This document is subjeetto theptuvisions'of the Priviney Acta 174,.andinay Tegnire ukdaettoi beiorediseinsure•oihisa parties- no redaction has been perfPrinabrthesOffice of kpector:General- Recipients of

this reportahould:trotdiisonsinate. or copy it without. the insPeotorefenorsills approval: •. .

REPORT a INVESTIGAliON

'. UNItED ST-AUS SE - • 1'1 . I S MO01cIANGE: C ADIISSION -00,10E . OF INSPECTOR OE. RA I, - -

-Case No. 016-496 . .. . . . .• ?illegal-1(44 of toofli.ct. of Intprist .44roper Use of igau-rublic Information..

4 . - and Failureiti, Tali..e.Suffiieit AttiOu AphisFarldiiitiit CiiMigiityJanuary 8, 2010 . .

a

docurotat liSabi* tOcal.014m0190 ilte rxiVIWY Att of I d,.snd atayrOciautei- rotlacito OW koca.6400FsuivAllifra Parikt, MuNdaettoAlsaa Watt paelbriatOil thaiffit iAltaivetior•Gehainta.. gotipleofs

thterePortshilada-aq alaisoallaaito or copy It vvithoailhelaspocior Gotourara: approval..

Report or InvestigationCoble 0.1G-496Table -oftontents

ridredge,liou Suinmary Of RestlilIit of Inv ate fl 1

Sope Of 1nVesrigation 6

RelevautCbminission and Qovernmerdategulatjons and Rules 7'

Results of pie Timstigatkut. 9

L Backtibmild Fhidints• 9.

A. Affied.Capital Corporation 9

. Oneiiitthe Largest anoltirlost.1 )roinkont 9

Even. Though Row:dated by SEC as an investment Company and• Considered Mgt Risk, BDCs Could Go Unexamined kw Seir.orid.

Years 10

Valuation of ripg Loyesunents 11

The 2002 (b)(7)(C),(b)(8) linvestiostion. 12.

. 4411:04 $ucettaiaitfrpd-thgBEe toavesiigateEitihom and 'hisMagO.FiiittlateeOligbfCipital; Without Evidonoo:orWrongdoin#Mier Eititostu'iNizgativb Speech About Aided

L SPeech 12

AlliedStizpped11.0 fitt PohlitilEfiutt s 13

3. .Aged. Met 'With the SEC to Ow jrni4stigittion otElohorn

•

A. theiriveatikation Was.Supehns7.Who; Cite Year(b)(7)(c)

(b)(7)(C)

Latet (0)(7)(C)

t

This document tstobject to the provisions of the Privacy Act of19.1.4attd may require red before . .

dittiolure to third parties: pie redaelion hat beet performed by the Obacetat boaixotorGeogr.alt..;Reciioidat0- .;tifilds Raton. Amid not dissetaingeortotv It-vthOttliellispeetor Oexterara.appeotak

Report ofhk-iestigationdiseNO. 010496

•

Table of Coatgats., -Cola

B. Einhot4 Began Contacting the SEC with Specific, DetailedAllegations and Evidence ofWrongdokg by Allied at Same TitheAllied Arranged Meetings to Urge SEC to ittvestigarq Einhurtt 16

1_ (b)(7)(C) ed a Great Deal About Allied Dining Coulaevestigation 4)(b)(7)(C),(b)(8)

a. Showed lib Efigagettititt fit•(0)(7)(C).(b)(8)

20

b. Atea 00.1410a hifermnrandum,viIth(b) (7)(c)

ploh, Hi the (b)(7)(C).(b)(8)%adireInveatigatibp„ 22

essively Queationed Eiñ1orn ia• eatimeny

d. (13)(7)(c) iteached Out to SEC 0

(b)(7)(C),(b) ratition about Allied During

(8)

(b)(7)(C)

to

.22

(C), (b)($)

• e, Adaion61 InveStigatiVe Keds(b)(7)(C) 5 .

•I.)i. Boxts ahattito.entg: gutydentied tat)lif ".• V.-in4ont, -2$

•

(b)(7)(C)2. • tight Einhonen Teienlione Records

and ent List iiii(..b)(7)(C) . (0)(8)

Investigation

2

1444 ►tIPIPtibll (DOM AlEcdMater ,=wars of Other,,SgC Attiori.%Reited:

During likveptig&ion.

z

Also unsw op' Submitted(b)(7)(C)USe Not

•COD* SISC•plEcid.

3. There is No EvidenceSEC Dom/Mats

• . atfoitethent Quieldy Found Einhorn Enoged. a I+.1-qWrongdoing •

5. RiatirO WAS NoiininVed Ile Was No Lon& Subject ofInvettigitiori, Despite .1tieOesUilg SOiWieb

•LAit1101,E0 Met Sjopifie04114ttatiniogo

Physically Took Nc;n-Publie(b)(7)(C)

27

iF 4O0i#44141s4tiblgato theprOviiions of the rijvaey.iiit-,41974, and ziayregenfeiedoiliani befiltg.03#144.00 ehir4 Nowedatclion. hier been perfotmed brdieOffieeollnirpeckF Coeval. RetipiesisOdd* AVvnt imitilisseminot.eareopy it without the bislieeter Oenerarcapprovad.

Report of brirestigationCase No, 0I6-496

Table otConteuis i Can't

Fes' *pig '.two_trioy.Footnopt woo 1.4vp1Ring -2010 WhewNo iketionviaicrateo

b.. (b)(7)(C) OCII? iwas Cad4tietiteathAlltageouslEutubiatiezi of AlliedColuigelltifOtanedilet,

.44-440.114how`ginifroyenriatH.

b. . (b)(7)(C) L-Fits :Miced A toivb Thiföreenle&

a. (b)(7)(C)

(b)(7)(C)AiliestOne Year

36 •

36 -

38

- 41

43.

iiiis4lor.umegissiko4 tgo.pktolislosiA foertivooyite.t41§74.'oodziay.togoiro reatootioggtoioreglisd000tolto tardporites: No.rodootikok towboat performed lity fiie OffitootinspitiOr Otoototi -R*4111141*of this' report shear nottlisseminate or tOpylit without 'the Inspector UeneroPcsivprova

Report of InvestigationCase No. 010-496

Table of Contents, Con't

Ethi Office Cloud .Register ason Incntup =Oen fawn

13tacts4 Mies Offleo 4beitCnneenabl (b)(7)(c) Patentierecidict efIntgtest - 33

*• Inftwnlett ateCtitnionlAvholities, Thated in Preteging OfEinhotes Teleiihotie Itecotet

e Left the . ste, put NO One Elfin- 10=0 BinhoritThis Matter

1, • Pretexting

2. 0'S AcimissHicm. and SEC Diseiosere qf liretexting

3. Mietro Lawyetkt Told the. SC that (b)(7)(C) was ,RestintigibIe PrOttiing .,t

Ei*IM togik.Ctign.s0$06entlett to the NilareSEC to Takv4ron Against Mica:34i ittiniitte4 Pieteiting

The tpotzpo4 otAtkieta

Degeitneies and (Jima CittulairtmeT4t WA Me Exttninatient."

(b)(7)(C)

t .

(b)(7)(C)

Pane

34

'Thittl603100141*:tit A44t..4), . 4 prov.k.loua otthe RtisrAey Actef1074,%04 wankegtere ted4edea, bbroref414osaiti.4.110id 044- i1OriAxelioghaa $44.14414140 ito;e01400-0tiagiltetOe 40.1pOrAIL 144#010;oillstexpoit-shothyeat"thstemheite 04!eotif:It without the lespeeter.r.,eaeonaiikavid.

Repot of invostiggitionc _Case -No. 010496 *

T2ble:Of C011tgOts COlet -

L The Examinationand SuPervised 43

2. 'There Was No Visit to .Allied's Office Lomita BlocksIttonthe WC .45

The ExandnationTook MOntlis to Complete(b)(7)(C)

KnOHad.Worked at the SEC and it May Have Colored .His ViewOf Allted:

Findings and Referral to SACCKCeng#:

C. Disagreement Al:tout Refttral. to Etiforeetnent addVbether.Allie' dMay Havel:leen A Ponzi Scheme

D, The Allied Work Papers Wore Deleted from Shared Computer Drive

The Bnforeement tavotigation of Allied Began Ahnost Two Years After Fmhor'n provided Detailed gvidence of Allied .Praud.

(b)(5)

.55

The CliPITIOiSSiOn10 OtlidliAp0

C.. 11)0.1[0WO of Whether Allied Was .a Ponzi Schen*, 130Ciiii.Se ofH. it Financed its Divklends, WaS Not. InVegiBate4 •

D Enforcement Agreed to Settle with Allied. With No Penalty or4efinn. Against Allied Oflicem-

5'6

3.

-

(b)(7)(C)

45

46

47

48

5.I

53

5

A us

4034141.00.90.11# thepoxylitootorthitthlio-AdotOgi*-4.lizo oquit#444.044:000iikroglOwos044101 ►i** '?4.. 0014Motata. kee*Pot.**ini0-414100Akoottokik*virciatiog ..1.§440003

titsop01444044 iitit4fizottiftit# ,or froliftwIth001400414foirPtaiertivaOatoval..

Report of bwe.otikatiOn •ctise,filo..0106496

TAW. Or eff0000, °Diet

trighTqwe.red .ComPo1Meath% with RnixopatorktxtwArgvo

I1g0:seeit writi-OhtgoekiStitietilot

Derided Not to Mit*

Page

(b)(7)(C)ono'

(b)(7)(C)

Fraud Champs Sh6ttly Mum Meeting.With Agieft Ciinnaet 59;

_ 3 The Tons:of the Settlentgat OrdUi

• the Settlemed Agreement. frad Defictetkeies(b)(5)

63

Voluire.to Monitor -Compliance with Slattern* cement -04

V. (b)(5) 65

A. 66(b)(5)

B. 67

.

Coliclusion

6

st

This' document is-aubject to The inovistonstifithe Privacy Act:141.9W, and Mity.'requirrednettoil beibredigiosere o third. parties. No redaction :has been performed by the .bilice ofluspectorGenerst. ;Recipients or

this report shonid tad disseminate oft:mu:it without thelinspector:OenerairsAppnwel,. ,

REPORT OF.NVE§TIGATION

ITNITED ;STATES SECURITIES AND EXCHANGE COMMISSION• OFFICE OF INSPECTOR. GENERAL

CatS6 No. OX-496

Mlegati011S of Conflict ofraterest, Improper Use of Non-Public InfOrirtatiooand Failure to Take Sufficient Action Against Fraudulent Coniiciaxty

.Iniroduction and Summary of ftesupts of Investigation

On hily1:0; 20013, the Scoaiitiirg andEscliarlge Commis -skit (1EC.7 `5004:01Woit).Office. of its,pectar General COIGI:Operted:nri iiiv.eatigatiod atorSECCoes former Chief of StarEa4ted-tho-CtIG totsvicoaliftatioas, against 'tt ftlatoPivisioo of .

Enforcement ("Entbteeinento) =tatty: . lit allegationlmfere:Ontlitted in 0 ifidt:Stoit-ktotoitotarticle abouthedge fund Gneenlighttanital LW rentenlight Capital stiatiago DOM '

e`Eilthamil thttic scion4o-lie iclea,sed book, fboling.Somanphe Peopk All ofthtTime -A Long-Short Story e'..F.inhorrei hordel, The snfinler gtateci that nnel-vr Einit cOmptaints was that (b)(7)(C) ivhcraggressively questioned Emnont about his sherteselling ef AlliaeopnalVorpen (Ail kir)stock, became a realsterte (b)(7)(C) for Allied oftetheleftat SEC, In alditgai Ilt0.4#10W notedthat Allied Obtained purlomed tclophon4MatAa. The former Chief of Staffwas concerned, inter alio, ,„•yliave engaged in illegal activity and taken

•public. SEC investigatory mate •piling tinhorn's telephone :records. .

• 012005. the orcPPNiudgCl g-1mbfP430111.40! inquiry into sitralartille0CPPIAliMin a letterliontrinho ra'slrenufisetiltiehardzabe- 1 r - in), to thvoiG.Y. Th. 02005-inctuay`

. :

7.

Thatietter alleged y have been: (I • ogress 'regarding the, . ..Cominission'a investiganono at. which Zabel c aziferP4§4 in, and(2) uting to Allied's advantage non; lib *e ' I 3 al I . 34 On ab OM and Einhopteshedge kind GiCCOgtit COM, wilic (b)(7)(C) maccithottglillis participati , a - a a

Invegigatioli &Alija 6 hurt Aigli ■ - : — -,E 9 I* I I I RIO' :a: F...,3(b)(7)(C)

-as for Allied. ZilieLelahned that (b)(7)(C) Iti .. y have Violated a cristatute mmistion rules, for attorney

•1 ,

1 •

• ' The QM iuirestitgationfmthetrevealed:thtttdutiigjhe: same time Allied was Ore toonnvinee:the SEG Ityinvestitate Eitihorti,. even without any evidonqe-Otwtougdohig, %AmuWAS strbinittifigspeCigc and detailed Wets. to the Ste Outlinligeilance of.Allied!*overvaluainvestments and requesting the SEC to investigate Allied. We found that although the SEC'(Acei3f Compliance Inspections and EgaininationsMah7).badbegun camination Of

me W' iratiarM=r1TESUfarAr41111 n C),(b)(8) WregilgatiOn ,rhvgis .. • , (b)(7supervise )(C)

l Avlinjust oecame a (b)(7), Itor.Aulect. we row that g the (b)(7)(cmb)(8) nve.stigatio

aggressively viettioned Eiolioniintettiniony, subpoenaed several. boXes,ofsought Einhomh telephone repords-andliSt aids clients, We also found thanumerous, successful efforti to learn aboutAllied dmini -the course ofinv gado.

•

(b)(7)(C),(b)(8)

c a, Ill ;I:. (b)(7)(C).

:

4z

•

•

g •

Ttit,s :/kkgueutibOttO tneprovlsios•°Atte Privrift Act ot ION aftd- IRIWTeggi1 01vida4311 %toreAll.sriSilipt to third pad*. NO 1:M246642.111*Uen perfortaed by °Mee etinsnectigtomerat, .R*701*fi,

of this too,rt %nada not flissemilage4r. copy it without thelastiettotiOraPs appyavair.

*Mild I • • 1 I rceme,at invcstigationinto Allied was opened after (b)(7)(c)(b)(7)(C) eft i u u *ion but tliat exewasiiospecftcvola wastionldarly, law; rtijeTre fleXtrirt (b)(7)(C) After reViewiUstlie4afennaiionproldeil 21)Clhy thenChiefof Shift; the OT - *0 Woes in that inquit,5, and. litoadettettits invesigatiOu toinclude additional alleg na tinhorn Made in his brat Published in mitk2008, EiriltOreS honkrecounted the much,publicized heated feud betweenEinhorri and Ana, Which continues:today.,:The feud began in May 2002 when Einhorn gave a ilsgailit speech atneonferenee--about Alliedand described why Greenlight Capital had a short position in Allied. Einhorn'S speechcompelled =WV also short and sell Allied's stook the next ii..y..Alliodxgspqadgd, according4) Einhorn, int a "Waliiiitton, D:C.zstylo spin job," agackillg

Einhorres book included allegations of the SEC's: failure to.take appropriate actionrelated to .Allied's wrongdoing- Fathom Wrote thathe sentabour a doUtt letters with detailedinformation and evidence related to his allegations OrWrOnlitddixtg at Allied to several 68COfficials, butnover 'received a telephone salt orviaittenledpouse. abort), stated thathe did nothave :any idea Vihether.anyone fat the SEC followed ;up tat the infornianienlepinvided. In fititdletters, and in his book, Einhorn claimed that Allied overvalued many of its InveStmerits...Einhorn also stated that hebehevedhg was invd,stigatf4* the $E( at the behest ofopting. the unusual timing of reeeiiitixa subpoena for his testimony and.,dOctuileAts after .*Enforcement anomeys called him the same day:he. aSitelii Allieda question on nfereng4

• The•= conducted a compreheniive investiptionatheallegatioxis hi Mahout's:book.The investigation revealed that Allied sitereSsfally,lehhietitheSEC to begin ittgestiitnino .•Einhorn and his hedge fund Greenlight Capital viithetit spedific evidence of witingtking, oget-Eithouils negative speech about Allied:14May , 20fl2 The 010 investigation found thatErtfoteemenes investigation of Einhorn and ,his,heilvie4uul ong otherbedgefindainctudiag

(b)(7)(C) (b)(8) . .NV41$ OPMITitiVed shOrtly.after ,

•

2

' This Ottuaent is sabject tothapro3;:tsions of ttra Prwioy-.i.kt O. OM in may reiiiiikretliell'eur4erar4' !rise1osin.04o Ihifill Rainier. No reilaerteallasbeea.pedonned by. the Office otiaspedotteronei -4 'fReeijiteaU

..ettlila ritillid silould ..aat 4 bsgt/aingt0Or teltr it:10.4bOat t4: laWiritar GeneOrtu4.0104

llied' hased npongioltordeallegations% .Ettfoiceinetiataff was thlawarethatOCth•was: ' - •. .

_ . ,•exainining Allied,anpl the lead Worcehtent attoutcy..WakOrcvolled itOttoMniading* 461119r,Offieial to learn: that Einhorn hegait stilinfittlhg letters onflinitt evidence;of,Allied'a*rohidolikg- 0 .

. ..The OIG investigation.alsO found that very soon after Enforcement began looking at the • ,

allegations ageing EinhOto, timPorlohlikdth* taw. . Waxnef oferli61eV*10.1.0e 0 deniell$100..thatthe . :' ;!esothis hedge Arid viol any l:algal 4.0PAnitie$ :W.% Eloweveri afthoughlhe

investigation againsfanhont was Oa pxoetical.Oattor completed by .044120034 the inVaticalleawas not forraany closed until December 20o6; ma EinhotnAval &wallowed tut ik&igia.1410longer a 4ilijeet of investigation„-despitelds request for Soh notificatien. .., .. . .

fotind that in 2003,, while SuPeoig lfig ftlieltivesagAtiak *gala Dillow QMothers b) 7)(C) asked to leave Enfeiconient.because .., ormance problems. In(b)(7)(C) onmediately after ...: , 2 .SS (b)(7)(C) gingd - , . t rgt,Of Venabip .4.

enable”, Xn October itkl4 (b)(7)(C) ',is •fo y re_ 1,1 - - :xi AS (b)(7)(C) MIIed.. *.ttig,-

oto investigation& . ,.,-... . . OM btalned clearance &m ale I* , rittnieSiOn!$.'aldies ,office to re&ter as (bx-/Hc) P 1/ AA.9 A .... A.S : 04WrOlgro$600-400$ IX POO 4latitO 110 AO

. WO , - .I Olt A A Alli - ' -re rf.r7r ilLatters- While working at the SEC. In fad, the eVidence Wgiltotihad worked-on the iovestigatiOn.OfEichoritwhieh.Allie. A had, lobbitti•forand ifl

the course of this invehigatlint, : learned a Stiliataitiaatttennt ofsene i''' : -i vi - ? .... ; . kkilliatitql•4 . 1 (13regaoling Einhom and Allied. Ilovrieet,the010 found no evidence ' )(7)(0) ,itilt hhsititiir.;

at6d dentinietits nithidni When he la the SEC. Nerd" . woo. , • eviderale*vedany non-public information fronk.any SEC employee after leaving the

The OIG investigation revealed thatio March 2005; Elam raised concerns that Allied -illegally gained access to his telephone records. In 2007, after a' grand 1, 4. Unrolled, Alliedin/tamed the SEC andithited, States Attorney's Office rUSAO, that (b)(7)(C) engaged in .the offense of pretexting (Impersonating someone to obtain their telephone XeftilTds) artiMt •Einhtft onlvhalfPf Allied. Allied 0=04 an SEC Form no,(roziknowl4ieng that One of -its agents tial diegaijy obtained Ealf-torti's telephone records, WOW* it claimed net to baye .authorized the pretexting, The co, found that the SEC took no action against Allied teloted to -the pretexting.

,Moreover, although Inferconeitt found no evidence Jot Wrongdeingagainsttinho94.

based upon Allied's V.PsUPPPited . allegations, Eltholies. -4Iabits against 41110d. woe ivaiiihoot tororFAteveuthy 00E'svwnhxatiou, Hawavex .thelemil bows thaiOCIE's otatnitiofion,prolonged dPlaygi'vvils unusual in manYsitrar4. -PlicoificaltY* it was 0440114: priiiiatilyri* .

only. one headquarters! eitaihketwiervety elosestIpmyklon.by the Agoel4te t)irectorim 0tffi. .

•

•■

nirs. document issubject 10 the provislom'of the Privag * 1.9i4andrnaynquiseçedactloa before:disclosure to third 010110. NO04244911jias be pgrforavid by the tilikeAlle$PeeteriGweraL 4;4*40;114

OT this 11:40301:44.01d nOt dassemniate Or.copy It without thd.fiispecitir-GengraftitpprovalL

in addition* aidaroah the aXan. imer141,4 .1)41.4 tete lmftanki .viSiti/4.01 ,'elrg•oflieds,-even• •6000 Oft *were loeatet•i -• " - • t■ thefAsSociate Meant • -supervising the.eAtin knew (b)(7)(C)who to:mg* worked atthe SEC,, and indicated :that he trustea) md bad glevieW:thnt anyone whp1iad 'worked attire

- SEC was "niat gpingtnbedeinganytillegal.'"

'The examiner on the Allied examination testified that sheteicehted considerable •"pnshbaer from the. AsSeciale Director with regard:to her findings against AIliL Specifically, • '

•the eRclimiller exPreised

t exa

had not had saki* OAK fie% earnings to pay dividends since:1999 without the isstatiee of-additional stook: The woollier vias 00;4114 that* mgmvrioWhich Allied was financing its tfividends.was akin i0-11"PhOZI-Sesh010." MOttfaiekall, of. thework papers from that examination were laterinetplioabbr deleted front the DOB Aso*eomputer

in April 2004,. the recind shciws that OM ii&rred Mr& findings from itsexainirtation ofAllied to Enforcement, including the conceit' about how Alliedfinanceditsdividends WithWhiehthe AssociateDirector disagreed. The OM determined that•the issue of how Alliedfinanced its dividends was never investigated by Enforcement. 111Mg 21.104, gnforectnent•finally began its investigationorthe claims raised byEinhorn 'in*Vand AMC WV, We fonud .that Eutloreernent determined by-mid:4W that more than adozela of Allied'S investment., - hadsignificant problems with the calculation of their vahz and that Allied had materially °merits-. .tedits net book income on UC.Foirris"1,04(" for severalyeatS.

Elowever,after inVestigating the matter for threeyears„ in June 2OG7JustafierAlllatLtôid.the SEC its agent engaged in pretexting, the Commission entered into a settlentetitagregnent ,•with Allied, lit that agreeMent, Allied 'agreed 0.).coottoue to, employ a: Chief Valuation .Ofter tooversee its quarterly valuation process and third-party valuatiOneOaSultant$ to OSSIStin itsquarterly valuation PrOteS8Rir -tvv.d years. No penalty Was assessed against Allied or any of itsofficers Or directors. The DIG itivestigationfurther crigeltited that Allied'S ocatosel had requestedqtrid Olitiahtld111V-W011s*441;frft.**g.iliclroin, 4** *14911, 0401.Cr. 040ritifotebaidttAtlixec444 .114 VolilOr attorneys Ire ts'--succesgrullylohb414 Enforce:Witt nnt.0 bringfraud charges. xtelinSt Alliedox (b)(7)(c) Who EnfOrcementfeunclkOwte.overvalued some ofAllierrs investmentsi:nat-tnatad to home Allied Iteetli allookiatalreoade tharge. -We, further bind that under the settletnent withAI110114'6 Wire AO .effortsMade by ihaedmirtiissipo, or gym provisions in the W.ttignIglit order, to monitor complianceAlti.4 with that agreement.

' • :

Fin.ally, we found that after the OIG initiqed itt ir*estipOtibit Arsil was(b)(8)published about his experiences with Allied and the SE4

,4

earanteatii subject to thiproyisians otthePrivrey ittilitit974; ;aati inay re*re rethietliin.hrtlire-disrliserpte third jun-ties. :No redaction bar been pork:ruled by theOfficer ttOlpforts

plats reportaborld rot disrmnfraaker Omit wittiont:the instriclot Cen30•01 00,r0rokrulit.(b)(8)

In all, the MO's fm. dingq'dining thiskiestigation:inise concerns. ahout ho decisionswere 'Made within the SEC with regard to the initiating and concludins Of the examinatimindInvestigations. White we did not find any OlidFgoe of PPOOIGO WrOngflojog:0n the part of current.SEC employees, we found thaisetious and, credibie*egotions against AUTO wCtenOtinvestigated4 and instead Allied was. able to successfully lobbythe SEC to look into allegationsagriinv its rival Mahout without any specift evitteni-e of wrongdoing,.

i •••)7ifi.also: found Aft there-wag a lack oftommtafication betWeenOCIE end EnforceMent .

with respect to-pending examinations and investigations. Moreover, .a former Enfdrceratent. . m anner (who llad•sOoh significant performance problemste was asked to - leave 'Enforcement) . !_.was able to obtain a signifi , • • • ofsensitive iothmtatien he may have disclosed to Allied

We are recommending that the Ditectonti of Oefaaritanfortertienteareftdly review thisreport of inVeatigation andthe ilikterrofthe,aaininaten and inftstigetionntbat aredesethed inthis tepott andgive consideration tn.pronalleiting aruliortlaritAig proeedures with retaittod

•(1) how oxatilitletiOPS and invegAgatious Are initiated where there .are .requests

from outside persons or entities inducting .whether specific allegations ofwroNdoing. have been provided, in determining whether to commence anexanduation.or investigation;

: (2) informing individuals and entities under investigation thatthey are nolonger Wise% if au :41westimtimi tI14 lithely Manner, as required by the •

- F#FaceMOntliAantlak - • • - •.•

(3) .ensuring that other than traditional Willi meetings are-AlOt unlited by •aggoAssiVe Counsel to illtto011oO-deoisions Estirooment sotionS; •

•

(4) incorpOrating previsiOns in Enforcement Settlement agreements thatenSure requireinents.ate adequately monitored for compliance;

(5). . limiting the ability of 0M-Personae) delete examination work paFr5front GIC1B rAtionter systems;

•

7

(rx7)(c)when he hecame are - 4 Allied a year aftetleaving the SEC. Further, •mte - fotmdconcerns with both the OC examination of Allied and the resulting Enforeernentinvestigadon,and bOlkvotherO -Ore questions about the extent to whithAllledN'SEC COMeraibitt Vittaggressive tattles ittair have hdlnenceliBufbreement's and 0C1136'0. decisions-inmost Matters.

5

•.thlf doklumentlaObje4tcleeptiovislons otthePrivotyAct tr1974i and. may.frogairvrodactioiLlyefore

414.41os too* third pat** $0: gadataon talpbegoverformea.bytheetfilteorkqe.e.,totDeneral gtotipletik-of Veit retibitAiould Adt disdettruide or copy itivithstut ttielapictor Gentrars opptoltalL

ensuring dint OCM uiaiiapeinenr iS•nOt iuidiily filillileticed1011 .6pregentd•arclonerr SEC employees in examinations andtliatalt issueSidentirredaspotential: *.derni Seenritiw law viohttions be cnretidlY considered torWei* Enrimonwat; ,and

trocurnentingthiet*.asotw speoilic ism.= tetetterl .to Enforcement troniOCIE ute nOt initepstlgeted,

•also*onnnend'that i sthe Ethic Mee consider n Wiethods ei:mire that here is no

appearance of impropriety where former $BC staffattorneys representa company shortly aftertheir work at the $BC provided the= With•SPeci.00 and sensitive intorrnation-related to thatCQU'IPWAY.

Scope of InVestiptirdi •

Theata obtoked nitd; reviewed:voluminous dbetunentN frektigi to 04 tad* includingstnfeelnalig, work ttaneEs from. s CIE.exarniriationof Allied :, off afortentent documentstelatet.

he (b)(7)P 0)(8) Alliedinvestigationd..

TheaCrtoOksvitini; owthe-nteord testimony off_

(6)

(b)(7)(C) .$0.fr ACCOUlltant "Oifte. OrC9111pliattCp biwctiptis .4.nd

(2)

kAatuitn. at ions (February

Einhorn,fannder

11„, 2009);

and coi-President ofCirceolight:Capital (Match 9 ., 2009);(b)(7)(C)

fanner OCIB examine and Branch Chic.f(Ittly 20; 2009);(b)(7)(c) ,Senior-COnnsel,DivisionotEnforcement Pay. 212009);,

Salta Connsel„ Division offziforcetnent Only 30, i009):(b)(7)(c)

. .(b)(7)(C)Assisinni Dimon:RA-Division of Bnforceroent (Augusi

- 2009);(b)(7)(c) A.staiiate Counsbi, DivisiOn)tinfOreetrierit Ougust

(4

(4) -

t5).1

AUgtla Z009);Diiectr ',Mee othilionvhipeOti9tIS 4114

6.

-(1.)(b)(7)(C)

PhiladelphiaReglatial Office Braaeli Chief (rialy 24, 2009); end ,

enior. Advisor to Director, Division of Inveshnent Managemente

IG conducted several telephone interviews of former piforcement attorneyho rernsed tO appear for MG testiniony. 3

The '010 also ologiami the: offiew Ppronympi Poitiord maven A-rat 1 (b)(7)(c)(b)(7)(c)

Ails(2) (b)(7)(o)(b)(7)(C)

•

*4000644 syltsfe4ta. ti*orsivilioro of tlietriiiael jug or itek ahoika:totOcereilicasktM00.t.1Yettfgowto , tiiii..d 0014N ireda.004 bit bar WAtitiM1 IOW OffickOntitrOWPA'aeifOrill. *AA*

OrkirfKI)04 .4hOmillitot"AkikilatO Ore0014140:04thelOtiggtor0.0:01-41.1PrOiti,•

,(9) Unidentified Senior Offi Icial,. Division of ►Vestment MonManagement (gFiltentber 1)1)20119),.2 •

The OIG also conclutted On-the-moor(' intervietVs -ofi

Ilelevant tOmmissian and 4Coveimment Regulations and Rules,

The Oununissioch Regulattgn CencenAug Conduct Of Meruhet$ and: 1031e.A andVormer Members and Employees of the Commission (hereinafter 'Conduct Regulation"), nt 17CT.R. 200.735-1 et req., sets forth.the standards ofethical Conduct required: of Commissionmembers (Lc.,.CoultuisSionem) and current: and former _employees (hereinaiterreferred tocollectively as employees). The Conduct Regulation states in part:

The Securities and Exchange Commission has been entnisted byCongress with the proteotion of the while intepAst M a hir,hlysignificant area of our national cottony. In view of the effectwhich Cornm!sgonnetion fieqUentlyhasion The pUblic, his

. -

•

IiiiigeniOr OfdinIrequeated conradentiility; therefore, this person is Iefeleneedthroughtint this report as ".goniurOffieial„"

- •'The OIG had gregnenielnifl:anciteklitkaike communication wi (b)(7)(c) II 01n curlyFOrgag through : the indotAptil '200. Exhibiti 4-2 & 1 (b)(7)(C) 6ttaily toatapte4.the MP :after teongttizing allationsAgAittt hiniseltiti. the s .-ix; ( sdir 260i Semi- .Annual

(b)(7)(C)bit. I. DesPitenitinertais promiseslo provide rt 4S.vd ' ., t= ° w' °

ilthe 61 c ITT pmvid04.4y.w.ftn alsponv, See Exhibitrefosedta ii. Siniony "Were TheIRG. 14.

3

7

ON4011000 itsolijOttn:fitt PrOisbnis 01.00.ftroq Mit 9.1 tis14.**toay.iviin14.0041* befor4inosesotroOkb.tol pOirti*l o:eo14010 P.Aktailkt9rttntaltktho Oftntionkifitktor .R0.1p1411.1§

• ofin)Sitoortslieold litscalogninitf or tot* frhaihont tnicnos-peglor 00.00eaft 00E04 .

logottant that. AnOlafaillonoso4010:11;standatikahent*y lotogdryi f.importialiOand•cOrniunt.17. -CFA. g 20.0.735-2, , • • '

The. Conduct Itegulstiotes 1§.1116 8- fonnerCOnnniasinit entplOyeel from •appearipitxf,pre tfie awn'0.04 in :a ,representative capacityina:partiettlitt matter in WhiehtItglVirgeip4r4 pwonally 4114.010440:04 wIAle au, ,1440)feerOr 4.:pc/odbleitheriNleItyo years. 17 C..F.R..4. 20..7354 <italics 2E1446 A sin* inlresitioation is ;presumed IniOlonttingtiCitiginlaft for at loaa-two•yo,*imgmotive pfohanpi &Oho isoom,141.,.mita is defined as edisorete and isnlatabloiraosartion• or ittortrusaotionsbetwornladentifiableparties.". Ri.116.8. flutter states that novtaiver ilegranted if-the prV000dtexoientationWetild ciente a sigaifitatitapp.owataW of iniiiropri„41yorivOladotherwise'adversely effect the interests -aihe government. 14.

The COonytision'sstaff:ha theohligation to continuously and. diligently examine anal'uiv gat. iroiwgs of sgpritips fro* as set forth in the :Commission's Conon of 'Ethics_ 17

§: 200.50, ;eq.' The C4iOn of Mks States. thatItIt is ellaradotiWP Of Om administrative ,process 414 the Iftiggiors Commisslon w4 ***too in public doton are fiffectod by .h adWoe condoetof the sot potiktitarlYtheTraeSsiorcal and exautivonloploomr-CZIL •,§ L flextep "His lbeprdroy.ort110-0.ornmission &A-Noire:that ernplbyerismind the principles itithe Canona." Id.

- •

The CatiOnProVidesMn administering the laW,inetithers .01 this Contnissinn ShOnklvigorously enforce- compliance with the law by all persons affected :thereby. 17 C.P.11. § 26055.

1The 04Canon also . -that".member should nothe sWayedby partisa•deroands,clamor or considointions 'fflorsonallaopularity or notoriety; so also he should be allow OaronAtst. oritietwi. by Anyone." 17 CEk 20058_ The Canon..futtnor•states,: winonber sixould.nott by his eOndubt, permit the s' •L, ;onto prevail that noyipetten chin improperly:Wiwi:ire..hini.,.!or.thatany persorvundnly• envoys his favor or that be iS.Ititeeted It any way:hit -the: ''.110atiPIL; pligiem acingmeornityperso&w I7:CF1ti

. • •

*

8

Thigllacameat isgakettt4thapravistaai of the Pl*effiiet aC 1914.4ird 00446-Ascurisaic tollef►d parties: Mayedartitin:tosi itt:044110ealed'hyVelViOeifilfielpektik 040crag Recipientset tins repattshoilikaat illgs0.61.4144.9r coy It *kat thigiitoeCtar Oftterat'sivplisvat. .

Results of the Investigation

. .. Background Puidings

A. Allied Corporation -

X. (Nig of tha i4argept and IVIost Prtiminent mcs

Awrcli*tosge 0MeialkAiliaffieVitiV?900*41teacliwtetett ia -WaShinatult4Onenftheiatgesrauti in oat ublicl velnpMettE

caraphiet. Titiasefigt of Testimony :Of (b)(7)(C) t 2009, attaftdheritc. as Eilthibit 4, at 15;. Transcript of Testimony ofPhidentifiectStitior Official in InvestmentManagement ("Senior Official Tr."),; September 11,20:9, ettaehecl hereto, as Podilhit 5 at 114

bOok at 41 A business developinerit company (" 3rIcr) is a company dal& createdto help grow small companies in the stages of their developinent 'Exhibit BDCs werecreated ina19$6 amendment to the luvetment dompany Act or Too (q 940 Acr.).. id TOqualify as a BDC, :companies must bc -registered with the $P..0incompliance with $ectio.134 of.410 1940' Act- txhibit 7 A major difference between .s ROC i.vtatore capital fend is thatWes allow smaller) non-aeoredited Investors to invest in ,stgiop companies: :S reehttpg/wwwinvestopedia.cOnt...

(b)(7)(C)Arco riling: BDC.slate•of regiSte - • milli de iifikfij a. u iirrelare i i y •PII- I I fiber'. BDC.

60Tr. at 11. (b)(7)(C)V lained,13DCe„ by their very nature, are akinto either privateequity Or'venture capita.' -type Of fund, burit happens to hen registered:fimd. Th Rm.& invest Inilligiud instruments that don't trade." ki at lZ Therefore, according (b)(7)(C) ValtlattrailiSoften an issue because ofihe nature of dieir investments: Id; at 11..

Allied's securities are registeredpUrstutOt tO &Won: I2C0 of the SecutitimachangaAct of 104 ("Exchange, A0'). ,Parbib)l 7 AeelaWnly$ MANIA *mired to malcit:pcdotliefwittleMe. 4coriOnS Alfieri 131)6 CratetWOCHIBPS$101:109140Ptkfinw4Opital to companies thatliavanniartaceessio Iftg-tertn:laiestmentgaratal.:altd,btliettleeded teseute*." littpdtWwiit.alliedeapital.Coldwh011ideplatforntinsp. Iii addition,:Allied provides privately negOdated tiebt and equity fugulOng:tu *ale 'market compathes,

with a ptimaryfocus on private finance Exhibit 7 Allied Tither described:

' i3DCArgolations require the BDC .. to -plaint* a Conservativecapital structure, lintiting.thoam?ant u.fmeney it1413Q 'may -b.ottow; *vide tamsparenOuwestors thrOugh.Periurfic pobliereportitg; and lintit trapsattiong itviOi affiliates. M1'% are also

Th itiOptraisi0.5444digc10146g 0400 icts.118:40 WM04 listheiViittoilopeekir ckors: itgesp..

nott1404144040.1ePOPY10#210totit triz ittwectu:Veo.:14.t%

raviirett companies kky.effcting Managerialad ice andother nesoutter.. • • •httngiwwwalliedeoPimizondwho/bdeplalforinisp-

:According pa Allied, it vata.s.foond,ed in. 1958.. Oa a small business rinAsbneat eMnparty)

antLhokAnaneedttonsandtatnittlintithnid4le.ttiorkettottiptittietinftlInitedStatet. Id. M.the end °linnet 2609, Mt portailictinoluded iniAtestments in 92 different companies 'Vtat..gerteroteaggnate.muttig:Fgvq;01.0414 0KOXiMaloay$10 tenon 4150.-PimloY-more 004000 paolikel

According to glahOrA'in 2064:Altied dociatit its§leas bay* a larii/atOrlaincAPINC41.00finelod.ing] :investments in over WO companies 'with ngrapte tavatuos b ite Megd$ (Oltbillion, -supporting more tban.100,000jobs:" . EinhOra's liook at 256:

13. Even Though Regubted by SEC as au TnvestmeifiCaMitinnyand Ciii.usidtred.:Bi . hlt.isit„B"DC'a .Cnnld•GnVneiutmiited rot Stverallitenrt,

,At noted tibot tn qualifit.1 AJAX* torilpanie$.._mPS lie:rggis.tergt *lithe . SEC under

- the. 1 940 Act. .ftibit 6., lillVo .ar0 designed t.0 4ccOlnaltAaro plink .40/013.4044vg.s.tilVIAsa,E They have *el" omakiniiti framework and tiOir oNVIRMiquolAsge,sq Solor OSzIal

Tx. -at 1 -16..... Aveording ' y -view ptBDeoleaveryenq ,ofdientis an taireetnent.cAse waiting to llepppi" ., 064. Yet, OPTidOes net auttently have . §ygtartirceattributing riskprofiles' • . Nrestinetit companies; onty investment adifitora: 4 /4417. While -the Commission;has resisted assigning tisk profiles far-investment eorapanleaas f;........Artstciaeirt visom t.t.o.nOiritt1,4 sit thit entritglikdon.e0.ftsidbr pro to .behigh risk

a a '4

30)(n(c)w o , -.Tidy 24, 2065, auk i ,. . ,- ,- , lis.athi • t g at11.... at 17;:nre also SeigClr OffiPiat T it-at 101 ACc9g141g

(b)(7)(C) am:1011TO. arehi 1

g. eo4lidercd .a u a a -, :there Ia . 9.13 1451 tkowww Ow °s W e a :i r - • ore lo ba examined

the 8:40. mai t.. At 17,. TiteraOroi acCOrrting (b)(7)(C) )3DCS can go more ttien fiveYzar$ wilhou . - trig 6411iiiited.,5 4 la TO: . •

(b)(7)(C)

:a

7.

. .See am OTO "Review otthe Copunission's Proces,ses for $lenting Joanne*,Advisors and Investment Companies for Examination." (November 19, 2000, ivailaiile 4http://wwit see-oig.goviReixestAnditsItispectiend2009/470.pdV • •

(b)(7)(0) ed ire &Os hOtfurd okiervation tzrolttR It .heCAUSO -BlIgs areor the.maiketplac.e and onlyalibett, small number uttharehölders.

of 17. A Senior MOW lobe Divbiowlrhivoli.nailt:1400gement_Mensvameoelstatedilitt lavastmeat kangnient

=Mt oftiumno: Wogs relatedto MIC4, giventheir nuniberand tiies comparedotherinvestinertroompaniet. Senior Qffieial Tr.. at 17.

10

1

1:14.41641fixcnt is ett thefrolitgims ottlie PfiraY Att -Of Wir. find ipty reggire auractien lab*.di.sclasure Mini -patties, No rettnetion tar been fierfornted•b/Rie Once 44 Inspector General: Recipients

.orthislepuntshonkl bet WisseniiontiOreopy it without the Inspector Getterarsupproval.

• .C. Valuation al Investateatt

.aPC:stU:0 soquito4lo value each incItAbatinvostment on a quarterly basis, See Pal*-Asa 01:1C,-Allied primarily invests:in ilikold securities:: WW1 laOkreictilymiluble market

quotations. When tnexterqu.oteticinsem notuadilyiwallabiejunds met .wiluevottfoliosecurities end all. other toots by talk vaitio a determined iii guoilloitit by the beaddirect:a-sof the .funds,ptutuaidio-there9nitements ofthe 1940 Act ad SEG guidauceissuodthereunder, as well as generally accepied..aceouldingtirincipleseilAAP) and the FinancialAceounting Stand:atilt Heald tedinfithients. . • •

According to a Senior Offidal *the Division of-investment Mangementthete4144e,orPle-basedmirthP4010wit1141 ruttl.5'ee 1,4004a we 04' dCiernil*** v41 'OfficialTr

Scaiet 8.344. The ConuUissionhasissued guidance in to relevant Accounting $or1e.v.

Keteges C.ASR")::teletedp fair value-ASK I mandAsa ink adlibits 1.0 IL Th000101tswereisStiedin t99 170.eveb

ASK 113 Ades, nge4era:printiple, the current ildtwalueoftesuictodscOuritieg•tvt:411.deptiear to be the amount ivitidlillie owner knight reasonably expect to receive fit thewupon their current sale?' Exhibit la It:Conlin' nes, 'Mild depekids on their inherent worthadjusted for any.clintinution. in value resulting from the restrictive teatime!JiL AR 113cautions companies ozaiastnqi.rtzan "automatic fornwle to detennino value, 14, :AM I : 1g-states that no single standard e:Osts .forclefettoltiing fOir value of assets for which MankeA -quotations are not reeditytavattablO,,nna that the boAnInfatoctots should telllow appropriate factors relevant to the iraIneofthe:t eetint' itSt PAtliibit 11 Ia 10.5.90: Said Officialin investment.Management Vifittdia leucite ihelnyestraent.Cokupanytttittitwoihieh stilted thatAPRs 113 and 118 oottimr41 to weliggt ilieviows, dike Commission iiintecl .th Ihir value'Exhibit 11. • • -

This current-sate Valuation test be man is between Ailied and:Einhorn„issued a white paper, -vtiiiiehEitilioin was highly Critical 0C :entitlek"Vaitratfon f111iqUrdSecutitiollék ticy Business Development Companies" Exhibit 11 Alliettleok the pciSitiOrailthat paper thatthe applketm QM* k'altte by a )10C:for:its illiquid portfolio is Di/en dit6ulttnalign with the §pwific:rovillotgept#44,014 113 and la Allied staled, "The :conceptecement sale' fur purposeS of40.1.eminingtdr value in ASK US it diftlOnit ittiot .inipasible,‘ •apply in the ease of a 000,t fpgroke.m., Azoigmowdeoti4fgeneral, the 13134.pipanBiteineuMu#aistiatintd 'Policy is lemore:applicableto the -goittilia oraBptiamikei..voluetionguiilAnre set fbrt.yby the -SEC itrthe

A • 2 • . •

Both the Scale; Official tanyeshnent.Managentent andb)(7)(0) agreeihatotditional• •upthdetl guidance is needed, Senior Metal Tr: fit-89 & 7)(c) Tr.v14: Investment •

07-

1:1

k- •

' IlitakOcorbentlt*IbJectIO.the Proviciriasothe Privacy Iket•419'M lccot iaiwrIatuirefodectfOrtbeictoillsclosa# tothlt4I1parlies.: Notrelliceigotbastioon pActoktoed hygle ,010001.1000etorGeftegIL .ROVIccit:

•

0 sitel11410e0Ortaa Oot.4s*MitatO Of .cOpy it ivAintt•Oo*Peetotalitieritr.f4410 . "

"10,4*-04101tthas.PcoPared many.tiraftS aval4ation htterpreii:VereleaM for the Oonataissioteatonsideratio - --- • At years;:hut the Commission: has deferred;cohsidatatioa; Senior Official§ L■1 ,:.,.-T4.ati8&91 (b)(7)(c) . at Ithiestineet:Maaageto§ntissuedh: seleat hibIlograOhy on ..

i ktitiaiiiiii '0 erS heiclh$frekistered investment tompanle,'S kart 'attempt to lilt id the: gop's -:,until •Updated guidance can be issued. Senior Official fir. at 93; Exhibit 9.

inVestigation,s. •

Allied S Urged 1.40$16P to Woe_ atigata-laliont and his lustltFune•Greenlight eking, Withraort Widow tit Wraftdoing After VitlibiOneSIgegailve, Speech About:Allied

L Einhorn's Speech• -

.011May 15; 21)02, *horn gave aSpeeeh attire ha W. Solto. Research ConferenCe forcharity wirerche and Other portfolia-mnirgers were asked to share their most compellinginIfealineUX iftilliztohgles the oomph* videotaped.speech). .1:turhtohla-speeelt; Einhorn desedbed livhllte believed Allied Stock would decline andGreenlight Caiiital held a short portion ha Id, $peelfitalfz- Elam expressed Ns 'view thatAllied bxfonhinber of Impaired ittirestaitalS4hatititeld at itglatattalue§. ,whia resultedoverstated results . 13inhorti concentrated on its Valuation methodologies forportfeliOinvesunents. Id. .

. .0.4*Ith.9 apacch, several in the audience wete on their Xilackberries, although when

4*(4 about tbi inhis SEC. testimooSr, Einhorn said he did not realize this. Einhorn's book at161 , Exhibit 14 at97-98 According to Eloltoro, the day after the speck the WW1 York StockExchange closed Allied shares for trading because there were so many sell orders it could notopen triulivitt anerderty.gialloo- Eboth'sbedat5.•

•.iolvizamotes on Ins welisite relupddixfaia:book,

'clithat,followed wa.s.firestetni oftontroveity- Allied responded . •with a WaShingt011,144e414job frAttackilla Ojohorn 210 _

.dissoniitafing lOr-Itatha and oittlightlit* Rather than protectinvestors by roieviog riihrioneswell:documehted ease againstAllied, the SEC—at•thebehest of the politically connectedAllied:

instead favestigatedEinhorn for stock mardpolitIoo. 'Over the .casalbg six years, the SEC•allowed :to. make:the problem .

•

b( )(7)(C).(b)(8)Ti: The 2064

:..... 1-1• 4

, •

12

• This:doerottent subjeetto the:provhihms Oftire Privacy Arta 1974,, end Kay reqularredadiendieferedisclosure MAW parties. NIA redaction.hisbeen performed by the Office.efinspeetor Georxeft- Becipients.

orthis reportNhould oat dissemiatte.oreepYit without.thelespertorgemierers appra.ak

bigger' by uppia tiore thantadmin additional stuckuffe-titigstha.t relied oVer.S1 bilifork.frorn .ilewbtrp-liwwwirooliElgtortiepeciple.ann

•• This Wee'Cli EiBlionk sot PIT'a well-publicized feud hetwecuAllied ods.Einhoru that

continues WO; .See,. 4,..Februaty3., 2007 Forbes Magazine, "Allied Capital's BlondAs *discussed below, toople of Weeks after the spe4A. Etalicirat,olt*ted the C *elep1ion -and then in writing .with detailed allegations of falai by Allied. At the salu$1:kor, A11104tuteessfagysouglit a meeting vvith.sgaalitiaisio urge att Etifuregaeut itivestigatieuEmhorn. F.ufOrteiticia ahriostitunediately begun luvesilvting:Elactatelateato speech '.abort While the agency did begin lengthy eicamin atiOnot Alliedas a.resaittifEinhom'i allegations, it took Enforcement-another two yeatS before beiginoing its initeStigaticiaof Allied_

•

2. Allied Stepped Up its Political Efforts

1 Einhorn alleges-in Ins heck that politically connected, luiluthig.out thatAlliedheadquartered on Peramittunia. Avenue in W DC .- addition Emliorti statedAlliedhad connections to the SEC (b)(7)(C) g I worked for the SEC,:(7) (C) a.rotintt SEd.Cotaninissitaitti ate sewasaseiioradvsor to. Allied. E • rnbodk tt2$5263:. Elnhorn. claiinsihat 4facceleratedits political effort?' once the Ac,invesdgationof Allied began. td. at 256-

Accordingto Einhorn, Allied begat!: apolitical action connnitnte ii 0otObor Justfour nionths after Aired minced s

RIM111. ear

an investigation ofit, .Einbora"shookat2P;That same won egistered.as Allied. Exhibit.15. AS E' •S 'ratlit his hue 11 had not b RailiOnt'S book at 25 At that po'

gas a. patine; for the law i I enable; accordltm to Vetlafle4 website atlice Iheus was to 444-hrison puhllociamaniMseemiratlesiridustry.waos,Skall4

eats ati,matters ofsccprities kw violation and conlAnce.":.Exhibit'M In.addition,Allied hired Lanny Divis ilbutter White Elouse counsel fur Plesideat Oilteligou rto 'Ode Allied tiutuagegiout during the time *it:EU:thorn's speecJm Einhoras booktitt-$4..i

• rhwTranscript of Interview oWait it at

coAtingto

crcoutacts on the ti)

(b)(7)(C)

(b)(7)(c)

: f :

(b)(7)(C)•

(b)(7)(C)

.senioradvisor to the.Director t4f1tWeihnent Managmatt• to* a vim pet** on 13p.CS.

1:1113r 2O09,attehed hereto: asrcparinga draft paper about Alite.d. Exhibit

the two itioittronlittehrBM an41DCsoebe quickly learned thatIlAgsluive'alot •Chairman CCommissioners, auainz

: It;,..61.0

(b)(7)(c)(b)(7)(c)(b)(7)(c) :AA% 1

31111 . •

r. at 7our, tacauhlgwi

(b)(7)(C)

• 13

(b)(7)(C)

(b)(7)(C)

•03)(7)(C)

(b)(7)(C)

currently (b)(7)(C)

,Allied. sYee(b)(7)(C)

-the iiMe stale: melt #iontd rib(b)(7)(C)

.0573=V 0.11 g -it 1_,W 0 la A

Seel ••With•Allied. I 4. ( )(7)hew.=OsAliiedAnce

(b)(7)(C)

• 4.

Tfili:doeumeiti.isubfeettO Iliwprovisionvorthe.Privory ittort974, oashmkgrequireiredacaOli ideadisclosure tit:third parties. No redoetioli twill:to performed by the. ffice atinspeeter Omer& ReiVieok .

of this teportibooliroottfisseinketteervoopy itysidboot thelospoefor igesterOs approvals

Congress: H. at 9 ded that given theirs ize they bacLa.lql hesaid BDC.5 •were 'AS ng out Of their weight Cla.ss."5 kL at 15.-

Allied Met with the SEC to :Urge tivotigatietkor tinhorn

,A0020in1 ton Senior Official In invesitne*Kmagotnegt :Alligttizgjaeateafkmpettag :

with.Eilforconent in Attie/002to .tzyln convincetheta* limastitate Efigmn. Senior. Official That 414S. The Senior Official testified s r•.s, (b)(7)(C)

(b)(7)(C) n•••41 i 0•4 0 4 . 1 : Lee's (b)(7)(C) witslibeitlasw(b)(7)(C) hO Wan reitesentlag 'MI6& J at 41...

(b)(7)(C) aTie: (b) (7)(c) did most of the talking at that meeting, to the Seniortjfficial,:1 •. When askedVrat evidence Allied presentedffig sEitiinn.n44d 01=44 Capitsjhad -.engeged in Wm:00111g tho Senior Metal testined, • -

welt they he his speech, they bad bis.adtiiissiorl that he was. „

Shorts They had their beliefs that they were doin:g the fight.thhig.

More rer.ently,131)0:5 have been antivOy fddittirig—Witli CO11gptit Witi :the Cooriiitiict:According:to aSenior Official froin Investment Afanagement.BOCs. havelbturd , allies onCapitol T4ill who are willing to -encciumgethe SEC to emend and liberalize the-rulespertaining to the type.s of companies in which they May. invest,' Senior-Official Tr. at 22.From approximately September 2008‘ until ;January 2009s there were more than tenmeetings between BDCs and the SEC Chairman Commissioners. Ai ut-29; see ao- •Exhibit N. • -

Accordingto Several Dui Allied Wien referterltiOt work e -doze.s,s nes toialSat, . :123 84 itaiksetip.t.a Testinkinyii*Die");Iily..j0, 2009, toftehal-heret4 m•aciiibits.I% atlead investi us I_' r Allied iniesttgati4" disco i•the -tittle hi ° (3)(7)(c) •`: ', Viairked4;tha - .Mhied •

11P in tWir .N.pr.q,entiOns, (b)(7)(C) I --446,wetted ikEntbitemettas -a•stalfacsobon •

. at 45.

• .,

14:

I,: I -

companies such Ottealight: Id

HiliI19131.0.04 at 49. •

l'ojten.20. Actioirllnshotha

, I

(b)(7)(C)

6Rent St .+ 1611(b)(7)(C)

cOnftitriedthat Allied identMe4.1ditillon2 as xtpOSgibl eet

,1 I • * " . I on Entorternexit s-of it

(b)(5)"issuer compiaa'Srtc'Exhibits 22 M.

tain0 t6 :111P Olatliat the Chaim= of Felpnethlao (Fatwas reptesental by mumstatoconiplaintto ;0.

8 (b)(7)(C)

(b)(7)(C)iIl , Yltli • I n • 1 BI;C:rto D11

L 111 •

b)(7)(C)

(b)(7)(C) ariasnarniif r(b)(7)(C)

ano(b)(5)(b)(5)

ttodovtobeiagmapipelated,liagle.

1 ,1,11 El, 8=1A. (b)(7)(C) (b)(5)

therthe4totaAatilai(b)(5)(b)(7)(C)

-•

• hi Aocrerrent is-sr 4 Wee*: 4, theitrayis inns e e$ Actor 07400 may riti10,R4 x a o i /*Owe •414ctiltOctottriM pitette$: ge area*ttion has Wan Ottrormed by 0* Offite'Ortisfitatiir : :h ipients

at Os rOattshoistil taitillattailasig Y 00'Afi Athtratit the rrittiggork.Ooratripooravat,

From theirpetspective., they' were itt.the tight aeil he vas itxtbewrong and Eaforeemerit Should hop to it.

at 51.

(b)(7)(C)

The tem*: of:the:Meeting, the Sentat visathatthe ActsOW:elated tv* ••-Wrong,dOeIP: 'tinhorn DiAlligit 14 at 49, The S901901004 tetift.9d that beViolohepoOtioathat Allied shouldirnrAstlgatixt. tok at:52. :Ent instead, Ett.f9t9ergelltstativAlingStWing

•

•

with Ilito.

tifforotoolaut A#sbeiafe Wiest° E4tibit;

0:4m(c);(b)(8)

tiy the no along, o in- • use attorneys; OWanci, itt0r,r4.090%P9rs011pel,8 Id It waq41

simementixime igetwle7Oseea CtIpital es ft. je9t-Vt(b)(7)(c) att.011. I

(b)(7)(C) =aft . -,ttio 0.44 t .401C*1 ObP4t Ailivrowrogr$0108 falM,yeah ore ea theyitalieeted vstliers. were alleging Allied tosol'ong

sabetn..

the lea:d attorney on thaj(b)(7)(C).(b)(8)

iliSreata401, titified tilt she believed the (b)(7)(C),(b)(8) Mier—began:as a.tetarral ItOmNew York Stock Exchange in tier:ember 20:4 and that Enrorcement s Ntaiket Sniveillancegreizo received a cmmnlaint ut abPitation-5 Farmer Maes-trading• Trattsetipt of Teatirnoey.9 Arly 21, 2009i:a1izachea hereto Ae want, 424. -

11i0 toUrekertheiavestigatiOtt ivas

(b)(5)

(b)(7)(C)

d.

(b)(7)(C)

=01'4 to (b)(7)(C) (b)(5)

15

th*document 10eloct teitte•OCAVon* eare rlivaty ita:t.of074iantatay - , lre redsetionlefaradisclosiF4:4 *WOOS* N .6;06g ilimbeekL:PaitOrtitel.b.71#6 Olftwif. *." vilinerAE *Iteeltileittg

ofthitveptiri should'not.dissamilagteor copy itviattoit itke hapectoreiaersropprovaL(b)(5)

EinhornSegan, 6tglacthig 010 with SpiCirteMAtakk4 AllOgattomq Attd.• Evidence of Wrongdoing by Allied at Same Time Allied Arranged Meetings

to Urge SEC to InvestigateEixtboru

About .04 week§ Mir his above4efetehted totek, Erathextt coMatiedtheOfficial 1h:hit/esti:Oat Management brelephone" geniorOfficigilll. at 42. The &hitt -0ffieial,testified he reeelvcdtlilActilf tronjardroieogt rrf the Moe' Id. at 41t, rtolbgtthat rust call,aixcnt-$1.114 13c: want441.to tai to hi01.-About attd valuation. .t.c44tillZ The Sider Ofelpial-told Einhom he .could nca talk shout Allied, but that lie would-be glad to speak to him about howvaluation is to be done under the InvestoiOnt Company Act of 1940

T-T

.4.,i AccOrding:to the Senior Official Einhortivalled back shortly thereafter. Id. at mi.

Senior Official recalled that Imhof asked if it was ahight If the phone call were recorded, andI . ' the Senior Official said he agreed :16.1idifilit the ikeVeitiiiiim Itcoidati. IL Einhom then

explained he knew the. Senior Official mild not talkeboticAllied, huttet; he did want to talkabout valuation *464- ig- '701§..0440T 040:40, testified it wa..5. :cleat, OnIto.m.'wPotecilo1411E .about-Al . : .

Itlidretthink he -tvas jud Theoretically intitoted ifa valuation hyithieStmeakbropimle' s. There aren't toe many people out thereinthe -world that-vimild do that. I could put bee and one -tOgellietand ..

. figure out his interest in Allied valuation. .V. at 4.6: . ,

• s Puking die advero.ation,Eitthetuasked the Sealer Offitial ?Whether the 1941 Aotentrent. fait *due:test*** be used for muftml funds Anther. than BDCS which bold algid SecutIties:

23 Moborabock 47940A The $enior(grviat Petuuded,1*.ostee" 440:4110611 •to giAninitsaflie wasowato t44-§to.td-vidkatia.sgehlts liDC-4 have argued •

(b)(5)

16 5

. *.

•

400ü 6.10.10.4441014;itaboa,y 0014 oed.iictioit lorto.1.1*110arrelo AlnLprtLes o re4.400i tow becorpott'onted by thevirigtot taspector A0044.44_

4014 ldot4isuainater copy icwitiootthelospc.ctor00.000:opltopvall.

hlapprwitai-tOra Wi.ta vahielita ittvtaigIVSI -Oat. di° fund would expect-ta. pi:tor it at•gang P-Oitit uttho.fotlgo because the appropriate standard is 'what Oft you get for tOdaYr"

-Eibb,orn responded, might, but commentary, their response would be took nobodyever 64U:these loana.and theta:001e anybOdy evet - ella these.loabS Viltudiey're iti

&mess or when the nAtierlsiti financial•dis̀ Cress atidlits tb tondatta fife tit"The Seater Official replied, "twotild saythstwOuld beill.the More reason to hold if at. IOW&value teedisethaes what irs Avarth.::"IL At the end of that - 411, the Senior. Glacial testified-that Irma* *Win was saying was tit was 4.'wqrAbr ofturthet inquiry by the Stai' Al. at4047-

• ,InstafterthatPhOne •Call, on May 3J,, 2004 Einhorti .hegaz writing to the scEC with•fdelaital ,comg*gslitoltaiectr Exhibit 24 In a% Foluirn sent about a, dozen leettera:To the=. awl Mgt tvvite. vial Frittrattie;at :stet Aindd. luhitZS Inthat titat 1400 'Attiri=e4 to the Senicir Official, Einlioni ‘iVret'te,flaVe dre 'writing to call yOur attention: tckeettaixidiscioiliesauul lecoutitit4#eutthetits by Ailed. Capital Corporation CALM &awe believeare work of itivestiOi0oe Exhillif24. Ile Added, 510 summarize the rnaba point, we belie-liethat ALD does -not OOTATIY witheTAVO,51n.le1t Company APrOf no, 1d zx'ozggpr93400.aPooliOo examples of its investments and his 4&7:#i410144gaton owm*1r and gitaohpil ib4liorAwhite 1349,F on valuatiQn of illiquld epuntes.it holcl,,a.N.tay 20()2 1■100,1 I,yuch report -0.0

alookansctiption of au Allied codetenee call, am:mother thiugs. a The SeniorOfficial. testified he believed he forwarded to ocie,ond Enforcement- Senior Official Ti. at 47

--: • Einhorn sent tWo more letters tie. the Senior Offititd. in:Iiivesenent Management. aboutAllied .. 0./4 342002 and tuiSeptetubo 1 2002. Exhibits 26 & 27, lathe July 2002 letter toThe Seolor Official, glohcIaacidressga. the recorded conversation be hail with the Sealer Official,„

s.. since Allied expressed coneernaboutthis cOnversatieu. .Exiiibit 26, Inaddition,'Einliornadages.* Allied's white paper. &missed: above, whleh :discussed why SEC fair value!am:144114,04a* should* aPPlYtti A BM SitelitisAllicit statiftg,."Enhotoloiitof

;. 'Current sale for fiUrpoSet of determinin' $ fak *tie II ASIt :lit ISPZ &Mance' is .diffieult, ifI not impOssible to apply in the,case ora EDO* portfolio„" .14, Again, Eiohornatt4bedseveral

lii1044F4_9Pt41._ including tePottlItVar-FAYOXOCulight Ospitalealledi. "An Analysis of Allied .

i -CApitat:;9u0stiotAa of l/awl:Rut reelinique-14 '.FlitttatiWit apparently had been posted onCritettlight Capital's Websiteallertlie Speech.. - , -- , .. .•

• •- • Seatmber 2002 lettertO the ISea*Offieideoresge,4 covenisalsciWaram.itOthet - ' •

Milt% itteetittatifetel4ceoglistfiith Allied taid,dhange$ ittkAIlfgro tlisdiasum tottlag&telgoalti . .•11:470416digwitiAvaAmits imil,4,11iixte -10$4 worvalv6,thme ofits.514.1win13.4ski*L404.

k -

10• iVo note :that Ehihota.ttated iirdiest lettems, 4131 rtil1 (*closure Oreenlightbas a short

position InALD tAlUedj common stocle 84e col Exhibit 24:

• 17

C. The Invéstigation WsSuperyistd. by (5)(7)(C)tv-fi,.„e, rt,„„..vear ."`"

(b)(7)(C)

• i..49 tor (b)(7)(C)

•

thrt:do4iiientS Allailettithapro.ttiOa 0111t,Altia0.400.1Pil, oud 140 tomtit* totrt.ttaeo 1410.te.glWanteth third patiltt. to redaction boo. been posottooti by the 0.itioo 014*ot:tot. Ottostot :It 'out

• 044 OPotto`bouiit,44t tlisotelltto 4w OW 440001-40 144 1040' gettet03.1' approVat:

Express *MIX% largest investment and the second largestsmall busine,ssieralini ,00111PanYier4tding$0•Eialiont (which te had complained about in the:04410*sta. the SEC)Eldribitn

Thereafter, : Eitihoin continuedto- send severalletters to the SEC with alleigetiemsagaiat -Allied to venous staff and officials at ii- ■•• A 9 9 14 October 200 through January 2008. Sea 'Exhibits 2$ - (b)(7)(C)

Siallont4eatt kttgrs in October 16, 200 and December 12, 2003-.

bits 28& 29. These letters were supp ementalrenarts. W11(,)(7)(c) I s Acout MOOCVS alleged"wrottgcloiits, Ampting Nyith (b)(7)(c) 003., $'eg

iExhibit 28, IOUs ;sbiatiettertibout ob-golog fraud 4./1=4 to t (5)(7)(P) :Apra26, 20044 "QUO toittiottes• to raiseh.Undteds•ofmilliOna of dollars -anew investor capitalthrough registratien statements declared effective. by The SEC , - -BetauSeAllied'a'disalcoires.are perititati4d.Mith:inflated valuations and pettbxmance smoothutig, javai.tottiViliöielyort themare duped into overpaying Allied for its Stock?' Exhibit 30 Eirihorn added, "We, again, requestthat the SEC put a stop to Allierrafraudulent practices through foreefid and timely regulatoryaction? Id

*re foltowed WEL May 71 24041eiterk

referenced belOv4 about B • - "(b Ihtee-Kra$0 4401 • "S§Ptentfe :201)(7)(C)thle , ; and January28, ZOK ereetnenrA lead iittiintey .lavestigethigAmed. Exhibits Si; IX & i e eptember 2004:Ietter:Einhoin raised theissue of his hotite telephone records being stolen. Exhibit 31 . li-the January 2008 letter,Einhom alleged that the "massive fraud" at Bis,X came to light anda BIZ executive had beenindicted On" charges of defrauding the government of millions Of dollars of Small Business •Adridaistration("SPAToans. Exhibit 34 That>nrfity 2008 letter also.:allegerlthat -Allieri had-repeatedly violated the settlementonler with:the: Commission,- discussed bokov.

(b)(7)(C)

.: ,. SbottlY allek Allieduertiollt ofrieliti$ atikte SEC io AxittAto ibliet4galiottorEitikOni lit1 ' Aloe 2i)02 the nivitio .of:: reethent began an inVeStigati .,. ..— ,.,t- A., -,_ (b)(7)(C) ,(b)(8)PuInW waFiNtzl 1 . (b)(7)(C),(b)(8). , „, _

OrlYX hop Una Greene& Capita. (b)(7)(C) (b)(8)(b)(7)(C) .(b)(8) 'IAPerked .togetlier ba ordoott'ate (b)(5)(b)(5)

t, GAO ‘4.,2.1i1P-AbimnatterisamoOenerLinitialbtosamattetooder LuquitY CW")entitlee (5) hut it was !Ater renamed,Re (b)(7)(C).(b)(8) Exhiltas 35 At 36.

18 ••

This doitun Otis 5114Jfmtto thilfikitiOiciii$Of the lsdvitcy Act tfl.114,und [requite redi-e(iintzbookt0;0040'4 third rothidioolhat beep pArterite4 by ti* Who oftganfttOorke1041; g1/140

othii repart•sboblit eat intsoatilate ht copy it WitilieidAlie /0,lieetOt 0.004144Sq4.0.00/21,(b)(5)

(b)(5)

ued on February 11. 2003 annothana (b)(7)(C)(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

AC ite.410.11d6riggIS tat fiatatigat10102Ado :that ha, (b)(7)(c) lal(b)(7)(C) _ w0443):04.

vvV.Eq Pcie-gEraW7A Not 4,

investigation. Exbott;Za..

3(b)(7)(C)

(b)(7)(C)

(b)(7)(C)(b)(7)(c)(b)(7)P (b)(7)(c).(b)(8)

(b)(7)(C).(b)(8)teti as supervisor on t y,estigatign. During that tittle,

personal difficulties, natl. Enfo r I • WaSPOt $atisfle4 vvith1.110jobas discussed further below (b)(7)(c) asked by the Associate Director

03X7Mleave Etifordernent. TinnadAtt nftaititannyups , 2009, attathed hereto as Fithibi09:at

(b)(7)(C)

(b)(7)(C)

Vit d under then(b)(7)(c)

until his- tenure in Entbrcetnent ended August 11, 2009, attached hereto as Dal* at $.

(b)(7)(C)

9.9 I

'working atthe Coniniimilon as a-vvas.przFrovit rtrzaw il rhipf; Esfaacement

, • 9...1U 101 9

(13)(7%.,

• : s 1 1 el

/nest orrd—

tin repotted. to i'A(7)

TransciiPt OfTegiroony ofl (b)(7)(C)

eY 144Enforce(b)(7)(c) (b)(7)(c)

r(b)rst(7)(C) A

S

(b)(7)(C)b)(7)(C)

(b)(7)(C)

'

teiliand lb give tegtimanytO the 010.. time kw prepare it "Written narrative" response to theAlegetiOnsagninst :And despiteicpeated :prornises proViaethe witll*""unlifMnarr4tiVvrovicind =sponse, mthibit puting the ores several ntraniptitntestinmony or a written response to ihentletatiOns OlantarlikinfOml.atiog retateCI ti? Par itorrodigagolaging,

(b) (7)(C)

r.;

are no longer COmmi,ssion employees(b)(7)(C) (b)(7)(C)

•19

1.

(b)(7)(C)

..7. This document issubjectto. the provisions of the:Prhincy Act of 74 aid may ectinire rednetinn beibie:discinsurelo third.porties. No:redaction h,se hem performed ky'tbeiNTiena totPector Generale . Recipients:

- erth.WirPort'should not (Ibsen:daunt oi- cOPY. It itithnut the finsprieter Genetallit*pproVnt s

ed a Great Deg A Ant Allied Dewing Con. 00 ofvoidgatiton .., ..

claimed to have "%Ore ittV:Ohreai,etit in tint' -grArri• inn;tri oioftr.........__2 .,...,_ ________,. _.,_____ that i ... . oto(b)(7)(c),(b)(8). i I 1 If I ° I ■ t 4 I ..: ''

utv 'Cvc* wqw-a4lu W4f4W - -learned (b)(7)(c) .i, e .. .ilea . . . .• rned 4 great , 4eaL41101114411., t - t o nieellog wttlyAlhedMelting out to SEC officials lJ •. - . . aithei$FX,:as discussed below. Iil

he had no idea Allied would b4 his eliedwhen he joined.Ve.nable. Id. '\ •

(b)(7)(C),(b)(8)

—Citifilbteli (b)(7)(C)

(b)(7)(C)

'114)t°114gS,6' la aliu •(b)(7)(c) (b)(7)(C)

(b)(7)(C)

Diet WA

ghtprodins, tan om =elet ml oils has copies. I Li gift het a can and sae .if someone oanpick them up today." &hit& 45.

n Pe.brI141.3t ; 2q!tossathO Med an

(b)(7)(C)

I tt. 1777;1

a. .

(b)(7)(C),(b) Wallis. Showed his Engagement (8)(7)(C),(b)]Engagement'

• (8)

matsahow heVaaadtiVely tagagediit the"71/40 OPOUt.)4 00.903 i,

(b)(7)(c)11 1.!4 ,1 er ci) g /, I: : i (7) cli (c ):-., , II ony,:fpno

Referrin femme 13:014,,, . -

;-,. 1 II lat NM iCe •when the Nesligad. . . . ; 1 I 1 . I

(b)(7)(C) (b)(7)(C) OP jak**atien.. ,.$ . YlOg.p:•count turn ar d for hini r. at 4 tatted 010040=M Omitthe ease Was related to- proVingmatiill anon in the ore& . - win tumid,. titif giv nuteli the -Affied/6reenlight - asPect of th6 hivdtlitition. ter ShaAddef.t. "SOIAliOk itt

(b)(7)(c) inial: '

had great potential kihith hitt theithe•qUieklk tired ptit-. Once. We 'stit of got into the case and.realizedit was not going to he a huge payelli he quickly checked out." Id. . •

In addition(b)(7)(C) •

e-MATI4 ShOW 64firLIVarile0 ieVitital agi4svfrtilinquirr about llieusinv.esfigation of (b)(7)("(b)(8) Far mrasinni

03)(7)(c)

io (b)(7)(C) inquire•about e 77771177557451471 -ini. . Jig I P its*They onikhdaty

considered thg MatkOt argt Attellt 0 ' WittlOnt.7110.1e:irt aft I 2 ii -•;recommendation. Itt short; there:00 overlap with what we are:doing:7 Fshibitiakantirthitt (b)(7)(c) gponp had joolosdintri 01'130414 CapitaPs triticiSMS of4044 (b)(7)(P)

When told ahonta scheditled ineetinwgilit Allied to 'tdiscusa'the Tal.%statements' de; in. the Creenlighttepo (b)(7)(C) .ponded,.VII attend It can? Exhibit 46.

i3 Mcording to the• SEC's Intranet (b)(7)(C) auttently works:in the SEC's ifew York .Regional Oface. •

20

•(30

(b)(7)(C)'about dreenlight Capital's production. of.

he had learnetahoutOre0Allight Capital ht that -ixirt,

Ut Alh Itor1 T:Ta

- Ilin8 her he had ti.lengthrecaversation with.learned °CIE would be:

(b)(7)(C)ttialth e(b)(7)(C)

(b)(7)(C)- -

Ithiarlocummit is:subject to the ptaVisions the'Privaey A.ct oft tOtiaad may requireraar*it beforeillattosure Id thud parties. No redaction haebeell Performed by the Oftke aflattpetio GenerAL ?tteeipients

,of this ArepArtshoultt uottlissaninaM or eOpY kwithootthe inspector Genotairs approval,

(b)(7)(C)In a April 9&drawnpoint Exit'

rtspon.dinrdvideci s

eelfidelly (b)(7)(C)

(b)(7)(C)

33.

001004414 the matter lootwany Joet even ,

eve t vyas a NtITI) tutatielred it to. ?Nifty when sit rildn't. kg*like a fast hit agiinst Allied0heres no write up)- 01111Y did somesort ofreview, though its not clear they re-visited [sic]. thevaluation issue..Id.

(b)(7)(C) (b)(7)(C)Tnadd41oi .t made contact with aeolleave in [ruvestnientMatisgertettl ut,..70 • :o tertrtatalhoakid,*.66 Wk.**, on getting somegifftsimdnt Alknagezugnt] help. t put a riew call 14to .1; $(b)(7)(C) kanzyingthouimagcecpartiendchie!Opt:4W *Montages Id. That ended eontaefa vitt]. s other CPtunoltssi-On Pf0e0a2"

(b)(7)(C)After feat-Urn& 11 fr $ that ;Ailled's:eptiniel toldber -thater

ilad ;beep, eo ing the comnanv overlie last few weeks -to .•riole;d, talk .ovitt (b)(7)(C) I 1111.1is ubi,vs:to me: I'll(b)(7)(C)

(b)(7)(C) (b)(7)(C)

Y mai Planning itet timttghtilttout • - • • •for Iheir teatiritoay of Bighorn:. Balulit.48.seeking further ' malign on OCIE's

(b)(7)(C)

(b)(7) (C)

<tweets .vatuation (b)(7)(C),mentionit I - Speak tel

tomorrow." Exhibit 47. In Ma' 20T6l (b)(7)(c)

CaPtfeazapPg.tP,n, Atflad in proP.ala an enia4 onMay2i, 2003

on ofAllledf.arating, in part;34 . : II 9.. 0

(b)(7)(C)

I taiderstatid:thi (b)(7)(C)0,13dItillybe

(b)(7)(C)111W .

heen. looking at '1 ,... an , .certain; privately-hel4 -,

compani91 • 9 ei.e 9 9 .(b)(7)(C) an

• Is inall attorney in my

branch, hai reported that OCIE. is. conretninanng a *feud to.' EnforcementtenEnforcement on this issue. - I talied yesterday to find out a bit-more

abouttPCIttriview: and determine, theta* tgattiOs w1lirelou..- Moduli te -ipxe . ez ; Isici Ws 4 referral been nOnterrrplated. by • •

. _ you and the OedfrOxit effiee2 talt.refettal midi? rd.opteeigte-any infornuitloucyettcaneupptY ... ... • , ' ., — ' ' " :' -

21

f

Was dotwagutis nailed to tbe:mvielotti of the Priveiwketor; 1974,20,4 my require ttAUtidao bermalsetostareto Wird parties: No redaction, Wm beett performed by ilmOrtee.orrotgeetor 0004 Recipients

of psis repartsitmddmot.tlisseei►utt•tir copy tg *Ohba the lnspeetergettereittAppitita.

looking into two plimaryissues: (I) the way Allied determines'fait value? of its.holdings. in. Titivate companies and (2)-Allied must ritiseibtirrtwf eapitat to pay outits dividend.

11..that OM is not contemplating a =renal towen:teat at fids time.

Exhibit :SO,.

(b)(7)(C)b. Wrote: st TiP.INirediMeniorandlim with ittvosttgathrerhotm the (b)(7)(C),(b)(8)

lintir,e$figgiOlat '

Maid.. I g, 200a repAred a 12-page detailed memorandum to IliisVerifisor--outlinitin the investitrAtive Mat) in the (b)(7)(C).(b)(8) irivestiotitiOn F.sthihit (b)(5)

(b)(7)(c)

(b)(5)

(b)(7)(C)Aggeeiglittbfratitatiiiitif Zlitliok* 1I1 Testiltiay

• tinhorn appeared• for testimonyat the SEC on,May #t 9, 2003. Exhibits .14:& 52tinhorn was represented b er at the law firm Akin Gump Strauss DauerFeld," and (b)(7)(C) of the'law firm tteMelte.ny4.1V1yets For theSEC, (b)(7)(C) atcl(b)(7)P appeited. •

(b)(7)(C)Iris umfispote tpartd i , present for of ginhopes two.daYs 'of tOtizoo,O.Y

-befr.0 the SEC, and was wive , .4 I . • : 0.w= id. loithetzt, however, te didnotlalteEinitoin's tesliniouy; ho4KA , , :. b)(7)(C) as resew.* e, or: tliat and said he only "steppe'•inr to ask '-'.41 wits ofoggregive questlims,„ - 'bit 20. Hoiaabit Oat in that 464inionYlva -sto ,gpt Eitgitgo to *twit Wattenipteak Mire. di! , i ,e • 'rice of Allied 0.00k when Sinhom gavehis Speer*in 2002, as Allied had:al ,, ,, id iiall fatthetWaimed poi to .have revievyed anyifthe'dopittneiits:prodliced b (b)(7)(C).(b)(8)

1 =poise tObe subpamasi-they isgaqd, sayingit Wag*Ondar4 44101'Am:we .-=. 4 tit; rCeMent fOt a braudlfuhieftirielyonjbe:Stair

"In Cloteber2(109,,Zabel was appointed of of to erkainal ofthe Saiat ernMOM of New York's MAO. Sahtcpi/us"tiee er091Mitninaldiitision 'eraimmen

22

she believed chning_Einborn's testimony

(b) (7)(C) (b)(7)(C)

uncomfortable wi

eached Qut: to SECOarma abourkAlliid tinatt

lavestigittion. . . • •

(b)(7)(C) I

j .

0 Gill'it ". I i(b)(7)(C).(b)(8)

servedas Associate Director in Enfbrcanent miltsSEC afttil 0)(7)(c) .ini(b)(7)P

(b)(7)(C)

(b).(7)(C) Inft

• This document is subject tirthe provisions of the Privacy Actof1974and may reilaire redactiOn beforedisclosurethird parties.. No redaction has been parformed.by the alike of Inspeotor4Senera1; Recipients.

Or:Misreport should: not dissepilaateorcepy without the Inspector !Reueral!s approval,:

attorney who is taking thetastimony. id.testimony Wake. Id.

(b)(7)(C)didaddithe pnabably tore

• Aleidelk of the. thihant testimonyshows that it began atahout 10 am. on iviaand oottOnnedantil about 5.30 p.m.. that 4ay. ii 4. The transcript demons

(C)7b)()sbourednp on May 8,2003 about an hour afte ( t the testimony, he began. •questions vet, quickly thereafter, and cOntinu- until the cod of that day atabo

(b)(7)(C)O. is •

Binborn again ap 13 4,1 10.4 • : 9, 2003at *out 9 axai Exhibit 52. Once • I - gan(b)( 7)(C)- 1)11ingbit appeare-iat io t.piandlthmediateJybegan questlompg I Mi•

stayed -an I n. of that day's.: testiniony, uthiektoncluded at around 120*..

Einliortt coinplained tOthe OM *Out, and iici:IitAteil a.4 : . - ' 1 1

testimony he gave beforatheSEC In May 20.3. tinhorn daft: n - .' 'confrontational" and 'verlaggreskive in his questiOning at-Einui,es book at 162 & Transcript of T 11 1" -. t.DA .• g-

•AZill 11 .2009, attached hereto as Exhibit 53, at47 MN

to me tt was over the top (b)(7)(C). ,%vas sort of putting on ashow ro (b)(7)(C)

• .. . •

- 'tried his0112 to jitser he hadi., ated; e sto utDavid

the ttoeie (11)(7)(c) r.at4l (b)(7)(C) testraert that $bp-)04-a lot of •le• 14that testunony, including thatte`did not assigther, had an

or . mg late, and be starting trii-7-iin8 bet about -vvbatshehad asked Mahandining the firs[ tire-alt- Id at 47. Einborn no between

1 •testified before the OIG thatitaltanst.EltMa questioning. Einhorn Tr. at $0-

(b)(7)(C)'

ri 41§(b)(7)(C)

mm; tes*DILY-("Eitthoto Thl March 9,

"a little combative" ander testified, "I thought

rd. at 48.

I qi

1

AmOrgibaghardest :to get DavidTinhorn didproblems wiinadequate reason

I 11:11 :(b)(7)(C)

(b)(7)(c)

I 1

=

.1

(b)MDunogthe devise of the Itivesti`

- (C).(b)(8)

.reached out to Several officialism onteterit ornces to dt4.1-6 were relpteato Allied, pthibita, As a restilwere being taken related to Allied,: and the positions atl i

(1))(7)(C)

*the babe,niiings- and/or aCtinns.

learned wbatactiOnshad andetent staff and officials held about

(b)(7)(C)

•

23

I : 1•(b)(7)(c)

aillip,„1 he did not IT (b)(7)(C)lit That Some0tit (b)(7)(C) rat

(b)(7)(c)at 60-61 admittedhemaybaAlliedwas not engaged in wrOngdorng. . 461. Adding

stora.companyus , Aged inyaongdoblgve after , 0.010n. itA ate. But.that. at that point there were "issues , [ShoWing] that 414.6004d .be ivrongdOW

ted:t6 lant

(b)(7)(C)(b)(7)(C)

ire coi4.stott4Iximininid4003

'on Staff

4444ate 411;d14 ptes. Istottioetion kas boa perrototo ilyibe..oingwottistiffeter central. itecipiiimThl4i14.mtniegt Sable404 the pOtvi*OF Who pl:blo Actor i90,xod may require reduettuu-betOre

kihis repottoonki itoitlisSatinate'ortopy wittinarthe tispeitor GesItraPiiiikroval.

Id the OM tfat least one meeting(b)(7)(C) Ugh, they had probably four

I I 1 1. 1

(b)(7)(C)(b)(7)(C)

I;:

(b)(7)(C)

raiseibotrow•caiiital to pay. out its dividend. Exhibit* The e-maii continued, (b)(7)(c)

SaisaidOCIE not exwealPlating.--a. referral to Enforcement at Oa OM? butas their get a beir handle busines,s." 14. adclitieni hereceived extensivecomcommentsfrog (b)(7)(C) regarding the difficulde.s bringing a. case against Allied ,onvaluation:Isaacs. Egldbit 48.

• , the 0145-*s tilephOne conversations ivt*Pm - his 0t:the$E allowthai he 0

ovem,h‘b4ween StaAaryand lune

eyed Alitedwasnoterigagedin

(b)(7)(C)(b)(7)(C)

to : • $,(b)(7)(C)

(b)(7)(C)

whaller Allied was *dating tIttw. In additioIwith Allied at which he ••• k Id Acooplio

to fiventeeliags with Allied. (b)(7)(C)at 41-

1(b)(7)(C)

" The itivestigatiOnfottadabetit Allied.. SpecOialltaswiping . :. II It • Ott I 1. f Allied ' ,, y. to result(b)(7)(C) it was u..8)Chiliii49 (b)(7)(C) t o *lied ; •hd.haat:leitstkt COnVettatioltAllied on o i ., and found out that 00E' was looking into two primary gsues: , to theway Allied determined fair value of its private holdings, and (2) whether.-Alliedinust

(b)(7)(C)and. minim

fikkingahout OCIraend

.atoittI

(b)(7)(C)

7)(c)

•

Al *.had been.,exarns. Exhibit 20, recall2003, after his testtu'a' ony• rn,

u P

(b)(7)(C)

1,1

6.(b)(7)(C)

(b)(

1

id hini

611

he indicated that I he retainedn...larinary2.9, 2001 an (b)(7)(C) Id 'Wm

(b)M(C)

... Ninth routine no cause"

oka s" I - 6 I

wrongdoing. SinceEinhorn's testimony vva.s on May& Zit' 9, 2 ' •took place in Iviay or June 2003. As discussed belOw; clesrajz w (b)(7)(C)

ickYMay 2003 the 0C1E.examiners had found evidence of wrongdoing

IQ IIONUS II II20.03 tut

'evidence

II (b)(7)(C)

(b)(7)(C)

ed.and that Allied Was not financing their diVidenda. I 6 ' recalled

satisfied Allied was not engaged ' ugclolng &Age 205-told the Me. his notes showed led Min On JalgialY 27,

they wereclosing theirinvesragano .0 lied lieeause them was lie -rOper vialilatiOli of its funds . • r

:

16 arooked ifthat wild have i .ecna more:accurate Agentwhether itappeared Alli Tr. t: :ttcl. in wrongdoing,

(bwhathe said and asked )(7)(C)• had notes. ki

. ."Inalte in tesponse toI I

'Wined-Mt tOttealttomp

24

. .. .. . ..This document is subject to thcproildiortsofthe Privacy Act of 101440 way rciptirAtagliin'WoO3:

ditrlosureto third partici; No redaction has been performed:kr:Mc Ofte.vrtagp.ettOrtAtat* 14ciliktits:ands martshour•roit d*Croisatogr copy 7itmaititit Itti6 iits4e.rttek0.0000$ tilliittY.01, - :

methods misted to i nvesbneint. bit 2& It Willie-the MGbe recalled tha. (b)(7)(C) Was- working'With Investment •Management on Allied Anntnati.mag. Raw( ontt•Allied wai. financing their dividends; fd.

e =Cord ShOWS tbndiscussed below; ili not .17,

uiv I Ifer. Ho "stated , : .(b)(7)(C)t Alliddit145 kon2r-

111111.1 ere makingiudiments virithout digging into.mere n t and asked them to look ;into it further. iv

reinernbered ineednimithoffidal4 Ineindinxthe 1:0 "Itive,sintea . lenient and stafeht; Diyiiion•orr*ficet Regulation; out ,

111111 ld

skeiticateEinhorn's cialmsmhont andAealair sAnclitigs abbnt Allia and astede 4010

elieved 110611

(b)(7)(C)an blilliant'attil : ". .1-4neetther'cite bpliev andis, and that•not think.:tlicy

i.

. AccordingEinhorn to prepare •documents frOkt Einhoovihdlfund managers involved in the

Additional InvestigativeSfforts by (b)(7)(C)

la BO= or bccuinento ,Subpoennedfrom rinfipm r . •

is of inibrinnkion Coomdielt C4ital ati *r. at,28,,29: Infant, theyteeeived 13 boxei of

investigation, Td at 29. thoughtmostsrgmlieard PoCtioA of the cedreenlight:Vostelis

fui thgAtimationi 0441444* wiltkikmert.:- T.Wwiltien report .:As. reetting to waithe ,analysis .akmiinfonitis: that vas 4ritical grAllieds theAS lyity . *as a:fraudulent comply. 14 Enbibit23- . •

. .Aecordingto Einhioto,,Greenliglit Capital received a letter on January 24 201)3 frond-the —

$t? advising that there was•an informal, inquaryand asked for 0=004 Capital to pr‘duct •several documents including their research on Allied; all contacts made to third pad,* Attoni1 hied and their teSearchille ottAilied, all &di fritrAng mein*, an organizatitniaLebaikOntaainffirinntion for all *cCrIlltb 020.141., atjouneRtz 44°164 410tharlIf ili00,104%4 list oftleir baa tat btOteespaecountk And the 'telephone fn)inIAOnexy 43.2602 farword; Einhotiftelook at 14%•olgolivrefie thatlatei in Epting2003•Onzeilfight -Nal received ittnbpoetia for mthooes tegthium And that doenninl. 744 153. Whomsaid the seeed4'4 149P01 fiot41Nummts ,requdgc4 intomation cla 0014compok itifamatioion jraclingoroclitderivatiyos; client POOnaption row*, .144:

,..oriespondenee with several.. other fund's. Id.

aer..eS,S fo =WOW dontlinentl frOM ja theWere Valuable to Allied, nogg:

Pinhnrrt 42-ated(b)(7)(c).(b)(8)

lrlit'sltec460-ent triviteyAit °rift -644mq*. uliet*d°00° , let m°disclosure 4:061.10 Part6m, 110 irethietio)i b0P;u. pCifurgAd bthe Office 6.t 'Spector Georal. RerViedts

o this itieertsltoulditot disticajitatO-Orcqpylivithtuit tlie-juspettoriOeneiari approval.

.Thq'y *MVP heAske4 :Or 90 Iraitingtwox4.ati4realize Wee: Allied xlespegatelPAstAtetiP

know Ot &OVA* wastow nIzt00.., 10101014.We:bigiatbitellAtilUOSOta. (b)(7)(C) • liCCerkS. . .+auritadilittiieords. liedigahatt-teacsgto; that -had relatitiolb Allied on every to*. gothexe ate e-tnails from thefooneremployee Who. oontacted us, there were . Mots and lots ofeltaas relMtingtg oureritieisnorAllied, . inelortfrig what otherPeople we were tallcia:10 and getting idnInAtiOti from and so onand so total, And ail of:that -20okt be iproxioation, Ow X *0014iltinIc would be inappropriate for :Allied to have any senseEiz in TrAt 5144.

riatiitt riehtttaiirtedika (b)(7)(C) (b)(7)(C)I*11 41triblit l would considetto be

wafiditraiht and proprietary infouthamon_ this was a very hated battle. And they asked forlots and lois -and lots oftecords„ and theu hadthrie, to look through:all otthose records in. thepreparationfOrquestioning at34. According to Einhores counsel,. Zabe (b)(7)(C)"would have had thefundocuinentaryvtindow into what trinhon4 was doing:- •according 0. tinhorn, based ea the goestici I I (b)(7)(C) a d was`very cleat" jte ..1t4d reviewedthe: rnateii* proYided iu reiponselO the Subpoenas,

(b)(7)(C) .4%440tuanagv6p, anriding Einlunnilo.did not think they everzot Outt WO I 1 :Rol

(b)(7)(C) tc.tit• 29. -Einhoin :Mae ixiiii,5bOOk *ha

Greenlight: t ital. produced tegetal dtictUtieuts to SEC in. retptalse to a subpoena they -received on.Januuty 23, 2003, including Gteettlig4Capitirs tv0.440 011 Allied, tra.din# F40 as; •-

• al* oftheir;bauk and brokerageamientvt tut4., ttleirtelePhon6 reeovds" from January 1.;,,20p,EbliorOlOT3sink at 149 Boyer -̀ ) ' - i tor vilitrthet at* idephow ritcoulcvtre., produced to .41i6sEe froux.GieeniWeap' p: (b)(7)(C) acrthatlhalad not believe:Vicar:had requested, or. .4licetcred, any teleptinttereeottls ri ., *--;1• , 1 Itti CaP40.91: 01)Ito allk Outing

- Einhories testimony'btfoieth6 OA he resiitec1 that Gieenlight o prodtree anyrtelephonerecords. Elia= Tr. at a Siihorn.V.Oteitiltis.— bio4,1toWelet„ • among-:the . •documents Greeolight ital .prodtmed to the*C in response to asUbpoenn they iccp.iv.* co.

(b)(7)(C)

Client Lisr;cb"rg4r'c Pillniwvest:tturlis. -red to.get the telephone reeordadfull Odle hedgelPdt.

.calling each herprior to trutle;s, but sheot

Thkslocument is subjeetto the piiivislons of the Privacy Act of :1974isuidinay require redaction before..d toThdpartie No redaction hos been performed by the Office of Inspector Geueral...Recipieliis

of this report should not disseaubsote or Copy it without :the Inspector General's approval:.

Janti: 3, 2003. Woe. eneenlight Capital's tele . reeard:g.frOm January iO2;th OIGeti ion did at Subatantithe this claini.t 7 Einborreabook at 149.

tifiefi that theydid get BinbOries- clientt:listhatilisrlo find some name on the list and

would beluce! this great.mOthent•whereWARM thatilley Were manipulatingthe shame'bad 0.161 o I it 1 - 31 ' gettin . 16111 77S tlitnt liSdale HSI! (b)(7)(C) r. at 16 (b)(7)(C) -a shedientlitt -wi I. .thhorn ' . , • tetitiffitik,Viirmie It. Ultimate (b)(7)(c) , she

0.1.ointod in - ,,,,,- .. 'OM. ItesOnly learned three 'things about.4 .Afil - . . . . work on the (b)(7)(4(b)(8) ItareatigrltiOX: iirfd That he oril disclosed. oneof

those things .# who Binhonesr-ounse lams.- o Allied. Exhibit 20.: (b)(7)(C) indicated the secondthing he learned Was that Einhotalthil acelebtity client. f (b)(7)(C)id not disclose to the

i .op the third thing he Supposecliyleartiedabout Allied whi e ., i . C

a.

.

2. bitted Attention front Allied Matter, an .

nawareoilitbett MUMS Belated:to Allied During estgatiOn

earned AbiAtt.Two Prior inforteinenttitil agAllieds.VVhitelNio Action was: Taken .

Dii (b)(7)(C),(b)(8) C) 6.L

found •. ,11

0)(7)(c) ere two palter0investigotionsinvohing Allied t°1 k 1) ) Tr. at 31- pear,* eathed that about ayear Wore, (b)(7)(c) group at headquarters looked. into Allied but di' not pursue it bemuse thedifficult accounting issues prevented O.Naidt hit" for his group, Whiehttt the time Was-Operaft .,

"reel timeEnforce.raellr MWICtier 111Poti* r.1.4YeAgalSin Was conducted by ..atiliceROthat lookainta AThettbutitilihuately • 44:aothing bettawit

4- 'very notoriously gay area'''. 0600013illigg. Id: (b)(7)(C) trnect that she did not!I 7716

vsfhat vitimpthdthrise groups ta hick 4.Allied. Mit 31.

ihemover die phone; f

•The O1 -was unable to obtain the Janutiq 2003 Subpoeparoin friforcethent. The April290 $tibpoena, however; did not seek telePhone records. Exhibit 54. .

Blue Sheet trading data shows cugornet ;tradiniiilfgratadroi. .3g,e'SEC g.ystenis" on SECIntranet

: 1(b)(7)(C)

TI .

6 1 II

11

II : 1,16

(b)(7)(C)

since(b)(7)(C)

(b)(7)(c)r. at 36. diem!. -

name in our ue s oet trading .e ease came together 11

(b)(7)(C)1 16 6, e WOUlti

r. at 37. According they6 did not Want to produce a wn n copY

with the issue ofget ting theeve I figure out why he waited it tobe

tiultom tend Ilia list of clients to

1...1

• • V •

27

„During the invartexarrun' allow°

counsel• her, "I'm just tel log you• dotsn't 'always know

• after hearing this'fro(b)(7)(C) Ift. at 53-54..exammations of MO intestimony she stated, "NO. 1 thinkthat'S the first thneriubearing thatnetually-"

because I ised tO "91/C atihe SW and I know thaC)

other hand is doing" Id.;.see also Exhibit 4 7 (b)(7)(C) tifiedIlOt want to say that we had no idea, but We tatt

'fled that she was unaware that OCIE conductedL994 And 1999. Id. at 32. Vhen 'asked about-those 0001'114ms in

Was unaWlitethat.002 Waakekinchletiagi r..at5344 nly-leamqd_aboof this 0:1'4 & e

. (0101.1fintailICT 011$. 14; .o-galloo (b)(7)(c)c

03)(7)() (17

one : I 4

thttithicmue.iitis subject. to Ike provisionslittlie, Oriyaey.Aetot 1914 xtild niartiiquirored244aberore(list tes'are:to third parties:: lio..ntftetion has beu iietrotm0 by thOrlitta atIng#00tOt. Oueiat-

oiltastopott..ohotad not fitssonlote:tor eopyltvitatilathotnspouirCentors-appyroal.

*aware that -00E waa' CoutdUetingShnultawrits Itxanunatwn- of MBA ThudAilietrs tow*selInformed Rer .

b,. (b)(7)(C)

(b)(7)(C)

:1;

$filh011i had $.111binatall/Clig4(b)(7)(c)toliteAKC ,Bef* iMk(9# Allow (b)(7)(c) tO

COntlIfet SXC Ofacial 14.4 out Miled •

EIS algo unaware thgt; Einho gi I . , • • hmittedsevetal lettets. to The EC :when shewas con. u . 1 gthe histstiggibtl. LI at31 (b)(73(c) 4. i ed that she late, (b)(7)(C) ii. d contactsWith the Seniors $ h • 'it was unaware the calor Official had received - rs . int, Eitihom.Id. at: 31 In fae (b)(7)(c) - ed.* wanted to speak to the Setdoi:Officitd before EitlitOWStestimony, but i : (b)(7)(C)Accupang , (b)(7)(C) (b)(7)(C)

Adamaot•she not ve*. to th9:Spni0;0100111. Id. at 55.old her that the Senior Official was very embarrassed by being

quoted by Enh.orn'in repo on Allied, Sinc0b0.0tatid not have beed4uotettin neeordOnee.ib. -Cointifission piiliq. 19-i rd. '

• 3. There is. No EvidenDocuments •

bysically Took Non-Public SEC

tell the Did tliathe toOk with Jilt a a `tineino pad.oftba*?' "personal lotime atihe SEC 2(4 teleph000intiaNieWs

he refetrid to theSe notes and ealendatS which he said tufted telephone ;As be'mtide• H-Toted tö (b)(7)(C) ' (13)(8) ilifestigation., II As discussed above, rextrtp1e,olcItheDid that his. personal logs show -that on lumnty 210 2903,.fr igot a.telephone

•19 getilOr OtOC.ial tegOned he kaew Who (b)(7)(C) was nOt sure .! iiâdever •

spoken to him. Senior fifruial Irr, at tiS Hetestified :Wawa quotedhim seem**, hedid not:need Commission approval to be quoted,. and.the climbs didnot cause :hint aprOblern. Id . t62. , . ••

-23

This dricumenils subjcato the prOvisituMnithe-Privag Act of1974, and may require redaction 'Waredisclosure to Arra parties. Nalmiactionlas been:performed by ihe Mike of Inspector General. Recipients

athis report:Amid nadissemlnate iireopT Union:lot the Inspector Gesuararafapprovattall troll (b)(7)(c) king hint closing the Allied investigationbecanse thdre was no evidence of improper valitatiott o its :funds. Irt The 0'6 liar:overact noevldence% i (b)(7).(C) oak any non-p related documents with him when die left theSEC. :NOr., do Wei) , .•: eVidelice-ilini (b)(7)(C) wed any non-public information from anySEC employee afterleoing the•SEC,

,• When we'asked: Einhont if he was uoneerna tairxtratoonuito Capitaldocuments when he left the SEC; Einhom testiRed that (b)(7)(C)

1016V.Cdiai hoW Many Am'cigueettlight Capital 'w& short In •11 i -8 ' grirlratihat dat4 X01- ,did•ot trade after:the Speech, 41 think :that Wendel have been infomiation. I v.eity touch did notWant Allied Capital to have,” Finborn Tr. at 34-arlhOtatOngnn4 `Just- 014. iinPvile4ge nftbesize of the position..... - Allied so desperately wantedto know the tizaaftbo position .. . 2: 1 V, ,.at 3647. • - . •

4.. Enforcement Quickly FouOd Einhorn Engaged in NO Wrongdoing

Enforcement coneluded by Mit14093 no oredible al./Mow:a to .denionstha:

es of the hedge funds violated the federal securities laws: 'Exlatit 31, Batvastigation was tot founally cloaca until ter 1.8 20661 Ejthibit36..

ganoti remained open, but inactive after tnid-20O:becausethallew VirkAttorney606=1'g office was conduo parallel investigation; which ultimately. 'resulted in r1Q charges.Exhibit 37 According

.in.myminc•aild in my opinion; as soortatIrmiSted David• Einhom's testimony, I was convinced had done nothing

wrong . at the end of his testimony I was convinced that hehad not manipulatedanylitoek ;or engaged in any schddies to 4rive

- • • Ofike`SUICICn..•I r. it 46:.

ed dial no one disagreedvvititheron paint. .W. .• ,

5. ElithOrn Was Nat Infornted lle-Was NO Louger -Subject ofInvestigation, Despite •Requesting Snob Notice.

•At the ,end of Einhonfs testimony nuthe (b)(7)(c),(b)(8) linvestigation, be reritteatedhebe toldif the.sEc determined Ormligk-CiPitat w4salgs•: 104gerialor investilialic4tgis.tiftpd, , it would be an enormous- „ alit us ifyclu could let ifsignovir win theinveStigation was complete. Exhibit 52. (3)(7tc) - tided diteollyto Einhonegtequast,saying Enfortement'a procedure *As to,

• 29

•This iduiumeut issubjetito theymisions ofihePrivaiyAefof 1974 ; suit may. require redactitutbefori•:disolosuse toihird.:parties: No redaeirlouIuts bemperfurtued.by ibt Of*Aut !initiator rye/MAL 'Reepienis- -

or reportihourd uutdisseaduate or uupy It-without :thelaveiror Gmesuniippri:04 •

VtOviden Written terniitiatiOnlettcrat the endotan •irwestigatiento entities or people.Whe:WeittritedeCidednot to lakeaction againsP and who weremathed in the formal: orclorof •invegigagen. Any other ziotiacation at the: 'Senior omnIgernent in the Eorpreement

(b)(7)(c).(b) las yon know from inOldniggt order, is. tugcagtionandis munedin 'Mc- formai order, urge,,illiekt; cap1141 itotmm4 Davidlid:

"

Theiefoto, accordingEinhonktvopla y twelve notification -he waft 001engqbetotiOve$1.41#d if:Senicit •

Management in Enforcement deiided• to do so.

=Id nettell the 'WO WhatEtAh_wasor is now: P to SeAding, tedtnUlatiPTI igttet after an hivesaapii00 has ended, (b)(7)(c)

T. at. 0.-19. The Enforcement Manualissuedinflefohce20.03,. htiweveti lies a geohon on tertnifiation

. letters and is clear. tit When and tO Who:M*0 alit:add-be sent it states, "The Divitiorftspolicy is to notify individuals aikt.eüthies at the earliestoptortiinity when •thA staff?

-determined-not to reconimeridan enforcement action agalnstthem to the Commission.':' Ea' rtibit55- in addition, 4WPOlioy staies":that a tetra lion letterIttaStLae sent twinnong others, anyonewho "asks for such a notice (assuming the statflasdecitied than° enforcement * •'recoMmeadation. will be recormnondod hanst. :tiotpetuott -Or entity).- .fir}

According to Einliem, he gave te.stinionyitavfay.20.03 and "rielfer:hdard an:Othe r wore•., 0 e p ed the case:was over ginhorn Tr. at 67,68, Intact; Eilibarn totifiedthat(b)(7)(C) • (b)(8)

4113 named :st►bieet ofthe. investigation, only got a tertniriatian'lettprafterg' irva y former audition .ebrittophcr CO*, 14lite.itis. unclear *hotherthc. •

Enforcement Manua atticulateAtheilDEPyin effectprior fit Oetebei 260%, since the OM vas• unable to find any ittliefPO40 761k sending taInitlatiOAret4eM Viexef*ifThis140/Eld

. !len in Wed-4 440Mo of gii6544104011Y, tilforoomitit *en tO:icanim at terluinationliOlice :Shady . after his testimony, whe;.:ficeording VOW closing •

• inentorataitina, 'they had deter iced heitid **engaged -in wrongdpkig,

6. (b)(7)(C) 1,eft th4 SEC

• • 'as en al VerfOrtnanceirmihruvementriair

least the he •. Wit EnfOrCententahnial4 had niaine &ulcer:rot abont-orkperforman. (b)(7)(C)

e1604tb$11

articulation ofEnfoiremetirs.petty aii4procedOes .at that

(b)(7)(c)

(b)(7)(C)

30

rl I

spent Muth Of biat̀ine detding witkbayitiTg homes(b)(7)(C)

attorneys whoId. 0111. Aconfidenfial

of the four a* • Wol .was out

(b)(7)(C)

(b)(7)(C)(b)(7)

(b)(7)(C)

(b)(7)(C)on

(b)(7)(c)were that he was notresponsive and

hnilatly testffl..ed thature to timel. retiew action

I ■I I IA: I clasitei4ther group;

bowneniifik Aggif4tottilliteetor. eSSettilolDe, a liiptior,,levelltranch.:Chiet• • (b)(7)(C) (b)(7)(C) reAti.

supottfuod (13)(7)P fig:Weltat0:00 (b)(7)(C) lineiv(b)(7)(C) froth when his Wojicedta4

and Actuag.130.iing.th‘lt-thne itportim qb)(7)(C)

(b)(7)(C) b)(7)(C)ProtaOlg Pruneit Chia

(b)(7)(C)

y soere aware Of; andhad .bieztm looUng into

9; (b)(7)(C) limmvdr..seemed unaware: oroerhai did notletnember, thatfore" (b)(7)(C) (b)(7)(C)

testified; that comPlaintsnot following througk to cowlthe staaattorneys Worldngund

• Memoranda and other documents-WI:60dt tom* with.lOth tdroeiudsonie HMV anothervoup' or ,talred to belmoved to

: 1

(b)(7)(C)

VI

(b)(7)(C)(b)(7)(C)

.11 A..: It I

(b)(7)(C)

At SOlite posituatio

taints .abo(b)(7)(C1 163Milirr: it -1 e ete

(b)(7)(C)

to him to contplakt ahopetformance 1

complain abetf them asked to ibe fermi

(b)(7)(C)

I. I(b)(7)(C)

(b)(7)(C)

r. at tding(b)(7)(C)

n:at(b)(7)(C)(b)(7)(c)

nt 1F). (b)(7)(C)

et: f 1 ,(b)(7)(C)

(b)(7)(C)

(b)(7)(C)(b)(7)(C)

1

s.$ IRE(b)(7)(c)

ei - I

ran ZO.(b)(7)(C)

. Al. • 'at

told the 010 that dud`(b)(7)(c) 1(13)(7)(C) &dal havc.any y w

COP.Iing =tours tate and. not realty doing his ̀orLduring this thild (b)(7)(C) Wasnlso e betiencixesi(b)(7)(C) (b)(7)(C) at11-12.

(b)(7)(C)

analle0 -neallYiuSt:StartOti. .Aceor ie (b)(7)(c)

03)(7)(c)tashow (b)(7)(C)

31

. -

this doatmentidsublectititheprovis' ions able Act Of 191.4ond mai require redaction beforedisclosure ro third parties: no redsntkut lino been performed by the:0Mb offaspectorGenerat 'Reagents

of t4is reportatould not dissiminadeor molt without the latpectar GenetiPsAppraval.

misplaced on a perforinaiire imerOvtinent plan (l°11r), w is ia:givett -10: -thuttilliloPe4 Viten fit ,ii„;1,vels000 -ciaterrnitiddib belmiteCerablan One or 'mote. eleingalof-their job tetiairetneots. ''' at 1.1. A PA' is arwritten-Piaa. Oitned raising an:employee°s lob performance to an accentable, assfstanc•suchas closer supervision...ilrflillit.161 (b)(7)(c) (b)(7)(c)

(b)(7)(C)

(b)(7)(C)

(b)(7) (C)

Id II(b)(7)(C)

a: Iv• a(b)(7)(c)

zoo, proome1SieEpseettoni after:WM .3

(b)(7)(C) as MC45; Stet) 27f.-1IMY:0112440)

that ie- was s i-assigoe4 to iheMortiover 111s6PF. shoviT 'tklt he

ate of $131;911 ((cb?) l top 27

as

(b)(7)(C)

32

ithilikg.umpl gutikaktbc;pruyistnes4ittg ia.fitActAitia07.41andminr0=StAtt*r4410:40*ibo. tare."311:5019surticalttravartiesk Ne: redaction kat becuipmfor404 The effickiitinv cow Genoa !giekhfients

-OirgiittgArtsitoulltbitittllitseintuttkOt-540*00414ite Xustitabrigenstoikkaopttiwt, .

Wed, "WoOseditokik0thabli..*110b ut:av teat(b)(7)(C) (b)(7)(C)

(b)(7)(c)

(b)(7)(C) (b)(7)(C)

(b)(7)(C)

about:tile $tatattotteyseci terllookititO. the Concerns.

had worked wt(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

atichea*IlleaeVperson

(b)(7)(C)

to &kaple Let 21..

(1:1)C7)(c)

(b)(7)(C)is akiiit •

• rfitd that ,spoke U.

lippson for

(b)(7)(C)

( 3)(7)(C)

A* to thatuntificiential doetilnen4 thew Wer, ."twoitufok probIette 'Oaths *arid . (1) fAiling to follo*througil on.anSigntriehts, and ,lettiringthings.t6 the last_minute resur - ;Dor work

- •1104 7c According to that-,clocument, those issues bad been

t tbp7sit-Roti00- haricot itnprtivcd, li ft. then identifie4

assignments and its,co 9.._ ua inchirrinEbranch voiced Ootteyns.abon (b)(7)(C)

Q. aka.Vialabil -o.folaitial teen !Jocose .ofhiS ays n ?completing

(b)(7)(C)as Asked :to Lettlre :Enfitrcement

t1's0liss0tivvi

tlsped& m0440030

thy* Otte foto .V. e xeassIg44 1 swork aWgnillents:

(b)(7)(c)

3o(b)(7)(C)

a s We E}iY a• o‘..

Se 9

kali

9 V

•I

Aces:400gmore. .expitotOor•estified, '140basicallycould. 1d.leave he.ofjuly 2001

IMP ..tiz Vith

lAfieS (b)(7)(c) s it t

Arag :•046PO44-1Vlet vo kncw, the desire- was t#, have tint biappen asvne as -

(b)(7)(C)Ifli na:crflitly,, and then used

Olt be went t (b)(7)(C)I .going' awaypartyatthecud

(b)(7)(C)

(b)(7)(c)

I _I(b)(7)(C)

ill

(b)(7)(c) as

.• .

(0)(7 )(C) A (b) (7i (C)4. f, 31. ..,,I. 1 0.1 !iviiv WAS V*gfigirt19 atmgeRar a go to werkin OCW.... • Ace .:..:: w , i . 9 i, period ilsOPPEttaxiio• ^ br 45100. (6)(7)(C) 4 : ; A (b)(7)(C) I L.,_,. 4.ta

;•4,4•4m (b)(7)(C),puskyar 11 I . I @, 9 mama (b)(7)(C) *Oda po§ilion foNee 1.,)1 '''-? ' firavAry shortmita at:fine, `berms (b)(7)(C) (tinned se .agency on, aiPtaxtber-11# 2001.1i01V0diedin'OCIE,16 (b)(7)(C) 1110.11

(b)(7)(c)

(b)(7)(C)

Thiv daetuneatk subject fa•the pro/ideas otthe Privacy Actor 19.74,:andiearreqiiirendaetiorklefore-diseleseretodifititikaffet; Nos redaetiolo has bees perfonaahy the Offieeetlespedor Geperalk . Reelpients. 'emit report sheald eat disletaktete or copy it without the JesPectdr eInersieli IPOtel'aft•

1£ for about two 1111..."

this Was the solutlo (b)(7)(C) I

that: e woa MOM r4s0 said;there was gossip

According (b)(7)(c)

tMedthat 2 t 'hatvin tho (b)(7)(C) . •

a e ge for a w e. 16-

problems irx oci.0 as well. • a at 91

(b)(7)(C) Ir. at 8

re

up4 I •

My understanding is thai (b)(7)(C)was mmoved.. OCIE

working outany torwerneEnforderbentpaitieular, had fort i"everal me

' p with a solution to the problembec,orne in Friforeement And specifically pre . anyone

-who reported e,r, or during the time that he was 'branchOW even before go here, PuPPosedlY asked to be moved out of 'his group.rd. at 19.

. LikedTry at 18-19. (13)(7)(C)

(b)(7)(c)

tfe.bad Work at the SEC 1=001(b)(7)(C)

Whpl =WA 'Did yeti? led* "Yes." 41

oined the law firth Venabletnlrl .the ran +h. ure.n to work fo V •

aad (b)(7)(C)

Hm

he followed.V.fiforcelnent, with

r snd (b)(7)(C)

(b)(7)(C)

I (b)(7)(C)(b)(7)(C)

interviewed wit YeDahle ?ad OCIR,Ibit•he went to work for rang weelc:1A (b)(7)(c)after l avi g :renuned.frorn a leave orabsenef (b)(7)(c)_ . Venable offeredlihn the job and heaceepter0 Exhibit 2p.

(b)(7)(C)

lit wont ( X7)(c)(b)(7)(C)

(b)(7)(C)

lit the ihneloftiur telephonb interVieWS Februaty 2009, -he•indihad not woftifor Ailiedfora..couple ofyears.. 20.• Since that thnejoined another-law rum Enid is now a sOlo practitioner,. Id.

(b)(7)(C) said .

teu

vdr told tho OW' Oahe Was havingernplOyment problerna,. Wat•pii a PIP, et -e4ve ratforcernent. , but thief the ATII, that la:. tayi' • takelt "massive" amount

Atco*gtobasieilly timed over the supolvisiOn ,Ofthe (4)(7)(c) started la., •

s gaup as witaffatterney, beCaose he hadtssenlWly "lost con 1 bzt+uctr.

33

1 :§410.-nit%

me Orthlz e-hiatounsel Pada. (b)(7)(C) hO.or Allied. -& EinliornIs hook at 25g.- :"

r of omptaintor AllieflaApr

records and

04 04440 t i sableet Otovtiitossathe ktivacy Act -01074, And .saig tequiit redgiin!il>#toretlisc7nsul^re :third WO* iii.i.to#Oliakkiis.hgetk performedthe9nUe-.000000 amie01,

of_ his nViitAAnaiditollUsetainate cecopy it .WItfilititthe tits'pe, 001,0414. .(b)(7)(C)

egiateired RS (b)(7)(c) for Allied One 'Kw Later

with Allied Was On'theshort sale traxisparency bill, and Alh-Uhij (b)(7)(C) go to the Senate &Wax' tg Committee -to Say, •let them. [the SEC] act their job" id (b)(7)(C) said that SEC Chairman William Donaldson at 'the time was pushing far .a hedge fund rule. Exhibit 20.

1n2005, Cnecnlight•CnPital andabout possible lehlal,aodatbioal violations b"obtaining confidential material. from [Owetestiaant 'abOut Allied. Exhibit 61. E` o .

Xijedined PriOr: to lietOriiifiginherit lieted that according to

Ethics offiee Clawed (b)(7)(C) to R terns (b)(7)(C) Satedon IncomPlete Infonnatibil froni (b)(7)(C)

Durirt • _405 inquiry into this matter; the 61Gt inietyieWedllie AS** EthiCaceitawi (b)(7)(c) .tif the .0ffi a fth6Etbiet CO ' A I !‘ i the SEC,:s .0face of theGeneral OlittSd 1. • gaV. (b)(7)(C) - -: • a I ' Win or Allied. Eihibit .62. Dikingthat 2005 inq c, !. - c 0 - . • ;,-.: : i (b)(7)(C) wall :-..11224111cnataLling :her beforere (b)(7)(C) otdabav6:4othing fo .4o Niritli whatOrming ag • ' Mill • I I erfor Allied tuitl hilie worked one; , - • I I I .ssion.. .4 He also•toi. (b)(7)(C) t e bad not worked on theinvestigation of Allied -while he was at the SEC. ..t,

• •there is na _evidence tbee)"(c) s (b)(7)(c) Ifor Allied vidatedanY SPer40 rule,

rvilation. or statute. For exanik (b)(7)(C) doeinot violate•no otiminal stabitoau4h:os ILU-S § 207, which prohibits forn*.goVerilt4ent IMIPICO!"*ItgAilFgq. 11.itjlixIodili4:$11ycommunication to, or axiearance hafine,aP_ ituny ...t ., ,,, I. Oiagency with: the a - a II ingligneeiNiVettlintOSSi. the OIG-inveatigation rontid , : (b)(7)(c) , : bed dam,;- (b)(7)(c) or Allied : „based npon'i nom plete. information, includilig o while he didnot $pet tgli$r. Vittld oil.

As voted above, the 9IG oondoeted on inquity1n2005 and found:no viiilationof any.4aw, SEC fule or .replation, orethics

(b)(7)(c)(b)(7)(C) (b)(7)(c) (b)(7)(C) tor Allied uti behattofEffective °antler 1.„ 2004 __herame:nremsterec

Venable. Exhibit 15. According to tis

e s puss release issued when ithe wassto "concentrate on corporate investigations, white collar& securities litigation aucomplianee."

(b)(7)(C)

*ed that they had given.With 114cWiles -011ice

knew- "some tit-higa" about Allied,that the•Ethiesdnottelate to

Ballo 'Office Aritia not:cleated v141402. la. at 54.

.cot Shy ether action related-to t hi s, matter la at

and thatOffice inform

' tlealitlOsy more

O .

ified that the Eroyal to registeres.

(b)(7)(C)

(b)(7)(C)• /411•4•61 :

ce

rstood .Ythese.facts. Id at .

14. them tliewerlaie ixotbeConanissim, According .on,t anyCPI itto tucan .that

(b)(7)(C)

(b)(7)(P)

I P .

(b)(7)(C)

/

: I

`.I.44:40gogikut 1:tl kigcttar epr.goitigt* tbOtfkaggi Mier 1974, 310ov rPgaiote4,14:0).irstr*4.114douro to 604 solo. No:redastkitt toi*Oegitogieti000Y WOffice 'Of 1 1404406Antral;tx nits ;Nottslitiolg nottlitawiinatelottopy it *Hokum Inscptdot Gifigras opreva

the Alifrit invfmtionitcm be hadieented gteat.deelabout Allied dialoghisivorkand enpetvidion(b)(7)(c).(mqof ttie imrPstigattea.04beforolaileperture..floin the' 23

•Oatilateveti 01°110 there may be an app.:AO/IWO*for(Hip yea titles leaving the SEC, :affer lto !embed

s traditi&kesitie- among Other things, The' EtIdes;Ofaedfrom regisridog. at. (b)(7)(C) tinge heti/at-no It tiger an SEC•

The Ethics Cetelsel tolimproprietyrile& boutcould .tint preVen

-employee. Exhilxt(b)(7)(C)(b)(7)(c) Contacted Ethics Otfice About .C.oneetti

Petenttel Conflict of Interest .. • •. .(b)(7)(C)

tegiStPre OSA (b)(7)(C) for Allied firan (b)(7)(C) at. 52. (b)(7)(C) s,4141 dial - - ow) er (b) (7) — ere friitAb'it. • _confRet efiutetegtdue tx (b)(7)(c) t. (Ix olt.the (b)(7xemb)(8) invegtigationoleteiti-Called the.ahies Office. 7.g: (b)(7)(C) didnoticeall *boo (0 , spoke MinB. . exeett4rod that the Ohio: sit - yt: . Taitgeettfie.issue mid tolcontacted them, prier ste-e‘isia.ietin4; (b)(7)(C) fOr Allic4, :44.4.ts, .-

•

• • •

(b)(7)(c) L14- Ow QM ill 105'. Mot el/mil " 4a4 wraicga Mied (WU gumat the t d. not be a problou with (13)(7)(G) tot:Allied; Exh ibit X62• .

This is tru Id the OA •heoaust (0(7)(C) typically involves =some otovediy.eactionibat C4701PanY Vaixts Congress to" e! Ootigres.a prolub0.41.4.0o1influencing the outcome ofCeminiisiewinvestigalions: ' .

ogeiAistfiligt (b)(7) bawn,a(b)(7)(C) hna.

35:

this itoggrout fooldadla tti4prOSOontathe iitittflOgoittitta*r*toircirejtaitiOkt- tie-tire- • 00,10sUre4attifiritgarde 144. kedAtioti. WI** #0,00004 tt.ie-Otaittart .sofet.orgoliot.41440catg:40.14 yopotstmigikt wit otto-gtigitailA (it 0.0Yftiwithoa(tha intootatOooestwapprevatt. •

C. - AfiledIstotuaselinforoared the.S.E0;and CeiminA UM:044es, thgEttgagetl in Pretexting of Jrinitorn's Telephone Records After Re LeMC, But No One. Ever:Informed Miami orThis Matter

1, The Pretexting .

çççnto Eiiihpi.. and'Othets eTiliald Allicd„ wow the ofpretexting.Einhoosel hook 4t: heteXting iSimperrnating someone tcr4144hi •theirtelephone recordS, and because it I-skim:lefty keit it is a emailered a crinio 4 Exhibit 66.

•In his book, Mahan noted: that he cliscoirered that , 'his wife's iCheryi Einhorn's) •

telephone Laconia were taken on December 7, 2003, when be wastoldawtomatitalled AT&Tand identified herself as "Cheryl Einhote arid-usedler social-Security !Minket to open anonlinebilling account forth hometelephories Einhorn's bookat 215. According to Million), thecaller directed the phone company to send copieSof Einhorn's home telephone bills to an AOL.account Eitiborn's book at 215'.

•g, -4443Ission and $EC Aisclosnre ofhitexting.

Einlait first raised concerns that Allied illegally ;gainedussess:io ins phone records m aMarch 24M -letter to Allied's Board. Exhibit 67: Einhorn wrote," hay home phone recordswere among the records thatmere illegally accessed-- Mt me,atleast four additionalirtdivoldnaLs have been the victims orthis identity theft and access device fraud. The only flung

that connects the victims is that they have alkheen critics ofAitied," let zoo ,g6sponcicdi a -

week later, asking Einhoxn for spool& information :related to tlis.allqatiOnS Exhibit 68;

Einhoputiterated his allegation tindeOricerila about :the protocol*. in a. Idler tO -

gePt#1-111)q-2006 seek* to *vete 13oord conduct aninveStigationloto The menet, Watt 69.

(b)(7)(C)

lijorou. tlays. tato; Mho'. mpoude4 to V " aud stitedi have:loiikert Year.01.1eptroAs•

s -‘rtetexting became widely known ma high-profile matter .teitither 2Q06 when it wasrovesla:thatkieWlett Packard Co ("HP' General counsel, at the behest of lIP.Cbairvivoitiaix Panicia Dunn, used security experts who in turn hired private investigators:

• to obtain HP gad members and reporters' telephonexe4gAts. by invq:4410001helliiti.04410 WOO( thesauri* of aninforrnation leak. Exhillit. 6. 54unn D and the Bbard. ';M011111tES .weathatgOd with violating Neverallankr otstricfing ithautitorUedaceess414*,4*tihe41s911.1v444.4te4 thp APAlte.r . .

We note this was a: shtit tinid . 03)(7)(C) eft the Commission and began workutNicitabie representing Allied.

36 .

•lekkeine. ottW4p:4o -the gtogtiins. is PikotomtatiOlkoktot waiiPetipire veflokko Woo*woo 'WOW virtitlif, 1 ,10 toystiOlovi **boapolettecil 11.000.014 pfhtspoigt:0004, 40010:6:

otth4lepaSsliaigniatAigetugittor eiVY 4it the twozdo 040001-es 00itir4t4L• •*At Alliiedys management played a is ae 10:41). attempt to.aoctew Tow. phorktecnr4a404 :13Ave • •f.0404.110 04 :IWO tO sOPP.0#: yontataituP Thchilit 70. Allie.4 .atsolifitotthattli4 Nir4.* SWUM

•of Riohones •riotives anti -woe; thetefore, hot disposed; to emit his dim -without.'totrobaatiagexiidence." /4.` •

•Aftetdenying for mania litrie4hat Wad: aky involwthent

telnpliontreords, SEC VOttit with theSte in:Mardi 2007, and. disclosed• . .the followingleganiing thepretoctintp

.1n late Pecem►er 200kvve reeciw4 asahpootnatoth the LT $,Attorney -thr the District Colunthiarquestini, :among other

the produotionatreconls l'Agardingth6 lidwor.1*.atainvestigators. by us ,or.o* agents: TheBoatti established a

.cOrosnittee,whialtwas. advised:by itsowncounseleterinvie.,w thismatter. fit.the*nirSe Of githeringtloduittents tesp•onsive (i) th0sulapOtria, we becathenikarethatanagent of Allied Oapital" • •Obtained what were represented to teleithonexecords of;13avic' I ';tinhorn and which parbort to be 4=0p-44:04o $1E4,0=44.44Cipitut *tang A.per:IPil.u.rtituo•ii 110.0S; .:41,50, •ilAp we weregatberhig doeuoweitts' ospoosive stibpoettl, 4egatiotyoveremute 'that .our it anagement:had authorited the acquisition of these'records and thatilanagenlent subsequently advised..that these 'records had beca obtained. Out management b•tatidfliatthesdallegations arena' true. We are cooperating fnllywith the inquiryby Ole 'united Mato Aitoruey's Offke

• Exhibit 71:•

frba rebnlary 7, 2007, filass'hiritton hat ankle .etttiget4. 141: t, pitsl. *Its lAzoneest Phone Data quoted Sta,t010 above i.4„040ofs $g0 FOia.q0 -4e Exhibit12, I0107494 aquotöattd.stifqmoot.fvout Fliliontrezictingto

illitoxix*as quoted as swing; "Aftet ;five yeats4 AM& Olpitathas ackaowledged'a tiny piece ofrapitiaitniiitonduc0 Id .lictioid that Allipaleit Vianswered„ howeier.,. gOeSthas about

•

- • .it is thick* tram Alliod's disclosures Viitwther they clisr,ovetedverNual .1tonae teleplione.rociiDISoibitvidattaan as well AS t01011911,010cOrdi Offete414bit Capitalpea diyl.tittfeit17,410 Or miliethet WaSjUst•43taftlit Capit01 itlegienc rCoords.Thallithe Prelioda04:119Wwleri4 UNMItiSt.00010, 11414 Pays be learned.Omit ttle pretextina ofhtkhome telephone teem* A.,44;that his home 101940011e recordsTime taken in.D bei. 2003.

t.

rs

37

1•••-•:.thla-dor. anicatis subject/a Thcpravisioas alba PriVaTi,Asit 41040 aid may regairasredadian Ware.disclasnre to.Alird parlies: Natant:lion has beeapterormalby the Mice at laspectoi GeneaL Recipteet.

orals repartakauktnid.dimeadnate ar capi it-without dee. faspectarCeagrars aPprivalr

'WO , a the fait linettabontthe pFetatWhb .hired theagent neirkitSiblefer ObbaningreCordi andlinw -Widetpreadthe -aCtiVity was. V.

To date; Allied has Issued nOother statement or dis' closurg mar. ng the preteNtili1g--.

• 3. Allie.irs :Lawyers. TOW the Sl4C thaforthe rrOraxglig • .

N.UM :0111Metlidlit DiVitioli letalir4 in. early 2007jusst betaelhe OW gOttellitilt4The

entitiVdstigitiOn ofAllieddikussed below, frortroutgide tOmiSei Mr LA111rWM ! . • 1 1! - lidt$1016 :tor obtEiiiiinglitiheleg iihebetteerds; 6( )(7)(C)

1 r. lit thy-0 8 a = : •

(b)(7)(C) oring.the settlement discussions between Enforcement m1 A Ittreit ow, CIOPegO. 4.11r Allied (from the law firm Wilmeigaie.:41s well (b)(7)(C)

'El tholow tinati . • ''‘..N,44 k.; N N e to the SEC tosay.. "Them is :strryie.thintr vrm

iiat

atigesponsible

(b)(7)(C)•

ee.. id.. Sr 112. Atter the tateebtiefing about the-ptett N-

tetwo over SMze. at According toEnforcement group: who handled the action and settlement against Hewlett-Packard 'fOra. Similar •We of '114, but concluded Worcemenf did not have jurisdietionnverthe matter becausedid not see a potential teemities 14. at 11)9; In addition; Enforcement instructedthe MAO to infOina them theyixflielved there was 4 POten04tqeonritiOs,law violatzn by

•Allied reganfinitlielnetexting. 14. 4- 114,, "The 1.1S0 cactitfefyloo itheprelext/ng.

• • Ipartneri faun Nikner e. Wetefresent I is .imparted the infoonatiOn. at Moreover (b)(7)(C) •informed theTISA0 about a 115..

everyonewas really surprisedand ctshocked" to learnneveci (b)(7)(C)fOritlet Pri;SOMPSZt

tified be,whether Enforcement had

y che4ed with the

(b)(7)(C)

0 .

'1 II I

MITT-11.1 V17117Thrill toe(b)(7)(C)

were the(b)(7)(C) Osibe One who

c.outhiel for Allied also

•

• .

. . •The QIG founitthalEnforeernent Opened an investigatien into. Ifiewlett Pacluad BP)October 2006 into potentially false or misleading disclosures made in SEC forms MOwith the SEC earlier year. Exhibit 65 The disclosures related to the resignation ofone of it directors IL 10,1Viay 2007, the COxiunis$loa:Illed settled adroittistrativgcharger against "for failing to disclose the reasons -for wdirector's abrupt resignationlathe midst:of:WS controversial investigation into boardroom leaks :7) Hp wasfound to have violated opvidigo repookwyetvirernoots'of the Securities EXPIgiklie MtQi104. Zit • -

38

(b)(7)(C)assumed(b)(7)(c) earned, and a grand:jury was COnverted, at L.

a.subject, taiget vitrids§..ofmat

tnE t i tt - II

some 1.trtt.tesItifi

. 4

eötmsel

rat4%48.. •

tessleOnitiVe recollection frrno that toeetinkesponsibte for. I PIC I I: Plilegabig (b)(7)(c)

S attention that "there wage posst4 II, iretextingolEinhOtiesphone records.

emberedlearniiig from Allied% colinse

Was(b)(7)(c) (b)(7)(C)

:.1

•tr: gralaitC

(b)(7)(C)

O. - V,

4

(b)(7)(C)I.

(WV)(C)

had possibly hired someone, an investigator: Andldon t remember specifically, but that the investigator rpayhave

wbth&ten access tahese

a64011a at 41.,

•

(b)(7)(C)

(b)(7)(C)ids and that there was aqueaftoll esAske-dor autivtized that partiolaw

• mpany !lad boen.aware of

- tt• •

(b)(7)(C)

US 0 tO inquire abbt.tt invatigation into-AH(1d,, and teamed(b)(7)(C)C) Thp 010 made anktneatt0 the

HIM The "USA° was Iambic to rocate their

21 The MG oontactedthethat it had investiUSAQM review their es' re

Thissdoconsent is-subject to the provisions id' the Ptivacy Act of ISITitiand stay require rcdactiosr beforediscickuroAo, third: paillts. No redaction has been perfonuabythi (Arica orlaspector Gapers& Resipican

adds report should notdissinninate orcopy without the Inspector 4cairaraapprOVoilt

-W- - • —

"ooed. vappoit recall there being some issues aliOut .figuring out soniemOre Of tails." Id. In additio Id the 010 they leaned that the•USAO.statteci investigation altho d not: know the status ofthe investigation. Id. at 49.

•

111 - • discovered handwritten MACS from a telephone the 010 froAN WM ' 4.' • : 5, 2007, that eppOrconsistent v4 tk, : e,tt Ullirr

learned abo- (bmc) • • saible loin the tartexdug. Exhibit71 It ap -, -: .contatted the O IA , • V It - .01 I 1 (b)(7) 1 . 4 .WithAllied-W;. ;4241 igilied 4 .,.have *aged in the .retextingz - otte:s-reeords- id 'When: as during ' " a lit, howgver:,. Wile& - pt. : . contacted the Pihics titace. OW or a state I/wafter learning

been responsible for the pretotti (b)ng, did riot mean vontactiog anyoneabout this.r. at 5a • ' -

ttmliteted by Wiimeilial who. -.Atesentedand appear to state in short among other things, "ailegatio (b)(7)(c) &prizedIrretiinvestigator that enstgedin pretext:We' Exhibit 7 Thi.ncites : • (b)(7)(C)appear to state,

&al firm to hire privatoinvestgato' Vto2nOtes.also state there was a criiriin# inv 0004

rebitifig tntlit $itetektiog. , „

.- .•

(b)(7)(C)

(b)(7)(C)

The notes' show

. represented Alliedrecords ,Of hedge .fund."

4,1I Otim (c)(b)

t.,

••

„ •

. - . ..• •

_ This .document tigsubjpctprosigiOns-oftbiPrivaaltet• ;of 11,9741,.and may- requirt ie4iatifea netaredisclosure :to third varrus. No redactiow has beakt*etoniled bribe Offolinspeetorollenik ;14dpients: .

;(41101:opsiiri should naafis:W.010o* atiit ttNetthowthe uspeitikrOoot05,000:A.

4.. Einhorn nu:tibia Counsel gesp °tided to the Nallor.e'orREC'Take Aldan Against Allied's Admitted Pretexting

- CluMay 1, 2001, Zabel, Corenliglit:Capiten :and •qinhorn1/4 totinael i, wrote vsAnioAix:tutus:pow disclosure and admission that it bad 1.)PeQ41e aware 1̀ tagagenvottAllioil ,obtained what were MP:11*in* tfi 17001. P14 .1Q:Ue'rePord's ODA* Binhom nul w piuport tobe records of calls from 01=44 Ovita itiuring• p4o4ittiine WOW! tr111*4.• Us)then VirOte* "Despite tbi*Publia edhagiOn; #41114110.411). at App.arootlykeptftheloroopOpttits agoosfflellyacess'accessed tad give InfornialkuttoWEhelorit to tilow hint -iu ext4huitethe itieutliottitito16 privacy tuutthe nesappioptiatiotoftM porsoml ifforruition!! i "

Zabel requested to be iramediatelyprOVidedidtht conics of th6.photie: reeottiapurport to be Greenliglit Czpital's or Einhortea; (2) a description of then:what's used to obtain •such records; including the information used to Atistippropriatelboto; (3) the identity of -thepersons involved m obtrnning the XLIC041,5; an. 0.44) the mow of atwousto,personal Information orlriimpproptiated bifonvigion:vitatprovida Id. To date,, atom:milhis c0141.161:hIctiMee/ that they reed:Yee; AdaioustinfOnuatiou related to the puetextittg. •Einborti Tr, et•

• • 13-tiring the OIistssfhohyitigidishi, &peeled:his tattehie,frustration with the SRC related to ihoptetextingSaying, 49indI4on't Uncleratand why tie:VCdoesret- force them to reveal what happened m their internat.inY4Ogagon nitz tins" :Einborn Tr,

eontinued, ..

01* of our big tomplaints,. there are anumber ofthe* but the. -SEC, el1164.9thgEsf, We.4104 AO Me at 111 IA* the wimpycame out and and lying 401241 ••denigrating •Minhoratotlibibeingn:figment of:a paranoidiitAgikatiOti 1110V1herPUiltAbtlitarh%:414p.Or amitdrAiirainooriest skdonmatx ilbortho:oacusof.Uirovaa =

•4sitts. .A.ad the SPiCkildiet soitircki aliOutittublkompauyLtd* tigeuts dg.1ketha4 which inOurviewts, kcitihts.AiiJ jfhi] is notthr,94460 that ftSEtt. 41%110 vamitimbliqcompanies engaging.inrbeeause ies•vety Witiug,to tho free 1cnd.61 debate and critiblarn that the SE•Ci.I thiity,."tu e*tuatketploce. • • •

•••.

filebieh hadbeeii &dived. te,hewcv eyen:if bad latated thoseaxüved files 440-Yorthg amgaelti were 1ffebrtottahry‘kfavautkoiltt Vitbeen shared -with the OIG: -

•

40

• ihkoocumeo iitsimikiti *the PrOvisbps fhb reliliOr Aec Or *V1100 t o FtffIaltgitidaciilqn WOO41$40.44s0 16 #1101$0*. . iYh 0440110Att be0.4•004Arg0.0 lit the Oilke of NIVOctig Creqtrittr get11004 •

kitthi$100446014.04414(0440i6rall %.(4404:00 ifistigtorriceiltrilt$ apprma.

. At 3 748..,

• #1*)$aict, .6as. 4vonvijicii ustiils.t1'Wha 'touts *awes 1,013 ,-- weem,' ki :a eilse itonirAlyi siven OW it lippParo afonner Eatoritmeaetterneyengaged in the pteteMing of Eitihones legends. Zabel said, 1ton guarantee-you that ifonperson whnhad.been involved in itnrestiviing. atetnpaoY - was PittOcted,have beo.on :Ine .pteuy swift. "netinn.. " Id-. at 40. Fit thetitte, Zabel tottfituitd„.

.Thntiojnot onaneingtn xueihg no °twig mai* V1,0014Q:artythipg about it,: 'Ibexes no towen.lhatott- _tonl Wooeatnpony yen now tiOriv*4.07:11ave aanaltt.44:67 did M141114

at lataii.000 Wita-'offitose: bones. Even win anotwittg:biva*Oon$, werewe the who got term who*obese people on we eon know'whe they ate and weton wateltout tbr than and whottitepoight be deing:witlithe,

really tzintraga. The whole thing b- That parks, particularlyfeckless on the ,part the-gavatinent. .Ida WON. -

Iricomp to- thellewiett,Facloadniattcr; Zabetstaie4

This. is not justptetexting; Litioied thisas morelinportaht that the -11eix-dettaicitarilOne.. was amlutebaildi.spnte ,

wasti*t good. But it was 011y,041:10pkgotang 4401►04E-Within their 'own conTolv being stupid; and: Thesewei*.mititet partielpontoengoged in a teal debata arealimportance, and Oneside employed ditty mains toy to shut the -allies down, Anct I.lhoughtit was far mare significant than.

- FleAtlett4acitand, althottgikUP got all *press ber4ise %We weresonadlig maples, ••• at WOO-

The1002.2004 BEV :Enna ot^ u lied

An OCIS'Oconti*Pit of Alti.0 Wpitx frQui tef4col fromthe °Senior 0464 . in'investment iitgement: SoniorOfficial.Tt.it 44-41. litvegtzerit MatIgebstntiiiikticintible!fot,ossioting the Commissinti in investor potectionaild prompting tivitnt .fonngtiOrthrtit0okakightand reguittim of the inwiftent•management industty, Ste .1441:ti. www..see.env4abouttwitotwede:-. fityestmentiamogentent alsoleviews.investhent

•

!Iiikftleatmeat is_subject ao theproviskone ortb0;;Vacyliket of 1974, and mayreqUire rectitcliew be roredkeiosure -to itilltd. parties: No:redaction:has !ma perfornied by the Office of Inspector Calera Recipients

.Orthisrrepart should.notdheevaineteeeebgifitwithevit the. tasketer Gesteeers.appriiiihi.-

conapanyandinvesttnent advisor filings and assists, the Commission in Women:Lent matters •lEtvolvtmp invetnnetit itOrapaniatind atitiSOra. Id: The 'Senior 0.1fiCial. waffled tharhe. spolcetnOCfl about doint an examination of Allied becansehe ihoitertitwat mnte'atiptopriatdibangnforeonent since: CM was leTillar With the vglogfienissues relate•to finCs .sltell as-Allied;t.4.40,.51

OCIEJzotoule000d 40Arieufiof Aga ittiOly:gkalvaed on finhorn's first letter to: diSenior Orala4 asoussain•seotion.ILE. above. Exhibit 75:: -Eiiihotni phone calls andletters to the Seinor Official;. had outfirtedAllied'a position related to hot followitg SEC -guidance on valuation of illiquid securities 'which are•attaded in the markets- ESthibits 24;26& 27. Allied wrote a white papa on its Niew that the SEC .guidanee thialitea should not applyto , erit gxhibit 13; The SealorOf$40-testifiOd:that he did not agree With.Allied that it wasditfieultF if4OttiropoSsible, to apply .520 guidanceDoti valuation to EDCs. $toiof Official 4t,57 He forthoritostified that he was *wiled that. via% vaioing ifs-assefszonsistent with itswhite paper, which would not haiebeenappWriate, Id at 513.„ According to: the Senior

• -0.fOolot Alia:too:do it-worthy anclapproprittofer 4ComthisOloa to look into Allietra valuation:The Sept a • is recalled that he lie .o.,coressod bI disAgIeMont WWI the WhifeictVaat

meeting r (b)(7)(C) d Enforcement k Alta that hitting, the Senior Official said, Allied •'took down they re-paper fromits website. Id. •

The OCtE examination was conducted ot headquarters beginning:J.4Iy 23, 2002 and wascompleted on 1.4arch 19, 2004 EXhibit 75, According to the examination report, the lastelcamination of Allied was conducted 1111999, Oozing the period atii examine' tior4examination town received thendditiOna lettert fromEinhori ts Well at Irani thlOtbiet-44itio ofAllied, Jan Brickinan tlItieldum0. 29. Dining tins same time &tits& staff numbers ofInvestment Management and EnfOrcement coatteted llteir own reviPwPraMlie.d,arid.)ctint.divisional meetings were held, .14 . 7.114 examination report was braid °PAW'•204.4 ,and itwas formally referred to Enforcement forection. I L Enforce neat had already opened a matterunder inquiry (' ATH") Mardh9k 2004. Exhibit 76. Ott May 9,, 2604, Enforcement opened atr*W:i4veSPIglitigan discussed :Wow into baao&otk.thatexainination4. Eichibit17-Despitc Boding problems thatmetiteria leen-alto EnfoiVertienti :ctle did not send Allied-adefielen0 letter, t'which meant the people tatAllieCitst:14t as &ging vinatibey woe CloIng,

•- . •

BrielonariA201;ed roal:earatodevelop.ier.froxt;Dallas vita obiektiOund i3$14, lending, 'Vocalditid of AlSe tvho also sent letters Oteoltplaint tii .the SEC about Allied.

ambit i;, Efig%o040:book at t37 According to. 449%0414.4m 5.ontwitorl. n aboutAllied -and/hey -began a tong dialogue *About issues related tQ Alia. ginkgo's book at •138. Einhotn, described Brickinaii as "one-of the best forensic dlacetiveS I live: evermet,' and -claimed iddfough hadtpent many horns analyzing Alliert.griekmair haispent many, more. It

42

las an rambler,(b)(7)(c) Irv. at

Revenue, Sexvice.- (b)(7)(c) tr.. at 17. -

6.worked attheige :from (b)(7)(C)itiiii(b)(7)(c)

-TL & 481.(b)(7)(C)

iirintelnilifingthel (b)(7)(C) }worked at(b)(7)(C) hai.been retirement.siiio 07)

told th eOIG that one'reasOn she Mired fivralhe SE(wa.s her

(b)(7)(C)

(b)(7)(C)

1

?IresubipairitliAolAtooserthetrivlity4:001414,401.111:atay eeiaira. redicil.en:herarA

dlselastirel0 Wig parties. 14040114•0.40.100j.4.6e0 gertOrmol by kliOiCifikeitiOlietbt cnCL itiohilehttOntlisepiirt should cligiegaliAte ,or 'to-1w at without the lespeetor aeiteretts'oprovat. . •

unless they get the hint that w- . k tTranscript of Testimony of (b)(7)(c)F-Ybibit 78 429:

Qin -Mataing Pertain issites1Puty 20;209, attached hereto as

_t . I • et..

:

a*: (b)(7)(c) diat examination waS'Unusual severid (b)(7)(C) 12% Fi=L (b)(7)(C) • the that examineraSSigne4-te tits examination, and she was supen)iSed directly 14 (b)(7)(c)

re was no ViSit . to Allied's; offices located just blocks frorOLOCIE's office at the Mire,edthgr`thirs vv11010 exam wasnnusoar heteMSe.:gettegllY exaMblerigo oit.to

ofa week or soointerviewmanagement and r - - • . etits, then tome back to theSEC to write a.report andthen tend a deficiency letter, (b)M(C) Tr. at 12 & 20. But in thisease, there was no Visit to Allied'anifice -whatsoever : e '•• • caency lettei wassent (althougliit was referred to Enforcement). - This examinationation of Allied •Wasililso prolonged by -delays andthelli%gtilitoini months kb mniMA Moreover A'S discitsed.-below, the evidence thaws Pihithe(b)(7)(C) (b)(7)(C) and . • - •

• worked at' .the SEC,. andbebelieVes anyone •wag nen waxen S 1; is. less /04Y to engage itt Wr00.044418,..

1. The ExaminationWaxtondected Primarily by-One .Exankiner and'Supervised by (b)(7)(c)

Allied elimination in2 .002; Transcript of Testimeny (b)(7)(C) r."),

th' r four examiners conducting an examination: 14 at 17. At. some ptiinilater, •February 11, 200, attached hereto OS SX-Iiibit 79, at L& ACOOcall8 Vii(b)(7)(c) way

rttl(b)(7)(C)

had requetted assistance ozi the exiiininatio (b)(7)(c) orked on the

Caeny a senior' staff acconntant, Was nrimAiv exatnitin't a to the

onas well for about six toning months. :a f6. gan at thA$Eealirities complimee,examiner„ . 14. at 8 Ptor to her work at the SE

•

• asza accountant in private indlistqf for asear, at: 6... Before thatffl a taree r:Marelated.t0 , acconnting.and Emit:fee. at 6. •

A. I.)00eierteies and Unitstial Circutostancea. vdtb the*PArrillmition :of Asia(bBeth )(7)(C)

(b)(7)(C) •

turned into a kind of . t, and a xeview °frisk,"testified that at the time OCIE would send investment companies lan

hoiethe:Tr. at 49:

43.

IlitS.diffrOgiftagt IS tubiggt:t0 thelirOfislois of the 0400 A041974,804 foilr*Olfrcriflactiog Woresit' setosurourffilial piirtles..• Dia OftietiOit hos.fleeOperiOnoottliyibe Of* of lavotor C000roi. Oeciolefirs

" OttftloropOttiltoolillsof tIlsieoiloofe or tier if ivIthoitr rti te,poitoto 0.4t.ofts appiavid: (b)(7)(C)

Alan exanfinartt 8EC.hp,adquarter (b)(7)(c) .testiffed that Ate. 'slient401014 aher •time on ,,exarnos and the remainder on special *Weir. (b)(7)(C) rt. atl I.. Aecol5diii rti •

thagolAttecr,,,Oiinsktinn Ain% asSigncti as- , ject,. not a-mennannt1011. (b)(7)(C) rt.. at 14: (b)(7)(C) ti. lit14-15: (b)(7)(C) F. t..91ted(b)(7)(c)

who revortato (b)(7)(c) I who. repo ... '.lry. at 0-7 I (b)(7)(C) I legall at 60 3F,,Clui b); 7) krill:. I :i :

(b)(7)(c) Iiii (b)(7)(c) runt 64: (b)(7)(c) tostified owl (b)(7)(C) vims =pretty m a....yI 41.1 I 1 -00Peryigor. -tor tats :special otoieetrland-tbat it Was •OMISUAL to nave an Marieitfterofireetor ..=supervise Wit Itaiiiingibiii (b)(7)(c) Tr. id 70: (b)(7)(c) adthitted.he lirobab' ly kiptewfsed thistataattiore thandnostY (b)(7)(C) TER 1021t

(b)(7)(C)According ed wa...5 the largest:1313C and "every retirementiand.outthere owns Allied:'_ ' (b)(7)(C) t'. at 17. She thought it was strange that she, as a,„*Iy rew

I-R.4 testifying; It's Almost like they .03)(7)(c)•didn't want to find:something." Id. at 15. however, said this was the reason :sliedidshe could to. ething, saying - . a. . was-.ray project to proVOrtVself." Id:

tifie;c1tha (b)(7)(c) I embed man • ilineethitti. Ate had:with Alliedi and .

ether lead in ques °rung: td. at 21. (b)(7)(c) . i'.the 010 she 'OM& 0; tOliave •

the IneetiOgs Shim she needed some 1 . ; I PO, Id.-AIL -

(b)(7)(C)

(b)(7)(C)

=miner, was assign ■ to, examine One Of

had dOn,(b)(7)(C)d the MG that liy•the time she vi as brought:in to evaluate wital

already "spent quite a,lot of tune" and done a fair •aiiimmt of work.

eight-question letter; which they ultimately reeked "illoVved.theirt to lie louse" .fd.:*51 She further testified that examiners, Avero notencouraged TO:fix4 -gtongdoiliz stating“In-taetiin came backTtcanian exam an Pdfp9nctspintowrogyba4,twocttosAyxleitaci had-to bide node; my ties14 bteause I ..; ' not 'mato bearthat 1'4 .

(b)(7)(C)• Dania soniethbigwidW hvadifttio 614 the Orgliegotatolgo$ranly41 .41114.140:g, t4PP,54901PWAggir 1771.i 044:041‘ Cofastest tlme rathert. than:the oality of the examization work. Id. at 54.sahlthatshefennd that the. SECtlid not whether:10k "licit" ease when .4 it:_ot ere

to investors, only whOl they were steabggtoney front (b)(7)(c)Inmestpr . At42.. We note that theseeamplobits are consistent with some Mille. fox. . lags. ui as e *10'raport .On Madoff. Ste Ynvottigeititin of Failure.oftlie:gEC to Mem& iletilard ;blades'

Sbheme, August NV, available, at http:fisec-Oig.govinewestudiest2009/oig- •500:pdt:

44 •

lie (b)(7)(C) !at;Wised -o

This dq^cunientis fiii63.0410 tile***.IWOJIS OtheItlitAty.Aettort#74Faatt inay *Notre 004* *too.instiostoo toolitt 144 itthot10$114/044 .petratätilb Atti.401kee4fUskotorgigkati, 0i44iagatsot-this roPott: sh(414 spot 4114igaliiiit*at.ciMitly;t1wiat the it GenekaPsapprovai;. ,

9 '4;1 she worked•SPecitfie*Wthe voluntion iss 4es,. tho issue o investor dividends. - Id. atlfh

very -thorough job val

shemaS bionght in to evaluatereputation of ferreting nut inforrnntion:

done

e eran e

requested andanalysis She had done." Id- at 8.ptekdititint Se. She I

a to (b)(7)(C) testifted.afier sterwn assignict this otarni":. we hit°na

seesat down and SheisIanited reentifildindlitcords, add t •(b)(7)(c) tesafied (b)(7)(C)

h dsle_opdV.4.

WItittlwaccoolititit „at-dOtietodate Istatisthe.r- at B. Aceordin

,ontrack ;andun(b)(7)(C)

(b)(7)(C)

t101, 1

(b)(7)(C)

•

2. There Was No Visit to Aqietrs Office Located Breda front the SEC.

the I s I . I(b)(7)(c)

°Risco 'NotcstitiecL.“1 never go; •

(b)(7)(c) 1 : t:(b)(7)(c)

I tightWAS 1. ;.a*s1.34 of restricted.• . $11 losiiagalliFf411throuk h•Jotter correspon E au .:rievar physl y went to Aiii0s offices

(b)(7)(C) teSUBM did not see the diffetence either way- visiting the- fain iwnia

—ffeliMihtion. (12)(7)(C) ut 27.. •

(b)(7)(C)

examination of Allied, andnot the nst.14. (b)(7)(C)

00-C.1310") which hasJurisdiction over AC.. firms auchas• Allied, tett that: thiS • .examination .wasprehably not toidueted .,• ins. . '1" t -.. n •-■ • RiTi *v-nanovitoous" ta• •Valoaticinissnes. id. at 1920. In•ddifiO -, isalfrelahn' edAllied: vvaititewiniiesawaY _from the SEC .andithat it would lie mote .effieietit tel tOtidiftt-thb eicantirattiOnathe SEC: fd. atZt-a But ti4 .,., i (b)(7)(C) c ' ' co '4047 441.014145 OillY close's At 44, Iatet, Allied was just iti .Woks from 0 $ 0 , peat thelita. 14 • ...

• .•The*aninagiou IV.1.0$11a*O.POMPlefr

■••

aliontaisnal bettniseit Listed. a yeatttadout a 1.01.4 r,:at 15 ... 4%1014)1.'40* MOO 000;444

r ed &iv"-wasnotoverly xxiojiekaM" rctai .16. Whitetai three theetino WithAllled tepttgeastives during thriexarninntion,..

estiPt4 . iwohahirhict raaofts Al •ii :to owe 10 watexplaiiiikayve.wore " At 2-4

Rt

xarnitation:ofAlliedri0 •oat : i5 (b)(7)(C) at 21.

east in, aa r r r e's=_ofce:(b)(7)(C)

11.11 IT .8 •

(b)(7)(c)

SEC CVO visitigAllied.edthatirdinarn an: at 27.: (b)(7)(C)

wc -werea .re . .

(b)(7)(c) . I8..to eon-4110

testi4ed.hodidnot reramnber tidiY hendquatterS *as conclueting 2001.. ;.I oC7b()()() roit

uvr*I • It

(0)(7)(C)

c.14

I MI(b)(7)(C)

in "OrligitSgA

(b)(7)(C)

ir I 9

(b)(7)(C)

g(b)(7)(C)

tOktlkl 1 1 6 1 6' 1 I

s OPF shows thaik7) ins•moloved atthe §EC as r(b)(7)(C)

s_ taff attorney in the(b)(7)(c)

(b)(7)(C)

•

(b)(7) (C)

. . .114.trinetunent Iamblectto the previsions ottliertivneyAeterikAiked soy .telinet$04 iletote

-ftbelesure to Third prties. No redo 04111 ina too periernte4 .bytt*Ofticoet*petterteter.el. ;Recipients •fthis tepott should ttet.iisseolitigeerzekpyA vti.thoortholopeetoraeltaes approval.

•* MVO. ghtlfted Oat81)g anDP+

1.1Wattte4 t6t0Afin114,thelrUarnitiglOn

1 7 - Wag alt•OVeraitteelidg thty get fin(Weida* : . . e. i wed get &Vier tenet front "hmidditio (b)(7)(C) nI "fued tO have:. 'I ,,: 111cif the exumitUttlen, e 00 44=4n: -eraa' eriod otlime to Work on urttual ttiudiuites

meetings, wi (b)(7)(c)

;slici Were. •(b)(7)(c)

iteipful .te xis." law 19.Miring one part

the forSee lxhibit $0. at-0. •

(b)(7)(C)

as

(b)(7)(C)

iltAt.ecA

• ;:qii

UWE(b)(7)(C)I .f

(b)(7)(C)

IlladWoiked at the SEC and it May Have Colored Bia yiew of Allied itiAii(b)(7)(c)The eiddenefe .siiiiok oua l (b)(7)(c) Whci formerly worked it

(b)(7)(c)

d' SE fron Aceording tor)(7)(c) tit was clear that(b)(7)(C)evi (b)(7)(C) who Would represent Allied atifiese eneetinos hermuse (b)(7)(C) would

in and *lays I.• lit; (b)(7)(C) IHow aro you doing?. 4L at 19-20.. (b)(7)(C) fer.i.1._ tiqueq I 1-: .

-her kvolvereent in the Allied =Urination they met Wit1.31 (b)(7)(c) an several • occasionsTi, at lg., Whea asked irthe.branch chief wa,sintolvotl. in: ine examination,sshote,stified ; no,

washigherk sort o4 than a normal audit. I mean it really was something dim . 'involvairi. Which itself was unusual.*

Imp ession of why -that Wastmilbd." IG Aeco

is a nke Pe1 egar Id; (b)(7)(c)

• 110Vedmanination, not ileeattseof ar •size of Ali21-22.

4, • (b)(7)(C) Knewi(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

eft 'asked, "Arid so what wased, "Well, he

tcalre effect ocOtgping heti&

pent)kneW- and

may havewould Surprise hint:

' testified don't.xvinew.6er

did lila mall kn diving (b)(7)(c) Id, at28: He further testifiedle

just:did notretneniber. Id. 'r Titrovery-qear.that he kn ' he : • .

../k4• at a %en as)cctd," 1 ayou don'tI( ViVO.,tii WO, 'dee person And.•

•31 14 mtv4iittitte:OVS-Atioisl 200.P koreitispitimi. ofeahre 1,VOC to V./lover

Ziernordlithdret SehergeteXarninetth:141 rthatitimereasb otoPfiedfroraworicing•m the lvladofpewnminntiondnring 6:1012004 to foexik on the nnitual fundproject Se4 littplheo-eiggovIneWststudiesi200.44-5444

•

(b)(7)(C)

46.

•. Irhis document is subjettto:the proVisiims of-the Priracy ,Act of: 197.42nd- may require. redaCtiOn. Were. •Aiselosurelit third parties. Igo reds-Won lies been.performedlythe Orme lespeet0r. GeneraL Recipients

- • :olthir,..repertsholdil notdissendaattor copy it without the inspector Getter:OS apprOrik

niay havp * that I just don't

acimitiniifiOhelievestitannieone intheinditsttrwho used to work -litheg."C is alOro.-: n. - .ly to be fair :sad honest 4/. at $ (13)(7)(C) +-4114411(30,1ateS itat that.peOple .firkji .herehave hopefully acquired a certain attitude, a.... ,.: , % At k it: # it' 112 and you :wooliOtopobatthey're not [doing sontetidug illega]" IL WO•then ok 1

(b)(7)(c) Do. yoa• think. then thatcolors yarn-view:if therei-somebody Oille4 working at a ton w worked at the SEC that •

A of giving them the bot#0.t of the doubt as opposed to being more suspicious?"tad, "Min the Venefit:ofthe doubl;ProbablY, Yes. rriou:' 11.64116.wiLsOmaiodY ot

even. they didnq reitlbrlitowthentbut you knew re—... Well., they should '`fled that she " v -, a 6.0dhoperullyhe doing the right ' : ....-.."- 1,1*

examiner needs to be "Pro _ _ ,PRIYjcipugJtTr. at 43 While she faun (b)(7)(C)

ha .goelloatt. c741011tgr sl* TOMO Aim. tbeliO (b)(7)(C) 41PINedY alASP.iCiQW f; .at43 a it&

o)Iiot $bing to be doinganything it jetall,•retnetribeeit, i'• •

5. Findings. and iteferra Ai Enforcement

MU above ., the exam was issued. on April 20, 2004, andit was fonnally .referred to rffilfoteentent.for *dim.. id- As a result of the 11#month examinationof the exarniners found the following three issues that •Wartattted referral to Eriforteniexit:

(b)(5)

(2)

(b)(5)

(b)(5)•

.47

pn May 9, 2004,. Eri4 •,pxattindtibti, as di,kiissedtekrAT

11(b)(7)(C)pite bo

them a ot or. at 18-19.

as reluctant..at 19

didn't do an

IP '(b)(7)(C)

r" e l1

The OrG-foroblemsr, at 39

cumulation as well:did libttelltheMtO stop.pe410' glaililhetc. whore pde

lim ing strongly that-Alliedut referring it to Enforcement.

tWed there were delays ill thee 'them continue the examination but

". . in fact, There *ere probablythree months or moic, dieted. be .

•

(b)(7)(C)

11 1

:

clesire to. •supPoded

- - 1 withg :directedworktaking on.hold tell(b)(7)(c)

(b)(7)(C)

gi:thatahOdidliPtft; .4 ,1 1; .-olita Enforcement

at r. at 31were sotOnvInced

thenl.to gaback and dO additiOnal ork.(b)(7)(C)“ •1 •

1_1

refer thethat.

(b)(7)(C)

• • 1,-

(b)(7)(C)

110 :What we found." :Id.d was someWliatin11 11 1IPTM rV 1 11

Pgr.041 4sia, I don't ever .I

a mkt site recalled herVAIS a problem *withAllied,bu.Accorrlr

- Id. at'32-

(b)(7)(c)

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

(b)(7)(c)

(b)(7)(C)

(b)(7)(C)

:•••,(b)(7)(C)

•••

Thio'docanteetiiisehject to the preeihion•lifthe Privacy Act 01'197 -4,-404-et, ay retieuire red:Oleo:beforedisclosure igrthirit:parties..'Nirredadlora teas beett-periermed hythottfriminexpeetor.Getzedil .$e aijpienfs

Oft* report ;should not dissentlieateurtopilt *iithont the fasjiitterVetketibiailipeeVet(b)(5)

a'bated on.that

C. illisagregUient AllontReferrat to Eufareement;and Wliether ;411i"• _Been Pon4Scheme •

ay gave

(b)(7)(C) -4Yon don't know: wiutt you're talking ahout7 related to the t5iridend issue- .rd: at S'?.-

tither,- I •prepared a

-pared his own .Istife.; t`i kgreed •

patteriitaviterynct, ghesitid

ere "'VeryeQueerneewitil what they found and conclusions14.

(b)(7)(C)e§tifiatlui

there'. Thete'sents,

r.tt4O

(b)(7)(c)'Mtge s noanalysis or.etiS

there * 01 It 1.4

(b)(7)(C)

rran(b)(7)(c)

II

WOE , tifiedthata.VtOabg;: •

tap ete (b)(7)(C) . at 11). AcooriliTig lieh ed money; they needed it to pay.

•• : t • igaii.1e (b)(7)(C)

1,6

Clear :ev e.that she an' BIMmeshed tog , -

(b)(7)(c)vidend

(b)(7)(C)a 1 t"

(b)(7)(c)

1.4 t

-'I he GIG found:that oniMarA 3 :AAA Allied-vithielthe•

Senior Ofheial and others liveSinteitt Mtinagenient, Cop (b)(7)(C)

Exhibit 114 In that e-and

:4TtPlYPtto.aa, line.apur ysia shows thatOntstking.the pet:WI 1995 to.2002:oitittasli

Winne& . ' •

Our artalysis,OfdiSpositions duriuglhe:petiod7:1:1/02 to. 3134"01shows that about.3:p40440p1004pcir4045ppgr,gitsmonitizatibuotnoiwAsh-filkitOrs legtignizedlcs incomeitearligt

• . periods . trSing this .39%-to calculate what Of theII

(b)(7)(C)

llied. more than eevered it.s fetal divi. . derived from its inv'estinent riett'iritice

WiThi:til0Aathilit-4.014#06-110, 00010TsiOkete kfivAYAWO.M142;i404 :OW iiireffolgolikal .b.40 • •dfsatigure pat*. tAkituilonNOLiigiiall **Ma 1?).` thOtrift•OffOrg.*i0r OetiOrsti Iteriptatt.

• of thisiepoefshould itotdiisetolooto:or copy it iiiitnint the laspertorgenears. approval:.

((C)sdnittedhe had.rainv profile= :with *mink the'dividend issue &nil=- - YahlariOrt Issues striae he ibelieted Allied was properly ii . i , its divideAbut testlfiedIhe

was the issue was referred to Woo= (b)(7)(C) at 50, Aeg,ettling togetan esan1naton xCporLreetred.thEnitatemetitilieiailinch.chicfhato i coileni-

then. the AsistantDuetor, and 1.11615:V41. (b)(7)(c),would, tOnnuf onto(b)(7)(C) t .fit31:. - ACdOrd14 tC 03)(7)(c) II 4 • - Arefi -; irTalrfilI :Ie : to tnkreemen. - ,It -stopped speaking to her forrnont Tq (b)(7)(C) (b)(7)(C)441, :-: 2 • n I i I

time he was not speaking to (b)(7)(c)1 T. 049-pu. .gi .ditio■her brawl chief essentially told her she Was =Utak' herr-otter on the line goingwho.has been it the SE.0 for about (b)(7)(C) Ti 14 41: ' .

Einhorn referene,ed the dividend IISS110-. lit IViay.20_02 speech,: talkingsbOuthow Alliedheeded to generate their dividends, : Einhomisaid in order ter-Allied wifundlheir shortfall theyhad to eyentu* .s.eteCillitTIO•raisg capital to pay 43004(104 itvorcegtwdarmow from -new investors to 'satisfy income neqUiretnents 'Oeslitinghwestois: Eithorn reninticed to theeonferatee. attendees, Ilero's atiatnefor titat flanghwtr .Einhorintirga refbieneinga.Ponziseheme. See littpliwww,fOolinOonie*pie.cOtn4the videgtFtP94;akefh)0 .

(b) 7)

(b)(7)(C)

(b)(7)(C)

■••,:li ar e Ii

; 1

4-4;111 :

(b)(7)(C)

49

- TVs doom* touiliect to itte.prolas et* ttielbibley Aeuitl#74, *ma inOy teghikftWitc#4, befto thintorties, 1%4x:diction has been pettertned by the ottioe ofastidetor4

_ontraL '•otthis report Soilift liotWaitolitilite 01=00 tieWithOdttlite itisPeAbie qtlifnaPs4POrOVO, -

prnoped insfro dispositions during dag period 199540 2002

div

presents me niertitization ofmOnash.inontrte ieoguiz' inanother year, m4041'4 this•Pa* tO the :cash flows generated by -

animal `opetatione Aims- that rush &rived front inVestineriiactivities biter th period mote than. cowthed e idends* paidduringlhe period- There is-no ,poni „Klim Ma O ir447 Are.

Ofitle• added)

11

(b)(7) (C)17Trii issue

• - ..,did notteatealber tius ,e-ttanii tior did he meal *log -sa. 0001,ab ou:t ,

E., at 44: The examination iepert coat:shied the same language usedin mail: , . vo; . it added "However; this is 'assuming that every year atleast:39%.01 .the p Irwg'-:. - ; from dispositiOns :shOuid'i;o recognized: as cash Ntibich May bOhigher or lOvVeribatiactual," Drliibit 75. . + 2

(b)(7)(c) 1korepared notes ribritit Allied related te her tvpik on

investigation. EKlakt. 80. Aaneted,abov - 0 1 • e 1 4* WW1 Man examination of Ailleil, (13)(7)P vat, 044

b)(7)(C) ut the exatnation.rindwas. s Pi MIT **hey liait

regarding Allied's' Va.kultion -cifixivestAteiltss. kLbelieved a. refenal.woUld be made to EnfOrtemell

bn Jane 24, 200 ntadted rtithOCI's revieweame inangt M. vii . (b)(7)(C) Oda Bill Via na .prelietit)., AceoVing ri (b)(7)(C) • i 111-111 4 1 1:e ',ABE 1 • AlliediS .not &tinting itt:divide . 4 thorip kiddies 1 mi'T 'waylaid that,according to the emp:Pony; Allied is Op ,Irigi lam shoueg to make •new,in:vetnnents in itS;porifolio and notaising Money to pay the .dividend. Allied; conceded 014; due to neeestary accounting - . 'ta401,eotrit equid-aPPC4r tli4 ,01P co' ' i " ; C .4* lAWIIICSdividend, but-that is net what. its hap

.. ;„,■, 11 (b)(7)(C) .,.: .4

was satisidedivith Allied's explanation of 1. - issue and/while .they ate tall loiiking a atm minor area's, OCIE*Iiikokbriek

. °film Allig1.1-. • . ' ' . ' — • - 3 `-tr4 .

•

(b)(7)(C)- a a 64. 44 tvriOplber ineOting. A1414 41.04e

(b)(7)(C)# tie • ccaweacil

they y iriet wi.th. aboutzthedividencl issme during the extriiirtetio qt.46i •He further testified that he behaved there was a basis for saying Allied was • • eras money t:0pay for their-dividends as part oftheir businesi inodel, which would:net:make ita Ponzi

(b)(7)(c)1

• 1 A 4 '(b)(7)(C)

(b)(7)(C);(b) (8)1

41. 1 t P(b)(7)(C) APP

That Ot(b)(7)(C)

(b)(7)(C)

:several= .. (b)(7)(C).: a I " e

:aer..4101/3g tO. lier .06Dtg15.'64s

I vT :71II

minr..7f7 t.s, • - :j1111_io w anupdate onu

tiy '(.'.0 AlliedAllied Capital.

50

•

(b)(7)(C)

SwPrisinglYdiive to IlieCtrfile to- a CD: te take home* for Safedocuments were.• /4.14.27.AL at 39.. (b)(7)(C) MughtAllied file on e chive- Exhibit 83: lil additici

trafferted .-the,tase to Enkatement,;andihon transterro4 tat-

.,_a±,H• -because staffs had .drifts had been walling-414b)(7)(C) ' •said her hard.dtive files had beentOtally deleted. .

a oopy ofthe r S is nentssho behevedwereinthe • .ed that several timeis SEC(b)(7)(C)

This document hrsubject-to the pio,visions of the Sivi4Act of 1.04,..aud may tequitifg Odt.tgion Ji.dtete •disilosure to iiiirii:perties.. Nored.setioo has been11 ,000mA by the OkrumlitOtopectoiaanepil. Recipmuts

aims report should nottilswitioati. Dr. -001000ot Otto losPottoeVeonriAPPotg:

AL at 43, (b)(7)(C)

Edw.:cernkurAvpit'vv"asuI fntilely flea* nOtieteritto

eitpleitiedit was includeelin the examination re.pott,

Ikea StMiigy abOtit it, so rthatglituhrtiotLet Enforceme 00 into.iit as- pad of their review. You know,perhaps there - may be 4tAllethi.ag INt WIN 94410 oig. ‘stimony;something buried :in 0.intallsomeplaCe or some other doeument,something thatinight show their intention of having:some sort, of a

• Poi-lie.scheme. ' .-a - •

•'timed the eitaniiniliThattaffatrosSilieiriationsTionid be$Vvillingtce diin and

thinktbout all sides of aitisSue:' mallet there &OW& be a debate oboutthe issues aspattof theexamination:process and concluded thai -thisscenatie that poiut Id nt 41As discussed below, while this- issue was referred to Enforcement, no investigation was ever .Conducted of the possibility it was ik Penzi scheme..

D. The Alliod 'Work:Papers Were Debt:eft from Shared Computer:Olive

03 OP

•

(b)(7)(0)

(b)(7)(C)otitaeteil thetestitriony-imder oath that sameday. -.. • .gone- ' "I:" drive wherereports. r. at 24-25. Accrdi.

ern missing.Allied documents on the "le' dtiye *us smimtotanfinatki Id: at 3i-32. According

exaMination reportiooPles 0 r0,:relevant fr4 at- 26.

had:ma& io oprOfille ide ftorkthe f4P" .

.enEibtuaty 11, 209; and f.tgreed to givecondi:111w= that WI of her Allied files:were

eatarnhintionwork-paperS-and404s C‘lveD4 the ,ritei were missied tame in4om run Dri*man.

(b)(7)(C)- JantlilrY-a 32-34. The Senior'requestedWhile doing thiexamination and

(b)(7)(C)

(b)(7)(C)

w en:another letter0fteMPcid for:VI/aided this-: letter tin .00IE .ouvert the-letter to eleetronii3 fontuto send to the•PRO. .H at 31

'cledia also send the PRO other documents from her"d: that _the last time she had checked- the:

ye.ar She campleted the Allhx1 -hfrAMed uded.gircaidshiets '

udgtitOpmemos,infoRranienfann, .

51

(b)(7)(C)tified she

missing m e .L.:" driveveryaurprised or even concern

et Witt (b)(7)(C)

to telt bim that the Allied file wasr. at 62. AccordIng b)(7)(c) (b)(7)(C) did not seemoOded,

••

(b)(7)(C)

Tleis riadnaleat .ltatih,Rct ta the ptiaat OtbOrtiraey-Aet at 1#74, oitubajof rkitatrCrOugtlaa :41014til$61aSaftlf ttilr41:rit00,, tiou.414010.0101: bittn 000:004:PdWitftc of hgAlligefo O. karat 144sVetitt,

001.6kongsti slipiA4 Nia01410.1I1Witer. t011t VIVO* 004.1111000t Mr1.04e4Plfee-Vat,

•Stia4- 1.Ve.0uabltROA iii)4:101.10iValte;11 OtIR'a internal wehsite (b)(7)(C) ;at os .*647: S, f

*Alter': tier Allied file wasgone front the.“:1:n dri she bald her. Id Ml. Upon beating that. the files 4. • 7veretnits'eSnended, 001r. mrod., vtoCirA •IlOW•inany files?"

• 1 *low wily fdmiTyri .en. ei (b)(7)(c)

e hilAli(r))(7)(C) IAA nreitims./14 at ingested they may also want .go to the • 010 Since

she*. read that the- 010 was reyiewing gmhOra'n hook. Ai 62.

014 YotTMPs - were 110044? Welt:the first thing wg neqd to doletalk to 101T1 to see, Whatthey can do qbout it, Ler$ ibilkto• then4 •see if tb.ey Van get them back and let's talk to Motto ,,geo who hasaccess t it, arid then well figure Ont!What we'le going te do,

'

not th!nls (b)(7)(c) •ea.e.tifim to the news was normal. "if. at 0-66- Two •• to the 010:. Id- a 63. At that time; she had oot.hoard back from

learned that OTT conld onlygo back 30 days to recover•and amazin' g(33 4:at 46-

(b)(7)(C)

(b)(7)(c) I whew.

ccordiniab)(7)(C) L (b)(7)(C)(b)(7)(C)

61-62, additior)(7)(c) -4i (b)(7)(C)

(b)(7)(C)

provicto b)(7)(c) (b)(7) (c)

tOatified, "Dq)e didora ara.r was .

20044nd 29019, M.4016. She:rinthe.ronly ontiWitii tfcceSS ba' it IL a 45

• responsible tor the deleted files ande ,•11.1 IiinistIE ar6869.

somebody gurposely deleted the Arnett MelSaida-mild havelappetied *fine .between

ibmeo e in, OCIgdatetedthe fades:hbealte .she taitaguifeeling.That

directed the files -be deleted or he•

33

r

tead receody that the Allied work mgro brad beenrat. •He admitted it wet -Initial ilAt work paperA to be

.•After *lacing (b)(7)(c) tesiiinotty; -the OM tried te d =eterinine if cimid find whenawl who delWeri those Ities.. The 010 teamed, however, dutt.dierein no way to anyone

the SW ba determine:who deleted files from a sbared -dtive.

52

• .„

••This dqeutatntrissubjecitcrthe provisions of the kriv.acy.Acilit 101,:and bisty requite rerlaititia beforg . •

.distlosipreto thirdatie' No ri4actionta.vbeea.peiforaledIy the Ottlee-otlitipOctor -donerat.°fads report Oeuldimot:disseminatear copy itmithout the Insp6tiorainierarsItiprovaL

riissing. Id; He Understood that OCIE talked:to their IT. Specialist to-detiermine ifthe filecouldbe retrieved, as well as detcrmine how it happened, and whether controls could bepitt in,pinee toprevent it from happening again, .1; , A .1,- , ; ked What the result of ingtihYwhether the files could be lento • (b)(7)(C)

'^•• fiP4,:n don't believe s" Ict at 56further teseified, "I just haveal follow . :-.7 . lap on that particular issue'

teatifiedinyone in OMB on the."40.Act tide *coal have .ddetectiliost *Ma tingethey have ACCeSt, and that be did nothave any idea who deleted the file.' Id at 56-57. When

• asked whether he •deleted theta froni the:41:" (b)(7)(C) t„,spended, don't evengo. on-the. drive:" Id. atS1: "

W. The Enforcement InVeStigaiion 'of Allied Began Alingt -Two Years After EinhornProvided Detailed Evidence of Allied gaud

As noted :above, Etirokomtaopened acrmal investigation Tinto Allied on' 2004based oft ow: ()MP eviiminatinn tork;fied Mtly armata 9; 204. Eimbift 76 it

(b)(7)(C) 3A/11.S the lead attorney On this investigation?

(b) (7)(C) ctitan•orh.nz at the SEC (b)(7)(c) afietberaii (b)(7)(c)

was (b)(7)(c) assigno itte Anied ower. (b)(7 )(C)

-

ain

• During the three-year investigation of Allied by Enforcement, the USAOtor theDistrict of Columbia became invOlved early on and conducted a parallel criminal investigation:Exhibit:84, The LISAti %vas inveattating the sit issues as Etifortemen _ th6 15 to,20 investments Allied held winch Bin :horn had identiriedas,problentalipi: (b)(7)(c) r. at 25 &44; :fthibit In addition, the 010.ibr the SEA conducted : Its.nwainvesngationlato - AlLied

the SBA OIG investiggbd IOC, a 0.14* filmed itiVegtinent '60111pAnylilliedownetrand controlled, loVetennitte 'whether BLX fraudulently originated loans to

. I bOsinesSes. IL The MAO did Hot *king sties-related fraud charges againsPtima .000.related entityor personas reSttit of ttutt investigation,. Separately, the MAO als0 .

.t .

igreat job on theinyegigatian.: 5i9,110Official Tr at P The Senior r isc tea e1:1,

•

1-10 vms thowouglirx pritgai. forthese meetingilwith'Enforcement and investment .ManagenteM; He blow the

116 *Ms diligentitrithatiastic. He WAS eiticuy theIdea of that was appropriate to investigate this ease as• aS C011id:ta

(b)(7)(C)

, and

AccordingAccordingtnihe senior Official. ..

.53

(b)(7)(C)

• _:•0 1• •-it

• " r71:1-Tv -

• 5%• •This document is:subjecttothdproNiskuts- of the Privacy Act of 19iiiandluarreqUire redaction: her*. • •

disclosure-to third Otitis...No reduction hash= pertonueirby Thetitruce oLlispcclor General. Reetient$ 'ofthisreportshooki notdiaeurmete or copy it viithoubithelospectorGeiteraPiapproval.... ' •

thetelelilitinereceirelSOftertain thia,13aitiesihtit=

invettigated whether Alliedglegallywere critical OfAllied.

era:

(b)(7)(C)• Ae,cording t • Entbrcoment received approximately 120 boxes ofrelated. to Allied ii revs ox to ten million e-mails during their investigation?Tr. at 58-59. In addition, Enforcement got six boxes of documentszelated to Allied froM at 16-17.

(b)(7)(c)

ti,a

•■

- .0. ,,.' onvalttation itqUit relidkd to 0:C..brides rd. at 20. Doting. • ,,,,,, .• , • - t- ., 1 three difterentaccountailt.q asSigtied -to work

way, then wiggler acceliOtaut toFa•

r w. nr- it04 until the end of the20 . _ .

.: vety finpressiiie, bufthey lost' him to• ..

told the OIG take had. worked for 65opP.,or Its 'Lybrand fork- a; few years in'the 1980s and had somethe Allied investigatio•ratit with 'brierporiociof , • :FM A

inVeStigatiOn 't

work oo another' itwestig •

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

(b)(7)(C)

testified that (b)(7)(C)

(b)(7)(C)

11 1 I

at 54.(b)(7)(C)

orcement did notavork direcdyhetalked to her at the be

.36 id, at 16. AccOcsatnent of the valued• '

onzt- eso me and dividend issueissue specifically during the investigation_

• n. the imrestigation,Athoughtefeirgandvould get regular;

' =Wilt "pretty much agreedA410 *444 ,(4. at 22. As to thethat Enforcement danot lock•at tbat

•

(b)()(

• .Several days after starting at the SEC (b)(7)(c) °then at the SEC met -with

Einhorn, along with.Fanhotn's counsel and co eague,as well -as Blielonan-on

N. owing SEC staff were at that meeting with inhorn: (b)(7)(C)

14.010-161- Awardingto Eliinonti he found the` EC-staffto"engag'

•polite inquisitive" although tbey had no knowl-

althorn had witli (b)(7)(c) (b)(7)(C) 01111Ore$ book at 134 84.204

:

(b)(7)(c) (b)(7)(C) 7C)

-

36

•

AccordingOfthar gilii he learneddocuments.te

(b)(7) (c)

a

testified le gleanedinsiglittrinto Allied .through his reetvottitpilOids theitafiefeANIVIlt fOribUgr4Allied made snecial arraogeements to. deliver

.atthj Tr_ at 4445.(b)(7)(C)'When the ad ask. . . ut-whether OCIE ekarninerhobaye conducted

examinations of kIMIS I are tbearef la • a rceknpnt *a on them :,,ZI

be,11141

. replie.d. tbrinligis no standard practic.i (b)(7)(C) 1 r. at 52-53. According (b)(7)(C)

••EnfOramiletit would ask for Igiletattiiiiir to assist ig I% •foutiliettihd eitaidlittfiViiWit fit iht0 then scItednie beiOle detertninillgwhOhertaaafilst grifOirzolOut. Al. a 3....

54

This uutueoeut Atilirett10 th:c!ProviSi000.11h0 . 1VII*O'.401304 tiOd Inv •**quire cedactio* birodisclosure to thisil owlet. No rbthiothat has•been poktin:mint by itbio Witco nr4nonctor Contd.. Reciiplegsdftkfts'rePortsbOntil not dinseininobior copy if withoottlte Inspector Cofactors approval..

the P4.0,:ark4 PlItY fillie-t0 fttiMIIIAM 'and lie:Onna%‘POP. cAtaiblel(b)(7)(c) fir,et Altertueoliag with ET' • -0 1$.fproe 1110Iis rot .sapomog - •documentsW4S to BLX. Id. at IA .edthey lad a lot:tf lettets. from:Binhotoabout 'Allied; old' that . helestvelally onemore thatvothettiultattliorivIlattlieinvestigation wouldloolc :/d. at 11

(b)(5)

55

(b)(7)(C)

- This document is:subject to ihe previsions:orate Privim* Actor. 197 114,andrusy require redaction Wore• .diSelosure to third parties. .No redactiois has heat pertormect 4ftheDificeolinspectorOeiteraL Recipients,

Odds report should uoi.disreMlnnte ot Copy; 'it Viithout the Rupee:tot Cenoiral'iMspprOvel,(b)(5)

The Cumin:400es Valuation Guidance

As discussed above, the CommissiQu has not updated guidance b the area of valuationsince 197k sumeugpnai of0.43,1sheli00.thla is 0. 1t4totiouSty My Me

and one that:neods updating by lh6:'Cunitnission,,Exhibitla; Senior Claial Irk at 8344: TheNoon for the need to update the guidance, aecordirig to the Senior Official in InvestmentManagement, is that - a lot bas happened in the Wus* .•slime 1910 and the industry .May notbelievethe SEC is standing behind guidance issued thatnlong ago. ill at:89.

(b)(5)

. or Ca % wever,. eximarrattrirmmrrntiesiu iis . areato some extent, he believed (b)(5)

" Senior atficial. Tr. at 103. ' •

(b)(5)

would nein ziartiy. ssn(b)(5)

37

(b)(5)

Ilitelssaii#. of Whether Allied Weis a Pozri Sd BcmjxsofHow.itFinanced:itt Eivid0114 .Wai NOCInVestigated . *-

As discussed above, despito.haing referred from OM a.s..isaatte r• eL I 4 ' • eErifilreenteiit did tot Iv the Ropzi-14 Schein4 JO •

(b)(7)(C) Wakt.re$OlgoilisSUe:.&Wait iswgivitint •

We pointed outti the Sealer Official that it appeared thit most of the Enforcement •-investigations rehited•to fair value had settled; but he stated he was notsite the numbersettled wag so great relativelo other areas of vvrongdoing. Id. at 104; See also Exhibit 9.

(b)(7)(C)

•

•- . •

p.

56.

I -

•

T.14 -40.041eatis sntalf etto tho:proviiialitattlielrfitaeyikttof 074, tigal DUI require redaction bereri'ilit4foretOthlrd pgrUes. flo. 401•rofs..1* 0* Of1.trofikilky.t1i40A.r.*.e Orli:vector GeneraL Itteeipiotp

oil& rettorkslaiold tot ittittiikt* ot -oVra *004 the ttiopeiroirititeraes-approvaL(b)(7)(c) ' . . -

. - 7....• •

4 1 toi4my Alperviser, . . • ). 111Ve the experience, Pdtoy Catilte tlecountant." Id, (°)(7)(c)tOraeCtilial (b)( )(C) .. e ArstacQuntailtA44301- •

to Iheinvosfigaion, had the expertise to loOkatfi3nfssile. fd: Lie wasn't sure, however,:.- .whether' the other accountants assigned to the itaiestigation were capable -efinaidug adetenniation on that issue. Id-- •

testified he diduortry , _ 11.4. . S.. _ : (b)(7)(C)1 : 4 dorte- Id. -..

ed the lie, learned. • . GSM ..., Ian' duo agre.e viith hei:.cash ... ,ysi.sT • ated tnthe.dividend!ssue. .114.4.50, MIN - . ' ''. • • whether the 'MAOlooked at the: issue. ofAllied's dividends, Zit* 55. B (b)(7)(c) tea. that the dividendissaewas tied to the issue of valuation. because it appeared . fr . .tini. I .eiraales to show thOiriv.4- I 1gilan.00,. kl at 24, Win4101%; the Senierafficial in Investnett Management .-dividend issue interrelated ki die ItalnatiplliSnnai Senior Official Tr- 44-99.,teatifiedhe did 400rnecessatily agree Allied-was a Poral4like scheme:he thoiight - 1 imixt* rigliidt.ROsitions in later years the.BDC business model made it inheretitlyiift.Id...at 51.5i*. .

,iEgle , no recall wheth I 4 j 4 ' CI iSS.PP r rred from .0.Clbhail(b)(7)(C)been pupu t-. .1 r , ercement investigation &at 25. fOrther WOK t

remember the dividend issue beintsomallinglhatwas 1 fr . . but if you're 0-404.g me- whether That [sic] the [Action] memo, obviously it's tot, butt doe:tit:wall exaedy what was

done to look into the dixidend isSue and when that Wag not the fetus anymore Id. 4.25,-26.

The Senior Official testified the be recalled the:primary focus.of the OCIE exaniittaiiriaof Allied wa.5 their valuation, but that there was an bole of-Allied notgenerating enoughrevenue Or companies to maintain their dividend payment- Senior Official Tr at 77. TheSenier Official did not:recall hOwle learned about the diVidend iksue, but said there wereseveral issues associated with it; lit at 78-79 Those:45mA included representations in Allied'sregistration Statignent$ 'when they ral$4I money from 14vgdO0 abotitly4t1hgy intended to use

. - the Ribcoeds or arid if Allied said theywertiaising money' tn investment tolitivtliey . werereallydoingSettellitig elan. leL According to the Se4Or-Offuld., One denderttWai. that theyweredninithoffeiins to pay the .14e441 when theirjoi .maments were 1,4 generating enoughretienueW ithitavin ;the divide4 Id. stn.

. .ik, . Enforcement Agreed.to Settle with Mika. with No teualty or Action Against'

Allied Officers . . . . .• •• - . ,. . . .' la Jute 2007, the Commission entered into a setdement with Allied: The settlement

resulted in.ffilied agreeing to continue to employ: (1) a Chief Valuation.'Offieet("C‘rer) to •oversee itS qUarterly *nation iorbeesr; and Mt:did-party iinlitailon,conSultatitstti aSsiainits

4.:415 P(b)(7)(C)

. 57

3

06010egtissubject Orividsloasiattlie Prbfety Aktijr:15041a.larreqatro02-00.0:tfeore.- illstiospore to Wok patties, lihirtialattlea has been performed by the 011ie* et. taSpeetat genersiL Recipients

of thts tportstould oo6liSseialitate areppy it wireliporthoLosoiforGonotIOtorOvid...

ggaitedY YatuatiRIA PtWgs.s: for privatenance jovestments inn innune.rgoitsistent Aith„Allieckscurrent practices; .E4tibit 84. Alliett msrequherl under. the settlement order to undettalee thisfor two years. /4 iniadditien. AJReL agreed to cease and desist. frilmeonurtitti4 viOlations ofthe sections of theRrehatige.A.itiaf 194 wlaielitequite,publie COMO** to we:unitefinancial controlsand books and records. Id Miming Igo pe-against.Allied nor was any ,action taken against-an officer or ditectOr:

1. • ••

AlfieiPs High-Powered CounSel. Requested and Obtained Meetingwith Enforcement to Argue for Seffietnent .

(6)(7)(C)•

Lk" tteetieg fto:discuss the flied invesvanom fr‘• tit% (b)(7)(C) tatifidd

•r.11■Tr.:r:1 ' il;-1110 4e: :11 I

(b)(7)(C) ail . t (b)(7)(C)

hed draft. of lhe A.ction..Mcmo fge MAT

(Ober 25; 2006, Enforcement met.r. ai 35. This meeting 'was attended b

38 liote:that the Enforeezried Manual does tot :wept-Wells" meetings, onlyWells meetings. EAR& 87. Moreover, the 7.0forceinent Manual states, "A Wells - noticeshould bemwntspgwheaposstble.: Iffu We notice is givenorelly; itsliould be.Proxi1P-4•1WoWeabrmitleAcontrma4on." Id. it appears no **ten notice vies givento Allied.

•asked if there were Wells.*meetings in the Allied investigatio

cginnot diviciothis up anciEgure ifontnnymoto. 1••a ttcaL Thertwexsóttleiuent meetings andthere -were Waist/lettings. 3liere Were MeNing'sabout Pro411elion oviocumputs.atosotmecitiogain the course of the investigation. I On't fatale-

my.head.

40 The "Wells submission" process represents a critical pha:se in Enforcement •invesfigatioris. Pursuant to the:Securities Act.Releaselito. 5310, Procedures Relating tothe Commencementof Enforcement Proceedings and Termination of Staffinvestigatlons •

ALtas likely a. 0 It 1.1

6 (b)(7)(C) . at 64

According . Wilmeriltdo-ExbibitS8

(b)(7)(C)

tit • ;Mt . ;

.39

.58

(b)(7)(C)

-AccOrdbizpeeAing with Allied regoing to be dropped.. (b)(7)(c)

(b)(7)(C)

TiiisAaginnea/ 4subject thp oi*sotth4 i3f497.41:41141:4111ylies141ro red.40011 WorediscJosurtothIaijes, No red.2611Og ial:been.performetbOheOfflee of1nspactOrGeBera,. UmiPte,ats'

bi this repOri shaaidraoi d iii ft or ejtWathOut. 111. Pl1h *pg. 10 bee. era' L's aPProVaL(b)(7)(c) 61.(1())CC the:RI:it, .P.ithibit.g9.1(b)(7)(c)

and aaOtber pattgexfntox:Wilmektfal:O•

cb)(7)(c)ted, heavilyanned. .r -& ate

at43.ter ted thathe ets bitmght .W11 3 m

Oneo " fd. 0243 (b)(7)(C) 6 ik the :lead fOrEnfOreemetitthe lead for Allied in meting- 14 at At that 'meeting,

accord

%hued the frtd: charges $44 ' ee.company, as Arlpst this one perSOn," re rnngto this (b)(7)(C)

•

r. atL .

The 010 obtained a copy of the presentation AiliCtr$ counsel gayer to :EAR/1001e* thatresulted in the settlement Exhibit O. Thiihig that preStektatital., comet for Allied tinkle-6ft:principal around:List (1) Allied had not overvalued its portfelirk; (2) it had accurately diSelosedits -valuation process; and (3) based. SEC precedent, AlliecPs valuationpractice ilidootjt§titYan Enforcement action. Id.

' • .

(b)(7)(c)

:represented Alba .•.777Eaary xtb'

(b)(7)(C)Decided Not toilring Vrand Chgrges

ter Meeting with AllfeRa Counsel

folutd to beeredible; Shortly afterilie.",pire-Wellsrhe Wart told tit possiblefrautteliatonn AlRed were,

•r. at 61-62 72. *ace*, (b)(7)(C) teSeed:.

• (b)(7)(c) (b)(7)(C)About a vveek or so went by-, am md caineto me, and indicatedthey thought thatbased upon Wilmer-% •presentation,. that they Were going to ranibve the fraud charge

($eptember 102), at the ounchpion atm Wereentent invesagonwhere•atAISTdecided to seek authority from the COmrdissioralo bring apublk adininistnitive.proceeding or civil actIon againttlinindividualtitati*,, Filforeanititt staffmay adii$e .prospective defendantanfileproposed ofisrges ,against-Oxem and provide •'them th.enNortunity to Ole a written statement "setting forth their interests and posit-ion"in aceotdaueovith Rule 5(e) . Otte Conuniision's Rats on Infottnaland OtherProCeditres, 17 C.P.R. § 202,5(c). Prospective defendants use these reSpondiugstatements - known by the SEC and the securities bar as Wells submis. sloe'opportunity to set forth theoasons why thettiffshoUld not pursue salt action before TheCommission brings formal charges.

59

(b)(7)(c)

, where he made anmit something saying that

60

• •

• 'Oa 404itieuit 10.14e0 tb5.00sl.iiiees:01 the OrliagY Mt 90047 4. Add puitrOttribtella4thik bikreItistioute te:thlra.oetttet. .tocIA410-efos 0,10.01ernotO lw the ri-Offl. W00110000 ,ReAtikals

• prtMs•rePorestioula net-Oselataki4 ottopy ItAtiltrokt ttielotioetortewolirg ivproOt.

oputcousiderstion, watili4p4ve n.pxyamn ?wIth414 ihoy 4kod.rne.

, .on the other hand, claimed the ogethertnede the ,

ring a fraud chatge against Alli d the MG thatvided input into the decision to drop Id at o*

it was decided that EnforeementwOuld not pursue frsod lehaFgea against MItestified: . •

AftevoonsidedUgail of the faets4the PaSe urel the atguntents.•that counsel toade of the fads. and dinZ1.43141/Z48 including. litigation risks- The company plovidedas iettleatent offer

thattvethonght eneorapassed.what vas a reasonable leak...them:inthis 'theft& andthat was the .endof . • • •Id

•••••!•••

thatWhen• esketi,, "If there "sAllied's counsel. that you an ,Vingto . be brought, does the .souri 'wrong

(b)(n(c) • pre-WOUVeetinp with

that 'fraud; charges were not(b)(7)(C) p1.14 dlin't reinerribee et 56.

I I(b)(7)(C)

• Wilmer a_minflueo6ed

(b)(7)(C)

oUtSt•witicflit

••:

117171TO I :(b)(7)(C)'41

1;.1. :II - I! • rir!!TMI • :

ftlr .1771I.=(b)(7)(C)

(b)(7)(C)

NMP

'd :it was lei; tO tartha(b)(7)(c)

1111((b)(7)(c) w9re iikey awity

:•

tdby411h: n. Id at 64: Diloreaver,, he.added that. he did not know if they were

the four to , five otherlaw firm - m. reviewing•

ate. .. bet* (b)(7)(C) ii*(b)(7)(C)-about anOtherillYeStiga#41 in Whieli (b)(7)(c) ft§

was dated October 31,:200$—the same tima wind in.1.1

•other PatInOrg at Wiltnediale prointediteir argument that Allied should:

abut wrmuld accept a beolcs and reends 6440:lee 90. Ift2that-asging lg,(7) Ogam taut:44)y ohue ploys:4a /.440.1..i. liskoap;

• • •

And it doesn't looklike titres a reetnintiendadion43 '0 thecomPallY Ofigbialfrthe 'company hAii.offe4 to pay a :• ntiatantial penalty. Wonder villitliappened with that- •

• -I actually heard this vas•offer and simultaneonsly wan

peualtywas inappropriate.

• :

•ed tIlatifMiynifàrccmentiva4 - • -

y overvalued,. Enforcement Vvordd have brought a case that they wereu

(b)(7)(C)

Thitaiitattoaqs liojiato otairittialioo. owe rtfropligt oorio.itoy oRitttogiutitoo ;44ixii**41.;.0*.p third pogo* trio: re440401bM 6444.1)01/4005.01;091444**0#0.0000:44, '140000 -

0h1§000:avihaukt not 0.4101111140-Pir 0.011 r101.400.0 44 44 %WOO geOrlirAia.000.14 •

msp on 13-ood ol ()(7)(c)

special ottalove themBriribit91.

. •Whilethere is In) evidenee her that lied agreed to pay

• happened hare at the same tithe - - ers,inciAllied stdanit a.'boe

I y

char diilge vie slinuttaireously stataiwas inappinpriate. See r. at 3940:401,

(b)(7)(c)toil the. 010 44 1144:143,%4 pNblego• NviO) 4u4 decision, but that he 44

*4 iftie Wgs iO1 gangtO(b)(7)(C)

pthoyatleast 4.04410 'send anessage to the.1.• a a •

BD.C . COMIatliliV... a at .62 T mkes,sagoras sent:by duttinilag with specialty'Enforcement's findings as to the esset ond mows. fthote. Wnt-62 & 67:

eged &attire driiing factor in dropping: the fratulelnirgevas

illack of evidence,. litigation risk, a detdrmination ler wbetheithis -me4W thosipiticaut. twig* Avouldwprire to continueint FrisinvestiptiOn investigaWthP valnAtio14 Qnhe oifwrapproximately 10Q Investments Attiedhact =do Ihat..nv had npt

• delved engngingina otexpedsoiter-*.itions-andprocess that had been4piificandy thanged,by-Alliedin. themeantime.Id at 36-37.

laimed.there was no other way to establishmateriality. and. intent for a. fraudcharge:to 00k indre closelygt all of Allitxrs investmeaita, notinst the envieEnfercement fond tnIV-0Vc_xvaluedl, 14 at 37-3101,m stAtplifrx want to 443bii§h"

• niatoliality, &pate. rn, intent, yoncertaiirty would llavelo go tiyouct wheie vire,we,re .ahlp. go."at - •

• 3 ••

e. 41 • : - a .has pitvio.u.* investigated Whether former DivisionlYneeko,greater accessaccessio; and .i1114.16; 94,:efakeelinintinveationtitin*

01 • - ICKA Itepott of fitirgSfiggiQUV .1\10* 6I0-431 7ligiavest:gation of phii!pR Ciati44fitre of Pte.ferendal Treatmentand improperTermination, see also Septenibet 30, 200.9 Rocitt of Investigation:. • Case NO. 01G-5.02,.Allegatio.iis of hupro,per. Ind AsstuanceOlyen.. -

(b)(7)(C)

•

(b)(7)(C)a very similar Ming

offered to havea ndithat e

•

(b)(7)(C)

(b)((b)(7)(C)

4 0 V

•

(b)(7)(C)•.! t •

61

le(b)(7)(C)(b)(7)(C)

materia9y oyerphaf& op: AMON investments- were:weli on31 (b)(7)(C) Ix. at 86 facto

oreeffient n o:thio argunient convirtc'

0

(b)(7)(c)0

. at 41.A 1 e.1 •

• tOrtrioctwo ve- elpod their oase„ihe 01Q thotAllied argned.

estnients to show fraud triahat li

(b)(7)(C)

ITMI WM(b)(7)(C)

Y

T.474.000aoleat fa atihiott0414roitioai otilk0iAtocyctoi7 oct moloofee.roacttoo0-440111**thiril!POR* 1•144040. WO' he* 006004 by ,thd Oirgebt hispiegtor 0004 Ige00$

4 -tlitivrepoiretliO444.,1100 be 4. 0 1 th:0104 ,Ii.1400417 Gellogrs oppona! ,

• 3. TheTerms• of the. gettlemerlidryler(b)(5)

• Ehihotwrote oholk his itiew ofthe SEC settler/lent with akd ho• ; "'Theconsegitelite of Allied'idllegal notion was the Ughtest tap on the w st with the softest feathers.' Einhornbook at II& Ile also bellevediheowag a 4gtiOing d[stennece betw.etu the:findings and the Order. M :Pinhone's counsel told the OTG ahoilthis fiustratIon with the .settlement tesftf*g, aft was like all thisl)appened but no one was rosponsihle *414 4' EinhornTr.. at 109- EinhOrWS counsel said irwas "quite ;naval to me- that those [Orders] werepotentially nOt extracting any real 'penalty at -all inari3i Warrann anybodY2? M at 111.Einhorn'S counsel also complained there was no reference to BLV or to the pretexting. Ici at10-9 According to Oinhoro, ,theiihtl*plry at the SEC at the time was not to do any ha= toshatr:hohiqandthat . the belie was ifyou punish the ontpanryou punish thu'shateholdem4'4 112,

_42. . As noted:above; "Eldora's letters to -the SEC often refereneedvioblems.With 13LX,Allied's largestirivestitient. Eltilterrt also diteussed.13LX at length throughaut his book,

• includingin4icating tat there were convictions against At leasY. 911P;MXof5eial. See,e.g„ Einhontrslook a.0.11-3S9; In the Jonuory2008 Jotter to the SEC.; aihont _notedthat the problerliS with EIX were fmallreornintio light and win% "We havesaid foryears that Allied-run entity bus. engaged in gsygematie fiaultatregW at the AJ"rsihibit •

• .•

•

62

• The Settlmnent Agreement Ilad Deficiencies

1. .(b)(5)

firm the. 0.rmimik.qine At that g

(b)(5)(b)(5) RXhitit$5., fit additiCial (b)M(C)

•. .....

:file'sg3'01" 6.tift-WellS7 1'004 PeogritlgesPutibdia.Alliecrteb frinidvas a •(b)(5)

(b)(5) 35.. ' sarrOus tongidetationalot onli for tht --ooduxinibitioef)(c)

a. he removaanazeplsced,.kJ. at35.was to have a thirdTatty oonsultnnt "

searied.to stricteriVitlinthere. Inyestmerits Arai• •

ecl thatthey didnottswit i eu than, bigger

433. lie addedmi. •

• 63

1

1 z•

This dbcument is subleato theprovisiOnsof the.Privacrtief of .1974 t au& utny require to:1'1141ton beforedisclosure to third indite% Noredetióbas beett.performed.bitheOffice ofInspettOt'Geaerat . Recipients

•

.of:thb report Shouldttot dilsentinate ro.r. copy itvitheuttbe-inspector Retterad'$ -ItoprOval,.

The Senior Official testified tint itivestMent Managernerit-hadlinput ininandcominented On. the getdoient :order &dote it was .finalized. •Senior Mein!, Tr. 31105.According to the Senior Official, '‘;Vewere legs than enthused•wlien the net result Was lessthe

ft 3 .ultimate ord 1II I chale-those yiolations.[of improper valuation]" Id at 107-108 TIe.

Ito(b)(5) the Director of Investment Ivianagement, told the tde: he

thinks thatbtrAttient wanted to b • : • •• • case hut-tboiliear were, not onina ta-ap.tAnnmvi

a I -.14.1 (b)(5)(b)(7)(c)settlement artier Is se.Oroacti rennyo minx a is

sort of useless," (b)(7)(c) lint Tr, at 9. 03)(7)(C) Witt 164tifiixl, "it Was a slap on the miSt," but .added that Enforcement was dealt a bad use of the pressure Allied-can exert giventheir-political connections as well asihe Coimnissionatthat tithe being tcVory hinds.oft" Id a -

-4445. •

also said(b)(7)(c) l• . i bem • ■10 ''' f investment Minagemenes vieWs•tbrouRbAlit'the. _ i. (b)(7)(C)

process. 01,1d-t.V0 i . If were tia disappointed in the result. Id at '109. Investment Managementdidtmt 0 ject to Allied liamiincy a CVO 'and fh nutty vairintion, COnSnitnnt Atinaniinir to 'HUI Si-1Am; nirutial Id At 1 67.1(b)(5)

(b)(5)

As noted aboye,nne ofthe only two elements contained in the settlement order withAllied w,as thar it conEiniied to emi 1wn CV()M nvArq1ifQ niwertpriv vat/mann rimepee

( )(5)Exhibit 92.

Tdoeuateatit,salokettatie provistans OrthoPrivaty Act onliteMoutd may require redaction berme.aiosurgialbirdpartieg. NO reilittikin has beeli PerformCd bY tholafficoldIrsPector Genera,. Redtgetits

aiiikreport shouid natalWeiliaate arcopy-it: without:the IaspeetarVatemiOa sti pp rovalt,

(b)(7)(c) . SVC 71 some

•

i•41111, 1 SAI Ihave.000 (b)(7)(C)

: nvetvof esoiticiltot (b)(7)(C)

• haveany eVideode to provelaws violations.la at 35-

•The:Settiot;01Beial testifiatatte retailed. Eaformiltilt 'found oilopolScil.W.40 More

problematic: than Mlle& related !CO Allied gvaluation brio itiveshitentS. Senior Official That98.- He added, "We ihoaghtthererwas an adequate basis tdraile4t4e6ously totsiderlivcharging thatpersakandtor the company pr anybody else with 410-fraud: violations" la at 98-99 1110$enior Official testified that the natae (b)(7)P Sounded familiar and was likelythat person. Id. at 98:

I : 11 :UMMAI l:arid:411113". illit . ; mea theI I SI git asi.but

74404, (b)(7)(C) sebal. I : re04:that, os, ha. fontitlitlilitEA, but Olabilild.untlgpthoagrecaileat

91id at 34. -', eitaikoil, "So was there a.coilcoil

*Investments but :y4 _going to hevne ofthe main partsPOnded: .

Number Niel LtiOntretal/ that Nionbertivp I don't believo th4tif:: had:had:each-a . . 61. . I 'iIitOh.titfxitinyiSitiVidWxt kit 'we Wong have brotiht'that Cage. :IdOn't wwyonto. botooranehin ineino that yeghave theta. We clearly didn't .charg (filo/a: was a reason for that . .. OCCPSe we didn't

tarnraticdaay• -scoafities

(b)(7)(C)(b)(7)(C)

2.. Failure tC Monitar -Compliante with Settlenient Agreement:

There were no. provisions in the settlement agreement with ArnecLIO r ensming' their• 4,q e ecomplianevIgth its terms iEvidilbit 92. Moreover,. Ergot e e7 tintiolta Allied for

compliance 41dt-the agreement. (b)(7)(C) 71;Ett127.4.120,: (b)(7)(c)

t- at 4041. Sitilibly; •them WeiTO provisions regarding Of settlenten133n. 9!::Z Corcelillentl*DX14: whichLI Wooded:tote a ietc. twee for.Eittirceitted: Stiff the inveetl.gation of potential federal •

. Soo-dilaolâtIoni. • •

i ,-.-• :fied he hle.lyreceivelia Jalulaty 24 2018 lottigsrirani.Eiallora :about ,Allied •o

. p.T. . .. asettlement ortkrwitlitito Conamission- (b)(7)(C) I . at 1.2... That tetra• stated, in 0,4 4—... IrtiliOe That itiged.COntiTle$ to b04 lg.:, , , ..• . cOlnpalWvai 4 irm.iggraca

Os *film 10-001illilir whit tho kit* and spirit ofilie:sactuftslaiNil:" Wait 34. Ei-ilhozaEn, .4.4 . SI I '..4pre slit" nfAlLiedi:nntiOing to overvalue its InVestineatilithiding that of

I3V. g (b)(7)(C);-• AI ed dandier than locik-at someritianith from Allied to see if : . . .

cedgilippregntatt a ..‘ 'were Wag madt bv Aiged. heilid not: de anythiilg further with theallegotkint in theletter IOW' he gave tc (b)(7)(C) TE-. at 122 -& 127; .

•64

•

Thisllocumeit is'subject to thepravistoos tle Priv.14 Iteter1474i204. eiat tettaire rektagifnaischisure 6:611.411. parties No raaetionbaificee. pettottiabil the OtheelgIestleetetVoiietat. ..404113104

ofthts repertshoektaot fosstialhate arvapyit talloatAelpoeetaKrionerat'Oppravol;

testified that hedid not tziw•show* pmpas. ofinoultoriognseftletttontageemenrworked. ict at 127. Who! ed ' 'someone mos.monitoring AlliedtO be -soreitrOtadoing 'what they had agreed . to do (b)(7)(C) ad, "That's.a. it tittOdion." Id e told the • '-OM he did net :knew °fin* speel uo or - Mainalpolley that indicated.what 116PS 16take when there -Was a settlearient. /4. He aUggekted that V.tifeteenteitt could b8V 'outline what steps should be taken in any instance of undertakings tvaluatiOn]. (13)(7'‘Cifarther noted that Enforcement vputdtilIWP asked Allied for reports no a quarterly is inthe agreement la: at 129.

ad weiving.tha: Onion lettermonitoring e - Allied coinplied with the settleanent agree&

is riorprov.iSiort in "the -settlement order] fornicinitaitg." 4.4o.

There is typically not language in settlements that pn:;Vide& the .details that you Eire, 1 think, asking; no- There are independent.consultants or monitors that are put in place in cases Where webelieve that's necessary anditiS theirigh tO112ROLK the comittctand perhaps recommend certainehanges... not Whet was

tput here, whawaslequired here, forthesettlement And ihatiglint eetrimon, • • .

If you're asking if it's common for to have language in oursettlement documents in which the Commission undertakes tomainline a company to determine whether-it:is. doing w,t0t it sadit wag going to do, ids. nontypical for oar sett.leinents: In fact I.don't belivire they ever do. say that the COttunission Wil] hieconducting regular oanninatiOnt to look at that.Id. at 41,

(b)(5)

Recently Alliedatinotin titisbacquhedbyanothet.BDC, Ares .0 OpitidCorporation. and that lvmergerjs currently taking place. Pelittp://www.businesswire:eom (Oetntier24,21)09):. .

(b)(7)(C)

(b)(7)(C)42. AS los

fined, 'Mete ,cd

65

wsillokt thot iovutogi ot site-.PrOkeY Aztor19741 00 44 toolotodatio6 bookdisclosure 44 third. Oirtted4 No:0444ton )120seek orkein44 by glo Otte Ati5i.spoior . dtikirt4 ,goOktais:

°Ma itoort shbutd togiiikAatirriagg ;fir onnvitvaihmeth.: (b)(5)

This. 'document b subject to theproiissIots otthe Meaty: Id trittNaoci ouiy. terioir redo -Alio' beforedhelosere to ,thirct potties:. No reffeelkorhos hoot performed by the Otlieeefinepteter Creeetilt 11.040Stit,S.

• ihf.fhi4 nokeen;rit eg.11.1 tar ir,os. • s •ir+ .w.ti • ;4.4,66,..vri.48

(b)(5)

panclusbut

In sil, ,tbe (AQ'a findings &Ong this investigation raise concerns about bow: ,riguisionawere-made within the SEC with regardto the initialing and glacial► a to exatninat4m andinvestigations. Mac we did:tint find any iiiiiidiattONJACific wrongdoing-on the:patt of. =Etat SEC emptoyeer„ vie found that scrionn uiid crabloallegation ..$Agaiust 0164 Were

•

67

Thisdikumiatis tub:feet th4txtvisiontathePrivaet.A.crili974 kaiid niatkoritiirefethietraitAtaihredikkisisie to third piirtiesi,..bioredstedo,nlas:beOn ii.ertkaiiidhlf.thebifigea(tssigetdr Otilerat Aedpionts

01*$ report Shamid not rikse,taipaie Or copy ifire.idiatit the IiispecthrOttiWaNkOr0.41.

not initially ilivestigateth and:in:stead AilicitWasalite;tostteeessfOy lobby thepWto lOok• intontlegations against its .tival Einhorn without4my sped*: evidence-otwronzloinzi

We also fenttd.thatthete VMS a lack of coriunithication behinien rOCIE and • •• Enforcement with respect to pending examinations and invittigationa- Morenvel1/4,n:fr.iim-er

Enforcement manager (wild:LW slicks104..e4St pedbrmaace problems he Wastaakedta lettte• Enforcement) was able to obtain a iitnificant ameuntof.ens itvc information Ilemay have

disclosecito Allied when he became a reejSteteeb)(7)(c) _brMlièd tt.YOUragar IggirifiXt40 -

SEC Further, we round concerns with .both the 0 CIE examination ofAllied and thovaulting •Enforcement investigation; and belleventheteatcpitsicioft abattv the Went to Vilileh AlliedSEC connections and aggreSSiftittlai6StoaY have inftneneed Enfortente:nes,and OCIE'sdecisions in thesonatte&

We are reeemmeading that then/reams DPOCIPSand Eprortgont-toefauy reviewtins report of investigation and okaboo of the:examination: iwitiztvesiipfitios that are.(Wcribiedin this report and give consideration to promulgating andierereaffing procedureswith regnrd to:

{1.) how exathinntionsond investigations are initiated %tete there are retpleSt.1froinoittiide liaisons oterititiesiiiiit whether speeifle ellegationswrongdoing have been. provided, in detertnining-Wheilier to ambience*.examination or investigation;

• (2) informing ittdiViduSIS arid entities: underinvestigationiliatbey are tiO longersubjects of an investigation in a iiinelyinanner, as reoired by:theEnforcenient .Matals4 .

ensuring that other thintitadiiional Wells meetings.ate nit utilized byaggressive counsel to influence decisions itiEnforcenientactions: .

(4) incorporating pioviSions InfOlibroornentiettletnent agreements *it:ensure.nAinirementa are adequately toOttitortdritirepniplistiOC

(5) gibe ezi.f, OCIE peisonnel - to delete )exattinatiottwor4vera frcraOCIE cotainiterSysteint;

•(6) Mundt! g that 0ClE. Management:is -not and* influenced by thepresence of

former SEC employes in ticarninatiOns and fliut all Issues identified uspotential federal securities laws violations be carefully considered for referral •to Enforcement; and

. „ • '

68

iribOtriit#004thieffiditiOtilvig0iig otib. PrAtiml .44.00014, 44-3filoy tookovolactioct6orite -04eitire to Will Steck No kedhetiewhistkeeit Iserteriaea 0$ the Ogee ethiapektiitiOelietat. Ueeitgeett

Itare.0001-#44--04 AttoSnite 4Yr copy It1.0.00100.44040,0900A0 *00.Atift.

(7) :05gualentingille reasbus slx0164 iSmie.s ,rferted:to raakrAine taro titirgaiglit447

•

In addition, we recommend ttitt the Blies Mee considermediods to ,enSlye thatthereappearance itnpropfiety whet-eft:Amer SEC staffattorneys text6kit Conipany•shottlyafter their wotkattlie, SEC provideilihdaviviih specific aastagiveinfoimatiOn related to •that company:, ThiS report is born prOided :to the Director of Eatftweem.CM AOLPSDirector of the Office ofCompliance Ins motions and Emuntaations,. the Etc Counsel; Andthe Deputy Chief °MOO, Office of the Chairs .44

Submitted: a-014) -•

•COncur: Date: 16

Approved: Date4 am

f9