLQJO\ ZH VHW DVLGH
0DUVKDOO¶V FRQYLFWLRQV IRU PRQH\ ODXQGHULQJ WLHG WR WKH
SXUFKDVHVRIWKHWHQQLVEUDFHOHWDQGWKHZLQHRQWKHEDVLVWKDW
QRUDWLRQDOWULHURIIDFWFRXOGFRQYLFW0DUVKDOORIYLRODWLQJ
† D % L XQGHUWKHVHFLUFXPVWDQFHV
0DUVKDOO¶VFRQYLFWLRQIRUPRQH\ODXQGHULQJEDVHGRQWKH
SXUFKDVHRIWKH5ROH[ZDWFKSUHVHQWVDVRPHZKDWFORVHUFDVH
5HJDUGLQJWKHZDWFK0DUVKDOOOLHGWR:HVWRQZKHQKHVDLG
WKDW0LOOHUKDGSXUFKDVHGLWDVDJLIWIRU0DUVKDOO7KLVGRHV
SURYLGHVRPHHYLGHQFHRI0DUVKDOO¶VLQWHQWWRGLVJXLVHWKH
SXUORLQHGPRQH\,Q8QLWHG6WDWHVY*DUFLD(PDQXHO
)G WK &LU WKH FRXUW DGGUHVVHG D
VLPLODUVLWXDWLRQLQZKLFKWKHGHIHQGDQWSXUFKDVHGDKRUVHDQG
PLVUHSUHVHQWHG WR WKH VHOOHU WKH VRXUFH RI WKH FDVK WKDW KH
ZRXOG XVH WR FRPSOHWH WKH WUDQVDFWLRQ 7KH FRXUW KHOG
KRZHYHUWKDW³>Z@KLOHLWLVWUXHWKDWWKLVPLVUHSUHVHQWDWLRQ
EULQJVDQHOHPHQWRIFRQFHDOPHQWLQWRWKHWUDQVDFWLRQZHGR
QRW EHOLHYH WKDW VWDQGLQJ DORQH DQG LQ WKH IDFH RI RWKHU
1R 8QLWHG6WDWHVY0DUVKDOO
UHIOHFWV WKH SURSHU VWDWXWRU\ LQWHUSUHWDWLRQ RI
† D % L ZHDGRSWWKHKROGLQJVRIWKRVHFDVHVDVWKH
DSSURSULDWHUXOHWRDSSO\WRWKHLQWHQWHOHPHQWRIDPRQH\
ODXQGHULQJFRQYLFWLRQ
7KH JRYHUQPHQW¶V RQO\ GLUHFW HYLGHQFH LQ VXSSRUW RI LWV
DOOHJDWLRQWKDW0DUVKDOOSXUFKDVHGWKHZDWFKEUDFHOHWDQG
ZLQHZLWKWKHLQWHQWWRGLVJXLVHWKHVWROHQPRQH\ZDVWKDW
0DUVKDOO OLHG WR :HVWRQ ZKHQ KH VDLG WKDW 0LOOHU KDG
SXUFKDVHGWKH5ROH[ZDWFKIRUKLPDVDJLIW1HYHUWKHOHVV
WKHJRYHUQPHQWFODLPVWKDWWKHUHLVVXIILFLHQWFLUFXPVWDQWLDO
HYLGHQFH WR VXSSRUW 0DUVKDOO¶V FRQYLFWLRQV XQGHU
† D % L IRUDOOWKUHHSXUFKDVHV
7KHJRYHUQPHQWDUJXHVWKDWWKHSXUFKDVHRILWHPVKDYLQJ
YDOXH DV DQ LQYHVWPHQW LV VXIILFLHQW LQ LWVHOI WR VXSSRUW D
ILQGLQJRILQWHQWWRGLVJXLVHWKHSURFHHGVRIWKHODUFHQ\,Q
RWKHUZRUGVWKHJRYHUQPHQWDVNVXVWRLQIHU0DUVKDOO¶VLQWHQW
WRGLVJXLVHEDVHGVLPSO\RQWKHQDWXUHRIWKHLWHPVSXUFKDVHG
7KLVDUJXPHQWKRZHYHUZRXOGFRQIOLFWZLWKWKHLQWHQWRI
&RQJUHVVWRSHQDOL]HRQO\WKRVHSXUFKDVHV³GHVLJQHGLQZKROH
RU LQ SDUW´ WR KLGH LOOHJDOO\ REWDLQHG SURSHUW\ 6HH
† D % L 8QLWHG6WDWHVY6DQGHUV)G
WK&LU
,Q8QLWHG6WDWHVY*DUFLD(PDQXHO)G WK
&LU WKH7HQWK&LUFXLWDFNQRZOHGJHGWKHFRPSHWLQJ
FRQVLGHUDWLRQVLQYROYLQJVXFKSXUFKDVHV
,QUHYLHZLQJWKHVXIILFLHQF\RIWKHHYLGHQFHWKHPRVW
GLIILFXOWFDVHVDUHWKRVHLQZKLFKWKHGHIHQGDQWDFTXLUHV
DQDVVHWZKLFKERWKEULQJVDSUHVHQWSHUVRQDOEHQHILWDQG
KDVVXEVWDQWLDOUHVDOHYDOXHDQGWKXVLVDSRWHQWLDOWRRO
IRUPRQH\ODXQGHULQJ2QWKHRQHKDQGFDVHVLQYROYLQJ
LQYHVWPHQWVPDGHZLWKLOOHJDOSURFHHGVDUHFORVHWRWKH
FRUHRIWKHVWDWXWH¶VSXUSRVHRIFULPLQDOL]LQJFKDQJLQJ
FDVKLQWRDQRVWHQVLEO\OHJLWLPDWHIRUPVXFKDVEXVLQHVV
SURILWVRUORDQVEHIRUHXVLQJWKRVHIXQGVIRUSHUVRQDO
EHQHILW 2Q WKH RWKHU KDQG ZKHQ WKH GHIHQGDQW KDV
PHUHO\DFTXLUHGDQDVVHWWKDWEULQJVDVLJQLILFDQWSUHVHQW

-- 21 of 22 --

8QLWHG6WDWHVY0DUVKDOO 1R
SHUVRQDOEHQHILWWRKLPVHOIRUKLVIDPLO\WKHLQIHUHQFH
EHFRPHVPRUHGLIILFXOWWRGUDZ
,GDW$FFRUGLQJO\DOWKRXJK³DMXU\FRXOGUHDVRQDEO\
VXVSHFWWKDWRQVRPHOHYHO>WKHGHIHQGDQW@LVPRWLYDWHGE\D
GHVLUHWRFRQYHUWKLVFDVKLQWRDPRUHOHJLWLPDWHIRUP´WKH
7HQWK &LUFXLW KHOG WKDW HYHQ LQ WKHVH GLIILFXOW FDVHV WKH
JRYHUQPHQWPXVWSURGXFHPRUHHYLGHQFHWKDQWKHLQYHVWPHQW
YDOXH RI WKH LWHP SXUFKDVHG LQ RUGHU WR VXSSRUW D MXU\¶V
FRQFOXVLRQWKDWWKHLQWHQWHOHPHQWZDVVDWLVILHG,GDW
:HDJUHH
7KHJRYHUQPHQW¶VRWKHUDUJXPHQWLQVXSSRUWRILWVFODLP
WKDWWKHUHZDVVXIILFLHQWHYLGHQFHWRVXSSRUWWKHMXU\¶VYHUGLFW
UHJDUGLQJWKHWKUHHSXUFKDVHVLQTXHVWLRQZDVWKDWWKHIXQGV
XVHG WR DFTXLUH WKHVH LWHPV DOO FDPH IURP WKH RI
VWROHQ FDVK WKDW 0DUVKDOO SODFHG LQWR WKH 2OGH 'LVFRXQW
EURNHUDJHDFFRXQW7KLVEURNHUDJHDFFRXQWZDVWKHEDVLVIRU
DVHSDUDWHXQODZIXOPRQHWDU\WUDQVDFWLRQFRQYLFWLRQXQGHU
86&†DFRQYLFWLRQZKLFK0DUVKDOOLVQRWGLUHFWO\
FKDOOHQJLQJLQWKLVDSSHDO$FFRUGLQJWRWKHJRYHUQPHQW
WKHQLIDSRRORIPRQH\LVFUHDWHGLQYLRODWLRQRIWKHPRQH\
ODXQGHULQJVWDWXWHVHYHU\VXEVHTXHQWSXUFKDVHWKDWLVPDGH
ZLWKWKRVHODXQGHUHGIXQGVFRQVWLWXWHVVXIILFLHQWHYLGHQFHSHU
VH RI DQ LQWHQW WR FRQFHDO WKH VRXUFH RI WKH PRQH\ $
GHIHQGDQW ZRXOG WKXV EH H[SRVHG WR FULPLQDO OLDELOLW\ IRU
HYHU\ GHULYDWLYH WUDQVDFWLRQ UHJDUGOHVV RI KLV RU KHU DFWXDO
LQWHQW7KLVDUJXPHQWPXFKOLNHWKHILUVWFDQQRWEHVTXDUHG
ZLWKWKHLQWHQWRI†
6HFWLRQGRHVQRWPDNHPRQH\ODXQGHULQJDFRQWLQXLQJ
RIIHQVH6HH8QLWHG6WDWHVY.UDPHU)G
WK &LU KROGLQJ WKDW PXOWLSOH WUDQVIHUV PXVW EH
DQDO\]HGLQGLYLGXDOO\IRUDYLRODWLRQRI† D 7KH
VDPHLVWUXHIRUWKHWUDQVIHURILOOHJDOO\REWDLQHGIXQGVXQGHU
† D % L 6HH8QLWHG6WDWHVY3ULQFH)G
WK &LU DSSO\LQJ WKH GHILQLWLRQ RI
³WUDQVDFWLRQ´IURP† F WRHDFKWUDQVIHURIPRQH\ZLWKLQ
DQHODERUDWHZLUHIUDXGVFKHPH $FFRUGLQJO\WKHIDFWWKDW
WKHVRXUFHRIWKHPRQH\XVHGWREX\WKHZDWFKEUDFHOHWDQG
1R 8QLWHG6WDWHVY0DUVKDOO
ZLQHFRQVWLWXWHGDVHSDUDWHYLRODWLRQXQGHU†KDVQR
EHDULQJRQZKHWKHUWKHODWWHUSXUFKDVHVVDWLVILHGWKHLQWHQW
SURQJ RI † D % L 6HH 8QLWHG 6WDWHV Y *DUFLD
(PDQXHO)G WK&LU ³>7@KHPHUH
IDFW WKDW D GHIHQGDQW ZDV FRQYLFWHG RI PRQH\ ODXQGHULQJ
DULVLQJRXWRIVRPHWUDQVDFWLRQVLVQRWVXIILFLHQWWRVXVWDLQD
PRQH\ODXQGHULQJFRQYLFWLRQLQYROYLQJRWKHUWUDQVDFWLRQV´
:HWKXVFRQFOXGHWKDW0DUVKDOO¶VFRQYLFWLRQSXUVXDQWWR
86& † IRU WKH EURNHUDJHDFFRXQW WUDQVDFWLRQ LV DQ
LQVXIILFLHQWEDVLVRQZKLFKWRVXSSRUWDILQGLQJRILQWHQWWR
IXUWKHU FRQFHDO WKDW PRQH\ ZKHQ KH XVHG D SRUWLRQ RI WKH
IXQGVWRSXUFKDVHWKHLWHPVLQTXHVWLRQ
:LWKRXW WKHVH WZR LQIHUHQFHV LQYHVWPHQW YDOXH DQG
GHULYDWLRQIURPDQRWKHULOOHJDOWUDQVDFWLRQ WKHJRYHUQPHQW
KDV SURGXFHG DEVROXWHO\ QR RWKHU HYLGHQFH WR VXSSRUW WKH
MXU\¶VFRQFOXVLRQWKDW0DUVKDOOSXUFKDVHGWKHWHQQLVEUDFHOHW
DQG WKH ZLQHZLWKWKHLQWHQWWRFRQFHDOWKHPRQH\WKDWKH
VWROH IURP 6RFLHW\ %DQN %RWK SXUFKDVHV ZHUH PDGH E\
0DUVKDOOLQSHUVRQXVLQJYDOLGFUHGLWFDUGVLQKLVRZQQDPH
DQGKLVLGHQWLW\ZDVUHDGLO\DSSDUHQWWRHDFKVDOHVSHUVRQ,Q
IDFW0DUVKDOOKDGPDGHSUHYLRXVSXUFKDVHVIURPWKHVDPH
ZLQHPHUFKDQW$OWKRXJKWKHIDFWWKDW0DUVKDOOGLGQRWXVH
DWKLUGSDUW\WRPDNHWKHSXUFKDVHVRURWKHUZLVHDWWHPSWWR
GLVJXLVHKLPVHOIZRXOGQRWQHJDWHFRXQWHUEDODQFLQJHYLGHQFH
RIDQLQWHQWWRFRQFHDOWKHUHZDVQRVXFKDGGLWLRQDOHYLGHQFH
LQWKHSUHVHQWFDVH
:HDUHDOVRRIWKHRSLQLRQWKDWDIHZLVRODWHGSXUFKDVHVRI
ZHDUDEOHRUFRQVXPDEOHLWHPVGLUHFWO\E\WKHZURQJGRHULV
QRWWKHW\SHRIPRQH\ODXQGHULQJWUDQVDFWLRQWKDW&RQJUHVV
KDGLQPLQGZKHQLWHQDFWHG† D % L HVSHFLDOO\
ZKHUHWKHYDOXHRIWKHLWHPVLVUHODWLYHO\VPDOOLQUHODWLRQWR
WKHDPRXQWVWROHQE\WKHGHIHQGDQW6HH6DQGHUV)GDW
Q ³7KLV VHFWLRQ DSSOL>HV@ LWV FRYHUDJH WR WKRVH
WUDQVDFWLRQVWKDWFDQEHVDLGWRFRQVWLWXWHWKHFRUHRIPRQH\
ODXQGHULQJ±WUDQVDFWLRQVGHVLJQHGWRFRQFHDORUGLVJXLVHWKH
QDWXUH ORFDWLRQ VRXUFH RZQHUVKLS RU FRQWURO RI FULPLQDO
SURFHHGV RU WR HYDGH )HGHUDO RU 6WDWH FDVK UHSRUWLQJ
UHTXLUHPHQWV´ TXRWLQJ6HQDWH5HSRUW1RZKLFK

-- 22 of 22 --