Court Opinion

ID: 2970179
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:06:36.856313+00
Date Added: 2024-06-11T12:47:04.546234
License: Public Domain

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 DS

81,7('67$7(6&28572)$33($/6
               )257+(6,;7+&,5&8,7
                 BBBBBBBBBBBBBBBBB

 81,7(' 67$7(6 2) $0(5,&$        ;
           3ODLQWLII$SSHOOHH     
                                   
                                      1R
            Y                     
                                    !
                                   
 &+(5</ +803+5(<                  
          'HIHQGDQW$SSHOODQW 
                                  1
       $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
   IRUWKH(DVWHUQ'LVWULFWRI7HQQHVVHHDW*UHHQHYLOOH
    1Rn7KRPDV*+XOO'LVWULFWsXGJH
                $UJXHG'HFHPEHU
           'HFLGHGDQG)LOHGsDQXDU\
%HIRUH.(11('<0225(DQG&2/(&LUFXLWsXGJHV
                   BBBBBBBBBBBBBBBBB
                        &2816(/
$5*8('  1LNNL & 3LHUFH )('(5$/ '()(1'(5
6(59,&(6*UHHQHYLOOH7HQQHVVHHIRU$SSHOODQW6DUDK5
6KXOWV $66,67$17 81,7(' 67$7(6 $77251(<
*UHHQYLOOH7HQQHVVHHIRU$SSHOOHH21%5,()1LNNL&
3LHUFH )('(5$/ '()(1'(5 6(59,&(6 *UHHQHYLOOH
7HQQHVVHH IRU $SSHOODQW  6DUDK 5 6KXOWV $66,67$17
81,7('67$7(6$77251(<*UHHQYLOOH7HQQHVVHHIRU
$SSHOOHH

                             
     8QLWHG6WDWHVY+XPSKUH\                      1R       1R                    8QLWHG6WDWHVY+XPSKUH\          

  0225(sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK                 +HU GLVFUHWLRQ LQ WLPLQJ WKH VKLSPHQW RI IRRG VWDPSV
&2/( s MRLQHG  .(11('< s SS  GHOLYHUHG D       HQDEOHG KHU WR FRQFHDO KHU HPEH]]OHPHQW  6KH ZDV QRW D
VHSDUDWHRSLQLRQFRQFXUULQJLQSDUWDQGGLVVHQWLQJLQSDUW           ILGXFLDU\  +RZHYHU WKH HQKDQFHPHQW LV QRW OLPLWHG WR
                                                                       ILGXFLDULHV1HLWKHUZDVVKHmDQRUGLQDU\EDQNWHOOHUl6KH
                     BBBBBBBBBBBBBBBBB                                 ZDV GHDOLQJ ZLWK WHQ EUDQFKHV WKHLU H[FHVV FDVK IRU
                                                                       WUDQVPLWWDOWRWKH)HGHUDO5HVHUYHWKHLUIRRGVWDPSVWKHLU
                         23,1,21                                       H[FHVVORRVHFRLQ7KHEDQNHQWUXVWHGKHUZLWKUHVSRQVLELOLW\
                     BBBBBBBBBBBBBBBBB                                 WR VHQG RQ IRRG VWDPSV DV VKH GHWHUPLQHG  6KH KDG
                                                                       UHVSRQVLELOLWLHVEH\RQGWKRVHRIRUGLQDU\WHOOHUV:LWKRXWWKLV
  .$5(11(/6210225(&LUFXLWsXGJH'HIHQGDQW                       GLVFUHWLRQGHIHQGDQWZRXOGQRWKDYHEHHQDEOHWRH[HFXWHKHU
$SSHOODQW&KHU\O$QQ+XPSKUH\m+XPSKUH\lDSSHDOVKHU                 VFKHPHIRUDVORQJDVVKHGLG
MXU\ FRQYLFWLRQ DQG VHQWHQFH IRU RQH FRXQW RI HPEH]]OLQJ
EDQNIXQGVLQYLRODWLRQRI86&DQGILYHFRXQWV             :KLOH,DJUHHWKDWWKHGHFLVLRQRIWKHGLVWULFWFRXUWWRDSSO\
RI PDNLQJ IDOVH HQWULHV LQ EDQN UHFRUGV ZLWK WKH LQWHQW WR   866*  % LV WUHDWHG DV D  TXHVWLRQ RI ODZ LQ WKLV
GHIUDXGLQYLRODWLRQRI86&6KHDUJXHVWKDW       &LUFXLWZKLFKZHUHYLHZGHQRYRZHDUHUHYLHZLQJWRVHHLI
WKH GLVWULFW FRXUW DEXVHG LWV GLVFUHWLRQ RYHU WKH PHWKRG RI   GHIHQGDQWPHHWVWKHPLQLPXPQHFHVVDU\IRUDSSOLFDWLRQRIWKH
H[HUFLVLQJ SHUHPSWRU\ FKDOOHQJHV DQG WKH DGPLVVLRQ RI            JXLGHOLQH  , EHOLHYH WKDW VKH GLG DQG , ZRXOG XSKROG WKH
HYLGHQFHWKDWWKHHYLGHQFHLVLQVXIILFLHQWWRVXSSRUWWKH          GLVWULFWFRXUWjVGHFLVLRQWRLQFUHDVHGHIHQGDQWjVRIIHQVHOHYHO
FRQYLFWLRQVDQGWKDWWKHGLVWULFWFRXUWLPSURSHUO\LQFUHDVHG       IRUDEXVHRIDSRVLWLRQRIWUXVW
WKHRIIHQVHOHYHOXQGHU866HQWHQFLQJ*XLGHOLQHV0DQXDO
866*%IRUDEXVHRIDSRVLWLRQRIWUXVWRU
XVHRIDVSHFLDOVNLOO:H$)),50+XPSKUH\jVFRQYLFWLRQV
%HFDXVH ZH FRQFOXGH WKDW WKH GLVWULFW FRXUW HUURQHRXVO\
DSSOLHG 866*  % ZH 9$&$7( +XPSKUH\jV
VHQWHQFHDQG5(0$1'IRUUHVHQWHQFLQJ
                      ,%$&.*5281'
   )URPWR+XPSKUH\ZDVHPSOR\HGDVDEDQN
DQGYDXOWWHOOHUIRU+DPLOWRQ%DQNODWHUNQRZQDV6XQ7UXVW
%DQN m%DQNl RI sRKQVRQ &LW\ 7HQQHVVHH  :KHQ VKH
EHFDPHDYDXOWWHOOHULQ+XPSKUH\DFWHGDVWKHKHDG
WHOOHU IRU WHQ RI WKH %DQNjV EUDQFKHV KHU UHVSRQVLELOLWLHV
LQFOXGHG FRXQWLQJ WKH FRQWHQWV RI WKH %DQNjV YDXOW ZKLFK
VWRUHG FDVK ORRVH FRLQ DQG IRRG VWDPSV DQG FRQGXFWLQJ
YDULRXV WUDQVDFWLRQV ZLWK WKH )HGHUDO 5HVHUYH %DQN
m5HVHUYHl+XPSKUH\KDQGOHGWKHVKLSPHQWRIIRRGVWDPSV
WRWKH5HVHUYHIRUFUHGLWLQWKH%DQNjVDFFRXQWV
  ,Q ODWH  5REHUW 2GLH 0DMRU m0DMRUl ZKR KDG
UHFHQWO\EHHQQDPHG%DQNSUHVLGHQWEHFDPHFRQFHUQHGZKHQ
    8QLWHG6WDWHVY+XPSKUH\                       1R       1R                    8QLWHG6WDWHVY+XPSKUH\          

   ,Q ODWH  RU HDUO\  WKH EDQN UHFRUGV VKRZHG DQ     KHUHFHLYHGDQDXGLWWKDWVKRZHGDQXQXVXDOO\KLJKDPRXQWRI
LQYHQWRU\RIDSSUR[LPDWHO\RIIRRGVWDPSVs$DW            IRRGVWDPSVLQWKH%DQNjVYDXOW%\HDUO\WKH%DQN
  0RVW ZHUH QR ORQJHU WKHUH KDYLQJ EHHQ VHQW IRU         LPSOHPHQWHGQHZSURFHGXUHVWKDWUHTXLUHGWKHVKLSPHQWRI
UHGHPSWLRQ6KHZRXOGDOVRGHOD\HQWHULQJUHFRUGVRIFDVK              IRRG VWDPSV RQ D ZHHNO\ EDVLV  2Q 0DUFK  
WUDQVDFWLRQV ZLWK WKH )HGHUDO 5HVHUYH VR WKDW WKH EDQNjV        +XPSKUH\SUHSDUHGWKHVKLSPHQWRIZRUWKRIIRRG
UHFRUGVZRXOGDSSHDUWREDODQFHDOWKRXJKWKH\ZRXOGVKRZ               VWDPSV WR WKH 5HVHUYH  7KH WLFNHW IRU WKLV VKLSPHQW ZDV
DKXJHLQYHQWRU\RIIRRGVWDPSV                                        DSSURYHGE\WZRHPSOR\HHVDVUHTXLUHGE\WKH%DQNjVGXDO
                                                                        FRQWUROSROLF\+RZHYHUZKHQWKH%DQNLQWHUYLHZHG7RPPL
   :KHQQHZPDQDJHPHQWGLUHFWHGUHGHPSWLRQRIWKHIRRG                  7XUE\ILOO m7XUE\ILOOl LQ WKH FRXUVH RI LQYHVWLJDWLQJ D
VWDPSLQYHQWRU\GHIHQGDQWZDVDVNHGWRVHQGWKHEDFNORJRI             SUHYLRXVVKLSPHQWWKDWWKH5HVHUYHKDGQRWFOHDUHG7XUE\ILOO
IRRG VWDPSV mDV VKH FRXOGl  s$ DW   'HIHQGDQW ODWHU   GHQLHGDSSURYLQJWKH0DUFKVKLSPHQWRUVLJQLQJWKHWLFNHW
DVNHGZKHWKHUWKDWGLUHFWLYHFRXOGEHPRGLILHGVD\LQJVKH
KDG VSRNHQ WR WKH DXGLWRU DQG ZDV WROG WKHUH FRXOG EH D        2Q6HSWHPEHU0DMRUFRQIURQWHG+XPSKUH\DERXW
YDULDWLRQs$DW7KHEDQNRSHUDWLRQRIILFHU0V/DZV         WKLV GLVFUHSDQF\  :KHQ +XPSKUH\ DGPLWWHG WKDW VKH KDG
VSRNH WR WKH DXGLWRU DQG GHWHUPLQHG WKDW WKH GLUHFWLYH WR      VLJQHG7XUE\ILOOjVLQLWLDOVRQWKHWLFNHWKHJDYHKHUWKHRSWLRQ
UHGXFHWKHIRRGVWDPSEDODQFHVKRXOGEHFDUULHGRXW:KHQ              RIUHVLJQLQJRUEHLQJWHUPLQDWHG+XPSKUH\FKRVHWRUHVLJQ
WKHGLUHFWLYHZDVFRQILUPHGGHIHQGDQWVDLGVKHZDVGRLQJWKH           VKH GLG QRW TXHVWLRQ WKH %DQNjV GXDO FRQWURO SROLF\ RU WKH
EHVWVKHFRXOG                                                         UHDVRQIRUKHUWHUPLQDWLRQ$IWHU+XPSKUH\jVUHVLJQDWLRQ
                                                                        JURXSVRIWZRDQGIRXU%DQNHPSOR\HHVFRXQWHGWKHFDVKLQ
   'HIHQGDQWWUDLQHGWKHRWKHUWHOOHUVZKRZRUNHGLQWKHYDXOW         WKHYDXOWDQGGLVFRYHUHGDWRWDOORVVLQH[FHVVRI
6KHKHUVHOIFRXQWHGDOOWKHPRQH\$OWKRXJKWZRVLJQDWXUHV
ZHUHUHTXLUHGRQWKHIRUPVVHQWWRWKH)HGHUDO5HVHUYHWKH                2Q )HEUXDU\   D IHGHUDO JUDQG MXU\ LQGLFWHG
RWKHUWHOOHUVLQDFFRUGDQFHZLWKGHIHQGDQWjVGLUHFWLYHPHUHO\        +XPSKUH\RQRQHFRXQWRIHPEH]]OLQJIXQGVLQYLRODWLRQRI
GHWHUPLQHGLIWKHDPRXQWHQWHUHGRQWKHYDULRXVIRUPVZDV                86&   DQG VL[ FRXQWV RI PDNLQJ IDOVH HQWULHV LQ
WKHDPRXQWVKHKDGVWDWHGZDVLQWKHSDFNDJHV:KDWVKH                YLRODWLRQRI86&%HIRUHWULDOWKHGLVWULFWFRXUW
VWDWHG ZDV KHU FRXQW RI WKH PRQH\ RU IRRG VWDPSV  ,Q        JUDQWHGWKH*RYHUQPHQWjVPRWLRQWRGLVPLVV&RXQWDQGWKH
GHVLJQDWLQJGHIHQGDQWWRWUDLQWKHRWKHUHPSOR\HHV6XQ7UXVW           IRUIHLWXUHSRUWLRQRI&RXQW+XPSKUH\SOHDGHGQRWJXLOW\
ZDVDVVLJQLQJKHUPDQDJHULDOGXWLHV                                   DQGSURFHHGHGWRWULDOZKHUHDMXU\IRXQGKHUJXLOW\RIDOO
                                                                        FKDUJHV2Q1RYHPEHU+XPSKUH\ILOHGDPRWLRQIRU
   7HUUL/RYHRQHRIWKHRWKHUWHOOHUVWHVWLILHGWKDWGHIHQGDQW       D MXGJPHQWRIDFTXLWWDORUIRUDQHZWULDODUJXLQJWKDWWKH
WROGKHUVKH0UV+XPSKUH\KDGWRFRXQWDOOWKHPRQH\DQG             HYLGHQFHZDVLQVXIILFLHQWWRVXVWDLQDQ\RIKHUFRQYLFWLRQV
WKDWWKHRWKHUWHOOHUVFRXOGQRWFRXQWPRQH\LQWKHYDXOWs$        DQGWKDWWKHGLVWULFWFRXUWKDGHUUHGLQDGPLWWLQJFRLQEDJV
DW                                                              ILOOHGZLWKVW\URIRDPmSHDQXWVlLQWRHYLGHQFH7KHGLVWULFW
                                                                        FRXUWRYHUUXOHG+XPSKUH\jVPRWLRQ2Q)HEUXDU\
  ,Q YLHZ RI WKH WRWDOLW\ RI WKH HYLGHQFH RI GHIHQGDQWjV       WKHGLVWULFWFRXUWHQWHUHGMXGJPHQWDQGVHQWHQFHG+XPSKUH\
DXWKRULW\ DQG SRVLWLRQ LQ WKH EDQN , EHOLHYH WKHUH ZDV        WRWKLUW\VL[PRQWKVRQHDFKRIWKHVL[FRXQWVWREHVHUYHG
VXIILFLHQWHYLGHQFHIRUWKHFRXUWWRFRQFOXGHGHIHQGDQWKDGD           FRQFXUUHQWO\DQGDILYH\HDUWHUPRIVXSHUYLVHGUHOHDVH2Q
SRVLWLRQRIWUXVW8QWLOVKHKDGWKHGLVFUHWLRQWRGHFLGH        )HEUXDU\+XPSKUH\ILOHGDWLPHO\QRWLFHRIDSSHDO
ZKHQIRRGVWDPSVZRXOGEHVHQWRUUHWDLQHG6KHKDGVLPLODU
GLVFUHWLRQ ZLWK UHVSHFW WR ORRVH FKDQJH DOVR IRXQG WR EH
WKRXVDQGVRIGROODUVVKRUW
       8QLWHG6WDWHVY+XPSKUH\                         1R        1R                     8QLWHG6WDWHVY+XPSKUH\          

                          ,,$1$/<6,6                                       BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
$3HUHPSWRU\&KDOOHQJHV                                                      &21&855,1*,13$57',66(17,1*,13$57
                                                                              BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
  +XPSKUH\ ILUVW DUJXHV WKDW WKH GLVWULFW FRXUW HUUHG LQ
UHIXVLQJWRDOORZKHUWRmEDFNVWULNHlGXULQJWKHMXU\VHOHFWLRQ                 .(11('< &LUFXLW sXGJH FRQFXUULQJ LQ SDUW DQG
SURFHVV  :H QRWH DV D JHQHUDO PDWWHU WKDW ZH UHYLHZ D           GLVVHQWLQJ LQ SDUW  , FRQFXU LQ DOO RI WKH &RXUWjV RSLQLRQ
GLVWULFWFRXUWjVPHWKRGIRUH[HUFLVLQJSHUHPSWRU\FKDOOHQJHV                 H[FHSW WKH KROGLQJ WKDW WKH GLVWULFW FRXUW HUUHG LQ LWV
IRUDQDEXVHRIGLVFUHWLRQ8QLWHG6WDWHVY0RVHO\)G               GHWHUPLQDWLRQ WKDW GHIHQGDQW RFFXSLHG D SRVLWLRQ RI WUXVW
WK&LUFHUWGHQLHG86,QWKLV               XQGHU8QLWHG6WDWHV6HQWHQFLQJ*XLGHOLQH%6HFWLRQ
FDVHKRZHYHUWKHLVVXHZDVQRWSURSHUO\UDLVHGEHIRUHWKH                  % SURYLGHV D WZROHYHO HQKDQFHPHQW LI D GHIHQGDQW
GLVWULFWFRXUWWKHUHIRUHLWZDVQRWSUHVHUYHGIRUXVWRUHYLHZ            mDEXVHGDSRVLWLRQRISXEOLFRUSULYDWHWUXVWLQDPDQQHU
,QVWHDGRIREMHFWLQJWRWKHFRQWHQWRIWKHGLVWULFWFRXUWjVUXOH             WKDWVLJQLILFDQWO\IDFLOLWDWHGWKHFRPPLVVLRQRUFRQFHDOPHQW
DJDLQVW EDFNVWULNLQJ GHIHQVH FRXQVHO DUJXHG WKDW KH KDG              RIWKHRIIHQVHl7KHFRPPHQWDU\WRWKHJXLGHOLQHVGHILQHV
IRUJRWWHQ RU RYHUORRNHG WKH UXOH RI ZKLFK KH KDG DFWXDO            DSRVLWLRQRIWUXVWDVRQHmFKDUDFWHUL]HGE\SURIHVVLRQDORU
QRWLFHEHFDXVHKHZDVVLFNZLWKWKHIOX'HIHQVHFRXQVHOGLG               PDQDJHULDOGLVFUHWLRQl866*%DSSQ%HFDXVH
QRWUDLVHDOHJDOLVVXHEXWHVVHQWLDOO\UHTXHVWHGWKDWWKHGLVWULFW          ,EHOLHYHWKHHYLGHQFHZDVVXIILFLHQWWRILQG+XPSKUH\DEXVHG
FRXUWJLYHKLPDQRSSRUWXQLW\WRFRUUHFWKLVPLVWDNH'HIHQVH               D SRVLWLRQ RI WUXVW , ZRXOG DIILUP WKH GLVWULFW FRXUWjV
FRXQVHO GLG DUJXH WKDW WKH *RYHUQPHQW FRXOG QRW VKRZ                 LPSRVLWLRQRIWKHDEXVHRIWUXVWHQKDQFHPHQW
SUHMXGLFHEXWWKLVFRQWHQWLRQSURYLGHVLQVXIILFLHQWVXSSRUWIRU
DQREMHFWLRQ:HWKXVGHFOLQHWRUHYLHZWKLVFODLP                          $V KHDG YDXOW WHOOHU DW 6XQ 7UXVW %DQN LQ sRKQVRQ&LW\
                                                                             7HQQHVVHH DQG D WZHQW\\HDU HPSOR\HH RI WKH EDQN
%(YLGHQWLDU\3UREOHPV                                                     GHIHQGDQWZDVUHVSRQVLEOHIRUUHFHLYLQJH[FHVVFDVKIURPWHQ
                                                                             EUDQFKHV RI 6XQ 7UXVW DV ZHOO DV IRRG VWDPSV IURP WKRVH
  :HUHYLHZDGLVWULFWFRXUWjVDGPLVVLRQRIHYLGHQFHIRUDQ                  EUDQFKHV([FHVVFDVKLIQRWQHHGHGDWRWKHUEUDQFKHVZDV
DEXVHRIGLVFUHWLRQ8QLWHG6WDWHVY+DUW)G                GHSRVLWHG ZLWK WKH )HGHUDO 5HVHUYH %DQN LQ 1DVKYLOOH
WK&LUFHUWGHQLHG86VHHDOVR                7HQQHVVHH  )RRG VWDPSV ZHUH DOVR VHQW WR WKH 1DVKYLOOH
7UHSHOY5RDGZD\([SUHVV,QF)GWK                   EUDQFKRIWKH)HGHUDO5HVHUYH%DQNIRUUHGHPSWLRQDQGDFDVK
&LUFLWLQJ*HQ(OHF&RYsRLQHU86               FUHGLWWRWKHEDQN5HFHLSWVIURPWKH)HGHUDO5HVHUYHZHUH
IRUWKHSURSRVLWLRQWKDWDOOHYLGHQWLDU\GHFLVLRQVDUH               UHWXUQHG WR GHIHQGDQW DQG VKH ZDV WKH SHUVRQ FRQWDFWHG DW
UHYLHZHG IRU DQ DEXVH RI GLVFUHWLRQ  m7KH VFRSH RI WKLV          sRKQVRQ&LW\6XQ7UXVW%DQNZKHQWKH)HGHUDO5HVHUYHKDG
GLVFUHWLRQKDVEHHQEURDGO\FRQVWUXHGDQGWKHWULDOFRXUWjV                 TXHVWLRQV
DFWLRQV DUH WR EH VXVWDLQHG XQOHVV PDQLIHVWO\ HUURQHRXVl
                                                                               'HIHQGDQWGHWHUPLQHGZKHQIRRGVWDPSVZRXOGEHVHQWIRU
                                                                             UHGHPSWLRQ+HUSRVLWLRQUHTXLUHGKHUWRYHULI\DOOPRQLHVLQ
    
                                                                             WKHYDXOWDQGFDVKDQGIRRGVWDPSVKLSPHQWV6KHPDLQWDLQHG
     /RFDO UXOHV DJDLQVW EDFNVWULNLQJ SUHFOXGH FRXQVHO IURP H[HUFLVLQJ       WKH UHFRUG RI WKH YDXOWjV WUDQVDFWLRQV  %\ UHFRUGLQJ WKH
WKHLU UHPDLQLQJ SHUHPSWRU\ FKDOOHQJHV DJDLQVW MXURUV ZKRP FRXQVHO KDG        SURFHHGVIURPIRRGVWDPSVKLSPHQWVWRWKH)HGHUDO5HVHUYH
SUHYLRXVO\ SDVVHG LQ FRQGXFWLQJ WKH YRLU GLUH ,Q RWKHU ZRUGV LQGLYLGXDOV
                                                                             DVFDVKGHSRVLWVUDWKHUWKDQIRRGVWDPSUHGHPSWLRQVVKHZDV
                                                                             DEOHWRFRQFHDOKHUHPEH]]OHPHQWIRUDVXEVWDQWLDOWLPH
ZKR DUH QRW VWUXFN DIWHU D SDQHO RI SURVSHFWLYH MXURUV KDV EHHQ TXHVWLRQHG
EHFRPH PHPEHUV RI WKH DFWXDO MXU\ 6HH 8QLWHG 6WDWHV Y $QGHUVRQ 
)G   WK &LU 
   8QLWHG6WDWHVY+XPSKUH\                    1R      1R                       8QLWHG6WDWHVY+XPSKUH\               

H[HFXWLYH DQG DQ RUGLQDU\ EDQN WHOOHU FDQ HPEH]]OH IXQGV   3HUVLDQ*DOOHULHV,QFY7UDQVFRQ,QV&R)G
IURPDEDQNEXWRQO\WKHIRUPHURFFXSLHVDSRVLWLRQRIWUXVW      WK &LU  LQWHUQDO TXRWDWLRQ PDUNV DQG FLWDWLRQ
7KHDEXVHRIDSRVLWLRQRIWUXVWVHQWHQFLQJHQKDQFHPHQWWKXV       RPLWWHG
FDSWXUHVWKHGLVWLQFWLRQEHWZHHQWKHWZRSRVLWLRQVLWGRHVQRW
GRXEOHFRXQWWKHRIIHQVH,QDQ\HYHQWZHKDYHKHOGLQSDUW        $GPLVVLRQRI&RLQ%DJV
,,'WKDW+XPSKUH\GLGQRWKROGDSRVLWLRQRIWUXVWVRWKHUH
LVQRSRVVLELOLW\RIGRXEOHFRXQWLQJKHUH                            +XPSKUH\ FODLPV WKDW WKH GLVWULFW FRXUW DEXVHG LWV
                                                                   GLVFUHWLRQ LQ DGPLWWLQJ  FRLQ EDJV DV GHPRQVWUDWLYH
                    ,,,&21&/86,21                               HYLGHQFH  $W WULDO WKH *RYHUQPHQW LQWURGXFHG DV
                                                                   *RYHUQPHQW ([KLELW D D YDXOW FDVK IRUP GDWHG 0D\ 
  )RU WKH IRUHJRLQJ UHDVRQV ZH $)),50 +XPSKUH\jV            DQGYHULILHGE\+XPSKUH\WKDWVKRZHGDQLQYHQWRU\RI
FRQYLFWLRQVEXW9$&$7(KHUVHQWHQFHDQG5(0$1'IRU                 LQORRVHFRLQ7KH*RYHUQPHQWDOVRLQWURGXFHG
UHVHQWHQFLQJFRQVLVWHQWZLWKWKLVRSLQLRQ                         DYLGHRWDSHGDWHG0D\WKDWVKRZHGWKHDUHDLQVLGH
                                                                   WKH%DQNjVYDXOWZKHUHORRVHFRLQZDVVWRUHG7KHSXUSRVHRI
                                                                   WKHGHPRQVWUDWLYHHYLGHQFHZDVWRVKRZWKHMXU\ZKDW
                                                                   FRLQEDJVZRXOGORRNOLNHDQGWRHVWDEOLVKWKDWWKHYDXOWGLG
                                                                   QRWFRQWDLQWKDWPDQ\FRLQEDJV6L[RIWKHEDJVZHUH
                                                                   ILOOHGZLWKFRLQVWKHUHPDLQGHUZHUHVWXIIHGZLWKVW\URIRDP
                                                                   SHDQXWVWRWKHDSSUR[LPDWHVL]HRIWKHEDJVILOOHGZLWKFRLQV
                                                                     'HIHQVHFRXQVHOREMHFWHGWRWKHGHPRQVWUDWLRQDUJXLQJWKDW
                                                                   WKH HYLGHQFH ZDV SUHMXGLFLDO EHFDXVH WKH EDJV ILOOHG  ZLWK
                                                                   VW\URIRDP ZHUH ELJJHU WKDQ WKRVH ILOOHG ZLWK FRLQV  7KH

                                                                       
                                                                          +XPSKUH\ VXJJHVWV RQ DSSHDO WKDW WKH FRLQ EDJV mKHOG QR SUREDWLYH
                                                                   YDOXHl $SSHOODQWjV %U DW  +RZHYHU GHIHQVH FRXQVHO DW WULDO EDVHG
                                                                   KLV REMHFWLRQ WR WKH GHPRQVWUDWLRQ VROHO\ RQ WKH JURXQG WKDW DOO RI WKH EDJV
                                                                   ZHUH QRW ILOOHG ZLWK FRLQV m>:@KHQ ZHjUH WROG WKDW WKH\jUH JRLQJ WR GR D
                                                                   GHPRQVWUDWLRQ RI DFWXDO FRLQDJH WKHUHjV QR ZD\ ZH FDQ REMHFW WR WKDW
                                                                   WKDWjV FRLQDJH EXW ZKDW \RXjUH JRLQJ WR ILQG KHUH LV WKDW DOO RI WKLV VWXII
                                                                   KHUH LV QRW FRLQDJH 7KHUHjV RQO\ IRXU RU ILYH EDJV KHUH WKDWjV FRLQDJH
                                                                   DQG WKH UHVW RI LW LV IOXIIl sRLQW $SSHQGL[ ms$l DW 
                                                                         $W D SUHWULDO FRQIHUHQFH KHOG EHIRUH 8QLWHG 6WDWHV 0DJLVWUDWH sXGJH
                                                                   'HQQLV + ,QPDQ WKH *RYHUQPHQW QRWLILHG WKH FRXUW DQG WKH GHIHQVH WKDW
                                                                   LW LQWHQGHG WR LQWURGXFH EDJV RI FRLQV WRWDOLQJ  WR  DQG
                                                                   DGGLWLRQDO HPSW\ EDJV WR VKRZ ZKDW  ZRXOG ORRN OLNH 7KH
                                                                   *RYHUQPHQW H[SODLQHG WKDW RQO\ D SRUWLRQ RI WKH  ZRXOG EH LQ
                                                                   DFWXDO FRLQV EHFDXVH EULQJLQJ  WR RSHQ FRXUW ZRXOG SUHVHQW
                                                                   ORJLVWLFDO DQG VHFXULW\ SUREOHPV +XPSKUH\jV DUJXPHQW WKXV LV RQH RI
                                                                   SUHMXGLFH EDVHG RQ WKH IDFW WKDW WKH *RYHUQPHQW LQWURGXFHG EDJV ILOOHG
                                                                   ZLWK VW\URIRDP SHDQXWV UDWKHU WKDQ WKH HPSW\ EDJV WKDW ZHUH GLVFXVVHG DW
                                                                   WKH SUHWULDO FRQIHUHQFH
     8QLWHG6WDWHVY+XPSKUH\                       1R       1R                   8QLWHG6WDWHVY+XPSKUH\        

GLVWULFWFRXUWWKRXJKWRWKHUZLVH$IWHUKHDULQJIURPDQH[SHUW         UHFHLYHGQRHGXFDWLRQRUWUDLQLQJEH\RQGKLJKVFKRRO:KHQ
ZLWQHVVZKRVWDWHGWKDWWKHEDJVILOOHGZLWKVW\URIRDPZHUH             VKH UHVLJQHG IURP WKH %DQN DIWHU ZRUNLQJ WKHUH IRU RYHU
UHSUHVHQWDWLYHRIDQGmDERXWWKHVDPHVL]HlLQYROXPHDVWKH            WZHQW\\HDUVKHUDQQXDOVDODU\ZDVDSSUR[LPDWHO\
EDJVILOOHGZLWKFRLQVWKHGLVWULFWFRXUWDGPLWWHGWKHH[KLELW        7KH*RYHUQPHQWFLWHV+XPSKUH\jVmH[SHUWLVHLQDFFRXQWLQJ
QRWLQJWKDWGHIHQVHFRXQVHOFRXOGUDLVHWKLVLVVXHRQFURVV            SURFHGXUHV>@ZKLFKHQDEOHGKHUWRPDQLSXODWHWKHUHFRUGVWR
H[DPLQDWLRQsRLQW$SSHQGL[ms$lDW'HIHQVH               PDNHWKHYDXOWDSSHDUDVLILWZDVDOZD\VLQEDODQFHZKHQLQ
FRXQVHOSURFHHGHGWRGRVR:LWQHVVHVIRUWKH*RYHUQPHQW               IDFWLWZDVQRWl$SSHOOHHjV%UDW+RZHYHUZHDUHQRW
ODWHUWHVWLILHGWKDWWKH\GLGQRWVHHWKDWPXFKORRVHFRLQLQWKH       SHUVXDGHGWKDWVXFKPDQLSXODWLRQZRXOGUHTXLUHDULWKPHWLF
%DQNjVYDXOWRQ0D\RURQDQ\RWKHUGD\                      VNLOOVPRUHDGYDQFHGWKDQWKRVHSRVVHVVHGE\PHPEHUVRIWKH
                                                                        JHQHUDOSXEOLF&I8QLWHG6WDWHVY:KLWH)G
   8QGHU )HGHUDO 5XOH RI (YLGHQFH  HYLGHQFH WKDW LV         WK&LUXSKROGLQJWKHDSSOLFDWLRQRIWKHVSHFLDOVNLOO
UHOHYDQW mPD\ EH H[FOXGHG LI LWV SUREDWLYH YDOXH LV             HQKDQFHPHQWWRDGHIHQGDQWZKRKHOGWKHKLJKHVWFDWHJRU\
VXEVWDQWLDOO\RXWZHLJKHGE\WKHGDQJHURIXQIDLUSUHMXGLFHl            OLFHQVH WKDW .HQWXFN\ FRQIHUUHG WR ZDWHU WUHDWPHQW SODQW
,G,QDGPLWWLQJWKHFRLQEDJVLQWRHYLGHQFHWKHGLVWULFWFRXUW       RSHUDWRUVDQGQRWLQJWKDWWKHOLFHQVHmUHTXLUHVDQQXDOWUDLQLQJ
GLG QRW H[SUHVVO\ ZHLJK WKHLU SUREDWLYH YDOXH DJDLQVW WKH       HGXFDWLRQDO FRXUVHV DQG FRPSOHWLRQ RI DQ H[DPLQDWLRQl
GDQJHU RI XQIDLU SUHMXGLFH EXW LW GLG UHFRJQL]H WKDW WKH      7KXV QHLWKHU SURQJ RI 866*  % LV DSSOLFDEOH DQG
*RYHUQPHQWZDQWHGWKHMXU\WRVHHZKDWWKHEDJVZRXOGORRN              +XPSKUH\ VKRXOG EH UHVHQWHQFHG ZLWKRXW WKH WZROHYHO
OLNHLQWKH%DQNjVYDXOW5HYLHZLQJWKLVHYLGHQWLDU\GHFLVLRQ         HQKDQFHPHQW
ZH DUH QRW SHUVXDGHG WKDW WKH GLVWULFW FRXUW DEXVHG LWV
GLVFUHWLRQ  +XPSKUH\ REVHUYHV RQ DSSHDO WKDW WKH                  'RXEOH&RXQWLQJ
*RYHUQPHQWFRXOGKDYHLQWURGXFHGmDSKRWRJUDSKRI>VLF@
EDJVRIDFWXDOFRLQVSODFHGLQVLGHWKHYDXOWlRUXVHGm>R@WKHU             +XPSKUH\FODLPVWKDWWKHGLVWULFWFRXUWHUUHGLQHQKDQFLQJ
PHDQV RI GHPRQVWUDWLRQl  $SSHOODQWjV %U DW   7KH          KHUVHQWHQFHIRUDEXVHRIDSRVLWLRQRIWUXVWEHFDXVHWKHEDVH
TXHVWLRQEHIRUHWKHGLVWULFWFRXUWKRZHYHUZDVZKHWKHUWKH            RIIHQVHOHYHODOUHDG\DFFRXQWHGIRUVXFKFRQGXFW,Q5DJODQG
SUREDWLYHYDOXHRIWKHFRLQEDJVZDVVXEVWDQWLDOO\RXWZHLJKHG           ZH GHWHUPLQHG WKDW  % LV DSSOLFDEOH WR GHIHQGDQWV
E\WKHGDQJHURIXQIDLUSUHMXGLFH$OWKRXJKWKHDPRXQWDW              FRQYLFWHG RI  86&   DQG  EXW WKDW WKH
LVVXHZDVLQH[FHVVRIZKLFKZRXOGKDYHILOOHG            GHIHQGDQWLQWKDWFDVHGLGQRWKROGDSRVLWLRQRIWUXVW)G
FRLQEDJVWKH*RYHUQPHQWLQWURGXFHGKDOIWKDWQXPEHU:H              DWVHHDOVR8QLWHG6WDWHVY%URZQ)G
WKHUHIRUH FRQFOXGH WKDW WKH GLVWULFW FRXUW GLG QRW DEXVH LWV   WK &LU  KROGLQJ WKDW mDEXVH RI WUXVW >LV QRW@ D
GLVFUHWLRQLQDGPLWWLQJWKHFRLQEDJVDVHYLGHQFH                      QHFHVVDU\ HOHPHQW RI WKH FULPH RI HPEH]]OHPHQWl FHUW
                                                                        GHQLHG86FI8QLWHG6WDWHVY6RQVDOOD
  +XPSKUH\DOVRFRQWHQGVWKDW*RYHUQPHQWZLWQHVVHVVKRXOG               )GWK&LUUHDIILUPLQJWKDWmEUHDFK
QRW KDYH EHHQ DOORZHG WR WHVWLI\ DERXW WKH QXPEHU RI FRLQ     RI WUXVW LV D QHFHVVDU\ HOHPHQW RI HPEH]]OHPHQW XQGHU 
EDJVWKDWZHUHGHSLFWHGLQWKH%DQNjVVXUYHLOODQFHYLGHRRI             86&lEXWWKDWmDEXVHRIWUXVWLVQRWl8QLWHG6WDWHV
WKHYDXOW:HFRQFOXGHWKDWWKLVDUJXPHQWODFNVPHULW1RW            Y%URXPDV)G'&&LUFROOHFWLQJ
RQO\GLGGHIHQVHFRXQVHOIDLOWRREMHFWDWWULDOEXWDOVR)HGHUDO      FDVHVIURPWKHILYHFLUFXLWVWKDWKDGSUHYLRXVO\UHMHFWHGWKH
5XOHRI(YLGHQFHSURYLGHVWKDWmWHVWLPRQ\LQWKHIRUPRI            GRXEOHFRXQWLQJ DUJXPHQW FHUW GHQLHG  86 
DQ RSLQLRQ RU LQIHUHQFH RWKHUZLVH DGPLVVLEOH LV QRW               +XPSKUH\DUJXHVWKDWWKHIXQGVLQWKLVFDVHZHUH
REMHFWLRQDEOH EHFDXVH LW HPEUDFHV DQ XOWLPDWH LVVXH WR EH       mLQWUXVWHGWRWKHFXVWRG\RUFDUHRIWKHEDQNl$SSHOODQWjV%U
GHFLGHG E\ WKH WULHU RI IDFWl ZLWK D OLPLWHG H[FHSWLRQ QRW   DW   7KLV IDFW KRZHYHU LV LUUHOHYDQW  %RWK D EDQN
    8QLWHG6WDWHVY+XPSKUH\                        1R        1R                      8QLWHG6WDWHVY+XPSKUH\             

mHPSOR\HHV ZKR DGPLQLVWHU DQRWKHUjV SURSHUW\ IURP WKRVH             SHUWLQHQWKHUH7KHZLWQHVVHVZHUH%DQNHPSOR\HHVDQGLW
DXWKRUL]HGRQO\WRKDQGOHLWEXWZKRDUHOLJKWO\VXSHUYLVHGl             DSSHDUVWKDWWKH\WHVWLILHGDERXWWKHLUSHUVRQDONQRZOHGJHRI
FLWLQJ8QLWHG6WDWHVY7ULEEOH)GWK&LU             WKH YDXOWjV FRQWHQWV  7KHLU WHVWLPRQ\ ZDV WKXV FOHDUO\
  +XPSKUH\jV MRE UHVSRQVLELOLWLHV GLG QRW LQYROYH           DGPLVVLEOH
ILGXFLDU\GXWLHVOLNHWKRVHRIDORDQRIILFHURUDQLQYHVWPHQW
FRQVXOWDQW&I8QLWHG6WDWHVY%HUULGJH)G                ([FOXVLRQRI0HPR
WK &LU  KROGLQJ WKDW WKH GHIHQGDQW ZKR ZDV YLFH
SUHVLGHQWRIWKHEDQNjVUHWDLOOHQGLQJGLYLVLRQKHOGDSRVLWLRQ            +XPSKUH\ DUJXHV WKDW WKH GLVWULFW FRXUW DEXVHG LWV
RI WUXVW  7KH YHU\ IDFW WKDW WKH %DQN XVHV D GXDO FRQWURO   GLVFUHWLRQ LQ H[FOXGLQJ DV KHDUVD\ D %DQN PHPR GDWHG
SROLF\ZKLFKUHTXLUHVDWOHDVWWZRHPSOR\HHVWRYHULI\FRXQWV           $XJXVWDERXWDVKLSPHQWRIIRRGVWDPSVIURPWKH
VXJJHVWVWKDW+XPSKUH\ZDVDFFRUGHGOLPLWHGGLVFUHWLRQ,Q               %DQNjVsRKQVRQ&LW\EUDQFKZKHUH+XPSKUH\ZRUNHGWRWKH
DGGLWLRQ RWKHU LQWHUQDO FRQWUROV RSHUDWHG E\ WKH %DQNjV           1DVKYLOOHEUDQFKZKHUH9DQ5D\3HHNV6Um3HHNVlZDV
DFFRXQWLQJ DQG EDODQFH FRQWURO GHSDUWPHQWV VKRXOG KDYH              WKHKHDGWHOOHU$WWULDOGHIHQVHFRXQVHODVNHG3HHNVZKHWKHU
QRWLILHG WKH %DQN WKDW WKH YDXOW ZDV RXW RI EDODQFH             KHKDGmDQ\LQGHSHQGHQWUHFROOHFWLRQRIWKHGDWHVZKHQWKRVH
)XUWKHUPRUH HPSOR\HHV FRQGXFWHG EXVLQHVV LQ WKH YDXOW              LQTXLULHVRFFXUUHGls$DW3HHNVDQVZHUHGWKDWKHGLG
XQGHU WKH VXUYHLOODQFH RI WZR YLGHR FDPHUDV  +XPSKUH\            QRWUHPHPEHUVSHFLILFGDWHVEXWGLGUHFDOOmWKHHYHQWVWKDW
DEXVHGKHUFOHULFDOSRVLWLRQDQGWKH%DQNjVDSSDUHQWWUXVWLQ             WRRN SODFHl  s$ DW   +H ODWHU DIILUPHG RQ FURVV
KHUWRHPEH]]OHFDVKIURPWKH%DQNEXWVKHGLGQRWKROGD                H[DPLQDWLRQWKDWKHUHPHPEHUHGWKHUHOHYDQWHYHQWV
SRVLWLRQRIWUXVW
                                                                            )HGHUDO5XOHRI(YLGHQFHSURYLGHVIRUWKHDGPLVVLRQ
  8VHRI6SHFLDO6NLOO                                                RIGRFXPHQWVDVUHFRUGHGUHFROOHFWLRQVLIWKHZLWQHVVRQFH
                                                                          KDG NQRZOHGJH DERXW D PDWWHU  WKH ZLWQHVV QRZ KDV
   %HFDXVH%LVGUDIWHGLQWKHDOWHUQDWLYH+XPSKUH\                LQVXIILFLHQWPHPRU\WRWHVWLI\DERXWWKDWPDWWHUDQGWKH
PXVWVKRZWKDWVKHQHLWKHUDEXVHGDSRVLWLRQRIWUXVWQRUXVHG            GRFXPHQW ZDV UHFRUGHG ZKHQ WKH PDWWHU ZDV IUHVK LQ WKH
DVSHFLDOVNLOOLQKHURIIHQVH7KHFRPPHQWDU\WR%                ZLWQHVVjV PLQG DQG WKH GRFXPHQW FRUUHFWO\ UHIOHFWV WKH
VWDWHVWKDWDVSHFLDOVNLOOLVmDVNLOOQRWSRVVHVVHGE\PHPEHUV          ZLWQHVVjVNQRZOHGJHRIWKHPDWWHU,QWKLVFDVH3HHNVVWDWHG
RI WKH JHQHUDO SXEOLF DQG XVXDOO\ UHTXLULQJ VXEVWDQWLDO            WKDWKHUHPHPEHUHGWKHHYHQWVLQTXHVWLRQ7KHGLVWULFWFRXUW
HGXFDWLRQ WUDLQLQJ RU OLFHQVLQJ  ([DPSOHV ZRXOG LQFOXGH          WKHUHIRUHFRUUHFWO\H[FOXGHGWKHPHPR
SLORWV ODZ\HUV GRFWRUV DFFRXQWDQWV FKHPLVWV DQG
GHPROLWLRQH[SHUWVl866*%FRPPHQWDU\DSSOLF                  +XPSKUH\DOVRDUJXHVRQDSSHDOWKDWWKHPHPRFRXOGKDYH
QRWH,QWKLVFDVHWKHGLVWULFWFRXUWIRXQGWKDW+XPSKUH\             EHHQ DGPLWWHG DV D EXVLQHVV UHFRUG XQGHU )HGHUDO 5XOH RI
KDGmDFTXLUHGVSHFLDOVNLOOVDQGNQRZOHGJHRIWKHEDQNLQJ                 (YLGHQFH%HFDXVHGHIHQVHFRXQVHOGLGQRWUDLVHWKLV
V\VWHPZKLOHVHUYLQJDVDYDXOWWHOOHUDQGWKDWWKHVHKHOSHGKHU
FRPPLWDQGFRQFHDOKHUFULPHVls$DW
                                                                              
  +XPSKUH\LVDKLJKVFKRROJUDGXDWHZKRKDVVSHQWPRVWLI                      'HIHQVH FRXQVHO VXJJHVWHG DW WULDO WKDW WKH PHPR ZRXOG DVVLVW 3HHNV
QRWDOORIKHUZRUNLQJOLIHDWWKH%DQN6KHKDVDSSDUHQWO\              LQ KLV WHVWLPRQ\ DQG UHIUHVK KLV UHFROOHFWLRQ RI WKH HYHQWV s$ DW 
                                                                           )RU WKLV OLPLWHG SXUSRVH RI FRXUVH WKH GRFXPHQW ZRXOG QRW KDYH
                                                                          EHHQ LQWURGXFHG LQWR HYLGHQFH 6HH 8QLWHG 6WDWHV Y )DXONQHU  )G
                                                                            WK &LU            86    &+$5/(6
                                                                          $/$1 :5,*+7 	 9,&725 s$0(6 *2/' )('(5$/ 35$&7,&( $1'
                                                                                               FHUW GHQLHG

s$ DW                                                               352&('85(   DW  
     8QLWHG6WDWHVY+XPSKUH\                       1R       1R                     8QLWHG6WDWHVY+XPSKUH\           

VSHFLILFH[FHSWLRQDWWULDOZHUHYLHZIRUSODLQHUURU)(' 5          5DJODQGVXJJHVWVWKDWDQLPSRUWDQWSXUSRVHRI%
&5,0 3E7KHEXVLQHVVUHFRUGH[FHSWLRQLVDYDLODEOHLI            LV WKH GHIHQVH RI SULYDWH RUGHULQJ EDVHG RQ WUXVW RU
WKHGRFXPHQWPHHWVIRXUUHTXLUHPHQWVLWZDVmPDGHLQWKH             SUHVXPDEO\LQFDVHVZKHUHmSXEOLFWUXVWlLVYLRODWHGWKH
FRXUVHRIDUHJXODUO\FRQGXFWHGEXVLQHVVDFWLYLW\lLWZDV             QHFHVVDU\IDLWKFLWL]HQVPXVWKDYHLQJRYHUQPHQWIRUD
mNHSWLQWKHUHJXODUFRXUVHRI>@EXVLQHVVlLWZDVWKHUHVXOW         ZHOO IXQFWLRQLQJ UHSXEOLF WKLV VHSDUDWH ZURQJ PHULWV
RI D mUHJXODU SUDFWLFH RI WKH EXVLQHVVl WR FUHDWH VXFK           DGGLWLRQDOSXQLVKPHQW
GRFXPHQWVDQGLWZDVmPDGHE\DSHUVRQZLWKNQRZOHGJH
RIWKHWUDQVDFWLRQRUIURPLQIRUPDWLRQWUDQVPLWWHGE\DSHUVRQ          %URJDQ)GDWFLWDWLRQVRPLWWHG7KLVDQDO\VLVLV
ZLWKNQRZOHGJHl8QLWHG6WDWHVY/DVWHU)G            KLJKO\ LQVWUXFWLYH LQ WKLV FDVH  ,Q DSSO\LQJ WKH DEXVH RI D
WK&LUFLWDWLRQ RPLWWHG$ZLWQHVVPXVWOD\WKH            SRVLWLRQRIWUXVWHQKDQFHPHQWWR+XPSKUH\jVVHQWHQFHWKH
UHTXLVLWHIRXQGDWLRQIRUWKHHYLGHQFHWREHDGPLVVLEOHXQGHU            GLVWULFW FRXUW DGRSWHG WKH *RYHUQPHQWjV OLVW RI ILQGLQJV
WKHEXVLQHVVUHFRUGH[FHSWLRQ8QLWHG6WDWHVY+DWKDZD\              FRQFHUQLQJWKHH[WHQWRI+XPSKUH\jVUHVSRQVLELOLWLHV7KHVH
)GWK&LU3HHNVGLGQRWOD\VXFKD            ILQGLQJVVXSSRUWWKHGLVWULFWFRXUWjVFRQFOXVLRQWKDW+XPSKUH\
IRXQGDWLRQ,QGHHGZKHQWKHGLVWULFWFRXUWDVNHGZKHWKHUWKH          mZDV VXEMHFWHG WR PLQLPDO VXSHUYLVLRQl  s$ DW   )RU
PHPRKDGEHHQmILOHGLQWKH%DQNUHFRUGVl3HHNVDQVZHUHG              H[DPSOH WKH *RYHUQPHQW QRWHG WKDW +XPSKUH\ KDG
m,SUHVXPHLWZDVWKHUH,GLGQjWKDYHDFRS\RILWXQWLOWKLV         mURXWLQHO\FLUFXPYHQWHGlDQGLJQRUHG%DQNSURFHGXUHVs$
PRUQLQJls$DW+HGLGQRWNQRZZKHUHWKHPHPR                 DW   7KH FRQWUROOLQJ TXHVWLRQ KRZHYHU LV ZKHWKHU
KDG EHHQ NHSW  )XUWKHUPRUH WKH IDFW WKDW WKH PHPR ZDV       +XPSKUH\jVOHYHORIGLVFUHWLRQZDVWKDWRIDILGXFLDU\:H
KDQGZULWWHQ FDVWV DW OHDVW VRPH GRXEW RQ ZKHWKHU LW ZDV D     FRQFOXGHWKDWWKHUHFRUGGRHVQRWVKRZE\DSUHSRQGHUDQFHRI
EXVLQHVVGRFXPHQW                                                      WKHHYLGHQFHWKDW+XPSKUH\ZDVLQVXFKDWUXVWUHODWLRQVKLS
                                                                        ZLWKWKH%DQN
&6XIILFLHQF\RIWKH(YLGHQFH
                                                                          $OWKRXJK+XPSKUH\DSSHDUVWRKDYHEHHQXQGHUOLJKWRUQR
   +XPSKUH\ FKDOOHQJHV WKH GLVWULFW FRXUWjV GHQLDO RI KHU        VXSHUYLVLRQZKLFKPDGHLWSRVVLEOHIRUKHUWRPLVUHSUHVHQW
PRWLRQIRUDMXGJPHQWRIDFTXLWWDOEDVHGRQWKHLQVXIILFLHQF\           VKLSPHQWVRIFDQFHOHGIRRGVWDPSVDVVKLSPHQWVRIFDVKRU
RIWKHHYLGHQFH:HUHYLHZGHQRYRDGLVWULFWFRXUWjVGHQLDO           ORRVHFRLQDQGWRPDQLSXODWHWKHWLPLQJRIVKLSPHQWVVKHZDV
RIVXFKDPRWLRQ8QLWHG6WDWHVY7DOOH\)G           QRW DXWKRUL]HG WR H[HUFLVH VXEVWDQWLDO SURIHVVLRQDO RU
WK &LU  FHUW GHQLHG  86    ,Q      PDQDJHULDO GLVFUHWLRQ LQ KHU SRVLWLRQ  +XPSKUH\ GLG WDNH
UHYLHZLQJ+XPSKUH\jVFODLPZHPXVWGHWHUPLQHmZKHWKHU                 DGYDQWDJHRIKHUVHQLRULW\WRRWKHU%DQNHPSOR\HHVWRFRQWURO
DIWHUYLHZLQJWKHHYLGHQFHLQWKHOLJKWPRVWIDYRUDEOHWRWKH           WKHGDLO\FDVKFRXQWDQGWRKDQGOHWKHIRRGVWDPSV+RZHYHU
SURVHFXWLRQDQ\UDWLRQDOWULHURIIDFWFRXOGKDYHIRXQGWKH            VKHZDVQRWLQDWUXVWUHODWLRQVKLSZLWKWKH%DQNVXFKWKDWVKH
HVVHQWLDOHOHPHQWVRIWKHFULPHEH\RQGDUHDVRQDEOHGRXEWl             FRXOG DGPLQLVWHU  LWV SURSHUW\ RU RWKHUZLVH DFW LQ LWV EHVW
sDFNVRQY9LUJLQLD867KHsDFNVRQ             LQWHUHVW  6HH %URJDQ  )G DW  GLVWLQJXLVKLQJ
VWDQGDUGUHTXLUHVXVWRYLHZERWKFLUFXPVWDQWLDODQGGLUHFW
HYLGHQFHLQDOLJKWPRVWIDYRUDEOHWRWKHSURVHFXWLRQ8QLWHG
6WDWHV Y +RIVWDWWHU  )G   WK &LU FHUW
GHQLHG  86    m&LUFXPVWDQWLDO HYLGHQFH
                                                                            
                                                                             7KH   HYLGHQFH LQ WKH UHFRUG DV WR +XPSKUH\jV GLVFUHWLRQ RYHU WKH

DORQHLIVXEVWDQWLDODQGFRPSHWHQWPD\VXSSRUWDYHUGLFWDQG          WLPLQJ RI VKLSPHQWV WR WKH 5HVHUYH LV LQFRQFOXVLYH +XPSKUH\ DSSDUHQWO\
                                                                        WROG D %DQN PDQDJHU WKDW VKH KDG JLYHQ KLJKHU SULRULW\ WR VKLSSLQJ FDVK
QHHGQRWUHPRYHHYHU\UHDVRQDEOHK\SRWKHVLVH[FHSWWKDWRI              UDWKHU VKLSSLQJ WKDQ IRRG VWDPSV EHFDXVH mWKH HPSKDVLV KDG EHHQ SODFHG
                                                                        RQ FDVK    >DQG@ VKH GLGQjW NQRZ WKDW IRRG VWDPSV ZHUH WKH VDPH DV
                                                                        FDVKl HYHQ WKRXJK WKH %DQN UHFHLYHG FUHGLW IRU ERWK LQ WKH VDPH ZD\
    8QLWHG6WDWHVY+XPSKUH\                         1R       1R                    8QLWHG6WDWHVY+XPSKUH\          

LVVXHZHDUHJXLGHGE\WKHFRPPHQWDU\jVGLVWLQFWLRQEHWZHHQ              JXLOWl  7DOOH\  )G DW  TXRWLQJ 8QLWHG 6WDWHV Y
DQRUGLQDU\EDQNWHOOHUDQGDEDQNH[HFXWLYH$YDXOWWHOOHU             .HHWRQ)GWK&LU
REYLRXVO\ IDOOV VRPHZKHUH LQ WKH PLGGOH RI WKLV VSHFWUXP
+XPSKUH\jV OHYHO RI GLVFUHWLRQ ZDV JUHDWHU WKDQ WKDW RI D           +XPSKUH\ FRQWHQGV RQ DSSHDO WKDW WKH DFWV RI RWKHUV o
UHJXODU WHOOHU EXW FRQVLGHUDEO\ OHVV WKDQ WKDW RI D EDQN         QDPHO\ %DQN HPSOR\HHV RU WKH DUPRUHG FDUULHU WKDW
SUHVLGHQW                                                                WUDQVSRUWHG IRRG VWDPSV DQG ORRVH FRLQ IRU WKH %DQN o RU
                                                                          FOHULFDO HUURU FRXOG KDYH FDXVHG WKH %DQNjV ORVVHV  7KHVH
   ,Q8QLWHG6WDWHVY5DJODQG)GWK&LU              DOOHJDWLRQVDUHQRWVXSSRUWHGE\HYHQDVFLQWLOODRIHYLGHQFH
ZHIDFHGDVLPLODUVLWXDWLRQLQYROYLQJDEDQNHPSOR\HHZKRVH              DQG IDLO WR UHEXW WKH VXEVWDQWLDO DPRXQW RI FLUFXPVWDQWLDO
IUDXG FRQVLVWHG RI SRFNHWLQJ IXQGV SDLG E\ FXVWRPHUV IRU          HYLGHQFHWKDWVXSSRUWVWKHMXU\jVJXLOW\YHUGLFW7KHHYLGHQFH
FHUWLILFDWHVRIGHSRVLWm&'VlDQGIRUJLQJWKHVLJQDWXUHVRI             DWWULDOVKRZHGWKDW+XPSKUH\XVHGKHUSRVLWLRQDVWKH%DQNjV
EDQNRIILFHUVRQWKH&'V,GDW,QKROGLQJWKDWWKLV              YDXOWWHOOHUWRUHFRUGVKLSPHQWVRIIRRGVWDPSVWRWKH5HVHUYH
FXVWRPHUVHUYLFHUHSUHVHQWDWLYHGLGQRWRFFXS\mDSRVLWLRQRI             DV VKLSPHQWV RI FDVK RU ORRVH FRLQ  %HFDXVH WKH 5HVHUYH
SXEOLFRUSULYDWHWUXVWlZHUHDGWKLVSKUDVHDVmDWHUPRIDUW          FUHGLWHG WKH %DQN IRU WKH IRRG VWDPSV WKH %DQNjV ERRNV
DSSURSULDWLQJVRPHRIWKHDVSHFWVRIWKHOHJDOFRQFHSWRID               DSSHDUHGWRFOHDU+RZHYHU+XPSKUH\jVPLVUHSUHVHQWDWLRQV
WUXVWHH RU ILGXFLDU\l  ,G DW   :H KDYH PRUH UHFHQWO\     PHDQWWKDWWKH%DQNjVIRRGVWDPSVEDODQFHZDVJUHDWHUWKDQ
HODERUDWHG XSRQ RXU XQGHUVWDQGLQJ RI WKLV VHQWHQFLQJ                WKHQXPEHURIIRRGVWDPSVRQKDQG7KHVKRUWDJHFDPHWR
HQKDQFHPHQW                                                              OLJKWZKHQWKH%DQNDFWHGWRUHGXFHLWVLQIODWHGIRRGVWDPSV
                                                                          EDODQFH
     8QGHU 5DJODQG WKH UDWLRQDOH IRU WKH VHQWHQFLQJ
  HQKDQFHPHQW LV DNLQ WR SXQLVKPHQW IRU YLRODWLQJ D                  +XPSKUH\ DOVR PDLQWDLQV WKDW KHU OLIHVW\OH DQG KHU GHEW
  ILGXFLDU\GXW\DKLJKHUGXW\WKDQWKHRUGLQDU\RQHSODFHG              EXUGHQ GR QRW VXJJHVW WKDW VKH HPEH]]OHG IXQGV IURP WKH
  RQDOOHPSOR\HHVDQGEUHDFKHGE\FRQYHUVLRQ7KHWUXVW                 %DQN  +RZ +XPSKUH\ VSHQW PRQH\ RI FRXUVH KDV QR
  UHODWLRQVKLS DULVHV ZKHQ D SHUVRQ RU RUJDQL]DWLRQ                 EHDULQJ RQ ZKHWKHU VKH WRRN PRQH\  0RUHRYHU DV WKH
  LQWHQWLRQDOO\ PDNHV KLPVHOI RU LWVHOI YXOQHUDEOH WR               *RYHUQPHQWQRWHV+XPSKUH\ZDVLQGLFWHGIRUDQGFRQYLFWHG
  VRPHRQHLQDSDUWLFXODUSRVLWLRQFHGLQJWRWKHRWKHUjV                 RIHPEH]]OLQJPRUHWKDQZKHQWKH%DQNjVWRWDOORVVHV
  SUHVXPHGEHWWHUMXGJPHQWVRPHFRQWURORYHUWKHLUDIIDLUV               ZHUH DSSUR[LPDWHO\   $SSHOOHHjV %U DW   :H
  ,QGHHG WKH JXLGHOLQH H[DPSOHV RI ZKHUH WKH                       WKHUHIRUH FRQFOXGH WKDW WKH FLUFXPVWDQWLDO HYLGHQFH ZDV
  HQKDQFHPHQWLVDSSURSULDWHFRUUHVSRQGWRWKHW\SHVRI                   VXIILFLHQW IRU D UDWLRQDO WULHU RI IDFW WR ILQG EH\RQG D
  UHODWLRQVKLSV ZKHUH ILGXFLDU\ GXWLHV DUH RIWHQ LPSOLHG           UHDVRQDEOHGRXEWWKDW+XPSKUH\ZDVJXLOW\RIWKHFULPHVRI
  SK\VLFLDQSDWLHQWODZ\HUFOLHQWRIILFHURUJDQL]DWLRQ           ZKLFKVKHZDVFRQYLFWHG
  ,Q JHQHUDO WKH IRUPDWLRQ RI WKHVH VRUWV RI FRQILGHQWLDO
  LQWHUGHSHQGHQWUHODWLRQVKLSVLVVRFLDOO\EHQHILFLDO6XFK              '6HQWHQFLQJ
  UHODWLRQVKLSV UHTXLUH KRZHYHU mIDLWK LQ RQHjV IHOORZ
  PDQlZKLFKLVJHQHUDOO\XQGHUPLQHGZKHQDQLQVWDQFH                      +XPSKUH\ FKDOOHQJHV WKH GLVWULFW FRXUWjV GHFLVLRQ WR
  RI DEXVH RFFXUV  5DJODQG  )G DW   ,Q HIIHFW       LQFUHDVHKHURIIHQVHOHYHOXQGHU866*%IRUDEXVH
                                                                          RIDSRVLWLRQRIWUXVWRUXVHRIDVSHFLDOVNLOO6KHDUJXHVWKDW
                                                                          WKH DGMXVWPHQW VKRXOG QRW DSSO\ WR WKRVH ZKR KROG WKH
                                                                          SRVLWLRQRIDYDXOWWHOOHU+XPSKUH\jVEDVHRIIHQVHOHYHOZDV
%UHOVIRUG  )G   WK &LU  QRWLQJ WKDW WKH GHIHQGDQW   LQLWLDOO\FDOFXODWHGDWWKHQLQFUHDVHGE\WHQSRLQWVIRUDORVV
ZDV D WHOOHU VXSHUYLVRU ZKR PRQLWRUHG RWKHU WHOOHUV                     LQ H[FHVV RI  WZR SRLQWV IRU PRUH WKDQ PLQLPDO
       8QLWHG6WDWHVY+XPSKUH\                        1R        1R                         8QLWHG6WDWHVY+XPSKUH\              

SODQQLQJDQGWZRSRLQWVIRUDEXVHRIDSRVLWLRQRIWUXVWRUXVH             *RYHUQPHQWjVOLVWRIILQGLQJVWKDWVKRZHG+XPSKUH\DEXVHG
RIDVSHFLDOVNLOOUHVXOWLQJLQDWRWDORIIHQVHOHYHORIDQGD           KHU SRVLWLRQ RI WUXVW DQG mDFTXLUHG VSHFLDO VNLOOV DQG
VHQWHQFLQJ UDQJH RI WKLUW\WKUHH WR IRUW\RQH PRQWKV  7KH           NQRZOHGJH RI WKH EDQNLQJ V\VWHP ZKLOH VHUYLQJ DV D YDXOW
GLVWULFWFRXUWLPSRVHGDVHQWHQFHRIWKLUW\VL[PRQWKV                      WHOOHU DQG WKDW WKHVH KHOSHG KHU FRPPLW DQG FRQFHDO KHU
                                                                             FULPHVls$DW
  :H UHYLHZ GH QRYR TXHVWLRQV RI ODZ FRQFHUQLQJ WKH
DSSOLFDWLRQRIWKH6HQWHQFLQJ*XLGHOLQHV8QLWHG6WDWHVY                    $EXVHRI3RVLWLRQRI7UXVW
<RXQJ)GWK&LU
                                                                                7KH 6HQWHQFLQJ *XLGHOLQHV FRPPHQWDU\ GHVFULEHV D
   8QGHU%DGLVWULFWFRXUWPD\HQKDQFHE\WZROHYHOV                 SRVLWLRQ RI WUXVW DV RQH mFKDUDFWHUL]HG E\ SURIHVVLRQDO RU
WKHVHQWHQFHRIDGHIHQGDQWZKRKDVmDEXVHGDSRVLWLRQRI                    PDQDJHULDOGLVFUHWLRQLHVXEVWDQWLDOGLVFUHWLRQDU\MXGJPHQW
SXEOLFRUSULYDWHWUXVWRUXVHGDVSHFLDOVNLOOLQDPDQQHUWKDW           WKDWLVRUGLQDULO\JLYHQFRQVLGHUDEOHGHIHUHQFHl866*
VLJQLILFDQWO\IDFLOLWDWHGWKHFRPPLVVLRQRUFRQFHDOPHQWRIWKH               %FRPPHQWDU\DSSOLFQRWH7KHDSSOLFDWLRQQRWH
RIIHQVHl866*%+XPSKUH\jV3UHVHQWHQFH5HSRUW                  VSHFLILHV WKDW WKH DGMXVWPHQW ZRXOG DSSO\ WR mD EDQN
H[SODLQHGWKDWKHUVHQWHQFHVKRXOGEHVRHQKDQFHGEHFDXVH                    H[HFXWLYHjVIUDXGXOHQWORDQVFKHPHlEXWQRWmHPEH]]OHPHQW
VKHKDGXVHGKHUDXWKRULW\DVDYDXOWWHOOHUDQGKHUVHQLRULW\WR            RUWKHIWE\DQRUGLQDU\EDQNWHOOHUl,G:HKDYHSUHYLRXVO\
SUHYHQW WKH YHULILFDWLRQ RI WKH YDXOWjV FRQWHQWV  ,Q KHU           HVWDEOLVKHGWKDWWKHOHYHORIGLVFUHWLRQUDWKHUWKDQWKHDPRXQW
REMHFWLRQWRWKH3UHVHQWHQFH5HSRUW+XPSKUH\FODLPHGWKDW                   RIVXSHUYLVLRQLVWKHGHILQLWLYHIDFWRULQGHWHUPLQLQJZKHWKHU
%ZDVLQDSSOLFDEOHEHFDXVHVKHKDGQRWKHOGDSRVLWLRQ                 DGHIHQGDQWKHOGDQGDEXVHGDSRVLWLRQRIWUXVW8QLWHG6WDWHV
RI WUXVW  ,Q LWV UHVSRQVH WKH *RYHUQPHQW DUJXHG WKDW              Y+RGJH)GWK&LU7KLVGLVFUHWLRQ
+XPSKUH\jVVHQWHQFHVKRXOGEHHQKDQFHGIRUERWKDEXVHRI                     VKRXOG EH VXEVWDQWLDO DQG HQFRPSDVV ILGXFLDU\OLNH
DSRVLWLRQRIWUXVWDQGXVHRIDVSHFLDOVNLOO$WWKHVHQWHQFLQJ           UHVSRQVLELOLWLHV<RXQJ)GDWFLWLQJ8QLWHG6WDWHV
KHDULQJ GHIHQVH FRXQVHO FKDOOHQJHG ERWK HQKDQFHPHQWV                  Y%URJDQ)GWK&LU
+RZHYHU WKH GLVWULFW FRXUW VSHFLILFDOO\ DGRSWHG WKH
                                                                              :KHWKHU 866*  % DSSOLHV WR D YDXOW WHOOHU LV D
                                                                             PDWWHU RI ILUVW LPSUHVVLRQ LQ WKLV FLUFXLW  ,Q GHFLGLQJ WKLV
     
      ,Q FHUWDLQ FLUFXPVWDQFHV ZH UHYLHZ WKH DSSOLFDWLRQ RI D JXLGHOLQH
WR DQ XQGLVSXWHG IDFWXDO VLWXDWLRQ XQGHU D PRUH GHIHUHQWLDO VWDQGDUG
                                                                                 
8QLWHG  6WDWHV Y (QQHQJD  )G   WK &LU  FLWLQJ               ,Q 8QLWHG 6WDWHV Y ,VDDFVRQ  )G  WK &LU  WKH
%XIRUG Y 8QLWHG 6WDWHV  86    6 &W      1LQWK &LUFXLW XSKHOG VXFK DQ DSSOLFDWLRQ EDVHG RQ WKH GHIHQGDQWjV
,Q %XIRUG WKH 6XSUHPH &RXUW DGGUHVVHG mD QDUURZ TXHVWLRQ RI VHQWHQFLQJ      DGGLWLRQDO UHVSRQVLELOLWLHV DV D YDXOW WHOOHU DQG WKH IDFW WKDW WKH GHIHQGDQWjV
ODZl DQG DIILUPHG WKH GHIHUHQWLDO UHYLHZ RI D GLVWULFW FRXUWjV               OHQJWK\ VHUYLFH KDG H[HPSWHG KHU IURP mDOO RI WKH VHFXULW\ FKHFNV WKDW
GHWHUPLQDWLRQ DV WR ZKHWKHU D GHIHQGDQWjV SULRU FRQYLFWLRQV ZHUH             RWKHU WHOOHUV ZHQW WKURXJKl ,G DW  ,Q 8QLWHG 6WDWHV Y sRKQVRQ 
FRQVROLGDWHG DQG WKXV mUHODWHGl IRU VHQWHQFLQJ SXUSRVHV  6 &W DW       )G  WK &LU  FHUW GHQLHG  86   WKH 7HQWK
 7KH %XIRUG &RXUW UHDVRQHG WKDW GHIHUHQWLDO UHYLHZ ZDV DSSURSULDWH      &LUFXLW DOVR XSKHOG WKH DSSOLFDWLRQ RI WKH DEXVH RI D SRVLWLRQ RI WUXVW
m>L@Q OLJKW RI WKH IDFWERXQG QDWXUH RI WKH OHJDO GHFLVLRQ WKH              VHQWHQFLQJ HQKDQFHPHQW WR D YDXOW WHOOHU ZKRVH UHVSRQVLELOLWLHV LQFOXGHG
FRPSDUDWLYHO\ JUHDWHU H[SHUWLVH RI WKH 'LVWULFW &RXUW >LQ PDNLQJ IDFWXDO     RUGHULQJ ZHHNO\ VKLSPHQWV RI FDVK UHFHLYLQJ WKH GHOLYHU\ RI WKH FDVK DQG
GHWHUPLQDWLRQV@ DQG WKH OLPLWHG YDOXH RI XQLIRUP FRXUW RI DSSHDOV           FRXQWLQJ DQG YHULI\LQJ HDFK FDVK GHOLYHU\ DV ZHOO DV VDIHJXDUGLQJ WKH NH\
SUHFHGHQWl ,G DW                                                      WR WKH YDXOW ,G DW 
     %HFDXVH WKH OHJDO TXHVWLRQ UDLVHG LQ WKLV FDVH LV QRW VR PXFK IDFW          2WKHU FLUFXLWV KDYH HPSKDVL]HG WKH DPRXQW RI VXSHUYLVLRQ LQ DSSO\LQJ
ERXQG DV LW LV WLHG WR DQ H[SRVLWLRQ RI ILGXFLDU\ GXWLHV ZH DUH QRW         866*  % 6HH HJ 8QLWHG 6WDWHV Y )LVKHU  )G   WK
FRPSHOOHG E\ %XIRUGjV UDWLRQDOH WR UHYLHZ WKH HQKDQFHPHQW RI                 &LU  GHIHQGDQW D KHDG FDVKLHU EHJDQ WR HPEH]]OH DIWHU KHU
+XPSKUH\jV VHQWHQFH XQGHU D GHIHUHQWLDO VWDQGDUG                            VXSHUYLVRU VWRSSHG FRQGXFWLQJ PRQWKO\ VSRWFKHFNV 8QLWHG 6WDWHV Y