Downs v. Commonwealth of KY

U.S. Court of Appeals for the Sixth Circuit

Downs v. Commonwealth of KY

Opinion

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&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

1R  ; %(9(5/< . %$5721  3ODLQWLII$SSHOODQW   1RV   Y !   3$8/ * 6800(56HWDO  'HIHQGDQWV$SSHOOHHV   1R   +$56+(// & '2:16 s5  .$7+/((1 ' '2:16  3ODLQWLIIV$SSHOODQWV   Y    &20021:($/7+ 2)  .(178&.<HWDO  'HIHQGDQWV$SSHOOHHV 1

$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUWV IRUWKH0LGGOH'LVWULFWRI7HQQHVVHHDW1DVKYLOOHDQG WKH(DVWHUQ'LVWULFWRI.HQWXFN\DW)UDQNIRUW 1RV n7RGGs&DPSEHOO sRVHSK0 +RRG'LVWULFWsXGJHV $UJXHG 1RYHPEHU 

  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

'HFLGHGDQG)LOHG sXQH BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB %HIRUH 5<$1%2**6DQG'$8*+75(<&LUFXLW &21&855,1*,13$57',66(17,1*,13$57 sXGJHV BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB BBBBBBBBBBBBBBBBB 5<$1&LUFXLWsXGJHFRQFXUULQJLQSDUWDQGGLVVHQWLQJLQ SDUW%HFDXVH,DPQRWFRQYLQFHGWKDWWKHSODLQWLIIVjFODLPV &2816(/ DUHEDUUHGE\WKH(OHYHQWK$PHQGPHQWRIWKH8QLWHG6WDWHV &RQVWLWXWLRQ,GHFOLQHWRMRLQ3DUW,, $ RIWKHOHDGRSLQLRQ $5*8(' $QWRQLR3RQYHUW,,,.26.2)).26.2)) %,('(5%ULGJHSRUW&RQQHFWLFXWIRU$SSHOODQWV5XVVHOO ,GRDJUHHKRZHYHUIRUWKHUHDVRQVVRZHOOH[SUHVVHGLQ 7 3HUNLQV 2)),&( 2) 7+( $77251(< *(1(5$/ 3DUW,, % RIP\EURWKHUjVRSLQLRQWKDWWKHSODLQWLIIVKDYHQRW 1DVKYLOOH 7HQQHVVHH ' %UHQW ,UYLQ 2)),&( 2) 7+( PDGH RXW DQ DFWLRQDEOH FODLP IRU UHOLHI XQGHU  86& $77251(< *(1(5$/ )UDQNIRUW .HQWXFN\ IRU †    &RQVHTXHQWO\ , MRLQ RQO\ 3DUW ,, %  RI sXGJH $SSHOOHHV21%5,() $QWRQLR3RQYHUW,,,.26.2)) %RJJVjVRSLQLRQ .26.2))  %,('(5 %ULGJHSRUW &RQQHFWLFXW &HFLO 'HZH\ %UDQVWHWWHU sU sDPHV * 6WUDQFK ,,, %5$167(77(5 .,/*25( 675$1&+  s(11,1*6 1DVKYLOOH 7HQQHVVHH (GPXQG / &DUH\ sU *HRUJH ( %DUUHWW%$55(77s2+17621 3$56/(<1DVKYLOOH 7HQQHVVHH 5LFKDUG 0 *XDUQLHUL s *XWKULH 7UXH s2+1621 s8'< 758(  *8$51,(5, )UDQNIRUW .HQWXFN\IRU$SSHOODQWV5XVVHOO73HUNLQV6(OL]DEHWK 0DUWLQ 2)),&( 2) 7+( $77251(< *(1(5$/ 1DVKYLOOH 7HQQHVVHH 6FRWW :KLWH 2)),&( 2) 7+( $77251(< *(1(5$/ )UDQNIRUW .HQWXFN\ IRU $SSHOOHHV  sDPHV & *XOLFN 1 & '(3$570(17 2) s867,&(5DOHLJK1RUWK&DUROLQDIRU$PLFL&XULDH %2**6sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK '$8*+75(< s MRLQHG  5<$1 s S   GHOLYHUHG D VHSDUDWHRSLQLRQFRQFXUULQJLQSDUWDQGGLVVHQWLQJLQSDUW BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB %2**6 &LUFXLW sXGJH  3ODLQWLIIVDSSHOODQWV 0HGLFDLG UHFLSLHQWVZLWKWREDFFRUHODWHGLOOQHVVHVDSSHDOWKHGLVPLVVDO  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

,,, RI WKHLU DFWLRQV VHHNLQJ LQMXQFWLRQV DJDLQVW WZR VWDWHV .HQWXFN\ DQG 7HQQHVVHH WKH 6WDWHV   3ODLQWLIIV VHHN WR )RUWKHIRUHJRLQJUHDVRQVWKHGLVWULFWFRXUWVjMXGJPHQWVDUH LQWHUFHSWWREDFFRVHWWOHPHQWPRQH\GXHWRWKH6WDWHVXQGHU $)),50(' WKH 0DVWHU 6HWWOHPHQW $JUHHPHQW EHWZHHQ D QXPEHU RI VHWWOLQJ VWDWHV DQG WREDFFR PDQXIDFWXUHUV  :H DIILUP WKH GLVPLVVDORI3ODLQWLIIVjFODLPVEHFDXVHDFWLRQVVHHNLQJPRQH\ GDPDJHVIURPDVWDWHFRQWUDYHQHWKH(OHYHQWK$PHQGPHQWRI WKH8QLWHG6WDWHV&RQVWLWXWLRQ:HDOVRKROGWKDW3ODLQWLIIVj VXLWVIDLOEHFDXVHWKH\KDYHQRWDVVHUWHGDYDOLGFODLP , 3ODLQWLIIV VHHN WR UHSUHVHQW .HQWXFN\ DQG 7HQQHVVHH 0HGLFDLGUHFLSLHQWVZLWKWREDFFRUHODWHGLOOQHVVHVIRUZKRP WKH6WDWHVSDLGPHGLFDOELOOV8QGHUWRWKH1RYHPEHU  7REDFFR0DVWHU6HWWOHPHQW$JUHHPHQW 06$ EHWZHHQ VWDWHVDQGPDQ\WREDFFRPDQXIDFWXUHUVERWK.HQWXFN\DQG 7HQQHVVHHZLOOUHFHLYHODUJHSD\PHQWVLQVHWWOHPHQWRIWKHLU FODLPV  7KH PRQLHV WR EH SDLG ZHUH SODFHG LQ HVFURZ SHQGLQJWKHWLPHWKDWDVSHFLILHGSHUFHQWDJHRIWKHVLJQDWRU\ VWDWHVDFKLHYHGmILQDOLW\lXQGHUWKHWHUPVRIWKHDJUHHPHQW 1RZWKDWILQDOLW\KDVEHHQDFKLHYHGSD\PHQWVDUHEHLQJPDGH IURPHVFURZWRWKH6WDWHV ,Q RUGHU WR LPSOHPHQW WKH QDWLRQDO VHWWOHPHQW WKH 06$ UHTXLUHGVWDWHVWKDWGLGQRWKDYHDSHQGLQJODZVXLWWRLQVWLWXWH SURFHHGLQJVLQWKHDSSURSULDWHVWDWHFRXUWV%RWKRIWKH6WDWHV ILOHGDQGWKHQVHWWOHGWKHLU06$UHTXLUHGVXLWV3ODLQWLIIV FODLPLQJ WKDW WKH 6WDWHVj UHFRYHULHV ZHUH LQ WKH IRUP RI VXEURJDWLRQDFWLRQV LHWKDWWKH6WDWHVZHUHDFWXDOO\VXLQJRQ 3ODLQWLIIVjEHKDOI KDYHEURXJKWWKLV86&† DFWLRQ 3ODLQWLIIVFODLPWKDWIHGHUDOODZHQWLWOHVWKHPWRDQ\H[FHVV PRQH\WKH6WDWHVZLOOUHFHLYHRYHUWKHDFWXDOVWDWHRXWOD\IRU 3ODLQWLIIVjWUHDWPHQW3ODLQWLIIVDOVRDUJXHWKDWEHFDXVHWKH\ KDYH VXHG VWDWH RIILFLDOV LQ WKHLU RIILFLDO FDSDFLWLHV WKHLU DFWLRQLVQRWEDUUHGE\VWDWHVRYHUHLJQLPPXQLW\ 7KLVVXLWLV SDUWRIDQDWLRQZLGHVHULHVRIVXLWVLQZKLFK 0HGLFDLGUHFLSLHQWVDUHVHHNLQJWRUHFRXSmRYHUDJHlDPRXQWV  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

IURPDQXPEHURIVHWWOLQJVWDWHV$OOEXWRQHRIWKH0HGLFDLG DFRPSUHKHQVLYHVFKHPHRIHQIRUFHPHQWSUHFOXGHGSULYDWH UHFLSLHQW VXLWV LQFOXGLQJ WKH WZR LQVWDQW FDVHV KDYH EHHQ HQIRUFHPHQW  GLVPLVVHGIRUIDLOXUHWRVWDWHDFODLPXSRQZKLFKUHOLHIFRXOG EH JUDQWHG RU IRU (OHYHQWK $PHQGPHQW LPPXQLW\  6HH &RQJUHVVKDVDPHQGHGWKH0HGLFDLG$FWWRVWDWHWKDW06$ 6WUDZVHUY$WNLQV1R86$SS/(;,6  IXQGVDUHQRWFRQVLGHUHGUHFRXSPHQWVXQGHUIHGHUDO0HGLFDLG WK&LU0D\ *UHHQOHVVY$OPRQG)G ODZEXWDUHWKH6WDWHVjPRQH\WRDOORFDWHDVWKH6WDWHVVHHILW VW&LU +DUULVY2ZHQV)G WK&LU ,Q0D\ &RQJUHVVDPHQGHG86&† E G DQG   :DWVRQ Y 7H[DV  )G  WK &LU  LQVWUXFWHGWKH+HDOWK&DUH)LQDQFLQJ$GPLQLVWUDWLRQ +)&$ 0F&OHQGRQY*HRUJLD'HSjWRI&PW\+HDOWK)G WKDWWKHVHWWOHPHQWIXQGVZHUHQRWRYHUSD\PHQWVXQGHUWKH WK &LU   7\OHU Y 'RXJODV  )G  G &LU 0HGLFDLGODZVDQGWKDW+&)$ZDVQRWHQWLWOHGWRVKDUHLQWKH  )OR\GY7KRPSVRQ)G  WK&LU SURFHHGVRIWKHVWDWHVjVHWWOHPHQWV7KHDPHQGPHQWUHDGV /HZLV Y 6WDWH H[ UHO 0LOOHU  ,RZD $SS /(;,6  ,RZD&W$SS$SU  &DUGHQDVY$Q]DL) % L 6XESDUDJUDSK $ DQGSDUDJUDSK % >UHTXLULQJ 6XSS G  '& +DZ   &ODUN Y 6WRYDOO  ) VWDWHVWRUHFRXSRYHUSD\PHQWVDQGUHLPEXUVH+&)$IRU 6XSSG '&.DQ 6NLOOLQJVY,OOOLQRLV) WKH IHGHUDO VKDUH@ VKDOO QRW DSSO\ WR DQ\ DPRXQW 6XSSG &',OO 0DUWLQY1HZ0H[LFR  UHFRYHUHGRUSDLGWRD6WDWHDVSDUWRIWKHFRPSUHKHQVLYH )5'  '10 %URZQY6WDWH1:G VHWWOHPHQWRI1RYHPEHU EHWZHHQPDQXIDFWXUHUVRI 0LQQ&W$SS 6WDWHY6XSHULRU&RXUW&DO$SS WREDFFRSURGXFWVDQG6WDWH$WWRUQH\V*HQHUDO WK  &DO$SSG'LVW 2OLYDY)ORULGD1R  LL ([FHSWDVSURYLGHGLQVXEVHFWLRQ L  >UHIHUULQJWR  /HRQ&R&LU&WG&LU0D\ *RPHUY FRVWVLQFXUUHGLQSXUVXLQJWKHODZVXLWV@D6WDWHPD\XVH 3KLOLS0RUULV,QF)6XSSG 0'$OD DPRXQWV UHFRYHUHG RU SDLG WR WKH 6WDWH DV SDUW RI D (OHYHQWK$PHQGPHQWLPPXQLW\DQGQRYDOLGFODLP ,QRQH FRPSUHKHQVLYHRULQGLYLGXDOVHWWOHPHQWRUDMXGJPHQW FDVHWKHVWDWHjVPRWLRQVWRGLVPLVVKDYHEHHQGHQLHG/HZLV GHVFULEHGLQFODXVH L IRUDQ\H[SHQGLWXUHVGHWHUPLQHG Y,RZD1R/$&9 /LQQ&R'&WsXO\  DSSURSULDWHE\WKH6WDWH

,, 86&† E G   HPSKDVLVDGGHG  $ 7KH (OHYHQWK $PHQGPHQW %DUV 6XLWV 6HHNLQJ WR %\WKLVDPHQGPHQW&RQJUHVVFODULILHGWKDWWKHVWDWHVZHUH ,QWHUFHSW)XWXUH3D\PHQWVWRWKH6WDWHV WREHDEOHWRDOORFDWHWKHPRQLHVUHFHLYHGXQGHUWKH06$DV WKH\mGHWHUPLQHGDSSURSULDWHl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† E G  WKH\PD\GRVR7KLVLVDFOHDUFXW :KHWKHUDQDFWLRQLVEDUUHGE\WKH(OHYHQWK$PHQGPHQWLV &RQJUHVVLRQDOVWDWHPHQWWKDWIRUHFORVHVWKHH[LVWHQFHRIDQ D TXHVWLRQ RI ODZ DQG LV UHYLHZHG GH QRYR  7LPPHU Y LPSOLHG SULYDWH ULJKW RI DFWLRQ XQGHU  86& †   VHHNLQJWRGLYHUWWKHWREDFFRVHWWOHPHQWPRQH\  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

IURPGRLQJVR3ODLQWLIIVKDYHQRSULYDWHFDXVHRIDFWLRQXQGHU 0LFKLJDQ'HSjWRI&RPPHUFH)G WK&LU 86&†    7KH(OHYHQWK$PHQGPHQWSURYLGHV 7KH 6L[WK &LUFXLW KDV SUHYLRXVO\ IRXQG WKDW  86& 7KH sXGLFLDO 3RZHU RI WKH 8QLWHG 6WDWHV VKDOO QRW EH †   FUHDWHV DQ LPSOLHG ULJKW RI DFWLRQ XQGHU FHUWDLQ FRQVWUXHG WR H[WHQG WR DQ\ VXLW LQ ODZ RU HTXLW\ 0HGLFDLG $FW VWDWXWHV  )RU H[DPSOH LQ %RDWPDQ Y FRPPHQFHG RU SURVHFXWHG DJDLQVW RQH RI WKH 8QLWHG +DPPRQV)G WK&LU  WKH6L[WK&LUFXLW 6WDWHV E\ &LWL]HQV RI DQRWKHU 6WDWH RU E\ &LWL]HQV RU DIILUPHG WKH JUDQW RI UHOLHI WR †   SODLQWLIIV ZKR 6XEMHFWVRIDQ\)RUHLJQ6WDWH FRPSODLQHGWKDW0LFKLJDQGLGQRWLQIRUPWKHPRIWKHLUULJKW WR WUDQVSRUWDWLRQ WR DQG IURP 0HGLFDLG SURYLGHUV  7KH 86&RQVWDPHQG;,$OWKRXJKWKHDPHQGPHQWGRHVQRW %RDWPDQ FRXUW KHOG WKDW WKH ULJKW WR QRWLFH UHJDUGLQJ DGGUHVVWKHSRVVLELOLW\RIVXLWDJDLQVWDVWDWHE\RQHRILWVRZQ WUDQVSRUWDWLRQWR0HGLFDLGSURYLGHUVZDVQRWWRRDPELJXRXV FLWL]HQVXQDVVDLODEOHFDVHODZKDVLQWHUSUHWHGWKHDPHQGPHQW IRU† HQIRUFHPHQW%RDWPDQ)GDW  LQVXFKDZD\DVWRFORVHWKDWJDS+DQVY/RXLVLDQD 86   $VWDWHLVVRYHUHLJQZLWKLQWKHVWUXFWXUHRIWKH +RZHYHUWKH6L[WK&LUFXLWKDVRQO\UHFRJQL]HGDSULYDWH IHGHUDOV\VWHPDQGmLWLVLQKHUHQWLQWKHQDWXUHRIVRYHUHLJQW\ ULJKWRIDFWLRQWRHQIRUFH0HGLFDLG$FWSURYLVLRQVZKHQWKH QRW WR EH DPHQDEOH WR WKH VXLW RI DQ LQGLYLGXDO ZLWKRXW LWV SXWDWLYHSODLQWLIIVZHUHYHU\FOHDUO\WKHLQWHQGHGEHQHILFLDULHV FRQVHQWl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jV DQGDUHVLPSO\WKHmUHVLGXDOEXFNHWlLQZKLFKDQ\PRQLHVWKDW LPPXQLW\6HPLQROH7ULEH86DW&RQJUHVVKDV ZHUHLPSURSHUO\UHFHLYHGE\WKHVWDWHZRXOGEHGHSRVLWHG SURYLGHGLQ86&† E G DVFKHPHIRUDOORZLQJWKH IHGHUDO JRYHUQPHQW WR UHFRXS LWV VKDUH RI WKLUGSDUW\ (YHQ ZHUH ZH WR GHWHUPLQH WKDW WKHUH LV D YDOLG UHFRYHULHV DQGH[SUHVVO\QRWHGWKDWWKLVULJKWGRHVQRWDSSO\ XQDPELJXRXV DQG HQIRUFHDEOH IHGHUDO ULJKW JUDQWHG WR WR WKH WREDFFR VHWWOHPHQW PRQH\  EXW KDV QRW PDGH DQ\ 3ODLQWLIIVE\86&† N E DQG&)5† SURYLVLRQ EDVHG RQ WKH )RXUWHHQWK $PHQGPHQW IRU VXLWV ZHPXVWDOVRGHWHUPLQHZKHWKHUWKDWULJKWKDVEHHQIRUHFORVHG DJDLQVWVWDWHVE\0HGLFDLGUHFLSLHQWV E\ &RQJUHVV  &RQJUHVV PD\ IRUHFORVH HQIRUFHPHQW RI D IHGHUDOULJKWHLWKHUH[SOLFLWO\ E\VWDWLQJWKDW†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mZHOOHVWDEOLVKHGWKDWHYHQWKRXJKD6WDWH  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

LVQRWQDPHGDVDSDUW\WRWKHDFWLRQWKHVXLWPD\QRQHWKHOHVV IDFLOLWDWLQJ IHGHUDO UHFRXSPHQW RI 0HGLFDLG FRVWV QRW EHEDUUHGE\WKH(OHYHQWK$PHQGPHQWl(GHOPDQYsRUGDQ SURYLGLQJDZLQGIDOOWR3ODLQWLIIVZKRVHPHGLFDOQHHGVKDYH 86    EHHQFRYHUHGE\WKH6WDWHV m>:@KHQWKHDFWLRQLVLQHVVHQFHRQHIRUWKHUHFRYHU\RI 7KH VHFRQG VWHS LQ D :LOGHU DQDO\VLV LV WR GHWHUPLQH PRQH\IURPWKHVWDWHWKHVWDWHLVWKHUHDOVXEVWDQWLDOSDUW\LQ ZKHWKHU WKH VWDWXWH LPSRVHV D ELQGLQJ UHTXLUHPHQW RQ WKH LQWHUHVWDQGLVHQWLWOHGWRLQYRNHLWVVRYHUHLJQLPPXQLW\IURP 6WDWHV:LOGHU 86DW,WLVFOHDUWKDWWKH0HGLFDLG VXLWHYHQWKRXJKLQGLYLGXDORIILFLDOVDUHQRPLQDOGHIHQGDQWVl $FWLVELQGLQJRQVWDWHVRQFHWKH\KDYHDJUHHGWRSDUWLFLSDWH )RUG0RWRU&RY'HSWRI7UHDVXU\RIWKH6WDWHRI,QGLDQD WKLVVWHSLVXQGLVSXWHG 86    7KXVmWKHUXOHKDVHYROYHGWKDWD VXLW E\ SULYDWH SDUWLHV VHHNLQJ WR LPSRVH D OLDELOLW\ ZKLFK 7KHWKLUG:LOGHUVWHSUHTXLUHVWKDWWKHULJKWVVRXJKWWREH PXVW EH SDLG IURP SXEOLF IXQGVl LV EDUUHG (GHOPDQ  HQIRUFHGQRWEHYDJXH RUDPRUSKRXV:LOGHU 86DW 86DW  6XSUHPH&RXUWSUHFHGHQWGLFWDWHVWKDWWKHVWDWXWHV KHUH DW LVVXH GR QRW FUHDWH D VXIILFLHQWO\ GHILQHG ULJKW IRU $V D UHVXOW HYHQ WKRXJK WKH IRUPDO UHTXLUHPHQWV RI ([ HQIRUFHPHQWYLDDQLPSOLHGSULYDWHULJKWRIDFWLRQ,Q6XWHU 3DUWH<RXQJPD\EHPHWE\QDPLQJRIILFLDOV UDWKHUWKDQWKH Y$UWLVW086   WKH6XSUHPH&RXUWKHOG VWDWH  DV GHIHQGDQWV DQG VHHNLQJ LQMXQFWLYH UHOLHI UHOLHI WKDWZKHQDVWDWHLVUHTXLUHGWRPDNHmUHDVRQDEOHlHIIRUWVWR VKRXOGQRWEHJUDQWHGLImWKHUHOLHILVWDQWDPRXQWWRDQDZDUG UHDFKDVWDQGDUGWKHULJKWLVWRRDPELJXRXVIRUHQIRUFHPHQW RIGDPDJHVIRUDSDVWYLRODWLRQRIIHGHUDOODZHYHQWKRXJK E\LPSOLHGSULYDWHULJKWRIDFWLRQXQGHU86&† ,G VW\OHGDVVRPHWKLQJHOVHl3DSDVDQY$OODLQ86 DW7KH&RXUWQRWHG mZHWKLQNWKDW&RQJUHVVGLGQRW     LQWHQGWRFUHDWHDSULYDWHUHPHG\IRUWKHHQIRUFHPHQWRIWKH µUHDVRQDEOHHIIRUWVjFODXVHl,GDW,QWKHLQVWDQWFDVH 7KHUHLVDQH[FHSWLRQWRWKHH[FHSWLRQRIFRXUVH,IWKH WKH6WDWHVDUHUHTXLUHGE\IHGHUDOVWDWXWHWRWDNHmUHDVRQDEOH LQMXQFWLYHUHOLHIVRXJKWE\WKHSODLQWLIILVWUXO\SURVSHFWLYH PHDVXUHVlWRSXUVXHUHVSRQVLEOHWKLUGSDUWLHV7KLVLVLQIDFW QRQPRQHWDU\UHOLHIVRYHUHLJQLPPXQLW\ZLOOQRWEDUWKHVXLW ZKDW3ODLQWLIIVFODLPWKH6WDWHVZHUHFRPSHOOHGWRGR7KH VLPSO\EHFDXVHWKHVWDWHPD\EHUHTXLUHGWRPDNHLQFLGHQWDO FHQWHURIWKHLUDUJXPHQWLVWKDWWKH6WDWHVjFODLPVPXVWFRQVLVW H[SHQGLWXUHVLQFRPSO\LQJZLWKWKHLQMXQFWLRQ0LOOLNHQY RI 3ODLQWLIIVj DVVLJQHG FODLPV EHFDXVH WKH 6WDWHV DUH %UDGOH\  86       IHGHUDO FRXUWV DUH FRPSHOOHGE\IHGHUDOODZWRSXUVXHWKRVHFODLPV SHUPLWWHGWRHQMRLQVWDWHRIILFLDOVWRFRQIRUPWKHLUFRQGXFWWR UHTXLUHPHQWVRIIHGHUDOODZYLDLQMXQFWLRQQRWZLWKVWDQGLQJD :KDW 3ODLQWLIIV IDLO WR UHDOL]H LV WKDW WKH 6WDWHV DUH RQO\ GLUHFWDQGVXEVWDQWLDOLPSDFWRQWKHVWDWHWUHDVXU\ (GHOPDQ UHTXLUHG WR XQGHUWDNH mUHDVRQDEOH PHDVXUHVl LQ SXUVXLQJ YsRUGDQ86    VXLWZDVSURSHUWRWKHH[WHQW DVVLJQHGFODLPV IRUZKLFK3ODLQWLIIVFRXOGUHFRYHURYHUDJH LWVRXJKWmSD\PHQWRIVWDWHIXQGVDVDQHFHVVDU\FRQVHTXHQFH DPRXQWV  DQG WKDW XQGHU 6XWHU 3ODLQWLIIV KDYH QR SULYDWH RI FRPSOLDQFH ZLWK D VXEVWDQWLYH IHGHUDOTXHVWLRQ ULJKWRIDFWLRQWRVXHWRHQIRUFHUHDVRQDEOHFRPSOLDQFHZLWK GHWHUPLQDWLRQl 7KHGLYLGLQJOLQHWKHUHIRUHLVZKHWKHUWKH WKHVH IHGHUDO VWDWXWHV  ,I DV WKH 6WDWHV FODLP EULQJLQJ DQ PRQH\RUWKHQRQPRQHWDU\LQMXQFWLRQLVWKHSULPDU\WKUXVWRI DFWLRQ EDVHG RQ HDFK LQGLYLGXDO DVVLJQHG FODLP IURP D WKHVXLW VPRNLQJFDVHZRXOGEHYHU\FRPSOLFDWHGDQGWLPHFRQVXPLQJ LQVKRUWXQUHDVRQDEOH DQGWKH6WDWHVKDYHFKRVHQWRUHIUDLQ  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

&RXUW LQ :LOGHU Y 9LUJLQLD +RVSLWDO $VVjQ   86   3ODLQWLIIVKDYHFRXFKHGWKHLUFODLPLQSURVSHFWLYHODQJXDJH   VHWIRUWKWKHVFKHPHIRUGHWHUPLQLQJZKHWKHURUQRWDQ LQHVVHQFHWKH\VHHNDQRUGHUIRUFLQJWKH6WDWHVWRWXUQRYHU LPSOLHGSULYDWHULJKWRIDFWLRQXQGHU86&† H[LVWV SRUWLRQVRIIXWXUHLQVWDOOPHQWVRIWKHPRQLHVGXHXQGHUWKH IRUHQIRUFLQJ0HGLFDLG$FWSURYLVLRQV7KHJHQHUDOUXOHRI 6WDWHVjVHWWOHPHQWDJUHHPHQWZLWKWKHWREDFFRPDQXIDFWXUHUV :LOGHU LV WKDW D SODLQWLII DOOHJLQJ D YLRODWLRQ RI D IHGHUDO 3ODLQWLIIVFODLPWKDWWKHVHPRQLHVDUHQRW\HWVXIILFLHQWO\WKH VWDWXWHZLOOEHSHUPLWWHGWRVXHXQGHU† XQOHVV  WKH SURSHUW\ RI WKH 6WDWHV IRU VXFK DQ RUGHU WR EH DQ RUGHU IRU VWDWXWH >GRHV@ QRW FUHDWH HQIRUFHDEOH ULJKWV SULYLOHJHV RU PRQHWDU\ UHOLHI  3ODLQWLIIV WKHUHE\ KRSH WR HVFDSH WKH LPPXQLWLHVZLWKLQWKHPHDQLQJRI† RU  &RQJUHVVKDV (OHYHQWK$PHQGPHQWEDURQVXLWVIRUPRQHWDU\UHOLHIDJDLQVW IRUHFORVHGVXFKHQIRUFHPHQWRIWKHVWDWXWHLQWKHHQDFWPHQW VWDWHV LWVHOI:LOGHU 86DW  3ODLQWLIIVDUJXHWKDWWKHLUDFWLRQLVLQIDFWPHUHO\RQHWR 7KHILUVWLQTXLU\ ZKHWKHUDQHQIRUFHDEOHIHGHUDOULJKWZDV IRUFH WKH 6WDWHV WR FRPSO\ ZLWK WKH IHGHUDO GLVWULEXWLRQ FUHDWHG  UHTXLUHV D WKUHHVWHS DQDO\VLV  )LUVW FRXUWV DVN VFKHPHIRU0HGLFDLGUHFRXSPHQWVXQGHU86&†  ZKHWKHU WKH DVSLULQJ †   SODLQWLII ZDV WKH LQWHQGHG RU 7KH\ DUJXH WKDW HDFK IDLOXUH WR WXUQ RYHU WKH PRQH\ mHVSHFLDOl EHQHILFLDU\RIWKHVWDWXWH6HFRQGWKHFRXUWVHHNV FRQVWLWXWHVDIXWXUHIDLOXUHWRFRPSO\ZLWKIHGHUDOODZ7KLV WRGHWHUPLQHmHQIRUFHDELOLW\lE\DVNLQJZKHWKHUWKHVWDWXWH WKH\VD\ZDVWKHURRWRIWKHGLVWULFWFRXUWjVHUURU 3ODLQWLIIV FUHDWHGDELQGLQJREOLJDWLRQXSRQWKHVWDWH7KLUGWKHULJKW FRQVLGHUWKHLUGHPDQGVWRUHFHLYHPRQH\LQWKHIXWXUHWREH VRXJKW WR EH HQIRUFHG PD\ QRW EH YDJXH RU DPRUSKRXV SURVSHFWLYHUHOLHI3ODLQWLIIVDVVHUWWKDWUHWURDFWLYHPRQHWDU\ :LOGHU 86DW  UHOLHI PXVW DSSO\ WR D ORVV WKDW WKH\ KDYH DOUHDG\ VXIIHUHG 3ODLQWLIIVDUJXHWKDWWKH\KDYHQRW\HWVXIIHUHGDORVVVLQFH 86&† DOORZVHQIRUFHPHQWRIIHGHUDOULJKWVQRW WKH\RQO\FODLPIXWXUHSD\PHQWVUDWKHUWKDQSD\PHQWVWKDW IHGHUDO ODZ LQ JHQHUDO  7KH ILUVW VWHS WKHUHIRUH LQ KDYHDOUHDG\EHHQPDGHWRWKHVWDWH GHWHUPLQLQJZKHWKHUDSULYDWHULJKWRIDFWLRQH[LVWVXQGHU 86&† LVWRGHWHUPLQHZKHWKHUWKHIHGHUDOVWDWXWHDW +RZHYHU DWWHPSWV WR VHL]H XSRQ D VWDWHjV mFRQWLQXLQJ LVVXHJUDQWVDULJKWWRWKHSHUVRQVHHNLQJWRHQIRUFHWKHFDXVH LQFRPHlE\PHDQVRIDSURVSHFWLYHLQMXQFWLRQKDYHEHHQKHOG RI DFWLRQ  7KH UHOHYDQW LQTXLU\ LV ZKHWKHU WKH SRWHQWLDO E\WKH6XSUHPH&RXUWWREHDWWHPSWVWRREWDLQFRPSHQVDWLRQ † SODLQWLIIZDVWKHLQWHQGHGEHQHILFLDU\RIWKHVWDWXWH IRUDQmDFFUXHGPRQHWDU\OLDELOLW\l3DSDVDQ86DW ,Q 3DSDVDQ VHYHUDO 0LVVLVVLSSL VFKRRO GLVWULFWV VXHG VWDWH 7KH LQWHQGHG EHQHILFLDU\ RI WKH 0HGLFDLG UHFRXSPHQW RIILFLDOV FODLPLQJ WKDW WKRVH RIILFLDOV KDG EUHDFKHG WUXVW VWDWXWHV LV WKH IHGHUDO JRYHUQPHQW  7KH SURYLVLRQV UHTXLUH REOLJDWLRQVXQGHUIHGHUDOODZLQPDQDJLQJVFKRROWUXVWODQGV VWDWHV WR SXUVXH UHPHGLHV DJDLQVW UHVSRQVLEOH WKLUG SDUWLHV ,GDW7KHGLVWULFWVVRXJKWFRPSHQVDWLRQIRUWKHLUORVVHV LQVWHDGRIUHO\LQJRQWKHIHGHUDOJRYHUQPHQWjVDVVLVWDQFHLQ WKH\SKUDVHGWKHLUFODLPDVRQHVHHNLQJDQLQMXQFWLRQIRUFLQJ SD\LQJ FLWL]HQVj PHGLFDO ELOOV  :KHQ D UHFRYHU\ DJDLQVW D WKHVWDWHRIILFLDOVWRPHHWWKHLUFRQWLQXLQJIHGHUDOREOLJDWLRQV UHVSRQVLEOH WKLUG SDUW\ LV PDGH RQ DQ DVVLJQHG FODLP WKH WRIXQGWKHVFKRROVSURSHUO\7KH6XSUHPH&RXUWUHMHFWHGWKLV IHGHUDOJRYHUQPHQWUHFHLYHVDVKDUHHTXDOWRLWVRXWOD\7KH DUJXPHQW GHWHUPLQLQJ WKDW WKH FODLP VHUYHG D SXUHO\ mRYHUDJHl SURYLVLRQV VLPSO\ H[LVW WR SUHYHQW VWDWHV IURP FRPSHQVDWRU\ SXUSRVH  ,G DW   ,Q WKH FDVH DW KDQG SRFNHWLQJ H[FHVV PRQLHV UHFHLYHG VKRXOG WKH\ UHFRYHU DQ 3ODLQWLIIVVHHNFRXUWRUGHUVUHTXLULQJWKH6WDWHVWRKDQGRYHU DPRXQWLQH[FHVVRIWKHLUFRVWV ZKLFKWKH\DUHQRWXQGHUWKH PRQH\7KLVGRHVQRWPDNHWKHUHOLHIVRXJKWQRQPRQHWDU\RU VWDWXWHDOORZHGWRGR 7KHIRFXVRIWKHVWDWXWHWKHUHIRUHLV SURVSHFWLYH$VWKH3DSDVDQ&RXUWVWDWHG  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

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sXGJH:RRGQRWHGWKDWWKH UHFRYHU PRQH\ GDPDJHV DQG LV EDUUHG E\ WKH (OHYHQWK mSODLQWLIIVjFDVHKLQJHVFULWLFDOO\RQWKHDVVXPSWLRQWKDWWKH $PHQGPHQW 06$VHWWOHGFODLPVWKDWRULJLQDOO\EHORQJHGWRWKHPl,GDW (YHQLIWKH6WDWHVKDGVXHGRQWKHDVVLJQHGFODLPV 7KH FDVH ODZ GRHV QRW VXSSRUW DQ DUJXPHQW WKDW WKH UDWKHUWKDQWKH6WDWHVjRZQFODLPVm>L@IWKHRQO\WKLQJWKH UHTXHVWHGUHOLHIKDVDSXUHO\mDQFLOODU\lHIIHFWRQWKH6WDWHVj LQGLYLGXDOVDVVLJQHGZDVWKHLUULJKWVWRUHFRYHUWKHDPRXQWV WUHDVXULHV$FRXUWPD\HQWHUDSURVSHFWLYHLQMXQFWLRQWKDW SDLGE\WKH0HGLFDLGSURJUDPoQRWWKHLUULJKWWRUHFRYHUDQ\ FRVWV WKH VWDWH PRQH\ EXW RQO\ LI WKH PRQHWDU\ LPSDFW LV H[FHVV o WKHQ WKHUH LV QRWKLQJ OHIW WR GLVWULEXWH WR WKHP WR DQFLOODU\LHQRWWKHSULPDU\SXUSRVHRIWKHVXLW(GHOPDQ ZKLFKWKH\FRXOGKDYHDQ\FODLPl,GDW 86DW VHHDOVR4XHUQYsRUGDQ86    HQMRLQLQJ D VWDWH WR SURYLGH QRWLFH WR UHFLSLHQWV RI 7KH6WDWHVZLOOUHFHLYHPRUHXQGHUWKH06$WKDQWKHLU ZHOIDUHDVWRKRZWRFROOHFWZHOIDUHEHQHILWV )RUH[DPSOH FRVWVIRUWUHDWLQJ3ODLQWLIIVjWREDFFRUHODWHGLOOQHVVHVEHFDXVH LQ0LOOLNHQY%UDGOH\WKH&RXUWHQMRLQHGDVWDWHWRSURYLGH WKH\EURXJKWDYDULHW\RIFODLPVXQUHODWHGWRUHFRXSPHQWRI HGXFDWLRQSURJUDPVLQRUGHUWRUHPHG\UDFLDOGLVFULPLQDWLRQ WKH FRVWV RI WUHDWPHQW  7KH 6WDWHVj ODZVXLWV LQFOXGHG IRU WKH H[SHQGLWXUH RI IXQGV ZDV DQFLOODU\ WR WKH QRQ H[DPSOH FRXQWV DOOHJLQJ YLRODWLRQ RI FRQVXPHU SURWHFWLRQ FRPSHQVDWRU\JRDO86DW   ODZV PLVUHSUHVHQWDWLRQ DQG GHFHSWLYH SUDFWLFHV GHFHSWLYH SUDFWLFHV LQ WDUJHWLQJ \RXWK UHVWUDLQW RI WUDGH XQMXVW +RZHYHULQ.HOOH\Y0HWURSROLWDQ&RXQW\%GRI(GXF HQULFKPHQWDQGPRUH7KHVHFODLPVKDYHQRWKLQJWRGRZLWK )G  WK&LU  WKH6L[WK&LUFXLWKHOGWKDWWKH 3ODLQWLIIVDQGDUHQRWmRYHUDJHlIURP3ODLQWLIIVjFODLPV UHOLHI VRXJKW DQ RUGHU UHTXLULQJ WKH VWDWH WR DVVXPH D SHUFHQWDJHRIWKHFRVWVWRDVFKRRORIGHVHJUHJDWLQJZDVQRW 0RUHRYHU WKH 06$ LWVHOI GRHV QRW PHQWLRQ RU DOORFDWH DQFLOODU\7KHFRXUWQRWHGWKDWZKHQm>W@KHRUGHUWRSD\LV IXQGV SDLG IRU UHVWLWXWLRQ RI 0HGLFDLG H[SHQVHV  2Q WKH DQFLOODU\ RQO\ WR LWVHOI   l WKH (OHYHQWK $PHQGPHQW EDU FRQWUDU\ WKH 06$ VWDWHV WKDW WKH IXQGV DUH SDLG m>L@Q DSSOLHV,GDW ,QWKHLQVWDQWFDVHDQRUGHUWRSD\RXW VHWWOHPHQW RI WKH 6HWWOLQJ 6WDWHVj DQWLWUXVW FRQVXPHU IXWXUHDPRXQWVDZDUGHGWRWKH6WDWHVXQGHUWKH06$ZRXOG SURWHFWLRQFRPPRQODZQHJOLJHQFHVWDWXWRU\FRPPRQODZ EH mDQFLOODU\ RQO\ WR LWVHOIl  WKHUH LV QR RWKHU SXUSRVH DQGHTXLWDEOHFODLPVIRUPRQHWDU\UHVWLWXWLRQDU\HTXLWDEOH XQGHUO\LQJ WKH UHTXHVWHG mLQMXQFWLYHl UHOLHI RWKHU WKDQ WKH DQGLQMXQFWLYHUHOLHIDOOHJHGE\WKH6HWWOLQJ6WDWHVl 06$ UHFRYHU\ RI FDVK WKDW LV WKH SURSHUW\ RI WKH VWDWH  ,W LV †;9,,, G  WKHUHIRUHEDUUHGE\WKH(OHYHQWK$PHQGPHQW 3ODLQWLIIVjFODLPVPXVWDOVRIDLOEHFDXVHWKHSURYLVLRQVRI 3ODLQWLIIVj UHOLDQFH RQ WKH 7HQWK &LUFXLWjV GHFLVLRQV LQ WKH 0HGLFDLG $FW WKDW WKH\ UHO\ RQ GR QRW FUHDWH D SULYDWH (OHSKDQW%XWWH,UULJDWLRQ'LVWY'HSjWRIWKH,QWHULRU FDXVH RI DFWLRQ IRU YLRODWLRQ RI WKHLU WHUPV  7KH 6XSUHPH  %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY 6XPPHUVHWDO 6XPPHUVHWDO

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†  N E   7KH &)5 VHFWLRQ DGGUHVVLQJ WKLV JRYHUQPHQW7KH(OHSKDQW%XWWHFRXUWGHWHUPLQHGWKDWUHOLHI LVVXH QRWHV WKDW WKH VWDWHjV 0HGLFDLG DJHQF\ PXVW ZKHQ ZRXOGQRWEHUHWURVSHFWLYH WKHLQWHUIHUHQFHZDVQRWZLWKD SURFHHGLQJ RQ DVVLJQHG FODLPV m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l&)5† OXPSVXP3ODLQWLIIVZRXOGFOHDUO\KDYHQRFDVH WKH6WDWHVj HVWDEOLVKHGSURSHUW\LQWHUHVWZRXOGEHXQDVVDLODEOH3ODLQWLIIV 3ODLQWLIIVKDYHVXHGXQGHU86&† FODLPLQJD UHFRJQL]H WKLV ZKHQ WKH\ DVVHUW WKDW WKH\ DUH QRW FODLPLQJ YLRODWLRQ RI ULJKWV FUHDWHG E\ IHGHUDO ODZ LH  86& IXQGVDOUHDG\SDLGWRWKH6WDWHVIURP HVFURZ7KH6WDWHV † N E DQG&)5†3ODLQWLIIVFODLPWKDW KDYH D SUHVHQW ILQDQFLDO LQWHUHVW LQ WKH SD\PHQW RI WKH .HQWXFN\DQG7HQQHVVHHZHUHDVVLJQHHVRI3ODLQWLIIVjFODLPV VHWWOHPHQW HYHQ WKRXJK WKDW SD\PHQW ZLOO RFFXU LQ RQFH WKH 6WDWHV SDLG WKHLU PHGLFDO ELOOV  3ODLQWLIIV WKHQ LQVWDOOPHQWVUDWKHUWKDQDOXPSVXP VXJJHVW WKDW WKH ODZVXLWV EURXJKW E\ WKH 6WDWHV DJDLQVW WKH WREDFFRPDQXIDFWXUHUVZHUHLQIDFWVXLWVWRUHFRYHUWKHPRQH\ )RU VLPLODU UHDVRQV WKHUHIRUH 3ODLQWLIIV FDQQRW UHO\ RQ SDLG RXW E\ WKH VWDWH RQ 3ODLQWLIIVj FODLPV  $QG ILQDOO\ +DUULVY2ZHQV)G WK&LU ,QWKDW 3ODLQWLIIVWKHUHIRUHVXJJHVWWKH\DUHHQWLWOHGWRWKHDPRXQWRI FDVH WKH 7HQWK &LUFXLW GHWHUPLQHG WKDW WKH (OHYHQWK PRQH\UHFHLYHGE\WKHVWDWHVDERYHWKHFRVWVLQFXUUHGE\WKH $PHQGPHQWGLGQRWEDUDVXLWE\D0HGLFDLGUHFLSLHQW,GDW VWDWHVLQSD\LQJIRU3ODLQWLIIVjPHGLFDOELOOV  +RZHYHUWKHFRXUWIRXQGWKDWDQDPHQGPHQWWRWKH 0HGLFDLG $FW GLG EORFN WKH 0HGLFDLGUHFLSLHQW VXLW D (YHQ LI WKH 6WDWHV KDG VXHG DV DVVLJQHHV WKH DOOHJHG GLVFXVVLRQRIZKLFKLVIRXQGEHORZ ,ELG mRYHUDJHl DPRXQWV FRXOG QRW KDYH FRPH IURP 3ODLQWLIIVj DVVLJQHG FODLPV   8QGHU WKH DVVLJQPHQW DQG WKLUGSDUW\ 7KH +DUULV FRXUW GLVDJUHHG ZLWK WKRVH FRXUWV mWKDW KDYH UHFRYHU\SURYLVLRQVXSRQZKLFK3ODLQWLIIVUHO\WKH6WDWHVDUH IRXQGLWµZKROO\LUUHOHYDQWWKDWSD\PHQWV>XQGHUWKH0DVWHU RQO\ DVVLJQHHV WR WKH GHJUHH WKDW WKH\ KDYH SDLG RXW IRU 6HWWOHPHQW $JUHHPHQW@ ZLOO EH PDGH LQ IL[HG IXWXUH VHUYLFHVDQGQRPRUH&)5† F  m$6WDWHSODQ LQVWDOOPHQWVUDWKHUWKDQDOXPSVXPjl,GDW $OWKRXJK PXVW SURYLGH WKDW WKH DVVLJQPHQW RI ULJKWV WR EHQHILWV WKH +DUULV FRXUW FRQFHGHG WKDW m>I@URP D SXUHO\ HFRQRPLF REWDLQHGIURPDQDSSOLFDQWRUUHFLSLHQWLVHIIHFWLYHRQO\IRU SHUVSHFWLYHLWPD\EHLUUHOHYDQWWKDWWKHVHWWOHPHQWIXQGVDUH VHUYLFHVWKDWDUHUHLPEXUVHGE\0HGLFDLGl 8QGHUWKHVDPH WREHSDLGRYHUWLPHUDWKHUWKDQDOODWRQFH WKHIXWXUHDPRXQW IHGHUDO ODZ XSRQ ZKLFK 3ODLQWLIIV UHO\ LW LV FOHDU WKDW WKH FDQEHUHGXFHGWRDSUHVHQWYDOXHlLWFRQFOXGHGWKDWIRUWKH 6WDWHVFDQQRWEHWKHDVVLJQHHVRIPRUHRI3ODLQWLIIVjFODLPV SXUSRVHVRIWKH(OHYHQWK$PHQGPHQWDOOWKDWPDWWHUHGZDV WKDQ WKH DPRXQW SDLG IRU VHUYLFHV  7KHUHIRUH WKH SUHFLVH WKDWVXFKSD\PHQWVZRXOGEHPDGHLQWKHIXWXUH,GDW   %DUWRQHWDOY 1RV  1RV  %DUWRQHWDOY  6XPPHUVHWDO 6XPPHUVHWDO

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jVXLW7KH6XSUHPH&RXUWLQ,GDKRY DVVHUWHGDYDOLGFODLP)LUVW3ODLQWLIIVjFKDUDFWHUL]DWLRQRIWKH &RHXUGj$OHQH7ULEH86   QRWHGWKDWHYHQ 6WDWHVjUHFRYHU\DVDVXEURJDWLRQDFWLRQLVLQFRUUHFW6HFRQG SURVSHFWLYHUHOLHI LQ&RHXUGj$OHQHDGHFODUDWRU\MXGJPHQW 3ODLQWLIIV GR QRW KDYH D SULYDWH ULJKW RI DFWLRQ WR HQIRUFH ZRXOG EH EDUUHG LI WKH UHOLHI VRXJKW LV WKH IXQFWLRQDO IHGHUDOULJKWVXQGHU86&†  HTXLYDOHQW RI UHOLHI RWKHUZLVH EDUUHG E\ WKH (OHYHQWK $PHQGPHQW DQG mVSHFLDO VRYHUHLJQW\ LQWHUHVWVl DUH )HGHUDOODZUHTXLUHVVWDWHVRUORFDODGPLQLVWHULQJDJHQFLHV LPSOLFDWHG,GDW,Q&RHXUGj$OHQHWKHSODLQWLIIVVRXJKW WRWDNHmDOOUHDVRQDEOHPHDVXUHVWRDVFHUWDLQWKHOHJDOOLDELOLW\ D GHFODUDWRU\ MXGJPHQW HVWDEOLVKLQJ WKHLU ULJKWV WR FHUWDLQ RIWKLUGSDUWLHVlIRUFRVWVLQFXUUHGXQGHUVWDWH0HGLFDLGSODQV ODQGV  7KH &RXUW IRXQG WKDW WKH VXLW ZDV D mIXQFWLRQDO 86&† D D  $ ,QFDVHVZKHUHOHJDOOLDELOLW\LV HTXLYDOHQWRIDTXLHWWLWOHDFWLRQlZKLFKLPSOLFDWHGmVSHFLDO IRXQG WR H[LVW IRU PRQLHV SDLG RXW XQGHU 0HGLFDLG SODQV VRYHUHLJQLQWHUHVWVl,GDW VWDWHVDUHUHTXLUHGWRmVHHNUHLPEXUVHPHQWIRUVXFKDVVLVWDQFH WR WKH H[WHQW RI VXFK OHJDO OLDELOLW\   86& $V DSSHOOHHV KHUH SRLQW RXW WKH 6L[WK &LUFXLW QRWHG LQ †   D  %   7KH SXUSRVH RI WKLV UHTXLUHPHQW LV .HOOH\WKDWWKHLQWHUHVWRIDVRYHUHLJQLQDOORFDWLQJVWDWHIXQGV VWUDLJKWIRUZDUG ZKHQUHDVRQDEO\IHDVLEOHVWDWHVDUHUHTXLUHG LVDmYHU\VHULRXVlRQH.HOOH\)GDW $OWKRXJK WRDWWHPSWWRUHFRYHUPHGLFDOFRVWVLQFXUUHGXQGHU0HGLFDLG WKHDQDO\VLVLQ.HOOH\ZDVQRWH[SUHVVO\XQGHUWDNHQXQGHUWKH SURJUDPVIURPUHVSRQVLEOHWKLUGSDUWLHVUDWKHUWKDQUHO\LQJRQ &RHXUGj$OHQHDQDO\WLFDOVFKHPHWKHSRLQWLVDJRRGRQH DQ IHGHUDODLGH[FOXVLYHO\:KHQDUHFRYHU\LVPDGHWKHIHGHUDO DWWHPSWWRIRUFHWKHDOORFDWLRQRIVWDWHIXQGVLPSOLFDWHVFRUH JRYHUQPHQWLVSDLGLWVVKDUH,QRUGHUWRIDFLOLWDWHUHFRXSPHQW VRYHUHLJQ LQWHUHVWV  &RQJUHVV KDV VWDWHG LQ LWV OHJLVODWLRQ RIFRVWVE\WKHIHGHUDO0HGLFDLGV\VWHPVWDWHSURJUDPVDUH PRGLI\LQJWKH0HGLFDLG$FWLQDQWLFLSDWLRQRIWKH06$WKDW DOVRUHTXLUHGWRmSURYLGHIRUPDQGDWRU\DVVLJQPHQW>WRWKH WKH VWDWHV DUH VSHFLILFDOO\ DOORZHG WR DOORFDWH WKH 06$ SD\RU VWDWH@ RI ULJKWV RI SD\PHQW IRU PHGLFDO VXSSRUW DQG SURFHHGVDVWKH\VHHILW3XE/† DPHQGLQJ RWKHU PHGLFDO FDUH RZHG WR UHFLSLHQWV    l  86& 86&† E G   0D\  m>$@6WDWHPD\XVH †† D D   DPRXQWV UHFRYHUHG RU SDLG WR WKH 6WDWH DV SDUW RI D FRPSUHKHQVLYH RU LQGLYLGXDO VHWWOHPHQW RU D MXGJPHQW ,IDVWDWHSXUVXHVDQDVVLJQHGFODLP86&† N E GHVFULEHG LQ FODXVH L  IRU DQ\ H[SHQGLWXUHV GHWHUPLQHG SURYLGHVDIUDPHZRUNIRUGLVWULEXWLRQ7KHVHFWLRQSURYLGHV DSSURSULDWHE\WKH6WDWHl ,QWHUIHUHQFHZLWKWKHDOORFDWLRQRI VWDWHIXQGVZKHUH&RQJUHVVKDVH[SUHVVO\HQDFWHGWKDWVWDWHV 6XFKSDUWRIDQ\DPRXQWFROOHFWHGE\WKH6WDWHXQGHUDQ PD\DOORFDWHVXFKIXQGVDVWKH\SOHDVHLVDQLQWHUIHUHQFHZLWK DVVLJQPHQW PDGH XQGHU WKH SURYLVLRQV RI WKLV VHFWLRQ DmVSHFLDOVRYHUHLJQLQWHUHVWlXQGHU&RHXUGj$OHQH VKDOOEHUHWDLQHGE\WKH6WDWHDVLVQHFHVVDU\WRUHLPEXUVH LWIRUPHGLFDODVVLVWDQFHSD\PHQWVPDGHRQEHKDOIRIDQ

Reference

Status
Published