a

This document is subjeetto theptuvisions'of the Priviney Acta 174,.andinay Tegnire ukdaettoi beiore
diseinsure•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 Aphis Farldiiitiit CiiMigiity
January 8, 2010 . .
 docurotat liSabi* tOcal.014m0190 ilte rxiVIWY Att of I d,.snd atayrOciautei - rotlacitoOW koca
.
6400FsuivAllifra Parikt, MuNdaettoAlsaa Watt paelbriatOil thaiffit iAltaivetior•Gehainta.. gotipleofs
thterePortshilada-aq alaisoallaaito
. or copy It vvithoailhelaspocior Gotourara: approval.

Report or Investigation
Coble 0.1G-496
Table -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

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

. 4411:04 $ucettaiaitfrpd thgBEe toavesiigateEitihom and 'his

-

MagO.FiiittlateeOligbfCipital; Without Evidonoo:orWrongdoin#

Mier Eititostu'iNizgativb Speech About Aided
•

L SPeech 12

AlliedStizpped110 fitt PohlitilEfiutt

. s 13

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

 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 iestigation

-

diseNO. 010496 •

Table of Coatgats., Cola -

B. Einhot4 Began Contacting the SEC with Specific, Detailed

Allegations and Evidence ofWrongdokg by Allied at Same Tithe
Allied Arranged Meetings to Urge SEC to ittvestigarq Einhurtt 16
(b)(7)(C)
A. theiriveatikation Was.Supehns7.
(b)(7)(c)
Who; Cite Year Latet (0)(7)(C)

1_ (b)(7)(C)
ed a Great Deal About Allied Dining Coulae
(b)(7)(C),(b)(8)
vestigation 4)
a. • Showed lib Efigagettititt fit
( 0)( 7)(C).(b)( 8 )
20
(b) (7)( c )
b. Ate a00.1410a
hifermnrandum,viIth
%adire ploh, Hi the (b)(7)(C).(b)(8)
Inveatigatibp„ 22
(b)(7)(C)
essively Queationed Eiñ1orn ia
• eatimeny . 22

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

(C), (b)($)
ratition about Allied During
(b)(7)(C),(b)
( 8)
(b)(7)(C)
• e, Adaion61 InveStigatiVe Keds 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
 iF 4O0i#44141s4tiblgato theprOviiions of the rijvaey.iiit-,41974, and ziayregen feiedoiliani befiltg
.03#144.00 ehir4 Nowedatclion. hier been perfotmed brdieOffieeollnirpeckF Coeval. Retipiesis
Odd* AVvnt imitilisseminot.eareopy it without the bislieeter Oenerarcapprovad.

Report of brirestigation
Case No, 0I6-496
Table otConteuis i Can't

z AlEcdMater ,
1444 ►tIPIPtibll (DOM
=wars of Other,,SgC Attiori.%Reited:
During likveptig&ion.
a. (b)(7)(C)
Fes' *pig 'two_trioy. .

Footnopt woo 1.4vp1Ring 2010 Whew -

No iketionviaicrateo 27
b.. (b)(7)(C)
OCII? iwas Cad4tietite
athAlltageouslEutubiatiezi of Allied
ColuigelltifOtanedilet ,

Also unsw op' Submitted

USe (b)(7)(C) Not
•COD* SISC•plEcid.

3. There is No Evidence (b)(7)(C) Physically Took Nc;n-Publie

SEC Dom/Mats

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

Wrongdoing •
5. RiatirO WAS NoiininVed Ile Was No Lon& Subject of
Invettigitiori, Despite .1tieOesUilg SOiWieb
•
LAit1101,E0 Met Sjopifie04114ttatiniogo

1
H
.44-440.1 4how`ginifroyenriat .

b. . ( b)(7)(C) L-
Fits :Miced A toivb Thiföreenle&
iiiis4lor.umegissiko4 tgo.pktolislosiA foertivooyite.t41§74.'oodziay.togoiro reatootioggtoiore
glisd000tolto tardporites: No.rodootikok towboat performed lity fiie OffitootinspitiOr Otoototi R*4111141*
-

of this' report shear nottlisseminate or tOpylit without 'the Inspector UeneroPcsivprova

Report of Investigation
Case No. 010-496
Table of Contents, Con't

Pane
(b)(7)(C)
AiliestOne Year
34

Ethi Office Cloud .Register as

on Incntup =Oen fawn

(b)(7)(C)
13tacts4 Mies Offleo 4beit
Cnneenabl (b)(7)(c) Patentierecidict efIntgtest - 33
t . *• Inftwnlett ateCtitnionlAvholities, That
(b)( 7)(C )
ed in Preteging OfEinhotes Teleiihotie Itecotet
e Left the . ste, put NO One Elfin- 10=0 Binhorit
This Matter 36 •
1, • Pretexting
2. 0'S Acimiss
Hicm. and SEC Diseiosere qf liretexting 36 -
3. Mietro Lawyetkt Told the. SC that (b)(7)(C) was ,
RestintigibIe PrOttiing .,t 38

Ei*IM togik.Ctign.s0$06entlett to the Nilare

SEC to Takv4ron Against Mica:34i ittiniitte4 Pieteiting
The tpotzpo4 otAtkieta - 41
Degeitneies and (Jima CittulairtmeT4t WA Me Exttninatient.
" 43.
'Thittl603100141*:tit A44t..4), . 4 prov.k.loua otthe RtisrAey Actef1074,%04 wankegtere ted4edea, bbroref
414osaiti.4.110id 044- i1OriAxelioghaa $44.14414140 ito;e01400- 0tiagiltetOe 401pOrAIL . 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 Examination
and SuPervised 43

2. 'There Was No Visit to .Allied's Office Lomita BlocksItton

the WC .45
3. The ExandnationTook MOntlis to Complete 45
(b)(7)(C) (b)(7)(C)
- KnO
Had.Worked at the SEC and it May Have Colored .His View
Of Allted: 46
Findings and Referral to SACCKCeng#: 47

C. Disagreement Al:tout Refttral. to Etiforeetnent addVbether.Allie'd

May Havel:leen A Ponzi Scheme 48

D, The Allied Work Papers Wore Deleted from Shared Computer Drive 5.I

The Bnforeement tavotigation of Allied Began Ahnost Two Years After

Fmhor'n provided Detailed gvidence of Allied .Praud. 53
(b)(5)

.55

The CliPITIOiSSiOn 1 0 OtlidliAp0

C.. 11)0.1[0WO of Whether Allied Was .a Ponzi Schen*, 130Ciiii.Se of

H. it Financed its Divklends, WaS Not. InVegiBate4 • 5'6

D Enforcement Agreed to Settle with Allied. With No Penalty or

4efinn. Against Allied Oflicem-

5
 A us

4034141.00.90.11# thepoxylitootorthitthlio-AdotOgi*-4.lizo oquit#444.044:000ii

kroglOwos044101 ►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
Page

trighTqwe.red .ComPo1 I1g0:seeit writi-Ohtgoeki

Meath% with Rnixopatorkt xtwArgvo Stitietilot
(b)(7)(C) (b)(7)(C)
ono' Derided Not to Mit*
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
-

(b)(5)
V. 65
(b)(5)
A. 66

B. 67

Coliclusion

st
 This' document is aubject to The inovistonstifithe Privacy Act 141.9W, and Mity.'requirrednettoil beibre
- :

digiosere 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 InfOrirtatioo

and 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 atorSEC

Coes former Chief of StarEa4ted tho-CtIG totsvicoaliftatioas, against 'tt ftlatoPivisioo of
- .

Enforcement ("Entbteeinento) =tatty: lit allegationlmfere:Ontlitted in 0 ifidt:Stoit ktotoitot

. -

article abouthedge fund Gneenlighttanital LW rentenlight Capital stiatiago DOM '

e`Eilthamil thttic scion4o lie iclea,sed book, fboling.Somanphe Peopk All oftht
-

Time -A Long-Short Story e'..F.inhorrei hordel The snfinler gtateci th at nnel vr Einit
, -

cOmptaints was that (b)(7)(C) ivhcr

aggressively 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 noted
that Allied Obtained purlomed tclophon4MatAa. The,„ former Chief of Staff
was concerned, inter alio, •yliave engaged in illegal activity and taken
public. SEC investigatory mate p• iling tinhorn's telephone :records. . •

7.

• 012005. the orcPPNiudgCl g- 1mbfP430111.40! inquiry into sitralartille0CPPIAliM

. :

in a letterliontrinho
ra'slrenufisetiltiehardzabe
- 1 r in), to thvoiG.Y. Th
- . 02005 inctuay
` -

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 . 3 On ab
4 OM and Einhoptes
(b)(7)(C)
hedge kind GiCCOgtit COM, wilic maccithottglillis participati , a - a a
E 9 I* I I I Invegigatioli &Alija RIO' :a: F...,36 hurt Aigli ■ - : — -,
(b)(7)(C)
-as for Allied. ZilieLelahned that (b)(7)(C) Iti .. y have Violated a cri
statute mmistion rules, for attorney
 g •

Ttit,s :/kkgueutibOttO tneprovlsios• °Atte Privrift Act ot ION aftd- IRIWTeggi 1 01vida4311 %tore
All.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; rtijeT
re fleXtrirt (b)(7)(C) After reViewiUstlie4afennaiionproldeil 21)Clhy then
Chiefof Shift; the OT -
*0 Woes in that inquit,5 , and. litoadettettits invesigatiOu to
include additional alleg na tinhorn Made in his brat Published in mitk2008, EiriltOreS honk
recounted 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 Allied
and described why Greenlight Capital had a short position in Allied. Einhorn'S speech
compelled =WV also short and sell Allied's stook the next ii..y..Alliodxgsp qadgd, according
4) Einhorn, int a "Waliiiitton, D:C.zstylo spin job," agackillg

Einhorres book included allegations of the SEC's: failure to.take appropriate action
related to .Allied's wrongdoing- Fathom Wrote thathe sentabour a doUtt letters with detailed
information and evidence related to his allegations OrWrOnlitddixtg at Allied to several 68C
Officials, butnover 'received a telephone salt orviaittenledpouse. abort), stated thathe did not
have :any idea Vihether.anyone fat the SEC followed ;up tat the infornianienlepinvided. In fititd
letters, and in his book, Einhorn claimed that Allied overvalued many of its InveStmerits...
Einhorn also stated that hebehevedhg was invd,stigatf4* the $E( at the behest of
opting. the unusual timing of reeeiiitixa subpoena for his testimony and.,dOctuileAts after .*
Enforcement anomeys called him the same day:he. aSitelii Allieda question on nfereng4
• The•= conducted a compreheniive investiptionatheallegatioxis hi Mahout's:book.
The investigation revealed that Allied sitereSsfally,lehhietitheSEC to begin ittgestiitnino .•
• Einhorn and his hedge fund Greenlight Capital viithetit spedific evidence of witingtking, oget-
Eithouils negative speech about Allied:14May , 20fl2 The 010 investigation found that
Ertfoteemenes investigation of Einhorn and ,his,heilvie4uul ong otherbedgefindainctudiag . .
(b)(7)(C) (b)(8)
NV41$ OPMITitiVed shOrtly.after ,
me W' iratiarM=r1TESUfarAr41111 n C),(b)(8) WregilgatiOn ,rhvgis .
. • , (b)(7 )(C)
supervise l Avlinjust o
•1 , ecame a (b)(7), Itor.Aulect. we row that g the (b)(7)(cmb)(8) nve.stigatio
aggressively viettioned Eiolioniintettiniony, subpoenaed several. boXes,of c a, Ill ;I:.
1• sought Einhomh telephone repords-andliSt aids clients, We also found tha (b)(7)(C). :

numerous, successful efforti to learn aboutAllied dmini the course of (b)(7)(C),(b)(8)

-

inv gado.
•
• ' The QM iuirestitgationfmthetrevealed:thtttdutiigjhe: same time Allied was Ore to
onnvinee:the SEG Ityinvestitate Eitihorti,. even without any evidonqe-Otwtougdohig, %Amu 4z

WAS strbinittifigspeCigc and detailed Wets. to the Ste Outlinligeilance of.Allied!*overvalua •

investments and requesting the SEC to investigate Allied. We found that although the SEC'
(Acei3f Compliance Inspections and EgaininationsMah7).badbegun camination Of

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$100
th.atthe . :' ;!esothis hedge Arid viol any l:algal 4.0PAnitie$ :W.% Eloweveri afthoughlhe
investigation againsfanhont was Oa pxoetical.Oattor completed by . 044120034 the inVaticallea
was not forraany closed until December 20o6; ma EinhotnAval &wallowed tut ik&igia.1410
longer a 4ilijeet of investigation„-despitelds request for , . Soh notificatien. . ..
. .
fotind that in 2003,, while SuPeoig lfig tlieltivesagAtiak *gala Dillow QM
others b) 7)(C)
f
asked to leave Enfeiconient.because .., ormance problems. In
(b)(7)(C)
onmediately after ...: , 2 .SS 4. (b)(7)(C) gingd - , . t rgt,Of Venabip .

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 : 4WrOlgro$600-400$ IX POO 4latitO 110 AO
0

. WO , .I Olt A A Alli - -re rf.r7r ilLatters- While working at the SEC. In fad, the eVidence Wgiltoti
-
'

had worked-on the iovestigatiOn.OfEichoritwhieh.Allie. A had, lobbitti•forand ifl

the course of this invehigatlint, learned a Stiliataitiaatttennt ofsene i''' : - i vi - .... ; . kkilliatitql•
: ?

regaoling Einhom and Allied. Ilovrieet,the010 found no evidence ' )(7)(0) ,itilt hhsititiir.;
4 . 1 (13
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, Allied
in/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, althoughInferconeitt found no evidence Jot Wrongdeingagainsttinho94.
based upon Allied's V.PsUPPPited . allegations, Eltholies. 4Iabits against 41110d. woe ivaiiihoot to
-

orFAteveuthy 00E'svwnhxatiou, Hawavex .thelemil bows thaiOCIE's otatnitiofion,

r

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 (b)(7)(C)-• " - • t■ thefAsSociate Meant • -
supervising the.eAtin knew who to:mg* worked at
the 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
had not had saki* OAK fie% earnings to pay dividends since:
1999 without the isstatiee of additional stook: The woollier vias 00;4114 that* mgmvrio
-

Which Allied was financing its tfividends.was akin i0-11"PhOZI-Sesh010." MOttfaiekall, of. the
work papers from thatt exa
examination were laterinetplioabbr deleted front the DOB Aso*
eomputer
in April 2004,. the recind shciws that OM ii&rred Mr& findings from itsexainirtation of
Allied to Enforcement, including the conceit' about how Alliedfinanceditsdividends With
Whiehthe AssociateDirector disagreed. The OM determined that•the issue of how Allied
financed 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., - had
significant problems with the calculation of their vahz and that Allied had materially °merits
. .ted
-

its 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 to
,

oversee its quarterly valuation process and third-party valuatiOneOaSultant$ to OSSIStin its
quarterly valuation PrOteS8Rir tvv.d years. No penalty Was assessed against Allied or any of its
-

officers Or directors. The DIG itivestigationfurther crigeltited that Allied'S ocatosel had requested
qtrid Olitiahtld111V-W011s* 441;frft.**g.iliclroin , 4** *14911, 0401.Cr 040ritifotebaidtt
.

Atlixec444 . 114 VolilOr attorneys Ire ts'--succesgrullylohb414 Enforce:Witt nnt.0 bring

fraud charges. xtelinSt Alliedox (b)(7)(c) Who EnfOrcementfeunclkOwte
.overvalued some ofAllierrs investments i :nat tnatad to home Allied Iteetli allookiatal
-

reoade tharge. We, further bind that under the settletnent with AI110114'6 Wire AO .efforts
-

Made by ihaedmirtiissipo, or gym provisions in the W.ttignIglit order, to monitor compliance

Alti.4 with that agreement.
' • :

Fin.ally, we found that after the OIG initiqed itt ir*estipOtibit Arsil was
published about his experiences with Allied and the SE4 (b)(8)
 7
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 decisions

were 'Made within the SEC with regard to the initiating and concludins Of the examinatimind
Investigations. 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 wCtenOt
investigated4 and instead Allied was. able to successfully lobbythe SEC to look into allegations
agriinv its rival Mahout without any specift evitteni-e of wrongdoing,.
i •••
)7ifi.also: found Aft there-wag a lack oftommtafication betWeenOCIE end EnforceMent .
. examinations and investigations..
with respect to-pending 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
(rx7)(c) have disclosed to Allied
when he hecame are 4 Allied a year aftetleaving the SEC. Further, •mte - fotmd
-

concerns with both the OC examination of Allied and the resulting Enforeernentinvestigadon,
and bOlkvotherO Ore questions about the extent to whithAllledN'SEC COMeraibitt Vitt
-

aggressive tattles ittair have hdlnenceliBufbreement's and 0C1136'0. decisions-inmost Matters.

We are recommending that the Ditectonti of Oefaaritanfortertienteareftdly review this
report of inVeatigation andthe ilikterrofthe,aaininaten and inftstigetionntbat aredesethed in
this 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 of
.

wroNdoing. have been provided, in determining whether to commence an

exanduation.or investigation;

: (2) informing individuals and entities under investigation thatthey are no

longer Wise% if au :41westimtimi tI14 lithely Manner, as required by the •
- F#FaceMOntliAantlak - • • - •
4 , .•
(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 that

enSure requireinents.ate adequately monitored for compliance;

(5). . limiting the ability of 0M-Personae) delete examination work paFr5

front GIC1B rAtionter systems;
•

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

(6 )
ensuring dint OCM uiaiiapeinenr iS•nOt iuidiily filillileticed1011 .6pregentd•
arclonerr SEC employees in examinations andtliatalt issueSidentirredas
potential: *.derni Seenritiw law viohttions be cnretidlY considered tor
Wei* Enrimonwat; ,and
trocurnentingthiet*.asotw speoilic ism.= tetetterl to Enforcement troni
.

OCIE ute nOt initepstlgeted,

•
also*onnnend'that the Ethic i s Mee consider n iethodsW ei:mire that here is no
appearance of impropriety where former $BC staffattorneys representa company shortly after
their work at the $BC provided the= With•SPeci.00 and sensitive intorrnation-related to that
CQU'IPWAY.

Scope of InVestiptirdi
•
Theata obtoked nitd; reviewed:voluminous dbetunentN frektigi to 04 tad* including
stnfeelnalig, work ttaneEs from. s CIE.exarniriationof Allied , off afortentent documents
:

telatet he (b)(7)P 0)(8)

. Alliedinvestigationd..
TheaCrtoOksvitini; owthe-nteord testimony off_
(b)(7)(C)
(4 .$0.fr ACCOUlltant Oifte. OrC9111pliattCp biwctiptis .4.nd
"

kAatuitnat ions (February 11„, 2009);

.

(2) Einhorn,fannder and coi-President ofCirceolight:Capital (Match 9 , 2009);

.

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

(b)(7)(c)
t5)
. Salta Connsel„ Division offziforcetnent Only 30, i009):
. .
1 (b)(7)(C)
Assisinni Dimon:RA-Division of Bnforceroent (Augusi
- 2009);
(b)(7)(c)
A.staiiate Counsbi, DivisiOn)tinfOreetrierit Ougust

Diiectr ' Mee

, othilionvhipeOti9tIS 4114
AUgtla Z009);

6.
 *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 Official,.

Division of ►Vestment
I Management (gFiltentber 1)1)
Mon
•

,
20119),.2 •
The OIG also conclutted On-the-moor(' intervietVs - ofi
(b)(7)(C)
-(1.) PhiladelphiaReglatial Office Braaeli Chief (rialy 24, 2009); end ,
enior.
Advisor to Director, Division of Inveshnent Management
e •

IG conducted several telephone interviews of former piforcement attorney

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

Ilelevant tOmmissian and 4Coveimment Regulations and Rules,

The Oununissioch Regulattgn CencenAug Conduct Of Meruhet$ and: 103 1e.A and
Vormer Members and Employees of the Commission (hereinafter 'Conduct Regulation"), nt 17
CT.R. 200.735-1 et req., sets forth.the standards ofethical Conduct required: of Commission
members (Lc.,.CoultuisSionem) and current: and former _employees (hereinaiterreferred to
collectively as employees). The Conduct Regulation states in part:
The Securities and Exchange Commission has been entnisted by
Congress with the proteotion of the while intepAst M a hir,hly
significant area of our national cottony. In view of the effect
which Cornm!sgonnetion fieqUentlyhasion The pUblic, his
•
. -

IiiiigeniOr OfdinIrequeated conradentiility; therefore, this person is Iefeleneed

throughtint this report as ".goniurOffieial„"
3
'The OIG had gregnenielnifl:anciteklitkaike communication wi (b)(7)(c) II- 01n curly •
FOrgag through the indotAptil '200. Exhibiti 4-2 & 1 (b)(7)(C)
:
6ttai ly toatapte4.
the MP :after teongttizing allationsAgAittt hiniseltiti. the s .-ix; ( sdir 260i Semi- .
Annual bit. I. DesPitenitinertais promiseslo provide rt 4S.vd ' ., t= ° w' °
ilthe 61 c (b)(7)(C) ITT pmvid04.4y.w.ftn alsponv, See Exhibit
refosedta ii. Siniony "Were TheIRG. 14.

7
 ON4011000 itsolijOttn:fitt PrOisbnis 01.00.ftroq Mit 9.1 tis14.**toay.iviin14.0041* befor4
inosesotroOkb.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 Whieh
tItglVirgeip4r4 pwonally 4114.010440:04 wIAle au, ,1440)feerOr 4.:pc/odbleitheriNle
Ityo years. 17 C..F.R..4. 20..7354 <italics 2E1446 A sin* inlresitioation is ;presumed In
iOlonttingtiCitiginlaft for at loaa-two•yo,*imgmotive pfohanpi &Oho isoom,141.,.
mita is defined as edisorete and isnlatabloiraosartion• or ittortrusaotionsbetworn
ladentifiableparties.". Ri.116.8 flutter states that novtaiver
. ilegranted if-the prV000d
texoientationWetild 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 ernplbyeris
mind the principles itithe Canona." Id.
-
•

The CatiOnProVidesMn administering the laW,inetithers .01 this Contnissinn ShOnkl

vigorously enforce- compliance with the law by all persons affected :thereby. 17 C.P.11. § 26055.
The Canon also . -that".member should nothe sWayedby partisa•deroands,
04 1

clamor or considointions 'fflorsonallaopularity or notoriety; so also he should be allow Oar

onAtst. 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 Recipients
et 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?9 00*41teacliwtetett ia -WaShinatult4

Onenftheiatgesrauti in oat ublicl velnpMettE
caraphiet. Titiasefigt of Testimony :Of (b)(7)(C) t 2009, attaftd
heritc. as Eilthibit 4, at 15;. Transcript of Testimony ofPhidentifiectStitior Official in Investment
Management ("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& created
to help grow small companies in the stages of their developinent 'Exhibit BDCs were
created ina19$6 amendment to the luvetment dompany Act or Too (q 940 Acr.).. id TO
qualify 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 that
Wes allow smaller non-aeoredited Investors to invest in ,stgiop companies: :S ree
)

httpg/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.
Tr. at 11. (b)(7)(C) V 60 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 In
illigiud instruments that don't trade." ki at lZ Therefore, according (b)(7)(C) ValtlattrailiS
often an issue because ofihe nature of dieir investments: Id; at 11..

Allied's securities are registeredpUrstutOt tO &Won: I2C0 of the Secutitimachanga

Act of 104 ("Exchange, A0'). ,Parbib)l 7 AeelaWnly$ MANIA *mired to malcit:pcdotlie
fwittleMe. 4coriOnS Alfieri 131)6 CratetWOCHIBPS$101:109140P
tkfinw4Opital 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 Conservative

. -

capital structure, lintiting.thoam?ant u.fmeney it1413Q 'may -

b.ottow; *vide tamsparenOuwestors thrOugh.Periurfic poblie
reportitg; and lintit trapsattiong itviOi affiliates. M1'% are also
 Th itiOptraisi0.5444
digc10146g 0400 icts.118:40 WM04 listheiViittoilopeekir ckors: itgesp..
nott1404144040.1ePOPY10#210totit triz ittwectu:Veo.:14.t%
raviirett companies kky.effcting Managerial
ad 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..gerterot
e
aggnate.muttig:Fgvq;01.0414 0KOXiMaloay$10 tenon 4150.-PimloY-more 004000 paolikel
According to glahOrA'in 2064:Altied dociatit its§leas bay* a larii/atOrlaincAPINC41.00
finelod.ing] :investments in over WO companies 'with ngrapte tavatuos b ite Megd$ (Olt
billion, -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 :a

- the. 1 940 Act. .ftibit 6., lillVo .ar0 designed t.0 4ccOlnaltAaro plink .40/013.404 4vg.s.tilVIAsa ,
E They have *el" omakiniiti framework and tiOir oNVIRMiquolAsge,sq Solor OSzIal
Tx. a- t 1 16.... Aveording
- ' y -view ptBDeoleaveryenq ,ofdientis an taireetnent.
cAse waiting to llepppi" ., 064. Yet, OPTidOes net auttently have . §ygtartirce
attributing 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 .be high risk (b)(7)(C)
,

w o 0)(n(c)
3 i ,. . ,- ,- , lis.athi • t g at
, .- Tidy 24, 2065, auk (b)(7)(C)
11.... at 17;:nre also SeigClr OffiPiat Tt-at 101 i ACc9g141g am:1011TO. areg
. eo4lidercd hi 1 .a °s
u a a -, :there Ia . 9.134 1451 tkowww Ow a a ' 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 five
Yzar$ wilhou . - trig 6411iiiited., 5 4 la TO: . •

. .
See am OTO "Review otthe Copunission's Proces,ses for $lenting Joanne*,
Advisors and Investment Companies for Examination." (November 19, 2000, ivailaiile 4
http://wwit see-oig.goviReixestAnditsItispectiend2009/470.pdV • •
(b)(7)(0) ed ire &Os hOtfurd okiervation tzrolttR It .heCAUSO -BlIgs are
or the.maiketplac.e and onlyalibett, small number uttharehölders.
of 17. A Senior MOW lobe Divbiowlrhivoli.nailt:1400gement
_Mensvameoelstatedilitt lavastmeat kangnient 7.
=Mt oftiumno: Wogs relatedto MIC4, giventheir nuniberand tiies compared
otherinvestinertroompaniet. Senior Qffieial Tr.. at 17.

10
 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 .wiluevottfolio
securities end all. other toots by talk vaitio a determined iii guoilloitit by the bead
direct:a-sof the .funds,ptutuaidio-there9nitements ofthe 1940 Act ad SEG guidauceissuod
thereunder, as well as generally accepied..aceouldingtirincipleseilAAP) and the Financial
Aceounting Stand:atilt Heald tedinfithients. . • •

According to a Senior Offidal *the Division of-investment Mangementthete

4144e ,orPle-basedmirthP4010wit1141 ruttl.5'ee 1,400 4a we 04' dCiernil*** v41 ' Scai
OfficialTr et 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 Th000101ts
wereisStiedin 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 thew
upon their current sale?' Exhibit la It:Conlin ' nes, 'Mild depekids on their inherent worth
adjusted for any.clintinution. in value resulting from the restrictive teatime!JiL AR 113
cautions 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 Official
in investment.Management Vifittdia leucite ihelnyestraent.Cokupanytttittitwoihieh stilted that
APRs 113 and 1 18 oottimr41 to weliggt ilieviows, dike Commission iiintecl .th Ihir value
'Exhibit 11. • • -

1 This current-sate Valuation test be man is between Ailied and:Einhorn„

issued a white paper, -vtiiiiehEitilioin was highly Critical 0C :entitlek"Vaitratfon f111iqUrd
Secutitiollék ticy Business Development Companies" Exhibit 11 Alliettleok the pciSitiOrail
that paper thatthe applketm QM* k'altte by a )10C:for:its illiquid portfolio is Di/en dit6ulttn
align with the §pwific:rovillotgept#44,014 113 and la Allied staled, "The :concepte
cement sale' fur purposeS of40.1.eminingtdr value in ASK US it diftlOnit ittiot .inipasible,‘ •
apply in the ease of a 000,t fpgroke.m., Azoigmowdeoti4fgene ral, the 13134.pipan
BiteineuMu#aistiatintd 'Policy is lemore:applicableto the -goittilia oraBptiamikei.. 07-

voluetionguiilAnre set fbrt.yby the-SEC itrthe

b)(7)(0) • 2 • . •
Both the Scale; Official tanyeshnent.Managentent and agreeihatotditional
A

••
upthdetl guidance is needed, Senior Metal Tr: fit-89 & 7)(c) Tr.v14: Investment •

1:1


k- •

' IlitakOcorbentlt*IbJectIO.the Proviciriasothe Privacy Iket•419'M l ccot iaiwrIatuirefodectfOrtbeicto

illsclosa# tothlt4I1parlies.: Notrelliceigotbastioon pActoktoed hygle, 010001.1000etorGeftegIL .ROVIccit:
• sitelOot.4s*MitatO Of . cOpy it ivAintt•Oo*Peetotalitieritr.f4410
01 1410e0Ortaa ."

"10,4*-04101tthas.PcoPared many.tiraftS aval4ation htterpreii:VereleaM for the Oonataissiotea

• At,:.,.-years;:hut the Commission: has deferred;cohsidatatioa; Senior Official
tonsideratio - ---L■1 §

T4.ati8&91 (b)(7)(c) . at Ithiestineet:Maaageto§ntissuedh: seleat hibIlograOhy on ..

i ktitiaiiiiii '0 :..... 1 1 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. •4

b( )(7)(C).(b)(8)
Ti: The 2064 inVestigation,
s. •
Allied S Urged 1.40$16P to Woe_ atigata-laliont and his lustlt
Fune•Greenlight eking, Withraort Widow tit Wraftdoing After VitlibiOneS
Igegailve, Speech About:Allied
L Einhorn's Speech
• -
.011May 15; 21)02, *horn gave aSpeeeh attire ha W. Solto. Research ConferenCe for
charity wirerche and Other portfolia-mnirgers were asked to share their most compelling
inIfealineUX lliztohgles ifti the oomph* videotaped
.speech). .1:turhtohla-speeelt; Einhorn desedbed livhllte believed Allied Stock would decline and
Greenlight Caiiital held a short portion ha Id, $peelfitalfz- Elam expressed Ns 'view that
Allied bxfonhinber of Impaired ittirestaitalS4hatititeld at itglatattalue§. ,whia resulted
overstated results . 13inhorti concentrated on its Valuation methodologies for
portfeliOinvesunents. 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 at
161 , Exhibit 14 at97 98 According to Eloltoro, the day after the speck the WW1 York Stock
-

Exchange closed Allied shares for trading because there were so many sell orders it could not
open 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 protect
.

investors by roieviog riihrioneswell:documehted ease against

Allied, 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 .

•

12
 • This:doerottent subjeetto the:provhihms Oftire Privacy Arta 1974,, end Kay reqularredadiendiefere
disclosure 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-titigs

tha.t relied oVer.S1 bilifork.frorn ilew .

btrp-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 Blond
As *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, A11104
tuteessfagysouglit a meeting vvith.sgaalitiaisio urge att Etifuregaeut itivestigatieu
Emhorn. F.ufOrteiticia ahriostitunediately begun luvesilvting:Elactatelateato speech '.
abort While the agency did begin lengthy eicamin atiOnot Alliedas a. resaittif
Einhom'i allegations, it took Enforcement-another two yeatS before beiginoing its initeStigaticia
of Allied_ •

2. Allied Stepped Up its Political Efforts

1 Einhorn alleges-in Ins heck that politically connected, luiluthig.out thatAllied

headquartered on Peramittunia. Avenue in W DC .- addition Emliorti stated
Alliedhad connections to the SEC (b)(7)(C)
g I worked for the SEC,:
(7) (C) a.rotintt SEd.Cotaninissitaitti ate sewasaseiioradvsor to. Allied. E • rn
bodk 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 Just

four nionths after Aired minced s an investigation ofit, .Einbora"shookat2P;
That same won RIM egistered.as Allied. Exhibit.15. AS E' •S rat '

lit his hue111.

11 had not bear RailiOnt'S book at 25 At that po'
gas a. patine; for the law i I enable; accordltm to Vetlafle4 website at
lice 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 r to '
Ode Allied tiutuagegiout during the time *it:EU:thorn's speecJm Einhoras booktitt-$4..i
(b)(7)(C)
.senioradvisor to the.Director t4f1tWeihnent Managmatt
• rhw : f :
(b)(7)(C)
: • to* a vim pet** on 13p.CS.
It;, ..61.0

Transcript of Interview o 1:1113r 2O09,attehed hereto: as

Wait it at (b)(7)(c) rcparinga draft paper about Alite.d. Exhibit
:AA% 1

coAting (b)(7)(c) 31111 . •

the two itioittronlittehrBM an41DCsoe
to (b)(7)(C)•
r. at 7 (b)(7)(C) be quickly learned thatIlAgsluive'alot •
crcoutacts on the ti) our, tacauhlgwi Chairman CCommissioners, auainz

• 13
 • 4.
• .,
Tfili:doeumeiti.isubfeettO Iliwprovisionvorthe.Privory ittort974, oashmkgrequireiredacaOli idea
disclosure 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)
w(b)(7)(C)
n•••41 i 0•4 0 4 . 1 Lee's (b)(7)(C)
:
witslibeitlas
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 on

Capitol T4ill who are willing to -encciumgethe SEC to emend and liberalize the-rules
pertaining 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 ten
;

meetings between BDCs and the SEC Chairman Commissioners. Ai ut-29; see ao • -

Exhibit N. • -
(b)( 7 )(C)
currently (b)(7)(C) (b) (7 )(C )
(b)(7)(C)
,Allied. sYee .0573=V 0.11 g it 1_,W 0 la A -

=Os
(b)(7)(C)
Seel •With•Allied.• I ( (7) hew. (b)(7)(C) AliiedAnce
03 )( 7)(C)
• 4. )

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

Accordingto Several Dui Allied Wien referterltiOt work e -doze.

*Di s,s nes toialSat, . :12 3 84 itaiksetip.t.a Testinkinyii
e");Iily..j0, 2009, toftehal-heret4 m•aciiibits.I% at
lead investi ' rus I_ 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:
 -•

• 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 itxtbe
wrong and Eaforeemerit Should hop to it.
at 51.

The tem*: of:the:Meeting, the Sentat ActsOW:elated tv* • visathatthe

• •

-Wrong,dOeIP: 'tinhorn DiAlligit 14 at 49, The S90190 1004 tetift.9d that beViolohepoOtioa
that Allied shouldirnrAstlgatixt. tok at:52. :Ent instead, Ett.f9t9ergelltstativAlingStWing
HiliI19131.0.04 at 49. •
(b)( 7 )(C) • cOnftitriedthat Allied identMe4.1ditillon2 as xtpOSgibl eet
l'ojten.
with 6Rent Ilittifforotoolaut A#sbeiafe Wiest°
St .+ 1611 E4tibit;
20. Actioirlln (b)(7)(C) o. ,1 Ion Entorternexit
• * " . s-of it
I

sho (b)(7)(C) companies such 0:4m(c);(b)(8) Ottealight: Id

tiy the no along,
, I

tha I,: I - o in- • use attorneys; OW

(b)(7)(C)
anci, itt0r,r4.090%P9rs011pel,8 Id It waq41
(b)(7)(c) d. (b)(7)(C) simementixime igetwle7Oseea CtIpital es ft. je9t Vtatt
=aft -,ttio 04. 4 t .401C*1 ObP4t Ailivrowrogr$0108 falM,
-

.011. I .

yeah ore ea theyitalieeted vstliers. were alleging Allied tosol'ong

sabetn..
(b)(7)(C)
the lea:d attorney on thaj(b)(7)(C).(b)(8)
iliSreata401, titified tilt she believed the Mier—began:as a.tetarral ItOm
(b)(7)(C),(b)(8)
New York Stock Exchange in tier:ember 20:4 and that Enrorcement s Ntaiket Sniveillance
greizo received a cmmnlaint ut abPitation-5 Farmer Maes-trading• Trattsetipt of Teatirnoey.
9 Arly 21, 2009 i:a1izachea hereto Ae want, 424. -
=01'4 to (b)(7)(C) (b)(5)
11i0 toUrekertheiavestigatiOtt ivas
"issuer compiaa'Srtc'Exhibits 22 M. (b)(5)

8 (b)(7)(C)
tai n0 t6 :111P Olatliat the Chaim= of Felpnethlao (Fat L 111 •

iIl , was reptesental by Yltli

b)(7)(C)
• I n • 1 BI;C:rto D11

(b)(7)(C) mum
statoconiplaintto
;0.

(b)(7)(C) (b)(7)(C) narniif r arias

(b)(5)
ano 1 1,11 El,
, .
8=1
A (b)(7)(C)
(b)(5)
(b)(5) ther
(b)(7)(C)
ttodovtobeiagmapipelated, the4totaAatilai(b)( 5)
liagle.
(b)(5)

15
 th*document 10eloct teitte•OCAVon* eare rlivaty ita:t.of074iantatay - , lre redsetionlefara
disclosiF4 :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 coMatiedthe

Official 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 how
valuation is to be done under the InvestoiOnt Company Act of 1940
.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, and
I . ' 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 talk
about 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 hy
T- ithieStmeakbropimle ' s. There aren't toe many people out therein
T the -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)

. *.
5
16
 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 nobody
ever 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. at
4047-

• ,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: tckeettaixi
• discioiliesauul lecoutitit4#eutthetits by Ailed. Capital Corporation CALM &awe believe
are work of itivestiOi0oe Exhillif24. Ile Added, 510 summarize the rnaba point, we belie-lie
that 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 ib4liorA
white 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 Senior
Official. 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. about
Allied .. 0./4 342002 and tuiSeptetubo 1 2002. Exhibits 26 & 27, lathe July 2002 letter to
The Seolor Official, glohcIaacidressga. the recorded conversation be hail with the Sealer Official,„
s.. since Allied expressed coneernaboutthis cOnversatieu. .Exiiibit 26, Inaddition,'Einliorn
adages.* 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, if
I not impOssible to apply in the,case ora EDO* portfolio„" .14, Again, Eiohornatt4bedseveral
044F4 ._ including tePottlItVar-FAYOXOCulight Ospitalealledi. "An Analysis of Allied .
_9Pt41
lii1
i -CApitat:;9u0stiotAa of l/awl:Rut reelinique- 14 'FlitttatiWit apparently had been posted on
Critettlight Capital's Websiteallertlie Speech..
.

- , -- , • . ..
• •
- • Seatmber 2002 lettertO the ISea*Offieideoresge,4 covenisalsciWaram.itOthet - ' •
Milt% itteetittatifetel4ceoglistfiith Allied taid,dhange$ ittkAIlfgro tlisdiasum tottlag&telgoalti . .
•11:470416digwitiAvaAmits
k -
imil,4,11iixte -10$4 worvalv6,thme ofits.514.1win13.4ski*L404.

10
• iVo note :that Ehihota.ttated iirdiest lettems, 4131 rtil1 (*closure Oreenlightbas a short
position InALD tAlUedj common stocle 84e col Exhibit 24:

• 17


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-(b)(7)(C) A 9 14 October 200 through January 2008. Sea '
■•• 9

Exhibits 2$ - Siallont4eatt kttgrs in October 16, 200 and December 12, 2003-.
bits 28& 29. These letters were supp e mentalrenarts. W11 (,)(7)(c) Is Acout MOOCVS alleged
wrottgcloiits,
" Ampting Nyith (b)(7)(c) 003., $'eg
Exhibit 28, IOUs ;sbiatiettertibout ob-golog fraud 4./1=4 i to t (5)(7)(P) :Apra
26, 20044 "QUO toittiottes• to raiseh.Undteds•ofmilliOna of dollars -anew investor capital
through registratien statements declared effective. by The SEC , - -BetauSeAllied'a'disalcoires.
are perititati4d.Mith:inflated valuations and pettbxmance smoothutig, javai.tottiViliöielyort them
are duped into overpaying Allied for its Stock?' Exhibit 30 Eirihorn added, "We, again, request
that the SEC put a stop to Allierrafraudulent practices through foreefid and timely regulatory
action? Id
(b)(7)(C)
*re foltowed WEL May 71 24041eiterk
referenced belOv4 about B •(b - )(7)(C) " Ihtee-Kra$0 4401 • "S§Ptentfe 201 :

thle , ; and January28, ZOK ereetnenrA lead iittiintey .

lavestigethigAmed. Exhibits Si; IX & i e eptember 2004:Ietter:Einhoin raised the
issue 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 been
indicted 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)
C. The Invéstigation WsSuperyistd. by
e, rt,„„..vear
(5)(7)(C)tv-fi,.„
i..49 tor (b)(7)(C)
•
."`"

.: ,. SbottlY allek Allieduertiollt ofrieliti$ atikte SEC io AxittAto ibliet4galiottorEitikOni lit

1 ' Aloe 2i)02 the nivitio .of:: reethent
, began _ an inVeStigatiPuInW
.,. ..— ,.,t- A., -,_ (b)(7)(C) ,(b)(8)
waFiNtzl
1 . (b)(7)(C),(b)(8). „,
Capita.
OrlYX hop Una Greene& '
(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 doitunOtis 5114Jfmtto thilfikitiOiciii$Of the lsdvitcy Act tfl.114,und [requite redi-e(iintzbookt
0;0040'4 third rothidioolhat beep pArterite4 by ti* Who oftganfttOorke1041; g1/140
othii repart•sboblit eat intsoatilate ht copy it WitilieidAlie /0,lieetOt 0.00414 4Sq4.0.00/21,
(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) (b)(7)(C) (b)(7)(C)
(b)( 7 )(c) 3(b)(7)(C)
AC ite.410.11d6riggIS tat fiatatigat10102
w0443):04.
4,
(b)( 7 )P Ado :that ha, (b)(7)(c) lal(b)(7)(C) _
vvV.Eq Pcie-gEraW7A Not
(b)(7)(c).(b)(8)
investigation. Exbott;Za..
(b)(7)(C).(b)(8)
teti as supervisor on t y,estigatign. During that tittle,
personal difficulties, natl. Enfo r I • WaSPOt $atisfle4 vvith1.110job
as discussed further below (b)(7)(c) asked by the Associate Director
leave Etifordernent. TinnadAtt nftaititanny 03X7 M
ups , 2009, attathed hereto as Fithibi09:at
(b)(7)(C) (b)( 7 )(C)
'working atthe Coniniimilon as a • : s 1 eY 144Enforce 1 el

-vvas.przFrovit rtrzaw il rhipf; Esfaacement (b)(7)(c) (b)(7)(c)

r
(b)(7)(C) b)(7)(C)
9.9 I

Vit d under then , • rst S

9...1U 101 9 /nest orrd—
(b)(7)(c) (b) (7)(C) A
tin repotted.to i'A(7)
until his tenure in Entbrcetnent ended (13)(7%.,
-
TransciiPt OfTegiroony ofl (b)(7)(C)
(b)(7)(C)
August 11, 2009, attached hereto as Dal* at $.
(b)(7)( C)
teiliand lb give tegtimanytO the 010..
time kw prepare it "Written narrative" response to theAlegetiOnsagninst :
And despiteicpeated : prornises proViaethe witll*""unlifMnarr4tiV
'

vrovicind =sponse, mthibit puting the ores several ntraniptitn

testinmony or a written response to ihentletatiOns (b) (7)(C)
Olantarlik
infOml.atiog retateCI ti? Par itorrodigagolaging,
r.;

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

•19
 . This document issubjectto. the provisions of the:Prhincy Act of 74 aid may ectinire rednetinn beibie .7
: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
1. ed a Great Deg A Ant Allied Dewing Con. 00
.. of
voidgatiton . ,
(b)(7)(C)
claimed
tr.........__2 .,...,_ ________,. to have
_.,_____ "%Ore ittV:Ohreai,etit in tint' grArri• inn;tri oiof
that . ii I ... . oto(b)(7)(c),(b)(8) -

1 If I ° I ■ t 4 I ..: ''

rned 4 great , 4eaL41101114411., t (b)(7)(c) .i, e .. .ilea . . ..

utv Cvc* wqw-a4lu W4f4W
•learned - t o nieellog wttlyAlhed
' - -

Melting out to SEC officials . - . . aithei$FX,:as discussed below. I

illJ •

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

\ •
(8)(7)(C),(b)
a. .
(b)(7)(C),(b)
Wal
' lis. Showed his]Engagement
Engagement
• (8 )
(b)(7)(C),(b)(8)
matsahow heVaaadtiVely tagagediit the
. - 1 .!4 er ci) g /, I: : i (7) cli (c ):-., , II ony,:fpno (b)(7)(C)
"71/40 OPOUt.)4 00.903 ,,,, i (b)(7)(c) 1 1 ,1

Referrin femme 13:014 ;-,. 1 II lat NM iCe •

when the . . .. ,.$ . . ; YlOg.p:
Nesligad.(b)(7)(C) 1 I 1 . OP
I
jak**atien
•count turn ar d for hini r. at 4 (b)(7)(C) tatted 010040=M Omit
the ease Was related to- proVingmatiill anon in the ore& . - win tumid,. titif(b)(7)(c)
giv nuteli the -
Affied/6reenlight - asPect of th6 hivdtlitition. ter ShaAddef.t. "SOIAliOk itt 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. . •
(b)(7)(C) •
In addition e-MATI4 ShOW 64firLIVarile0 ieVitital agi4svfrtil
03)(7)(c)
inquirr about llieusinv.esfigation of (b)(7)("(b)(8) Far mrasinni
—Citifilbteli (b)(7)(C)
(b)(7)(C)
io inquire•about e 77771177557451471
(b)(7)(c) -ini. (b)(7)(C)
. P its Jig I

'114)t°114gS,6' la aliu • *They onikhdaty

considered thg MatkOt argt Attellt 0 I 2 ii -
WittlOnt. 7110.1e:irt aft (b)(7)(C)
'

•;recommendation. Itt short; there:00 overlap with what we are:doing:7 Fshibitia

kantirthitt (b)(7)(c) gponp had joolosdintri 01'130414 CapitaPs triticiSMS of Diet WA
4044 n Pe.brI1413t ; 2q! (b)(7)(C)
.
(b)(7)(P) tossathO Med an I tt. 1777;1 ght
prodins, tanelet om = has copies. I Li gift het a can and sae .if someone oan
ml oils
pick them up today." &hit& 45.
When told ahonta scheditled ineetinw
gilit 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
 Ithiarlocummit is subject to the ptaVisions the'Privaey A.ct oft tOtiaad may requireraar*it before
:

illatt
osure 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 rtspon.din about dreenlight Capital's production. of.
&drawn (b)( 7 )(C) rdvideci s • he had learnetahoutOre0Allight Capital ht that -
point Exit' eelfidelly (b)(7)(C) (30 ixirt,
(b)(7)(C)
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 some
sort ofreview, though its not clear they re-visited [sic]. the
valuation issue..
Id.
(b)(7)(C)
(b)(7)(C)
Tnadd41oi .t made contact with aeolleave in [ruvestnient
Matisgertettl ut,..70 • :o tertrtatalhoakid, *.66 Wk.**, on getting some
gifftsimdnt Alknagezugnt] help. t put a riew call 14to .1; $ kanz
yingthoui
magcecparti
endchie
(b)(7)(C)
!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
-
(b)(7)(C)
ilad ;beep, eo ing the comnanv overlie last few weeks -to .
<tweets .vatuation , (b)(7)(C) riole;d, • talk .ovitt (b)(7)(C) I 1111.1is ubi,vs:to me: I'll
mentionit I - Speak tel (b)(7)(C)
(b)(7) (C) (b)(7)(C)
tomorrow." Exhibit 47. In Ma' 20T6l (b)(7)(c) (b)(7)(C)

Y mai Planning itet timttghtilttout • - • • • CaPtfeazapPg.tP,n, Atflad in pro

for Iheir teatiritoay of Bighorn:. Balulit.48. (b)(7)(C) P.ala an enia4 onMay2i, 2003
seeking further ' malign on OCIE's on ofAllledf.arating, in part
;34 . : II 9.. 0

(b)(7)(C)
I taiderstatid:thi (b)(7)(C) 0,13dItillybe 111W .
heen. looking at '1 ,...compani
an 91 • 9 ei.e 9 . , . • Is in 9

(b)(7)(C)
certain; privately-hel4 -, all attorney in my
an
branch, hai reported that OCIE. is. conretninanng a *feud to.
' Enforcement
Enforcement
ten 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 • •
33.
. _ you and the OedfrOxit effiee2 talt.refettal midi? rd.opteeigte-
any infornuitloucyettcaneupptY ... ... • , ' ., — ' ' " :' -

(b)(7)(C) (b)(7)(C)
th e - - ttial - Ilin8 her he had ti.lengthrecaversation with.
(b)(7)(C)
Ut Alh Itor1 T:Ta learned °CIE would be:

21
 Was dotwagutis nailed to tbe:mvielotti of the Priveiwketor; 1974,20,4 my require ttAUtidao berm
alsetostareto 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 to
wen:teat at fids time.
Exhibit :SO,.
(b)(7)(C)
b. Wrote: st TiP.INirediMeniorandlim with ittvosttgathre
rhot m the (b)(7)(C),(b)(8) lintir,
e$figgiOlat '

(b)(7)(c) 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)(5)

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

• tinhorn appeared• for testimonyat the SEC on,May #t 9, 2003. Exhibits .14:& 52
tinhorn was represented b er at the law firm Akin Gump Strauss Dauer
Feld," and (b)(7)(C) of the'law firm tteMelte.ny4.1V1yets For the
SEC, (b)(7)(C) atcl(b)(7)P appeited. •
(b)(7)(C)
Iris umfispote d i , present for tpart of ginhopes two.daYs 'of tOtizoo,O.Y
-befr.0 the SEC, and was wive , . 4 I . • : 0.w= id. loithetzt, however, te didnot
lalteEinitoin'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 s-
to , gpt Eitgitgo to *twit Wattenipteak Mire. di! , i ,e • 'rice of Allied 0.00k when Sinhom gave
his Speer*in 2002, as Allied had:al ,, ,, id iiall fatthetWaimed poi to .have revievyed any
ifthe'dopittneiits:prodliced b (b)(7)(C).(b)(8) 1 =poise tObe subpamasi-they isgaqd, saying
it Wag*Ondar4 44101'Am:we .-=. 4 tit; rCeMent fOt a braudlfuhieftirielyonjbe:Stair

f "In Cloteber2(109,,Zabel was appointed of of to erkainal ofthe Saiat ern

MOM of New York's MAO. Sa
htcpi/us"tiee er091Mitninaldiitision 'eraimmen

22
 • This document is subject tirthe provisions of the Privacy Actof1974and may reilaire redactiOn before
disclosurethird parties.. No redaction has been parformed.by the alike of Inspeotor4Senera1; Recipients.
Or:Misreport should: not dissepilaateorcepy without the Inspector !Reueral!s approval,:
(b)(7)(C)
attorney who is taking thetastimony. id. didaddithe pnabably tore
testimony Wake. Id.
• Aleidelk of the. thihant testimonyshows that it began atahout 10 am. on ivia
and oottOnnedantil about 5.30 p.m.. that 4ay. ii 4. The transcript demons
sbourednp on May 8,2003 about an hour afte ( b)()7 (C) t the testimony, he began. •
Oquestions
. vet, quickly thereafter, and cOntinu- until the cod of that day atabo is •
Binborn again ap 13 4 (b)( (b)(7)(C) -
1 10.4 • : 9, 2003at *out 9 axai Exhibit 52. Once • I
,
gan
- 1)11ingbit
7)(C)
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 - . (b)(7)(C)
' 'confrontational" and 'verlaggreskive in his questiOning at- 1 mm; tes*DILY-
Einui,es book at 162 & Transcript of T •AZill" 11 11 1 -.. t DA .• g ("Eitthoto Thl March 9,
. -
I qi

2009, attached hereto as Exhibit 53, at47 MN (b)(7)(C)

"a little combative" and
to me tt was over the top . (b)(7)(C) , ri 41§ er testified, "I thought
%vas sort of putting on ashow ro (b)(7)(C) rd. at 48.
. . • • .

(b)(7)(c)
AmOrgibag she believed chning_Einborn's testimony - 'tried his
hardest :to get David to jitser 0112 he hadi., ated; e sto utDavid
Tinhorn did I 11:11 : the ttoeie (11)(7)(c) r.at4l (b)(7)(C) testraert that $bp-)04-a lot of •
problems wi (b)(7)(C) le• 14that testunony, including thatte`did not assigther, had an
inadequate reason or . mg late, and be starting trii7-iin8 bet about vvbatshehad asked Mahan
- -

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

dining the firs[ tire alt- Id at 47. Einborn no
- between
testified before the OIG thatitaltanst.Elt
• I 11

uncomfortable wi
Ma
= questioning. Einhorn Tr. at $0-
(b)(7)(C)
eached Qut: to SECO (b)(7)(C).(b)(8)
I it ". I

i 0 Gill'
arma abourkAlliid tinatt
j.
. lavestigittion
. . • •
- (b)M (C).(b)(8)
Dunogthe devise of the Itivesti` (b)( 7 )(C)
*the babe,
.1
.reached out to Several officialism onteterit ornces to d niiings- and/or aCtinns.
t4.1-6 were relpteato Allied, pthibita, As a restil (1))(
7)(C)
learned wbatactiOnshad and
were being taken related to Allied,: and the positions atl i etent staff and officials held about
•

servedas Associate Director in Enfbrcanent milts (b).(7)(C)

Inft
SEC afttil 0)( 7)(c) .ini(b)(7)P
(b)(7)(C)

23
 Thl4i14.mtniegt Sable404 the pOtvi*OF Who pl:blo Actor i90,xod may require reduettuu-betOre
4444ate 411;d14 ptes. Istottioetion kas boa perrototo ilyibe..oingwottistiffeter central. itecipiiim
kihis repottoonki itoitlisSatinate'ortopy wittinarthe tispeitor GesItraPiiiikroval.
(b)(7)(C)
whaller Allied was *dating tIttw. In additio 1 Id the OM tfat least one meeting
(b)(7)(C)
with Allied at which he ••• k I Id Acooplio Ugh, they had probably four
(b)(7)(C)
to fiventeeliags with Allied. at 41-

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

" The itivestigatiOnfottad I I 1 1. 1
(b)(7)(C) (b)(7)(C)
abetit Allied.. SpecOialltas fikkingahout OCIra
I;:

wiping . :. . f Allied
II It • Ott I 1
(b)(7)(C)
it was u
' ,, y. to result end
(b)(7)(C)
..8)Chiliii49 t o *lied ; •hd.haat:leitstkt COnVettatiolt (b)(7 )(C)
.atoitt I

Allied on o i ., and found out that 00E' was looking into two primary gsues: to the ,

way Allied determined fair value of its private holdings, and (2) whether.-Alliedinust
raiseibotrow•caiiital to pay. out its dividend. Exhibit* The e-maii continued, (b)(7)(c)
saidOCIE not exwealPlating.--a. referral to Enforcement at Oa OM? but
Sai
as their get a beir handle busines,s." 14. adclitieni hereceived extensive
commentsfrog b)(7)(C) regarding the difficulde.s bringing a. case against Allied ,on
com (

valuation:Isaacs. Egldbit 48. •

• , the 0145-*s tilephOne conversations ivt (b)( 7)(c) he indicated that I he retained
*Pm his - 0t:the$E allowthai he 0 (b)(7)(C) n...larinary2.9,
6. ... 2001 an (b)(7)(C) Id W 'm
Al *.had been. u ovem,h‘
P 1 611 " I - Ninth 6I
routine no cause"
(b)(7)(C) (b)M(C)
,exarns. Exhibit 20, recall I : 1• oka s b4ween StaAaryand lune
(b)(7)(c)
2003, after his testtu 'a
' ony• rn, 1,1 id hini eyed Alitedwasnoterigagedin
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) (b)(7)(C)
ickY
May 2003 the 0C1E.examiners had found evidence of wrongdoing ed. (b)(7)(C)
II
(b)(7)(C)
to : • $, and that Allied Was not financing their diVidenda. I 6 ' recalled
(b)(7)(C)
satisfied Allied was not engaged '
:
ugclolng &Age 205-
IQ II (b)(7)(C) told the Me. his notes showed (b)(7)(C) led Min On JalgialY 27,
20.03 tut ONUS II II they wereclosing theirinvesragano .0 lied lieeause them was lie -
'evidence rOper vialilatiOli of its funds . • r

aillip,„1 he did not

(b)(7)(C) rat
IT (b)(7)(C)lit That Some0
(b)(7)(C)
ire coi4.stott4Ixim
tit at 60-61 (b)(7)(c) admittedhemayba ininid4003
Alliedwas not engaged in wrOngdorng. . 461. Adding (b)(7)(C) 'on Staff
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

16 . .
arooked ifthat wild have iecna . more:accurate Agent I I"Inalte in
tomp Wined-Mt
tesponse to
whether itappeared Alli Tr. t: :ttcl. in wrongdoing, ' tOttealt
(b )(7)(C)
whathe said and asked • had notes. ki

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, - :

reinernbered ineednimithoffidal4 Ineindinxthe 1:0 "

Itive,sintea . lenient and stafeht; Diyiiion•orr*ficet Regulation; out ,

methods misted to i nvesbneint. bit 2& It Willie-

111111 ld
the MG
be 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 tbn skeiticateEinhorn's cialmsmhont andAe
discussed below; ili not .17, alair sAnclitigs abbnt Allia and astede 4010
uiv er. Ho "stated , : .(b)(7)(C) elieved
I If : ". .14neetther
an blilliant'attil(b)(7)(C)
110611 -

t Alliddit145 kon2r
- 'cite bpliev and
111111.1 ere makingiudiments virithout digging into. is, and that•not think.:tlicy
mere n t and asked them to look ;into it further. iv

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

i. la BO= or bccuinento ,Subpoennedfrom rinfipm r . •
. According is of inibrinnkion Coomdielt C4ital ati *
Einhorn to prepare • r. at,28,,29: Infant, theyteeeived 13 boxei of
documents frOkt Einhoovihdl
fund managers involved in the investigation, Td at 29. thought
mostsrgmlieard PoCtioA of the cedreenlight:Vostelis
fui thgAtimationi 0441444* wiltkikmert.:- T.Wwiltien report .:
As. reetting to waithe analysis akmiinfonitis:
, . that vas 4ritical grAllied
s 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,* Attoni
1 hied and their teSearchille ottAilied, all &di fritrAng mein*, an organizatitniaLebaikOntaa
inffirinntion for all *cCrIlltb 020.141, atjouneRtz 44°16 4 410 f
00,104%4 list oftleir baa tat btOteespaecountk And the 'telephone tharlI fn)inIAOnexy ili
.

43.
2602 farword; Einhotiftelook at 14%•olgolivrefie thatlatei in Epting2003•Onzeilfight -
Nal received ittnbpoetia for mthooes tegthium And that doenninl. 744 153. Whom
said the seeed4'4 149P01 fiot41Nummts requdgc4 intomation cla 0014compok itifamatioi
,

on jraclingoroclitderivatiyos; client POOnaption row*, .144:

,..oriespondenee with several.. other fund's. Id.
Pinhnrrt 42-ated
(b)(7)(c).(b)(8) aer..eS,S fo =WOW dontlinentl frOM ja the
Were Valuable to Allied, nogg:
 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.ati4

realize Wee: Allied xlespegatelPAstAtetiP
know Ot &OVA* wastow nIzt00..,
(b)(7)(C)
10101014.
We:bigiatbitellAtilUOSOta. . • liCCerkS
. .
+aur itadilittiieords. liedigahatt-teacsgto; that -
had relatitiolb Allied on every to*. gothexe ate e-tnails from the
fooneremployee Who. oontacted us, there were . Mots and lots of
eltaas relMtingtg oureritieisnorAllied, . inelortfrig what other
People we were tallcia:10 and getting idnInAtiOti from and so on
and so total, And ail of:that 20okt be iproxioation, Ow X *0014
-

iltinIc would be inappropriate for :Allied to have any sense

Eiz 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 for
lots and lois -and lots oftecords„ and theu hadthrie, to look through:all otthose records in. the
preparationfOrquestioning 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 reviewed
the: rnateii* proYided iu reiponselO the Subpoenas,
(b)(7)(C)

Client Lisr;cb"rg4r'c Pil lniw

vest:ttu
. - rlis
(b)(7)(C)
.4%440 red to.get the telephone reeordadfull Odle hedgelPdt.
tuanagv6p, anrid
ing Einlunni lo. .calling eachotherprior to trutle;s, but she
did not think they everzot Outt WO :Rol (b)(7)(C) tc.tit• 29. - Einhoin :Mae ixiiii,5bOOk *ha
I1

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 (b)(7)(C)
-`) ' - i tor vilitrthet at* idephow ritcoulcvtre., produced to .
41i6sEe
. . froux.GieeniWeap' p: 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 any
rtelephonerecords. 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.
 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;the OIG
ti ion did at Subatantithe this claini.t 7 Einborreabook at 149.
(b)(7)(c)
r. at tifiefi that theydid get36. BinbOries - clientt :lis diem!. -
thatilisrlo find some name on the list and name in our ue s oet trading .
would beluce! this great.mOthent•where (b)(7)(C) e ease came together 11 1 16 6, e WOUlti
II : 1,16

r. atWARM 37.thatilley Were manipulatingthe

According shame' (b)(7)(C) they
bad 0.161 o(b)(7)(C)
I it 1 - 31 ' gettin . 16111 77S tlitnt liS since 6 did not Want to produce a wn n copY
dale HSI! r. at 16 (b)(7)(C) a she -
(b)(7)(C)
6 1 II with the issue ofget ting the
1...1

dientlitt -wi I. .thhorn ' . , • tetitiffitik, (b)(7)(C) eve I figure out why he waited it tobe
11 TI .

Viirmie It. Ultimate (b)(7)(c) , she : 1

tiultom tend Ilia list of clients to
ihemover die phone; f
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 second
thing 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 .

2. bitted Attention front Allied Matter, an .

nawareoilitbett MUMS Belated:to Allied During estgatiOn

a. earned AbiAtt.Two Prior inforteinent

titil agAllieds.VVhitelNio Action was: Taken .
(b)(7)(C),(b)(8)
Dii •. , ere
found 0 0)(7)(c) two palter
investigotionsinvohing Allied
C)
Tr.6.L
at11 31-
t°1 k 1) ) pear,* eathed that about a
year Wore, (b)(7)(c) group at headquarters looked. into Allied but di' not pursue it bemuse the
difficult 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(b)(7)(C) • 44:aothing bettawit
!I 771
6 4 'very notoriously gay area'''. 0600013illigg. Id:
-
trnect that she did not
vsfhat vitimpthdthrise groups ta hick 4.Allied. Mit 31.

• • V • • The O1 was unable to obtain the Janutiq 2003 Subpoeparoin friforcethent. The April
-

290 $tibpoena, however; did not seek telePhone records. Exhibit 54. .
Blue Sheet trading data shows cugornet ;tradiniiilfgratadroi. .3g,e'SEC g.ystenis" on SEC
Intranet

27
 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.
(b)(7)(C)
b,. *aware that - 00E waa' CoutdUeting
Shnultawrits Itxanunatwn- of MBA ThudAilietrs tow*sel
Informed Rer .
„During the inv Was unaWlitethat. 002 Waakekinchletiag
artexarrun' allow° i r..at5344 nly-leamqd_aboof this e 0:1'4 &
(b)(7)(c) 03)(7)
counsel . (0101.1fintailICT 011$. 14; .o-galloo ()
c (17
• her, "I'm just tel log you because I ised tO "91/C atihe SW and I know tha one :I4

• dotsn't 'always know other hand is doing" Id.;.see also Exhibit 4 7 (b)(7)(C) tified
C)
• after hearing this'fro
IlOt want to say that we had no idea, but We tatt
(b)(7)(C) Ift. at 53-54.
'fled that she was unaware that OCIE conducted
.exammations of MO in L994 And 1999. Id. at 32. Vhen 'asked about those 0001'114ms in -

testimony she stated, "NO. 1 thinkthat'S the first thneriubearing thatnetually-"

(b)(7)(C)
$filh011i had $.111binatall/Clig4
(b)(7)(c)
toliteAKC ,Bef* iMk(9#Allow ( b)(7)(c) tO
:1; COntlIfet SXC Ofacial 14.4 out Miled •

EIS algo unaware thgt; Einho gi I . , • • hmittedsevetal lettets. to The EC :when she
was con. u . 1 gthe histstiggibtl. LI at31 (b)(73( c) 4. i ed that she late, (b)(7)(C) ii. d contacts
With the Senior $ h • 'it was unaware the calor Official had received - rs . int, Eitihom.
s

Id. at: 31 In fae (b)(7)(c) - ed.* wanted to speak to the Setdoi:Officitd before EitlitOWS
testimony, but i : (b)(7)(C) Adamaot•she not ve*. to th9:Spni0;0100111. Id. at 55.
Accupang , (b)( 7)(C) (b)(7)(C) 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 Eviden bysically Took Non-Public SEC
Documents •
tell the Did tliathe toOk with Jilt a a `tineino pad.oftba*?' "personal lo
time 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**, he
did not:need Commission approval to be quoted,. and.the climbs didnot cause :hint a
prOblern. Id . t62. , . ••

-23
 This dricumenils subjcato the prOvisituMnithe-Privag Act of1974, and may require redaction 'Ware
disclosure to Arra parties. Nalmiactionlas been:performed by ihe Mike of Inspector General. Recipients
athis report:Amid nadissemlnate iireopT Union:lot the Inspector Gesuararafapprovat
tall troll k
(b)(7)(c)
ing hint closing the Allied investigation
becanse thdre was no evidence of improper valitatiott o its :funds. Irt The 0'6 liar:overact no
evldence% i (b)(7).(C) oak any non-p related documents with him when die left the
SEC. :NOr., do Wei) .•: eVidelice-ilini (b)(7)(C)
, wed any non-public information from any
SEC employee afterleoing the•SEC,
,
• When we'asked: Einhont if he was uoneerna (b)(7)(C) tairxtratoonuito Capital
documents when he left the SEC; Einhom testiRed that
1016V.Cdiai hoW Many Am'cigueettlight Capital 'w& short In •11 i -8 ' gri rlr tihat
a4datX01- ,
did•ot trade after:the Speech, 41 think :that Wendel have been infomiation. I v.eity touch did not
Want Allied Capital to have,” Finborn Tr. at 3 4-arlhOtatOngnn4 `Just- 014. iinPvile4ge nftbe
size 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, Bat
vastigation was tot founally cloaca until ter 1.8 20661 Ejthibit36..
ganoti remained open, but inactive after tnid-20O:becausethallew VirkAttorney
606=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 he
had 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 of
Investigation, Despite •Requesting Snob Notice.
At the ,end of Einhonfs testimony• nuthe (b)(7)(c),(b)(8) linvestigation, be reritteated
hebe toldif the. sEc determined Ormligk-CiPitat w4salgs•: 104gerialor investilialic4
tgis.tiftpd, , it would be an enormous- „ (3)(7tc)
alit us ifyclu could let ifsignovir win the
inveStigation was complete. Exhibit 52. - 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 lake
action 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. tug
cagtionandis munedin 'Mc- formai order, urge,,illiekt; cap1141 itot
mm4 David
lid: "

Theiefoto, according articulation of Enfoiremetirs.petty aii4procedOes at that .

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

Management in Enforcement deiided• to do so.
(b)(7)(c)
=Id nettell the 'WO WhatEtAh_was
or 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 Divitiorfts
policy is to notify individuals aikt.eüthies at the earliestoptortiinity when •thA staff?
-determined-not to reconimeridan enforcement action agalnstthem to the Commission.':' Ea' rtibit
55 in addition, 4WPOlioy staies":that a tetra lion letterIttaStLae sent twinnong others, anyone
-

who "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'lettprafter
g' 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:ica
nim at terluinationliOlice :Shady . after his testimony, whe;.:ficeording VOW closing •
• inentorataitina, 'they had deter iced heitid **engaged i- n wrongdpkig,

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

• • '
as en al VerfOrtnanceirmihruvementriair
least the he •. Wit EnfOrCententahnial4 had niaine &ulcer:rot abont-
(b)(7)(C)
orkperforman. (b)(7)(C) e1604tb$11

30
 . -
this doatmentidsublectititheprovis' ions able Act Of 191.4ond mai require redaction before
disclosure ro third parties: no redsntkut lino been performed by the:0Mb offaspectorGenerat 'Reagents
of t4is reportatould not dissiminadeor molt without the latpectar GenetiPsAppraval.
(b)(7)(C)
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)

bowneniifik Aggif4tottilliteetor. eSSettilolDe a liiptior,,levelltranch.:Chiet ,

• • (b)(7)(C) (b)(7)(C) reAti.

and Actuag
.130.iing.th‘lt-thne supottfuod (13)(7)P 0 (b)(7)(C)
fig:Weltat0:0
itportim qb)(7)(C) lineiv(b)(7)(C) froth when his Wojicedta4
b)(7)(C)
(b)( 7)(C)
ProtaOlg Pruneit Chia
: 1
(b)(7)(C) attorneys who
to him to contplakt aho (b)(7)(C) Id. 0111. Aconfidenfial
(b)(7)
petformance 1 .11 A..: It I of the four a* • Wol .
complain abet (b)(7)(C) was out (b)(7)(C) (b)(7)(C)
(b)(7)(C)
f them asked to ibe fermi At SOlite po (b)(7)(C)
rl I situatio (b)(7)(C) n:at
(b)(7)(C1 163
1
Milirr: it -1 e ete y so taints .abo (b)(7)(c) VI
(b)(7)(C) (b)(7)(C) (b)(7)(C)
ere aware Of; andhad .bieztm looUng into
(b)(7)(C)
(b)(7)(C)
on (b)(7)
(C)
9; ( b)(7)(C) limmvdr..seemed unaware: oroerhai did notletnember, that
fore" (b)(7)(C) (b)(7)(C)

(b)(7)(C) s.$ IRE were that he was notresponsive and

testified; that comPlaints (b)(7)(c)
not following througk to cowl (b)(7)(C) I. I ran ZO. (b)(7)(c) hnilatly testffl..ed that
the staaattorneys Worldngund • 'at ure to timel. retiew action
ei - I . Al
.
(b)(7)(C)
• Memoranda and other documents- (b)(7)(C) nt 1F). (b)(7)(C)
(b)(7)(C)
WI:60dt tom* with. (b)(7)(C)
r. at tding clasitei4 et: f 1 , I ■I I IA: I

lOth tdroeiudsonie HMV anothervoup' or ,talred to belmoved to ther group;

(b)(7)(C)
told the 010 that dud
`(b)(7)(c) &dal havc.any y w
1(13)(7)(C) analle 0 -neallYiuSt:StartOti
COP.Iing =tours tate and. not realty doing his` orL
. .Aceor ie (b)(7)(c)
during this thild (b)(7)(C) Wasnlso e betiencixesi 03)(7)(c)
(b)(7)(C) (b)(7)(C)
at11-12. tashow (b)(7)(C)
(b)(7)(C)

spent Muth Of bia`tine detding witkbayitiTg homes

31


ithilikg.umpl gutikaktbc;pruyistnes4ittg ia.fitActAitia07.41andminr0=StAtt*r4410:40*ibo. tare.

"311:5019surticalttravartiesk Ne: redaction kat becuipmfor404 he T effickiitinv cow Genoa !giekhfients
-OirgiittgArtsitoulltbitittllitseintuttkOt-540*00414ite Xustitabrigenstoikkaopttiwt, .
(b)(7)(C) (b)(7)(C)
Wed, "WoOseditokik0thabli..*110b ut:av teat

(b)(7)(C) (b)(7)(C)
(b)(7)(c) (b)(7)(C)
bout:tile $tatattotteys
a to &kap (b)(7)(C)
is akiiit •
eci terllookititO. the Concerns. le Let 21.. • rfitd that ,
(b)(7)(C)
had worked wt spoke U .

(b)(7)(C) (1:1)C7)(c)
lipps
(b)(7)(C)
(b)(7)(C) (b)(7)(C)
on for
(b)(7)(C)
atichea*
( 3)(7)(C)
(b)(7)(C)
IlleaeVperson (b)(7)(C)

A* to thatuntificiential doetilnen4 thew Wer, . "twoitufok probIette 'Oath

_ resur - (1) fAiling to follo*througil on.anSigntriehts, and ,lettiringthings.t6 the last
minute s *arid .

;Dor work 1104 7c According to that-,clocument, those issues bad been

t1's0liss0tivvi (b)(7)(c) - • t tbp7sit-Roti00- haricot itnprtivcd, li ft. then identifie4
sped& m0440030 (b)(7) (C) a: Iv• a
(b)(7)(c)
assignments and its,co 9.._ ua inchirrinE
tl thy*
branch voicedOtte fo (b)(7)(C)
Id II Ootteyns.abon (b)(7)(C) Q. aka.
to .V. e xeassIg44 s Vialabil-o.folaitial teen !Jocose .ofhiS ays n ?completing
1

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

Aces:400g (b)(7)(C) ill 3o

IMP ..tiz Vith
(b)(7)(C)

more. .expitotOor a s We E}iY a• o‘.. lAfieS (b)(7)(c) s it t

•estified, '140 Arag :•046PO44
-1V
Se 9

basically kali let o kncw, the desire- was t#, have tint biappen asvne as
v -
(b)(7)(C)
could. 1d. (b)(7)(c) 9 V Ifli na:crflitly,, and then used
leave he. I _I •I (b)(7)(c) as Olt be went t (b)(7)(C)
I .going' awaypartyatthecud
ofjuly 2001 (b)(7)(C)
.• .

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

,puskyar 11 I . I (b)(7)(C)
;•4,4•4m mama (b)(7)(C)
@, 9 *Oda po§ilion fo
`berms (b)(7)(C) (tinned se .
Nee 1,)1 '''-? ' firavAry shortmita at:fine,
.

agency on, aiPtaxtber-11# 2001.1i01V0diedin'OCIE,16 (b)(7)(C) 1110.11

as zoo, proome1Sie that ie- was s i-assigoe4 to ihe

Epseettoni after:WM3. Mortiover 111s6PF. shoviT 'tklt he
(b)(7)(C)
as MC45; Stet) 27 ate of $131;911 ((cb?) l top 27
f-1IMY:0112440) (b)(7)(C)
.

32
 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•
(b)( 7)(C) (b)(7)(c)
1£ for about two 1111..."
Ir. at 8 (b)(7)(C) tMedthat 2 t 'hat
(b)(7)(C)
this Was the solutlo (b)(7)(C) I re

up vin tho .•
4 that: e woa MOM r I • a e ge for a w e. 16 -

4s0 said;there was gossip problems irx oci0 as well. • a at 91

.

(b)(7)(c)
According
My understanding is thai (b)(7)(C) was moved..m OCIE
working outany torwerneEnforderbent
paitieular, had fort everal mei"
p with a solution to the problem
'

bec,orne in Friforeement And specifically pre . anyone

-who reported e,r, or during the time that he was 'branch
OW even before go here, PuPPosedlY asked to be moved out of '
his group.
rd. at 19.
Whpl =WA 'Did yeti? led* "Yes." 41
. Liked oined the law firth Venable (b)(7)(C)
Try at 18-19. (13)(7)(C) tnlrl .the ran +h. ure.n to work fo V • he followed.
(b)(7)(c) aad (b)(7)(C)
V.fiforcelnent, with
tfe.bad Work at the SEC 1= 001(b)( 7)(C) Hm r snd (b)(7)(C)
I (b)(7)(C)
(b)(7)(C) (b)(7)(C)
said .
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) teu
Venable offeredlihn the job and heaceepter0 Exhibit 2p.
(b)(7)(C)
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
,

wont ( X7)(c)
,

lit
(b)(7)(C)
Atco*gto
basieilly timed over the supolvisiOn Ofthe (4)(7)(c) started la., • ,

(b)(7)(C)
s gaup as witaffatterney, beCaose he hadtssenlWly "lost con 1 bzt+uctr.

lit the ihneloftiur telephonb interVieWS Februaty 2009, -he•indi

had not woftifor Ailiedfora..couple ofyears.. 20.• Since that thne
joined another-law rum Enid is now a sOlo practitioner,. Id.

33
 04 04440 t i sableet Otovtiitossathe ktivacy Act -01074, And .saig tequiit redgiin!il>#tore
tlisc7nsul^re third WO* iii.i.to#Oliakkiis.hgetk performedthe9nUe-.000000 amie01,
:

of_his nViitAAnaiditollUsetainate cecopy it .WItfilititthe tits'pe, 001,0414. .

(b)(7)(C) (b)(7)(c)
egiateired RS for Allied One 'Kw Later
(b)(7 )(c)
Effective °antler 1.„ 2004(b)(7)(C)
__herame:nremsterec
(b)(7)(c)
(b)(7)(C) tor Allied uti behattof
Venable. Exhibit 15. According to tis with Allied Was On'the
short 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 and 1 :§410.- r of omptaint

about possible lehlal,aodatbioal violations b nit% or AllieflaApr
"obtaining confidential material. from [Owe me Orthlz e- records and
testiaant 'abOut Allied. Exhibit 61. E` o . hiatounsel Pada. (b)(7)(C) hO.
Xijedined PriOr: to lietOriiifig or Allied. -& EinliornIs hook at 25g.- :"
inherit lieted that according to e s puss release issued when it
he wassto "concentrate on corporate investigations, white collar& securities litigation au
complianee."

Ethics offiee Clawed (b)(7)(C) to R terns (b)(7)(C) Sated
on IncomPlete Infonnatibil froni (b)( 7)(C)
Durirt • _405 inquiry into this matter; the 61Gt inietyieWedllie AS** EthiCa
ceitawi (b)(7)(c) .tif the .0ffi a fth6Etbiet CO ' A I !‘ i the SEC ,:s .0face of the

General OlittSd (b)(7)(C) Win

1. • gaV. - -: • a I ' or Allied. Eihibit .62. Diking
that 2005 inq c, !. - c 0 - . • ;,-.: : i (b)(7)(C)
wall :-..11224111cnataLling :her before
re Orming ag • ' Mill for Allied tuitl • I I er hi (b)(7)(C) otdabav6:4othing fo .4o Niritli what
lie worked one; , - • I I I .ssion.. .4 He also•toi. (b)(7)(C) t e bad not worked on the
investigation 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 IL
U-S § 207, which prohibits forn*.goVerilt4ent IMIPICO!"*ItgAilFgq. 11.jlixIodili4:$
it 11y
communication to, or axiearance hafine,aP_ ny ...titu ., ,,, I. Oiagency with: the a - a II ingligneei
NiVettlintOSSi. 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
 `.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
of ttie (b)(7)(c).(mq imrPstigattea.04beforolaileperture..floin the' 23
The Ethics Cetelsel tol •Oatilateveti 01°110 there may be an app.:AO/IWO*
impropriety for(Hip yea titles leaving the SEC, affer lto !embed :

rile& bout s traditi&kesitie among Other things, The' EtIdes;Ofaed

from regisridog. at. (b)(7)(C)
-

could .tint preVen •

tinge heti/at-no It tiger an SEC
- employee. Exhilxt
(b)(7)(C)
(b)(7)(c) Contacted Ethics Otfice About . C.oneetti
Petenttel Conflict of Interest .. • •
. .(b)( 7 )(C) ogeiAistf iligt (b)(7) bawn,a(b)(7)(C) hna.
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)(7 xem b)(8) invegtigationoleteiti
-Called the.ahies Office. 7.g: (b)(7)(C) didnoticeall *boo ( 0 , spoke Min
B. . exeett4rod that the Ohio: sit - yt: . Taitgeettfie.issue mid tol
contacted them, prier ste-e‘isia.ietin4; (b)(7)(C) fOr Allic4 :44.4.ts, .- ,

if
ied that the E ce *ed that they had given.
/

royal to registeres. • b)(7)(C) /4

(

With 114cWiles 011ice

: I
-

rstood .Y
11•4•61 :
knew "some tithiga" about Allied,
- -

and that these.facts. Id at .

(b)(7)(P) that the•Ethies
Office inform 14. them tliewerlaie ixo (b)(7)(C)
I P .
dnottelate to
' tlealitlOs tbeConanissim, According . (b)( 7)(C) BalloOffice
' Aritia not
y more on,t anyCPI itto tucan that . :cleated v141402. la. at 54.
O. (b)(7) (b)( 7 )(C)
(C) .cot Shy ether action related-to t hi s matter la at ,

• • •

(b)(7)(c) L
14- Ow QM ill 105'. Mot el/mil " 4a4 wraicga Mied (WU gum
at 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.e
actionibat C4701PanY Vaixts Congress to" e! Ootigres.a prolub0.41.40o1
influencing the outcome ofCeminiisiewinvestigalions: ' .
.

35:
 this itoggrout fooldadla tti4prOSOontathe iitittflOgoittitta*r*toircirejtaitiOkt- tie-tire
- • 00,10sUre4attifiritgarde 144. kedAtioti. WI** #0,00004 tt.ie-Otaittarts. ofet.orgoliot.41440catg
:40.14 yopotstmigikt wit otto gtigitailA (it 0.0Yftiwithoa(tha intootatOooestwapprevatt. •
-

(b)(7)(C)
C. - AfiledIstotuaselinforoared the.S.E0;and CeiminA UM 044es, thg :

Ettgagetl in Pretexting of Jrinitorn's Telephone Records After Re Le

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

telephone Laconia were taken on December 7, 2003, when be wastoldawtomatitalled AT&T

and identified herself as "Cheryl Einhote arid-usedler social-Security !Minket to open anonline
billing account forth hometelephories Einhorn's bookat 215. According to Million), the
caller 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 a
;

March 24M -letter to Allied's Board. Exhibit 67: Einhorn wrote," hay home phone records
were among the records thatmere illegally accessed-- Mt me,atleast four additional
irtdivoldnaLs have been the victims orthis identity theft and access device fraud. The only flung
t hat 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#1111)q-2006 seek* to *vete 13oord conduct aninveStigationloto The menet, Watt 69.
-

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 was
rovesla: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 ithautitorUedaceess
.

414*,4*tihe41s911.1v444.4te4 thp APAlte.r . .

We note this was a: shtit tinid . 03)(7)(C) eft the Commission and began workut
Nicitabie 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
t.

.1n late Pecem►er 200kvve reeciw4 asahpootnatoth the LT $,

Attorney -thr the District Colunthiarquestini, :among other
the produotionatreconls l'Agardingth6 lidwor.1*.ata
investigators. by us ,or.o* agents: TheBoatti established a
.cOrosnittee,whialtwas. advised:by itsowncounsel e terinvie.,w this
matter. fit.the*nirSe Of githeringtloduittents tesp•onsive (i) th0
sulapOtria, we becathenikarethatanagent of Allied Oapital" • •
Obtained what were represented to teleithonexecords of;13avic'I '
;tinhorn and which parbort to be 4=0p44:04o $1E4 0=44.44
- ,

Cipitut *tang A.per:IPil.u.rtituo•ii 110.0S; .:41,50, •ilAp we were

gatberhig doeuoweitts' ospoosive stibpoettl, 4egatiotyovere
mute 'that .our it anagement:had authorited the acquisition of these
'records and thatilanagenlent subsequently advised..that these '
records had beca obtained. Out management b•tatidfliatthesd
allegations arena' true. We are cooperating fnllywith the inquiry
by Ole 'united Mato Aitoruey's Offke
• Exhibit 71:
•
frba rebnlary 7, 2007, filass'hiritton hat ankle .etttiget4. 141:,t pitsl. *Its lAzone
est Phone Data quoted Sta,t010 above i.4„040ofs $g0 FOia.q0 4 - e Exhibit
12, I0107494 aquotöattd.stifqmoot .fvout Fliliontrezictingto
illitoxix*as quoted as swing; "Aftet ;five yeats4 AM& Olpitathas ackaowledged'a tiny piece of
rapitiaitniiitonduc0 Id .lictioid that Allipaleit Vianswered„ howeier.,. gOeSthas about
•
- • .
rs it is thick* tram Alliod's disclosures Viitwther they clisr,ovetedverNual .1tonae teleplione
.rociiDISoibitvidattaan as well AS t01011911,010cOrdi Offete414bit Capital
pea 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 records
,

Time taken in.D bei. 2003.

37
 1
•••-•:.

thla-dor
anicatis subject/a Thcpravisioas alba PriVaTi,Asit 41040 aid may regaira redadian Ware
.
s
. 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 Obbaning

,

reCordi 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 tha atigesponsible

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

(b)(7)(C) entitiVdstigitiOn ofAllieddikussed below, frortroutgide tOmiSei Mr A111r

0 8 a = : •
1 r. lit thy- L

WM ! . • 1 1! - lidt$1016 :tor obtEiiiiinglitiheleg iihebetteerds; 6( )(7)(C) •

oring.the settlement discussions between Enforcement m1 A Ittreit
(b)(7)(C)

ow, CIOPegO. 4.11r Allied (from the law firm Wilmeigaie.:41s well (b)(7)(C)
'El tholow tinati . • '‘ k.; N e to the SEC tosay.. "Them is :strryie.thintr vrm
' ..N,44 N

iiat
MITT-11.1 V17117Thrill toe
(b)(7)(C) (b)(7)(C)
• • I '1 II I were the
partneri faun Nikner e. Wetefresent I is . 0 . (b)( 7)(C) Osibe One who
imparted the infoonatiOn. at Moreover (b)(7)(C) • c.outhiel for Allied also
informed theTISA0 about a 115..
everyonewas really surprisedand ctshocked" to learn
neveci (b)(7)(C) fOritlet Pri;SOMPSZt
ee.. id.. Sr 112. Atter the tate tified be,
ebtiefing about the ptett N - whether Enforcement had
-

tetwo over SMze. at According to y che4ed with the

Enforcement group: who handled the action and settlement against Hewlett-Packard 'fOra. Similar •
We of '114, but concluded Worcemenf did not have jurisdietionnverthe matter because
did not see a potential teemities 14. at 11)9; In addition; Enforcement instructed
the MAO to infOina them theyixflielved there was 4 POten04tqeonritiOs,law violatzn by
•Allied reganfinitlielnetexting. 14. 4- 114,, "The 1.1S0 cactitfefyloo itheprelext/ng.
. . •
The QIG founitthalEnforeernent Opened an investigatien into. Ifiewlett Pacluad BP)
October 2006 into potentially false or misleading disclosures made in SEC forms MO
with the SEC earlier year. Exhibit 65 The disclosures related to the resignation of
one of it directors IL 10,1Viay 2007, the COxiunis$loa:Illed settled adroittistrativg
•
charger against "for failing to disclose the reasons - for wdirector's abrupt resignation
•.
lathe midst:of:WS controversial investigation into boardroom leaks :7) Hp was
found to have violated opvidigo repookwyetvirernoots'of the Securities EXPIgiklie Mt
Qi104. Zit • -

38


Thissdoconsent is-subject to the provisions id' the Ptivacy Act of ISITitiand stay require rcdactiosr before
discickuroAo, third: paillts. No redaction has been perfonuabythi (Arica orlaspector Gapers& Resipican
adds report should notdissinninate orcopy without the Inspector 4cairaraapprOVoilt
(b)(7)(C)
(b)(7)(c) earned, and a grand:jury was COnverted, at L. assumed
a.subject, taiget vitrids§..ofmat

gralait tessleOnitiVe recollection frrno that toeetin eötmsel

:.1 - tt• •

Was •tr: kesponsibte for. I PIC I I

(b)(7)(c)
O. - V,
(b)(7)(C) t.,

(b)( 7 )(c) C
(b)(7)(C) : 4 Plilegabig
(b)(7)(C)
tnE i t II S attention that "there wage posst
tt - I. .4

some 1.trtt. 4 II, iretextin g olEinhOties phone records. (b)(7)(C) rat 4%48.
tesItifi (WV)
(C) emberedlearniiig from Allied% colinse . •
(b)(7)(C)
had possibly hired someone, an investigator: Andl
don t remember specifically, but that the investigator rpayhave
&ten access tahese ids and that there was aqueaftoll es
wbth (b)(7)(C) Aske-dor autivtized that partiolaw
a64011 • mpany !lad boen.aware of
a at 41.,
-
•
- • —
"ooed.
-W 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 fro
AN WM ' 4.' • : 5, 2007, that eppOrconsistent v4 tk, : e,tt Ullirr
learned abo- (bmc) • • saible loin the tartexdug. Exhibit71 It ap , -: . (b)(7)( C) -

contatted the O , • V IA It - .01 I 1 (b)(7) 1 . 4 .WithAllied-W;. ;4241 igilied 4 .,.

have *aged in the .retextingz - ottes-reeords- id 'When: as during ' " a lit,
howgver:,. Wile& - pt. : . contacted the Pihics titace. OW or a state I/wafter learning (b)(7)(C)
:

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

The notes' show ttmliteted by Wiimeilial who. -.Atesented

and appear to state in short Irreti among other things, "ailegatio (b)(7)(c) &prized
investigator that enstgedin pretext:We' Exhibit 7 Thi.ncites : • appear to state, (b)(7)(C)
. represented Allied I Oti
&al firm to hire privatoinvestgato
4,1
' Vto2
records,Of hedge .fund." (b) m (c) nOtes.also state there was a criiriin# inv 0004 „
rebitifig tntlit $itetektiog. ,
.
- .
•
21 The MG oontactedthe US 0 tO inquire abbt.tt invatigation into-AH(1d,, and teamed
that it had investi (b)(7)(C)
C)
Thp 010 made anktneatt0 the
USAQM review their es' re HIM The "USA° was Iambic to rocate their
 . - . .
.• •

_ This .document tigsubjpctprosigiOns - oftbi Privaaltet • ;of 11,9741,.and may- requirt ie4iatifea netare
disclosure :to third varrus. No redactiow has beakt*etoniled bribe Offolinspeetorollenik ;14dpients: .
;(41101:opsiiri should naafis:W.010o* atiit ttNetthowthe uspeitikrOoot0 5,000: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 vsAnio
Aix:tutus:pow disclosure and admission that it bad 1.)PeQ41e aware 1`tagagenvottAllioil ,
obtained what were MP:11*in* tfi 17001. P141. Q:Ue'rePord's ODA* Binhom nul w piuport to
be records of calls from 01=44 Ovita itiuring• p4o4ittiine WOW! tr111*4.• Us)
then VirOte* "Despite tbi*Publia edhagiOn; #41114110.411). at App.arootlykeptftheloroopOptt
accessed tad give InfornialkuttoWEhelorit to tilow hint -iu ext4huite
its agoosfflellyacess'
the itieutliottitito16 privacy tuutthe nesappioptiatiotoftM porsoml ifforruition!! i "

Zabel requested to be iramediatelyprOVidedidtht conics of th6.photie: reeottia

purport 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 -the
persons involved m obtrnning the XLIC041,5; an.0.44) the mow of atwousto,
personal Information orlriimpproptiated bifonvigion:vitatprovida Id. To date,, atom:mil
his c0141.161:hIctiMee/ that they reed:Yee; AdaioustinfOnuatiou related to the puetextittg. •
Einborti Tr, et•
• • 13tiring the OIistssfhohyitigidishi,
- &peeled:his tattehie,
frustration with the SRC related to ihoptetextingSaying, 49indI4on't Uncleratand why tie:VC
doesret- 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 wimpy
.

came out and and lying 401241 ••

denigrating •Minhoratotlibibeingn:figment of:a paranoid
iitAgikatiOti 1110V1herPUiltAbtlitarh%:414p.Or a
mitdrAiirainooriest skdonmatx ilbortho:oacusof.Uirovaa =
•4sitts. .A.ad the SPiCkildiet soitircki aliOutittublkompauy
Ltd* tigeuts dg.1ketha4 which inOurviewts, kcitihts.
AiiJ jfhi] is notthr,94460 that ftSEtt. 41%110 vamitimbliq
companies engaging.in rbeeause ies•vety Witiug,to tho free 1cnd •

.61 debate and critiblarn that the SE•C i.I thiity,."tu e*

tuatketploce. ••• •
•••.
•

filebieh hadbeeii &dived.

„ •

te,hewcv eyen:if bad latated those

axüved files 440-Yorthg amgaelti were 1ffebrtottahry‘kfavautkoiltt Vit
been shared -with the OIG: -

40
• ihkoocumeo iitsimikiti *the PrOvisbps fhb reliliOr Aec Or *V1100 t o FtffIaltgitidaciilqn WOO
41$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 Eatoritmeaetterney
engaged in the pteteMing of Eitihones legends. Zabel said, 1ton guarantee-you that ifon
person whnhad.been involved in itnrestiviing. atetnpaoY - was PittOcted,
: .pteuy swift. "netinn.. " Id-. at 40. Fit thetitte, Zabel tottfituitd„.
have beo.on Ine
.Thntiojnot onaneingtn xueihg no °twig mai* V1,0014Q
:artythipg about it,: 'Ibexes no towen.lhatott- t_onl Woo
eatnpony yen now tiOriv*4.07:11ave aanaltt.44:67 did M141114
at lataii.000 Wita- 'offitose: bones. Even win an
otwittg:biva*Oon$, were we the who got term who
*obese people on we eon know'whe they ate and weton watelt
out tbr than and whottitepoight be deing:witlithe,
really tzintraga. The whole thing b- That parks, particularly
feckless on the , part the- gavatinent. .
Ida WON. -

Iri comp 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: These
wei*.mititet partielpontoengoged in a teal debata areal
importance, 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 were
sonadlig maples, •
•• at WOO-

The1002.2004 BEV :En

na 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 .fonngtiOrthrtit0
okakightand reguittim of the inwiftent•management industty, Ste .
1441:tiwww..see.env4abouttwitotwede:-. fityestmentiamogentent alsoleviews.investhent
.
 •

!Iiikftleatmeat is_subject ao theproviskone ortb0;;Vacyliket of 1974, and mayreqUire rectitcliew be rore

dkeiosure - 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. waf
fled tharhe. spolcetn
OCfl about doint an examination of Allied becansehe ihoitertitwat mnte'atiptopriatdiban
gnforeonent 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: di

Senior Orala4 asoussain•seotion.ILE. above. Exhibit 75:: Eiiihotni - phone calls and
letters 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 apply
to , erit gxhibit 13; The SealorOf$40-testifiOd:that he did not agree With.Allied that it was
ditfieult if 4OttiropoSsible, to apply .520 guidanceDoti valuation to EDCs. $toiof Official 4t,
57 He forthoritostified that he was *wiled that. via% vaioing ifs-assefszonsistent with its
F

white 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 was
completed on 1.4arch 19, 2004 EXhibit 75, According to the examination report, the last
elcamination of Allied was conducted 1111999, Oozing the period atii examine' tior4
examination town received thendditiOna lettert from Einhori ts Well at Irani thlOtbiet-44itio of
Allied, Jan Brickinan tlItieldum0. 29. Dining tins same time &tits& staff numbers of
Investment 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 it
.

was formally referred to Enforcement forection. I L Enforce neat had already opened a matter
under inquiry (' ATH") Mardh9k 2004. Exhibit 76. Ott May 9,, 2604, Enforcement opened a
tr*W:i4veSPIglitigan discussed :Wow into baao&otk.thatexainination4. Eichibit17-
Despitc Boding problems thatmetiteria leen-alto EnfoiVertient :ctle did not send Allied-a
i

defielen0 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 about
Allied -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: ever
met,' and -claimed id ough hadtpent many horns analyzing Alliert.griekmair hai
df

spent many, more. It

42


?Ire
subipairitliAolAtooserthetrivlity4:001414,401.111:atay eeiaira. redicil.en:herarA
dlselastirel0 Wig parties. 14040114•0.40.100j.4.6e0 gertOrmol by kliOiCifikeitiOlietbt cnCL itiohilehtt
Ontlisepiirt should cligiegaliAte ,or 'to-1w at without the lespeetor aeiteretts'oprovat. .•
unless they get the hint that w- . k t _t . I • et.. Qin -Mataing Pertain issites1P
Transcript of Testimony of (b)(7)(c) uty 20;209, attached hereto as
F-Ybibit 78 429:
A. I.)00eierteies and Unitstial Circutostancea. vdtb the*PArrillmition : of Asia :

(b)(7)(C) a*: (b)(7)(c)

Beth diat examination waS
'Unusual severid (b)(7)(C) 12% Fi=L (b)(7)(C) • the that examiner
aSSigne4-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 (b)M(C) • . etits, then tome back to the
- -

SEC to write a.report andthen tend a deficiency letter, Tr. at 12 & 20. But in this
ease, there was no Visit to Allied'anifice -whatsoever : caency lettei wassent (althougli
e '•• •

it was referred to Enforcement). - This examination ation of Allied •Wasililso prolonged by - delays and
thelli%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 Wr 00.044418,..

1. The ExaminationWaxtondected Primarily by-One .Exankiner and
'Supervised by (b)(7)(c)
(b)(7)(C)
rttla senior' staff acconntant, Was
Caeny nrimAiv exatnitin't a to the
Allied elimination in2 .002; Transcript of Testimeny (b)(7)(C) r."),
February 11, 200, attached hereto OS SX-Iiibit 79, at L& ACOOcall8 Vii(b)(7)(c) way
th' r four examiners conducting an examination: 14 at 17. At. some ptiinilater, •
had requetted assistance ozi the exiiininatio ( b)(7)(c) orked on the
onas well for about six toning months. f6. :a
gan at thA$E
1 ealirities complimee,examiner„ . 14. at 8 Ptor to her work at the SE
• asza accountant in private indlistqf for asear, at: 6... Before that
•

ffl a taree r:Marelated.t0 , acconnting.and Emit:fee. at 6. •

l
(b)(7)(C) itiiii(b)(7)(c)
worked attheige :from (b)(7)(C) as an rambler,
(b)(7)(C)
(b)(7)(c) Irv. at 6.
iirintelnilifingthel }worked at
(b)(7)(C) Revenue, Sexvice.- (b)( 7)(c) tr.. at 17.
(b)(7)(C) hai.been retirement.siiio 07)
& 481.
-

TL
(b)(7)(C) -

•
(b)(7)(C)
told th IG that one'reasOn sheeOMired fivralhe SE(wa.s her
hoiethe: turned into a kind of . t, and a xeview °frisk,"
Tr. at 49: testified that at the time OCIE would send investment companies lan

43 .
 IlitS.diffrOgiftagt IS tubiggt:t0 thelirOfislois of the 0400 A041974,804 foilr*Olfrcriflactiog Wore
sit' 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 •
(b)(7)(C) thagolAttecr,,,Oiinsktinn Ain% asSigncti as- , ject,. not a-
mennannt1011. (b)(7)(C)
(b)(7)(c)
rt.. at 14: (b)(7)(C) ti. lit14-15 : (b)(7)(C) F. t..91ted
who revortato (b)(7)(c) I who. repo ... '.l
(b)(7)(C)
ry. at 0-7 I (b)( 7)(C) I legall at 60 3F,,Clui b); 7) krill:. I :i :
I (b)(7)(c) Iiii (b)( 7)(c)
41.1
runt 64: (b)(7)(c) tostified owl (b)(7)(C) vims =pretty m a....y 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 this
tataattiore thandnostY (b)(7)(C) TER 1021t
According (b)(7)(C) ed wa...5 the largest:1313C and "every retirementiand.out
there owns Allied:'_ ' (b)(7)(C) t'. at 17. She thought it was strange that she, as a,„*Iy rew
=miner, was assign ■ to, examine One Of I-R.4 testifying; It's Almost like they .
•didn't want to find:something." Id. at 15. 03)(7)(c) however, said this was the reason :sliedid
she could to.(b)(7)(c)
ething, saying - . a. . was-.ray project to proVOrtVself." Id:
tifie;c1tha I embed man • ilineethitti. Ate had:with Allied i 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 - -
d the MG that liy•the time she vi as brought:in to evaluate wital (b)( 7)(C)
had dOn, 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,twocttosAyx

leitaci had-to bide node; my ties14 bteause I ..; ' not 'mato bearthat 1'4
(b)(7)(C)
.

• Dania soniethbigwidW hvadifttio 614 the Orgliegotato

lgo$ranly41 .41114.140:g, t4PP,54901PWAggir 1771.i 044:041‘ Co
fastest 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 Inmestpr . (b)(7)(c) At
42.. 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 •
 This dq^cunientis 10 tile**.* IWOJIS OtheItlitAty.Aettort#74Faatt inay *Notre 004* *too.
instiostoo toolitt fiii63.04 144 itthot10$114/044 .petratätilb Atti.401kee4fUskotorgigkati, 0i44iagats
ot this roPott: sh(414 spot 4114igaliiiit*at.ciMitly;t1wiat
-
., the it GenekaPsapprovai;
a to (b)(7)(C) testifted.afier sterwn assignict this otarni":. we hit° see
eran e sat down and SheisIanited
e na reentifildindlitcords, add t• h dsle V.4
requested andanalysis She had done." Id- at 8. (b)(7)(c) _ opd
.

tesafied (b)(7)(C)
ptekdititint Se. She ■•• I WItittlwaccoolititit „at (b)(7)(C) •

shemaS bionght in to evaluate -dOtietodate Istatisthe. t101,

r- at B. Aceordin (b)(7)(C)
1

reputation of ferreting nut inforrnntion: (b)(7)(C)

done very thorough job val - ontrack ;andun , !at
9 '4;1 she worked•SPecitfie*Wthe voluntion iss 4es, lie (b)(7)(C) ;Wised -o
. tho issue o investor dividends - Id. atlfh .

2. There Was No Visit to Aqietrs Office Located Breda front the SEC.
the I xarnitation:ofAlliedri0 •o (b)( 7 )(C) SEC CVO visitigAllied.
sI. I 11.11 IT .8 •

at : i5 (b)(7)(C)
(b)(7)(c)
at 21. edthatirdinarn an:
°Risco 'No Rt east in, aa r r r e's=_ofce: (b)( 7 )(c) at 27.: (b)(7)(C)
tcstitiecL.“1 never go; • : t: wc were
(b)(7)(c) 1
I tightWAS 1. ; -

.a*s1.34 of restricted.• . $11 (b)(7)(c) losiiagalliFf411 a (b)(7)(c)

.re . .

throuk •Jotter correspon E h au .:rievar physl y went to Aiii0s offices . I8..

(b)(7)(C) teSUBM did not see the diffetence either way- visiting the fain iwnia to eon4110
• -

ffeliMihtion. (12)(7)(C) ut 27..

-

—
(b)(7)(C)
testi4ed.hodidnot reramnber tidiY hendquatterS . *as conclueting 2001
examination of Allied, andnot the nst.14. . ;.I o uvr* 00-C.1 10") which has 3
Jurisdiction over AC.. firms auchas• Allied, ()()()b 7 C
roit (b)(7)(C)
tett that: thiS
I •
•. It

examination .wasprehably not toidueted .,• ins. '1" t -.. n •-■ • RiTi * v-nanovitoous" ta• •
Valoaticinissnes. id. at 1920. In•ddifiO (0)( 7)(C) -, i alfrelahn'edAllied: vvaititewiniiesawaY _
.

from the SEC .andithat it would lie mote .effieietit tel tOtidiftt-thb eicantirattiOnathe SEC: fd. at
Zt-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 yeatttad
out a r,:at 15 ... 4%1014)1.'40* MOO 000;444
1.01.4
ed &iv"- wasnotoverly xxiojiekaM" rctai 16. White
r
.

tai three theetino WithAllled tepttgeastives during thriexarninntion,..

estiPt4 iwohahirhict
. raaofts Al •
ii :to owe 10 watexplaiiiikayve.wore " At 24 -


. . .
114.trinetunent Iamblectto the previsions ottliertivneyAeterikAiked soy .telinet$04 iletote
-ftbelesure to Third prties. No redo 4111 ina too periernte4 .bytt*Ofticoet*petterteter.el. ;Recipients •
0

fthis tepott should ttet.iisseolitigeerzekpyA vti.thoortholopeetoraeltaes approval.

(b)( 7 )(C) (b)(7)(c)
•* MVO. ghtlfted Oat81)g an • ;:qii meetings, wi
DP+ .1Wattte4 t6t0Afin114 thelrUarnitiglOn as ,
UWE ;
1 (b)(7)(C) (b)( 7)(c)
17 - Wag alt•OVeraitteelidg thty get fin I .f slici Were. •
(Weida* : . . e. i wed get &Vier tenet front "
(b)(7)(C)
iteipful .te xis." law 19.
hmidditio (b)(7)(C) n I fued tO have:. I ' ,,: 111
" Miring one part
(b)(7)(C)
cif the exumitUttlen, e 00 44=4n : -era the for
a' eriod otlime to Work on urttual ttiudiuites iltAt.ecA See lxhibit $0. at-0. •
(b)(7)(C) Knewi(b)(7)(C)
4, • Illad
Woiked at the SEC and it May Have Colored Bia yiew of Allied
i tiAii(b)(7)(c)
The eiddenefe .siiiiok oua l (b)(7)(c) Whci formerly worked it
(b)( 7)(c)
SE
(b)(7)(C)
fron Aceording d' tor )(7)(c) tit was clear that
evi (b)(7)(C) who Would represent Allied atifiese eneetinos herm use (b)(7)(C) would
in and *ays I.• lit; (b)(7)(C) IHow aro you doing?. 4L at 19-20.. (b)( 7)(C)
l fer.i.1._
iqueq I 1-:
. t

-her kvolvereent inhe t Allied =Urination they met Wit1.31 (b)(7)(c) an several •occasions (b)(7)(C)
Ti, 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.* eft 'asked, "Arid so what was
Imp ession of why -that Was in "OrligitSg (b)(7)(C) ed, "Well, he
A

tmilbd." IG Aeco (b)(7)(C) (b)( 7 )(C)

c.14 g tcalre effect oc
is a nke Pe I MI ir I 9
(b)(7)(C)
(b)(7)(C)
Otgping heti&
(b)(7)(c)
1 egar Id; • 110Ved pent)
manination, not ileeattseof ar •size of Ali kneW- and
21-22.
(b)(7)(c)
did lila mall kndiving Id, at28: He further testifiedle
may have just:did notretneniber. Id. 'r Tit
would Surprise hint: rovery qear.that he kn '
- he : • .
' testified don't. . /k4• at a %en as)cctd," 1 ayou don't
xvinew.6er I( ViVO.,tii.•WO, 'dee person And

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

Ziernordlithdret SehergeteXarninetth:141 rthatitimereasb otoPfiedfrora

woricing•m the lvladofpewnminntiondnring 6:1012004 to foexik on the nnitual fund
project Se4 littplheo-eiggovIneWststudiesi200.44-5444
•
(b)(7) (C)
(b)(7)(C)
s OPF shows thaik7) ins•moloved atthe §EC as r s_ taff attorney in the
tOktlkl 1 1 6 1 6' 1 I (b)( 7 )(C) (b)(7)(c) •
(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 redsWon lies been.performedlythe Orme lespeet0r. GeneraL Recipients
-

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

o)Iiot $bing to be doinganything it jetall, niay havp * that I just don't

•retnetribeeit, i'• •
acimitiniifiOhelievestitannieone intheinditsttrwho used to work -lithe
g."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.... ,.: , (b)(7)(c) 1 and you :wooliOtopobat
% At k it: # 'it1 2

they're not [doing sontetidug illega]" IL WO•then ok 1 Do. yoa• think. then that
colors 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 '
hoperullyhe doing the right ' : ....-.."- 1,1* `fled that she(b)(7)(C)
" v -, a 6.0d
examiner needs to be "Pro PRIYjcipugJ
__, t Tr. at 43 While she faun
ha goelloatt. c741011tgr sl* TOMO Aim. tbeliO (b)(7)(C) 41PINedY alASP.iCiQW f; .at
43 a it&
.

5. Findings. and iteferra Ai Enforcement

MU above,. the exam was issued. on April 20, 2004, and

it was fonnally . referred to rffilfoteentent.for *dim.. id- As a result of the 11#month examination
of the exarniners found the following three issues that •Wartattted referral to Eriforteniexit:
(b)(5)

(2)

(b)(5)

(b)(5)
•

.47
 •••

Thio'docanteetiiisehject to the preeihion•lifthe Privacy Act 01'197 4,-404-et, ay retieuire red:Oleo:before

-

disclosure igrthirit:parties..'Nirredadlora teas beett periermed hythottfriminexpeetor.Getzedil .$e aijpienfs

-

Oft* report ;should not dissentlieateurtopilt *iithont the fasjiitterVetketibiailipeeVet

(b)(5)

pn May 9, 2004,. Eri4 • a

'bated on.that
pxattindtibti, as di,kiissedtekrAT
,

C. illisagregUient AllontReferrat to Eufareement;and Wliether ;411i" ay gave

• _Been Pon4Scheme •
The OrG-fo pite bo (b)(7)(C) 11
(b)(7)(C)
IP ' lim ing strongly that-Allied
roblems them a ot o 1 r" el ut referring it to Enforcement.
r, at 39 r. at 18-19. (b)(7)(C) :•••, tWed there were delays ill the

cumulation as well: as reluctant : e 'them continue the examination but

did libttelltheMtO stop. ..at 19 (b)( 7)(C) ". . in fact, There *ere probably
pe410
de
' glaililhetc. whore p didn't do an 11 1 three months or moic, dieted. be .
•
(b)(7)(C) (b)(7)(c) (b)(7)(c)
gi:thatahOdidliPtft Pgr.04 1 4 si clesire to. •
refer the (b)(7)(C) ; .4 , 1 1; .-olita Enforcement a, I don't ever .I supPoded
at that.
(b)( 7 )(C)
r. at 31 a mkt site recalled her (b)(7)(C) - - 1g with
VAIS a problem *withAllied,bu
(b)(7)(C)
• • were sotOnvInced
1,-
:directed
thenl.to gaback and dO additiOnal ork. .Accorrlr (b)(7)(C) work
“ •
1
•
(b)(7)(c)
1_1 :What
110 we found." : Id. (b)(7)(C) (b)(7)(C) taking on.
d was someWliatin 11 11 1IPTM rV 1 11 - Id. at'32- (b)(7)(C)
hold tell


Thi:til0Aathilit-4.014#06-110, 00010TsiOkete kfivAYAWO.M142;i404 :OW Wiiiireffolgolikal .b.40 • •

dfsatigure pat*. tAkituilonNOLiigiiall **Ma 1?).` thOtrift•OffOrg.*i0r OetiOrsti Iteriptatt.
• of thisiepoefshould itotdiisetolooto:or copy it iiiitnint the laspertorgenears. approval:.
(b)(7)(C)
4Yon don't know: wiutt
- related to the t5iridend issue- .rd: at S'?.-
you're talking ahout7

(b)(7)(c) (b)(7)(C)
e§tifiatlui a vidend tither,- I•
* 0 b)(7)(C)
1 t"

'Mtge s no there'. Thete's

1 It there (b)(7)(c) (b)(7)(C)
1.4
prepared a
(

analysis or ents, : • abg; (b)(7)(c)

- pared his own .
.etiS • (b)(7)(C)
: t • • igaii.1 r.tt4O WOE , tifiedthata.VtO (b)(7)(c) rran Istife.; t`i kgreed •
e tap ete (b)(7)(C)
1,6 . at 11). AcooriliTig patteriitavitery
II

Clear :ev e. lieh ed money; they needed it to pay. nct, ghesitid

1.4 t

that she an' BIM ere "'VeryeQueerneewitil what they found and conclusions
meshed tog , - 14.
7)
(b) ((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 to
getan esan1naton xCporLreetred.thEnitatemetitilieiailinch.chicfhato i coileni-
then. the AsistantDuetor, and 111615:V41. (b)(7)(c),
. would, tOnnuf onto
(b)(7)(C)
t .fit31:. - ACdOrd14 tC II 4 • Arefi -; irTalrfilI :Ie : to tnkreemen (b)(7)(C)
) :-:. It2- - i ,
03)(7)(c) -

stopped speaking to her forrnont Tq (b)(7)(C) (b)(7)(C 441, • n I I 4-4;111 :

time he was not speaking to 1 T. 049-pu. .gi .ditio■ (b)(7)(C)

(b)(7)(c) ■••,:li ar e Ii
(b)(7)(C)
her brawl chief essentially told her she Was =Utak' herr-otter on the line going ; 1

who.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 Allied
.

heeded to generate their dividends, : Einhomisaid in order ter-Allied wifundlheir shortfall they
had to eyentu* s.eteCillitTIO•raisg capital to pay 4 30 04(104 itvorcegtwdarmow from
.
-
new investors to 'satisfy income neqUiretnents 'Oeslitinghwestois: Eithorn reninticed to the
eonferatee. attendees, Ilero's atiatnefor titat flanghwtr .Einhorintirga refbieneinga.Ponzi
seheme. See littpliwww,fOolinOonie*pie.cOtn4the videgtFtP94;akefh)0 .
-
'I he GIG found:that oniMarA 3 :AAA Allied-vithielthe•
(b)(7)(C)
Senior Ofheial and others liveSinteitt Mtinagenient, Cop (b)(7)(C)
and
Exhibit 114 In that e- :4TtPlYPtto.aa, line.apur ysia shows that
llied. more than eevered it.s fetal divi Ontstking.the pet:WI 1995 to.2002:oitittasli
. . derived from its inv'estinent riett'iritice Winne& . '•
Our artalysis, OfdiSpositions duriuglhe:petiod7:1:1/02 to. 3134"01
shows that about.3:p40440p1004pcir4045ppgr,gits
monitizatibuotnoiwAsh-filkitOrs legtignizedlcs incomeitearligt
•. periods . trSing this 39%- to calculate what
. Of the II

49
 - TVs doom* touiliect to itte.prolas et* ttielbibley Aeuitl#74, *ma inOy teghikftWitc#4,_ bef
to thintorties, 1%4x:diction has been pettertned by the ottioe ofastidetor4 ontraL
•otthis report Soilift liotWaitolitilite 01=00 tieWithOdttlite itisPeAbie qtlifnaPs4POrOVO, '
-
prnoped sfroindispositions during dag period 199540 2002
presents me niertitization ofmOnash.inontrte ieoguiz' in
another year, m4041'4 this•Pa* tO the :cash flows generated by -

animal `opetatione Aims- that rush &rived front inVestinerii

activities biter th period mote than. cowth div
ed e idends* paid
duringlhe period- There is-no ,poni „KlimaMO ir447 Are.
Ofitle• added)
• (b)(7)(c) - ..,
11
(b)(7)(C)
1
did notteatealber tius e-ttanii tior did he meal *log sa. 0001,ab ou:t ,
, -

• 1 A4' 17Trii issue E., at 44: The examination iepert coat:shied the same language used
(b)(7) (C)
in 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 lOvVeribati
actual," Drliibit 75. . + 2
(b)(7)(c) 1 (b)(7)(C);(b) (8)
orepared notes ribritit Allied related te her tvpik on 1
k
investigation. EKlakt. 80. Aaneted,abov - 0 1 • e 1 4* WW1 41. 1 t PM That Ot
(13)(7)P vat, 044 (b)( 7 )(C)
(b)(7)(C)
an examination
b)(7)(C)
of Ailleil, APP
ut the exatnation.rindwas. s Pi MIT *hey liait :several= .. .(b)(7)(C)
: a
* e I II vT :71 I "

regarding Allied's' Va.kultion cifixivestAteiltss. kL - :aer. .4101/3g tO lier .06Dtg .

believed a. refenal.woUld be made to EnfOrtemell (b)(7)(C)

•
15.'64s
bn Jane 24, 200 ntadtediortith u
w anupdate on
OCI's review minr..7f7 j1111_ t.s, • - : tiy '(.'.0 Allied Capital.
eame 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 Irig
i 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)(C) lAWIIICS
.4* .,.: .4
dividend, but-that is net what. its hap
. ;„,■, 11 (b)( 7

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 # tie • ccaweacil
they y iriet wi.th. aboutzthedividencl issme during the extriiirtetio (b)(7)(C) qt.46i •
He further testified that he behaved there was a basis for saying Allied was • • eras money t:0
pay for their-dividends as part oftheir businesi inodel, which would:net:make ita Ponzi

50


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:

(b)(7)(C)
AL at 43, •
kurAvpit'vv"asuI fntilely flea* nOtieteritto
Edw.:cern (b)(7)(C)
eitpleitiedit was includeelin the examination re.pott,
03 OP
Ikea StMiigy abOtit it, so rthatglituhrtiot
Let 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 the
examination:process and concluded thai -thisscenatie that poiut Id nt 41
As 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
•

b)(7)(C)
.enEibtuaty 11, 209; and f.tgreed to give
(

otitaeteil the
testitriony-imder oath. that sameday
-.. • . condi:111w= that WI of her Allied files:were
gone- ' "I:" drive where eatarnhintionwork-paperS-and
reports. r. at 24-25. Accrdi. 404s C‘lveD4 the ,ritei were missi
- JantlilrY w en:another letter0fteMP ed tame in4om run Dri*man.
-a 32-34. The Senior' cid for:VI/aided this- : letter tin .00IE . (b)(7)(C)
requested ouvert the-letter to eleetronii3 fontuto send to the•PRO. .H at 31
While doing thi 'cledia also send the PRO other documents from her
examination and ern missing. (b)( 7 )(0) "d: that _the last time she had checked- the:
Allied documents on the "le' dtiye *us smim ye.ar She campleted the Allhx1 -
totanfinatki Id: at 3i-32. According (b)(7)(C) hfrAMed uded.gircaidshiets '
(b)(7)(C)
exaMination report iooPles 0 r0, udgtitOpmemos,infoRranienfann
:relevant fr4 at- 26. , .
SwPrisinglY had:ma& io prOfille o ide ftorkthe f4P" .
diive to IlieCtr trafferted .-the,tase to Enkatement,;andihon transterro4 tat-
file to- a CD: te take home* for Safe .,_a±•,H -because staffs had .drifts had been walling-414 ' •
documents were.• /4.14.27.
b)(7)(C)
said her hard.dtive files had beentOtally deleted. .
AL at 39.. (b)(7)(C) Mught S is nentssho behevedwereinthe •
a oopy ofthe r (b)(7)(C) .
Allied file on e chive- Exhibit 83: lil additici ed that several timeis SEC

51
 Tleis riadnaleat .ltatih,Rct ta the ptiaat OtbOrtiraey-Aet at 1#74, oitubajof rkitatrCrOugtlaa :41014t
il$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.Ve0uabltROA iii)4:101.10iValte;11 OtIR'a internal wehsite (b)(7)(C)

.
;at os .*6
47: S, f

(b)(7)(C)
*Alter': tier Allied file wasgone front the.“:1:n dri she bald her.

(b)(7)(C)
Id Ml. Upon beating that. the files 4. veretnits'
•7
(b)(7)(c) I eSnended, 001r. mrod., vtoCirA • IlOW•inany files?"
provicto b)(7)(c) whew. (b)(7) (c)
• 1 *low wily fdmiTyri .
ccordiniab)( 7 )(C) L (b)(7)(C) en. ei (b)(7)(c) e hilAli(r))(7)(C) IAA nreitims.
(b)(7)(C)
i -4(b)(7)(C) /
14 at
61-62, additior)( 7)(c) ingested they may also want .go to the • 010 Since
she*. read that the- 010 was reyiewing gmhOra'n hook. Ai 62.
(b)(7)(C) (b)(7)(C)
tified she et Witt to telt bim that the Allied file was
missing m e .L.:" drive (b)(7)(C) r. at 62. AccordIng b)(7)(c) (b)(7)(C) did not seem
veryaurprised or even concern oOded, • •

014 YotTMPs were 110044? Welt:the first thing wg neqd to dole

-

talk 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 has
access 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-
(

tOatified, "Dq)
e di
dora ara.
r was .
20044nd 29019, M.4016. She:rinthe.r
only ontiWitii tfcceSS ba' it IL a 45
• responsible tor the deleted files and
e ,•11.1 IiinistIE ar6869.
somebody gurposely deleted the Arnett Mel
Saida-mild havelappetied *fine .between
ibmeo e in, OCIgdatetedthe fades:hbealte .
she taitaguifeeling.That
directed the files - be deleted or he
•
r

tead receody that the Allied work mgro brad been

rat. •He admitted it wet -Initial ilAt work paperA to be

33
.•After *lacing (b)(7)(c) tesiiinotty; -the OM tried te d eterinine if = cimid find when
awl 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 filecould
be retrieved, as well as detcrmine how it happened, and whether controls could bepitt in,pinee to
prevent it from happening again, .1; A .1, , ; ked What the result of ingtihY
, -

whether the files could be lento • (b)(7)(C) '^•• fiP4,:n don't believe s" Ict at 56
further teseified, "I just haveal follow .:-.7 . lap on that particular issue'
(b)(7)(C)
teatifiedinyone in OMB on the."40.Act tide *coal have .ddetectiliost *Ma tinge
they 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 Einhorn
-

Provided Detailed Evidence of Allied gaud

As noted :above, Etirokomtaopened acrmal investigation Tinto Allied on' 2004

based oft ow: ()MP eviiminatinn tork;fied Mtly armata 9; 204. Eimbift 76 it
(b)(7)(C)
orh.nz at the SEC (b)(73A/11.S the lead attorney On this investigation?
(b (7)(C ctitan )(c) afietberaii (b)(7)(c) , and
) )
•
was (b)(7)(c) assigno itte Anied ower. (b)(7 )(C)

• During the three-year investigation of Allied by Enforcement, the USAOtor the

District of Columbia became invOlved early on and conducted a parallel criminal investigation:
Exhibit:84, The LISAti %vas inveattating the sit , Etifortemen _
ainissues as 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 '60111pAnylillied

ownetrand controlled, loVetennitte 'whether BLX fraudulently originated loans to
bOsinesSes. IL The MAO did Hot king sties-related fraud charges againsPtima 000.
* .

. I related entityor personas reSttit of ttutt investigation,. Separately, the MAO als0 .
.t .
- According
Accordingtnihe senior Official igreat job on theinyegigatian.: 5i9,110
. at P ..The Senior r isc
Official Tr tea e1:1, •

1-10 vms thowouglirx pritgai. forthese meetingilwith

'Enforcement and investment ManagenteM; He blow the
.

116 *Ms diligentitrithatiastic. He WAS eiticuy the

Idea of that was appropriate to investigate this ease as
• aS C011id:ta

.53


• 5%
• •
This document is:subjecttothdproNiskuts- of the Privacy Act of 19ii i andluarreqUire redaction: her*. • •
disclosure-to third Otitis...No reduction hash= pertonueirby Thetitruce oLlispcclor General. Reetient$ '
ofthisreportshooki notdiaeurmete or copy it viithoubithelospectorGeiteraPiapproval.... '•

invettigated whether Alliedglegally era: ti,a thetelelilitinereceirelSOftertain thia,13aitiesihtit

were critical OfAllied. =

(b)(7)(C)
• Ae,cording t • Entbrcoment received approximately 120 boxes of
related. 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 fro •■

M at 16-17.
(b)(7)(c)
old the OIG take had. worked for 65opP.,or Its 'Lybrand fork
t - a; few years in
- .0. . • , , , ,,.' onvalttation itqUit relidkd to 0:C..brides rd. at 20. Doting
'the 1980s and had some (b)(7)(C)
the Allied investigatio , .• , • - three difterentaccountailt.q asSigtied -to work
t - ., 1

•ratit with ' (b)( 7)(C) (b)(7)(C) way, then wiggler acceliOtaut to r w _ .
brierporiociof , • :FM A 20 until the end of the .
. •nr-Fait04
inVeStigatiO n 't
(b)(7)(C)
testified that (b)(7)(C) .: vety finpressiiie, bufthey lost' him to
work oo another' itwestig • • ..

(b)(7)(C)
orcement did notavork direcdy • n. the imrestigation,Athough
hetalked to her at the be 11 1 I tefeirgandvould get regular;
.36 id, at 16. AccO (b)(7)(C) ' =Wilt "pretty much agreed
csatnent of the valued• ' • _:•0 1• •-it
A410 *444 ,(4. at 22. As to the
onzt- eso me and dividend issue (b)(7)(C) that Enforcement danot lock•at tbat
issue specifically during the investigation_ at 54.
• . •

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
:
(b)(7)(c) (b)(7)(C) 7C)
(b)()(
N. owing SEC staff were at that meeting with inhorn: (b)(7)(C)
14.010-161- Awardingto Eli inonti he found the` EC-staffto •

"engag -polite
' inquisitive" although tbey had no knowl -
althorn had witli (b)(7)(c) (b)(7)(C) 0 1111Ore$ book at 134 84.204
•

(b)(7) (c)
According testified le gleanedinsiglittrinto Allied .through his reetv
Ofthar ottitpilOids theitafiefeANIVIlt fOribUgr4
gilii he learned a Allied made snecial arraogeements to. deliver
documents.te • " r71:1-Tv - .at thj Tr_ at 4445.
36
'When the ad ask. (b)(7)(C) . . ut-whether OCIE ekarninerhobaye conducted
examinations of kIMIS I are tbearef la • a rceknpnt *a on the m
(b)(7)(C)
:,,ZI ,11141

be. replie.d. tbrinligis no standard practic.i (b)(7)(C)

1 r. at 52-53. According
••EnfOramiletit would ask for Igiletattiiiiir to assist ig I% •foutiliettihd eitaidlittfiVii
Wit 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* biro
disclosure to thisil owlet. No rbthiothat has• been poktin:mint by itbio Witco nr4nonctor Contd.. Reciiplegs
.

dftkfts'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:Binhoto
.

about 'Allied old' that helestvelally

; . onemore thatvothettiultattliorivIlattlie
investigation wouldloolc :/d. at 11
(b)(5)

55
 - 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 valuation
since 197k sumeugpnai of0.43,1sheli00.thla is 0. t4totiouSty My Me1

and one that:neods updating by lh6:'Cunitnission,,Exhibitla; Senior Claial Ir at 8344: The k

Noon for the need to update the guidance, aecordirig to the Senior Official in Investment
Management, is that a lot bas happened in the Wus* •slime 1910 and the industry May not
- . .

believethe SEC is standing behind guidance issued that long ago. ill at:89.
n

(b)(5) p.

(b)(5) . or a C% wever,. eximarrattrirmmrrnti

would nein ziartiy. ssn esiu iis areato some
. extent, he believed (b)(5)
(b)(5)
" Senior atficial. Tr. at 103. '•
(b)(5)

Ilitelssaii#. of Whether Allied Weis a Pozri Sd Bcmjxsof How.it

Financed:itt Eivid0114 . Wai NOCInVestigated . *-
As discussed above, despito.haing referred from OM a.s isaatter ..
(b)(7)(C)
Erifilreenteiit did tot Iv • the Ropzi-14 Schein4 JO eL I• ' • e 4
(
&Wait iswgivitint •
b)(7)(C)
Wakt.re$OlgoilisSUe:. (b)(7)(C)
•
- . •
37
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 number
;

settled wag so great relativelo other areas of vvrongdoing. Id. at 104; See also Exhibit 9.

56.


T.14 -40.041eatis sntalf etto tho:proviiialitattlielrfitaeyikttof 074, tigal DUI require redaction bereri'
ilit4foretOthlrd pgrUes. flo. •rofs..1*
401 0* Of
1.trofikilky.t1i40A.r.*.e Orli:vector GeneraL Itteeipiotp
oil& rettorkslaiold tot ittittiikt* ot -oVra *004 the ttiopeiroirititeraes-approvaL
(b)(7)(c) ' . . - •
toi4my Alperviser, .
4 1 . . • - 7....• ). 111Ve the experience, Pd
t oy 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 a
detenniation on that issue. Id-- •
( b)(7)(C)
testified he diduortry , _11.4. . S.. _ : 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 'MAO
looked at the: issue. ofAllied's dividends, Zit* 55. B (b)(7)(c) tea. that the dividendissae
was tied to the issue of valuation. because it appeared . fr . .tini. .eiraales
I1 to show thOiriv.4
- I

gilan.00,. kl at 24, Win4101%; the Senierafficial in Investnett Management . 4.:415 P

-dividend issue interrelated ki die ItalnatiplliSnnai Senior Official Tr- 44-99., (b)(7)(C)
teatifiedhe did 400rnecessatily agree Allied-was a Poral4like scheme:he thoiight - 1 i
mixt* rigliidt.ROsitions in later . years the.BDC business model made it inheretitlyiift.
Id...at 51.5i*.

,iEgle no recall wheth(b)(7)(C)

, I 4 j 4 ' CI iSS.PP r rred from .0.Clbhail
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 exaniittaiiria
of Allied wa.5 their valuation, but that there was an bole of Allied notgenerating enough
-

revenue Or companies to maintain their dividend payment- Senior Official Tr at 77. The
Senier Official did not:recall hOwle learned about the diVidend iksue, but said there were
several issues associated with it; lit at 78-79 Those:45mA included representations in Allied's
registration Statignent$ 'when they ral$4I money from 14vgdO0 abotitly4t1hgy intended to use
. - the Ribcoeds or arid if Allied said theywertiaising money' tn investment tolitivtliey were .

reallydoingSettellitig elan. leL According to the Se4Or-Offuld., One denderttWai. that they
I-
weredninithoffeiins to pay the .14e441 when theirjoimaments were 14 generating enough
. ,

retienueW 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

. 57
 06010egtissubject Orividsloasiattlie Prbfety Aktijr:15041a.larreqatro0200.0:tfeore. -

iospore to Wok patties, lihirtialattlea has been performed by the 011ie* et. taSpeetat genersiL Recipients
- illst
of thts tportstould oo6liSseialitate areppy it wireliporthoLosoiforGonotIOtorOvid...

ggaitedY YatuatiRIA PtWgs.s: for privatenance jovestments inn innune.rgoitsistent Aith„Alliecks

current practices; .E4tibit 84. Alliett msrequherl under. the settlement order to undettalee this
for two years. /4 iniadditien. AJReL agreed to cease and desist. frilmeonurtitti4 viOlations of
the sections of theRrehatige.A.itiaf 194 wlaielitequite,publie COMO** to we:unite
financial 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 Meeting
-

with Enforcement to Argue for Seffietnent .

(6)(7)(C)
•
According . Wilmeriltdo (b)(7)(C) Lk" tteetieg fto:
discuss theAflied invesvanom ExbibitS8 - fr‘• tit% (b)(7)(C) tatifidd
Ltas likely a. 0 It 1.1
(b)(7)(C)
Tr.:r:1 '
r.11■ il;-1110 4e: :11
(b)(7)(C)
• I
(b)(7)(C)
6
. at 64 ail . t

tit • ;Mt . ; 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, only
Wells meetings. EAR& 87. Moreover, the 7.0forceinent Manual states, "A Wells - notice
should bemwntspgwheaposstble.: Iffu We notice is givenorelly; itsliould be
.Proxi1P-4•1WoWeabrmitleAcontrma4on." Id. it appears no **ten notice vies given
to Allied.
.39
•asked if there were Wells.*meetings in the Allied investigatio

cginnot diviciothis up anciEgure ifontnnymoto. 1•

•a ttcaL Thertwexsóttleiuent meetings and
there were Waist/lettings. 3liere Were MeNing's
-

about Pro411elion oviocumputs.atosotmecitioga

in the course of the investigation. I On't fatale -
3
my.head.

40
The "Wells submission" process represents a critical pha:se in Enforcement •
invesfigatioris. Pursuant to the:Securities Act.Releaselito. 5310, Procedures Relating to
the Commencementof Enforcement Proceedings and Termination of Staffinvestigatlons •

.58


TiiisAaginnea/ 4subject thp oi*sotth4 i3f497.41:41141:4111ylies141ro red.40011 Wore

discJosurtothIaijes, No red.2611Og ial:been.performetbOheOfflee of1nspactOrGeBera,. UmiPte,ats'
bi this repOri shaaidraoi d iii ft or ejtWathOut. 111
. Pl1h.*pg . era
10 bee ' L's aPProVaL
' • .

(b)(7)(c) 61.(1
C
())C the:RI:it, .P.ithibit.g9.1(b) (7) (c)
(b)(7)(c)
and aaOtber pattgexfntox:Wilmektfal:O•
:represented Alba .•.777Eaaryb'xt

ted, heavilyanned. cb)(7)(c) .r - at43.
ter& ate ted thathe ets bitmght .W11 3 m
Oneo " fd. 0243 (b)(7)(C) 6 ik the :lead fOrEnfOreemetit
the lead for Allied in meting- 14 at At that 'meeting,
accord %hued the frtd: charges $44 ' e
e.company, as Arlpst this one perSOn," re rnngto this (b)(7)(C) •
r. atL .
The 010 obtained a copy of the presentation AiliCtr$ counsel gayer to :EAR/1001e* that
resulted 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 diSelosed
its valuation process; and (3) based. SEC precedent, AlliecPs valuationpractice ilidootjt§titY
-

an Enforcement action. Id.

(b)(7)(C) (b)(7)(C)
Decided Not toilring Vrand Chgrges
ter Meeting with AllfeRa Counsel
(b)(7)(C)
-AccOrdbiz folutd to beeredible; Shortly afterilie."pire-Wellsr ,

peeAing with Allied re he Wat told tit possiblefrautteliatonn AlRed were,

r

going to be dropped.. (b)(7)(c) •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 cain e
to 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•atAIST

decided to seek authority from the COmrdissioralo bring apublk adininistnitive.
proceeding or civil actIon againttlinindividualtitati*,, Filforeanititt staff
may adii$e .prospective defendantanfileproposed ofisrges against-Oxem and provide •
,

'them th.enNortunity to Ole a written statement "setting forth their interests and position" -

in aceotdaueovith Rule 5(e) Otte Conuniision's Rats on Infottnaland Other

.

ProCeditres, 17 C.P.R. § 202,5(c). Prospective defendants use these reSpondiug

statements - known by the SEC and the securities bar as Wells submissloe' .

opportunity to set forth theoasons why thettiffshoUld not pursue salt action before The
Commission brings formal charges.

59
 ••

• 'Oa 404itieuit 10.14e0 tb5.00sl .iiiees:01 the OrliagY Mt 9004 7 4. Add puitrOttribtella4thik bikre
Itistioute 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 that
vided input into the decision to drop
Id at o*
it was decided that EnforeementwOuld not pursue frsod lehaFgea against MI
testified: . •
•••••!•••
AftevoonsidedUgail of the faets4the PaSe urel the atguntents.
•that counsel toade of the fads. and dinZ143141/Z48 including
.

. litigation risks- The company plovidedas iettleatent offer

thattvethonght eneorapassed.what vas a reasonable leak...them:in
thistheft&
' andthat was the .endof . • • •
Id

• When esketi,, "If there (b)("s I I that (b)(n(c) • pre-WOUVeetinp with

Allied's counsel. that you an , 7 )(C) that 'fraud; charges were not

Vingto be brought, does the .souri 'wrong (b)(7)(C)
. p1.14 dlin't reinerribee et 56.
(b)(7)(C) (b)(7)(c) (b)(7)(c)
'd :it was lei; tO tartha 1111( w9re iikey awitytdby
• Wilmer a_m :• 411h: n. Id at 64: Diloreaver,, he.added that. he did not know if they were
influeo6ed NMP the four to , five otherlaw
ate. .. firm bet*
- (b)(7)(C) m. reviewing
1;.1 . :II - I! • rir!!TMI • : - • ii*(b)(7)(C)
(b)(7)(C)
about anOtherillYeStiga#41 in Whieli (b)(7)(c) ft§
oUtSt ftlr .1
771I= . • :
was dated October 31,:200$—the same tima wind in. •
other PatInOrg at Wiltnediale prointediteir argument that Allied should:
(b)(7)(C)
•witic ••: 1.1

flit 117171TO I :
(b)(7)(C)
abut wrmuld ac cept a beolcs and reends 6440:lee 90. Ift2that-
'41 asging lg,(7) Ogam taut:44)y ohue ploys:4a /.440.1.i. liskoap; .

(b)(7)(c) • • •

And it doesn't looklike titres a reetnintiendadion43 '0 the

comPallY Ofigbialfrthe 'company hAii.offe4 to pay a :
• ntiatantial penalty. Wonder villitliappened with that- •
• -
I actually heard this vas , where he made an
•offer and simultaneonsly wan mit something saying that
peualtywas inappropriate.

60


Thitaiitattoaqs liojiato otairittialioo. owe rtfropligt oorio.itoy oRitttogiutitoo ;44

ixii**41.;.0*p. third pogo* trio: re440401bM 6444.1)01/4005.01;09 1444**0#0. 0000:44, '140000 -
0h1§000:avihaukt not 0.4101111140-Pir 0.01 r101.400.0 44 4 %WOO geOrlirAia.000.14
1 4 •

(b)( 7)(C)
msp on ood ol
- ()(7)(c)
13 special ottalove them
Briribit91.
. • •

Whilethere is In) evidenee her that lied agreed to pay a very similar Ming
• happened hare at the same tithe - - ers,inci (b)(7)(C) offered to have I y

char Allied stdanit a.'boe ge vie

diilslinuttaireously statai a ndithat e
• was 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).1.• a pthoyatleast
a• 4.04410 'send anessage to the
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:
(b)(7)(C)
eged &attire driiing factor in dropping: the fratulelnirgevas
illack of evidence,. litigation risk, a detdrmination ler wbethei
this -me4W thosipiticaut. twig* Avouldwprire to continue
int FrisinvestiptiOn investigaWthP valnAtio14 Qnhe o ifwr
approximately 10Q Investments Attiedhact =do Ihat..nv had npt
• delved engngingina otexpedsoiter-*.itions-and
process that had been4piificandy thanged,by Alliedin
- . the
meantime.
Id at 36-37.
(b)(7)(C)
(b)(
laimed.there was no other way to establishmateriality. and. intent for a. fraud
charge:to 00k indre closelygt all of Allitxrs investmeaita, notinst the envie 4 0 V

Enfercement 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 - •
(b)(7)(C) •
ed tIlatifMiynifàrccmentiva4 -•-
u y overvalued,. Enforcement Vvordd have brought a case that they were
• 3 •
•
•
e. 41 • : - a .has pitvio.u.* investigated Whether former DivisionlYneeko,
(b)(7)(C)
greater access
accessio; and .i1114.16; 94,:efakeelinintinveationtitin* •.!

01 •-
ICKA Itepott of fitirgSfiggiQUV .1\10* 6I0-431 7
t•

ligiavest:gation of phii!pR Ciati44fitre of Pte.ferendal Treatmentand improper

Termination, see also Septenibet 30, 2009 Rocitt of Investigation:. • Case NO. 01G 5.02,.
. -

Allegatio.iis of hupro,per. Ind AsstuanceOlyen.. -

61
 T.474.000aoleat fa atihiott0414roitioai otilk0iAtocyctoi7oct moloofee.roacttoo
0-440111**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! ,
(b)(7)(C) (b)(7)(C) (b)(7)(C)
materia9y oyerphaf& op: le
• tOrtrioct
AMON investments- were:weli on (b)(7)(C) ITMI WM wo 0 ve- elpod their oase„
31 (b)(7)(C) Ix. at 86 facto ihe 01Q thotAllied argned.
oreeffient n o 1 0 A
Y estnients to show fraud triahat li
e.1 •

:thio argunient convirtc' (b)(7)(c) . at 41. • .•

• 3. TheTerms• of the. gettlemerlidryler

(b)(5)

• Ehihotwrote oholk his itiew ofthe SEC settler/lent with akd ho• ; "'The
consegitelite 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 ' Einhorn •

Tr.. at 109- EinhOrWS counsel said irwas "quite ;naval to me- that those [Orders] were
potentially 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 at
10-9 According to Oinhoro, ,theiihtl*plry at the SEC at the time was not to do any ha= to
shatr:hohiqandthat the belie was ifyou punish the ontpanryou punish thu'shateholdem
.

4'4 112,

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 _noted
;

that the problerliS with EIX were fmallreornintio light and win% "We havesaid for
years that Allied-run entity bus. engaged in gsygematie fiaultatregW at the AJ"
rsihibit •

62
 This dbcument is subleato theprovisiOnsof the.Privacrtief of .1974 t au& utny require to:1'1141ton before
disclosure 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 ininand

cominented 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
ultimate ord (b)(7)(c) chale- those yiolations.[of improper valuation]" Id at 107-108 TIe.
ft 3 1II
. I

also said 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)

(b)(5)
Ito the Director of Investment Ivianagement, told the tde: he
thinks thatbtrAttient wanted to b • : • •• • case hut-tboiliear were, not onina ta-ap.tAnnmvi
firm the. 0.rmimik.qine At that g
(b)(7)(c) a I -.14.1 (b)(5)
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 given
their political connections as well asihe Coimnissionatthat tithe being tcVory hinds.oft" Id a
- -

-4445. •

• The Settlmnent Agreement Ilad Deficiencies

(b)(5)
1. .

As noted aboye,nne ofthe only two elements contained in the settlement order with
Allied w,as thar it conEiniied to emi 1wn CV()M nvArq1ifQ niwertpriv vat/mann rimepee
( )(5)
Exhibit 92.
(b)(5)
(b)(5)
RXhitit$5., fit additiCial (b)M(C) . .....
• :file' sg3'01" 6.tift-WellS7 1'004 PeogritlgesPutibdia.Alliecrteb frinidvas a •
. ' sarrOus tongidetationalot onli for thtoo--duxinibitioef)(c) 35. (b)(5)
(b)(5)

1
1 z•
ecl thatthey didnotts a. he removaanazeplsced,. kJ. at35.
wit i eu than, bigger was to have a thirdTatty oonsultnnt "
433. lie added searied.to stricteriVitlinthere. Inyestmerits Arai
mi. • • •

• 63


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,

MAI :411113". illit . ;
(b)(7)(C)
I I SI git asi.but mea l:arid the
I
(b)(7)(c)
: 11 :UM (b)(7)(C) 74404, sebal. I : re04:that, os ha. fontitlitlilit
,

(b)(7)(C)
.
SVC 71 some i•41111 1 SAI , I EA, but Olabilild.untlgpthoagrecaileat
have.000 (b)(7)(C) id at 34. ', eitaikoil, "So was there a.coilcoil
-

nvetv : 91 *Investments but :y4 _going to hevne ofthe main parts

of esoiticiltot (b)(7)(C)
• POnded: .
Number Niel LtiOntretal/ that Nionbertivp I don't believo th4t
if:: had:had:each a . . 61. . I 'iIitOh.titfxitinyiSitiVidWxt kit '
-

we Wong have brotiht'that Cage. :IdOn't wwyonto. botoo

ranehin ineino that yeghave theta. We clearly didn't .
charg (filo/a: was a reason for that . .. OCCPSe we didn't
• haveany eVideode to prove tarnraticdaay• scoafities -

laws 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 Offici al That
98.- He added, "We ihoaghtthererwas an adequate basis tdraile4t4e6ously totsiderliv
charging 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 likely
that person. Id. at 98:

2.. Failure tC Monitar -Compliante with Settlenient Agreement:

There were no. provisions in the settlement agreement with ArnecLIO r ensming' their
4,q e 7 tintiolta
complianevIgth its terms iEvidilbit 92. Moreover,. Ergot •e (b)(7)(c) ee Allied for
compliance 41dt-the agreement. (b)(7)(C) 71;Ett127.4.120,: t- at 4041. Sitilibly; •
them WeiTO provisions regarding Of settlenten133n. 9!::Z Corcelillentl*DX14: which
LI Wooded:tote a ietc. twee for Eittirceitted: Stiff the inveetl.gation of potential federal
. •
. SoodilaolâtIoni.
- •• •

i ,-.-• :fied he hlelyreceivelia 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. Eiilhoza
- -

pre slit" nfAlLiedi:nntiOing to overvalue its InVestineatilithiding that of

En, .4.4 . SI I '..4

I3V. g (b)(7)(C) ed dandier than locik-at

;-• AI : someritianith
. from
. Allied. to see if
cedgilippregntatt a ..‘ 'were Wag madt(b)(7)(C) bv Aiged. heilid not: de anythiilg further with the
allegotkint in theletter IOW' he gave tc TE. at 122 -& 127; - .

•64


Thisllocumeit is'subject to thepravistoos tle Priv.14 Iteter1474i204. eiat tettaire rektagifn

re 6:611 411. parties No
aischisu . raaetionbaificee. pettottiabil the OtheelgIestleetetVoiietat. ..404 113104
ofthts repertshoektaot fosstialhate arvapyit talloatAelpoeetaKrionerat'Oppravol;
(b)(7)(C)
testified that hedid not tziw•show* pmpas. ofinoultoriognseftletttont
ageemenrworked. ict at 127. Who! ed ' 'someone mos.monitoring AlliedtO be -soreitrOta
doing '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 16
take 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'‘Ci
farther noted that Enforcement vputdtilIWP asked Allied for reports no a quarterly is in
the agreement la at 129.:

(b)(7)(C)
ad weiving.tha: Onion letter 42. AS los
monitoring e - Allied coinplied with the settleanent agree& fined, 'Mete ,
is riorprov.iSiort in "the - settlement order] fornicinitaitg." 4.4o. cd
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 we
believe that's necessary anditiS theirigh tO112ROLK the comittct
and perhaps recommend certainehanges... not Whet was
put here, whawaslequired
t here, forthesettlement And ihatig
lint eetrimon, • •.

If you're asking if it's common for to have language in our

settlement documents in which the Commission undertakes to
mainline a company to determine whether-it:is. doing w,t0t it sad
it wag going to do, ids. nontypical for oar sett.leinents: In fact I.
don't belivire they ever do. say that the COttunission Wil] hie
conducting regular oanninatiOnt to look at that.
Id. at 41,
(b)(5)

Recently Alliedatinotin titisbacquhedbyanothet.BDC, Ares 0 Opitid .

Corporation. and that lvmergerjs currently taking place. Pe

littp://www.businesswire:eom (Oetntier24,21)09):. .

65
 wsillokt thot iovutogi ot site .PrOkeY Aztor19741 00 44 toolotodatio6 book
-

No:0444ton )120seek orkein44 by glo Otte Ati5i.spoior dtikirt4 ,goOktais:

disclosure 44 third. Oirtted4 .

°Ma itoort shbutd togiiikAatirriagg ;fir onnvitvaihmeth.:

(b)(5)
 This. 'document b subject to theproiissIots otthe Meaty: Id trittNaoci ouiy. terioir redo Alio' before
-

dhelosere 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: riguisiona
, ,

were-made within the SEC with regardto the initialing and glacial► a to exatninat4m and
investigations. 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 niatkoritiirefethietraitAtaihre
dikkisisie 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 reejStetee b)(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 Allied
SEC connections and aggreSSiftittlai6StoaY have inftneneed Enfortente:nes,and OCIE's
decisions in thesonatte&

We are reeemmeading that then/reams DPOCIPSand Eprortgont-toefauy review

tins report of investigation and okaboo of the:examination: iwitiztvesiipfitios that are
.(Wcribiedin this report and give consideration to promulgating andierereaffing procedures
with regnrd to: . „ • '

{1.) how exathinntionsond investigations are initiated %tete there are retpleSt.1
froinoittiide liaisons oterititiesiiiiit whether speeifle ellegations
wrongdoing have been. provided, in detertnining-Wheilier to ambience*.
examination or investigation;
• (2) informing ittdiViduSIS arid entities: underinvestigationiliatbey are tiO longer
subjects of an investigation in a iiinelyinanner, as reoired by:theEnforcenient .
Matals4 .
ensuring that other thintitadiiional Wells meetings.ate nit utilized by
aggressive 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 frcra

-

OCIE cotainiterSysteint;
•
(6) Mundt!g that 0ClE. Management:is -not and* influenced by thepresence of
former SEC employes in ticarninatiOns and fliut all Issues identified us
potential 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 t
aro titirgaiglit447
•

In addition, we recommend ttitt the Blies Mee considermediods to , enSlye thatthere

appearance itnpropfiety whet-eft:Amer SEC staffattorneys text6kit Conipany•shottly
after their wotkattlie, SEC provideilihdaviviih specific aastagiveinfoimatiOn related to •
that company:, ThiS report is born prOided :to the Director of Eatftweem.CM AOLPS
Director of the Office ofCompliance Ins motions and Emuntaations,. the Etc Counsel; And
the Deputy Chief °MOO, Office of the Chairs .44

Submitted: •
a-014) -

•COncur: Date: 16

Approved: Date4 am

f9