$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
,,,&21&/86,21
)RU DOO RI WKH UHDVRQV VWDWHG DERYH ZH 5(9(56( WKH
GLVWULFW FRXUW¶V GHFLVLRQ WKDW GHQLHG 'RQQHOO\¶V DQG
.H\%DQN¶V PRWLRQ IRU MXGJPHQW DV D PDWWHU RI ODZ ZLWK
UHVSHFW WR WKH FODLP RI FRQVSLUDF\ WR FRPPLW IUDXG DQG
GHQLHG(OPRUH¶VPRWLRQIRUMXGJPHQWDVDPDWWHURIODZ
ZLWKUHVSHFWWRWKHFODLPVRIIUDXGDQGRIDLGLQJDQGDEHWWLQJ
IUDXG:HDOVR5(0$1'WKHFDVHIRUDQHZWULDORQ WKH
TXHVWLRQRIZKHWKHULQOLJKWRIWKHLQIRUPDWLRQGLVFORVHGE\
(OPRUHWR%ODFNDV7UDYHOHUV¶VDJHQW7UDYHOHUVHVWDEOLVKHG
WKHHOHPHQWRIMXVWLILDEOHUHOLDQFHRQ/HDKH\¶VIUDXGUHJDUGLQJ
WKHVXUHW\ERQGVLVVXHGDIWHUWKHGDWHRIGLVFORVXUHDQG WKH
DPRXQW DQG DOORFDWLRQ RI GDPDJHV WR ZKLFK 7UDYHOHUV LV
HQWLWOHGLQOLJKWRIWKHUXOLQJVPDGHWKURXJKRXWWKLVRSLQLRQ
,QDOORWKHUUHVSHFWVZH$)),50WKHMXGJPHQWRIWKHGLVWULFW
FRXUW
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
$(71$ &$68$/7< $1'
685(7< &203$1<QND
75$9(/(56 &$68$/7< $1'
685(7< &203$1< 2)
$0(5,&$
3ODLQWLII$SSHOOHH
&URVV$SSHOODQW
Y
/($+(< &216758&7,21
&203$1< ,1&HWDO
'HIHQGDQWV
.(<%$1. 1$7,21$/
$662&,$7,21 2+,2 DQG
(':$5' '211(//<
'HIHQGDQWV$SSHOODQWV
&URVV$SSHOOHHV
0$5. - (/025(DQG0$5.
- (/025( &3$ ,1&
'HIHQGDQWV$SSHOOHHV
&URVV$SSHOODQWV
;!
1
1RV
-- 1 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
7KH +RQRUDEOH -RVHSK 0 +RRG 8QLWHG 6WDWHV 'LVWULFW -XGJH IRU WKH
(DVWHUQ 'LVWULFW RI .HQWXFN\ VLWWLQJ E\ GHVLJQDWLRQ
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW$NURQ
1R²-DPHV6*ZLQ'LVWULFW-XGJH
$UJXHG$SULO
'HFLGHGDQG)LOHG-XO\
%HIRUH1255,6DQG*,/0$1&LUFXLW-XGJHV+22'
'LVWULFW-XGJH
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' 'DQLHO 5 :DUUHQ 7+203621 +,1(
)/25<&OHYHODQG2KLRIRU$SSHOODQW0DUN+/XGZLJ
&2/( &203$1< $NURQ 2KLR 7LPRWK\ - )LW]JHUDOG
*$//$*+(56+$53)8/721 1250$1&OHYHODQG
2KLRIRU$SSHOOHHV21%5,()'DQLHO5:DUUHQ7RQL-
4XHUU\3DWULFN)+DJJHUW\7+203621+,1( )/25<
&OHYHODQG 2KLR IRU $SSHOODQW 0DUN + /XGZLJ &2/(
&203$1<$NURQ2KLR7LPRWK\-)LW]JHUDOG-DPHV)
.RHKOHU*$//$*+(56+$53)8/721 1250$1
&OHYHODQG2KLRIRU$SSHOOHHV
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
521$/'/((*,/0$1&LUFXLW-XGJH$HWQD&DVXDOW\
DQG6XUHW\&RPSDQ\QRZNQRZQDV7UDYHOHUV&DVXDOW\DQG
6XUHW\ &RPSDQ\ RI $PHULFD 7UDYHOHUV DOOHJHV WKDW WKH
GHIHQGDQWV HQJDJHG LQ D VFKHPH WR GHIUDXG 7UDYHOHUV LQ
FRQQHFWLRQ ZLWK LWV LVVXDQFH RI FHUWDLQ VXUHW\ ERQGV
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
LQ UHTXHVWV DLGV HQFRXUDJHV UDWLILHV RU DGRSWV D
ZURQJGRHU¶VDFWLRQVLQSXUVXDQFHRIDFRPPRQSODQRUGHVLJQ
WRFRPPLWDWRUWLRXVDFW´&OHYHFRQ,QFY1RUWKHDVW2KLR
5HJ¶O6HZHU'LVW1(G 2KLR&W$SS
7RUWIHDVRUV ZLOO QRW JHQHUDOO\ EH KHOG MRLQWO\ RU VHYHUDOO\
OLDEOH KRZHYHU ZKHUH WKHLU LQGHSHQGHQW FRQFXUULQJ DFWV
KDYHFDXVHGGLVWLQFWDQGVHSDUDWHLQMXULHVWRWKHSODLQWLIIRU
ZKHUHVRPHUHDVRQDEOHPHDQVRIDSSRUWLRQLQJWKHGDPDJHVLV
HYLGHQW6HH:LOOLDPVY*UDJVWRQ1(G
2KLR&W$SS
+HUH7UDYHOHUVVHHNVWRLPSRVHMRLQWDQGVHYHUDOOLDELOLW\
EHWZHHQ'RQQHOO\DQG.H\%DQNRQWKHRQHKDQGDQG(OPRUH
RQWKHRWKHU7KHSUREOHPZLWK7UDYHOHUV¶VDUJXPHQWLVWKDW
DOWKRXJKHDFKRIWKHWZRVHWVRIGHIHQGDQWVFDQEHFRQVLGHUHG
MRLQWWRUWIHDVRUVZLWK/HDKH\WKH\FDQQRWEHFRQVLGHUHGMRLQW
WRUWIHDVRUVZLWKHDFKRWKHU:LWKUHVSHFWWR'RQQHOO\DQG
.H\%DQNWKHMXU\IRXQGWKDWWKH\DLGHGDQGDEHWWLQJ/HDKH\
LQKLVIUDXGDJDLQVW7UDYHOHUV :HKDYHFRQFOXGHGWKDWWKH
FRQVSLUDF\YHUGLFWDJDLQVWWKHPPXVWEHUHYHUVHG 7KHMXU\
GLGQRWILQGKRZHYHUWKDW'RQQHOO\DQG.H\%DQNLQDQ\ZD\
DVVLVWHG(OPRUHLQWKHQHJOLJHQWSHUIRUPDQFHRIKLVGXWLHVYLV
jYLV7UDYHOHUV :HKDYHFRQFOXGHGWKDWWKHIUDXGDQGWKH
DLGLQJDQGDEHWWLQJYHUGLFWVDJDLQVW(OPRUHPXVWEHUHYHUVHG
$VVXFKWKH\FDQQRWEHUHVSRQVLEOHIRUWKHGDPDJHVDVVHVVHG
DJDLQVWKLP6LPLODUO\DOWKRXJKWKHMXU\UHQGHUHGDYHUGLFW
ILQGLQJ (OPRUH QHJOLJHQW LW GLG QRW ILQG WKDW KH DVVLVWHG
'RQQHOO\ DQG .H\%DQN LQ PDNLQJ WKH ORDQ IRU ZKLFK WKH\
ZHUHIRXQGOLDEOH$VVXFKKHFDQQRWEHKHOGUHVSRQVLEOHIRU
WKHGDPDJHVDVVHVVHGDJDLQVWWKHP
7KHUHZDVVLPSO\QR³FRPPRQSODQRUGHVLJQWRFRPPLWD
WRUWLRXV DFW´ DV EHWZHHQ WKH WZR VHWV RI GHIHQGDQWV 6HH
&OHYHFRQ1(GDW)RUWKLVUHDVRQZHFRQFOXGH
WKDW WKH GLVWULFW FRXUW GLG QRW HUU LQ GHQ\LQJ 7UDYHOHUV¶V
PRWLRQWRLPSRVHMRLQWDQGVHYHUDOOLDELOLW\
-- 2 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
( 7KH GLVWULFW FRXUW GLG QRW HUU ZKHQ LW UHIXVHG WR
LPSRVHMRLQWDQGVHYHUDOOLDELOLW\
$IWHU WKH MXU\ UHWXUQHG LWV YHUGLFW DJDLQVW 'RQQHOO\
.H\%DQNDQG(OPRUH7UDYHOHUVILOHGDPRWLRQWRLPSRVH
MRLQW DQG VHYHUDO OLDELOLW\ IRU WKH FXPXODWLYH WRWDO RI
$VSUHYLRXVO\QRWHGWKHMXU\DVVHVVHGGDPDJHV
DJDLQVW'RQQHOO\DQG.H\%DQNLQWKHDPRXQWRI
DQG DJDLQVW (OPRUH LQ WKH DPRXQW RI 7KH
GLVWULFWFRXUWVXPPDULO\GHQLHGWKLVPRWLRQ
,QLWVFURVVDSSHDO7UDYHOHUVFRQWHQGVWKDW³>W@KHGLVWULFW
FRXUWVKRXOGKDYHHQWHUHGDMXGJPHQWXSRQWKHMXU\¶VYHUGLFW
PDNLQJ.H\%DQN'RQQHOO\DQG(OPRUHMRLQWO\DQGVHYHUDOO\
OLDEOHIRUWKHPLOOLRQGROODUVFDXVHGE\/HDKH\¶VIUDXG´
,WDUJXHVWKDW³>E@HFDXVH'RQQHOO\ZDV D FRFRQVSLUDWRULQ
>/HDKH\¶V@VFKHPHWRGHIUDXG7UDYHOHUVDQG>'RQQHOO\@DQG
(OPRUH ERWK DLGHG DQG DEHWWHG WKDW IUDXG HDFK RI WKH
GHIHQGDQWVDUHMRLQWO\DQGVHYHUDOO\OLDEOHWRWKHIXOOH[WHQWRI
DQ\DQGDOOGDPDJHVFDXVHGE\/HDKH\¶VIUDXG´
,Q UHVSRQVH 'RQQHOO\ DQG .H\%DQN DVVHUW WKDW WR WKH
H[WHQW7UDYHOHUVVHHNVWRLPSRVHMRLQWDQGVHYHUDOOLDELOLW\
EHWZHHQWKHPDQG(OPRUHLWVFRQWHQWLRQPXVWEHUHMHFWHG
7KH\ PDLQWDLQ WKDW 'RQQHOO\ DQG .H\%DQN GLG QRW
FRQVSLUH ZLWK (OPRUH DQG WKH UHTXLUHPHQW WKDW HDFK
GHIHQGDQWFRQWULEXWHWRDVLQJOHLQMXU\LVQRWSUHVHQW)RUKLV
SDUW(OPRUHQRWHVWKDWKHZDVQRWIRXQGOLDEOHIRUFRQVSLULQJ
ZLWK'RQQHOO\DQG.H\%DQNDQGWKHUHIRUHFDQQRWEHKHOG
MRLQWO\DQGVHYHUDOO\OLDEOHIRUWKHGDPDJHVFDXVHGE\WKHP
:HDJUHHZLWKWKHGHIHQGDQWV¶SRVLWLRQWKDWMRLQWDQGVHYHUDO
OLDELOLW\ZRXOGEHLPSURSHULQWKLVFDVH
³-RLQWDQGVHYHUDOOLDELOLW\LPSOLHVWKDWZKHUHGDPDJHVDUH
FDXVHG E\ WKH MRLQW DFWV RI WZR RU PRUH SHUVRQV HDFK
GHIHQGDQWPD\EHKHOGOLDEOHIRUGDPDJHVLQFXUUHGMRLQWO\RU
VHYHUDOO\´6KRHPDNHUY&UDZIRUG1(G
2KLR&W$SS 8QGHU2KLRODZ³>D@μMRLQWWRUWIHDVRU¶
KDVEHHQGHILQHGDVRQHZKRDFWLYHO\SDUWLFLSDWHVFRRSHUDWHV
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
6SHFLILFDOO\ 7UDYHOHUV FRQWHQGV WKDW 3DWULFN /HDKH\ D
SULQFLSDORZQHURIERWK/HDKH\&RQVWUXFWLRQ&RPSDQ\,QF
/&& DQG /HDKH\ *HQHUDO &RQWUDFWLQJ DQG 0DQDJHPHQW
&RUSRUDWLRQ /*& 0 IUDXGXOHQWO\ PDQLSXODWHG WKH
ILQDQFLDO SRVLWLRQ RI /*& 0 IRU WKH SXUSRVH RI LQGXFLQJ
7UDYHOHUV WR DJUHH WR ERQG /*& 0¶V SXEOLF FRQVWUXFWLRQ
SURMHFWV 7UDYHOHUV IXUWKHU FODLPV WKDW /HDKH\¶V SHUVRQDO
EDQNHU(GZDUG'RQQHOO\RI.H\%DQN1DWLRQDO$VVRFLDWLRQ
.H\%DQN DQG /HDKH\¶V DFFRXQWDQW 0DUN - (OPRUH RI
0DUN - (OPRUH &3$ ,QF SDUWLFLSDWHG LQ WKH VFKHPH
/*& 0VXEVHTXHQWO\GHIDXOWHGRQWKUHHERQGHGSURMHFWV
FDXVLQJ7UDYHOHUVWRLQFXURYHUPLOOLRQLQORVVHV
7KHMXU\UHWXUQHGDYHUGLFWDJDLQVW'RQQHOO\DQG.H\%DQN
IRUFRQVSLUDF\WRFRPPLWIUDXGDQGDLGLQJDQGDEHWWLQJIUDXG
DQGUHWXUQHGDYHUGLFWDJDLQVW(OPRUHDQGKLVILUPIRUIUDXG
DLGLQJDQGDEHWWLQJIUDXGDQGQHJOLJHQWPLVUHSUHVHQWDWLRQ
7UDYHOHUVWKHUHDIWHUUHTXHVWHGWKDWWKHGLVWULFWFRXUWLPSRVH
MRLQW DQG VHYHUDO OLDELOLW\ XSRQ WKH GHIHQGDQWV 7KH
GHIHQGDQWVRQWKHRWKHUKDQGUHTXHVWHGMXGJPHQWLQWKHLU
IDYRUDVDPDWWHURIODZRUDOWHUQDWLYHO\DQHZWULDO$OORI
WKHVHPRWLRQVZHUHGHQLHGE\WKHGLVWULFWFRXUW7KHSDUWLHV
QRZFKDOOHQJHWKRVHUXOLQJV
)RUWKHUHDVRQVVHWIRUWKEHORZZH5(9(56(WKHGLVWULFW
FRXUW¶VGHFLVLRQWKDW GHQLHG'RQQHOO\¶VDQG.H\%DQN¶V
PRWLRQIRUMXGJPHQWDVDPDWWHURIODZZLWKUHVSHFWWRWKH
FODLPRIFRQVSLUDF\WRFRPPLWIUDXGDQG GHQLHG(OPRUH¶V
PRWLRQIRUMXGJPHQWDVDPDWWHURIODZZLWKUHVSHFWWRWKH
FODLPVRIIUDXGDQGRIDLGLQJDQGDEHWWLQJIUDXG:HDOVR
5(0$1' WKH FDVH IRU D QHZ WULDO RQ WKH TXHVWLRQ RI
ZKHWKHULQOLJKWRIWKHLQIRUPDWLRQGLVFORVHGE\(OPRUHWR
'DYLG%ODFNDV7UDYHOHUV¶VDJHQW7UDYHOHUVHVWDEOLVKHGWKH
HOHPHQWRIMXVWLILDEOHUHOLDQFHRQ/HDKH\¶VIUDXGUHJDUGLQJWKH
VXUHW\ERQGVLVVXHGDIWHUWKHGDWHRIGLVFORVXUHDQG WKH
DPRXQW DQG DOORFDWLRQ RI GDPDJHV WR ZKLFK 7UDYHOHUV LV
HQWLWOHGLQOLJKWRIWKHUXOLQJVPDGHWKURXJKRXWWKLVRSLQLRQ
,QDOORWKHUUHVSHFWVZH$)),50WKHMXGJPHQWRIWKHGLVWULFW
FRXUW
-- 3 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
,%$&.*5281'
$ )DFWXDOEDFNJURXQG
/HDKH\¶V HIIRUWV WR REWDLQ ERQGLQJ DQG KLV
UHSUHVHQWDWLRQVUHJDUGLQJLQFUHDVHGFDSLWDOL]DWLRQ
$WDOOUHOHYDQWWLPHV/HDKH\DQGKLVZLIH6XVDQZHUHWKH
SULQFLSDO RZQHUV RI /&& DQG /*& 0 WZR 2KLR
FRUSRUDWLRQV/HDKH\RSHUDWHG/&&SULPDULO\DVDFRQWUDFWRU
RIUHVLGHQWLDOKRPHV,QWKHVSULQJRIKRZHYHU/HDKH\
VKLIWHGKLVDWWHQWLRQWRZDUGSXEOLFFRQVWUXFWLRQSURMHFWVDQG
IRUPHG/*& 0LQ$SULORIIRUWKDWSXUSRVH
$ SXEOLF HQWLW\ JHQHUDOO\ UHTXLUHV WKDW LWV FRQVWUXFWLRQ
SURMHFWV EH ERQGHG E\ D VXUHW\ FRPSDQ\ WR JXDUDQWHH WKH
SHUIRUPDQFHRIWKHFRQWUDFWRU/HDKH\WKHUHIRUHFRQWDFWHG
%ODFN ZKR IRU VHYHUDO \HDUV KDG SURYLGHG /HDKH\ ZLWK
LQVXUDQFHFRYHUDJH%ODFNZDVHPSOR\HGE\WKH-DPHV%
2VZDOG &RPSDQ\ DQ LQVXUDQFH DJHQF\ WKDW DPRQJ RWKHU
WKLQJV VHUYHV DV DQ LQWHUPHGLDU\ EHWZHHQ FRQWUDFWRUV DQG
VXUHW\ FRPSDQLHV 2QH RI %ODFN¶V FRQWDFWV ZDV 6WDQOH\
+DOOLGD\D&OHYHODQGEDVHGDFFRXQWPDQDJHUZLWK7UDYHOHUV
+DOOLGD\¶V LPPHGLDWH VXSHULRU DW 7UDYHOHUV ZDV 'RXJODV
%HQGHU$IWHU%ODFNLQIRUPHG+DOOLGD\WKDW/HDKH\³ZRXOG
EH D JRRG RSSRUWXQLW\ IRU XV´ +DOOLGD\ WKURXJK %ODFN
UHTXHVWHGWKDW/HDKH\SURYLGHYDULRXVILQDQFLDOLQIRUPDWLRQ
WR7UDYHOHUVIRUDSUHOLPLQDU\UHYLHZ
2Q-XQH+DOOLGD\PHWZLWK%ODFNDQG/HDKH\
'XULQJ WKH PHHWLQJ +DOOLGD\ H[SUHVVHG FRQFHUQ ZLWK WKH
OHYHORI/*& 0¶VFDSLWDOL]DWLRQ+DOOLGD\H[SODLQHGDWWULDO
DVIROORZV
0\ILUVWUHYLHZRI0U/HDKH\¶VILQDQFLDOVWDWHPHQWZDV
ZHGLGQ¶WIHHOKHKDGWKHILQDQFLDOUHVRXUFHVWRVXSSRUWD
ERQGLQJSURJUDP
$VDERQGLQJFRPSDQ\ZHIHHOWKHUHLVDFRPPLWPHQWWR
DQDPRXQWRIERWKFDVKDQGZKDWZHFDOOZRUNLQJFDSLWDO
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
&RQVROLGDWHG5DLO&RUS)G WK&LU
³,Q2KLRSXQLWLYHGDPDJHVDUHDYDLODEOHLQFLYLOWRUWDFWLRQV
XSRQ D ILQGLQJ RI DFWXDO PDOLFH´ FLWLQJ (GPRQGVRQ Y
6WHHOPDQ1(G 2KLR&W$SS 7KH
6XSUHPH&RXUWRI2KLRKDVKHOGWKDWDFWXDOPDOLFHPD\EH
GHPRQVWUDWHGE\VKRZLQJ WKDWVWDWHRIPLQGXQGHUZKLFK
DSHUVRQ¶VFRQGXFWLVFKDUDFWHUL]HGE\KDWUHGLOOZLOORUD
VSLULWRIUHYHQJHRU DFRQVFLRXVGLVUHJDUGIRUWKHULJKWV
DQG VDIHW\ RI RWKHU SHUVRQV WKDW KDV D JUHDW SUREDELOLW\ RI
FDXVLQJVXEVWDQWLDOKDUP6HH3UHVWRQY0XUW\1(G
2KLR
+HUH DOWKRXJK LW ZDV UHDVRQDEOH IRU WKH MXU\ WR LQIHU
NQRZOHGJH RI /HDKH\¶V ZURQJGRLQJ IRU WKH SXUSRVH RI
UHWXUQLQJ D IDYRUDEOH YHUGLFW RQ 7UDYHOHUV¶V DLGLQJ DQG
DEHWWLQJFODLPDJDLQVW'RQQHOO\DQG.H\%DQN7UDYHOHUVGLG
QRW SUHVHQW HQRXJK ³FOHDU DQG FRQYLQFLQJ´ HYLGHQFH IURP
ZKLFKWKHMXU\FRXOGUHDVRQDEO\ILQGDFWXDOPDOLFHRQWKHLU
SDUW
7RWKHH[WHQWWKDW7UDYHOHUVVRXJKWSXQLWLYHGDPDJHVEDVHG
RQ³DJJUDYDWHGRUHJUHJLRXVIUDXG´VXFKDWKHRU\FRXOGRQO\
KDYHDSSOLHGWR(OPRUHEHFDXVHKHZDVWKHRQO\GHIHQGDQW
WKDWWKHMXU\IRXQGOLDEOHIRUFRPPLWWLQJIUDXG$QGEHFDXVH
RIRXUFRQFOXVLRQWKDW(OPRUHZDVHQWLWOHGWRMXGJPHQWDVD
PDWWHURIODZRQWKHLVVXHRIIUDXG VHH3DUW,,$DERYH
WKLVWKHRU\LVQRZLQDSSOLFDEOHWRKLPDVZHOO
)LQDOO\ZHILQGQRWKLQJLPSURSHUDERXWWKHGLVWULFWFRXUW
UHQGHULQJ MXGJPHQW RQ WKH LVVXH RI SXQLWLYH GDPDJHV VXD
VSRQWH$OWKRXJKMXGJPHQWDVDPDWWHURIODZLVQRUPDOO\
HQWHUHGE\DGLVWULFWFRXUWIROORZLQJDPHULWRULRXVPRWLRQLW
LV ³FOHDUO\ ZLWKLQ WKH FRXUW¶V SRZHU´ WR GR VR RQ LWV RZQ
LQLWLDWLYH$PHULFDQ )RUHLJQ,QV&RY*HQHUDO(OHF&R
)G WK&LU VHHDOVR)(' 5 &,9 3
D
-- 4 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
GLG QRW KDYH D FKDQFH WR UHVSRQG $V VXFK ZH ILQG LW
LQDSSURSULDWH WR FRQVLGHU (OPRUH¶V DUJXPHQW 6HH 8QLWHG
6WDWHV Y %UDQQRQ )G Q WK &LU
HOHFWLQJWRQRWDGGUHVVFHUWDLQDUJXPHQWVEHFDXVHWKH\³ZHUH
UDLVHGIRUWKHILUVWWLPHLQWKHUHSO\EULHI´ 8QLWHG6WDWHVY
-HUNLQV )G Q WK &LU ³,W LV
LPSHUPLVVLEOHWRPHQWLRQDQLVVXHIRUWKHILUVWWLPHLQDUHSO\
EULHI EHFDXVH WKH DSSHOOHH WKHQ KDV QR RSSRUWXQLW\ WR
UHVSRQG´ FLWDWLRQDQGLQWHUQDOTXRWDWLRQVPDUNVRPLWWHG
0RUHRYHUWKLVLVVXHLVPRRWLQOLJKWRIRXUFRQFOXVLRQVHW
IRUWKLQ3DUW,,$DERYHWKDWWKHHYLGHQFHGRHVQRWVXSSRUW
WKHMXU\¶VILQGLQJWKDW(OPRUHHQJDJHGLQIUDXG
' 7KH GLVWULFW FRXUW GLG QRW HUU ZKHQ LW UXOHG VXD
VSRQWHWKDWWKHUHZDVLQVXIILFLHQWHYLGHQFHSUHVHQWHG
E\ 7UDYHOHUV WR VXSSRUW DQ DZDUG RI SXQLWLYH
GDPDJHV
$WWKHFORVHRI7UDYHOHUV¶VFDVHLQFKLHIWKHGLVWULFWFRXUW
UXOHG VXD VSRQWH WKDW WKHUH ZDV LQVXIILFLHQW HYLGHQFH
SUHVHQWHG E\ 7UDYHOHUV WR VXSSRUW DQ DZDUG RI SXQLWLYH
GDPDJHV ,Q LWV FURVVDSSHDO 7UDYHOHUV FRQWHQGV WKDW WKH
GLVWULFWFRXUWHUUHGLQUXOLQJRQWKHPDWWHUVXDVSRQWHDQGWKDW
LQDQ\HYHQWMXGJPHQWVKRXOGQRWKDYHEHHQHQWHUHGEHFDXVH
DMXU\FRXOGUHDVRQDEO\KDYHIRXQGEDVHGRQWKHHYLGHQFH
SUHVHQWHGWKHUHTXLVLWHPDOLFHWRVXVWDLQDSXQLWLYHGDPDJHV
YHUGLFW:HGLVDJUHHZLWK7UDYHOHUV¶VDUJXPHQW
3XQLWLYH GDPDJHV DUH QRW UHFRYHUDEOH IURP D GHIHQGDQW
XQGHU 2KLR ODZ XQOHVV ³>W@KH DFWLRQV RU RPLVVLRQV RI WKDW
GHIHQGDQWGHPRQVWUDWHPDOLFHDJJUDYDWHGRUHJUHJLRXVIUDXG
RSSUHVVLRQRULQVXOWRUWKDWGHIHQGDQWDVSULQFLSDORUPDVWHU
DXWKRUL]HGSDUWLFLSDWHGLQRUUDWLILHGDFWLRQVRURPLVVLRQVRI
DQDJHQWRUVHUYDQWWKDWVRGHPRQVWUDWH´2+,2 5(9 &2'(
$11 % 7KHEXUGHQZDVRQ7UDYHOHUVWRSURYH
E\FOHDUDQGFRQYLQFLQJHYLGHQFHWKDWLWZDVHQWLWOHGWRVXFK
GDPDJHV 6HH LG ' 7R WKH H[WHQW WKDW
7UDYHOHUV VRXJKW SXQLWLYH GDPDJHV EDVHG RQ D VKRZLQJ RI
³PDOLFH´LWKDGWRSURYHDFWXDOPDOLFH6HH6SULQJVWRQY
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
ZKLFKLVFXUUHQWDVVHWVOHVVFXUUHQWOLDELOLWLHVDQGDOVR
QHWZRUWKRULQYHVWHGFDSLWDOLQDFRPSDQ\
<RXQHHGWRUXQDFRQVWUXFWLRQEXVLQHVVDQGWKHUHDUHD
ORWRIUHDVRQVZK\ZHEHOLHYHWKDW±DQG,¶PQRWJRLQJWR
ERUH\RXWRGHDWKZLWKWKDW±EXWLW¶VVRPHWKLQJSUHWW\
LPSRUWDQW$QGZHWDONHGDERXWWKDWDQGLW¶VVRPHWKLQJ
WKDW'DYH%ODFNNQHZDQGXQGHUVWRRGDQGDOVR>/HDKH\@
NQHZDQGXQGHUVWRRGWKDWKHZDVJRLQJWRKDYHWRFKDQJH
DOLWWOHELWRIKLVRSHUDWLQJSKLORVRSK\ILQDQFLDOO\
$VDUHVXOWRIKLVFRQFHUQV+DOOLGD\LQTXLUHGDVWRZKHWKHU
/HDKH\ZRXOGEHDEOHWRLQFUHDVH/*& 0¶VDVVHWV+DOOLGD\
WHVWLILHGWKDW/HDKH\DVVXUHGKLPWKDWIXQGVFRXOGEHREWDLQHG
IURPKLVIDWKHULQODZ$OEHUW%HUVWLFNHU
>/HDKH\@PDGHLWYHU\FOHDUWKDWKLVZLIH6XVDQ/HDKH\
ZDVWKHGDXJKWHU>@RIDJHQWOHPDQZKR¶VWKH&(2IRU
)HUUR &RUSRUDWLRQ D )RUWXQH ILUP EDVHG LQ
&OHYHODQG $QG WKDW WKDW JHQWOHPDQ KDG VHW XS
HVVHQWLDOO\DWUXVWDIDPLO\W\SHRIWUXVWWKDWKDGTXLWHD
ELW RI OLTXLG DVVHWV DYDLODEOH WR WKHP WR LQMHFW LQWR
>/*& 0@DVQHHGHG
$QG LI \RX ORRNHG KLVWRULFDOO\ DW WKHLU ILQDQFLDO
VWDWHPHQWVLQWKHSDVW>/HDKH\@KDGORDQHG
>@GROODUVWRWKHFRPSDQ\ZKHQLWQHHGHGLW
WRJHW±\RXNQRZWRSURYLGHLWZLWKVRPHFDVKZKHQ
WKHUHZHUHVKRUWIDOOVIURPWLPHWRWLPH6RHVVHQWLDOO\KH
IHOW WKDW WKDW ZRXOG EH D JRRG PHFKDQLVP WR IXQG WKH
FRPSDQ\
$WDOOUHOHYDQWWLPHV%HUVWLFNHUDOVRVHUYHGDVDGLUHFWRURI
.H\%DQN
%HFDXVH+DOOLGD\GLGQRWZDQWWKHDGGLWLRQDOIXQGVWREH
DGGHG WR /*& 0 LQ WKH IRUP RI D VLPSOH EDQN ORDQ KH
VXJJHVWHGDPRUHVHFXUHDUUDQJHPHQW
-- 5 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
>7@KHUHLV>DQ@RSWLRQFDOOHGVXERUGLQDWHGGHEWV$QG
WKDW¶VNLQGRIWULFN\EXWZKDWLWLVLV>/HDKH\@ZRXOGWDNH
WKLVSHUVRQDOO\WKHLUPRQH\WKDWKHRZQHGDQGFRQWUROOHG
SHUVRQDOO\ WKURXJK KLV WUXVW DQG ZRXOG ORDQ LW WR
>/*& 0@DQGVLJQDQDJUHHPHQWZLWK>7UDYHOHUV@WKDW
VWDWHGWKDWWKDWPRQH\ZDVQRWWROHDYH>/*& 0@HYHU
XQOHVV>7UDYHOHUV@DSSURYHGLWWROHDYH>/*& 0@$QG
WKDW WKDW PRQH\ ZRXOG EH XVHG LQ WKH GD\WRGD\
RSHUDWLRQVRIEXVLQHVV
$QGDWRXUPHHWLQJZHDOODJUHHGDIWHUGLVFXVVLRQWKDW
WKDWZDVDURXWHWKDWZDVDFFHSWDEOHWR>/HDKH\@DQGWR
'DYH %ODFN DQG WKHQ WR >7UDYHOHUV@ WKDW ZH FRXOG
FRQFHLYDEO\HVWDEOLVKDEXVLQHVVUHODWLRQVKLS
7KHSDUWLHVDJUHHGDIWHUIXUWKHUGLVFXVVLRQWKDW/HDKH\ZRXOG
DPRQJRWKHUWKLQJVH[HFXWHDVXERUGLQDWLRQDJUHHPHQWZLWK
UHVSHFWWRDSUHYLRXVO\PDGHORDQRIDQGWKDWKH
ZRXOG SHUVRQDOO\ ORDQ DQ DGGLWLRQDO WR /*& 0
WKDWZRXOGDOVREHVXERUGLQDWHGWR7UDYHOHUV
/HDKH\¶VORDQIURP.H\%DQN
'HVSLWH/HDKH\¶VUHSUHVHQWDWLRQVWR+DOOLGD\WKDWWKHVRXUFH
RIWKHQHHGHGIXQGVZRXOGEHKLVIDPLO\WUXVW/HDKH\LQHDUO\
-XO\RILQTXLUHGRIKLVSHUVRQDOEDQNHU'RQQHOO\DERXW
WKH SRVVLELOLW\ RI REWDLQLQJ D WUDGLWLRQDO EDQN ORDQ IURP
.H\%DQN6LQFH'RQQHOO\KDGSURFHVVHGVHYHUDOORDQV
IRU/HDKH\WKHPDMRULW\RIZKLFKZHUHUHODWHGWRERQGLQJ
UHTXLUHPHQWV'RQQHOO\FODLPHGDWWULDOKRZHYHUWKDWKHGLG
QRW XQGHUVWDQGWKHERQGLQJEXVLQHVV7KHSXUSRVHRIWKLV
SDUWLFXODUORDQDVD.H\%DQNGRFXPHQWLQGLFDWHVZDV³WR
REWDLQ DSSURYDO IURP D QHZ %RQGLQJ &RPSDQ\´ $IWHU
.H\%DQN GHQLHG /HDKH\¶V UHTXHVW /HDKH\ SURSRVHG DV DQ
DOWHUQDWLYHWKDW%HUVWLFNHUSHUVRQDOO\JXDUDQWHHWKHORDQDQG
WKDWSD\PHQWEHGXHLQWKLUW\GD\V
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
PDGHDIWHU'U$XVWLQKDGFRPSOHWHGKLVWHVWLPRQ\DQGKDG
OHIWWRZQDQG WKHWHVWLPRQ\GLGQRWYLRODWHWKHGLVWULFW
FRXUW¶VSURVFULSWLRQVEHFDXVH³>'U$XVWLQ@GLGQRWH[SUHVV
RSLQLRQVDVWRZKHWKHUWKHERQGXQGHUZULWLQJE\7UDYHOHUVIRU
WKH/HDKH\FRPSDQ\ZDVDSSURSULDWH´
³7UDGLWLRQDOO\WKLVFLUFXLWKDVUHYLHZHGDGLVWULFWFRXUW¶V
UXOLQJUHJDUGLQJWKHDGPLVVLELOLW\RIH[SHUWWHVWLPRQ\XQGHU
5XOHIRUDQDEXVHRIGLVFUHWLRQ´0RUDOHVY$PHULFDQ
+RQGD0RWRU&R)G WK&LU ³,QWKH
FRQWH[WRIDQ HYLGHQWLDU\UXOLQJDEXVHRIGLVFUHWLRQH[LVWV
ZKHQWKHUHYLHZLQJFRXUWLVILUPO\FRQYLQFHGWKDWDPLVWDNH
KDVEHHQPDGHUHJDUGLQJ DGPLVVLRQRIHYLGHQFH´3RONY
<HOORZ)UHLJKW6\V,QF)G WK&LU
7UDYHOHUV¶VSURFHGXUDODUJXPHQWODFNVPHULW7KHPRWLRQ
WRVWULNHPD\KDYHFRPHWRRODWHEXWWKHUHFRUGLQGLFDWHVWKDW
'RQQHOO\DQG.H\%DQNPDGHVHYHUDOWLPHO\REMHFWLRQVGXULQJ
WKHFRXUVHRI'U$XVWLQ¶VWHVWLPRQ\$VVXFKWKHUHZDVQR
GHIDXOWE\WKHGHIHQGDQWV6HH*RUDY&RVWD)G
WK&LU ILQGLQJQRGHIDXOWZKHUHWKHREMHFWLQJ
SDUW\ILOHGDPRWLRQLQOLPLQHDQGUHDGGUHVVHGWKHLVVXHVDW
WULDOGXULQJDVLGHEDU $OWKRXJKZHILQGQRGHIDXOWZHDOVR
ILQGQRPHULWLQ'RQQHOO\¶VDQG.H\%DQN¶VDUJXPHQWWKDWWKH
GLVWULFWFRXUWDEXVHGLWVGLVFUHWLRQ'U$XVWLQ¶VUHVSRQVHV
PD\ KDYH GULIWHG LQWR DQ DUHD LQ ZKLFK KH GRHV QRW KDYH
H[SHUWLVHEXWDUHDGLQJRIWKHGLUHFWH[DPLQDWLRQWUDQVFULSW
LQGLFDWHVWKDWWKLVZDVLQFLGHQWDOWRWKHRYHUDOOWKUXVWRIKLV
WHVWLPRQ\ZKLFKIRFXVHGRQKLVRSLQLRQRISURSHUEDQNLQJ
SUDFWLFHVLQGHWHFWLQJIUDXGXOHQWDFWLYLWLHV:HDUHWKHUHIRUH
QRW ³ILUPO\ FRQYLQFHG´ WKDW WKH GLVWULFW FRXUW HUUHG LQ LWV
DGPLVVLELOLW\UXOLQJVUHJDUGLQJ'U$XVWLQ¶VWHVWLPRQ\
& (OPRUH¶V FKDOOHQJH WR WKH WHVWLPRQ\ RI 7UDYHOHUV¶V
IUDXGH[SHUW
,QKLVUHSO\EULHI(OPRUHTXHVWLRQVWKHSURSULHW\RIFHUWDLQ
WHVWLPRQ\E\7UDYHOHUV¶VIUDXGH[SHUW(ULF.UHXWHU%HFDXVH
WKLVLVVXHZDVQRWUDLVHGLQ(OPRUH¶VLQLWLDOEULHI7UDYHOHUV
-- 6 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
ZLWKLQWKHEDQNLQJLQGXVWU\LQHYDOXDWLQJORDQUHTXHVWVIRU
FRPPHUFLDO FRQWUDFWRUV IRU >WKH@ SXUSRVHV RI GHWHFWLQJ
ZKHWKHURUQRWWKDWFRQWUDFWRUPD\EHLQWHQGLQJWRGHIUDXG´
KHVDLG
,GRQ¶WWKLQNWKHUHLVDQ\UHDOO\VWDQGDUGSURFHGXUHRWKHU
WKDQ WR JR WKURXJK WKH LQIRUPDWLRQ DQG XVH WKH
SURIHVVLRQDO EDFNJURXQG RI WKH LQGLYLGXDOV \RX KDYH
SXUVXLQJLWHLWKHUWKHSULYDWHEDQNHURUVRPHERG\LQWKH
&RPPHUFLDO&UHGLW'HSDUWPHQWWRWDNHDORRNDWLWDQG
VHHZKHWKHUWKHUHDUHFHUWDLQLQGLFLDRUFHUWDLQIODJVWKDW
DUH UDLVHG E\ WKH YDULRXV IDFWV WKDW DUH IDFLQJ WKH
FRPPHUFLDOORDQRIILFHUDWWKHWLPHWKHUHTXHVWLVPDGH
2YHU 'RQQHOO\¶V DQG .H\%DQN¶V REMHFWLRQ 'U $XVWLQ
WHVWLILHG WKDW D ³IODJ´ LQ WKLV FDVH ZRXOG EH WKH IDFW WKDW
DOWKRXJKWKHUHTXHVWZDVPDGHIRUERQGLQJSXUSRVHVLWZDV
RQO\DWKLUW\GD\ORDQ'U$XVWLQVWDWHGWKDWWKLVZRXOGEHD
FRQFHUQEHFDXVH³>E@RQGLQJQRUPDOO\LVDSHUPDQHQWFDSLWDO
VRXUFHRIIXQGV´7KHQDJDLQGHVSLWHDWLPHO\REMHFWLRQ'U
$XVWLQFRPPHQWHGDVIROORZV
$QGWKDW¶VWKHW\SHRIORQJWHUPFDSLWDOWKDWWKHERQGLQJ
FRPSDQ\ZDQWVLQPRVWFDVHV$QGLILWZDVJRLQJ
WREHERUURZHGDQGSODFHGLQWRDILUP\RXZRXOGH[SHFW
LWWREHWKHUHIRUDSHULRGRIWLPHDWOHDVWHTXDOWRWKH
ERQGLQJSHULRGEXWPD\EHHYHQORQJHUWKDQWKDWEHFDXVH
LWZRXOGVKRZHTXLW\RZQHUVKLSRIWKHILUPE\WKHSHUVRQ
ZKRZDVWKHFRQWUDFWRU
(PSKDVLVDGGHG
'RQQHOO\DQG.H\%DQNPDLQWDLQWKDWWKHGLVWULFWFRXUWHUUHG
E\ DOORZLQJ 'U $XVWLQ WR H[SUHVV KLV RSLQLRQV RQ ERQG
XQGHUZULWLQJ³'U$XVWLQDEDQNLQJH[SHUWGLGQRWOLPLWKLV
WHVWLPRQ\WREDQNLQJPDWWHUV+LVWHVWLPRQ\DERXWZKDWD
ERQGLQJFRPSDQ\μZDQWV¶DQGμZRXOGH[SHFW¶ODFNVDUHOLDEOH
EDVLV LQ WKH NQRZOHGJH DQG H[SHULHQFH RI KLV GLVFLSOLQH´
(PSKDVLVDGGHG ,QUHVSRQVH7UDYHOHUVDVVHUWVWKDW DQ\
REMHFWLRQZDVGHIDXOWHGEHFDXVHDPRWLRQWRVWULNHZDVRQO\
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
2Q -XO\ 'RQQHOO\ ZURWH D PHPRUDQGXP WR
/HDKH\FRQWDLQLQJWKHGHWDLOVRIWKHORDQWKDW.H\%DQNZDV
SUHSDUHG WR PDNH ,Q LWV RULJLQDO IRUP WKH GRFXPHQW
LQGLFDWHGWKDWWKHDPRXQWZRXOGEHDORDQWR/&&
SD\PHQWZRXOGEHGXHLQWKLUW\GD\VWKHUHZRXOGEHD
IHH DQG %HUVWLFNHU ZRXOG EH WKH JXDUDQWRU 7KH
PHPRUDQGXPDOVRVWDWHGDVIROORZV
7KH IXQGV DUH EHLQJ XVHG WR LQFUHDVH WKH ERQGLQJ
FDSDFLW\ RI >/&&@ <RX KDYH EHHQ DGYLVHG E\ WKH
ERQGLQJ DJHQW WR GHSRVLW WKHVH IXQGV LQWR >/&&@¶V
FKHFNLQJDFFRXQW<RXQHHGWKHVHIXQGVWREHWKHUHDW
PRQWKHQG
)XQFWLRQDOO\ZHFDQGHSRVLWWKHIXQGVIRU\RXLQWRWKH
DFFRXQWRQ-XO\DQGDW\RXULQVWUXFWLRQVZLWKGUDZWKH
IXQGVIURPWKHDFFRXQWRQ$XJXVWDQGUHSD\WKHORDQ
2QFHWKHORDQKDVEHHQUHSDLGWKHORDQDQGJXDUDQWHH
ZLOOEHFDQFHOHG
$IWHU/HDKH\UHFHLYHGWKHPHPRUDQGXPKHUHWXUQHGLWWR
'RQQHOO\ZLWKVHYHUDOFKDQJHV$PRQJRWKHUWKLQJVKHQRWHG
WKDWWKHORDQDPRXQWVKRXOGEHOLVWHGDVLQVWHDGRI
WKDWWKHHQWLW\WRUHFHLYHWKHEHQHILWRIWKHIXQGV
ZRXOGEH/*& 0UDWKHUWKDQ/&&DQGWKDWWKH³PRQWKHQG´
ZRXOGEH³-XO\´/HDKH\DOVRZURWHQH[WWRWKHWKLUW\GD\
WHUP³GD\DFWXDO>LOOHJLEOH@JXDUDQWHHE\0U%HUVWLFNHU´
+HWKHQZURWHWKHIROORZLQJQRWHWR'RQQHOO\DWWKHERWWRPRI
WKH VKHHW ³3OHDVH UHZULWH WKLV PHPR IRU SUHVHQWDWLRQ WR
>%HUVWLFNHU@+HKDVQRSUREOHPZ>LWK@WKLV+RZHYHU,QHHG
>D@SOHGJHIRUPIRU>%HUVWLFNHU@WRVLJQE\)ULGD\DVKHZLOOEH
WUDYHOLQJIRUòZHHNVLQ(XURSH´
$OWKRXJKWKHORDQKDGWREHDSSURYHGE\*HRUJH6WRUDUD
FUHGLWPDQDJHUDW.H\%DQN'RQQHOO\QHYHULQIRUPHGKLPRI
WKHIRXUGD\UHSD\PHQWWHUPDVRXWOLQHGLQWKH-XO\
PHPRUDQGXP 7KH ORDQ ZDV DSSURYHG E\ .H\%DQN
$FFRUGLQJO\RQ-XO\ZDVGHSRVLWHGLQWR
-- 7 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
/*& 0¶V FKHFNLQJ DFFRXQW DQG RQ $XJXVW WKH
VDPHDPRXQWZDVWUDQVIHUUHGEDFNWR.H\%DQN
/*& 0¶V -XO\ EDQN VWDWHPHQW DQG
/HDKH\¶V$XJXVWVXERUGLQDWLRQDJUHHPHQW
'XULQJ WKH ILUVW ZHHN RI $XJXVW RI +DOOLGD\
UHTXHVWHG WKURXJK %ODFN D FRS\ RI /*& 0¶V EDQN
VWDWHPHQW IRU WKH PRQWK HQGLQJ -XO\ %ODFN
SURYLGHG+DOOLGD\ZLWKDFRS\ZKLFKVKRZHGWKDWRQ-XO\
WKH DFFRXQW ZDV ³FUHGLWHG´ DQG ³GHELWHG´
1RGHVFULSWLRQLVSURYLGHGRQWKHVWDWHPHQWLQGLFDWLQJ
WKHVRXUFHRIWKHFUHGLWHGIXQGVRUWKHUHDVRQIRUWKHGHELW
/*& 0¶VHQGLQJEDODQFHIRUWKHPRQWKZDVDSSUR[LPDWHO\
$WWULDOWKHSDUWLHVVWLSXODWHGWKDWQHLWKHU'RQQHOO\
QRU DQ\ RWKHU UHSUHVHQWDWLYH RI .H\%DQN HYHU PDGH DQ\
YHUEDORUZULWWHQUHSUHVHQWDWLRQVWR7UDYHOHUVZLWKUHVSHFWWR
WKHILQDQFLDOFRQGLWLRQRI/HDKH\RU/*& 0
2Q$XJXVW/HDKH\FRQVLVWHQWZLWKWKHDJUHHPHQW
UHDFKHGGXULQJWKH-XQHPHHWLQJZLWK+DOOLGD\DQG
%ODFN H[HFXWHG D FRQWUDFW LQ ZKLFK /HDKH\ DJUHHG WR
VXERUGLQDWHWR7UDYHOHUVKLVLQWHUHVWLQFHUWDLQPRQLHVWKDWKH
KDGSXUSRUWHGO\ORDQHGWR/*& 07KHWZRQRWHVOLVWHGLQ
WKHDJUHHPHQWZHUHWKHORDQGDWHG$SULO
DQGWKHORDQGDWHG -XO\ $WOHDVWZLWK
UHVSHFW WR WKH ORDQ KRZHYHU WKLV VXERUGLQDWLRQ
DJUHHPHQW KDG QR HIIHFW EHFDXVH /*& 0¶V SRVVHVVLRQ RI
WKRVH IXQGV KDG HQGHG VL[ GD\V HDUOLHU ZKHQ WKH ORDQ ZDV
UHSDLG
(OPRUH¶VLQYROYHPHQW
/HDKH\ILUVWPHW(OPRUHLQ)HEUXDU\RI,Q0DUFKRI
WKDW \HDU /HDKH\ KLUHG KLP WR VHUYH DV DQ LQGHSHQGHQW
DFFRXQWDQWIRU/&&DQG/*& 0 )RUWKHUHPDLQGHURIWKLV
RSLQLRQUHIHUHQFHVWR³(OPRUH´ZLOOLQFOXGHKLVILUP $V
SDUWRIWKDWUROH/HDKH\UHTXHVWHG(OPRUHWRDPRQJRWKHU
WKLQJVFRQGXFWD³UHYLHZ´RI/&&¶VDQG/*& 0¶VILQDQFLDO
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
+HUH WKH GHIHQGDQWV GR QRW DVVLJQ HUURU WR WKH GLVWULFW
FRXUW¶V SUR[LPDWH FDXVDWLRQ LQVWUXFWLRQV 7KH HYLGHQFH DW
WULDO HVWDEOLVKHG WKDW EXW IRU WKH ORDQ 7UDYHOHUV
ZRXOGQRWKDYHGRQHEXVLQHVVZLWK/HDKH\7KHUHZDVDOVR
VXIILFLHQW HYLGHQFH WR VXSSRUW WKH MXU\¶V ILQGLQJ WKDW
QRWZLWKVWDQGLQJ7UDYHOHUV¶VDOOHJHGHUURUVWKHORDQ
SURGXFHGLQDQDWXUDODQGFRQWLQXRXVVHTXHQFHDQGDOOZLWKLQ
D UHODWLYHO\ VKRUW SHULRG RI WLPH WKH UHVXOWLQJ KDUP WR
7UDYHOHUV
:HUHFRJQL]HWKDWWKHFRQFHSWRISUR[LPDWHFDXVHUHTXLUHV
PRUHWKDQ³EXWIRU´FDXVDWLRQ7KHRWKHUNH\FRQVLGHUDWLRQV
DUHUHDVRQDEOHIRUHVHHDELOLW\DQGWKHODFNRIDQ\LQGHSHQGHQW
LQWHUYHQLQJ FDXVHV 6HH :HVWILHOG ,QV &R Y +XOV $P
,QF1(G 2KLR$SS&W ³,QRUGHUWR
HVWDEOLVK SUR[LPDWH FDXVH IRUHVHHDELOLW\ PXVW EH IRXQG´
FLWDWLRQDQGLQWHUQDOTXRWDWLRQPDUNVRPLWWHG 4XHHQ&LW\
7HUPLQDOV,QFY*HQHUDO$P7UDQVS&RUS1(G
2KLR ³:HKDYHORQJUHFRJQL]HGWKDW WKH
FRQQHFWLRQEHWZHHQWKHGHIHQGDQW¶VDFWRURPLVVLRQDQGWKH
GDPDJHRULQMXU\RFFDVLRQHGE\WKHSODLQWLIIPD\EHEURNHQ
E\DQLQWHUYHQLQJHYHQW´ 7KHORQJHUWKHJDSEHWZHHQWKH
PDNLQJRIWKHORDQDQG7UDYHOHUV¶VGHFLVLRQWRERQG
DMREDQGWKHPRUHWKDWRWKHUIDFWRUVLQIOXHQFHG7UDYHOHUV¶V
GHFLVLRQVUHJDUGLQJ/*& 0WKHPRUHZHZRXOGEHLQFOLQHG
WR DJUHH ZLWK WKH GHIHQGDQWV¶ DUJXPHQW WKDW ³7UDYHOHUV¶V
WKHRU\ RI FDXVDWLRQ LV WRR DWWHQXDWHG DV D PDWWHU RI ODZ´
%DVHGRQWKHIDFWVEHIRUHXVKRZHYHUZHFDQQRWVD\DVD
PDWWHU RI ODZ WKDW SUR[LPDWH FDXVH ZDV ODFNLQJ %HFDXVH
UHDVRQDEOHPLQGVPLJKWGLIIHURQWKDWSRLQWWKHTXHVWLRQZDV
SURSHUO\SXWWRWKHMXU\
% 7KHGLVWULFWFRXUWGLGQRWHUULQSHUPLWWLQJFHUWDLQ
WHVWLPRQ\E\'U$XVWLQ
7UDYHOHUV¶V EDQNLQJ H[SHUW 'U $XVWLQ RSLQHG WKDW
.H\%DQN¶VKDQGOLQJRIWKHORDQWUDQVDFWLRQGLGQRW
FRPSO\ZLWKJHQHUDOO\DFFHSWHGSUDFWLFHVZLWKLQWKHEDQNLQJ
LQGXVWU\,QUHVSRQVHWRDTXHVWLRQUHJDUGLQJ³WKHSUDFWLFH
-- 8 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
WKH ³μSXEOLF LQWHUHVW¶´ TXRWLQJ8QLWHG 6WDWHV Y $WNLQVRQ
86
E 3UR[LPDWHFDXVDWLRQ
7KHGHIHQGDQWVDOVRDVVHUWWKDW7UDYHOHUV¶VORVVHVZHUHQRW
SUR[LPDWHO\FDXVHGE\WKHLUFRQGXFW$UJXLQJWKDW7UDYHOHUV
PDGH XQGHUZULWLQJ PLVMXGJPHQWV WKH\ FRQWHQG WKDW
³7UDYHOHUV¶VWKHRU\RIFDXVDWLRQLVWRRDWWHQXDWHGDVDPDWWHU
RIODZ´'RQQHOO\DQG.H\%DQNDOVRPDLQWDLQWKDWHYHQLIWKH
KDG EHHQ NHSW LQ /*& 0¶V DFFRXQWV /*& 0
ZRXOG VWLOO KDYH GHIDXOWHG RQ LWV FRQWUDFWV DQG 7UDYHOHUV
ZRXOG WKHUHIRUH VWLOO KDYH LQFXUUHG ORVVHV ,Q UHVSRQVH
7UDYHOHUV DVVHUWV WKDW ³WKH HYLGHQFH DW WULDO DGHTXDWHO\
HVWDEOLVKHG SUR[LPDWH FDXVH EHFDXVH LQ WKH VHTXHQFH RI
HYHQWV.H\%DQN¶VORDQWR/HDKH\ZDVWKHIDFWRUWKDWOHGWR
/*& 0¶VVHFXULQJERQGVIURP7UDYHOHUV´:HDJUHHZLWK
7UDYHOHUV¶VSRVLWLRQ
:LWKUHVSHFWWRSUR[LPDWHFDXVDWLRQWKH6XSUHPH&RXUWRI
2KLRKDVFRPPHQWHGDVIROORZV
7KHWHUP³SUR[LPDWHFDXVH´LVRIWHQGLIILFXOWRIH[DFW
GHILQLWLRQ DV DSSOLHG WR WKH IDFWV RI D SDUWLFXODU FDVH
+RZHYHULWLVJHQHUDOO\WUXHWKDWZKHUHDQRULJLQDODFW
LVZURQJIXORUQHJOLJHQWDQGLQDQDWXUDODQGFRQWLQXRXV
VHTXHQFHSURGXFHVDUHVXOWZKLFKZRXOGQRWKDYHWDNHQ
SODFHZLWKRXWWKHDFWSUR[LPDWHFDXVHLVHVWDEOLVKHGDQG
WKHIDFWWKDWVRPHRWKHUDFWXQLWHVZLWKWKHRULJLQDODFWWR
FDXVH LQMXU\ GRHV QRW UHOLHYH WKH LQLWLDO RIIHQGHU IURP
OLDELOLW\
&OLQJHUY'XQFDQ1(G 2KLR ³,Q
DQ\ FDVH ZKHUH WKHUH LV D TXHVWLRQ XSRQ ZKLFK UHDVRQDEOH
PLQGVPLJKWGLIIHUDVWRWKHIRUHVHHDELOLW\RIDSDUWLFXODUULVN
RUWKHFKDUDFWHURIDQLQWHUYHQLQJFDXVHWKHTXHVWLRQLVRQH
IRU VXEPLVVLRQ WR WKH MXU\ XQGHU SURSHU LQVWUXFWLRQV DV WR
SUR[LPDWH FDXVH´ 2KLR )DLU 3ODQ 8QGHUZULWLQJ $VV¶Q Y
$UFDUD1(G 2KLR&W$SS
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
VWDWHPHQWVDVRI-XQH (OPRUH¶VSUDFWLFHGLGQRW
LQYROYHDXGLWV
(OPRUH¶V UROH ZDV GLVFXVVHG GXULQJ WKH -XQH
PHHWLQJ EHWZHHQ +DOOLGD\ %ODFN DQG /HDKH\ +DOOLGD\
FRPPHQWHGDWWULDODVIROORZV
>$@W RXU PHHWLQJ >LW ZDV GLVFXVVHG WKDW@ >/HDKH\@¶V
ILQDQFLDOUHSRUWLQJZDVQ¶WZKHUHZHZRXOGOLNHLWWREH
IRU RXU VWDQGDUG FRPPHUFLDO DFFRXQWV DQG WKDW¶V QRW
XQXVXDOHLWKHU:LWKQHZHUDFFRXQWV\RXREYLRXVO\KDYH
WRGLVFXVVZKDW\RXUQHHGVDUHDVDVXUHW\DQGZKHWKHU
KHZDQWVWRIXOILOOWKHPDVDFRQWUDFWRU$QG>/HDKH\@
KDGDVNHGWKDW,FRQWDFW0DUN(OPRUHDQGOHWKLPNQRZ
WKHW\SHDQGWKH IRUPRIILQDQFLDOLQIRUPDWLRQWKDWKH
ZRXOGQHHGWRSUHVHQWRQEHKDOIRI>/*& 0@
$VDUHVXOWRI/HDKH\¶VXUJLQJ+DOOLGD\FRQWDFWHG(OPRUHLQ
ODWH -XO\ RU HDUO\ $XJXVW RI WR GLVFXVV WKH ZRUN WKDW
(OPRUHKDGEHHQKLUHGWRSHUIRUPIRU/HDKH\+DOOLGD\JDYH
WKH IROORZLQJ WHVWLPRQ\ UHJDUGLQJ WKH VXEVWDQFH RI KLV
GLVFXVVLRQZLWK(OPRUH
>7@KH RWKHU WKLQJ ZH ZHUH JRLQJ WR WDON DERXW LV WKH
ORDQVWKDWZHUHEHLQJPDGH,I\RXUHPHPEHUWKHGDWH
>RIWKHORDQ@ZDV-XO\WKZHZHUHJRLQJWRJHW
DVWDWHPHQWIURP(OPRUHVRWKDWORDQZDVQ¶W
JRLQJWREHUHIOHFWHG>RQWKDWVWDWHPHQW@
$QGWKHRWKHUUHDVRQZHZHUHWDONLQJ,ZDVJRLQJWRDVN
>(OPRUH@WRIRRWQRWHWKDWRQVXFKDQGVXFKDGDWH
>/HDKH\@ KDG FDSLWDOL]HG D ORDQ WR WKH FRPSDQ\ IRU
WKDWKDGEHHQVXERUGLQDWHGWRXVDQGZDVLQWKH
FRPSDQ\VRWKDW,NQHZWKDWWKDWPRQH\ZDVWKHUH
$WWULDO(OPRUHGLGQRWWDNHLVVXHZLWK+DOOLGD\¶VDFFRXQWRI
WKLVFRQYHUVDWLRQ
2Q 6HSWHPEHU (OPRUH LQ DSSDUHQW UHVSRQVH WR
+DOOLGD\¶V UHTXHVW VHQW D OHWWHU WR %ODFN DFFRPSDQLHG E\
-- 9 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
SUHOLPLQDU\GUDIWVRIWKH-XQHEDODQFHVKHHWVRI/&&
DQG /*& 0 (OPRUH XQGHUVWRRG WKDW %ODFN ZDV DQ
LQVXUDQFH DJHQW DVVLVWLQJ /HDKH\ LQ KLV DWWHPSWV WR VHFXUH
ERQGLQJ7KHOHWWHU¶VLQWURGXFWRU\WH[WUHDGVDVIROORZV
3XUVXDQW WR RXU WHOHSKRQH GLVFXVVLRQ RQ 0RQGD\>@
6HSWHPEHU WK \RX ZLOO ILQG EHORZ D VXPPDU\ RI
>/&&¶VDQG/*& 0¶V@DQWLFLSDWHGEDODQFHVKHHWVDVRI
-XQH7KLVRIILFHLVFXUUHQWO\LQWKHSURFHVVRI
UHYLHZLQJ WKH &RPSDQ\V¶ >VLF@ \HDU HQG ILQDQFLDO
VWDWHPHQWV DQG , KDYH QRW \HW KDG WKH RSSRUWXQLW\ WR
UHYLHZ WKH ZRUNSDSHUV WR FRQILUP WKHLU DFFXUDF\ ,
ZRXOG DQWLFLSDWH SURYLGLQJ \RXU RIILFH ZLWK IRUPDO
ILQDQFLDOVWDWHPHQWVRQRUEHIRUH6HSWHPEHU
$OWKRXJKWKHEDODQFHVKHHWGUDIWVSURYLGHGE\(OPRUHGLG
QRWPDNHUHIHUHQFHWRWKHORDQ(OPRUHGLVFXVVHG
WKHERUURZLQJLQWKHFRQFOXGLQJSDUDJUDSKRIKLVOHWWHU³,Q
DGGLWLRQWRWKHDERYHVKDUHKROGHUORDQV>@3DWULFN/HDKH\DOVR
OHQW WR >/*& 0@ DQ DGGLWLRQDO DIWHU -XQH
´:KHQDVNHGDWWULDODVWRZKDW³VRXUFHV´KHUHOLHGRQ
LQGUDIWLQJWKLVSDUWLFXODULQIRUPDWLRQ(OPRUHVDLG WKDWKH
UHOLHGRQVWDWHPHQWVE\+DOOLGD\/HDKH\DQG%ODFNDVZHOO
DVRQ³DFRS\RIDSURPLVVRU\QRWHIRU´WKDWKH
KDGLQKLVILOHV'HVSLWHWKHIDFWWKDW(OPRUHXQGHUVWRRGWKDW
WKH LQIRUPDWLRQ FRQWDLQHG LQ WKH OHWWHU ZDV WR EH XVHG E\
%ODFNIRUWKHSXUSRVHVRIKHOSLQJ/HDKH\VHFXUHERQGLQJDQG
GHVSLWH WKH IDFW WKDW (OPRUH NQHZ WKDW /HDKH\ KDG
VXERUGLQDWHG KLV ULJKWV LQ WKH PRQH\ WR 7UDYHOHUV (OPRUH
QHYHUUHTXHVWHGQRUUHYLHZHG/*& 0¶V$XJXVW
EDQNVWDWHPHQWZKLFKZRXOGKDYHUHYHDOHGWKDWWKHORDQZDV
QRORQJHURXWVWDQGLQJ
2Q6HSWHPEHU(OPRUHDJDLQSURYLGHG%ODFNYLD
IDFVLPLOHZLWKILQDQFLDOLQIRUPDWLRQRQ/HDKH\¶VFRPSDQLHV
,Q(OPRUH¶VFRYHUOHWWHUKHZURWHDVIROORZV
(QFORVHGDUH³GUDIWFRSLHV´RI>/&&¶VDQG/*& 0¶V@
-XQH ILQDQFLDO VWDWHPHQWV , DP VWLOO LQ WKH
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
QHFHVVDU\WKDWWKHSULQFLSDODFWXDOO\FRQWUROWKHPDQQHU
RUPHDQVRIWKHDJHQW¶VDFWLYLWLHV,WLVRQO\QHFHVVDU\
WKDWWKHSULQFLSDOKDYHWKHULJKWWRGRVR
2YHU'RQQHOO\¶VDQG.H\%DQN¶VWLPHO\REMHFWLRQKRZHYHU
WKHGLVWULFWFRXUWGHFOLQHGWRWHOOWKHMXU\WKDW³>D@SULQFLSDOLV
FKDUJHGZLWKDQGERXQGE\DOONQRZOHGJH REWDLQHGE\KLV
DJHQWZLWKLQWKHVFRSHRIKLVDXWKRULW\DQGLQWKHFRXUVHRIKLV
GXWLHV DV DQ DJHQW´ 7KH FRUUHFWQHVV RI WKH GHIHQGDQWV¶
MXVWLILDEOHUHOLDQFHDUJXPHQWWKHUHIRUHWXUQVRQZKHWKHUWKLV
RPLVVLRQ FRQVWLWXWHG UHYHUVLEOH HUURU DQG LI VR ZKHWKHU
(OPRUH PD\ EHQHILW IURP LW :H EHOLHYH LW GLG FRQVWLWXWH
UHYHUVLEOH HUURU DQG WKDW LQ RXU GLVFUHWLRQ (OPRUH PD\
EHQHILWRQUHPDQG
$OWKRXJKWKHMXU\LQVWUXFWLRQDFFXUDWHO\VHWIRUWKWKHEDVLF
SULQFLSOHVRIDJHQF\ODZLWIDLOHGWRSURYLGHWKHMXU\ZLWKDQ
HVVHQWLDO SLHFH RI WKH SX]]OH²WKH SUDFWLFDO HIIHFW WKDW D
ILQGLQJRIDJHQF\ZRXOGKDYHZLWKUHVSHFWWRWKHLUGHFLVLRQRQ
MXVWLILDEOHUHOLDQFH$VVXFKDQHZWULDOLVUHTXLUHGDVWRWKDW
LVVXH6HH-RQHVY)HGHUDWHG)LQDQFLDO5HVHUYH&RUS
)G WK&LU UHPDQGLQJIRUDQHZWULDO
LQ SDUW EHFDXVH WKH GLVWULFW FRXUW UHMHFWHG WKH DSSHOODQW¶V
UHTXHVWIRUDMXU\LQVWUXFWLRQWKDWZRXOGKDYHLPSXWHGOLDELOLW\
WRDSULQFLSDOSDUW\
³3ODLQ HUURU LV DQ μREYLRXV DQG SUHMXGLFLDO¶ HUURU WKDW
UHTXLUHV DFWLRQ E\ WKH UHYLHZLQJ FRXUW μLQ WKH LQWHUHVWV RI
MXVWLFH¶´5H\QROGV Y *UHHQ)G WK&LU
FLWDWLRQRPLWWHG :KHWKHUWKHGLVWULFWFRXUW¶VHUURULQ
IDLOLQJ WR SURSHUO\ LQVWUXFW WKH MXU\ RQ WKH ODZ RI DJHQF\
FRQVWLWXWHGDQ³REYLRXVDQGSUHMXGLFLDO´HUURUUHTXLULQJDFWLRQ
³LQWKHLQWHUHVWVRIMXVWLFH´LVDFORVHTXHVWLRQ%HFDXVHDQHZ
WULDORQWKLVLVVXHZLOOEHUHTXLUHGDQ\ZD\DVWR'RQQHOO\DQG
.H\%DQNKRZHYHUZHEHOLHYHWKDWWKHLQWHUHVWVRIMXVWLFH
ZRXOGEHVHUYHGE\SHUPLWWLQJ(OPRUHWREHQHILWIURPDUHWULDO
RIWKLVTXHVWLRQ6HH3ODWLVY6WRFNZHOO)G
WK&LU QRWLQJWKDWDFRXUWRIDSSHDOV³KDVGLVFUHWLRQ
WRGLVUHJDUG5XOH´HVSHFLDOO\ZKHQGRLQJVRZRXOGVHUYH
-- 10 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
DJHQW¶V@ DXWKRULW\´ %URZQ Y &KULVWRSKHU ,QQ &R
1(G 2KLR&W$SS
7UDYHOHUV¶VILUVWDUJXPHQWLQUHVSRQVHWRWKHGHIHQGDQWV¶
MXVWLILDEOH UHOLDQFH FKDOOHQJH LV WKDW %ODFN ZDV QRW DFWLQJ
ZLWKLQ WKH VFRSH RI KLV DXWKRULW\ ZKHQ KH OHDUQHG WKDW WKH
ORDQKDGEHHQUHSDLGMXVWGD\VDIWHULWZDVH[WHQGHG
:HILQGWKLVDUJXPHQWXQSHUVXDVLYH7KHDJHQF\DJUHHPHQW
EHWZHHQ 7UDYHOHUV DQG WKH -DPHV % 2VZDOG &RPSDQ\ LQ
HIIHFWDWWKHWLPHJDYH%ODFNDVDQHPSOR\HHRIWKH-DPHV%
2VZDOG&RPSDQ\DXWKRULW\WRDFWDV7UDYHOHUV¶VDJHQWZLWK
UHVSHFWWR³>E@RQGOLQHVLQFOXGLQJILGHOLW\ILGXFLDU\VXUHW\
DQGPDLOLQVXUDQFH´,WDOVRVWDWHGWKDW%ODFNZDV³DXWKRUL]HG
RQ>7UDYHOHUV¶V@EHKDOIWRVROLFLWELQGH[HFXWHDQGVHUYLFH
SROLFLHV DQG HQGRUVHPHQWV IRU WK>RVH@ OLQHV RI LQVXUDQFH
´7KXVLQIRUPDWLRQLQGLFDWLQJWKDW/HDKH\PLJKWQR
ORQJHU EH VDWLVI\LQJ 7UDYHOHUV¶V ERQGLQJ UHTXLUHPHQWV ZDV
FOHDUO\ UHODWHG WR PDWWHUV ZLWKLQ WKH VFRSH RI %ODFN¶V
DXWKRULW\
7UDYHOHUV VHFRQG DUJXPHQW SRVLWLQJ WKDW %ODFN ZDV
³HQJDJHGLQFRPPLWWLQJDQLQGHSHQGHQWIUDXGXOHQWDFWRQKLV
RZQDFFRXQW´LVHTXDOO\XQSHUVXDVLYH%HFDXVHWKHLVVXHRI
LPSXWHGNQRZOHGJHZDVQHYHUSUHVHQWHGWRWKHMXU\LWZDV
QRW JLYHQ WKH RSSRUWXQLW\ WR FRQVLGHU DQ\ H[FHSWLRQV WKDW
PLJKWDSSO\
:LWKUHVSHFWWRWKHMXU\LQVWUXFWLRQWKDWZDVGHOLYHUHGWKH
GLVWULFWFRXUWVWDWHGDVIROORZV
,QGHFLGLQJZKHWKHU>7UDYHOHUV@MXVWLILDEO\UHOLHGRQWKH
VWDWHPHQWV RU IDLOXUHV WR GLVFORVH \RX PD\ FRQVLGHU
ZKHWKHU 'DYLG %ODFN HPSOR\HG E\ WKH -% 2VZDOG
&RPSDQ\DFWHGDVDQDJHQWRI7UDYHOHUV
$ SHUVRQ LV DQ DJHQW RI DQRWKHU FDOOHG WKH SULQFLSDO
ZKHQWKHSULQFLSDOKDVJLYHQWKHDJHQWWKHDXWKRULW\WR
DFW RQ WKH SULQFLSDO¶V EHKDOI DQG WKH SULQFLSDO KDV
UHWDLQHG WKH ULJKW WR FRQWURO WKH PDQQHU RU PHDQV RI
SHUIRUPLQJWKDWDFW)RUDSHUVRQWREHDQDJHQWLWLVQRW
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
SURFHVVRIILQDOL]LQJWKHVHVWDWHPHQWVDQGZLOOSURYLGH
\RXURIILFHZLWKWKHILQDOILQDQFLDOVWDWHPHQWVUHVXOWVDV
VRRQ DV SRVVLEOH $JDLQ 3DWULFN /HDKH\ GLG ORDQ WR
>/*& 0@DQDGGLWLRQDODIWHU-XQH
ZKLFKKDVQRW\HWEHHQGLVFORVHGDVDVXEVHTXHQWHYHQW
RQWKHILQDQFLDOVWDWHPHQW
(OPRUHOHDUQVRIWKHORDQUHSD\PHQW
:LWKLQDZHHNRIWKH6HSWHPEHUIDFVLPLOH(OPRUH
GLVFRYHUHGWKDWWKHORDQKDGDFWXDOO\EHHQUHSDLGRQ
$XJXVW ,QLWVRSLQLRQDQGRUGHUGDWHG$XJXVW
WKHGLVWULFWFRXUWQRWHGWKDWWKH GLVFRYHU\ZDVPDGH
ZKHQ(OPRUH¶VDVVLVWDQW-LP$VKZRUWKZDVILQDOL]LQJWKH
-XQH ILQDQFLDO VWDWHPHQWV $V D UHVXOW RI WKLV
GLVFRYHU\(OPRUHSURPSWO\FRQWDFWHG%ODFNDQGLQIRUPHG
KLPWKDW/*& 0¶V-XQHILQDQFLDOVWDWHPHQWVZRXOG
QRWLQFOXGHDQ\UHIHUHQFHWRWKHORDQ:KHQDVNHG
DWWULDOZK\KHGLGQRWDOVRFRQWDFW+DOOLGD\RU%HQGHUXSRQ
GLVFRYHU\ RI WKH UHSD\PHQW (OPRUH VDLG KH EHOLHYHG WKDW
LQIRUPLQJ%ODFNZDVVXIILFLHQW³:KHQ,WROG'DYH%ODFN,
ZDVWHOOLQJ>7UDYHOHUV@´
2Q2FWREHU(OPRUHDQG%HQGHUPHWWRGLVFXVV
YDULRXVPDWWHUVUHODWLQJWR/*& 0 ,QODWH$XJXVWRI
+DOOLGD\ZDVSURPRWHGDQGWUDQVIHUUHGWR7UDYHOHUV¶V2PDKD
RIILFH %HQGHU KLV VXSHUYLVRU DW WKH WLPH DVVXPHG
UHVSRQVLELOLW\IRU+DOOLGD\¶VRSHQDFFRXQWVLQFOXGLQJWKRVH
UHODWHG WR /*& 0 %HQGHU GLG QRW DVN DERXW QRU GLG
(OPRUHSURYLGHDQXSGDWHRQWKHORDQ
2Q2FWREHU(OPRUHPDLOHGWKHILQDOUHVXOWVRIKLV
UHYLHZ RI /&&¶V DQG /*& 0¶V -XQH ILQDQFLDO
VWDWHPHQWVWR%HQGHU%ODFNDQG/HDKH\1HLWKHUWKHFRYHU
VKHHWQRUWKHVWDWHPHQWVWKHPVHOYHVPDGHDQ\UHIHUHQFHWRWKH
ORDQ %HQGHU WHVWLILHG KRZHYHU WKDW KH GLG QRW
UHFHLYH (OPRUH¶V GHOLYHU\ XQWLO 'HFHPEHU RI 7KH
WHVWLPRQ\ DW WULDO LQGLFDWHG WKDW DOWKRXJK (OPRUH XVHG WKH
DGGUHVV OLVWHG RQ %HQGHU¶V EXVLQHVV FDUG WKH ILQDQFLDO
-- 11 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
VWDWHPHQWVPD\KDYHEHHQGHOLYHUHGWRWKHZURQJ7UDYHOHUV
RIILFH
:KHQ%HQGHUZDVDVNHGDWWULDOZKDWUROHWKH6HSWHPEHU
DQG 6HSWHPEHU GRFXPHQWV IURP (OPRUH
LQGLFDWLQJWKHSUHVHQFHRIWKHORDQ SOD\HGLQKLV
HYDOXDWLRQRIRQHRIWKHFRQVWUXFWLRQSURMHFWVGLVFXVVHGKH
DQVZHUHGDVIROORZV³7KDWZDVFULWLFDOWRPHEHFDXVHDJDLQ
WKH ZKROH ILQDQFLDO EDVLV RI ZULWLQJ WKLV DFFRXQW ZDV WKLV
VXERUGLQDWHGPRQH\WKDWZHKDYHEHHQWDONLQJDERXW´+H
DOVRVWDWHGKRZHYHUWKDWZKHQKHILQDOO\UHFHLYHGWKH-XQH
ILQDQFLDOVWDWHPHQWVDQGQRWLFHGWKDWWKH\GLGQRW
LQFOXGH DQ\ UHIHUHQFH WR WKH ORDQ KH ZDV QRW
DODUPHG³)UDQNO\LWGLGQRWFRQFHUQPH´
5DQDOOR¶VLQYROYHPHQW
,QODWH$XJXVWRI/HDKH\KLUHG-R$QQH5DQDOORWR
VHUYHDVDQLQKRXVHDFFRXQWDQWIRU/&&DQG/*& 0$W
WULDO5DQDOORWHVWLILHGWKDWVKHSUHSDUHGDPRQJRWKHUWKLQJV
WKH EDODQFH VKHHWV IRU /*& 0 DV RI 'HFHPEHU
)HEUXDU\ DQG 0DUFK DOO RI ZKLFK VKH
NQHZZRXOGEHVHQWWR7UDYHOHUV2QHDFKRIWKHVHILQDQFLDO
VWDWHPHQWV 5DQDOOR NQRZLQJO\ PLVVWDWHG FHUWDLQ EDODQFHV
1RWDEO\LQHDFKGRFXPHQWVKHRYHUVWDWHGWKHORQJWHUPQRWHV
SD\DEOH E\ 7KH HIIHFW RI WKLV SDUWLFXODU
PLVVWDWHPHQW ZDV WR IDOVHO\ LQGLFDWH WKDW DV RI WKH DERYH
EDODQFHVKHHWGDWHV/*& 0RZHG/HDKH\7KH
FRQVLVWHGRIWKH-XO\ORDQIRU
DQGDQRWKHUORDQLQWKHDPRXQWRI7KLVODWWHUORDQ
ZDVDOVRWKHUHVXOWRIDUHTXHVWE\7UDYHOHUVEXWZDVQHYHU
DFWXDOO\ GHSRVLWHG LQWR /*& 0¶V DFFRXQWV %HFDXVH ZH
EHOLHYHWKDWWKHFLUFXPVWDQFHVVXUURXQGLQJWKHORDQ
DUHFXPXODWLYHWRWKHORDQDOUHDG\GHWDLOHGZHZLOO
QRWGLVFXVVLWIXUWKHU
:KHQ5DQDOORZDVDVNHGDWWULDODERXWZKRGLUHFWHGKHUWR
LQFRUUHFWO\ VWDWH WKHVH EDODQFHV VKH LQGLFDWHG WKDW LW ZDV
%ODFN ZKR PDGH WKH UHTXHVW ³HYHU\ WLPH >WKH VWDWHPHQWV@
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
REMHFWLRQVE\WKHSDUWLHVDQGWKHDSSHOODQWGLGQRWREMHFWDW
WKDWWLPH
8QGHU FRPPRQ ODZ D SULQFLSDO LV FKDUJHDEOH ZLWK WKH
NQRZOHGJHRIRUQRWLFHWRKLVDJHQWWKDWLVUHFHLYHGE\WKH
DJHQWLQWKHGXHFRXUVHRIKLVHPSOR\PHQWDQGLVUHODWHGWR
WKHPDWWHUVZLWKLQKLVDXWKRULW\6HH6WDWHH[UHO1LFRGHPXV
Y,QGXVWULDO&RPP¶Q1(G 2KLR
)LQNOHY:HVWHUQ 6/LIH,QV&R1(G
2KLR&W$SS ³>7@KHODZLVZHOOVHWWOHGWKDWQRWLFHWR
WKHDJHQWLVQRWLFHWRWKHSULQFLSDO´ $VWKH6XSUHPH&RXUW
RI 2KLR KDV H[SODLQHG KRZHYHU D SULQFLSDO ZLOO QRW EH
UHVSRQVLEOH IRU VXFK NQRZOHGJH RU QRWLFH LQ FHUWDLQ
FLUFXPVWDQFHV
7KHUH LV DQ H[FHSWLRQ WR WKLV UXOH ZKHQ WKH DJHQW LV
HQJDJHGLQFRPPLWWLQJDQLQGHSHQGHQWIUDXGXOHQWDFWRQ
KLVRZQDFFRXQWDQGWKHIDFWVWREHLPSXWHGUHODWHWRWKLV
IUDXGXOHQW DFW ,W LV VRPHWLPHV VDLG WKDW LW FDQQRW EH
SUHVXPHGWKDWDQDJHQWZLOOFRPPXQLFDWHWRKLVSULQFLSDO
DFWVRIIUDXGZKLFKKHKDVFRPPLWWHGRQKLVRZQDFFRXQW
LQWUDQVDFWLQJWKHEXVLQHVVRIKLVSULQFLSDODQGWKDWWKH
GRFWULQHRILPSXWHGNQRZOHGJHUHVWVXSRQDSUHVXPSWLRQ
WKDWDQDJHQWZLOOFRPPXQLFDWHWRKLVSULQFLSDOZKDWHYHU
KH NQRZV FRQFHUQLQJ WKH EXVLQHVV KH LV HQJDJHG LQ
WUDQVDFWLQJDVDJHQW,WKDVEHHQVXJJHVWHGWKDWWKH
WUXHUHDVRQIRUWKHH[FHSWLRQLVWKDWDQLQGHSHQGHQWIUDXG
FRPPLWWHGE\DQDJHQWRQKLVRZQDFFRXQWLVEH\RQGWKH
VFRSHRIKLVHPSOR\PHQWDQGWKHUHIRUHNQRZOHGJHRILW
DVPDWWHURIODZFDQQRWEHLPSXWHGWRWKHSULQFLSDODQG
WKH SULQFLSDO FDQQRW EH KHOG UHVSRQVLEOH IRU LW
:KDWHYHU WKH UHDVRQ PD\ EH WKH H[FHSWLRQ LV ZHOO
HVWDEOLVKHG
$PHULFDQ([SRUW ,QODQG&RDO&RUSY0DWWKHZ$GG\&R
1( 2KLR ,QDQ\FDVH³>D@SDUW\ZKR
FODLPV WKDW D SULQFLSDO LV UHVSRQVLEOH IRU WKH DFWV RI DQ
HPSOR\HHLVREOLJDWHGWRSURYHWKHDJHQF\DQGVFRSHRI>WKH
-- 12 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
LQWKHFRXUVHDQGIXUWKHUDQFHRIDVFKHPHWRGHIUDXGLVQRW
LPSXWHGWRWKHSULQFLSDO´
$W WKH RXWVHW ZH QRWH WKDW ZLWK UHVSHFW WR (OPRUH WKH
GLVWULFWFRXUW¶VIDLOXUHWRLQVWUXFWRQLPSXWHGNQRZOHGJHPXVW
EHUHYLHZHGXQGHUWKH³SODLQHUURU´VWDQGDUG6HH5H\QROGV
Y*UHHQ)G WK&LU QRWLQJWKDWD
IDLOXUHWRREMHFWWRDMXU\LQVWUXFWLRQPD\VWLOOEHUHYLHZHGIRU
³SODLQHUURU´ $IWHUWKHGLVWULFWFRXUWLQVWUXFWHGWKHMXU\WKH
SDUWLHVZHUHDVNHGZKHWKHUWKH\KDGDQ\REMHFWLRQV(OPRUH
VWDWHGWKDW³KHKDVQRH[FHSWLRQVWRWKHLQVWUXFWLRQV´(OPRUH
QRZDUJXHVWKDW³7UDYHOHUVRIIHUVQRVXSSRUWIRULWVDUJXPHQW
WKDW ERWK GHIHQGDQWV PXVW VSHFLILFDOO\ REMHFW WR D FOHDUO\
HUURQHRXVMXU\FKDUJH´
(OPRUH KRZHYHU LPSURSHUO\ SODFHV WKH EXUGHQ RQ
7UDYHOHUV +H IDLOHG WR UHTXHVW WKH LPSXWHGNQRZOHGJH
LQVWUXFWLRQ DQG KDV QRW DVVHUWHG WKDW WKH GLVWULFW FRXUW ZDV
DZDUHRIKLVGLVVDWLVIDFWLRQZLWKWKHMXU\LQVWUXFWLRQVDVJLYHQ
6HH3UHIHUUHG5;,QFY$PHULFDQ3UHVFULSWLRQ3ODQ,QF
)G WK&LU ³7KHODZLQWKLVFLUFXLW
JHQHUDOO\UHTXLUHVDIRUPDOREMHFWLRQZKLFKVKRXOGLQPRVW
FLUFXPVWDQFHV EH PDGH ERWK EHIRUH DQG DIWHU WKH MXU\
LQVWUXFWLRQVDUHUHDGWRWKHMXU\$QH[FHSWLRQWRWKLVUXOH
RFFXUVRQO\ZKHQLWLVSODLQO\DSSDUHQWIURPWKHGLVFXVVLRQ
EHWZHHQWKHSDUWLHVDQGWKHMXGJHWKDWWKHMXGJHZDVDZDUHRI
DSDUW\¶VGLVVDWLVIDFWLRQZLWKWKHLQVWUXFWLRQDVUHDGWRWKH
MXU\ DQG WKH VSHFLILF EDVLV IRU WKDW FODLPHG HUURU RU
RPLVVLRQ´ VHHDOVR)(' 5 &,9 3
(OPRUH¶VIXUWKHUFRQWHQWLRQWKDWDQ\REMHFWLRQZRXOGKDYH
EHHQIXWLOHLVXQSHUVXDVLYH:KHUHDVKHUHWKHGLVWULFWFRXUW
VSHFLILFDOO\DVNHGWKHSDUWLHVLPPHGLDWHO\DIWHUGHOLYHULQJWKH
MXU\ LQVWUXFWLRQV ZKHWKHU WKH\ KDG DQ\ REMHFWLRQV DQ
DUJXPHQWRIIXWLOLW\ZLOOQRWVWDQG6HH&RRSHU'LVWULE&R
Y $PDQD 5HIULJHUDWLRQ ,QF )G G &LU
UHMHFWLQJDIXWLOLW\DUJXPHQWZKHQLPPHGLDWHO\DIWHU
JLYLQJLWVLQVWUXFWLRQVWKHGLVWULFWFRXUWH[SUHVVO\LQYLWHGDQ\
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
ZHUHLVVXHG´6KHODWHUUHIHUUHGWR%ODFNDV³DUHSUHVHQWDWLYH
RI>7UDYHOHUV@´5DQDOORDOVRWHVWLILHGWKDWERWK/HDKH\
DQG(OPRUHZHUHDZDUHRIWKHVLWXDWLRQ
4 'LG \RX HYHU KDYH DQ\ FRQYHUVDWLRQV ZLWK 0U
(OPRUHFRQFHUQLQJWKHVHILQDQFLDOVWDWHPHQWVZHKDYH
MXVWWDONHGDERXW"
$ ,EHOLHYHLQLWLDOO\\HV
4 'LG 0U (OPRUH NQRZ WKDW \RX ZHUH SUHSDULQJ
ILQDQFLDOVWDWHPHQWVWKDWZRXOGPLVUHSUHVHQWWKHILQDQFLDO
FRQGLWLRQRI>/*& 0@"
$ <HV
4 'LG\RXWHOOKLP\RXZHUHGRLQJVR"
$ ,WROGKLP,ZDVLQVWUXFWHGWRGRVR
4 6RKHNQHZZKDW\RXZHUHGRLQJ"
$ <HV
4 $QG/HDKH\NQHZZKDW\RXZHUHGRLQJ"
$ <HV
'XULQJFURVVH[DPLQDWLRQKRZHYHU5DQDOORDFNQRZOHGJHG
WKDW (OPRUH GLG QRW DVVLVW KHU LQ SUHSDULQJ WKH ILQDQFLDO
VWDWHPHQWV 6KH DOVR IDLOHG WR VWDWH ZKHQ VKH KDG WKHVH
FRQYHUVDWLRQVZLWK(OPRUH
7UDYHOHUVLVVXHVVXUHW\ERQGVWR/*& 0
7UDYHOHUV EHJDQ LWV ERQGLQJ DFWLYLWLHV IRU /*& 0 LQ
$XJXVWRIZKHQLWDXWKRUL]HGEXWHYHQWXDOO\GLGQRW
LVVXHDVXUHW\ERQGIRUD8QLWHG6WDWHV3RVW2IILFHSURMHFW
:KHQ +DOOLGD\ ZDV DVNHG DW WULDO WR GHVFULEH KRZ WKH
DXWKRUL]DWLRQ ZDV REWDLQHG KH UHVSRQGHG DV IROORZV ³,
-- 13 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
GLVFXVVHGLWZLWK%HQGHUP\GLUHFWPDQDJHUZKRGLG
KDYH WKDW DXWKRULW\ $QG ZLWK P\ UHFRPPHQGDWLRQ ZH
DJUHHGWRGRWKDWSURMHFWEDVHGRQWKHIDFWWKDW>/HDKH\@KDG
SXWLQDQGVXERUGLQDWHGWRXV´
7KH ILUVW DFWXDO LVVXDQFH RI D VXUHW\ ERQG RFFXUUHG RQ
6HSWHPEHUZLWKUHVSHFWWRWKH/DNHODQG&RPPXQLW\
&ROOHJH SURMHFW 6XEVHTXHQW WR WKDW WUDQVDFWLRQ /*& 0
GHIDXOWHG RQ WKH IROORZLQJ WKUHH FRQVWUXFWLRQ SURMHFWV IRU
ZKLFK7UDYHOHUVKDGSURYLGHGVXUHW\ERQGLQJ 0DGLVRQ
:DVWH:DWHU7UHDWPHQW)DFLOLW\LQWKHDPRXQWRI
8QLYHUVLW\RI7ROHGRLQWKHDPRXQWRIDQG
.LUNKDP 3ODFH /LPLWHG 3DUWQHUVKLS LQ WKH DPRXQW RI
%RQGLQJLQWKHDPRXQWRIIRUWKH
0DGLVRQ SURMHFW ZDV LQLWLDOO\ DSSURYHG RQ 6HSWHPEHU
EXW WKH ³ERQG GDWH´ ZDV 1RYHPEHU 7KH
7ROHGRSURMHFWERQGLQJZDVDSSURYHGRQ2FWREHUEXW
WKH DPRXQW ZDV QRW ³VXEPLWWHG E\ WKH 3ULQFLSDO WR WKH
2EOLJHH´XQWLO2FWREHU)LQDOO\7UDYHOHUVDSSURYHG
WKH .LUNKDP 3ODFH ERQGLQJ RQ )HEUXDU\ ZKLFK
DSSHDUVWRKDYHEHHQWKHVDPHGDWHWKDWWKHERQGVEHFDPH
³HIIHFWLYH´ 7UDYHOHUV DVVHUWHG DW WULDO WKDW EXW IRU WKH
SUHVHQFHRIWKHDGGLWLRQDOLWZRXOGQRWKDYHLVVXHG
VXUHW\ERQGVWR/*& 0RQDQ\RIWKHVHSURMHFWV
% 3URFHGXUDOKLVWRU\
2Q-XQH7UDYHOHUVILOHGDFRPSODLQWDJDLQVW/&&
/*& 0/HDKH\DQG/HDKH\¶VZLIH6XVDQ/HDKH\DQGKLV
ZLIHKRZHYHUILOHGIRUEDQNUXSWF\LQ$SULODQG$XJXVWRI
UHVSHFWLYHO\$GHIDXOWMXGJPHQWLQWKHDSSUR[LPDWH
DPRXQWRIZDVHQWHUHGDJDLQVW/&&DQG/*& 0
RQ 2FWREHU EXW LW DSSHDUV WKDW QHLWKHU HQWLW\ KDG
DVVHWVDYDLODEOHWRVDWLVI\WKHMXGJPHQW
2Q 'HFHPEHU 7UDYHOHUV ILOHG DQ DPHQGHG
FRPSODLQW DGGLQJ .H\%DQN .H\&RUS .H\%DQN¶V SDUHQW
FRUSRUDWLRQ 'RQQHOO\%HUVWLFNHUDQG(OPRUHDVGHIHQGDQWV
7UDYHOHUV DVVHUWHG WKH IROORZLQJ 2KLR VWDWH ODZ FODLPV
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
8QGHU 2KLR ODZ WKH HOHPHQWV RI IUDXG DUH D
UHSUHVHQWDWLRQ RU ZKHUH WKHUH LV D GXW\ WR GLVFORVH
FRQFHDOPHQWRIDIDFW ZKLFKLVPDWHULDOWRWKHWUDQVDFWLRQ
DWKDQG PDGHIDOVHO\ZLWKNQRZOHGJHRILWVIDOVLW\RU
ZLWKVXFKXWWHUGLVUHJDUGDQGUHFNOHVVQHVVDVWRZKHWKHULWLV
WUXH RU IDOVH WKDW NQRZOHGJH PD\ EH LQIHUUHG ZLWK WKH
LQWHQW RI PLVOHDGLQJ DQRWKHU LQWR UHO\LQJ XSRQ LW
MXVWLILDEOH UHOLDQFH XSRQ WKH UHSUHVHQWDWLRQ RU
FRQFHDOPHQWDQG DUHVXOWLQJLQMXU\SUR[LPDWHO\FDXVHGE\
WKHUHOLDQFH6HH&RKHQY/DPNR,QF1(G
2KLR 'RQQHOO\.H\%DQNDQG(OPRUHIRFXVWKHLU
DSSHDORQWKHODVWWZRHOHPHQWV
D -XVWLILDEOHUHOLDQFH
7KHGHIHQGDQWVFRQWHQGWKDWWKH\FDQQRWEHKHOGOLDEOHIRU
WKHORVVHVLQFXUUHGLQFRQQHFWLRQZLWKWKRVHSURMHFWVERQGHG
DIWHU (OPRUH LQIRUPHG %ODFN WKDW WKH ORDQ KDG
DFWXDOO\EHHQUHSDLG7KH\IXUWKHUQRWHWKDW5DQDOORWHVWLILHG
WKDWDVHDUO\DV'HFHPEHUVKHZDVLQVWUXFWHGE\
%ODFNWRIDOVHO\UHSRUWWKHH[LVWHQFHRIWKHORDQRQWKHEDODQFH
VKHHWV RI /*& 0 7KH GHIHQGDQWV DUJXH WKDW %ODFN¶V
NQRZOHGJH RI WKH UHSD\PHQW VKRXOG KDYH EHHQ LPSXWHG WR
7UDYHOHUV EDVHG RQ ZHOOVHWWOHG DJHQF\ SULQFLSOHV 7KH\
FRQWHQGWKHUHIRUHWKDWLWZDVHUURUIRUWKHGLVWULFWFRXUWWR
UHIXVHWRLQVWUXFWWKHMXU\WKDWNQRZOHGJHREWDLQHGE\DQDJHQW
LVFKDUJHDEOHWRKLVSULQFLSDO
,QUHVSRQVHWR(OPRUH¶VDSSHDO7UDYHOHUV¶VFRQWHQGVDQG
(OPRUH GRHV QRW GLVSXWH WKDW (OPRUH IDLOHG WR UHTXHVW DQ
LPSXWHGNQRZOHGJHLQVWUXFWLRQ+HDOVRGLGQRWREMHFWWRWKH
MXU\LQVWUXFWLRQVLQJHQHUDO:LWKUHVSHFWWR'RQQHOO\¶VDQG
.H\%DQN¶VDVVHUWLRQ7UDYHOHUVPDLQWDLQVWKDWWKHIDFWVRIWKH
FDVHGRQRWVXSSRUWWKHJLYLQJRIVXFKDQLQVWUXFWLRQ)LUVWLW
FRQWHQGV WKDW %ODFN¶V DJHQF\ DXWKRULW\ ZDV WRR OLPLWHG WR
SHUPLW LPSXWDWLRQ RI VXFK NQRZOHGJH WR WKH SULQFLSDO
6HFRQGLWFODLPVWKDW³>W@KHHYLGHQFHDWWULDOHVWDEOLVKHGWKDW
%ODFNZDVDQDFWLYHSDUWLFLSDQWLQWKHVFKHPHE\WKH/HDKH\V
WRGHIUDXG7UDYHOHUV´DQGWKDW³NQRZOHGJHJDLQHGE\DQDJHQW
-- 14 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
E 6XEVWDQWLDODVVLVWDQFH
%HFDXVHZHFRQFOXGHWKDWWKHMXU\¶VILQGLQJWKDW(OPRUH
NQHZRI/HDKH\¶VWRUWLRXVFRQGXFWLVQRWVXSSRUWHGE\WKH
HYLGHQFH ZH QHHG QRW DGGUHVV (OPRUH¶V FKDOOHQJH WR WKH
VXIILFLHQF\ RI WKH HYLGHQFH VXSSRUWLQJ WKH VXEVWDQWLDO
DVVLVWDQFHSURQJ
(OPRUH¶V PRWLRQ IRU MXGJPHQW DV D PDWWHU RI
ODZ²IUDXG
(OPRUH¶VPRWLRQIRUMXGJPHQWDVDPDWWHURIODZZDVDOVR
GLUHFWHGDW7UDYHOHUV¶VFODLPWKDW(OPRUHKLPVHOIFRPPLWWHG
IUDXG+HEDVLFDOO\UHSHDWVWKHFRQWHQWLRQVVHWIRUWKLQ3DUW
,,$ DERYH UDWKHU WKDQ IRFXV RQ KLV DOOHJHG
PLVUHSUHVHQWDWLRQV+RZHYHUIRUWKHUHDVRQVVHWIRUWKLQWKDW
3DUW LH KLV ODFN RI SULRU NQRZOHGJH UHJDUGLQJ /HDKH\¶V
IUDXG ZHFRQFOXGHWKDWWKHHYLGHQFHGRHVQRWVXSSRUWWKH
MXU\¶V ILQGLQJ WKDW (OPRUH KLPVHOI HQJDJHG LQ IUDXG 7KH
GLVWULFWFRXUWWKHUHIRUHHUUHGLQQRWJUDQWLQJ(OPRUH¶VPRWLRQ
IRUMXGJPHQWDVDPDWWHURIODZRQWKLVLVVXH
7KHGHIHQGDQWV¶PRWLRQVIRUMXGJPHQWDVDPDWWHURI
ODZ²MXVWLILDEOH UHOLDQFH DQG SUR[LPDWH FDXVDWLRQ
ZLWKUHVSHFWWR/HDKH\¶VIUDXG
:LWKWKHH[FHSWLRQRIWKHLQGHSHQGHQWFODLPRIIUDXGOHYLHG
DJDLQVW(OPRUHDOORIWKHIUDXGUHODWHGFDXVHVRIDFWLRQLQWKLV
FDVH LHWKHDLGLQJDQGDEHWWLQJDQGWKHFRQVSLUDF\FODLPV
DUH EDVHG RQ /HDKH\¶V GHDOLQJV ZLWK 7UDYHOHUV 7KH
GHIHQGDQWV KDYH QHYHU GHQLHG WKDW /HDKH\¶V DFWLRQV ZHUH
IUDXGXOHQW7KHLUPRWLRQVIRUMXGJPHQWDVDPDWWHURIODZ
KRZHYHULQFOXGHGDUJXPHQWVWRWKHHIIHFWWKDWWKHDLGLQJDQG
DEHWWLQJDQGWKHFRQVSLUDF\FKDUJHVFDQQRWVWDQGEHFDXVHWKH
XQGHUO\LQJ FDXVH RI DFWLRQ IRU /HDKH\¶V IUDXG ODFNHG WZR
HVVHQWLDO HOHPHQWV MXVWLILDEOH UHOLDQFH DQG SUR[LPDWH
FDXVDWLRQ$OWKRXJKWKHGLVWULFWFRXUWGHQLHGWKHGHIHQGDQWV¶
SRVWWULDOPRWLRQVLQWKHLUHQWLUHW\WKH'HFHPEHU
RUGHUGRHVQRWLQFOXGHDQ\DQDO\VLVRIWKHMXVWLILDEOHUHOLDQFH
DQGSUR[LPDWHFDXVDWLRQLVVXHV
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
IUDXGDLGLQJDQGDEHWWLQJIUDXGDQGFRQVSLUDF\WRFRPPLW
IUDXG DJDLQVW .H\%DQN .H\&RUS 'RQQHOO\ DQG (OPRUH
QHJOLJHQFHRQWKHSDUWRI(OPRUH WRUWLRXVLQWHUIHUHQFH
ZLWK SURVSHFWLYH EXVLQHVV DGYDQWDJH DJDLQVW .H\%DQN
.H\&RUS DQG 'RQQHOO\ WRUWLRXV LQWHUIHUHQFH ZLWK
FRQWUDFW DJDLQVW .H\%DQN .H\&RUS DQG 'RQQHOO\
IUDXGXOHQW WUDQVIHU RI DJDLQVW .H\%DQN
.H\&RUS DQG 'RQQHOO\ TXLD WLPHW H[RQHUDWLRQ DQG
LQGHPQLW\DJDLQVWDOORIWKHGHIHQGDQWV EUHDFKRIFRQWUDFW
DJDLQVW/HDKH\ EUHDFKRIILGXFLDU\GXW\RQWKHSDUWRIDOO
RIWKHGHIHQGDQWV FRQYHUVLRQDJDLQVW/HDKH\DQGKLVZLIH
DQG IUDXGXOHQW WUDQVIHU RI DSSUR[LPDWHO\
DJDLQVW.H\%DQN.H\&RUSDQG'RQQHOO\
2Q 0D\ WKH GHIHQGDQWV PRYHG IRU VXPPDU\
MXGJPHQWRQDOOFODLPV,QDQRSLQLRQDQGRUGHUGDWHG$XJXVW
WKHGLVWULFWFRXUWJUDQWHGLQSDUWDQGGHQLHGLQSDUW
WKH GHIHQGDQWV¶ PRWLRQ 6SHFLILFDOO\ WKH GLVWULFW FRXUW
JUDQWHGVXPPDU\MXGJPHQWWRWKHGHIHQGDQWVZLWKUHVSHFWWR
7UDYHOHUV¶V WKLUG IRXUWK DQG ILIWK FODLPV DQG GHQLHG
VXPPDU\MXGJPHQWLQDOORWKHUUHVSHFWV/DWHULQ$XJXVWRI
WKHGLVWULFWFRXUWSXUVXDQWWRDQDJUHHPHQWEHWZHHQWKH
SDUWLHVGLVPLVVHG%HUVWLFNHUIURPWKHDFWLRQ6RRQWKHUHDIWHU
7UDYHOHUVYROXQWDULO\GLVPLVVHGWKHWHQWKFODLP
2Q$XJXVW.H\%DQN.H\&RUSDQG'RQQHOO\
ILOHGDPRWLRQLQOLPLQHUHTXHVWLQJWKDWWKHFRXUWOLPLWWKH
WHVWLPRQ\RI7UDYHOHUV¶VEDQNLQJH[SHUW'U'RXJODV$XVWLQ
$PRQJ RWKHU WKLQJV WKH\ FRQWHQGHG WKDW ³EHFDXVH $XVWLQ
ODFNVERQGLQJH[SHUWLVHKHVKRXOGQRWEHSHUPLWWHGWRRSLQH
RQZKDWDERQGLQJXQGHUZULWHU VXFKDV7UDYHOHUV ZRXOGUHO\
RQLQHYDOXDWLQJDERQGLQJULVN´,QUHVSRQVHWRWKHPRWLRQ
7UDYHOHUV DFNQRZOHGJHG WKDW 'U $XVWLQ ZDV QRW D ERQG
XQGHUZULWLQJH[SHUWEXWDUJXHGWKDWKHFRXOGVWLOOWHVWLI\DVWR
FHUWDLQUHODWHGPDWWHUV
'U $XVWLQ GRHV KDYH NQRZOHGJH DERXW ERQG
XQGHUZULWLQJ DQG KH VKRXOG QRW EH SUHFOXGHG IURP
WHVWLI\LQJLQWKDWUHJDUGLQRUGHUWRH[SODLQKLVRSLQLRQV
-- 15 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
DVWRZK\WKH.H\%DQNGHIHQGDQWVDFWHGUHFNOHVVO\LQ
VXSSRUWRIWKHSODLQWLII¶VIUDXGFODLPV
6LQFH'U$XVWLQKDVDFNQRZOHGJHGWKDWKHLVQRWDERQG
XQGHUZULWLQJH[SHUWKHZLOOQRWEHDVNHGDWWULDOWRRSLQH
XSRQ WKH ERQG XQGHUZULWLQJ DFWLYLWLHV RI >7UDYHOHUV@¶V
XQGHUZULWHUV 'U $XVWLQ ZLOO QRW ³RSLQH RQ ZKDW D
ERQGLQJFRPSDQ\ZRXOGUHO\RQLQXQGHUZULWLQJDERQG´
-XVWEHIRUHWULDOWKHGLVWULFWFRXUWGHQLHGWKHPRWLRQLQOLPLQH
QRWLQJ WKDW ³>I@URP WKH PDWHULDOV VXEPLWWHG WR PH ,
XQGHUVWDQG WKDW >7UDYHOHUV@ DW WKLV SRLQW LQ WLPH GRHV QRW
VHHNWRPDNHLQTXLU\RI'U$XVWLQFRQFHUQLQJXQGHUZULWLQJ
PDWWHUV´7KHGLVWULFWFRXUWPDGHFOHDUKRZHYHUWKDWWKH
GHQLDO ZDV ³VXEMHFW WR D ODWHU UHYLHZ LQ WKH FRQWH[W RI WKH
WULDO´
2Q$XJXVWWKHMXU\WULDOEHJDQ$WWKHFORVHRI
7UDYHOHUV¶VFDVHLQFKLHIWKHGLVWULFWFRXUWJUDQWHG(OPRUH¶V
PRWLRQIRUMXGJPHQWDVDPDWWHURIODZDVWRWKHFRQVSLUDF\
WRFRPPLWIUDXG FODLP 7KH GLVWULFW FRXUW DOVR UXOHG VXD
VSRQWH WKDW WKHUH ZDV LQVXIILFLHQW HYLGHQFH WR VXSSRUW DQ
DZDUGRISXQLWLYHGDPDJHVDJDLQVWDQ\RIWKHGHIHQGDQWV$W
WKHFORVHRIDOORIWKHHYLGHQFHWKHGLVWULFWFRXUWGHQLHGWKH
GHIHQGDQWV¶UHQHZHGPRWLRQVIRUMXGJPHQWDVDPDWWHURIODZ
2Q6HSWHPEHUWKHMXU\UHWXUQHGDYHUGLFWDJDLQVW
'RQQHOO\DQG.H\%DQNIRUDLGLQJDQGDEHWWLQJIUDXGDQGIRU
FRQVSLUDF\WRFRPPLWIUDXGDQGUHWXUQHGDYHUGLFWDJDLQVW
(OPRUHIRUIUDXGDLGLQJDQGDEHWWLQJIUDXGDQGQHJOLJHQFH
1RYHUGLFWZDVUHQGHUHGDJDLQVW.H\&RUSDQGLWDSSHDUVDV
WKRXJK WKDW SDUWLFXODU HQWLW\ LV QR ORQJHU LQYROYHG LQ WKLV
FDVH
,Q DQVZHU WR WKH GLVWULFW FRXUW¶V LQWHUURJDWRULHV WKH MXU\
VSHFLILFDOO\IRXQGWKDW'RQQHOO\KDG³DFWXDONQRZOHGJH´RI
/HDKH\¶V IUDXG DQG WKDW 'RQQHOO\ ³NQRZLQJO\ SURYLGHG
VXEVWDQWLDODVVLVWDQFH´LQIXUWKHUDQFHRIWKDWIUDXG,WZDV
XQDEOH WR UHDFK D YHUGLFW KRZHYHU DV WR 'RQQHOO\¶V DQG
.H\%DQN¶V RZQ DOOHJHG IUDXG 7KH MXU\ DQVZHUHG
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
HYLGHQFHIURPZKLFKWKHMXU\FRXOGUHDVRQDEOHLQIHUWKDWDW
WKH WLPH (OPRUH PDGH KLV PLVUHSUHVHQWDWLRQV KH KDG WKH
NQRZOHGJHUHIHUUHGWRDERYH$OWKRXJK5DQDOORWHVWLILHGWKDW
(OPRUH NQHZ WKDW VKH ZDV PLVVWDWLQJ /*& 0¶V ILQDQFLDO
VWDWHPHQWVVKHGLGQRWLQGLFDWHZKHQ(OPRUHEHFDPHDZDUH
RIKHUDFWLRQV,QIDFW5DQDOOR¶VFRPPHQWVZHUHPDGHZLWK
UHVSHFWWREDODQFHVKHHWVGDWHG'HFHPEHU)HEUXDU\
DQG 0DUFK +HU WHVWLPRQ\ GLG QRW
HVWDEOLVKWKDW/HDKH\ZDVDZDUHRIDQ\ILQDQFLDOLUUHJXODULWLHV
SULRU WR WKH GDWH KH KLPVHOI OHDUQHG RI WKH ORDQ
UHSD\PHQWLQODWH6HSWHPEHURI
1RQHRIWKHHYLGHQFHFLWHGE\7UDYHOHUVLQVXSSRUWRIWKH
MXU\¶VDLGLQJDQGDEHWWLQJILQGLQJVXSSRUWVWKHFRQFOXVLRQWKDW
(OPRUHNQHZSULRUWRRUDWWKHWLPHRIKLVPLVUHSUHVHQWDWLRQV
WKDW /HDKH\ KDG HQJDJHG LQ WRUWLRXV FRQGXFW ,Q IDFW
(OPRUH¶VDFWRISURPSWO\FRQWDFWLQJ%ODFNLQ6HSWHPEHURI
ZKHQ(OPRUHILUVWOHDUQHGRI/HDKH\¶VPLVUHSUHVHQWDWLRQ
IDYRUVDILQGLQJWKDWKHODFNHGSULRUNQRZOHGJHRI/HDKH\¶V
IUDXG6HH&DPS)GDW QRWLQJWKDWIDFHGZLWKDQ
DLGLQJ DQG DEHWWLQJ DOOHJDWLRQ WKH GHIHQGDQW¶V ODFN RI
NQRZOHGJHZDVGHPRQVWUDWHGE\KLVDFWLRQVXSRQGLVFRYHULQJ
LPSURSHU FRQGXFW ZKLFK LQFOXGHG FRQWDFWLQJ WZR RWKHU
GHIHQGDQWV DQG QRWLI\LQJ WKH SODLQWLII¶V DWWRUQH\
)XUWKHUPRUH (OPRUH¶V GHFLVLRQ WR IRUHJR FRQWDFWLQJ
7UDYHOHUV GLUHFWO\ DQG KLV IDLOXUH WR UDLVH WKH LVVXH ZLWK
%HQGHU DW WKHLU 2FWREHU PHHWLQJ GR QRW SURYLGH
DGHTXDWHHYLGHQFHIURPZKLFKDMXU\FRXOGUHDVRQDEO\LQIHU
(OPRUH¶V SULRU NQRZOHGJH RI /HDKH\¶V IUDXG $V (OPRUH
WHVWLILHGKHEHOLHYHGWKDW³>Z@KHQ,WROG'DYH%ODFN,ZDV
WHOOLQJ>7UDYHOHUV@´
:H WKHUHIRUH FRQFOXGH WKDW WKH GLVWULFW FRXUW HUUHG LQ
GHQ\LQJ(OPRUH¶VPRWLRQIRUMXGJPHQWDVDPDWWHURIODZRQ
WKHDLGLQJDQGDEHWWLQJFODLPDJDLQVWKLP
-- 16 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
DQG.H\%DQN¶VPRWLRQIRUMXGJPHQWDVDPDWWHURIODZRQWKH
FRQVSLUDF\WRFRPPLWIUDXGFODLP
(OPRUH¶V PRWLRQ IRU MXGJPHQW DV D PDWWHU RI
ODZ²DLGLQJDQGDEHWWLQJ
7XUQLQJ QRZ WR (OPRUH¶V DSSHDO KH ILUVW FKDOOHQJHV WKH
GLVWULFWFRXUW¶VUXOLQJWKDWWKHHYLGHQFHVXIILFLHQWO\HVWDEOLVKHG
KLVOLDELOLW\IRUDLGLQJDQGDEHWWLQJ/HDKH\/LNH'RQQHOO\
DQG.H\%DQN(OPRUHFRQWHQGVWKDWQHLWKHUWKHNQRZOHGJH
QRU WKH VXEVWDQWLDO DVVLVWDQFH HOHPHQWV ZDV SURYHQ E\ WKH
HYLGHQFHDWWULDO(OPRUH¶VDUJXPHQWVHVVHQWLDOO\PLUURUWKRVH
RI'RQQHOO\DQG.H\%DQN
D .QRZOHGJH
(OPRUHVXPPDUL]HVKLVDUJXPHQWDVIROORZV³(OPRUH¶V
DZDUHQHVVWKDW/HDKH\FODLPHGKHZDVERUURZLQJPRQH\RQ
D VKRUW WHUP >EDVLV@ IRU ERQGLQJ SXUSRVHV ZDV VLPSO\ QRW
VXIILFLHQWWRSURYHWKDW(OPRUHKDGDFWXDONQRZOHGJHWKDW
/HDKH\ZDVGHIUDXGLQJ7UDYHOHUV´ (PSKDVLVLQRULJLQDO
$V GLVFXVVHG SUHYLRXVO\ IRU WKH SXUSRVH RI HVWDEOLVKLQJ
DLGLQJ DQG DEHWWLQJ OLDELOLW\ NQRZOHGJH PD\ EH VKRZQ E\
FLUFXPVWDQWLDOHYLGHQFH6HH0HWJHY%DHKOHU)G
WK &LU :HDJUHHZLWK7UDYHOHUV¶VYLHZWKDW
WKHUHZDVVXIILFLHQWFLUFXPVWDQWLDOHYLGHQFHIURPZKLFKDMXU\
FRXOG UHDVRQDEO\ LQIHU WKDW DW VRPH SRLQW (OPRUH EHFDPH
DZDUH WKDW /HDKH\ ZDV HQJDJHG LQ WRUWLRXV FRQGXFW $V
7UDYHOHUV QRWHV LQ LWV EULHI 5DQDOOR /*& 0¶V LQKRXVH
DFFRXQWDQWWHVWLILHGWKDWVKHWROG(OPRUHWKDWVKHKDGEHHQ
LQVWUXFWHGWRPLVUHSUHVHQWWKHILQDQFLDOFRQGLWLRQRI/*& 0
DQGWKDWKHZDVWKHUHIRUHIXOO\DZDUHRIWKDWIDFW%DVHGRQ
WKLVWHVWLPRQ\DORQHZKLFKWKHMXU\ZDVHQWLWOHGWRFUHGLWZH
EHOLHYHWKDWWKHMXU\FRXOGUHDVRQDEO\LQIHUWKDW(OPRUHNQHZ
RI/HDKH\¶VWRUWLRXVFRQGXFW
:H FDQQRW IXUWKHU FRQFOXGH KRZHYHU WKDW WKH HYLGHQFH
VXSSRUWV WKH MXU\¶V XOWLPDWH ILQGLQJ WKDW (OPRUH DLGHG DQG
DEHWWHG LQ /HDKH\¶V IUDXG 7KH UHFRUG LV GHYRLG RI DQ\
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
³´ WR WKH IROORZLQJ TXHVWLRQ ³6WDWH WKH WRWDO
DPRXQWRIGDPDJHVVXVWDLQHGE\>7UDYHOHUV@ZKLFK\RXILQG
KDYHUHVXOWHGIURPWKHIUDXGRI'RQQHOO\RU.H\%DQNRU
WKDW UHVXOWHG IURP IUDXG E\ 3DWULFN RU 6XVDQ /HDKH\ DV WR
ZKLFK'RQQHOO\RU.H\%DQNDLGHGRUDEHWWHG´ ,WGRHV
QRWDSSHDUWKDWWKHMXU\ZDVSUHVHQWHGLQWHUURJDWRULHVZLWK
UHVSHFW WR WKH DOOHJDWLRQ WKDW 'RQQHOO\ DQG .H\%DQN
FRQVSLUHGZLWK/HDKH\ ,QLWVMXGJPHQWKRZHYHUWKHGLVWULFW
FRXUWGHFODUHGWKDWWKHMXU\³UHWXUQHGDQDZDUGRIGDPDJHV´
LQWKHDPRXQWRI³RQWKHLVVXHVRIFRQVSLUDF\DQG
DLGLQJDQGDEHWWLQJ´
:LWK UHVSHFW WR WKH DOOHJDWLRQV RI IUDXG RQ WKH SDUW RI
(OPRUH WKH MXU\ IRXQG WKDW KH ³KDG DFWXDO NQRZOHGJH RI
LPSRUWDQW RU QHFHVVDU\ LQIRUPDWLRQ DERXW WKH /HDKH\V¶
ILQDQFLDO FRQGLWLRQ´ DQG WKDW KH HLWKHU PDGH D IDOVH
UHSUHVHQWDWLRQWRRUFRQFHDOHGDNQRZQIDFWIURP7UDYHOHUV
7KHMXU\DOVRVSHFLILFDOO\IRXQGWKDW7UDYHOHUVKDGSURYHQWKH
HOHPHQWVRIFLYLODLGLQJDQGDEHWWLQJZLWKUHVSHFWWR(OPRUH
,WDQVZHUHG³´WRWKHIROORZLQJTXHVWLRQ³6WDWH
WKHWRWDODPRXQWRIGDPDJHVVXVWDLQHGE\>7UDYHOHUV@ZKLFK
\RXILQGKDYHUHVXOWHGIURPWKHIUDXGRI(OPRUHRUWKDW
UHVXOWHGIURPIUDXGE\3DWULFNRU6XVDQ/HDKH\DVWRZKLFK
(OPRUHDLGHGRUDEHWWHG´,QDVHSDUDWHVHFWLRQRIWKH
LQWHUURJDWRULHVWKHMXU\IRXQGWKDW(OPRUHZDVQHJOLJHQWLQ
WKHSHUIRUPDQFHRIKLVGXWLHVDQGWKDWWKHUHVXOWLQJGDPDJHV
DPRXQWHGWR7KHMXU\DOVRIRXQGKRZHYHUWKDW
7UDYHOHUVZDVFRQWULEXWRULO\QHJOLJHQWE\WKLUW\SHUFHQW,QLWV
MXGJPHQWWKHGLVWULFWFRXUWVWDWHGWKDWWKHMXU\³UHWXUQHGDQ
DZDUGRIGDPDJHV´LQWKHDPRXQWRI³DVWRWKH
LVVXHVRIIUDXGDLGLQJDQGDEHWWLQJDQGQHJOLJHQFH´
7UDYHOHUV VXEVHTXHQWO\ UHTXHVWHG WKDW WKH GLVWULFW FRXUW
LPSRVHMRLQWDQGVHYHUDOOLDELOLW\RQ'RQQHOO\.H\%DQNDQG
(OPRUH7KHVHGHIHQGDQWVLQFRQWUDVWUHTXHVWHGMXGJPHQWLQ
WKHLUIDYRUDVDPDWWHURIODZ RUDQHZWULDO 7KHGLVWULFW
FRXUW GHQLHG DOO RI WKH SRVWWULDO PRWLRQV LQ RUGHUV GDWHG
'HFHPEHU
-- 17 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
2QDSSHDOWKHSDUWLHVFKDOOHQJHYDULRXVUXOLQJVPDGHE\
WKH GLVWULFW FRXUW GXULQJ DQG DIWHU WKH WULDO 'RQQHOO\
.H\%DQN DQG (OPRUH DVVHUW WKDW WKHUH ZDV LQVXIILFLHQW
HYLGHQFHWRVXSSRUWWKHYHUGLFWUHQGHUHGLQFRQQHFWLRQZLWK
WKHIUDXGFODLPVLQFOXGLQJLQVXIILFLHQWHYLGHQFHWRVXSSRUWD
ILQGLQJ RI MXVWLILDEOH UHOLDQFH E\ 7UDYHOHUV RQ /HDKH\¶V
PLVUHSUHVHQWDWLRQVRUDFDXVDOOLQNEHWZHHQWKHDOOHJHGIUDXG
DQG7UDYHOHUV¶VORVVHV (OPRUHKDVQRWDSSHDOHGWKHDGYHUVH
QHJOLJHQFHYHUGLFW
7KHSDUWLHVDOVRPDLQWDLQ WKDW WKHGLVWULFWFRXUWHUUHGE\
DOORZLQJFHUWDLQH[SHUWWHVWLPRQ\'RQQHOO\DQG.H\%DQN
WDNH LVVXH ZLWK 7UDYHOHUV¶V EDQNLQJ H[SHUW DQG (OPRUH
FKDOOHQJHVWKHDGPLVVLELOLW\RIWHVWLPRQ\E\7UDYHOHUV¶VIUDXG
H[SHUW 7UDYHOHUV RQ WKH RWKHU KDQG DSSHDOV WKH GLVWULFW
FRXUW¶V VXD VSRQWH UXOLQJ WKDW WKHUH ZDV LQVXIILFLHQW
HYLGHQFH WR VXSSRUW DQ DZDUG RI SXQLWLYH GDPDJHV DQG
UHIXVDO WR LPSRVH MRLQW DQG VHYHUDO OLDELOLW\ RQ WKH
GHIHQGDQWV 7KH 2KLR %DQNHUV¶ $VVRFLDWLRQ DV DPLFXV
FXUDLH KDV DOVR ILOHG D EULHI LQ WKLV PDWWHU VXSSRUWLQJ WKH
DUJXPHQWVDVVHUWHGE\'RQQHOO\DQG.H\%DQN
,,$1$/<6,6
$ 7KHGLVWULFWFRXUWHUUHGLQSDUWZKHQLWGHQLHG
WKHGHIHQGDQWV¶PRWLRQVIRUMXGJPHQWDVDPDWWHU
RIODZ
6WDQGDUGRIUHYLHZ
7KH VWDQGDUG RI UHYLHZ DSSOLFDEOH WR D GLVWULFW FRXUW¶V
GHWHUPLQDWLRQVSXUVXDQWWR5XOHRIWKH)HGHUDO5XOHVRI
&LYLO3URFHGXUHLQDGLYHUVLW\DFWLRQKDVEHHQVXPPDUL]HGE\
WKLVFRXUWDVIROORZV
>$@ IHGHUDO FRXUW VLWWLQJ LQ GLYHUVLW\ UHYLHZV GH QRYR
OHJDO GHWHUPLQDWLRQV UDLVHG E\ D 5XOH PRWLRQ DQG
PXVWDSSO\WKHIRUXPVWDWH¶VVWDQGDUGRIUHYLHZ³RQO\
ZKHQD5XOHFKDOOHQJHLVPRXQWHGWRWKHVXIILFLHQF\
RI WKH HYLGHQFH VXSSRUWLQJ D MXU\¶V ILQGLQJV 1R
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
.H\%DQN DJUHHG WR ³VKDUH>@ LQ WKH JHQHUDO FRQVSLUDWRULDO
REMHFWLYH´+RRNV)GDW
$VVXJJHVWHGE\3DUW,,$RIWKLVRSLQLRQWKHGHJUHHRI
LQYROYHPHQWUHTXLUHGIRUFLYLOFRQVSLUDF\LVKLJKHUWKDQWKDW
IRU FLYLO DLGLQJ DQG DEHWWLQJ :KHUHDV ³>D@LGLQJDEHWWLQJ
IRFXVHVRQZKHWKHUDGHIHQGDQWNQRZLQJO\JDYHμVXEVWDQWLDO
DVVLVWDQFH¶WRVRPHRQHZKRSHUIRUPHGZURQJIXOFRQGXFW´
FRQVSLUDF\IRFXVHV³RQZKHWKHUWKHGHIHQGDQWDJUHHGWRMRLQ
LQWKHZURQJIXOFRQGXFW´+DOEHUVWDPY:HOFK)G
'&&LU HPSKDVLVDGGHG ,Q+DOEHUVWDP
WKHFRXUWSURYLGHGWKHIROORZLQJDGGLWLRQDOJXLGDQFH
&RXUWV DQG FRPPHQWDWRUV KDYH IUHTXHQWO\ EOXUUHG WKH
GLVWLQFWLRQ EHWZHHQ WKH WZR WKHRULHV RI FRQFHUWHG
OLDELOLW\0RVWFRPPRQO\FRXUWVKDYHUHOLHGRQHYLGHQFH
RIDVVLVWDQFHWRWKHPDLQWRUWIHDVRUWRLQIHUDQDJUHHPHQW
DQG WKHQ DWWDFKHG WKH ODEHO ³FLYLO FRQVSLUDF\´ WR WKH
UHVXOWDQWDPDOJDP6RPHWLPHVDOWKRXJKQRWDOZD\VWKH
LQIHUHQFH KDV EHHQ IDFWXDOO\ MXVWLILHG PDQ\ WRUW
GHIHQGDQWVKDYHERWKFRQVSLUHGZLWKDQGVXEVWDQWLDOO\
DVVLVWHGHDFKRWKHU7KHUHLVDTXDOLWDWLYHGLIIHUHQFH
EHWZHHQSURYLQJDQDJUHHPHQWWRSDUWLFLSDWHLQDWRUWLRXV
OLQH RI FRQGXFW DQG SURYLQJ NQRZLQJ DFWLRQ WKDW
VXEVWDQWLDOO\DLGVWRUWLRXVFRQGXFW,QVRPHVLWXDWLRQV
WKHWULHURIIDFWFDQQRWUHDVRQDEO\LQIHUDQDJUHHPHQW
IURPVXEVWDQWLDODVVLVWDQFHRUHQFRXUDJHPHQW$FRXUW
PXVW WKHQ HQVXUH WKDW DOO WKH HOHPHQWV RI WKH VHSDUDWH
EDVLVRIDLGLQJDEHWWLQJKDYHEHHQVDWLVILHG
,G HPSKDVLVDGGHG
7KHVLWXDWLRQGHVFULEHGE\WKH+DOEHUVWDPFRXUWLVSUHVHQW
LQWKLVFDVH$OWKRXJKLWZDVUHDVRQDEOHIRUWKHMXU\WRLQIHU
EDVHGRQWKHFLUFXPVWDQWLDOHYLGHQFHSUHVHQWHGE\7UDYHOHUV
WKDW 'RQQHOO\ NQHZ WKDW /HDKH\ ZDV HQJDJLQJ LQ WRUWLRXV
FRQGXFWLWZDVXQUHDVRQDEOHIRUWKHMXU\WRIXUWKHULQIHUWKDW
/HDKH\ ³DJUHHG WR MRLQ LQ´ KLV VFKHPH :H WKHUHIRUH
FRQFOXGHWKDWWKHGLVWULFWFRXUWHUUHGLQGHQ\LQJ'RQQHOO\¶V
-- 18 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
$V SUHYLRXVO\ RXWOLQHG WKH IROORZLQJ HOHPHQWV PXVW EH
SURYHQLQRUGHUWRHVWDEOLVKDFODLPRIFLYLOFRQVSLUDF\³ D
PDOLFLRXVFRPELQDWLRQ WZRRUPRUHSHUVRQV LQMXU\WR
SHUVRQ RU SURSHUW\ DQG H[LVWHQFH RI DQ XQODZIXO DFW
LQGHSHQGHQWIURPWKHDFWXDOFRQVSLUDF\´8QLYHUVDO&RDFK
,QFY1HZ<RUN&LW\7UDQVLW$XWK,QF1(G
2KLR&W$SS 7KHILUVWRIWKHVHHOHPHQWVZKLFKLV
WKHIRFXVRI'RQQHOO\¶VDQG.H\%DQN¶VFKDOOHQJHRQDSSHDO
³GRHVQRWUHTXLUHDVKRZLQJRIDQH[SUHVVDJUHHPHQWEHWZHHQ
GHIHQGDQWVEXWRQO\DFRPPRQXQGHUVWDQGLQJRUGHVLJQHYHQ
LIWDFLWWRFRPPLWDQXQODZIXODFW´*RVGHQY/RXLV
1(G 2KLR&W$SS
/LNHWKHNQRZOHGJHUHTXLUHPHQWIRUWKHWRUWRIDLGLQJDQG
DEHWWLQJ WKH H[LVWHQFH RI DQ H[SUHVV DJUHHPHQW EHWZHHQ
GHIHQGDQWV ZLOO IUHTXHQWO\ EH SURYDEOH RQO\ WKURXJK
FLUFXPVWDQWLDOHYLGHQFH6HH8QLWHG6WDWHVY6KRUW)G
WK &LU QRWLQJ LQ D FULPLQDO FRQVSLUDF\
FDVHWKDW³>W@KHHOHPHQWRIDJUHHPHQWLVQHDUO\DOZD\V
HVWDEOLVKHG E\ FLUFXPVWDQWLDO HYLGHQFH DV FRQVSLUDWRUV
VHOGRP PDNH UHFRUGV RI WKHLU LOOHJDO DJUHHPHQWV´ :LWK
UHVSHFWWRWKHOHYHORIDJUHHPHQWWKDWPXVWEHHVWDEOLVKHGWKLV
FRXUWKDVVWDWHGWKDW³>D@OOWKDWPXVWEHVKRZQLVWKDWWKH
DOOHJHG FRFRQVSLUDWRU VKDUHG LQ WKH JHQHUDO FRQVSLUDWRULDO
REMHFWLYH´+RRNVY+RRNV)G WK&LU
6LPLODU WR WKHLU DUJXPHQW FKDOOHQJLQJ WKH DLGLQJ DQG
DEHWWLQJ YHUGLFW 'RQQHOO\ DQG .H\%DQN DVVHUW WKDW ³>W@KH
RQO\ HYLGHQFH 7UDYHOHUV SRLQWHG WR RI DQ\ DJUHHPHQW RU
XQGHUVWDQGLQJEHWZHHQ.H\>%DQN@DQG/HDKH\RWKHUWKDQWKH
ORDQ DJUHHPHQW LWVHOI ZDV 'RQQHOO\¶V -XO\
PHPRUDQGXP´ 7KH\ IXUWKHU FRQWHQG WKDW ³WK>H@
PHPRUDQGXPGRHVQRWHVWDEOLVKWKDW'RQQHOO\NQHZRIOHW
DORQH DJUHHG WR SDUWLFLSDWH LQ D IUDXGXOHQW VFKHPH´
$OWKRXJK ZH WDNH LVVXH ZLWK WKHLU VWDWHPHQW WKDW WKH
PHPRUDQGXP ZDV ³>W@KH RQO\ HYLGHQFH´ LGHQWLILHG E\
7UDYHOHUVZHDJUHHWKDWLWZDVXQUHDVRQDEOHIRUWKHMXU\WR
LQIHUIURPWKHHYLGHQFHSUHVHQWHGWKDW'RQQHOO\DQGWKHUHIRUH
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
GHIHUHQFH LV DSSURSULDWH LQ GLYHUVLW\ FDVHV WR WKH WULDO
FRXUW¶VUHVROXWLRQVRIOHJDOTXHVWLRQV´
3DOPHUY )R[6RIWZDUH,QF)G WK&LU
TXRWLQJ. 7(QWHUV,QFY=XULFK,QV&R)G
WK&LU VHHDOVR-&:\FNRII $VVRFV
,QFY6WDQGDUG)LUH,QV&R)G WK&LU
³,QIHGHUDOFRXUWGLYHUVLW\FDVHVWKLVFLUFXLWDGKHUHVWR
WKH PLQRULW\ UXOH WKDW VWDWH ODZ JRYHUQV WKH VWDQGDUG IRU
JUDQWLQJ PRWLRQV IRU GLUHFWHG YHUGLFWV DQG MXGJPHQWV
QRWZLWKVWDQGLQJWKHYHUGLFW´
$QDSSHOODWHFRXUWUHYLHZLQJDGLYHUVLW\DFWLRQKRZHYHU
³QHHGVKRZQRGHIHUHQFHWRWKHWULDOFRXUW¶VDVVHVVPHQWRIWKH
VXIILFLHQF\RIWKHHYLGHQFHEHIRUHDMXU\HYHQLIVWDWHODZVR
UHTXLUHV´ . 7 (QWHUV )G DW HPSKDVLV LQ
RULJLQDO $VZLOOEHFRPHDSSDUHQWWKHGHIHQGDQWV¶FKDOOHQJH
WR WKH GLVWULFW FRXUW¶V GHQLDO RI WKHLU 5XOH PRWLRQV LV
³PRXQWHGWRWKHVXIILFLHQF\RIWKHHYLGHQFH´DQGWKHUHIRUH
WKLVFRXUWPXVWDSSO\2KLR¶VVWDQGDUGRIUHYLHZ
,Q 2KLR WKH SURSHU VWDQGDUG RI UHYLHZ RI D WULDO FRXUW¶V
UXOLQJRQDPRWLRQIRUMXGJPHQWQRWZLWKVWDQGLQJWKHYHUGLFW
QRZNQRZQDVDPRWLRQIRUMXGJPHQWDVDPDWWHURIODZLQ
WKHIHGHUDOFRXUWV LVDVIROORZV
7KH WHVW WR EH DSSOLHG E\ D WULDO FRXUW LQ UXOLQJ RQ D
PRWLRQIRUMXGJPHQWQRWZLWKVWDQGLQJWKHYHUGLFWLVWKH
VDPHWHVWWREHDSSOLHGRQDPRWLRQIRUDGLUHFWHGYHUGLFW
7KHHYLGHQFHDGGXFHGDWWULDODQGWKHIDFWVHVWDEOLVKHGE\
DGPLVVLRQVLQWKHSOHDGLQJVDQGLQWKHUHFRUGPXVWEH
FRQVWUXHG PRVW VWURQJO\ LQ IDYRU RI WKH SDUW\ DJDLQVW
ZKRPWKHPRWLRQLVPDGHDQGZKHUHWKHUHLVVXEVWDQWLDO
HYLGHQFH WR VXSSRUW KLV VLGH RI WKH FDVH XSRQ ZKLFK
UHDVRQDEOHPLQGVPD\UHDFKGLIIHUHQWFRQFOXVLRQVWKH
PRWLRQ PXVW EH GHQLHG 1HLWKHU WKH ZHLJKW RI WKH
HYLGHQFHQRUWKHFUHGLELOLW\RIWKHZLWQHVVHVLVIRUWKH
FRXUW¶VGHWHUPLQDWLRQLQUXOLQJXSRQHLWKHURIWKHDERYH
PRWLRQV
-- 19 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
3RVLQY$%&0RWRU&RXUW+RWHO,QF1(G
2KLR
$LGLQJDQGDEHWWLQJIUDXGXQGHU2KLRODZ
7KHPRGHUQDSSOLFDWLRQRIFLYLODLGLQJDQGDEHWWLQJFDQEH
WUDFHG WR WKH 6HFRQG 5HVWDWHPHQW RI 7RUWV ³)RU KDUP
UHVXOWLQJ WR D WKLUG SHUVRQ IURP WKH WRUWLRXV FRQGXFW RI
DQRWKHURQHLVVXEMHFWWROLDELOLW\LIKHNQRZVWKDWWKH
RWKHU¶V FRQGXFW FRQVWLWXWHV D EUHDFK RI GXW\ DQG JLYHV
VXEVWDQWLDO DVVLVWDQFH RU HQFRXUDJHPHQW WR WKH RWKHU VR WR
FRQGXFWKLPVHOI´5(67$7(0(17 6(&21' 2) 72576
E $W WKH RXWVHW 'RQQHOO\ .H\%DQN DQG
(OPRUH TXHVWLRQ ZKHWKHU 6HFWLRQ E LV D UHFRJQL]DEOH
FDXVHRIDFWLRQXQGHU2KLRODZ
$VWKH&RXUWRI$SSHDOVRI2KLRKDVREVHUYHGWKHVWDWH¶V
KLJKHVW FRXUW ³KDV QHYHU H[SUHVVO\ DSSURYHG 6HFWLRQ
´ $QGRQLDQ Y $& 6 ,QF 1(G
2KLR &W $SS $OWKRXJK WKDW PD\ EH WUXH WKH
6XSUHPH&RXUWRI2KLR²DVWKH$QGRQLDQFRXUWQRWHG²KDV
RQDWOHDVWRQHRFFDVLRQDSSOLHG6HFWLRQ E 6HH*UHDW
&HQW,QV&RY7RELDV1(G 2KLR
VHWWLQJ IRUWK WKH UHTXLUHPHQWV RI 6HFWLRQ E DQG
FRQFOXGLQJ WKDW ³WKH WKHRU\ RI MRLQW OLDELOLW\ IRU WKH
HQFRXUDJHPHQWRIWRUWLRXVFRQGXFWDGRSWHGE\WKHFRXUWRI
DSSHDOV FDQQRW DSSO\ WR DSSHOODQW XQGHU WKHVH
FLUFXPVWDQFHV´ %\DSSO\LQJ6HFWLRQ E WRWKHIDFWVRI
WKHFDVHEHIRUHLWWKH*UHDW&HQWUDOFRXUWLPSOLFLWO\LQGLFDWHG
WKDWLWFRQVLGHUHGFLYLODLGLQJDQGDEHWWLQJDYLDEOHFDXVHRI
DFWLRQ6HH)DLOODY&LW\RI3DVVDLF)G G
&LU UHO\LQJ LQ SDUW RQ D 1HZ -HUVH\ ORZHU FRXUW
GHFLVLRQLQILQGLQJWKDWWKHUHLV³QRUHDVRQWREHOLHYHWKDWWKH
1HZ -HUVH\ 6XSUHPH &RXUW ZRXOG DGRSW D FRQVWUXFWLRQ RI
FLYLODLGLQJDQGDEHWWLQJOLDELOLW\XQGHUWKH>1HZ-HUVH\/DZ
$JDLQVW'LVFULPLQDWLRQ@WKDWGLIIHUVIURP>6HFWLRQ E RI@
WKH 5HVWDWHPHQW´ $FFRUGLQJO\ ZH FRQFOXGH WKDW WKH
6XSUHPH&RXUWRI2KLRZRXOGUHFRJQL]HDLGLQJDQGDEHWWLQJ
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
,Q OLJKW RI WKHVH IDFWRUV WKHUH FDQ EH OLWWOH GRXEW WKDW
.H\%DQN¶VORDQVXEVWDQWLDOO\DVVLVWHG/HDKH\LQKLV
HIIRUWVWRWHPSRUDULO\LQIODWHWKHDVVHWVRI/*& 0DQGLQGXFH
7UDYHOHUV WR ERQG /*& 0¶V FRQVWUXFWLRQ SURMHFWV $V
GLVFXVVHG LQ 3DUW ,,$D RI WKLV RSLQLRQ /HDKH\¶V IUDXG
FRQVLVWHG RI WKH ZURQJIXO PDQLSXODWLRQ RI /*& 0¶V
ILQDQFLDOSRVLWLRQ%\VHFXULQJWKHORDQ/HDKH\
ZDVDEOHWR³YHULI\´WR7UDYHOHUVWKDWKHKDGFRPSOLHGZLWKLWV
ILUVWIXQGLQJUHTXHVWWKHUHE\HVWDEOLVKLQJDYLWDODQGLQLWLDO
OHYHO RI FUHGLELOLW\ %HFDXVH WKLV FUHGLELOLW\ VHUYHG DV WKH
IRXQGDWLRQ IRU LQFUHDVHG WUXVW EHWZHHQ WKH SDUWLHV ZH
FRQFOXGH WKDW WKH H[WHQVLRQ RI WKH ORDQ ZDV RI VXEVWDQWLDO
DVVLVWDQFHWR/HDKH\
'RQQHOO\ DQG .H\%DQN SODFH JUHDW HPSKDVLV RQ WKRVH
DVSHFWVRI/HDKH\¶VIUDXGWKDWGLGQRWGHSHQGRQWKH
ERUURZLQJDQGDUJXHWKDWWKHORDQ³ZDVQRWHYHQDQHFHVVDU\
FRPSRQHQWRI/HDKH\¶VVFKHPH´(YHQLIRQHZHUHWRDFFHSW
WKH FRQWHQWLRQ WKDW WKH ORDQ ZDV QRW ³QHFHVVDU\´ WR WKH
VFKHPH'RQQHOO\¶VDQG.H\%DQN¶VDUJXPHQWZRXOGVWLOOIDLO
6XEVWDQWLDO DVVLVWDQFH DIWHU DOO GRHV QRW PHDQ QHFHVVDU\
DVVLVWDQFH&I&DPSY'HPD)G WK&LU
LPSO\LQJWKDWWKHWHVWLVZKHWKHUWKHDVVLVWDQFHPDNHV
LW³HDVLHU´IRUWKHVHFXULWLHVYLRODWLRQWRRFFXUQRWZKHWKHUWKH
DVVLVWDQFHZDVQHFHVVDU\ ,QDGGLWLRQDOWKRXJKLWLVWUXHWKDW
³WKH URXWLQH H[WHQVLRQ RI D ORDQ GRHV QRW DPRXQW WR
VXEVWDQWLDODVVLVWDQFH´%DQHY6LJPXQGU([SORUDWLRQ&RUS
)G WK&LU WKHORDQDWLVVXHLQWKLV
FDVHZDVDVSUHYLRXVO\GLVFXVVHGDQ\WKLQJEXWURXWLQH
'RQQHOO\¶VDQG.H\%DQN¶VPRWLRQIRUMXGJPHQWDVD
PDWWHURIODZ²FRQVSLUDF\
'RQQHOO\ DQG .H\%DQN IXUWKHU PDLQWDLQ WKDW WKH GLVWULFW
FRXUW HUUHG ZKHQ LW GHQLHG WKHLU PRWLRQ IRU MXGJPHQW DV D
PDWWHURIODZRQ7UDYHOHUV¶VFLYLOFRQVSLUDF\FODLP7KH\
FRQWHQGWKDW³WKHUHZDVQRHYLGHQFHWKDW.H\>%DQN@KDGDQ
DJUHHPHQWRUXQGHUVWDQGLQJZLWK/HDKH\WRGHIUDXG7UDYHOHUV
´2QWKLVLVVXHZHDJUHHZLWKWKHLUDUJXPHQW
-- 20 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
FLUFXPVWDQWLDOHYLGHQFHRUE\UHFNOHVVFRQGXFWEXWWKHSURRI
PXVWGHPRQVWUDWHDFWXDODZDUHQHVVRIWKHSDUW\¶VUROHLQWKH
IUDXGXOHQWVFKHPH´
E 6XEVWDQWLDODVVLVWDQFH
'RQQHOO\ DQG .H\%DQN DOVR WDNH LVVXH ZLWK WKH MXU\¶V
ILQGLQJ WKDW WKH\ KDG SURYLGHG VXEVWDQWLDO DVVLVWDQFH WR
/HDKH\7KH\DVVHUWWKDW³/HDKH\GLGQRWQHHGDORDQIURP
.H\>%DQN@ WR GHFHLYH 7UDYHOHUV KH FRXOG HDVLO\ KDYH
GHIUDXGHG 7UDYHOHUV ZLWKRXW ERUURZLQJ PRQH\ IURP
.H\>%DQN@´ $JDLQ ZH ILQG 'RQQHOO\¶V DQG .H\%DQN¶V
DUJXPHQWXQSHUVXDVLYH
$V SUHYLRXVO\ QRWHG LQ RUGHU WR HVWDEOLVK DLGLQJ DQG
DEHWWLQJ OLDELOLW\ D SODLQWLII PXVW SURYH WKDW WKH GHIHQGDQW
SURYLGHG ³VXEVWDQWLDO DVVLVWDQFH RU HQFRXUDJHPHQW WR WKH
SULPDU\SDUW\LQFDUU\LQJRXWWKHWRUWLRXVDFW´$QGRQLDQ
1(GDW³(VWDEOLVKLQJWKLVHOHPHQWUHTXLUHVWKH
SODLQWLIIWRVKRZWKDWWKHVHFRQGDU\SDUW\SUR[LPDWHO\FDXVHG
WKHYLRODWLRQRULQRWKHUZRUGVWKDWWKHHQFRXUDJHPHQWRU
DVVLVWDQFHZDVDVXEVWDQWLDOIDFWRULQFDXVLQJWKHWRUW´. 6
3DUWQHUVKLS )G DW :LWK UHVSHFW WR WKLV
GHWHUPLQDWLRQWKH7KLUG&LUFXLWKDVH[SODLQHGDVIROORZV
>7@KH FRPPHQWV WR VHFWLRQ RI WKH 5HVWDWHPHQW
SURYLGH D OLVW RI ILYH IDFWRUV ³WKH QDWXUH RI WKH DFW
HQFRXUDJHG WKH DPRXQW RI DVVLVWDQFH JLYHQ E\ WKH
GHIHQGDQWKLVSUHVHQFHRUDEVHQFHDWWKHWLPHRIWKHWRUW
KLV UHODWLRQ WR WKH RWKHU DQG KLV VWDWH RI PLQG´
$GGLWLRQDOO\WKHFRXUWLQ+DOEHUVWDPSURYLGHGDVL[WK
IDFWRUWKHGXUDWLRQRIWKHDVVLVWDQFHSURYLGHG)LQDOO\
WKHDOOHJHGVXEVWDQWLDODVVLVWDQFHPXVWEHWKHSUR[LPDWH
FDXVHRISODLQWLIIV¶KDUP
7HPSRURPDQGLEXODU-RLQW 70- ,PSODQW5HFLSLHQWVY'RZ
&KHP&R)G WK&LU FLWDWLRQV
RPLWWHG
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
OLDELOLW\ LI VTXDUHO\ IDFHG ZLWK WKH LVVXH DQG ZH WKHUHIRUH
GHFOLQH7UDYHOHUV¶VLQYLWDWLRQWRFHUWLI\WKHVWDWHODZTXHVWLRQ
³6HFWLRQ E UHTXLUHVWZRHOHPHQWV NQRZOHGJHWKDW
WKH SULPDU\ SDUW\¶V FRQGXFW LV D EUHDFK RI GXW\ DQG
VXEVWDQWLDO DVVLVWDQFH RU HQFRXUDJHPHQW WR WKH SULPDU\
SDUW\LQFDUU\LQJRXWWKHWRUWLRXVDFW´$QGRQLDQ1(G
DW VHH DOVR )DLOOD )G DW ³&RXUWV KDYH
UHFRJQL]HGWKDW5HVWDWHPHQW>6HFWLRQ E @VHWVIRUWK
WKH VWDQGDUG IRU FLYLO DLGLQJ DQG DEHWWLQJ OLDELOLW\´
1RWZLWKVWDQGLQJWKLVFOHDUSURQRXQFHPHQWE\DQ2KLRFRXUW
RI WKH UHOHYDQW HOHPHQWV 7UDYHOHUV FRQWHQGV WKDW ³>D@FWXDO
NQRZOHGJH LV QRW UHTXLUHG WR HVWDEOLVK DLGLQJ DQG DEHWWLQJ
OLDELOLW\´,QVXSSRUWRIWKLVSURSRVLWLRQ7UDYHOHUVFLWHV
DPRQJRWKHUWKLQJVWKHIROORZLQJSDVVDJHIURPWKLVFRXUW¶V
GHFLVLRQLQ6HFXULWLHV ([FKDQJH&RPPLVVLRQY&RIIH\
)G WK&LU
$LGLQJ DQG DEHWWLQJ KDV EHHQ GHILQHG E\ WKH FRXUWV
FRQVLGHULQJVHFXULWLHVODZFDVHVZLWKUHIHUHQFHWRERWK
WKH5HVWDWHPHQWRI7RUWV DQGWKHFULPLQDO
ODZ86& :LWKRXWPHDQLQJWRVHWIRUWK
DQLQIOH[LEOHGHILQLWLRQRIDLGLQJDQGDEHWWLQJZHILQG
WKDWDSHUVRQPD\EHKHOGDVDQDLGHUDQGDEHWWRURQO\LI
VRPH RWKHU SDUW\ KDV FRPPLWWHG D VHFXULWLHV ODZ
YLRODWLRQ LI WKH DFFXVHG SDUW\ KDG JHQHUDO DZDUHQHVV
WKDW KLV UROH ZDV D SDUW RI DQ RYHUDOO DFWLYLW\ WKDW LV
LPSURSHUDQGLIWKHDFFXVHGDLGHUDEHWWRUNQRZLQJO\DQG
VXEVWDQWLDOO\DVVLVWHGWKHYLRODWLRQ
,GDW HPSKDVLVDGGHG
2WKHUFRXUWVKDYHVLPLODUO\UHIHUHQFHG6HFWLRQDQGWKHQ
FRQFOXGHGWKDWHYLGHQFHRID³JHQHUDODZDUHQHVVRIDUROHLQ
DQLPSURSHUDFWLYLW\´ZLOOVDWLVI\WKHILUVWHOHPHQWRIDQDLGLQJ
DQG DEHWWLQJ FODLP 6HH HJ 7HPSRURPDQGLEXODU -RLQW
70- ,PSODQW5HFLSLHQWVY'RZ&KHP&R)G
WK &LU DFNQRZOHGJLQJ WKDW OLDELOLW\ XQGHU
6HFWLRQ E ZLOO DWWDFK ZKHQ WKH DFWRU ³NQRZV WKDW WKH
-- 21 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
RWKHU¶VFRQGXFWFRQVWLWXWHVDEUHDFKRIGXW\´EXWDOVRQRWLQJ
WKDW ³>F@RXUWV KDYH UHFRJQL]HG´ WKH UHTXLUHPHQW WKDW ³WKH
DLGHUDQGDEHWWRUPXVWEHJHQHUDOO\DZDUHRIKLVUROHLQWKH
RYHUDOOZURQJIXODFWLYLW\DWWKHWLPHDVVLVWDQFHLVSURYLGHG´
:HVHHQRFRQIOLFWEHWZHHQWKHSRVLWLRQWKDWDQDLGHUDQG
DEHWWRUPXVWKDYHDFWXDONQRZOHGJHRIWKHSULPDU\SDUW\¶V
ZURQJGRLQJDQGWKHVWDWHPHQWWKDWLWLVHQRXJKIRUWKHDLGHU
DQG DEHWWRU WR KDYH D JHQHUDO DZDUHQHVV RI LWV UROH LQ WKH
RWKHU¶VWRUWLRXVFRQGXFWIRUOLDELOLW\WRDWWDFK6HH&DPSY
'HPD)G WK&LU ³,IDGHIHQGDQWKDV
D JHQHUDO DZDUHQHVV RI KLV UROH LQ WKH SULPDU\ YLRODWRU V
ZURQJIXODFWLYLW\KRZHYHUWKLVPD\EHVXIILFLHQWWRVDWLVI\
WKHNQRZOHGJHUHTXLUHPHQW´ ,IRQHLVDZDUHWKDWKHKDVD
UROHLQDQLPSURSHUDFWLYLW\VHH&RIIH\)GDW
WKHQ VXUHO\ KH NQRZV WKDW WKH SULPDU\ SDUW\¶V FRQGXFW LV
WRUWLRXVVHH$QGRQLDQ1(GDW
&RQVSLUDF\WRFRPPLWIUDXGXQGHU2KLRODZ
7KH6XSUHPH&RXUWRI2KLRGHILQHVFLYLOFRQVSLUDF\DV³μD
PDOLFLRXV FRPELQDWLRQ RI WZR RU PRUH SHUVRQV WR LQMXUH
DQRWKHULQSHUVRQRUSURSHUW\LQDZD\QRWFRPSHWHQWIRURQH
DORQHUHVXOWLQJLQDFWXDOGDPDJHV¶´.HQW\Y7UDQVDPHULFD
3UHPLXP,QV&R1(G 2KLR TXRWLQJ
/H)RUWY&HQWXU\0DLWODQG5HDOW\&R1(G
2KLR 7KXVLQRUGHUWRHVWDEOLVKDFODLPRIFLYLO
FRQVSLUDF\WKHIROORZLQJHOHPHQWVPXVWEHSURYHQ ³ D
PDOLFLRXVFRPELQDWLRQ WZRRUPRUHSHUVRQV LQMXU\WR
SHUVRQ RU SURSHUW\ DQG H[LVWHQFH RI DQ XQODZIXO DFW
LQGHSHQGHQWIURPWKHDFWXDOFRQVSLUDF\´8QLYHUVDO&RDFK
,QFY1HZ<RUN&LW\7UDQVLW$XWK,QF1(G
2KLR&W$SS
7KH'LVWULFWRI&ROXPELD&LUFXLWKDVVXFFLQFWO\LGHQWLILHG
WKHIROORZLQJGLIIHUHQFHEHWZHHQWKHWRUWVRIFRQVSLUDF\WR
FRPPLW IUDXG DQG DLGLQJ DQG DEHWWLQJ IUDXG ³7KH SULPH
GLVWLQFWLRQEHWZHHQFLYLOFRQVSLUDFLHVDQGDLGLQJDEHWWLQJLV
WKDWDFRQVSLUDF\LQYROYHVDQDJUHHPHQWWRSDUWLFLSDWHLQD
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
DERXW/HDKH\¶V VXERUGLQDWLRQDJUHHPHQW´DQGWKDWQHLWKHU
7UDYHOHUV QRU (OPRUH HYHU ³LQIRUP>HG@ .H\>%DQN@ WKDW
7UDYHOHUVZDVUHO\LQJRQWKHDVDORQJWHUPFDSLWDO
FRQWULEXWLRQ´ WR /*& 0 $Q DOOHJHG DLGHU DQG DEHWWRU
KRZHYHU QHHG QRW NQRZ DOO RI WKH GHWDLOV RI WKH SULPDU\
SDUW\¶V VFKHPH IRU OLDELOLW\ WR DWWDFK 6HH HJ :RRGV Y
%DUQHWW%DQNRI)RUW/DXGHUGDOH)G WK
&LU KROGLQJWKDWWKHNQRZOHGJHUHTXLUHPHQWRIDLGLQJ
DQGDEHWWLQJHOHPHQWZDVPHWHYHQWKRXJKWKHEDQN³PD\QRW
KDYH NQRZQ RI DOO WKH GHWDLOV RI WKH SULPDU\ IUDXG²WKH
PLVUHSUHVHQWDWLRQV RPLVVLRQV DQG RWKHU IUDXGXOHQW
SUDFWLFHV´
2XUFRQFOXVLRQZLWKUHVSHFWWR'RQQHOO\¶VDQG.H\%DQN¶V
NQRZOHGJHVKRXOGQRWEHPLVXQGHUVWRRG2UGLQDULO\DEDQN
GRHV QRW KDYH DQ REOLJDWLRQ WR LQYHVWLJDWH RU TXHVWLRQ LWV
FXVWRPHUV¶IDFLDOO\OHJDOWUDQVDFWLRQV6HH6PLWKY$PHULFDQ
1DW¶O%DQN 7UXVW&R)G WK&LU
³7KHIDFWWKDWWKHEDQNZDVLQWKHEXVLQHVVRIOHQGLQJPRQH\
GLGQRWVXEMHFWLWWRDQ\VSHFLDOGXW\RIGLVFORVXUH$OHQGLQJ
LQVWLWXWLRQ KDV QR GXW\ WR GLVFORVH EDVHG RQ LWV UROH DV D
OHQGHU´ $EDQNKRZHYHULVQRWLPPXQHIURPFLYLODLGLQJ
DQGDEHWWLQJFODLPVDQGWRWKHH[WHQWWKDWLWVNQRZOHGJHRI
WKHSULPDU\SDUW\¶VWRUWLRXVFRQGXFWFDQEHSURYHQHLWKHUE\
GLUHFWRUFLUFXPVWDQWLDOHYLGHQFHOLDELOLW\ZLOODWWDFKLIWKH
RWKHUHOHPHQWVDUHSUHVHQW
:HVWUHVVWKDWWKHUHTXLUHPHQWLVDFWXDONQRZOHGJH ZKLFK
DJDLQ PD\ EH SURYHQ E\ FLUFXPVWDQWLDO HYLGHQFH DQG
WKHUHIRUHHYLGHQFHHVWDEOLVKLQJQHJOLJHQFHLHWKDWDEDQN
³VKRXOGKDYHNQRZQ´ZLOOQRWVXIILFH6HH&DPSY'HPD
)G WK&LU ³>$@EDUHLQIHUHQFHWKDW
WKH GHIHQGDQW μPXVW KDYH KDG¶ NQRZOHGJH RI WKH SULPDU\
YLRODWLRQLVLQVXIILFLHQW6RPHNQRZOHGJHPXVWEHVKRZQ
EXWWKHH[DFWOHYHOQHFHVVDU\IRUOLDELOLW\UHPDLQVIOH[LEOHDQG
PXVW EH GHFLGHG RQ D FDVHE\FDVH EDVLV 1HJOLJHQFH
KRZHYHULVQHYHUVXIILFLHQW´ FLWDWLRQDQGLQWHUQDOTXRWDWLRQ
PDUNVRPLWWHG :RRGZDUGY0HWUR%DQNRI'DOODV)G
WK &LU ³.QRZOHGJH PD\ EH VKRZQ E\
-- 22 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
WR EHOLHYH WKDW DV D EDQN RIILFHU ZKR KDG SUHYLRXVO\
SURFHVVHG ORDQV IRU ERQGLQJ SXUSRVHV KH NQHZ HQRXJK WR
UHDOL]H WKDW DGGLQJ VLJQLILFDQW IXQGV WR D FRPSDQ\¶V EDQN
DFFRXQWIRURQO\DIRXUGD\SHULRGZRXOGQRWVHUYHWRPHHWD
ERQGLQJ FRPSDQ\¶V FDSLWDOL]DWLRQ UHTXLUHPHQWV 7KLV LV
HVSHFLDOO\ WUXH LQ OLJKW RI WKH IDFW WKDW LQ WKLV VLWXDWLRQ
/HDKH\VWUHVVHGWR'RQQHOO\WKDWWKHIXQGVZRXOGKDYH³WREH
WKHUH´DWPRQWKHQGEXWZRXOGOLNHO\EHUHWXUQHGWR.H\%DQN
LPPHGLDWHO\WKHUHDIWHU
,QIXUWKHUVXSSRUWRIWKHLUSRVLWLRQ'RQQHOO\DQG.H\%DQN
DUJXHWKDW WKHORDQ³ZDVDODZIXOWUDQVDFWLRQ´ ³VKRUW
WHUP ORDQV DUH μFRPPRQSODFH¶´ DQG ³WKHUH LV QRWKLQJ
XQXVXDORULPSURSHUDERXWERUURZLQJIRUERQGLQJSXUSRVHV´
:HGRQRWWDNHLVVXHZLWKDQ\RIWKHVHLQGLYLGXDOVWDWHPHQWV
:KHQFRQVLGHUHGLQFRQWH[WKRZHYHURWKHUZLVHOHJLWLPDWH
FRQGXFWFDQJLYHULVHWRDQHJDWLYHLQIHUHQFH6HH0HWJHY
%DHKOHU )G WK &LU UHYHUVLQJ WKH
GLVWULFWFRXUW¶VJUDQWRIVXPPDU\MXGJPHQWLQIDYRURIDEDQN
DFFXVHGRIDVVLVWLQJZLWKDFXVWRPHU¶VIUDXGFRQFOXGLQJWKDW
³>D@OWKRXJKWKHIDFWVDUHXQUHPDUNDEOHWDNHQLQLVRODWLRQ
ZHILQGWKDWWDNHQWRJHWKHUWKH\SUHVHQWZKDWVKRXOGKDYH
EHHQ D MXU\ LVVXH RQ WKH TXHVWLRQ RI DLGLQJDQGDEHWWLQJ
OLDELOLW\´
0RUHRYHU DOWKRXJK VKRUWWHUP OHQGLQJ PD\ EH
³FRPPRQSODFH´WKHGHWDLOVRIWKLVSDUWLFXODUORDQ HJLWV
IRXUGD\GXUDWLRQVWUDGGOLQJWKH-XO\PRQWKHQG ZHUH
KLJKO\XQXVXDO6HH&DPSY'HPD)G WK
&LU ³$ SDUW\ ZKR HQJDJHV LQ DW\SLFDO EXVLQHVV
WUDQVDFWLRQVPD\EHIRXQGOLDEOHDVDQDLGHUDQGDEHWWRU
ZLWK D PLQLPDO VKRZLQJ RI NQRZOHGJH´ :RRGZDUG Y
0HWUR%DQNRI'DOODV)G WK&LU ³>,@I
WKHPHWKRGRUWUDQVDFWLRQLVDW\SLFDOLWPD\EHSRVVLEOH
WR LQIHU WKH NQRZOHGJH QHFHVVDU\ IRU DLGLQJ DQG DEHWWLQJ
OLDELOLW\´
'RQQHOO\ DQG .H\%DQN DOVR DVVHUW WKDW ³WKHUH ZDV QR
HYLGHQFHWKDW'RQQHOO\RUDQ\RQHHOVHDW.H\>%DQN@NQHZ
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
ZURQJIXO DFWLYLW\ $LGLQJDEHWWLQJ IRFXVHV RQ ZKHWKHU D
GHIHQGDQWNQRZLQJO\JDYHμVXEVWDQWLDODVVLVWDQFH¶WRVRPHRQH
ZKR SHUIRUPHG ZURQJIXO FRQGXFW QRW RQ ZKHWKHU WKH
GHIHQGDQW DJUHHG WR MRLQ LQ WKH ZURQJIXO FRQGXFW´
+DOEHUVWDP Y :HOFK )G '& &LU
HPSKDVLVDGGHG %XWVHH. 63DUWQHUVKLSY&RQWLQHQWDO
%DQN1$)G WK&LU ³>/@LDELOLW\IRU
FLYLOFRQVSLUDF\LVLQVXEVWDQFHWKHVDPHWKLQJDVDLGLQJDQG
DEHWWLQJ OLDELOLW\´ 8QGHU HLWKHU WRUW KRZHYHU WKH
GHIHQGDQW¶VNQRZOHGJHLVRISDUDPRXQWLPSRUWDQFH
³,ILWLVDVVXPHGWKDWDQLOOHJDOVFKHPHH[LVWHGDQGWKDW
WKHEDQN¶VORDQRURWKHUDFWLYLW\SURYLGHGDVVLVWDQFHWR
WKDWVFKHPHVRPHUHPDLQLQJGLVWLQJXLVKLQJIDFWRUPXVW
EH IRXQG LQ RUGHU WR SUHYHQW VXFK DXWRPDWLF OLDELOLW\
7KHEDQN¶VNQRZOHGJHRIWKHLOOHJDOVFKHPHDWWKHWLPH
LWORDQHGWKHPRQH\RUDJUHHGWRORDQWKHPRQH\SURYLGHV
WKDWDGGLWLRQDOIDFWRU.QRZOHGJHRIZURQJIXOSXUSRVH
WKXVEHFRPHVDFUXFLDOHOHPHQWLQDLGLQJDQGDEHWWLQJRU
FRQVSLUDF\FDVHV´
:RRGZDUGY0HWUR%DQNRI'DOODV)G WK&LU
HPSKDVLVDGGHG TXRWLQJ5XGHU0XOWLSOH'HIHQGDQWV
LQ6HFXULWLHV/DZ$LGLQJDQG$EHWWLQJ&RQVSLUDFLHV,Q3DUL
'HOLFWR ,QGHPQLILFDWLRQ DQG &RQWULEXWLRQ 8 3$ /
5(9
'RQQHOO\¶VDQG.H\%DQN¶VPRWLRQIRUMXGJPHQWDVD
PDWWHURIODZ²DLGLQJDQGDEHWWLQJ
,Q WKHLU DSSHDO 'RQQHOO\ DQG .H\%DQN DUJXH WKDW WKH
HYLGHQFHZDVLQVXIILFLHQWWRHVWDEOLVKOLDELOLW\IRUFLYLODLGLQJ
DQGDEHWWLQJ6SHFLILFDOO\WKH\FRQWHQGWKDW WKHHYLGHQFH
GLG QRW VKRZ WKDW 'RQQHOO\ RU DQ\ RWKHU .H\%DQN
UHSUHVHQWDWLYHNQHZRI/HDKH\¶VIUDXGDQG .H\%DQN¶V
ORDQ GLG QRW SURYLGH /HDKH\ ZLWK VXEVWDQWLDO DVVLVWDQFH LQ
FDUU\LQJRXWKLVVFKHPH:HZLOODGGUHVVHDFKDUJXPHQWLQ
WXUQ³>P@LQGIXORIWKHSRWHQWLDOO\GHYDVWDWLQJLPSDFWDLGLQJ
DQG DEHWWLQJ OLDELOLW\ PLJKW KDYH RQ FRPPHUFLDO
-- 23 of 24 --
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
1RV
UHODWLRQVKLSV>@´:RRGVY%DUQHWW%DQNRI)RUW/DXGHUGDOH
)G WK&LU
D .QRZOHGJH
³,IDQLOOHJDOVFKHPHH[LVWVDQGDEDQN¶VORDQDVVLVWVLQWKDW
VFKHPHWKHEDQN¶VNQRZOHGJHRIWKHVFKHPHLVWKHFUXFLDO
HOHPHQWWKDWSUHYHQWVLWIURPVXIIHULQJDXWRPDWLFOLDELOLW\IRU
WKHFRQGXFWRILQVLGHUVWRZKRPLWORDQHGWKHPRQH\´. 6
3DUWQHUVKLS Y &RQWLQHQWDO %DQN 1$ )G
WK&LU FLWLQJ:RRGZDUGY0HWUR%DQNRI'DOODV
)G WK &LU ³>7@KH H[DFW OHYHO >RI
NQRZOHGJH@QHFHVVDU\IRUOLDELOLW\UHPDLQVIOH[LEOHDQGPXVW
EHGHFLGHGRQDFDVHE\FDVHEDVLV´&DPS Y 'HPD
)G WK&LU 'RQQHOO\DQG.H\%DQNDVVHUW
WKDW³WKHUHZDVQRFRPSHWHQWHYLGHQFHWKDW.H\>%DQN@NQHZ
WKDW/HDKH\LQWHQGHGWRFRPPLWIUDXG´:HGLVDJUHH
,QVXSSRUWRIWKHLUDUJXPHQW'RQQHOO\DQG.H\%DQNFODLP
WKDW/HDKH\¶VIUDXG³FRQVLVWHGRI>KLV@UHSUHVHQWDWLRQVWKDWKH
KDG VXERUGLQDWHG WR 7UDYHOHUV KLV ULJKW WR UHSD\PHQW RI D
ORDQWKDWKDGDOUHDG\EHHQSDLG´7KLVGHILQHVWKH
VFRSHRI/HDKH\¶VIUDXGPXFKWRRQDUURZO\7KHHYLGHQFHDW
WULDOHVWDEOLVKHGWKDW/HDKH\VHWLQPRWLRQKLVIUDXGXOHQWSODQ
EHFDXVH7UDYHOHUVZDVWURXEOHGE\/*& 0¶VORZOHYHORI
FDSLWDOL]DWLRQ,QRUGHUWRDOOHYLDWHWKHVHFRQFHUQV/HDKH\
KDG WR DGG PRQLHV WR /*& 0 $OWKRXJK 7UDYHOHUV DOVR
UHTXHVWHGWKDW/HDKH\VXERUGLQDWHKLVULJKWVWRWKHVHIXQGV
WKLV IHDWXUH ZDV RI VHFRQGDU\ LPSRUWDQFH 7KH SULPDU\
REMHFWLYH ZDV WR HQVXUH WKDW /*& 0 ZDV DGHTXDWHO\
FDSLWDOL]HG
7KLVREMHFWLYHZDVSXUSRUWHGO\UHDOL]HGZKHQDQDGGLWLRQDO
ZDVSODFHGRQWKHERRNVRI/*& 0DVRI-XO\
7KXV WKH IUDXG GLG QRW VLPSO\ FRQVLVW RI
UHSUHVHQWDWLRQV UHJDUGLQJ WKH YDOLGLW\ RI D VXERUGLQDWLRQ
DJUHHPHQW 5DWKHU /HDKH\¶V WRUWLRXV FRQGXFW LV PRUH
DSSURSULDWHO\ GHVFULEHG DV WKH ZURQJIXO PDQLSXODWLRQ RI
/*& 0¶V ILQDQFLDO SRVLWLRQ IRU WKH SXUSRVH RI LQGXFLQJ
1RV
$HWQD&DVXDOW\DQG6XUHW\&RY
/HDKH\&RQVWUXFWLRQ&RHWDO
7UDYHOHUV WR DJUHH WR ERQG WKH FRPSDQ\¶V FRQVWUXFWLRQ
SURMHFWV&HQWUDOWRWKDWPDQLSXODWLRQZDV'RQQHOO\¶VDQG
.H\%DQN¶VIRXUGD\ORDQ$WDPLQLPXPLWSHUPLWWHG/HDKH\
WR SURYLGH 7UDYHOHUV ZLWK D -XO\ EDQN VWDWHPHQW
VKRZLQJ WKDW KDG EHHQ DGGHG WR /*& 0¶V
DFFRXQWV
)RU WKH SXUSRVHV RI HVWDEOLVKLQJ DLGLQJ DQG DEHWWLQJ
OLDELOLW\³>W@KHUHTXLVLWHLQWHQWDQGNQRZOHGJHPD\EHVKRZQ
E\FLUFXPVWDQWLDOHYLGHQFH´0HWJHY%DHKOHU)G
WK&LU VHHDOVR5ROIY%O\WK(DVWPDQ'LOORQ
&R)G G&LU ³3URRIRIDGHIHQGDQW¶V
NQRZOHGJHRULQWHQWZLOORIWHQEHLQIHUHQWLDO>@´ :HDJUHH
ZLWK 7UDYHOHUV¶V FRQWHQWLRQ WKDW WKHUH ZDV VXIILFLHQW
FLUFXPVWDQWLDOHYLGHQFHIURPZKLFKDMXU\FRXOGUHDVRQDEO\
LQIHU WKDW 'RQQHOO\ DQG .H\%DQN NQHZ WKDW /HDKH\ ZDV
HQJDJLQJLQWRUWLRXVFRQGXFW)LUVW'RQQHOO\DFNQRZOHGJHG
GXULQJWULDOWKDWKHDQG/HDKH\KDGNQRZQHDFKRWKHUVLQFH
DQGWKDWRQVHYHUDORFFDVLRQVKHKDGDVVLVWHG/HDKH\
ZLWK ORDQV IRU ERQGLQJ SXUSRVHV 6HFRQG DV HDUO\ DV
)HEUXDU\ 'RQQHOO\ XQGHUVWRRG WKDW /HDKH\¶V
HQWUDQFH LQWR FRPPHUFLDO FRQVWUXFWLRQ ZRXOG ³UHTXLUH>@
VSHFLDO ERQGLQJ´ DQG WKDW DV D UHVXOW /HDKH\ KDG EHHQ
³SXWWLQJ IXQGV LQWR WKH EXVLQHVV´ 7KLUG .H\%DQN¶V RZQ
GRFXPHQWV UHYHDO WKDW RQ RU EHIRUH -XO\ LW ZDV
LQIRUPHGE\/HDKH\WKDWWKHSXUSRVHRIWKHORDQ
ZDV ³WR REWDLQ DSSURYDO IURP D QHZ %RQGLQJ &RPSDQ\´
)RXUWKWKH-XO\PHPRUDQGXPVHWVIRUWK'RQQHOO\¶V
XQGHUVWDQGLQJWKDW/HDKH\UHTXHVWHG³WKHVHIXQGVWREHWKHUH
DW PRQWKHQG´ )LIWK WKH PHPRUDQGXP UHYHDOV WKDW HYHQ
WKRXJK WKH ORDQ ZDV FODVVLILHG DV D WKLUW\GD\ DJUHHPHQW
/HDKH\LQWHQGHGWRUHSD\LWMXVWWZRGD\VDIWHUWKH-XO\
PRQWKHQG
*LYHQWKLVHYLGHQFHZHFDQQRWVD\WKDWLWZDVXQUHDVRQDEOH
IRUWKHMXU\WRLQIHUWKDW'RQQHOO\DQG.H\%DQNNQHZWKDW
/HDKH\ZDVHQJDJLQJLQWRUWLRXVFRQGXFW$OWKRXJKLWPD\
ZHOOEHWUXHWKDW'RQQHOO\GLGQRWKDYHDIXOOXQGHUVWDQGLQJ
RIWKHERQGLQJEXVLQHVVLWZDVQRWXQUHDVRQDEOHIRUWKHMXU\
-- 24 of 24 --