UNITED STATES DISTRICT COURT SOUTHERN …...54. Attached as Exhibit 46 is a copy of AIPCA...

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

In re: Adv. Pro. No. 08-01789 (BRL) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

SIPA LIQUIDATION

Debtor, (Substantively Consolidated) IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC,

Adv. Pro. No. 10-05287 (BRL)

Plaintiff, v. 11 Civ. 03605 (JSR) (HBP) SAUL B. KATZ, et al.,

Defendants.

DECLARATION OF BRUCE G. DUBINSKY, MST, CPA, CFE, CVA, CFF, CFFA

Case 1:11-cv-03605-JSR Document 107 Filed 01/26/12 of 9

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I, Bruce G. Dubinsky, declare under penalty of perjury:

1. I am Bruce G. Dubinsky, a Managing Director at Duff and Phelps, LLC (“D&P”),

and a retained expert in the above-captioned matter. I submit this Declaration in support of the

motion for partial summary judgment brought by Irving H. Picard, trustee for the substantively

consolidated liquidation of the business of Bernard L. Madoff Investment Securities LLC, under

the Securities Investor Protection Act, and the estate of Bernard L. Madoff.

2. Attached as Exhibit 1 is a true and correct copy of my Initial Expert Report dated

November 22, 2011, and submitted to Defendants on or about November 22, 2011 (and a

corrected version submitted on January 6, 2012) (the “Expert Report”). I hereby incorporate by

reference the contents of the Expert Report as my sworn testimony as if fully rewritten herein.

3. A true and correct description of my background and qualifications is set forth in

the Expert Report at ¶¶ 2-11 and Appendix A.

4. The opinions rendered in the Expert Report and the bases thereof are detailed in

various sections of my Expert Report, including, but not limited to, ¶¶ 12-27 and Appendix B,

which identify (a) the methodology that I employed and/or supervised in connection with the

analyses performed, and (b) the sources of information and data that form the basis of my

findings, conclusions and opinions.

5. The information sources and data that form the factual predicate for my findings,

conclusions and opinions, include, among other things, voluminous BLMIS books and records

such as customer statements, portfolio management reports, portfolio management transaction

reports, as well as bank account statements and wire transfer documents.

6. Because of the voluminous and highly technical nature of these underlying

documents (detailed in my Expert Report at ¶¶ 12-27 and Appendix B), BLMIS books and


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records along with certain third-party data were loaded by FTI Consulting, Inc. into multiple

Microsoft SQL Server Databases (the “SQL Databases”), and provided to D&P for use in

connection with the Expert Report. Databases, such as Microsoft SQL, are industry standard

tools used to consolidate and perform computations on large data sets, such as those obtained

during this investigation.

7. To the extent any such data in the SQL Databases were used to support the

analyses or the opinions I rendered in the Expert Report, the accuracy of the data was tested by

D&P to ensure reliability.

8. I understand from counsel that these SQL Databases were produced to Defendants

in discovery, and are available to the Court upon request.

9. The Defendants have had a full and fair opportunity to question me at my

deposition on January 11, 2012 about my qualifications, methodology, and underlying source

materials, as well as about the findings, conclusions and opinions I rendered in my Expert Report

at my deposition on January 11, 2012. There were a number of exhibits entered at my

deposition, many of which are referenced below.

10. Attached as Exhibit 2 is a copy of Form BD for Bernard L. Madoff, dated

December 31, 1959, with the Bates numbers PUBLIC0003607-PUBLIC0003614.

11. Attached as Exhibit 3 is a copy of Madoff Holdings Ltd. incorporation

documents, with the Bates number PUBLIC0006083.

12. Attached as Exhibit 4 is a copy of Special Resolution of Madoff Holdings

Limited, with the Bates number PUBLIC0008959.

13. Attached as Exhibit 5 is a copy of Bernard L. Madoff Lease Summary 885 Third

Avenue, with the Bates number CWIE-BR00002468.


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14. Attached as Exhibit 6 is a copy of Portfolio Netcap Totals by Group-A&B dated

March 31, 1993, with the Bates numbers MADTBB03079814-9910.

15. Attached as Exhibit 7 is a copy of Bernard Madoff, “Letter to Client” dated

March 16, 1999, with the Bates number AMF00139075.

16. Attached as Exhibit 8 is a copy of excerpts from Frank J. Fabozzi, The Handbook

of Fixed Income Securities, 1372 (7th ed. McGraw Hill 2000).

17. Attached as Exhibit 9 is a copy of Arshanapalli, et al., New Evidence on the

Market Impact of Convertible Bond Issues in the U.S. 17-18 (2005).

18. Attached as Exhibit 10 is a copy of excerpts from Frank Fabozzi, Jinlin Liu, &

Lorne N. Switzer, Market Efficiency and Returns from Convertible Bond Hedging and Arbitrage

Strategies (2009).

19. Attached as Exhibit 11 is a copy of New York Exchange Bonds Daily Records,

dated January 9, 1985.

20. Attached as Exhibit 12 is a copy of the S&P Bond Guide, dated February 1985.

21. Attached as Exhibit 13 is a copy of Following a Trade: A Guide to DTCC’s

Pivotal Roles in How Securities Change Hands.

22. Attached as Exhibit 14 is a copy of excerpts from Moody’s Industrial Manual

(1985).

23. Attached as Exhibit 15 is a copy of excerpts from Moody’s Industrial Manual,

(1985).

24. Attached as Exhibit 16 is a definition of “Transfer Agent” from the U.S.

Securities and Exchange Commission’s website.

25. Attached as Exhibit 17 is a copy of the Securities Exchange Act § 17A(c).


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26. Attached as Exhibit 18 is a copy of the 15 U.S.C. § 78 (2010).

27. Attached as Exhibit 19 is a copy of excerpts from Moody’s Bank & Finance

Manual (1980); Moody’s Industrial Manual (1984); Moody’s Industrial Manual (1980);

Moody’s Industrial Manual (1978); Moody’s Bank & Finance Manual (1981); Moody’s

Industrial Manual (1979); Moody’s Public Utility Manual (1979); and Moody’s Industrial

Manual (1982).

28. Attached as Exhibit 20 is a copy of trading authorization guidelines dated July 3,

1991 at Bates number AMF00139560.

29. Attached as Exhibit 21 is a copy of Madoff Tops Charts; Skeptics Ask How by

Michael Ocrant (MAR/Hedge, May 2001).

30. Attached as Exhibit 22 is a copy of the S&P Indices.

31. Attached as Exhibit 23 is a copy of National Securities Clearing Corporation-

Rules and Procedures, page 51 (October 11, 2011), with Bates number MMAD-BR0002 1287.

32. Attached as Exhibit 24 is a copy of OEX & XEO S&P 100 Index Options, A

Discussion on the Benefits and Uses of the First Listed Index Option.

33. Attached as Exhibit 25 is an excerpt from the New York Stock Exchange website

– funerals of U.S. Presidents.

34. Attached as Exhibit 26 is a copy of FINRA Notice 95-26 (April 1995).

35. Attached as Exhibit 27 is a copy of the Prospectus, Fidelity Spartan U.S. Treasury

Money Market Fund, U.S. Government Money Market Fund, & Money Market Fund (June 29,

2005).

36. Attached as Exhibit 28 is a copy of STMTPro from the AS/400 at BLMIS, with

Bates number MDPTSS00001484.


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37. Attached as Exhibit 29 is a copy of a document bearing Bates numbers

MESTAAF00009202 – MESTAAF00009203.

38. Attached as Exhibit 30 is a copy of a document bearing Bates number

MDPTGG00000002.

39. Attached as Exhibit 31 is a copy of a document bearing Bates number KFON-

BR00030551

40. Attached as Exhibit 32 is a copy of a document bearing Bates numbers ELIP-

BR00004715-4876.

41. Attached as Exhibit 33 is a copy of a document bearing Bates numbers

MADTSS00329114-127.

42. Attached as Exhibit 34 are handwritten documents recovered from BLMIS, with

Bates numbers MADTSS01124263, MADTSS01124265, MADTSS01124267-8,

MADTSS01124272.

43. Attached as Exhibit 35 are handwritten documents recovered from BLMIS, with

Bates numbers MADTSS01124091, MADTSS01124093, MADTSS01124089,

MADTSS01120262, MADTSS01124092, MADTSS01124095.

44. Attached as Exhibit 36 are excerpts from 17 C.F.R. 279.1 [44 FR 21008, Apr. 9,

1979] from the electronic code of Federal Regulations.

45. Attached as Exhibit 37 is a copy of Investment Advisers Act Rule § 203-1 from

the SEC website.

46. Attached as Exhibit 38 is a copy of 15 U.S.C. § 80b-3.


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47. Attached as Exhibit 39 is a copy of the Uniform Application for Investment

Advisor Registration for BLMIS filed January 7, 2008 from FINRA website, with Bates number

PUBLIC0003840.

48. Attached as Exhibit 40 is a copy of SEC Rule 17a-5.

49. Attached as Exhibit 41 is a copy of General Instructions to FORM X-17A-5

PART 11A (FOCUS Report).

50. Attached as Exhibit 42 is a copy of BLMIS December 2006 FOCUS Report,

Bates numbers PUBLIC0002663-64.

51. Attached as Exhibit 43 are copies of excerpts from BLMIS FOCUS Reports,

Bates numbers PUBLIC0002693, PUBLIC0002664, PUBLIC0002888, PUBLIC0002859,

PUBLIC0002801, PUBLIC0002780, PUBLIC0002959, PUBLIC0003022, PUBLIC0003085.

52. Attached as Exhibit 44 are copies of excerpts from JPMC 703 monthly bank

statements, Bates numbers JPMSAB0002808-09, JPMSAB0003289-90, JPMSAB0003768,

JPMSAB0003703-04, JPMSAB0004355, JPMSAB0004311, JPMSAB0004570,

JPMSAB0003948, JPMSAB0003455.

53. Attached as Exhibit 45 are copies of excerpts from BLMIS FOCUS Reports,

Bates numbers PUBLIC0000100, PUBLIC0000070, PUBLIC0000040, PUBLIC0000010,

PUBLIC0000219. PUBLIC0000189, PUBLIC0000159, PUBLIC0000129, PUBLIC0000338,

PUBLIC0000308, PUBLIC0000278, PUBLIC0000248, PUBLIC0000457, PUBLIC0000427.

PUBLIC0000397, PUBLIC0000367, PUBLIC0000576, PUBLIC0000546, and

PUBLIC0000516.

54. Attached as Exhibit 46 is a copy of AIPCA Professional Standards, Auditing

Section 220.03.


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55. Attached as Exhibit 47 is a copy of New York State Accountancy Regulations,

Title 8, Section 29.10a-5.

56. Attached as Exhibit 48 is a copy of SEC Rule 17a-5.

57. Attached as Exhibit 49 is a copy of one page from the New York State Education

Department website.

58. The foregoing Exhibits 2 to 49 are excerpts from Exhibits 25-A, 25-B, and 25-C

from my deposition in this matter held on January 11, 2012.

59. I affirm that the deposition testimony that I gave was truthful at the time given

and continues to be true and accurate.

60. I further affirm that the findings, statements, conclusions and opinions in the

Expert Report and in this Declaration are truthful and accurate.


EXHIBIT 1

(Part 1 of 3)

Case 1:11-cv-03605-JSR Document 107-1 Filed 01/26/12 Page 1 of 71

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

In re:

BERNARD L. MADOFF INVESTMENTSECURITIES LLC,

Debtor,

Adv. Pro. No. 08-01789 (BRL)

SIPA LIQUIDATION

(Substantively Consolidated)

IRVING H. PICARD, Trustee for the Liquidation ofBernard L. Madoff Investment Securities LLC,

Plaintiff,v.

SAUL B. KATZ, et al.,

Defendants.

Adv. Pro. No. 10-5287 (BRL)

11-CV-03605 (JSR) (HBP)

INITIAL EXPERT REPORT OFBRUCE G. DUBINSKY, MST, CPA, CFE, CVA, CFF, CFFA

BAKER & HOSTETLER LLP

45 Rockefeller PlazaNew York, New York 10111Telephone: (212) 589-4200

Facsimile: (212) 589-4201

Attorneys for Irving H. Picard, Trustee for theSubstantively Consolidated SIPA Liquidation ofBernard L. Madoff Investment Securities LLC andBernard L. Madoff


Expert Report of Bruce G. DubinskyPage 2 of 124

TABLE OF CONTENTSI. THE ASSIGNMENT................................................................................................................ 6

II. EXPERT BACKGROUND AND QUALIFICATIONS .......................................................... 6

III. Summary of ASSIGNMENT, scope and methodology............................................................ 8

A. Information Sources .......................................................................................................... 8

B. Conduct of Information Review and Analysis .................................................................. 9

IV. Summary of opinions.............................................................................................................. 11

V. FACTUAL BACKGROUND................................................................................................. 13

A. Bernard L. Madoff Investment Securities ....................................................................... 13

B. House 17 Operations ....................................................................................................... 14

C. Madoff Securities International Limited ......................................................................... 15

D. Key Individuals ............................................................................................................... 16

i. Bernard L. Madoff........................................................................................................... 16

ii. Frank DiPascali ............................................................................................................... 16

iii. David Kugel .................................................................................................................... 17

iv. Annette Bongiorno .......................................................................................................... 17

v. Daniel Bonventre............................................................................................................. 18

vi. Eric Lipkin....................................................................................................................... 18

vii. Joann “Jodi” Crupi .......................................................................................................... 19

viii. Jerry O’Hara and George Perez—Computer Programmers ............................................ 19

ix. Friehling and Horowitz ................................................................................................... 20

E. Computer Systems Overview.......................................................................................... 20

VI. EXPERT OPINIONS.............................................................................................................. 24

A. OPINION NO. 1: HOUSE 17 WAS NOT A LEGITIMATE BUSINESS. .................... 24

i. Fictitious Trading in House 17 - There is no evidence that the purported investmenttransactions for House 17 customers ever occurred at least as far back as the 1970s. In fact,the evidence shows the trading did not occur. ....................................................................... 24

a. The Purported Convertible Arbitrage Strategy – the 1970s to the 1990s: There is no evidence

that the purported convertible arbitrage strategy for House 17 customers actually occurred. In fact,

the evidence proves that the purported trades did not occur. ...........................................................24

(i) Convertible arbitrage strategy - House 17 Customers......................................................25

(ii) Purported convertible security trades exceeded the entire reported market volume for

certain days...............................................................................................................................27



(iii) Purported purchase prices of convertible securities on customer accounts did not

represent true prices..................................................................................................................30

(iv) Convertible securities continued to be purportedly traded by House 17 even after they

were called for conversion. ......................................................................................................31

(v) House 17 did not account for dividend payments or accrued interest on the convertible

bonds thereby evidencing the fictitious nature of the underlying transactions. .......................32

(vi)There is no evidence that House 17 converted the convertible securities into common

shares..................................................................................................................................33

(vii) Fictitious Convertible Arbitrage Trade Confirmations ................................................37

b. Following the 1992 SEC investigation of A&B, BLMIS purportedly transitioned from

convertible arbitrage to the split strike conversion investment strategy. .........................................42

c. The Split Strike Conversion Strategy- the 1990s and later: There is no evidence that the

transactions purporting to represent a split strike conversion strategy for House 17 customers ever

occurred. In fact, the evidence shows that these transactions were fictitious. .................................47

(i) Purported equity and option trades exceeded the entire reported market volume for

certain days...............................................................................................................................48

(ii) Hundreds of thousands of purported House 17 trades, affecting over 5,500 accounts,

were priced outside the trading day’s price range evidencing that they could not have been

executed....................................................................................................................................48

(iii) House 17 purportedly bought low 83% of the time and sold high 72% of the time

(VWAP Trades) evidencing the fictitious nature of the trades. ...............................................50

(iv) Thousands of purported securities, affecting over 3,700 accounts, were recorded by

House 17 as having settled on weekends or holidays when the exchanges are closed. ...........51

(v) Thousands of purported House 17 split strike conversion equity and option trades,

affecting nearly 6,000 accounts, were recorded as having settled on days not within the

standard settlement duration timeframe. ..................................................................................52

d. There are no legitimate records from the DTC (or other clearing houses or custodians)

evidencing any trades occurring from House 17..............................................................................53

(i) Reconciliation of House 5 holdings to House 17 holdings via DTC records...................54

(ii) Fake DTC Screen Reports created by House 17 ..........................................................56

(iii) Reconciliation of House 5 options trades to OCC........................................................64

e. Approximately $4.3 billion of dividends reported on House 17 customer statements were

fictitious and were never received by BLMIS on behalf of its customers. ......................................65

f. House 17 was “Schtupping” certain customer returns. ............................................................68



g. The computer system used by House 17 was basically a system used to facilitate the fictitious

trading activity and to print trading documentation and customer statements to support such

fictitious activities. ...........................................................................................................................75

h. The underlying computer code generated and utilized by House 17 was developed and

modified over the years. ...................................................................................................................78

i. Underlying computer code in House 17 produced a random order generator to support

fictitious trades on customer statements...........................................................................................81

ii. Various reports that House 17 prepared were false......................................................... 87

a. Customer statements contained fictitious trades that were backdated. ....................................87

(i) The financial and regulatory statements produced by BLMIS were false and

misrepresented the firm’s true financial state of affairs. ..........................................................93

a. Registration statement ADV filed with the SEC was false and was not timely. ..................93

b. FOCUS reports and the audited financial statements were false and misrepresented the true

state of BLMIS. ............................................................................................................................94

c. F&H Audit Template Opinions Found at BLMIS................................................................97

d. F&H were not independent auditors as required by the AICPA and other regulatory bodies .

..............................................................................................................................................99

B. OPINION NO. 2: HOUSE 17 WAS A PONZI SCHEME. .......................................... 100

i. Indicia of Ponzi ............................................................................................................. 100

a. Definition of Ponzi scheme ....................................................................................................100

b. Background on Ponzi schemes...............................................................................................100

ii. There was no legitimate trading or investment activity and, therefore, no profits fromHouse 17............................................................................................................................... 101

a. No trading occurred in House 17 and redemptions were made using Other People’s Money.....

. ...............................................................................................................................................102

b. No other legitimate income-producing business activities were identified............................103

c. Dividends that were purported to have been distributed to House 17 customers were paid with

Other People’s Money....................................................................................................................104

d. Apart from the liquidity crisis, no financial support vis-à-vis any profits from House 5 was

evidenced........................................................................................................................................104

e. The 703 Account dealt almost entirely with customer deposits and redemptions. ................105

f. House 17 was dependent on increasing cash inflows and promised large returns to customers..

................................................................................................................................................107

iii. Further evidence that House 17 was not a legitimate business and was a Ponzi scheme isthat BLMIS was hopelessly insolvent. ................................................................................. 109



a. Balance Sheet Test: ................................................................................................................112

(i) Determination of Solvency of BLMIS ...........................................................................115

a. House 5 Financial Background ..........................................................................................117

iv. Selected Valuation Approaches .................................................................................... 118

a. Income Approach ...................................................................................................................119

b. Guideline Company Method ..................................................................................................120

c. Comparable Transaction.........................................................................................................121

v. The evidence shows that House 17 was a Ponzi scheme. ............................................. 122

VII. BASES FOR THE OPINIONS IN MY REPORT................................................................ 123

APPENDICES.............................................................................................................................. 124



I. THE ASSIGNMENT

1. In June 2011, I was retained by the law firm of Baker & Hostetler LLP (“Baker”) counsel for

Irving H. Picard, Trustee (“Trustee”) for the Substantively Consolidated SIPA Liquidation of

Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff

(“Madoff”), to provide forensic accounting analysis and render certain expert opinions (“the

Assignment”) related to:

Whether or not BLMIS’s Investment Advisory business (herein after referred to as

“IA Business” or “House 17”) was, in fact, a legitimate business; and

Whether or not House 17 was a “Ponzi” scheme.

II. EXPERT BACKGROUND AND QUALIFICATIONS

2. I am a Managing Director at Duff and Phelps, LLC (“D&P”) and City Leader of D&P’s

Washington, D.C. office and was retained by Baker to serve as an expert witness in

connection with the Assignment. My practice at D&P places special emphasis on providing

forensic accounting and dispute analysis services to law firms litigating commercial cases, as

well as corporations, governmental agencies and law enforcement bodies in a variety of

situations.

3. I earned a Bachelor’s of Science Degree in Accounting from the University of Maryland,

College Park, MD and a Master’s in Taxation (“MST”) from Georgetown University,

Washington, D.C. I am a Certified Public Accountant (“CPA”), Certified Fraud Examiner

(“CFE”), Certified Valuation Analyst (“CVA”), Certified in Financial Forensics (“CFF”) and

a Certified Forensic Financial Analyst (“CFFA”), all in good standing, and was formerly a

Registered Investment Advisor Representative.

4. I have been qualified and testified as an expert in various federal and state courts as an expert

witness in the areas of forensic accounting and fraud investigations; bankruptcy; solvency;

commercial damages; business valuations; investment theory; federal and state income

taxation; abusive tax shelters; accounting ethics and standards; accounting malpractice;

investment advisory issues; and a variety of other financial and tax matters. Additionally, I

have professional experience in the area of computer forensics and related computer



investigations and have undergone training as a part of the fraud and forensic training as both

a Certified Fraud Examiner and a Certified Forensic Financial Analyst.

5. Some of the more notable fraud and forensic accounting investigations that I have conducted

include:

International Brotherhood of Teamsters–Campaign compliance and related fraud

investigations for the International Officer Elections pursuant to the Consent

Decree – S.D.N.Y., 1997-present 1;

Lehman Brothers Bankruptcy2;

Washington Teachers Union fraud3; and

Firstpay payroll company fraud and Ponzi scheme.4

6. A current and accurate copy of my curriculum vitae and Federal Rules of Civil Procedure

Rule 26 disclosures are attached hereto as Appendix “A.”

7. The materials reviewed and considered in forming opinions and conclusions made in this

report include documents and other data referenced herein and listed attached hereto as

Appendix “B.”5 The opinions expressed herein are based upon my understanding of the facts

in this case, as well as information gained during the course of D&P’s performance of the

Assignment. Further, I relied upon my education, training and over 28 years of professional

experience, and my opinions and conclusions herein are stated to a reasonable degree of

accounting certainty.

8. As litigation service engagements performed by Certified Public Accountants are deemed to

be consulting services as defined by the American Institute of Certified Public Accountants

(“AICPA”), my work on the Assignment was performed in accordance with the applicable

standards as set forth in the Standards for Consulting Services established by the AICPA.

Further, as a result of having other relevant professional certifications, as more fully described

1 United States v. Int’l Bhd. of Teamsters, No. 88 Civ. 4486 (LAP) (S.D.N.Y. 1989).2 In re Lehman Brothers Holdings, et al., No. 08‐13555 (JMP) (Bankr. S.D.N.Y. 2008).3United States v. Hemphill, 514 F.3d 1350 (Ct. App. D.C. Feb 8, 2008); United States v. Hemphill, No. 03-CR-00516(RJL) (D.D.C. 2003); United States v. Bullock, No. 03-CR-00345 (RJL) (D.D.C. 2003); United States v. Holmes, No.03-CR-00032(RJL) (D. D.C. 2003).4 Wolff v. United States, 372 B.R. 244 (Bankr. D.Md. Aug. 3, 2007); Wolff v. United States, No. 03 30102 (PM)(Bankr. D. Md. 2006).5 See discussion infra regarding scope of documentation reviewed.



hereinafter, I adhered to the applicable standards of those governing organizations in the

performance of my work in this matter and the rendering of these opinions.

9. Fact discovery in this case has not concluded as of the filing of this report, and related

investigations are concurrently being conducted by various law enforcement agencies to

determine the existence of possible criminal and/or civil violation acts of some of the

individuals/entities described herein and others. Accordingly, this report is based upon the

information available to me and reviewed to date, and I hereby reserve the right to

supplement or amend this report in the event further additional information becomes available

for my review.

10. In accordance with applicable professional standards of the Association of Certified Fraud

Examiners, of which I am a member in good standing, this report contains no opinions on the

guilt or innocence of any person(s) and/or party(s) named and/or discussed in the report.6

11. I am being compensated for my work in this matter at the rate of $750.00 per hour, and my

fees are not contingent upon any finding or result in this matter.

III. SUMMARY OF ASSIGNMENT, SCOPE AND METHODOLOGY

A. Information Sources

12. Baker provided access to information, including but not limited to the following:7

A database containing over 28 million documents representing, among other things: (1)

customer statements; (2) bank account statements and other documents obtained

through third-party subpoenas; (3) internal documents and correspondence from

BLMIS; (4) and other documents, data, information and correspondence found on

BLMIS’s computer systems;

6 Code of Ethics, ACFE (last visited November 21, 2011), http://www.acfe.com/code-of-ethics.aspx. As there areparallel, ongoing criminal investigations and indictments pending in actions related to this matter, as well as anumber of individuals who have pled guilty and are cooperating with the Federal authorities, independent interviewswere not practicable or possible.7 Our access to documentation that was collected by the Trustee and made available to us was not limited in anymanner and allowed D&P to search for information and documentation that both supported the opinions containedherein as well as any countervailing evidence, if any. A complete listing of the documents considered is included inAppendix “B” of this report.



A database containing customer statement information compiled from underlying

supporting documentation and bank account information compiled from underlying

supporting documentation such as bank statements and wire transfer documents;

Electronic media and records obtained from BLMIS’s offices and storage facilities

including nearly 19,000 backup tapes, hard drives, cell phones, Blackberry devices and

other electronic information sources;

Hard copy documents housed in a BLMIS-rented warehouse in Queens, NY containing

over 11,000 large banker boxes of documents and information;

Deposition transcripts for persons deposed by Baker as well as other transcripts in

connection with the parallel liquidation proceeding in the United Kingdom;8 and

Visits to the BLMIS offices at 885 Third Avenue in Manhattan and to the BLMIS-

rented Queens, NY document warehouse.

13. In addition to the information to which we were provided access, we obtained additional

information where necessary to our investigation from publicly available sources. A

complete listing is included in Appendix “B” of this report.

B. Conduct of Information Review and Analysis9

14. The work conducted by D&P in connection with the Assignment was planned, supervised and

staffed in accordance with applicable professional standards. The work conducted by D&P

included, but was not limited to:

Review and analysis of documents, emails, etc;

Review and analysis of various bank accounts of BLMIS and Madoff;

Review and analysis of customer statements, trade confirmations and other related

documentation for House 17’s customers dating as far back as records were available –

back to the 1970s;

8 MSIL v. Raven, et. al., Claim No. 2010 Folio 1468.9 Records, documents and other information for certain periods were no longer available because the time period inquestion spans nearly 50 years (1960-2008). Nonetheless, the opinions contained herein are supported by availabledocumentation, which include over 28 million documents dating back to the 1970s and by alternative analysis wherehistorical documentation was no longer available.



Review and analysis of certain purported trading activity for House 17’s customers

dating as far back as records were available--back to the 1970s;

Review and analysis of certain trading activity for the market-making business (“House

5”);

Restoration, reconstruction, review and analysis of major portions of the AS/400

computer system utilized by House 17;10

Review and analysis of certain third party information regarding BLMIS and/or House

17 purported trading activity;

Review and analysis of certain accounting records;

Review and analysis of certain vendor files and invoices for supporting documentation

of expenses;

Computer forensic analysis of electronic media evidence; and

Review of deposition transcripts and other sworn testimony.

15. FTI Consulting, Inc. (“FTI”), hired directly by Baker, performed certain work and baseline

analyses at the direction and supervision of Baker. Such was conducted largely before the

retention of D&P. To the extent any such data was relied upon, or used to support analyses or

the opinions herein, the accuracy of the data was tested by D&P to ensure reliability.11

16. Given the sheer volume of transactional data and documents in this investigation, a vast

amount of analyses were performed using electronic computer analytics and data mining

algorithms. Further, advanced computer models were developed and utilized for certain

quantitative conclusions. Such analytics and models were developed and utilized consistent

with applicable professional standards.

10 See infra for description of computer systems.11 By way of example, statistical sampling was conducted on transactional data. Random samples of data wereselected and underwent extensive testing, including “ticking and tying” of information to source documents (e.g.,confirmation of information taken from historical microfilm customer statements or underlying bank statementtransactional data).



IV. SUMMARY OF OPINIONS

17. This section is meant to provide only a brief summary of my expert opinions in this matter

and to highlight the bases for such opinions which are fully discussed and supported

hereinafter.

18. Based on my experience and the results of my investigation of BLMIS (described in detail

throughout this report) I have concluded that: 1) the Investment Advisory business (i.e.,

House 17) was not a legitimate business; and 2) House 17 was a Ponzi scheme.

19. There is no evidence that the purported investment transactions for House 17 customers ever

occurred at least as far back as the 1970s.12 In fact, the evidence shows the trading did not

occur. Reconciliations of: 1) House 17 equity positions to available BLMIS Depository Trust

& Clearing (“DTC”) records and 2) option trades with the available Options Clearing

Corporation (“OCC”) records indicate that no securities transactions were executed by House

17.

20. The so-called “convertible arbitrage trading strategy” purportedly implemented by BLMIS in

the 1970s utilized fictitious trades that in many instances exceeded the entire reported market

volume for the particular security on the day it was purportedly traded. On numerous trading

days, trades were recorded at prices that did not represent true prices, as the prices reported

for the purported trades were outside the range of market reported trading prices on a given

day. Dividend payments and/or accrued interest were not reported by House 17 on many

customer statements even though the real convertible securities paid such dividends and/or

interest. Further, convertible securities were reported by House 17 as being traded on days

after the actual date of conversion reported by the issuing corporation, thereby evidencing the

fictitious nature of the purported trades. Lastly, there was no evidence that the purported

convertible securities were ever actually converted, again supporting the fictitious nature of

the purported trading activity.

21. The so-called “split-strike conversion strategy,” purportedly put into place by BLMIS in the

1990s, utilized fictitious trades that in many instances exceeded the entire reported market

12 See discussion infra regarding David Kugel, who recently pled guilty to federal securities and related fraud chargeson November 21, 2011 and stated that there was no legitimate trading in House 17 as far back as the 1970s. UnitedStates v. Kugel 10-CR-228, T’script of Plea Allocution DKT entry 11-21-11 (S.D.N.Y.) Nov. 21, 2011.



volume for the particular security on numerous trading days. Many purported trades were

recorded at prices that did not represent true prices as the prices reported were outside the

range of reported trading prices on a given day. House 17 supposedly executed 83 percent of

the buy transactions by share volume below the Volume Weighted Average Price (“VWAP”)

and executed 72 percent of the sell transactions by share volume above the VWAP, statistics

that evidence the fictitious nature of the trades.

22. Further, purported trades were recorded as being settled on weekends or holidays when the

U.S. stock and option exchanges were closed and were also supposedly settled after the

normal acceptable industry mandated time period of T+1 (for options) or T+3 (for equities),

again supporting the opinion that these trades simply never occurred. In addition, billions of

dollars of purported dividends earned that were reported on House 17 customer statements

were fictitious and were never received by BLMIS, again showing the fictitious nature of the

trades.

23. Additionally, House 17 created fake reports from the DTC trading clearinghouse which were

designed, in part, by utilizing the IBM AS/400 computer system as well as PC-based systems.

House 17 customer statements contained fictitious trades that were backdated using special

software (STMTPro) modified in-house to reprint customer statements after the fact. Also,

extensive in-house computer programs were created to conceal the fictitious investment

transactions.

24. House 17 was “schtupping”13 certain House 17 customers’ purported investment returns

utilizing a process to provide those customers with extra fictitious trades that were rigged to

generate additional fictitious gains in order to reach pre-determined rates of return thresholds.

The process involved a careful monitoring of certain accounts to ascertain levels of reported

investment returns throughout the year and those that were falling short, were given

additional fictitious trades, typically in December of that year, in order to bump the purported

yearly returns to levels that House 17 had promised those customers.

25. Additionally, various regulatory reports were falsified to conceal the fictitious investment

transactions utilizing false financial and other information.

13 See discussion infra on the context surrounding the so-called “schtupping” of House 17 customer returns.



26. House 17 was a Ponzi scheme, utilizing new customer monies to fund its operations as well as

to fund the withdrawal of fictitious profits and principal for its older customers. The Ponzi

scheme had been operating for many years as is evidenced by the fact that House 17 was not

generating any legitimate profits since no trading activity was taking place. Additionally,

House 17 was not receiving legitimate financial support from House 5 in amounts sufficient

to satisfy the cash requirement needs of the House 17 customer withdrawals and House 17

was not receiving any legitimate outside financial support vis-à-vis loans or otherwise.

27. As further proof of the illegitimate nature of House 17 and to support the opinion that House

17 was a Ponzi scheme, the overall solvency of BLMIS was assessed. Businesses operating

as a Ponzi scheme are hopelessly insolvent by their very nature. As further proof, a solvency

analysis was conducted and it was determined that BLMIS was insolvent as of at least

December 11, 2002 (a date selected by counsel for the six-year period prior to BLMIS’s

bankruptcy filing, “Valuation Date”). BLMIS’s customer liabilities were approximately $12

billion as of December 11, 2002, far exceeding the fair market value of its assets by $10

billion dollars.

V. FACTUAL BACKGROUND14

A. Bernard L. Madoff Investment Securities

28. In 1960, Madoff founded BLMIS as a sole proprietorship. BLMIS, a market making business

in Over-the-Counter stocks (“OTC”), was registered as a broker-dealer with the Securities and

Exchange Commission (“SEC”) as of January 19, 196015 and operated three business units:

(1) a market making business; (2) a proprietary trading business (together with the market

making business known inside BLMIS as “House 5”); and (3) an investment advisory

business (known as the IA Business or inside BLMIS as House 17).

14 My understanding of the factual background is based upon various sources of information including the pleadingsin this case, deposition transcripts and/or testimonial transcripts in connection with the parallel liquidationproceeding in the United Kingdom, and documents where footnoted. This recitation of the factual background servesto provide only a background summary of the facts as I understand them. It is my understanding that the foundationfor the facts set forth in this section of my report will be laid out at trial through evidentiary materials and will formthe factual predicate for any opinions contained herein that are based upon such facts.15 Form BD for Bernard L. Madoff, December 31, 1959. PUBLIC0003607-PUBLIC0003614



29. In 1987, BLMIS moved from its location at 110 Wall Street to the iconic “Lipstick Building”

located at 885 Third Avenue in Manhattan, eventually leasing the 17th, 18th, and 19th floors.16

House 5 was located on the 18th and 19th floors.17 Eventually, House 17 moved from the 18th

floor to the 17th floor.18

30. In 2001, BLMIS was reorganized as a single-member LLC with Madoff as the sole member.19

31. In August 2006, BLMIS registered as an investment adviser with the SEC claiming to have

23 accounts and $11.7 billion in assets under management.20

32. During 2008, House 17’s cash reserves dwindled to the point where customer redemption

requests exceeded the cash balance available. At his plea hearing on March 12, 2009, Madoff

confessed to federal authorities that the IA Business was a fraud.21

B. House 17 Operations

33. The House 17 customer accounts were administered in two groups: (1) the split-strike

conversion accounts; and (2) the non-split-strike conversion accounts (which included the

convertible arbitrage accounts).

34. A convertible arbitrage trading strategy aims to generate profits by taking advantage of the

pricing mismatches that can occur between the equity and bond/preferred equity markets.

This strategy is implemented when the bond market or preferred equity market is incorrectly

valuing the option component of the security relative to the underlying common stock price.

The investor is looking then to benefit from a change in the expectations for the stock or bond

over a period of time (see discussion infra for additional details on convertible arbitrage).

35. The split-strike conversion accounts were overseen by Frank DiPascali (“DiPascali”).22 This

group of accounts employed a strategy which purported to invest in a basket of common

stocks within the S&P 100 Index which was hedged by call and put options to limit customer

gains and losses. Madoff would purportedly decide when to unwind positions upon which the

16 Bernard L. Madoff Lease Summary 885 Third Avenue. CWIE-BR0000246817 LAZAA0004351- LAZAA000435218 Bernard L. Madoff Lease Summary 885 Third Avenue. CWIE-BR0000246819 BLMIS Articles of Incorporation for New York State. MADTSS0116034620 BLMIS ADV Form at 8, Aug. 25, 2006. PUBLIC000372921 See United States v. Madoff, No. 09-CR-213 (DC), Transcript of Plea Allocution of Bernard L. Madoff at 23, ECFNo. 50 (S.D.N.Y. March 12, 2009).22 See generally, Frank DiPascali, No. 09-CR-764 (RJS), Plea Allocution, Dkt. Entry 8/11/2009 (S.D.N.Y. 2011);United States v. Frank DiPascali, No. 09-CR-764(RJS), Information, ECF No. 7 (S.D.N.Y. 2011).



stocks were sold and the investments were moved into U.S. Treasuries and/or money market

funds and cash reserves.

36. The non-split strike conversion accounts initially represented a significant portion of overall

House 17 accounts, but became a small percentage of total House 17 accounts in the 1990s.

Generally, the non-split-strike conversion accounts were titled in the name of BLMIS’s oldest

House 17 customers.

37. Although BLMIS was touted as one of the most technologically advanced brokerages in the

country and was widely acknowledged as being “at the forefront of computerized trading,”23

as is discussed hereinafter, House 17 neither provided its customers with electronic customer

statements nor was there real-time access to their individual House 17 accounts at BLMIS.

C. Madoff Securities International Limited

38. In February 1983, BLMIS established its foreign operations with the registration of Madoff

Holdings Limited in London.24 In September 1988, Madoff Holdings Limited began

operating as Madoff Securities International Limited (“MSIL”).25 MSIL operated under the

Financial Services Authority (and its predecessors) in the U.K.26 and became one of the first

U.S. members of the London Stock Exchange.27 As of December 31, 2007, MSIL employed

approximately 25 people.28

23 BLMIS web archive Oct. 23, 2005,http://web.archive.org/web/20051023123110/http://www.madoff.com/dis/display.asp?id=20 (last visited Aug. 1,2011).24 Madoff Holdings Ltd. Incorporation documents. PUBLIC000608325 “Special Resolution” indicating that Madoff Holdings Ltd. changed its name to Madoff Securities InternationalLimited). PUBLIC000895926 MSIL Financial Statement and Directors Report. PUBLIC0005755 at PUBLIC000575727 BLMIS website, Oct. 23, 2005,http://web.archive.org/web/20051023123110/http://www.madoff.com/dis/display.asp?id=20 (last visited Aug. 1,2011).28 MSIL Financial Statement and Directors Report. PUBLIC0005785 at PUBLIC0005798



D. Key Individuals

i. Bernard L. Madoff

39. Madoff was the principal of BLMIS and oversaw both House 5 and House 17 businesses.29

40. On December 11, 2008, Madoff was arrested for securities fraud and related charges.30

41. On March 12, 2009, Madoff pled guilty to 11 counts of an indictment including federal

securities fraud and related offenses.31

42. On June 29, 2009, Judge Dennis Chin sentenced Madoff to the maximum of 150 years in

federal prison.32

ii. Frank DiPascali

43. DiPascali started at BLMIS in 1975 right after he graduated from high school.33 Over his

years with BLMIS, he worked as a research analyst, options trader,34 in addition to other

roles.35 DiPascali managed House 17 and was critical to the day-to-day activities of the IA

Business, interfacing with clients and overseeing House 17 employees.36

44. In 2009, DiPascali was charged with a ten count criminal information, and he subsequently

entered into a plea agreement. In his plea allocution, DiPascali admitted to learning of the

fraud in the late 1980s or early 1990s, and he stated that no purchases or sales of securities

actually took place in the client accounts.37 Instead, DiPascali created fraudulent account

29 BLMIS ADV Form at 23, Aug. 25, 2006. PUBLIC0003729 Madoff served as Chairman of the Board of Directorsof NASDAQ in 1990, 1991, and 1993, and was a member of the Board of Governors for NASD. BLMIS website,Oct. 23, 2005, http://web.archive.org/web/20051023123110/http://www.madoff.com/dis/display.asp?id=20 (lastvisited Aug. 1, 2011).30 United States v. Madoff, 586 F.Supp.2d 240, 244 (S.D.N.Y. 2009).31 United States v. Madoff, 09-CR-213, Plea Allocution at pp. 7-8, ECF No. 50 (S.D.N.Y. March 12, 2009).32 Id. at 49. In his plea allocution, Madoff admitted to operating a Ponzi scheme “to the best of his recollection” fromthe early 1990s until December 2008. Additionally, he stated that no securities had ever been purchased on behalf ofthe House 17 customers. Id. at 24, 29. While I have considered information contained in Madoffs’ plea allocution,my opinions in no way are predicated or based upon information contained therein and as set forth herein myinvestigation contradicts the duration of fraud claimed by Madoff. Moreover, David Kugel recently pled guilty inthis matter (see discussion infra) and has admitted that the fraud started in the early 1970s at House 17 and that notrading activity actually took place for House 17 customers, further supporting my opinions contained in thisreport. Information contained in the Madoff plea allocution was considered solely as part of the record in this matter.33 United States v. DiPascali, No. 9-CR-764, Plea Allocution at 45, Dkt. Entry 08/11/2009 (S.D.N.Y. Aug. 11, 2009).34 Id.35 Id. at 47.36 Id.37 Id. at 46.



statements using information gleaned from historical stock data to create the returns that

Madoff had promised the clients.38

45. On August 11, 2009, DiPascali pled guilty to federal securities fraud and related offenses.

DiPascali is facing 125 years in prison, but has yet to be sentenced.

iii. David Kugel

46. David Kugel (“Kugel”) worked for BLMIS for more than 40 years, originally starting in

1970.39 Prior to working for BLMIS, Kugel worked as a trader specializing in convertible

securities.40 For BLMIS, Kugel purportedly traded in convertible securities and applied an

arbitrage strategy to these stocks, buying both the convertible security and then shorting the

underlying stock.41 This arbitrage strategy is similar to the purported strategy that BLMIS

claimed to employ in the House 17 accounts from at least the 1970s to the 1990s.42

47. On November 21, 2011 (just one day before this report was issued), Kugel pled guilty to

federal securities fraud and related offenses, admitting that the investment fraud at House 17

started in the 1970s.43 Kugel is awaiting sentencing.44

iv. Annette Bongiorno

48. Annette Bongiorno (“Bongiorno”) worked at BLMIS from July 1968 until December 11,

2008. 45 She managed hundreds of House 17 accounts and supervised House 17 employees

including the key punch operators responsible for entering the purported trades.46 Many of

38 Id. at 47.39 United States v. Kugel, 10 Cr. 228 (LTS), Plea Allocution at 35-36 (S.D.N.Y. Nov. 21, 2011).40 See generally, Kugel Plea Allocution supra.41 See generally, Kugel Plea Allocution supra.42 See infra on convertible arbitrage strategy.43 “As to Counts One, Three, Four, and Five, I provided historical trade information to other BLMIS employees,which was used to create false, profitable trades in the Investment Advisory clients’ accounts at BLMIS. Specifically,beginning in the early ‘70s, until the collapse of BLMIS in December 2008, I helped create fake, backdated trades. Iprovided historical trade information – sorry - first to Annette Bongiorno, and late to Joanne Crupi, and others whichenabled them to create fake trades that, when included on the account statements and trade confirmations ofInvestment Advisory clients, gave the appearance of profitable trading when in fact no trading had actuallyoccurred. I helped Bongiorno, Crupi and others create these fake, backdated trades based on historical stock pricesand were executed only on paper.” United States v. Kugel, 10 Cr. 228 (LTS), Plea Allocution at 32 (S.D.N.Y. Nov.21, 2011).44 See U.S v. Kugel, No. 10-CR-228 (LTS), Information (S.D.N.Y. Nov. 21, 2011).45 United States v. Bongiorno, No. 10-CR-228, Superseding Indictment at pg. 5, ECF No. 36 (S.D.N.Y. Nov. 17,2010).46 Id.



the accounts that Bongiorno managed were close friends and family of Madoff and BLMIS

employees, and included some of the oldest Madoff clients.47

49. Bongiorno was charged with federal securities fraud and related offenses on November 18,

2010.48 She is awaiting trial.

v. Daniel Bonventre

50. As BLMIS’s Director of Operations, Daniel Bonventre (“Bonventre”) ran the back office at

BLMIS and oversaw the firm’s accounting and securities clearing functions for at least 30

years.49 He was responsible for overseeing the accounting functions for both House 17 and

House 5, including maintenance of the BLMIS general ledger.50 Bonventre provided

information used in the creation of the Financial and Operational Combined Uniform Single

(“FOCUS”) reports and the BLMIS financial statements.51

51. Bonventre was charged with federal securities fraud and related offenses.52 Bonventre is

awaiting trial.

vi. Eric Lipkin

52. Eric Lipkin (“Lipkin”) started at BLMIS in the mid-1980s and by 1992 was working in

BLMIS’s payroll and benefits department, processing the payroll and administering the

BLMIS 401(k) plan.53 In approximately 1996, Lipkin began working with Bongiorno,

Bonventre, DiPascali, Jodi Crupi, Jerrry O’Hara, and George Perez to maintain false customer

accounts, with Lipkin creating letters to clients indicating the purported balances in their

BLMIS accounts.54

53. Lipkin admitted to manufacturing customer statements to reflect the false holdings of

customer accounts, as well as, falsifying the books and records of BLMIS. Lipkin was

47See generally, Bongiorno Indictment supra at 45.48 Bongiorno, Indictment at pp. 70-96.49 United States v. Bonventre, No. 10-CR-228 (LTS), Superseding Indictment at pp. 60-92, ECF No. 36-1 (S.D.N.Y.Nov. 17, 2010).50 Id. at p. 4.51 Id. at 51.52 United States v. Bonventre, No. 10-CR-228 (LTS), Superseding Indictment at pp. 60-92, ECF No. 36 (S.D.N.Y.Nov. 17, 2010).53 Press Release, U.S. Attorney’s Office, Manhattan Attorney Announces Guilty Plea Of Another Employee OfBernard L. Madoff Investment Securities LLC, (June 6, 2011); United States v. Lipkin, No. 10-CR-228 (LTS),Information at pg. 5, ECF No. 138 (S.D.N.Y. June 6, 2011).54 Id. at 5-6.



charged with federal securities fraud and related offenses.55 Lipkin entered into a cooperation

agreement and on June 6, 2011, pled guilty to all six counts.56 Lipkin awaits sentencing.

vii. Joann “Jodi” Crupi

54. Joann “Jodi” Crupi (“Crupi”), who worked for BLMIS for approximately 25 years,57

performed many tasks for BLMIS. Crupi tracked the daily activity in the primary checking

account for the IA Business operations (the “703 Account”) to ensure there was enough

money for pending redemptions, and she authorized wire transfers into and out of the account.

Crupi created a Daily Report, delivered to Madoff every day, which reflected the 703

Account balance, customer deposits, and all pending customer redemptions.58 Similar to

Bongiorno, Crupi was also responsible for managing several House 17 customer accounts,59

for which she manufactured statements in order to produce the promised rates of return.60

55. Crupi was charged with federal securities fraud and related offenses on November 18, 2010.61

viii. Jerry O’Hara and George Perez—Computer Programmers

56. Jerry O’Hara (“O’Hara”) was hired in 1990 as a programmer in House 17 to create and

maintain the systems and functions that falsified customer account statements. George Perez

(“Perez”) was hired in 1991 to assist O’Hara. Perez and O’Hara’s programs and systems

created fake trade blotters and reports.62 Additionally, they maintained the systems that

falsified the trading data using historical stock prices to manufacture the customer statements

and other reports sent to customers.63

57. O’Hara and Perez were both charged with federal securities fraud and related offenses.64

O’Hara and Perez await trial.

55 Id. at 7.56 United States v. Lipkin, 10-CR-228 (LTS), Cooperation Agreement, ECF No. 138 (S.D.N.Y. June 6, 2011); UnitedStates v. Lipkin, 10-CR-228 (LTS), Minute Entry, Dkt. Entry 06/06/11 (S.D.N.Y. June 6, 2011).57 United States v. Crupi, No. 10-CR-228 (LTS), Superseding Indictment at pp. 5, ECF No. 36 (S.D.N.Y. Nov. 17,2010).58 Id. at 5-6, 44-45.59 Id. at 14-15, 20-21, 25-26.60 Id. at 14-15, 20-21, 25-26, 33-37.61 Id. at 60-92, 94-95.62 Id. at 27-38.63 See MDPTTT00000001- MDPTTT0000274864 United States v. Bonventre, No. 10-CR-228 (LTS), Superseding Indictment, ECF No. 36 (S.D.N.Y. Nov. 18,2010).



ix. Friehling and Horowitz

58. The BLMIS financial statements were purportedly audited by Friehling and Horowitz, C.P.A.,

P.C. (“F&H”), a three-person CPA firm.65

59. Jerome Horowitz (“Horowitz”), a licensed CPA in the State of New York,66 worked for

Alpern & Avellino before establishing his own accounting firm. Saul Alpern was Madoff’s

father-in-law and founder of the accounting firm. When Horowitz retired, his firm retained

the Madoff account and continued to perform the tax and audit services for the Madoff

brokerage firm. These duties were transitioned to David G. Friehling (“Friehling”) when

Horowitz retired.

60. On November 3, 2009, in the United States District Court Southern District of New York,

Friehling pled guilty to federal securities fraud and related offenses.67

61. As a result of the plea, Friehling was forced to surrender his CPA license to the State of New

York and is currently awaiting sentencing.

E. Computer Systems Overview

62. In operating either a market-making business or an investment advisory business such as

BLMIS, a minimum amount of computer hardware, software and connections to information

sources and regulatory systems is required. Often, firms engaged in market trading activities

develop information technology systems that enable and facilitate certain key functions, such

as customer management and provision of timely market information.

63. Customer management systems obtain information from clients regarding deposits, market

orders and withdrawals, as well as verify the accuracy of the same. Market information

systems facilitate timely communication of news and current market information instrumental

to investing decisions. This information may come from third party vendors, such as

Bloomberg, Dow Jones, and Thomson Reuters, as well as directly from the financial

65 See Audit Report to the 2000 audited financial statements. MADTEE0004602066 Office of the Professions, New York State Education Department (Nov. 20, 2011),http://www.nysed.gov/coms/op001/opsc2a?profcd=07&plicno=017210&namecheck=HOR.67 United States v. Friehling, No. 09-CR-700, Plea Agreement, Dkt. Entry 1/3/09 (S.D.N.Y. Nov. 3, 2009).



exchanges, such as NASDAQ. Systems that integrate customer management and market

information systems aid in the trading and investment divisions’ interaction with trading

markets by, among other things, identifying investment opportunities and generating optimal

execution strategies.

64. The following table provides a summary of the key systems, both hardware and software,

implemented in House 5 and House 17.

Table 1

Name Description House 5 House 17

ACES

Routed orders between order-entry firmsand market makers that have establishedrelationships with BLMIS.

BloombergProvided nearly instant financial andeconomic data.

Connectivity Overview

Approximately 80 connections to handleorder flow. These systems includedextranet providers, private lines and VPNinternet connections.

Limited68

CTCI Circuit

Reported trades to tape and cleared tradesthrough the NASDAQ/Trade ReportingFacility (“TRF”) and received tradeacknowledgements.

Custom Software

Software used to identify customeraccounts, individual securities, tradingactivity, pricing, dividend and proxyinformation, checks and other informationrelated to maintaining the accounts.

Custom SoftwareCustom software printed customerstatements and storing optical images.

DataWarehouse

An Oracle database that received andprocessed data from various transactionaldatabases and systems.

DTC System

Enabled securities movements for NSCC’s(described infra) net settlements andsettlement for institutional trades.

68 House 17 had very limited connectivity capabilities that basically consisted of an internet connection and an FTPsite. No connections to DTC or exchanges were identified and/or found.




Fix Engine

Facilitates electronic communication oftrade-related messages between equitymarket participants by incorporating thefree Financial Information eXchange(“FIX”) protocol, JAVA, XML andTIBCO integration technologies.

FormsPrint

Created forms that overlaid files generatedon the AS/400 in order to simplifyprinting.

IBM ApplicationSystem 400 (“AS/400”)

A popular system for small andintermediate sized companies, that hostedits information systems.

M2

A proprietary order entry and managementsystem that was integrated with the MISSsystem.

Maid

Provided to query and review executionsand make corrections in a batch processrather than one at a time.

MIMIXProvided backup and disaster recoveryfunctionality.

MISS

A central order management system formost trading activities, including marketmaking and proprietary activities. MISShandled, on average, 400,000 trades a daywith a capacity of over 1.4 millionexecutions.

MullerDelivered bond and dividendannouncement data.

NASDAQ QIXProvided real-time market data and tradingsystem.

Order Audit TrailSystem (OATS)

Tracked order events, including theorigination, transmission and thecancellation or execution.

Report ProgramGenerator (“RPG”)

Custom software that facilitated thegeneration of customer statements throughmanual entry, as well as interaction withHouse 5 systems.

ROBO and BlackboxTrading platforms that executed trades andmanaged Profit and Loss accounting.




Securities IndustryAutomationCorporation (“SIAC”)

Provided real-time market data fromSIAC’s Consolidated Tape/Ticker System(“CTS”) and Consolidated TapeAssociation (“CTA”).

Settled Cash(SETCSH17) Data file of customer account activity.

STMTProRevise customer statements from previousmonths if necessary.

StorQMOff-the-shelf product that enabled viewingand managing legacy reports.

Stratus VOSFront-end processing system to maximizetrading speed.

Superbook

A component of the M2 system thatprovided a consolidated view of allavailable market data for a particularsecurity.

Thomson One Provided trading functions.

Ticker PlantAn architecture system for datadistribution.

Time and SalesUsed by clients to view their historicaltrade data.

Time Slicing WebApplications

Customer order portal that enabledregistered clients to enter and track orders.

65. As discussed in greater detail later in this report, while House 5 had robust computer systems

that one would expect to see in a broker-dealer trading environment, the dearth of such

comparable systems in House 17 is in stark contrast and shows that trading in House 17 did

not occur.



VI. EXPERT OPINIONS

A. OPINION NO. 1: HOUSE 17 WAS NOT A LEGITIMATE BUSINESS.69

i. Fictitious Trading in House 17 - There is no evidence that the purportedinvestment transactions for House 17 customers ever occurred at least as farback as the 1970s. In fact, the evidence shows the trading did not occur.70

a. The Purported Convertible Arbitrage Strategy – the 1970s to the1990s: There is no evidence that the purported convertible arbitragestrategy for House 17 customers actually occurred. In fact, theevidence proves that the purported trades did not occur.

66. Convertible securities are generally fixed income and preferred equity instruments that allow

the purchaser to convert that security to shares of stock under pre-specified conditions set

forth by the issuer. Although there can be a myriad of covenants for convertible securities,

the most common conditions include a pre-determined strike price (i.e., price at which the

securities can be converted) and a pre-determined timeframe necessary in order to convert the

security into shares of common stock.71

67. Corporate convertible securities include the following:

Convertible Bonds: Corporate bonds that can be converted to company equity at somepredetermined ratio during a certain period of time.

Warrants: Similar to call options in that they provide an investor with the right (but notthe obligation) to purchase a security at a predetermined price during a certain period oftime, but issued by the company usually as a benefit to bondholders.

Convertible Preferred Stock: Preferred stock that can be converted to common equity atsome predetermined ratio during a specified period of time.

68. A convertible arbitrage trading strategy aims to generate profits by taking advantage of the

pricing mismatches that can occur between the equity and convertible instruments. This

69 I am using the plain English meaning of the term “legitimate” to mean “being exactly as purposed: neitherspurious nor false.” See Legitimate, Merriam Webster (Nov. 20, 2011), http://www.merriam-webster.com/dictionary/legitimate. Further, I am not opining on the trading activities or other business activities ofHouse 5 beyond its relevance to my opinions related to House 17.70 All discussion and opinions related to trading activities or positions held in House 17 are assumed herein to bepurported, including, but not limited to, all references to “trades,” “securities held” or “trading.” The opinion hereinencompasses the convertible arbitrage and split strike conversion trading strategies for House 17 which were thetrading strategies utilized for nearly all of its customers. A few self-directed trades for a single IA Business customerwere identified as being purportedly executed through House 5. The de-minimis number of these transactions doesnot impact my opinions herein.71 Frank J. Fabozzi, The Handbook of Fixed Income Securities, 1372 (7th ed. McGraw Hill 2000).



strategy is implemented when the convertible instrument is incorrectly valuing the option

component of the security relative to the underlying common stock price. The investor is

looking then to benefit from a change in the expectations for the stock or convertible security

over a period of time.

69. Normally, this arbitrage is initiated by simultaneously purchasing convertible securities and

selling short enough shares of the underlying common stock to create a delta neutral hedge.

(“Delta neutral” implies that the investor is protected from price movement of the common

stock.)72

70. With this trading strategy, if the underlying stock loses value, the potential arbitrageur will

benefit from the short sale of the stock, while still receiving constant interest payments to the

extent the underlying instrument was a bond. Conversely, if the stock price improves in

value, the loss on the short sale will be mitigated by the increase in the option value of the

underlying security.

(i) Convertible arbitrage strategy - House 17 Customers

71. During the 1970s through the mid-1990s, Madoff purportedly utilized a convertible arbitrage

investment strategy. House 17 customer statements suggest that this purported trading

strategy occurred, in theory, as the statements showed long convertible positions,

corresponding short positions, and positions converted and unwound (i.e., the short positions

were purchased back and/or the convertible security was sold).

72. In order to investigate House 17’s purported convertible arbitrage strategy, customer

transactions and statements were analyzed both in aggregate (i.e., across all customer

accounts) and on an individual customer account basis. The months of October 1979,

November 1979 and March 1981 were utilized and included all customer accounts that held

funds with BLMIS at that time.73 In addition to the three sample months, eight Avellino &

72 Arshanapalli, New Evidence on the Market Impact of Convertible Bond Issues in the U.S. 17-18 (2005).73 The customer ledger data for these three months were fully coded into a database by the Trustee’s consultants.



Bienes74 (“A&B”) accounts were utilized and analyzed from November 1978 through to the

date when the accounts transitioned to the purported split strike conversion strategy.75

73. For the relevant time period, House 17 customer statements purportedly employing the

convertible arbitrage strategy were tested against historical, independent market trading

records for the applicable securities.76 The daily price range, total daily volume and corporate

actions (e.g., dividends) of each security in question were analyzed in comparison to those

identified on the customer statements.

74. An example of how the purported transactions in House 17 were constructed can be seen in

Table 2 below. Customer statements from House 17 depicted that the clients were long in

convertible securities and short in the underlying common stock. In this instance, the

statement purports the customer was long Macmillan Inc. convertible debentures and short the

underlying common stock. However, as described in the following paragraphs, there are a

number of reasons why this trade, as presented (as well as the majority of the House 17

convertible arbitrage transactions in general) could not have occurred.

Table 2

A&B 1A0045 Account – Macmillan Inc Sub Deb Conv 8.75 – Due 2/15/2008

74 A detailed overview of A&B is discussed infra in this report.75 These accounts include: 1A0045 through 1A0051 and 1B0018. As noted supra in this report, the underlying dataused in these analyses were validated and tested. These eight accounts were utilized as the customer data associatedwith these accounts were fully coded by the Trustee’s consultants into a database.76 New York Stock Exchange Daily Stock Records, Over the Counter Exchange Daily Stock Records, AmericanStock Exchange Daily Stock Record, Wall Street Journal New York Exchange Bonds, and Moody’s IndustrialManuals.

Bates

Statement

Date

Transaction

Date Long Short Security Price Debit Credit

A MF00370649 1/31/1985 9-Jan 706,000 MACMILLAN INC SUB DEB CONV 8.750 2/15/2008 138 1,000,191.12$

B MF00370649 1/31/1985 9-Jan 705,000 MACMILLAN INC SUB DEB CONV 8.750 2/15/2008 138 998,774.42

C MF00370649 1/31/1985 10-Jan 41,300 MACMILLAN INC 44 7/8 1,853,337.50$

D MF00370649 1/31/1985 10-Jan 5,152 MACMILLAN INC 44 3/4 230,552.00

E MF00370649 1/31/1985 17-Jan MACMILLAN INC FRACTIONAL SHARES JRNL 30.20

F MF00371844 3/31/1985 14-Mar 705,000 MACMILLAN INC SUB DEB CONV 8.750 2/15/2008 DELV

G MF00371844 3/31/1985 14-Mar 41,300 MACMILLAN INC RECD

H MF00371844 3/31/1985 14-Mar 706,000 MACMILLAN INC SUB DEB CONV 8.750 2/15/2008 DELV

I MF00371844 3/31/1985 14-Mar 5,152 MACMILLAN INC RECD

Total 1,998,965.54$ 2,083,919.70$



(ii) Purported convertible security trades exceeded the entire reportedmarket volume for certain days.

75. Given there were relatively few actual convertible securities issued during the timeframe

House 17 purportedly utilized this strategy (i.e., 1970s through mid-1990s) (see Figure 1), it

would have been highly unlikely to find adequate trading volume necessary to generate the

dollar returns that appear on the customer statements in this timeframe.77

Figure 1

76. To test if the purported trades could have been legitimate, the daily volume from the long

convertible positions as indicated on the customer ledgers were compared to the historical

market volume for those securities on the specific days the trades purportedly occurred.

Customer ledgers from the three months, October 1979, November 1979 and March 1981

were analyzed to aggregate the relevant transactions to be tested. 117 unique convertible

security transactions were compared to historical daily trading volume of these securities.78

Of these securities, 110 of the 117 unique convertible securities that resulted in purported

trades (95%) exceeded the daily market volume traded for that day by an average of over 150

77 SDC Database of Convertible Securities Issuances, includes only issuances greater than $100 million. FrankFabozzi, Jinlin Liu, & Lorne N. Switzer, Market Efficiency and Returns from Convertible Bond Hedging andArbitrage Strategies (2009).78 There were 66 additional instances where publicly available market data could not be identified.

$-

$10

$20

$30

$40

$50

$60

$70

$80

Total Amount of Issuances in Market ($ bn)

Primary Purported Madoff Convertible Arbitrage Strategy Timeframe



times the entire reported daily volume for all trades in the market.79 In fact one security, UAL

Inc. Preferred Security A, purportedly traded nearly 1,219 times the actual daily volume, a

fact that shows the purported trades were fictitious.80

Figure 2

Breakdown of Purported Securities Exceeding Daily Volume for Three Months

77. To further test the volume analysis, eight A&B accounts were tested to determine whether the

transactions exceeded the actual daily market volume for the chosen convertible securities

between 1978 and 1998 (“A&B Time Period”).81 The daily historical volume for the

convertible securities was compared to the volume House 17 purportedly traded per the

customer account records, and results were similar to that of the three months analysis

79 A volume analysis was also performed for all the common equity that was shorted for the transactions executedduring these three months. Data was collected from the Daily Stock Price Record-New York Stock Exchange andthe Daily Stock Price Record-American Stock Exchange, which provide the end-of-month short positions. Thepurported House 17 month-end short positions for these three months were then compared to the publicly availabledata. The investigation concluded that of the 166 short positions for which data was publicly available, 57% of theHouse 17 purported short common shares positions exceeded the daily historical volume for the common shares. Infact, one position exceeded the daily volume by approximately 270 times the actual reported total market shortposition.80 Two of the largest European exchanges (London Stock Exchange and the Frankfurt Stock Exchange) wereanalyzed to assess whether or not these securities were traded in those markets. The investigation shows that none ofthe convertible securities were traded on those exchanges and could not have made up for the potential excessvolume that was not traded on the U.S. exchanges.81 This is the time period for which convertible arbitrage information was available for these accounts.

32%

2%34%

32%

No Trades Occurred Exceeded 1-2x

Exceeded 2-50x Exceeded by Greater than 50x



described above. 1,079 of the convertible securities in these eight accounts (over 90% of the

total) exceeded the daily volume on the transaction day by an average of nearly 30 times the

actual daily volume. Nearly forty percent of the trades occurred where there was no reported

volume at all in that particular security for that particular day. In one instance, the volume

reported by House 17 was over 500 times the total volume reported in the entire market.

78. Accordingly, the purported securities trades underlying the convertible arbitrage strategy for

House 17 customers could not have been legitimate trades as they exceeded the reported

volume of the entire market on the securities House 17 purportedly executed.

Figure 3

Breakdown of Purported Securities Exceeding Daily Volume for 8 A&B Accounts

79. These volume discrepancies are further illustrated with an individual transaction on a single

customer ledger. Referring to Table 2, on January 9, 1985, the A&B customer statement

states that $1,411,000 par amount of Macmillan, Inc. subordinate debt was traded (Row A

and Row B). However, on that day, this security did not change hands in the open market

(see Figure 4 below for listing of traded securities for January 9, 1985).82 Accordingly,

82 New York Exchange Bonds Daily Records, Wall St.J.,Jan. 9, 1985.

44%

5%

41%

10%

No Trades Occurred Exceeded 1-2x

Exceeded 2-50x Exceeded by Greater than 50x



House 17 simply could not have legitimately traded Macmillan, Inc. subordinate debt on that

day.83

Figure 4

(iii) Purported purchase prices of convertible securities on customeraccounts did not represent true prices.

80. The purchase prices for the convertible securities as stated on the House 17 customer ledgers

were tested against the historical market prices to determine if the purported House 17 trades

fell within the actual daily market trading range. As House 17 often purportedly executed the

same security several times per day for the accounts, each unique trade price was tested

against the historical trading range for that day. For the months, October 1979, November

83 The Macmillan Inc. subordinated debt could not have traded on the OTC market either. While the New YorkExchange Bonds listing does not reflect OTC trading, the S&P Bond Guide captures the month-end high and lowtraded prices for the exchanges and the OTC market. A review of the February 1985 S&P Bond Guide as of month-end January 1985 for the exchanges and the OTC market indicates that the high traded price for the MacMillansubordinated debt in January 1985 was $154 and the low was $141.5. Given that the House 17 customer statementsindicate a traded price of $138 as of January 9, 1985, this price is outside the possible traded range in both theexchanges and OTC market and could not have been traded in either market. S&P Bond Guide, February 1985, p. 10.



1979 and March 1981, 166 unique trade prices were tested.84 Of the 166 unique trade prices,

126, or 76 percent, were outside the actual daily market trading price range showing that the

prices listed on the customer statements were fictitious.85

81. The pricing discrepancies were further tested during the A&B Time Period for the eight A&B

accounts to determine if the same anomalies described above occurred throughout the

timeframe during which House 17 was purportedly implementing a convertible arbitrage

strategy for these accounts. Of the 1,127 securities with unique prices that were tested, 857,

or 76 percent, were outside the actual reported daily market price range.

82. This pricing issue is further illustrated earlier in Table 2 with the Macmillan, Inc. sub-debt

long position. The statement shows that $1,411,000 par value of the Macmillan convertible

bond was traded on January 9, 1985 at a price of $138 (Row A and Row B). However, given

that there was no trading of the bond on this date; House 17 could not have purchased the

Macmillan, Inc. sub-debt for $138. 86

(iv) Convertible securities continued to be purportedly traded by House 17even after they were called for conversion.

83. Many convertible securities have the option for the company to call the security at a

predetermined date or at the company’s discretion. That is, the company has the right to

convert the convertible securities into common shares. In instances where the bond or

preferred equity is called, the shares are converted on the record date at a determined amount.

Once the security is converted by the company it can no longer be held by an investor.

However, there are several instances where customer statements show that a convertible

84 In some instances historical data was unavailable. In the case of the Over-the-Counter (“OTC”) transactions, theonly publicly available information was the bid-ask and close prices. Therefore, no conclusive range could bedetermined.85 In those cases where the purported House 17 trades were higher or lower than the actual recorded daily markettraded prices, the House 17 prices themselves would have been the daily high or low. In the event that the out ofrange prices on the House 17 customer statements were the result of an inadvertent typing error (sometimes referredto as “fat fingering” ), House 17 would have had to issue corrected trade confirmations and customer statements withactual market prices. There is no evidence of any corrections or reissuance to account for these corrections.86New York Exchange Bonds Daily Records, Wall St. J., Jan. 9, 1985.



arbitrage transaction was purportedly still being held by a House 17 customer despite the fact

that the security had already been called.

84. In the case of Macmillan, Inc., Table 2 the subordinated debentures were converted into

1,645,071 shares of common stock in January 1985, however House 17 purportedly closed

out its position on March 14, 1985 (Row H). 87 This transaction simply could not have been

legitimately completed as depicted on the customer statement given that the debentures were

retired by MacMillian, Inc. well before the March 14, 1985 date that House 17 purports to

convert the convertible security and buy back the common shares.

(v) House 17 did not account for dividend payments or accrued interest onthe convertible bonds thereby evidencing the fictitious nature of theunderlying transactions.

85. One major component of a convertible arbitrage transaction is that the underlying convertible

security pays a regular coupon or dividend. This additional income impacts how the

transaction is executed as the coupon or dividend is considered in the valuation of the

underlying security, which is used to determine whether an arbitrage situation exists. In many

instances, however, House 17 did not account for the coupon or dividend payment during the

purported convertible arbitrage transactions.

86. An analysis was performed to identify actual dividend or coupon payments for those

convertible securities in which House 17 customers were purportedly invested as of the ex-

dividend date. The dates and amounts were then reconciled to the customer ledgers to

confirm whether or not House 17 accurately recorded these payments. In many instances, the

coupon or dividend payments were not recorded as being paid to the customer.

87. For example, Textron Inc. Preferred Convertible security paid a dividend of $0.52/share to

record holders as of June 15, 1982 (see Figure 5).88 A&B account A10045 was an account

holder as of this record date and should have received a dividend payment worth $6,592.56

(12,678 shares times $0.52/share). However, this payment does not appear on the A&B

account 1A0045 ledger.

87 MacMillan, Inc. at 4079, Moody’s Industrial Manual, (1985).88 Textron Inc. at 3553, Moody’s Industrial Manual (1985).


88. Based upon the foregoing discussion regarding dividend discrepancies, this investigation and

analysis shows that trading in House 17 did not occur.

(vi) There is no evidenceinto common shares.

89. Companies that have publicly traded securities typically use

transfer agents to keep track of the individuals and entities that own their stocks and bonds.

Most transfer agents are banks or trust companies, but sometimes a c

transfer agent.89 Companies that issue preferred convertible stock and convertible

subordinated debt must do so through these transfer or conversion agents.

90. The transfer agent maintains records of pertinent shareholder information,

addresses and number of shares owned. The transfer agent also adminis

payments for companies, including dividends to be paid to each shareholder and making

dividend distributions by mailing out dividend checks or through other

91. Given these agents stand directly between the issuing company and the security holder,

operations with these agents

convertible arbitrage strategy. The Secur

agents be registered with the SEC, or if the transfer agent is a bank, with a bank regulatory

agency.91 As a result, the SEC has strict rules and regulations in place for all registered

89 See Transfer Agents, U.S. Securities and Exchange Commission (11/20/11),http://www.sec.gov/answers/transferagent.htm.90 Id.91 The Securities Exchange Act § 17A(c), 15 U.S.C. §78 (2010).

Expert Report of Bruce G. Dubinsky

Figure 5

Based upon the foregoing discussion regarding dividend discrepancies, this investigation and

analysis shows that trading in House 17 did not occur.

There is no evidence that House 17 converted the convertible securitiesinto common shares.

panies that have publicly traded securities typically use third-party institutions known as


Most transfer agents are banks or trust companies, but sometimes a company acts as its own

Companies that issue preferred convertible stock and convertible

subordinated debt must do so through these transfer or conversion agents.

The transfer agent maintains records of pertinent shareholder information, such as names,

addresses and number of shares owned. The transfer agent also administers


dividend distributions by mailing out dividend checks or through other means

agents stand directly between the issuing company and the security holder,

agents would have been essential to carrying out House 17

convertible arbitrage strategy. The Securities and Exchange Act of 1934 requires that transfer


As a result, the SEC has strict rules and regulations in place for all registered

U.S. Securities and Exchange Commission (11/20/11),http://www.sec.gov/answers/transferagent.htm.

The Securities Exchange Act § 17A(c), 15 U.S.C. §78 (2010).


Based upon the foregoing discussion regarding dividend discrepancies, this investigation and

that House 17 converted the convertible securities

party institutions known as


ompany acts as its own

Companies that issue preferred convertible stock and convertible

such as names,

dividend


means.90

agents stand directly between the issuing company and the security holder,

House 17’s purported

requires that transfer


As a result, the SEC has strict rules and regulations in place for all registered



transfer agents that include minimum performance standards regarding the issuance of new

certificates and related recordkeeping.

92. In order to convert shares of preferred convertible stock or convertible subordinated debt into

common stock, shareholders must contact the company’s transfer agent and complete the

following:

Complete and sign a conversion notice provided by a conversion agent, and deliversuch notice to the conversion agent;

Deliver a certificate or certificates representing the shares of convertible preferredstock/subordinated debt to be converted to the conversion agent; and

If required, furnish appropriate endorsements and transfer documents.92

93. In order to have converted preferred convertible stock and convertible debt into common

stock, House 17 would have needed documentation from any entity that could convert the

shares and successfully execute the purported convertible arbitrage strategy. To test whether

proper documentation existed, ten purportedly converted securities were tested for proper

documentation as shown in Table 3.93

92 Such documentation usually contains most, if not all, of the following information: conversion date, conversionfactor (shares or price), total principal amount, total number of shares, name(s) and address(es) of person(s) in whosename(s) the shares required to be delivered on conversion of the shares are to be registered.93 Data obtained from Moody’s Industrial Manual for each of the respective years indicated in the table. The transferagent for each company is listed by year; data was reviewed for the year in which conversion occurred. Aetna Life at4303, Moody’s Bank & Finance Manual (1980); Reliance Group Inc. at 2478, Moody’s Bank & Finance Manual(1980);Eaton Corp. at 296, Moody’s Industrial Manual (1984); GATX Corp. at 1156, Moody’s Industrial Manual(1980); Lear Siegler at 384, Moody’s Industrial Manual (1978); Liberty National Corp. at 1493, Moody’s Bank &Finance Manual (1981); TenneCo Corp. at 3143, Moody’s Industrial Manual (1979); Texas Gas Transmission Corp.,Moody’s Public Utility Manual (1979); Trane Co. at 6053, Moody’s Industrial Manual (1982); TRW Inc. at 4518,Moody’s Industrial Manual (1982).



Table 3

Transfer Agents as of Conversion Date

SecurityDate of

PurportedConversion

Transfer Agents for Date of PurportedTransaction

AETNA LIFE & CAS CO PDF CONV $2 8/22/1980 Hartford National Bank & Trust

Morgan Guaranty Trust

RELIANCE GROUP INC PFD SER B CONV $2.20 7/25/1979 First Jersey National Bank Jersey City

EATON CORP PFD SER B CONV $10 3/13/1984 AmeriTrust Co., Cleveland

GATX CORP PFD CONV $2.50 6/3/1980 Manufacturers Hanover Trust

LEAR SIEGER INC PFD CONV $2.25 1/10/1979 Irving Trust Co.

United California Bank

LIBERTY NATL CORP PFD CONV $2.125 7/13/1981 Liberty National Bank & Trust

TENNECO CORP PFD $1.60 10/24/1979 Chemical Bank

TEXAS GAS TRANSMISSION CORP PREF CONV$1.50

12/12/1979 Chemical Bank

TRANE CO SUB DEB CONV 4.000 9/15/1992 9/23/1982 Morgan Guaranty Trust

TRW INC PREF SER 1 CONV $4.40 12/11/1981 Morgan Guaranty Trust

94. No relevant documentation related to transfer agents or the conversion of any of the

underlying convertible securities was identified. Absent this documentation and

communication with the transfer agents, House 17 could not have converted the underlying

shares into common stock for any of the thousands of transactions in its convertible arbitrage

strategy.

95. Further, House 17 did not consistently report on the customer statements that it had converted

the convertible securities into the required number of common shares based on the correct

conversion factor. For example, Coopers Industry Inc. Preferred Security B was purportedly

traded by House 17 on May 19, 1980. The adjusted conversion factor at this time was 7.2

common shares per convertible security; the adjustment was effective as of April 1980 due to

a 2-for-1 stock split (i.e., prior to April 1980, the conversion factor was 3.6). House 17,


however, did not account for the stock split and continued to use the unadjusted conversion

factor of 3.6 shares. As a result, House 17 customers who owned Coopers Industry Inc.

Preferred Security B during this time period received half the com

purportedly owed when the convertible security was converted to common shares in July

1980. As shown below, the House 17 customers received 12,938 common shares when they

should have received 25,876

96. Additionally, when the convertible security is converted into common stock, a fractional

share often remains, as the number of shares

conversion factor/price. For example, if the conversion factor on 100 convertible securities is

0.3 common shares, upon conversion the owner would receive 33 1/3 common shares. When




Preferred Security B during this time period received half the common shares they were

owed when the convertible security was converted to common shares in July

As shown below, the House 17 customers received 12,938 common shares when they

should have received 25,876 shares based on the adjusted conversion factor.

Figure 6

Figure 7

Additionally, when the convertible security is converted into common stock, a fractional

as the number of shares-to-par value is not cleanly divisible






mon shares they were

owed when the convertible security was converted to common shares in July

As shown below, the House 17 customers received 12,938 common shares when they

sion factor.

Additionally, when the convertible security is converted into common stock, a fractional

par value is not cleanly divisible by the





this occurs, the company will pay out the fractional share in cash on the date of the

conversion. The payment value is the fraction of a share multiplied by the trading price for

the common stock on the date converted.

97. In instances where fractional shares appear on the House 17 customer ledgers, they were not

paid out at the price on the conversion date, which is required. For example, House 17

recorded a journal entry of $18.90 on May 7, 1982 for fractional shares of Textron Inc. (Row

D in Table 4). This equates to a common share price of $23.63, multiplied by the fraction of

a share left after converting 12,678 shares of Textron Preferred at the conversion factor of 1.1

shares of common/share of preferred. $23.63 was not the price of the common stock as of the

conversion date. The value of the fractional share would not be known until the conversion

date, which in this case was June 30, 1982 (Row E). On June 30, 1982, the common share

price for Textron was $18.88, which, after converting at the conversion factor of 1.1 shares,

would result in a fractional share payment of $15.10 not the $18.90 that House 17 recorded on

May 7th (i.e., a difference of 25%).

Table 4

98. Based upon the foregoing discussion regarding House 17’s incorrect conversion processes,

this investigation and analysis show that trading in House 17 did not occur.

(vii) Fictitious Convertible Arbitrage Trade Confirmations

99. Upon close examination, trade confirmations fabricated by House 17 to support the

convertible arbitrage trades were actually prepared backwards. A good exemplar of this was

Bates Statement Date

Transaction

Date Long Short Security Price Debit Credit

A MF00147263 5/28/1982 29-Apr 7,065 TEXTRON INC 23 3/4 167,793.75$

B MF00147263 5/28/1982 29-Apr 6,880 TEXTRON INC 23 7/8 164,260.00

C MF00147263 5/28/1982 30-Apr 12,678 TEXTRON INC PFD CONV $2.08 25 1/8 318,334.79$

D MF00147263 5/28/1982 7-May TEXTRON INC FRACTIONAL SHARES JRNL 18.90

E MF00147806 6/30/1982 30-Jun 12,678 TEXTRON INC PFD CONV $2.08 DELV

F MF00147806 6/30/1982 30-Jun 13,945 TEXTRON INC RECD

Total 318,334.79$ 332,072.65$



a purported convertible trade executed for the account referenced in the customer statement

Figure 8.94

100. The purported convertible trade was as follows:

A purchase of 761 shares of Aetna Life & Casualty $2 Pfd on 6/23/80, settlement

on 6/30/80 at $83 7/8 per share. The shares had a conversion factor of 2.25.

Two sales of Aetna Life & Casualty common stock; one for 1052 shares at $39 1/8

and one for 660 shares at $39 ¼.

The purported trade was to be an eight week trade that was pre-calculated to

generate $3,191 in total profits with a close out date of 9/1/80.95

94 The customer name has been redacted.95 See Adding Machine Tape calculating projected profit on the purported trade. MADTS00401002. See also,MADTSS00400966 at MADTSS00400966 and MADTSS00401003 for handwritten notes detailing specifics ofpurported trade.


101. The year-end 12/31/80 customer statement for account holder Madoff

purported transaction as follows in

102. The customer statement shows the purported purchase of the Aetna Life

the Aetna Life common stock. However, the purported trade confirmations fabricated by

House 17 show the opposite of what the purported trades were supposed to be. Shown below

in Figure 9, Figure 10 and Figure

was sold rather than bought on 6/

clearly the direct opposite of what the customer statement was showing for the purported


end 12/31/80 customer statement for account holder Madoff-X1 shows the

purported transaction as follows in Figure 8 below:

Figure 8

The customer statement shows the purported purchase of the Aetna Life Pfd


osite of what the purported trades were supposed to be. Shown below

Figure 11, the trade confirmations show that the Aetna L

rather than bought on 6/30 and that the Aetna common stock was bought



X1 shows the

and short sale of


osite of what the purported trades were supposed to be. Shown below

w that the Aetna Life Pfd

bought on 7/2/80,



trades.96 The fictitious trade confirmations fabricated by House 17 for th

got it wrong.

96 The customer statements showed only the settlement dates and not the trade dates. June 30, 1980 was thepurported settlement date for the purported June 23, 1980 trade for Aetna Pfd.


The fictitious trade confirmations fabricated by House 17 for this example simply

Figure 9

Figure 10

The customer statements showed only the settlement dates and not the trade dates. June 30, 1980 was thepurported June 23, 1980 trade for Aetna Pfd.


example simply

The customer statements showed only the settlement dates and not the trade dates. June 30, 1980 was the


103. The Aetna convertible arbitrage purported trade example discussed above suffers

similar deficiencies for the convertible arbitrage examples discussed

This investigation and analysis

17 did not occur.

104. Most importantly, as shown on the trade confirmation (

purchased 761 shares of Aetna Life $2 Pfd

according to the Daily Stock Price Record (

hands in the open market that day. Therefore, it would not have been possible for House 17 to

legitimately trade Aetna Life $2 Pfd


Figure 11

The Aetna convertible arbitrage purported trade example discussed above suffers

deficiencies for the convertible arbitrage examples discussed supra in this section.

his investigation and analysis similarly support that convertible arbitrage trading in House

, as shown on the trade confirmation (Figure 9), Madoff purportedly

purchased 761 shares of Aetna Life $2 Pfd for $83.875 on June 23, 1980. However,

according to the Daily Stock Price Record (Figure 12 below), this security did not change


legitimately trade Aetna Life $2 Pfd on that day.


The Aetna convertible arbitrage purported trade example discussed above suffers from other

in this section.

that convertible arbitrage trading in House

Madoff purportedly

However,

this security did not change




Figure 12

b. Following the 1992 SEC investigation of A&B, BLMIS purportedlytransitioned from convertible arbitrage to the split strike conversioninvestment strategy.

105. A&B was an accounting firm at its origin, but developed exclusively into a “private

investing” firm in the mid-1980s given the investing business had increased in relative

importance to the extent that it was “financially wise” to end the accounting practice.97 A&B,

however, was never registered as a broker dealer, an investment company, or an investment

adviser.98 As of 1992, A&B had three partners: Frank Avellino (“Avellino”) was a 50%

partner, Michael Bienes (“Bienes”) and Dianne Bienes were each 25% partners.99

106. A&B first began investing with House 17 in the 1960s through its predecessor, Alpern &

Avellino.100 Saul Alpern was Madoff’s father-in-law and founder of the accounting firm.

A&B attracted investor funds by promising guaranteed rates of return (typically 13%-18%)

97 Avellino and Bienes Dep. Ex. 02901-02902, July 7, 1992.98 Avellino and Bienes Dep. July 7, 1992. MADOFF_EXHIBITS-0301499 Avellino & Bienes Agreement of General Partnership (executed Aug. 12, 1988). MBISAA0003076, 3079100 SEC v. Avellino & Bienes, et al, No. 92-CV-08314 (JES), Complaint for Preliminary and Permanent Injunctiveand Other Equitable Relief, ECF No. 4 (S.D.N.Y. Nov, 25, 1992).; Linda Sandler & Allan Dodds Frank, Madoff'sTactics Date to 1960s When Father-In-Law Was Recruiter, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=at1ierlaVQyg (last visited Nov. 17, 2011).



on money collected from individuals and entities101 and labeling the transactions with

investors as "loans."102 A&B issued letters to investors that specified the rate of return on

these loans.103 A&B in turn invested customer funds with BLMIS and retained the difference

between the returns BLMIS promised to A&B and the returns A&B promised to its

underlying investors.104 At the time of the SEC's investigation in 1992, A&B was one of

House 17's largest sources of investor monies, funneling hundreds of millions of dollars into

House 17's investments through A&B.105

107. On November 17, 1992, the SEC filed a complaint against A&B and Avellino and Bienes

individually, seeking, among other things, a permanent injunction for having unlawfully

operated as an unregistered investment company.106 Avellino and Bienes entered into a

consent decree in which they agreed not to sell securities without a registration statement or

acting as an investment company. In addition, they agreed pay fines to the SEC totaling

$350,000.107

108. Prior to approximately June 23, 1992, A&B maintained IA accounts with House 17 with the

following account numbers: 1A0045, 1A0046,108 1A0047, 1A0048, 1A0049 and 1A0050 (the

"Existing A&B IA Accounts").109 During that time, A&B used these House 17 accounts to

invest money pooled from investors.110 Prior to its creation as described below on or around

June 23, 1992, A&B IA account number 1A0053 did not exist. Documents provided in

101 A&B Loans Detail by Investor. SECSDK0000325- SECSDK0000834; SEC v. Avellino & Bienes, et al, No. 92-CV-08314 (JES), Complaint for Preliminary and Permanent Injunctive and Other Equitable Relief, ECF No. 4(S.D.N.Y. Nov, 25, 1992).102 See, e.g., Avellino and Bienes Dep. Ex. 02913;02925-02934, July 7, 1992.103 Avellino & Bienes, et al, No. 92-CV-08314 (JES), Complaint for Preliminary and Permanent Injunctive and OtherEquitable Relief, ECF No. 4 (S.D.N.Y. Nov, 25, 1992).104 Frontline Transcript of Interview of Michael Bienes, available at http://www.pbs.org/wgbh/pages/frontline/madoff/interviews/bienes.html (last visited Nov. 17, 2011); SEC v. Avellino & Bienes, et al, Complaint forPreliminary and Permanent Injunctive and Other Equitable Relief. MADOFF_EXHIBITS-03058105 BLMIS customer statements for A&B accounts through June 1992.106 Avellino & Bienes, et al, No. 92-CV-08314 (JES), Complaint for Preliminary and Permanent Injunctive and OtherEquitable Relief, ECF No. 4 (S.D.N.Y. Nov, 25, 1992).107 SEC v. Avellino & Bienes, et al, No. 92-CV-08314 (JES), Final Judgment of Permanent Injunction and OtherEquitable Relief and Consent Against Avellino & Bienes, Frank J. Avellino and Michael S. Bienes, ECF No. 3(S.D.N.Y. Nov, 25, 1992).108 Account number 1A0046 was in the name of the A&B Pension Plan & Trust. See Account Maintenance File for1A0046. AMF00309438-9450109 See Arbitrage Portfolio Transaction Reports (MF00545002-MF00545003); Portfolio Management Reports as ofJune 30, 1992. MF00011542-51; See also Avellino and Bienes Dep. Ex. 03223, Nov. 20, 1992.110 BLMIS customer statements for A&B accounts through June 1992; Avellino and Bienes Dep., Nov. 20, 1992.



connection with the SEC investigation of A&B indicated that as of June 18, 1992 A&B owed

its investors almost $399,819,455 despite the fact that the purported aggregate equity balance

of the Existing A&B IA Accounts only totaled approximately $364 million.111 Thus, the

aggregate total amount reflected in the Existing A&B IA Accounts was approximately $35.8

million less than A&B had represented to the SEC it owed to underlying investors. Avellino

and Bienes had testified to the SEC that A&B utilized an account or accounts at Chemical

Bank to handle investor funds and that the balance maintained in these account(s) was

typically $2 million to $3 million but never higher than $6 million.112 Assuming that the

Chemical Bank Account held all $6 million, this meant that A&B had a funding shortfall of at

least approximately $29.8 million ($399.8 million owed to investors less $364.0 million

purported aggregate equity balance of the A&B accounts and less a maximum of $6 million

that could be purportedly held at Chemical Bank at any time) in its House 17 accounts.113

109. The existence of this funding shortfall significantly contradicted sworn testimony by Avellino

and Bienes provided to the SEC in which they claimed that A&B had a significant "cushion"

between what it owed on "loans" from investors and what it held in capital in its accounts at

BLMIS, which would protect customers from potential losses.114 The shortfall explained

above demonstrates that a cushion did not exist in June 1992. Therefore, around June 1992,

House 17 created an additional account for A&B (the "1A0053 Account") and manufactured

fictitious trading in this account in order to conceal the shortfall.115 Backdated transactions

manufactured in the 1A0053 Account were designed to show realized and unrealized gains

from securities and options transactions totaling approximately $65.9 million, which satisfied

the shortfall and provided some of the purported cushion.116 However, there is no evidence

111 A&B Loans Detail by Investor. SECSDK0000325; Arbitrage Portfolio Transaction Reports. MF00545002-MF00545003; Portfolio Management Reports as of June 30, 1992. MF00011542-51112 Avellino and Bienes Dep. Ex. 02917-02918, July 7, 1992.113 A&B Loans Detail by Investor. SECSDK0000325; Arbitrage Portfolio Transaction Reports. MF00545002-MF00545003; Portfolio Management Reports as of June 30, 1992. MF00011542-51); Avellino and Bienes Dep. Ex.02917-02918, July 7, 1992.114 Avellino and Bienes Dep. Ex. 02944-02951, July 7, 1992.115 1A0053 Account June 30, 1992 statements. MADTBB02391076-02391078 and MADTBB02391007-02391017116 1A0053 Account Nov. 1989 to Dec. 1992 statements. MADTBB02397292; MADTBB02397300;MADTBB02397304; MADTBB02391086; MADTBB02390998-2391007; MADTBB02391009;MADTBB02391011; MADTBB02391013; MADTBB02391015; MADTBB02391017; MADTBB02391076;MADTBB02391078; MADTBB003346469; SECSDK0010189; MADTBB03347804; MADTBB03346114;



that this balance was the result of deposits and investments of funds received by either A&B

or by A&B clients.117 Instead, House 17 created fictitious backdated transactions to make it

appear that the account had equity sufficient to make up the shortfall.118

110. In addition, generally House 17 created new account numbers sequentially, based on the date

on which they were opened (e.g., 1A0045, 1A0046, 1A0047, etc.). For example, account

1A0052 (opened for a different BLMIS customer), was created in May 1992 and the first

transaction posted to the account was the purported purchase of S&P 100 options on May 1,

1992.119 Account 1A0054 (opened for a different BLMIS customer) was created in

September 1992, with the first transaction posted on September 22 for the purported purchase

of McKesson Corp. convertible subordinated debt.120 Chronologically, the 1A0053 Account

would have been created after 1A0052 (May 1992) and before 1A0054 (September 1992),

and the 1A0053 Account therefore should not have reflected any transactions as occurring in

1989, 1990, 1991 or at any time prior to its creation in June 1992. However, the account

statements generated for the 1A0053 Account reflected backdated transactions as early as

November 1989.121 The out of order sequencing of the account creation dates, as well as the

backdated trades on the June 1992 customer statement, support that the 1A0053 account was

fabricated by House 17 specifically in response to the SEC investigation (see Figure 13).122

MADTBB03345819-5823; MADTBB02391071; MADTBB03345824; MADTBB03345825-5830;MADTBB03345817-5818; SECSDK0000035; MADTBB03345466-5467; SECSDK0000141, 143-149;MADTBB03345474-5475; MADTBB03345492; MADTBB03345476-5484; MADTBB03347613-7614;MADTBB03345495-5496; MADTBB03345485-5487; MADTBB03345497-5503; MADTBB03347604-7605;MADTBB03345504; MADTBB03114024; MADTBB03114026117 1A0053 Account June 30, 1992 statements. MADTBB02391076—02391078 and MADTBB02391007-02391017118 1A0053 Account June 30, 1992 statements. MADTBB02391076—02391078 and MADTBB02391007-02391017119 See 1A0052 account May 31, 1992 statement. MF00462572120 See 1A0054 account September 30, 1992. MF00454666121 1A0053 Account Nov. 1989 statement. MADTBB03346469122 It is worth noting that the Transaction IDs (“TRN” column) for the various transactions on this customerstatement are out of sequence with the reported dates of the transactions. See MADTBB02391013



Figure 13

111. After the liquidation of A&B, many of its former investors reinvested their returned funds

directly with BLMIS, leading to a great influx of new BLMIS accounts.123 (See Figure 14

below which highlights the dramatic increase in House 17 customer accounts after the

liquidation of A&B in 1992). With the advent of these new accounts, House 17 implemented

a new investment strategy.

123 Portfolio Netcap Totals by Group-A&B dated March 31, 1993. MADTBB03079814-9910



Figure 14

c. The Split Strike Conversion Strategy- the 1990s and later: There is noevidence that the transactions purporting to represent a split strikeconversion strategy for House 17 customers ever occurred. In fact, theevidence shows that these transactions were fictitious.

112. In the early 1990s, House 17 changed its primary purported investment strategy from

convertible arbitrage to a split strike conversion strategy, stating that “the opportunity within

the marketplace to trade convertible arbitrage has decreased.”124 A Split Strike Conversion

(“SSC”) investment strategy typically involves the buying of a basket of stocks closely

correlated to an index, while concurrently selling call options on the index and buying put

options on the index. House 17 purportedly used a SSC strategy that was purchasing a basket

of stocks and options based on the S&P 100 equity index, which included the 100 largest U.S.

stocks as determined by the S&P Index Committee.125

113. The SSC strategy, in proper use, reduces a portfolio’s volatility (and risk) by limiting the

investor’s gains and losses that are possible. This is commonly referred to as a “collar

124 Bernard Madoff, “Letter to Client.” March 16, 1999. AMF00139075; See also, Trading Authorization GuidelinesJuly 3, 1991. AMF00139560125 Michael Ocrant, Madoff Tops Charts; Skeptics Ask How at 1, 89 MAR/Hedge, May 2001. See also,http://www.standardandpoors.com/indices/sp-100/en/us/?indexId=spusa-100-usduf--p-us-l--

0

1,000

2,000

3,000

4,000

5,000

6,000

Number of House 17 Accounts



strategy,” where the investor purchases a put option to provide protection on the downside

(i.e., limiting losses the investor would incur if the market value of the equity portfolio

drops); this protection is partially paid for by selling a call option that limits the upside gain.

114. While the collar strategy of SSC will limit volatility, it will not eliminate volatility entirely.

In fact, a properly designed and executed SSC strategy would trade with the same volatility as

the S&P 100 index when the market value of the equity portfolio fell between the exercise

prices of the options.

(i) Purported equity and option trades exceeded the entire reportedmarket volume for certain days.

115. Over the period January 2000 through November 2008 (the “Analyzed Time Period”), there

were 105 days when House 17 transacted in equities above the market volume in the

exchanges as reported by Bloomberg. In total, over those days, there were 912 instances when

House 17 purported stock transactions exceeded the overall market volume for the day.126

116. For the Analyzed Time Period, House 17 traded 378 unique call options in 1,385 unique

transactions. Of these purported call transactions, 64.4 percent of the contracts traded above

the daily market volume, including 56.4 percent of transactions with purported volume

occurring at 10 times above the daily market volume.

(ii) Hundreds of thousands of purported House 17 trades, affecting over5,500 accounts, were priced outside the trading day’s price rangeevidencing that they could not have been executed.

117. During the Analyzed Time Period, 99,972 equity transactions were purportedly traded outside

of the daily market traded price range, across 5,328 House 17 customer accounts.127 These

purported transactions were derived from 496 unique transactions, 321 of which, based on

what was recorded on House 17 customer statements, traded above the daily high price and

175 of which traded below the daily low price. The purported prices for these transactions

exceeded the daily high by as much as $8.96 and were below the daily low by as much as

126 An analysis was also performed on the Frankfurt and London Stock Exchanges for these securities. The analysisconfirms that for those securities that were traded on these exchanges, the House 17 purported volume exceeded theaggregate historical daily volume for the U.S., London Stock Exchange and Frankfurt Stock Exchange.127 This time period was chosen based on the available trade data in the Settled Cash database (see description supra).



$105.04. On average, the purported transactions exceeded the daily high by $1.00 and were

below the daily low by $2.39.

118. Equity trades, such as the purported transactions recorded by BLMIS on House 17 customer

records, that would have been reported as having been executed outside the daily price range

of the entire U.S. equities market could not have occurred. The data used in this analysis was

obtained from Bloomberg, which receives its data directly from the exchanges and the over-

the-counter markets. In the event that the out of range prices on the House 17 customer

statements were the result of an inadvertent typing error (sometimes referred to as “fat

fingering” ), House 17 would have had to issue corrections with the appropriate prices.128

There is no evidence of any corrections or reissuance. And more importantly, for the period

during which DTC records are available, there are no DTC records evidencing these

purported trades.

119. In addition to the equity transactions discussed above, thousands of purported option trades

were examined and these also traded outside of the daily price range. During the Analyzed

Time Period, 34,501 options transactions traded outside of the daily price range, across 5,271

customer accounts. Of the 49 unique options traded, 25 were traded above the daily high

price and 24 were traded below the daily low price.

120. Options traded above the high price by as much as $15.25 higher and at an average of $2.17

above the high. Options traded below the daily low by as much as $6.05 lower and at an

average of $1.48 below the low.

121. Similar to the equity trades discussed above, the purported options transactions recorded by

BLMIS on House 17 customer records would have been reported as having been executed

outside the daily price range of the entire U.S. options market and could not have occurred.

128 National Securities Clearing Corporation- Rules and Procedures, page 51, October 11, 2011. As the BLMISTraining Manual itself states, “An investor can sell a security from a long position at any price as long as a buyer canbe found;” as there would have been no buyer on the other side of these trades, these transactions could not havebeen executed. BLMIS Trading Manual. MMAD-BR00021287.



The data used in this analysis was obtained from the Chicago Board of Options Exchange

(“CBOE”).129

122. Based upon the foregoing discussion regarding pricing discrepancies, this investigation and

analysis show that the SSC trading in House 17 did not occur.

(iii) House 17 purportedly bought low 83% of the time and sold high 72%of the time (VWAP Trades) evidencing the fictitious nature of thetrades.

123. VWAP, or Volume-Weighted Average Price, is exactly what it sounds like: the average price

weighted by total volume. VWAP equals the dollar value of all trading periods divided by the

total trading volume for the current day. The formula is as follows:

௩௪

Pvwap= Volume Weighted Average Price

Pj= price of trade j

Qj= quantity of trade j

j= each individual trade that takes place over the defined period of time, excluding cross trades and

basket cross trades

124. Calculation starts when trading opens and ends when trading closes. This is a common way to

summarize the price of a stock on a given day. For example, some brokers will accept an

order where the client gets a price based on the VWAP. Also, some institutions grade their

traders by comparing the trader’s performance to the VWAP. The VWAP has become more

important recently because of its use in algorithmic trading. The theory is that if the price of a

buy trade is lower than the VWAP, it is a good trade. The opposite is true if the price is higher

than the VWAP.

129 The S&P 100 Index options (OEX), which were purportedly traded by House 17, were traded exclusively on theCBOE. OEX & XEO S&P 100 Index Options, A Discussion on the Benefits and Uses of the First Listed Index Optionat http://www.cboe.com/LearnCenter/pdf/OEX_12-05-01.pdf. (last visited November 18, 2011)



125. Another trading anomaly stemming from the purported SSC strategy in House 17 was how

frequently House 17 reported that they purchased or sold equity at extremely favorable prices.

A comparison of trading records for House 17 accounts against the market derived VWAP for

the respective stocks over the Analyzed Time Period indicates that approximately 83 percent

of the buy transactions by share volume were executed below the VWAP while 72 percent of

the sell transactions by share volume were executed above the VWAP.

126. Given that House 17 was consistently outperforming VWAP, two observations can be

made. First, assuming the purported trades had actually been placed, the ability to

consistently obtain significant positive variance to VWAP on both the buy side and sell side

of the trades would be indicia of potential front-running by House 17.

127. Alternatively, if House 17 was not front-running (which it was not), then the statistics of the

purported House 17 trades showing that they were consistently beating VWAP by a wide

margin is further evidence of the fictitious nature of the trades. A comparison of the purchase

and sale of the same stock being actually traded by House 5 on the same day makes this

clear.130 The VWAP on those trades was consistently at or near VWAP, a finding that one

would expect to see if algorithmic trading was actually being utilized.

(iv) Thousands of purported securities, affecting over 3,700 accounts, wererecorded by House 17 as having settled on weekends or holidays whenthe exchanges are closed.

128. During the Analyzed Time Period, 7,736 trades were recorded as having settled on weekend

days in 3,743 House 17 accounts. Given that the markets were closed on each of the 27 dates

identified as weekend days on the customer statements, these settlements were not possible.

On Saturday, January 8, 2000 alone, 3,732 of the approximately 4,215 House 17 accounts

showed 7,464 trade settlements. These trades could not have settled on a Saturday, further

evidencing that the trades in House 17 did not occur.

129. During the Analyzed Time Period, House 17 customer statements show 37 trades settled on

recognized market holidays. Specifically, seven trades settled on September 4, 2000 and

September 1, 2008, both of which fell on Labor Day in their respective years. On February

130 For the Analyzed Time Period, approximately 51% of buy transactions executed out of House 5 were below theVWAP versus 82% in House 17; approximately 48% of sell transactions executed out of House 5 were above theVWAP versus 75% for House 17.



17, 2003, Washington’s Birthday, one trade settled. On Memorial Day, May, 31, 2004, two

trades settled. 27 trades settled on June 11, 2004, the Presidential funeral of Ronald Reagan,

when the market was closed, once again evidencing that the trades in House 17 did not

occur.131

(v) Thousands of purported House 17 split strike conversion equity andoption trades, affecting nearly 6,000 accounts, were recorded as havingsettled on days not within the standard settlement duration timeframe.

130. For equity transactions, the industry requirement for settlement is three days after the trade

date (“T+3”).132 Firms found to be in violation of the settlement timing requirements are

subject to discipline by the DTC and NSCC, including expulsion, suspension or other

limitations of trading, as well as potential fines, interest expense or other penalties.133 The

customer statements generated by House 17 show equity transactions clearing outside the T+3

industry standard for a number of customer accounts. 340,774 trades were recorded as having

settled outside the industry required timeframes of the T+3 industry norm. Of these trades,

338,431, or 99.3 percent, settled four days after the trade date (“T+4”), which not only does

not comply with standard trading practices, but would have resulted in the disciplinary actions

described above by DTC and NSCC. For a number of accounts nearly 100 percent of trades

in these accounts were settled outside the T+3 standard.

131. Similarly, with regard to purported option trades, a high percentage of option transactions

were recorded as having settled in a timeframe outside the industry norms, which for options

is trade date plus one day (“T+1”).134 House 17 statements regularly showed option

transactions clearing outside the T+1 industry norm for a number accounts. During the

Analyzed Time Period, House 17 customer statements show 546,999 option trades settling

outside the T+1 industry norm. Of these trades, 539,449 or 98.6 percent, settled two days

131 New York Stock Exchange Special Closings, New York Stock Exchange (last visited 11/14/11),http://www.nyse.com/pdfs/presidents_closings.pdf (last visited 11/14/11).132 FINRA Notice 95-26, Conversion To T+3 Settlement, Reg. T, And SEC Rule 15c3-3(m), And Ex-Dividend

Schedule (April 1995).133 Rules, By-Laws, and Organization Certificate of the Depository Trust Company at 61-62 (June 2011); NationalSecurities Clearing Corporation, Rules and Procedures at 62 (Effective October 21, 2011).134 See Index Options Product Specifications, The Options Clearing Corporations(last visited Nov. 18, 2011),http://www.optionsclearing.com/clearing/clearing-services/specifications-index-options.jsp.



after the trade date (T+1), which does not comply with standard trading practices. These non-

standard trade settlements further confirm that trading in House 17 did not occur.

d. There are no legitimate records from the DTC (or other clearinghouses or custodians) evidencing any trades occurring from House 17.135

132. The Depository Trust & Clearing Corporation (“DTCC”) was formed in 1999 by combining

the DTC and the National Securities Clearing Corporation (“NSCC”).136 The DTCC, through

its subsidiaries, provides clearance and settlement for almost all equity, bond, government

securities, mortgage-backed securities, money market instruments and over-the-counter

derivative transactions in the U.S. market.137 Therefore, for any of these types of trades to

occur in the U.S., the individual securities transaction must be routed through the DTCC

before it can be finalized.

133. Transfers of securities between licensed brokers are conducted by the DTC through

automated book-entry changes to the broker’s accounts. Instead of trading paper stock

certificates, as was the case in the early years of the trading markets, brokers make trades on a

computer and the DTC keeps an electronic record of these transactions. A broker’s account at

the DTC shows the number of each security owned by that broker and a history of trades.138

134. The NSCC, originally created in 1976 before it merged into the DTCC in 1999, provides

clearance and settlement services of equity, bond, exchange traded funds and unit investment

trust transactions.139 The NSCC acts as an intermediary between an exchange market (such as

135 Our search through over 28 million electronic records as well as over 11,000 boxes of hard copy documents didnot reveal any evidence that the equity trades purportedly executed on behalf of House 17’s customers ever occurred.See discussion infra regarding other analysis dating back to the 1970s which supports this finding.136 About DTCC: History (The Depository Trust & Clearing Corporation) at 17(Aug. 17, 2011). See also, Respondingto Wall Street’s Paperwork Crisis, The Depository Trust & Clearing Corporation (last visited Nov. 20, 2011),http://www.dtcc.com/about/history/.137 An Introduction to DTCC Services and Capabilities (The Depository Trust & Clearing Corporation) at 2(Aug. 16,2011). See also, An Overview, The Depository Trust & Clearing Corporation (last visited Nov. 20, 2011),http://www.dtcc.com/downloads/about/Introduction_to_DTCC.138 Following a Trade: A Guide to DTCC’s Pivotal Roles in How Securities Change Hands (The Depository Trust &Clearing Corporation) at (Aug. 16, 2011). See also, Products & Services Equities Clearance, The Depository Trust& Clearing Corporation (last visited Nov. 20, 2011),http://www.dtcc.com/downloads/about/Broker_to_Broker_Trade.139 About DTCC: National Securities Clearing Corporation (The Depository Trust & Clearing Corporation)(Aug. 17,2011). See also, About DTCC: National Securities Clearing Corporation (NSCC), The Depository Trust & ClearingCorporation *(last visited Nov. 20, 2011), http://www.dtcc.com/about/subs/nscc.php.



the NYSE) and the DTC. The NSCC takes all the trade information from an exchange and

acts as a central counterparty guaranteeing the trade. A summary of the net securities

positions and net money to be settled as a result of that day’s transactions is transmitted to the

broker.140

135. Founded in 1973 and operating under the jurisdiction of the SEC and the Commodity Futures

Trading Commission (“CFTC”), the OCC is the largest equity derivatives clearing

organization. The OCC clears U.S. listed options and futures on numerous underlying

financial assets including common stocks, currencies and stock indexes.

136. The OCC clears transactions for put and call options on common stocks and other equity

issues, stock indexes, foreign currencies, interest rate composites and single-stock futures.

137. As a registered Derivatives Clearing Organization (“DCO”) under the CFTC’s jurisdiction,

the OCC offers clearing and settlement services for transactions in futures and options on

futures. Additionally, the OCC provides central counterparty clearing and settlement services

for securities lending transactions.141

(i) Reconciliation of House 5 holdings to House 17 holdings via DTCrecords.

138. BLMIS maintained an account with the DTC (the “0646” account) for which trades would be

cleared and/or custodied.142 However, based on our investigation and analysis of available

DTC documentation during the time period of October 2002 through October 2008, only

securities positions for House 5 clients (including those out of MSIL) as recorded on House 5

trading records were held at DTC.143 Accordingly, there is no evidence that the security

holdings purportedly held on behalf of House 17’s customers were held at DTC for the time

period examined.

140 Following a Trade (The Depository Trust & Clearing Corporation), Aug. 16, 2011 at 6. See also, Products &Services Equities, supra..141 See What is the OCC?, The Options Clearing Corporation (last visited Nov. 20, 2011),http://www.theocc.com/about/corporate-information/what-is-occ.jsp.142 BLMIS had a DTC account from at least 1977. See The Depository Trust Participant Agreement, June 1977.SNOW0000658-SNOW0000733 See also the February 13, 2007 email from BLMIS to a customer stating, “We clearthrough DTC.” IBLSAA0000350143 Records for the DTC were only available back to January, 2002. A trade reconciliation process from House 17 toMSIL was performed, which concluded that, based on execution and volume data, trades from House 17 were notexecuted by MSIL.



139. For the years 2002-2008, the following analysis was performed:

Identified all unique securities positions purportedly held by House 17 on October

31st of each year as this was the fiscal year-end for BLMIS (“Step 1”);144

Identified unique securities held by House 5 that corresponded to those identified

in Step 1 on October 31st of each year (“Step 2”);

DTC BLMIS position records were identified for the securities in Step 2.

140. For the seven year period analyzed, all of the securities identified in Step 2, which were held

on behalf of House 5 customers as reported in House 5 trading records, were reconciled to the

DTC thus, confirming that the House 5 securities positions in fact existed.

141. The remaining securities purportedly held on behalf of House 17 customers as recorded in the

House 17 trading record, were not shown on DTC records and were not held at DTC;

therefore, they could not have been legitimately executed as reported by BLMIS to its House

17 customers.

142. Further, Figure 15 below compares the purported House 17 securities positions with the

House 5 securities positions in common as of October 31 from 2002-2008. As shown in

Figure 15, the extreme volume of purported equity positions from House 17 on each October

31 dwarfs the numbers of the actual positions from House 5 that were reconciled with the

DTC.

144 October 31 was the fiscal year-end for BLMIS and was the date for which DTC records were available for the2002-2008 time period.



Figure 15

(ii) Fake DTC Screen Reports created by House 17

143. Over 160 documents purportedly containing screen print-outs representing DTC inquiry look-

ups were found in the records of BLMIS.145 However, upon closer forensic examination, the

documents contain typed-in text that appears to replicate certain DTC system screens. The

metadata contained within these documents show that the documents were created after the

supposed date of the screen look-up inquiry as depicted in the text within the document.

145 ELIP-BR00004715-4876


144. For example, ELIP-BR000047

document:

145. A forensic examination of the metadata embedded in this document shows the following:

146 Metadata was examined utilizing Pinpoint Laboratories Metaview program.


4720 contained the following text which was type

Figure 16

A forensic examination of the metadata embedded in this document shows the following:

Metadata was examined utilizing Pinpoint Laboratories Metaview program.


e following text which was typed into the

A forensic examination of the metadata embedded in this document shows the following:146


146. While the text in the document ind

November 30, 2006 at 16:13:35 hrs, the metadata shows that this document was

created on December 19, 2006 1

text of the document.

147. More importantly, the fake DTC screen print shows that BLMIS is holding 8,550,017 shares

of AT&T common stock as of November 30,

only held 4,378 shares of AT&T on

148. Further, the following two documents

information pertaining to two different United States Treasury bills yet show the exact same

date and time stamp when they were


While the text in the document indicates that the information was obtained from DTC on

2006 at 16:13:35 hrs, the metadata shows that this document was

2006 11:16:00 AM, twenty days after the date which appears in the

importantly, the fake DTC screen print shows that BLMIS is holding 8,550,017 shares

f AT&T common stock as of November 30, 2006. Yet according to DTC reports

shares of AT&T on November 30, 2006.

the following two documents (Figure 17 and Figure 18 respectively)


date and time stamp when they were supposedly retrieved from the DTC system.

Figure 17


icates that the information was obtained from DTC on

2006 at 16:13:35 hrs, the metadata shows that this document was actually

the date which appears in the

importantly, the fake DTC screen print shows that BLMIS is holding 8,550,017 shares

6. Yet according to DTC reports, BLMIS

respectively) contain


retrieved from the DTC system.


149. The fictitious nature of these documents is clearly evident since there would be no way to

print these DTC screen inquiry reports for account 0646

minute and second as depicted on both documents.

documents show that the first document, ELIP

at 11:48 a.m. some four hours before the date depicted in the document.

document, ELIP-BR00004767, was also created on January 5, 2007 at 11:48 a.m. four hours

before the date depicted in the document.

legitimate business purpose other than to document purported tradi

actually occur.

150. In addition to the fake DTC documents described above, additional investigation revealed that

House 17 custom-developed software

Customer Position Statement from

fictitious securities holdings to make it appear that House 17 actually had custody of the

purported securities recorded on its customer statements. Three components of computer

programs were located on the AS/400 system in House 17 and were utilized in combination to

create the fake DTC participant position report:


Figure 18

The fictitious nature of these documents is clearly evident since there would be no way to

print these DTC screen inquiry reports for account 0646-Madoff from DTC at the exact same

minute and second as depicted on both documents. In fact, embedded metadata for these two

documents show that the first document, ELIP-BR00004761, was created on January 5, 2007

at 11:48 a.m. some four hours before the date depicted in the document. The

BR00004767, was also created on January 5, 2007 at 11:48 a.m. four hours

before the date depicted in the document. Creation of these fictitious DTC screens serves no

legitimate business purpose other than to document purported trading activity that did not

In addition to the fake DTC documents described above, additional investigation revealed that

developed software was created to print a replica of a report called the

Customer Position Statement from DTC. The imitation report was populated with the



he AS/400 system in House 17 and were utilized in combination to

create the fake DTC participant position report:


The fictitious nature of these documents is clearly evident since there would be no way to

Madoff from DTC at the exact same

In fact, embedded metadata for these two

BR00004761, was created on January 5, 2007

The second

BR00004767, was also created on January 5, 2007 at 11:48 a.m. four hours

Creation of these fictitious DTC screens serves no

ng activity that did not

In addition to the fake DTC documents described above, additional investigation revealed that

to print a replica of a report called the

DTC. The imitation report was populated with the



he AS/400 system in House 17 and were utilized in combination to


A data file named DTCABAL containing fictitious security positions.

A Report Program Generator (RPG) II program named DTC021 that formats the

data from DTCABAL, adding headers and formatting to the data to replicate the

look and feel of a real DTC report.

A form definition file named DTCS that instructs the FormsPrint software

(published by Integrated Custom Software, Inc.) to apply additional f

the report to further approximate the look

151. As part of the investigation, a copy of an actual DTC report from

was found that was apparently

DTC report. A portion of that report appears in

152. Through detailed computer analysis, the fake DTC report was re

DTCABAL file, the DTC021 RPG program, and the FormsPrint software located on a system

147 This document contained numerous handwritten notes (where the writer commented on the difficulty of changing the point size of the textentire page too big, thus showing the steps undertaken to try to create an exact replica of the official DTC report.MADTSS00329114-127





look and feel of a real DTC report.


(published by Integrated Custom Software, Inc.) to apply additional f

the report to further approximate the look-and-feel of a real DTC report.

As part of the investigation, a copy of an actual DTC report from House 5 as of

was found that was apparently utilized by BLMIS as the source for designing

DTC report. A portion of that report appears in Figure 19.147

Figure 19

Through detailed computer analysis, the fake DTC report was re-created using the


This document contained numerous handwritten notes (see pages MADTSS00329120- MADTSS00329124)where the writer commented on the difficulty of changing the point size of the text without rendering the size of theentire page too big, thus showing the steps undertaken to try to create an exact replica of the official DTC report.






(published by Integrated Custom Software, Inc.) to apply additional formatting to

feel of a real DTC report.

House 5 as of July 18, 1996

by BLMIS as the source for designing the imitation

created using the


MADTSS00329124)without rendering the size of the

entire page too big, thus showing the steps undertaken to try to create an exact replica of the official DTC report.


backup tape from the BLMIS location (

report appears below in Figure

153. There is no legitimate business reason to generate a fake DTC report, as a legitimate

or investment advisory business would be directly connected to the DTC to process trades and

would have the ability to generate original participant position statement reports directly from

the DTC. This further supports the opinion that the House 17


backup tape from the BLMIS location (see below for screen shots of the data

Figure 20:

Figure 20

There is no legitimate business reason to generate a fake DTC report, as a legitimate

usiness would be directly connected to the DTC to process trades and


the DTC. This further supports the opinion that the House 17 trading did not occur.


below for screen shots of the data files). The fake

There is no legitimate business reason to generate a fake DTC report, as a legitimate trading

usiness would be directly connected to the DTC to process trades and


trading did not occur.



Figure 21

Excerpt from DTCABAL data file

Figure 22

PORTION OF DTC021 RPG Code


DTCS Form Specification for FormsPrint


Figure 23

DTCS Form Specification for FormsPrint software from Integrated Custom Software, Inc.

Figure 24

DTCS Box Definition Screen


software from Integrated Custom Software, Inc.



(iii) Reconciliation of House 5 options trades to OCC.

154. BLMIS maintained an account with the OCC for clearing equity option trades, such as those

purportedly made in accordance with the split strike conversion strategy (explained in more

detail herein). However, based on the investigation and analysis of the OCC documentation

available for October 2002 through October 2008, only option trades executed for House 5

clients (as well as those from MSIL) as reported on House 5 trading records, were cleared

through OCC. Accordingly, there is no evidence that any options purportedly executed on

behalf of House 17’s customers ever cleared through the OCC for the time period examined.

155. A similar analysis as described supra for House 17’s equity trades was performed with

respect to options transactions. For the years 2002-2008:

Identified all unique options traded in House 17 as of October 31st of each year as

this was the fiscal year-end for BLMIS (“Step 1”);148

Identified options traded out of House 5 that matched those identified in Step 1 as

of October 31st of each year (“Step 2”);

OCC clearing records were identified for the options in Step 2.

156. For the seven year period analyzed, all of the options identified in Step 2, which were traded

on behalf of House 5 customers as reported in House 5 trading records, were reconciled to the

OCC thus confirming that the House 5 options in fact occurred and cleared.

157. The remaining options purportedly traded on behalf of House 17 customers as recorded in the

House 17 trading records, were not shown on OCC records and were not cleared through

OCC; therefore they could not have been legitimately executed as reported by BLMIS to its

House 17 customers.

158. For example, on October 31, 2005, records from House 5 and the OCC indicate that 20

options described as “S&P 100 INDEX NOVEMBER 590 CALL” were purchased and held

by BLMIS. The aggregate number of “S&P 100 INDEX NOVEMBER 590 CALL” options

as reported on the House 17 customer statements for the same date number 658,342.

148 October 31 was the fiscal year end for BLMIS and was the date for which OCC records were available for the2002-2008 time period.



Therefore, options purportedly traded and held for House 17 could not have been executed

through House 5 nor were they cleared through the OCC account associated with BLMIS.

e. Approximately $4.3 billion of dividends reported on House 17customer statements were fictitious and were never received byBLMIS on behalf of its customers.

159. For shares held in brokerage accounts, the default choice for receiving dividend payments is

for the distributing company (i.e. the company actually declaring and paying the dividend) to

credit to the brokerage firm (in this case, BLMIS) for the entirety of the dividends to be

delivered to the brokerage firm’s customers. On payment dates, the brokerage firm will credit

the applicable apportioned dividend amount to accounts of customers who are shareholders of

record of the companies that have declared and paid the dividends.149

160. Although BLMIS was regularly recording dividend payments on House 17 customer

statements, the evidence is that such dividend payments were never received by BLMIS.

161. House 17 customer account statements reflect dividend payments from the securities

purportedly held in their respective customer accounts. To test whether House 17 actually

received the dividend payments which were being reflected in the customer account

statements, account number 1-B0039-3-0 was randomly selected in order to identify securities

for which dividends were paid.

162. Figure 25 below shows the January 31, 2007 customer account statement for account 1-

B0039-3-0 and identifies the dividend payments that were purportedly received during that

month:

149 See SEC Transfer Agents, supra, Holding Your Securities – Get the Facts, U.S. SEC (last visited Nov. 20, 2011),http://www.sec.gov/investor/pubs/holdsec.htm; Transfer Agent, United Technologies, (last visited Nov. 20,2011),http://utc.com/Investor+Relations/Transfer+Agent.


163. Based on this customer statement, all

customers for these same securities

analyzed. These amounts are summarized below:

150 The Fidelity Spartan U.S. Treasury Money Market Fund continued to be referenced by House 17 as such eventhough its name changed to the Fidelity U.S. Treasury Money Market Fund effectiveFidelity Spartan U.S. Treasury Money(June 29, 2005).

Payment Date

January 2, 2007

January 2, 2007

January 2, 2007

January 3, 2007

January 4, 2007

January 5, 2007

January 31, 2007

Total


Figure 25

ed on this customer statement, all dividends purportedly received by all House 17

securities for all of January 2007 were then aggregated and

unts are summarized below:150

Table 5

The Fidelity Spartan U.S. Treasury Money Market Fund continued to be referenced by House 17 as such evenanged to the Fidelity U.S. Treasury Money Market Fund effective August 15, 2005.

Market Fund, U.S. Government Money Market Fund, &

Payment Date Company Dividends

January 2, 2007 Merck & Co 6,404,388$

January 2, 2007 Pepsico Inc 3,876,222

January 2, 2007 Walmart Stores Inc 3,255,099

January 3, 2007 Hewlett Packard Co 3,166,718

January 4, 2007 United Parcel Services Inc 3,155,807

January 5, 2007 Schlumberger Ltd 1,152,440

January 31, 2007 Fidelity Spartan 467,950

21,478,624$


dividends purportedly received by all House 17

January 2007 were then aggregated and

The Fidelity Spartan U.S. Treasury Money Market Fund continued to be referenced by House 17 as such even, 2005. Prospectus,Money Market Fund



164. As previously discussed, these purported dividend payments, if actually received by BLMIS,

would have been delivered to BLMIS by the distributing companies’ respective transfer

agents. At the time of the January 2007 dividend payments, the transfer agents for the above

selected companies were:151

Table 6

165. An analysis was then conducted of all House 17 bank account statements for the months of

December 2006 and January 2007 to determine whether or not there were additions to the

BLMIS bank accounts in the amounts reflecting the purported total dividend payments to the

House 17 customers.152 No transactions from the above transfer agents or for the amounts

indicated for the purpose of dividend payments were identified. Without these distributions

directly from the corporations, these dividend payments to BLMIS (and its customers) could

not have actually occurred.

166. Additional analyses were performed on dividends purportedly received by all House 17

customers between the years 1998 through 2008.153 During this time period, there were over

8,300 dividend transactions (on an aggregate basis for approximately 6,500 customer

accounts) totaling approximately $4.3 billion of dividend payments reflected on customer

account statements.154 A breakdown by year of these dividend payments is shown below:

151 Transfer agents were identified by reviewing 2006 and 2007 year-end SEC filings (e.g., proxy statements and/orannual reports). In all cases the transfer agents identified by these reports were the same in both years, confirmingthe transfer agents identified in the table.152 A search for additions in the amounts listed as well as amounts approximating these amounts was conducted toensure that all possibilities were considered. No such matches or approximate matches were found. In fact, notransactions from any of the transfer agents representing any amount of dividend payments were noted.153 House 17 bank account statements were available from December 1998 through December 2008.154 A complete database of dividend payments from customer statements was available from December 1995 throughDecember 2008. Total purported dividend distributions for this period totaled $4,594,442,711.77. While BLMISbank statements prior to 1998 are no longer available from the bank and were not found in the BLMIS records,

Company Transfer Agent

Merck & Co Wells Fargo Bank

Pepsico Inc The Bank of New York

Walmart Stores Inc Computershare Trust Company

Hewlett Packard Co Computershare Trust Company

United Parcel Services Inc Mellon Investor Services

Schlumberger Ltd Computershare Trust Company

Fidelity Spartan Fidelity Service Company



Table 7

167. The dividend transactions reported on the House 17 customer account statements were

compared to the House 17 bank statements (i.e., the 703 Account). Of the more than 8,300

dividend transactions traced, not one purported dividend payment matched to a cash addition

on the BLMIS bank statements.

168. The foregoing analysis regarding dividend payments further shows that trading in House 17

did not occur.

f. House 17 was “Schtupping” certain customer returns.

169. Documents and computer programs uncovered in the course of the investigation revealed that

House 17 was falsifying customers’ purported investment returns through the use of fictitious

trades implemented through a special basket trading program. The name of the special basket

trading program was called “B.SCHUPT [sic]”. The word “schtup” is a Yiddish word

meaning to “push” connoting the act of giving an extra effort in order to meet expectations.155

While the special basket trading file was named B.SCHUPT [sic] it is logical to conclude that

this was simply a spelling error on the part of the House 17 employee(s) who devised the

name.

nevertheless, there was no legitimate documentary evidence that any prior dividend payments were ever received byBLMIS on behalf of its House 17 customers.155 See Schtup, Yiddish Dictionary Online (last visited Nov. 20, 2011), http://www.yiddishdictionaryonline.com.

Year Dividends

1998 137,316,449$

1999 134,029,662

2000 139,026,901

2001 181,808,199

2002 228,056,457

2003 388,056,582

2004 701,081,346

2005 482,627,455

2006 839,021,313

2007 615,471,114

2008 493,162,860

Total 4,339,658,338$



170. The investigation revealed that the use of the B.SCHUPT [sic] program was to allow for the

truing up of customer accounts whose fictitious trades throughout the year had not yielded the

rates of return that had been targeted by House 17. In fact, certain House 17 customer

accounts were analyzed and it was determined that these accounts achieved over a 250%

return in less than a 30-day period as a result of additional fictitious option trades

implemented through the B.SCHUPT [sic] trades.

171. For example, in December 2003, a four-page packet of instructions (two pages of which were

handwritten instructions signed by DiPascali) contained explicit instructions and details

surrounding a B.SCHUPT [sic] special trading basket that was to be run for that period.156

The instructions included 29 accounts that were to receive the benefits of the special

B.SCHUPT [sic] option trades.

156 See MADTSS01124263-68



Figure 26

172. To investigate the effect of the B.SCHUPT [sic] option trades, one test account was initially

selected for detailed analysis. Account 1B0227 was selected from the listing. This account

was to receive 1.5 units of the special basket trade.


EXHIBIT 1 (Part 2 of 3)


173. The options associated with the B.SCHUPT

174. Using the information above, 1B0227, and the “Quant” value of 1.5, the account will record

purchasing 15 contracts (1.5 times the QTY figure in the option table above) of

Index OEBAJ option on December 1,

Index OEBAK option on December 18,

trading records from House 17 and shows a purported total investment of $6,045

options:

175. The final two pages of the instructions

options to be traded:

Account_No

1-B0227-4-0

1-B0227-4-0


Figure 27

with the B.SCHUPT [sic] file are shown below:

Figure 28

Using the information above, 1B0227, and the “Quant” value of 1.5, the account will record

s (1.5 times the QTY figure in the option table above) of

Index OEBAJ option on December 1, 2003, and 30 contracts (1.5 times the QTY) of

Index OEBAK option on December 18, 2003. These amounts were traced into the customer

trading records from House 17 and shows a purported total investment of $6,045

Table 8

instructions shown below detail the sale dates and sale prices of the

Account_No Purchase Date Symbol Price Value

1-B0227-4-0 12/1/2003 OEBAJ 1.80$ 2,715.00$

1-B0227-4-0 12/18/2003 OEBAK 1.10$ 3,330.00$


Using the information above, 1B0227, and the “Quant” value of 1.5, the account will record

s (1.5 times the QTY figure in the option table above) of the S&P

s (1.5 times the QTY) of S&P

2003. These amounts were traced into the customer

trading records from House 17 and shows a purported total investment of $6,045 in these

shown below detail the sale dates and sale prices of the


176. The OEBAJ options purportedly bought on

purportedly sold on December 31

OEBAK options purportedly bought on December 18, 2003

on December 31, 2003 for $3.80, rea

177. For the Account 1B0227 discussed above, these purported option sales yield $

proceeds on December 31, 2003

250% over the period of the investment

178. In total, the B.SCHUPT [sic]

additional investment returns

options. The resulting $5,229

return over an average of 21.5 days held.

179. Examining the portfolio management reports (“PMR”) for account 1

telling facts. In November 2003, the PMR shows a 9.63% annualized return for the current

year which is dramatically lower than the 18% “Benchmark” rate of return shown on the

PMR.


Figure 29

purportedly bought on December 1, 2003 for $1.80 per option

purportedly sold on December 31, 2003 for $6.50, realizing a return of 261% in 30 days

urportedly bought on December 18, 2003 for $1.10 were purportedly sold

for $3.80, realizing a return of 245% in 13 days.

discussed above, these purported option sales yield $

, 2003, with a purchase price of $6,045. This is a total return of

% over the period of the investment.

] program in December 2003 highlighted 29 accounts

additional investment returns with an initial purported investment of $2,099,

9,836 from the purported sale of the options yielded a 149%

.5 days held.

Examining the portfolio management reports (“PMR”) for account 1-B0227 for 2003 reveals


lly lower than the 18% “Benchmark” rate of return shown on the


for $1.80 per option were

261% in 30 days. The

purportedly sold

discussed above, these purported option sales yield $21,105 of sales

, with a purchase price of $6,045. This is a total return of

program in December 2003 highlighted 29 accounts needing

,227 in the two

elded a 149%

B0227 for 2003 reveals


lly lower than the 18% “Benchmark” rate of return shown on the


180. Examining the December 2003 PMR for account 1

annualized return for the current year went from just 9.63%

84%.


Figure 30

2003 PMR for account 1-B0227 in just one month

annualized return for the current year went from just 9.63% to 17.73%, an increase of over

Figure 31


B0227 in just one month later, the

an increase of over



181. This enormous change in the annualized return for account 1-B0227 is a direct result of the

fictitious trades implemented through the B.SCHUPT [sic] basket trading program. The

fictitious option trades were recorded as shown below:

Figure 32

182. The 29 accounts listed on the December 2003 special B.SCHUPT [sic] basket trading were

closely analyzed to determine if the same or similar effect was present. The average

annualized return for the Current Year as recorded on their respective November 2003 PMRs

was 9%. After the B.SCHUPT [sic] program was run for the month of December 2003, the

average annualized return for the Current Year on the December PMRs for the respective

accounts was 21%. Accordingly, the running of the B.SCHUPT [sic] program increased

purported annualized investment returns for the 29 accounts by an average of 141% from

November 2003 to December 2003. This process was nothing more than a total fabrication of

fictitious trades in an attempt to “push” the investment returns close to the 18% Benchmark

Rate of Return as originally recorded on the PMRs for these accounts. Hence the name of the

file B.SCHUPT [sic] or the true Yiddish word “Schtup.”



183. Additional examples of the “schupt” account listings and instructions were also located for

the years 2004, 2005, 2006, and 2007.157 Similar to the instructions discussed above, the

additional “schupt” listings also listed specific units of each fictitious trade to make for

specific accounts. Account numbers and holders varied by year.

184. In those additional years, the fictitious trades allocated pursuant to the Schupt instructions

yielded a range of returns to each account over December of each year between 140% in 2002

and 268% in 2004. Similar to the discussion above regarding the changes in the PMRs

subsequent to the fictitious trades being allocated, the account PMRs for those accounts in

2002, 2004, 2006, and 2007 showed similar patterns.

g. The computer system used by House 17 was basically a system used tofacilitate the fictitious trading activity and to print tradingdocumentation and customer statements to support such fictitiousactivities.

185. House 5 and House 17 computer systems capabilities were vastly different. House 5 systems

contained many of the components one would expect to find in a broker-dealer environment

where actual trades were being executed. Simply put, House 17 did not.

186. A summary description of House 5 trading systems in place as of December 2008 that was

prepared by Lazard, Ltd. (“Lazard”), is depicted below in Figure 33158:

157 Handwritten documents recovered from BLMIS. MADTSS01124091, MADTSS01124093, MADTSS01124089,MADTSS01120262 While a “schupt” file was not located for all years other than those listed above, there were,however, other documents located that appeared to contain similar information and to be following the same pattern.158 Lazard was the financial advisor to the Trustee who handled the liquidation sale of House 5 assets after Madoff’sarrest in December 2008. Lazard is an international financial advisory and asset management firm, specializing inproviding advice on complex financial and strategic initiatives.



Figure 33



187. Figure 34 is a more detailed diagram as of the trading systems in place at House 5 in

December 2008159:

Figure 34

188. Not surprisingly, none of these trading systems described above were found in the House 17

computer environment nor were any systems allowing for trade execution or anything similar

were found. In fact, as described below, House 17 relied on an IBM AS/400 computer along

with a local area network of personal computers to perpetrate the fictitious trading activities

to and generate the paper necessary to support the fictitious trading activities.

159 Prepared by Lazard. LAZAA0004174



189. The software utilized by House 5 versus House 17 differed dramatically. The software

utilized by House 5 was a combination of commercially-available, off-the-shelf software and

interface systems (e.g., Bloomberg workstation, Thomson One, DTC, OCC) as well as

custom-programmed software (e.g., the House 5 BLMIS Information System). However, the

software utilized by House 17 was primarily custom-built in-house software (i.e., the House

17 BLMIS information system), supported only partially by commercially available, off-the-

shelf software employed to perform specific functions, such as Integrated Custom Software

Inc’s FormSprint software for generating printed forms and Vision Solutions MIMIX

software for supporting backup, restore, and disaster recovery.

190. While information in programs restored from House 17 backup tapes revealed certain limited

electronic communications and interfaces for the AS/400 system, it was determined that the

House 17 BLMIS custom RPG software did not communicate with any of the standard

platforms one might expect to see in a trading and/or investment environment. Investment

related data received by the House 17 custom RPG software was received from House 5

through either an electronic file transfer (“ftp”) or via a manual process by which an operator

inserted a tape into the House 17 AS/400 that contained data from the House 5 custom

software. While House 5 utilized extensive systems to execute trades (e.g., MISS,

M2/Superbook) and receive market data (e.g., Bloomberg, Muller) there was no evidence to

show that House 17 connected to any of the connections available to the House 5 systems

(e.g., NASDAQ, DTC, Bloomberg, Thomson, OATS). As a result, House 17 would have

needed to place the purported trades through either House 5 or an outside broker-dealer;

evidence of that occurring was not found.

h. The underlying computer code generated and utilized by House 17 wasdeveloped and modified over the years.

191. A model 520 AS/400 and a Magstar 3570 tape subsystem were procured and used to restore a

working version of the House 17 AS/400 system to allow for analysis and investigation.

Numerous libraries (i.e., repositories of data or code) were restored which contained both



code and data files.160 The majority of the restored code used to run and operate the AS/400

was written in IBM Report Program Generator II (“RPG II”) language, which was identified

from a number of factors including the following:

The source from the restored backup tape was identified by the AS/400 system as

“RPG36” code. Attribute flags (i.e., an identifying piece of data related to a

particular source) identified that the code was created in the System/36 notation

version of RPG II and, therefore, intended to run on an IBM System/36 platform.

In order to work properly, the AS/400 had to be placed in System/36 emulation

mode. If the program was started without being placed in system/36 emulation

mode, the system consistently produced an error.161

Also, the majority of the code was located in the IBM default location for creating

RPGII code, which is a sub-library named QS36SRC within the TGIF library on

the AS/400.

160 During the computer investigation, it became apparent that certain code and data files no longer existed on thetapes containing the backup of the House 17 system from December 2008. Restoration of prior backup tapesconfirmed this fact.161 For example, one such error indicated, “Command menu in library *LIBL not found.” When placed intoSystem/36 emulation mode, the error disappeared.



Figure 35

Screen shot of Restored AS/400: House 17 Main Menu

Figure 36

Screen shot of Restored AS/400: BTS (Basket Trading System) Menu

(Option 20 from MADF17 menu)



192. Based on my review of the code, it appears that the majority of the code was developed in the

late 1970s through the early-to-mid 1980s. It also appears that this code was initially used in

the House 5 operations and then at some point was converted for use in the House 17

operations. Programmer documentation contained within the programs themselves show that

there were hundreds, if not thousands, of modifications to the programs, many of which

occurred in the early 1990s at a time when the amount of BLMIS customers increased

dramatically. (See discussion supra regarding A&B and the transition of its customers directly

to BLMIS.)

i. Underlying computer code in House 17 produced a random ordergenerator to support fictitious trades on customer statements.

193. House 17 custom written software included code that enabled the assignment of prices and

volumes for securities transactions to individual customer accounts in a scheme that was

basically backing into data that would otherwise be generated in the normal course of

business if one was utilizing a legitimate order or time slicing trading system.

194. In practice, it is the decision of a portfolio manager to determine what stocks to buy and how

many shares will be purchased. Once determined, the role of a trader is to determine how best

to purchase these stocks, balancing transaction costs and assorted market risks. This role is

often exclusively automated by computers programmed with basic (or sometimes very

sophisticated) trading algorithms.

195. Most common amongst these approaches is to either “volume-weight” or “time-weight” the

execution of a large block of shares. These approaches strike a balance between risk and cost.

A volume-weighted approach attempts to purchases shares at the same pace as the market is

trading so that the buyer is never too large nor too small a participant. A time-weighted

approach seeks to spread the desired transaction evenly over a fixed and pre-determined

period of time.162

162 David Cushin, et al., The Transaction Cost Challenge: A Comprehensive Guide for Institutional Equity Investorsand Traders (New York: ITG Inc. 1999).



196. House 17 did not have a legitimate trading system using algorithms to execute trades as

described above. What it had was a self-created program that simply mimicked and

backfilled the output that would normally be the result of trades actually being executed by a

system using trading algorithms. A detailed analysis of the code that was utilized in this

regard confirms this.

197. A review of input and output files, as well as customer statements, indicated that a Java

custom written application utilized an input file containing trade dates, settlement dates,

security descriptions, pricing and other information, such as customer account numbers. It

also contained the price that was to be allocated to each transaction.

198. The program utilized information from the input file and then generated a random set of

orders for the specific security, randomly varying both the number of shares and the price for

each order. The random number of shares was generated using a random function that was

artificially limited by a configurable high and low value (i.e., 500 shares as a minimum and

10,000 as a maximum). The number of shares was also artificially limited by the total

number of shares identified in the input file (i.e., if the input file totaled one million shares

across all transaction in the input file, then the output of the program does not exceed one

million shares across all orders in the output file). The random price for each order was also

artificially limited by a configurable parameters which limited the range in the generated

prices (i.e., a 5¢ bound would limit the randomly generated price to within five cents of the

price identified in the input file).

199. The following example shows the input, processing and results of the random order

generation program. The first input file shown below in Figure 37 identifies the total number

of shares, 1,039,261, of Abbott Laboratories, as well as the average price $48.41 assigned to

that transaction on all applicable customer statements in House 17.163

163 See MESTAAF00009202- MESTAAF00009203.



Figure 37

200. One of the accounts to which the purported Abbott Laboratories transactions was allocated

was account number 1-C1260-3. The following excerpt from the customer statement file

demonstrates the Abbott Laboratories pricing.


201. Also found during the investigation was an output file gen

generation program that utilized the input files including the Abbott Laboratories shares and

pricing. The excerpts from the full output file shown below in

random order generation utilized the total number of shares from the input file as well as the

price from the input file as the basis for generating the randomly priced and sized (i.e.,

number of shares) orders.


Figure 38

Also found during the investigation was an output file generated by the Java random order


pricing. The excerpts from the full output file shown below in Figure 39 show that the




erated by the Java random order


show that the





Figure 39

Abbott Laboratories Output164

202. To confirm the processing performed by the Java random order generator code, the Java

program code found in the records was compiled and executed using the input file found

located during the investigation. The following screen shot shows that the order size (i.e.,

quantity of shares) and price differ at the individual transaction level, but the total number of

164 See MESTAAF00000037- MESTAAF00000041.



shares across all orders, as well as the average price across all orders, is equal to the input

values for Abbott Laboratories.

Figure 40

Abbott Laboratories Output165

203. As supported by internal BLMIS emails, this process was used to generate fictitious

backdated trade histories. For example, an email on May 24, 2008 from BLMIS internal

computer programmers detailed the requirements for the program as they “needed to generate

about 600,000 random orders based on a set of criteria for the past 16 months.”166

165 See MDPTGG00000002166 See KFON-BR00030551



204. A legitimate business conducting an investment advisory, broker-dealer or proprietary

market-making business would have no need for a random order generation program for

backfilling trade data such as the one described above, as all of the orders would have a

record generated from an external party that registered the trade (e.g., DTC) at the time the

trade was properly executed, even for trades executed by a computer based trading algorithm.

The fact that BLMIS built a random order generation program to backfill support for

purported trades further illustrates that the securities listed on customer statements generated

in House 17 were fictitious.

ii. Various reports that House 17 prepared were false.

a. Customer statements contained fictitious trades that were backdated.

205. House 17 customer statements contained false information regarding purported securities

trades. Specifically, some customer statements reported trades that were purportedly

executed in a prior month’s period, sometimes stretching back years, but in actuality were

never recorded on that previous month’s statement (“prior month backdated trades”). For

example, a March 1998 statement for account 1-A0035-3-0 showed purported transactions

that occurred in March 1998, as well as trades going back to April 1997. If these trades had

actually occurred and settled on the stated dates during the prior months or even years, they

would have appeared on their respective monthly statement (i.e., a transaction in June 1997

would have appeared on the June 1997 customer statement). Many of these trades, however,

did not appear on these previous month statements. Customer statements were analyzed for

instances of such backdating by comparing the listed traded prices on the customer statement

and the daily range of the stock prices for the respective dates in the prior year.

206. In the aggregate, the customer statements show a total of 14,749 prior month backdated trades

which took place between December 1995 and November 30, 2008 across 893 accounts. The

number of backdated trades per account range from 1 to 3,669. Furthermore, 50 of the 893

accounts contained more than 30 backdated trades.



207. The ability of BLMIS to backdate trades in House 17 was facilitated by the use of the custom

software written by House 17 programmers in a module called STMTPro.167 STMTPro

allowed a House 17 user to restore a previous month’s customer statement to the AS/400. For

example, the data tape containing the Settled Cash table (i.e., SETCSH17 data file) for the

desired month would be inserted into the AS/400. STMTPro would then restore that version

of the SETCSH17 to a temporary location on the AS/400. STMTPro allowed the operator to

change any item on a pre-existing customer statement (e.g., a purchase or sale of a security,

the payment of a dividend) through a data entry screen (see Figure 41 below for STMTPro

directions), and it also allowed the operator to print a revised customer statement. Were these

prior month backdated trades an actual “error” in the customer statements, a corrected

customer statement should have been issued as is standard in the industry. This did not occur

in House 17. Instead, House 17 backdated trades on one month’s statement and did not

produce or reissue to customers revised statements for the prior months that indicated that

these were restated statements.

167 STMTPro is the specific procedure that is executed on the AS/400. House 17’s Programming DevelopmentManager Member List shows various modules such as STMTPRO03-Correct EOM Statements –User 1 andSTMTMPRO08-Correct Prior STMTS From ASOF Trades (+Months). MDPTSS00001484


208. An example of how House 17 used STMTP

customer statements is discussed below. First

file that was maintained by House 1

changes for a particular group of customer accounts. Focusing attention on one particular

account numbered 1-M0140-

iterations of changes being made to that account.


Figure 41

xample of how House 17 used STMTPro to backdate and manipulate transactions on

customer statements is discussed below. First, Figure 42 below shows an example of a log

file that was maintained by House 17, which tracked the various iterations of backdated


-3-0, the log file records the date and months for numerous

made to that account.


o backdate and manipulate transactions on

below shows an example of a log

7, which tracked the various iterations of backdated


0, the log file records the date and months for numerous



Figure 42

209. For illustrative purposes, the analysis focused on three months of changes to show what was

happening. Seq#24, 50 and 76 were selected. As the log file indicates, Sequence 24 was run

on April 27, 2004. Sequence 50 was run on April 29, 2004 and Sequence 76 was run on April



30, 2004. As the log file shows, Sequence 24, 50 and 76 all relate to December 2003 as the

month that is being changed.

210. First, Figure 43 below shows the results of the backdating activity on the underlying data used

to produce monthly statements for House 17 customers.168 Sequence 24 and shows that there

is margin interest being reported for both November and December 2003 in the respective

amounts of $15,419.45 and $15,989.41 for a total of $31,408.86. Moving to the Sequence 50

iteration shows that the November and December entries for margin interest have now been

removed from the statement as if they never existed. Looking at the third portion of Figure

43, Sequence 76 shows that an entry for Fidelity Spartan U.S. Treasury Money Market for

3,850 shares has now been added to the account.

168 Figure 43 was created using documents that were created from running the House 17 STMTPro computerprogram using data retrieved from backup tapes that were collected by the Trustee. Trustee’s consultants conductedthe restoration process in this regard and the resulting output documents were created from that process, hence theheader listed on the top of each document in Error! Reference source not found. indicating the actual run datebeing February 11, 2010.



Figure 43

211. There were numerous examples of these types of backdating changes that were routinely

being made to customer accounts at House 17 over the years. The manner in which these

changes were being made months after the date of the original customer statement (in this

example December 2003 was the original date of the customer statement and yet changes are

being made nearly five months later in April 2004) shows how House 17 was manipulating

customer statements and recording the fictitious trades.



(i) The financial and regulatory statements produced by BLMIS werefalse and misrepresented the firm’s true financial state of affairs.

a. Registration statement ADV filed with the SEC was falseand was not timely.

212. BLMIS was registered with the SEC as a broker-dealer as of January 19, 1960 and, it was not

until 46 years later that it was registered beginning in 2006, as an investment adviser. Based

on a review of regulatory requirements, and as further addressed below, BLMIS should have

registered with the SEC as an investment adviser beginning in 1979 when Form ADV was

required for investment advisers.169

213. Investment advisers must register with the SEC by filing the Uniform Application for

Investment Adviser Registration170 (“Form ADV”) unless they are exempt from

registration.171 Investment advisers with 15 or more clients must register with the

Commission.172 Despite having more than 15 accounts, BLMIS did not register as an

Investment Adviser until August 2006. Between 1979 and 2006, BLMIS had more than 15

accounts and by not filing Form ADV as required, misrepresented its total number of clients

(see Figure 14 for the number of accounts from 1978 to 2008).

214. Further, between 2006 and 2008 Madoff misrepresented the number of clients in his IA

Business on the Form ADV. In or about January 2008, BLMIS filed with the SEC an

Amended Uniform Application for Investment Adviser Registration. On the application,

BLMIS reported representation of 23 customer accounts and assets under management of

approximately $17.1 billion.173 In actuality, in or around January 2008, BLMIS had

approximately 4,900174 active customer accounts and purported assets under management of

approximately $74 billion.175 Historical records show that there were more than 8,000

customer accounts at BLMIS over the life of the business.176

169 The Securities Exchange Act of 1934, 15 U.S.C. § 80b-3 (2010); [44 FR 21008, Apr. 9, 1979]170 Id.171 Investment Advisers Act Rule §§ 203-1 & 203(b).172 Investment Advisers Act § 203(b)(3).173 PUBLIC0003840174 SQL Query - All Customer Accounts - January 2008175 SQL Query - All Customer Accounts – as of December 31, 2007176 SQL Query - All Customer Accounts - All Years



b. FOCUS reports and the audited financial statements werefalse and misrepresented the true state of BLMIS.

215. As a registered broker-dealer operating through 2008, BLMIS was required to file FOCUS

reports with the SEC.177 FOCUS reports are financial and operational reports that set forth,

among other information, assets, liabilities, revenues, and expenses of the company.

216. In addition, BLMIS was required to file Annual Audited Reports.178 These Annual Audited

Reports contain information about income, cash flows, changes in stockholders’, partners’, or

sole proprietors’ equity, and statement of financial condition.

217. The BLMIS FOCUS and Annual Audited Reports reveal inconsistencies with the business in

which BLMIS was purportedly engaged as well as material misstatements in its financial

statements. Both the FOCUS reports and Annual Audited Reports require broker-dealers to

list the amount of cash on hand, as well as all of its other assets and liabilities. The reports

BLMIS filed, however, often did not reflect the assets and liabilities BLMIS should have

reported and, therefore, contained numerous misstatements as discussed in the following

paragraphs.

218. BLMIS underreported the amount of cash it held on its FOCUS reports. For example, based

on an analysis of House 17 bank account statements, on an almost nightly basis, BLMIS

swept funds from the 703 Account into overnight deposits. According to the FOCUS report

instructions, the funds in the 703 Account and the overnight deposits are considered “cash”

and should have been included in the “cash” line on the FOCUS and Annual Audit Reports.179

These accounts were excluded from the reported cash balances and in fact, cash in the 703

Account and the overnight deposits often exceeded the “cash” actually reported by BLMIS in

the FOCUS and Annual Audited Reports.

219. For example, the December 2006 FOCUS report listed $4,882,332 as the amount of cash on

hand.180 As of December 31, 2006, the ending balance of the 703 Account was $394,700 and

177 SEC Rule 17a-5, 17 C.F.R. 240.17a5.178 SEC Rule 17a-5(d), 17 C.F.R. 240.17a5(d).179 Instructions to FORM X-17A-5 PART IIA - All “cash” item except for “cash in banks subject to withdrawalrestrictions” shall be included on the “cash” line of the report. http://www.sec.gov/about/forms/formx-17a-5_2a.pdf180 PUBLIC0002664



the amount in overnight deposits was approximately $295,000,000, totaling $295,394,700 of

cash on hand.

220. BLMIS’s underreporting of its cash position was not isolated to the December 2006 FOCUS

report. In every reporting period examined from December 31, 2006 through December 31,

2008, BLMIS underreported its cash position and thus, provided false and inaccurate

statements to the SEC. Based on the 703 Account alone, cash reported on the FOCUS reports

were significantly understated. Table 9 Figure 10below shows a comparison of “cash and

cash equivalents”181 reported on FOCUS reports and cash in the 703 Account:

Table 9

Date FOCUS182

703 Account

Overnight

Investment183

703 Account

Ending Balance184

09/06 $4,293,419 $140,000,000 $800,207

12/06 4,882,332 295,000,000 394,700

03/07 3,716,017 160,000,000 2,000,000

06/07 5,175,146 145,000,000 292,099

09/07 5,460,095 120,000,000 376,500

12/07 164,382,040 235,000,000 742,309

03/08 222,737,426 220,000,000 135,534

06/08 257,374,499 170,000,000 1,712,804

09/08 187,651,497 480,000,000 418,000

221. The FOCUS reports also did not properly reflect BLMIS’s liabilities. For example, an entity

filing a FOCUS report must report “Bank loans payable.” As explained infra in greater detail

in this report, during the House 17 liquidity crisis in late 2005, BLMIS obtained a $95 million

loan in November 2005, and an additional $50 million in January 2006 from JPMorgan Chase

181 FASB ASC 305-10-20 defines cash equivalents as, “short-term investments of high liquidity, which are readilyconvertible into certain amounts of cash, subject to an insignificant risk of changes in value.”182 Amounts taken from Line 1 – Cash for each respective FOCUS report.183 Amounts obtained from JPMC 703 respective monthly bank statement.184 Amounts obtained from JPMC 703 respective monthly bank statement ending balances.



(“JPMC”) collateralized, in part, by a loan from a customer. The loans were repaid in June

2006. Yet the FOCUS report for the period ending December 2005 (“December 2005 FOCUS

Report”) reported that BLMIS had no bank loan obligations outstanding.

222. Prior to September 2006, BLMIS recorded de-minimis commission revenue on the FOCUS

report “Commissions” revenue line.185 Nor did BLMIS report commission revenue on its

Annual Audited Reports prior to October 2006. While this fact may have actually been true,

it totally contradicts the contention that if House 17 was actually executing trades, customer

commissions should have been reflected in the “Commissions” line item. The fact that no

commission revenue was reported further shows that no trading in House 17 occurred.

223. As mentioned above, BLMIS registered with the SEC as an Investment Adviser in August

2006. The FOCUS and Annual Audited Reports filed by BLMIS after that time included

amounts listed for “Commissions.” Comparing the revenue reported in the Annual Audited

Reports for the fiscal years immediately before and after BLMIS registered as an investment

adviser demonstrates the significance of the “newly” reported commission revenue. For the

fiscal year ended 2005, BLMIS reported no commission revenue in its FOCUS report. By

contrast, for the fiscal year ended 2007, BLMIS reported $103,174,848 of commission

revenue which represented approximately 60% of total reported BLMIS revenues for the year.

However, since no trading activity occurred in House 17, no commission revenue was

generated and the FOCUS reports thereby contained false information.

224. In addition, the FOCUS and Annual Audited Reports did not reflect other activity that would

be expected of a broker conducting trades for investment adviser customers. BLMIS’s

FOCUS and Annual Audited Reports did not include: (a) customer receivables, such as

margin accounts; (b) customer payables, such as positive cash balances held by BLMIS on

behalf of customers; or (c) a computation for reserve requirements for customer activity as

required by the SEC under Rule 15c3-3, all of which would be reported by a broker- dealer

with managed investment accounts.

225. For example, the December 2005 FOCUS report had no amounts recorded under the captions

“Receivables from customers” and “Payable to customers.” In addition, the credit and debit

185 From Q1 1983 through Q3 1987, BLMIS reported $5,404 in commissions.



balance amounts in customer security accounts that form the basis for the computation for the

Rule 15c3-3 reserve requirement were left blank.

226. The failure to report financial information demonstrating customer activity was not isolated

to the December 2005 FOCUS report. None of the FOCUS reports and Annual Audited

Reports included customer receivables or customer payables, and none included customer

account balances in their computations for 15c3-3 reserve requirements.

227. As noted above, Friehling and F&H were not independent with respect to the BLMIS audit.

Additionally, the investigation and analysis show that the FOCUS reports and Annual

Audited Financial Statements contained material misstatements, inaccuracies and excluded

required information.

c. F&H Audit Template Opinions Found at BLMIS

228. During a search of electronic files, numerous Microsoft® Word documents were found

relating to the audits purportedly being performed by F&H. Several versions of standard

AICPA template audit opinions were found on the House 17 computer of Eric Lipkin. These

files contained metadata indicating that Eric Lipkin created the documents.186

229. It appears that BLMIS was using different versions of template audit opinions depending on

where they were directing the letter to be sent as several versions containing long form versus

short form audit opinions were discovered. Further, as is evidenced in Figure 44 below,

instructions were included to assure that certain audit opinion letters were not used as updated

versions were created.

186 ELIP-BR00007195


230. Also, during a tour of the House 17 space in the Lipstick Building, cases of F&H station

and envelopes were found. Cases of F&H unused station

warehouse where BLMIS stored documents.

amount of stationery that was found at the client’s premises.


Figure 44

Also, during a tour of the House 17 space in the Lipstick Building, cases of F&H station

and envelopes were found. Cases of F&H unused stationery were also found in the

warehouse where BLMIS stored documents. In my experience it is highly unusua

ry that was found at the client’s premises.


Also, during a tour of the House 17 space in the Lipstick Building, cases of F&H stationery

also found in the

In my experience it is highly unusual to find the



d. F&H were not independent auditors as required by theAICPA and other regulatory bodies.

231. The AICPA, the New York State Education Department Office of the Professions and the

SEC standards require that auditors maintain client independence.187 For example, the

AICPA requires that “an auditor must be free from any obligation to or interest in the client,

its management, or its owners.”188

232. Under SEC regulations, independence is impaired when an accountant has “[b]rokerage or

similar accounts maintained with a broker-dealer that is an audit client, if…[t]he value of

assets in the accounts exceeds [$500,000].”189

233. According to the New York State Society of Certified Public Accounts, independence will be

considered to be impaired if the public accountant, or a partner in the firm, (i) had a direct or

material indirect financial relationship with any officer, director, employee or principal

stockholder of the enterprise, or (ii) if the licensee or a member of his or her or the partner's

immediate family, is or has been involved in any situation creating a conflict of interest,

during the period covered by the examination or at the time of issuance of a report.190

234. F&H was not independent with respects to the rules, regulations and requirements of the

AICPA, the State of New York and the SEC. In particular, Friehling and/or his wife had

investment accounts at BLMIS from the early 1980s. Between the years 1983 and 2008, the

Friehling accounts had an average equity balance of at least $6.2 million.191 It was also noted

that Friehling’s former partner, Horowitz, also had investment accounts in BLMIS.

235. F&H provided tax and possibly other services to BLMIS. It is unclear whether these services

also violated independence rules.192

187 AIPCA Professional Standards, Auditing Section 220.03; New York State Accountancy Regulations, Title 8,Section 29.10a-5; Title 17, Code of Federal Regulations, Section 240.17a-5(f)(3)188 Code of Professional Conduct, ET § 101 (Am. Inst. of Certified Pub. Accountants 1988) Professional Standards,Auditing Section 220.03; 8 NYCRR§ 29.10a(5); 17 C.F.R> §240.17a-5(f)(3).189 17 C.F.R. § 210.2-01(b)(c); SIPA (15 U.S.C.78fff-3).190 New York State Education Department Office of the Professions Rules of the Board of Regents, 8 NYCRR §29.10a(5). Commodity and Securities Exchanges Rule, 17 C.F.R. §§210.2-01(b)(c). Further according to theAICPA, an auditor “must be free from any obligation to or interest in the client, its management, or its owners.”191 Per review of “All Accounts Listing” databases, Horowitz accounts with BLMIS had an average purported equitybalance of $5.5 million from 1983 - 2008.192 F&H invoices were not available and therefore, a listing of other services and relative feescannot be prepared and analyzed. Professional standards limit the services that can be performed



B. OPINION NO. 2: HOUSE 17 WAS A PONZI SCHEME.

i. Indicia of Ponzi

a. Definition of Ponzi scheme

236. According to the Association of Certified Fraud Examiners, a Ponzi scheme is “an illegal

business practice in which new investors’ money is used to make payments to earlier

investors.”193 The scheme is so named due to the widespread publicity of a fraud perpetrated

by Charles Ponzi from 1919 to 1920 in Boston, MA.194 Black’s Law Dictionary defines a

Ponzi scheme is “a fraudulent investment scheme in which money contributed by later

investors generates artificially high dividends for the original investors, whose example

attracts even larger investments. Money from the new investors is used directly to repay or

pay interest to old investors, usually without any operation or revenue-producing activity

other than the continual raising of new funds.”195

b. Background on Ponzi schemes.

237. A Ponzi scheme begins as an investment opportunity - sometimes legitimate, other times

not.196 The fraudster solicits investors with promises of returns within a specified time period

(e.g., a return of 50% in 6 months). Before the return becomes due, the fraudster will have

by an auditor and consider, among others, the nature of and fees obtained for the other services inrelation to the fees received for performing an audit. (See for example, SEC Rule17 C.F.R. §210.2-01(c)(4).)193 Fraud Examiners Manual, 2009 at 1.1731.194 Encyclopedia of Fraud 602 (3rd ed. 2007).195 Black’s Law Dictionary 1180 (7th ed. 1999). This definition concurs with that of the SEC, which defines a Ponzischeme as, “…an investment fraud that involves the payment of purported returns to existing investors from fundscontributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds inopportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus onattracting new money to make promised payments to earlier-stage investors and to use for personal expenses, insteadof engaging in any legitimate investment activity.” Frequently Asked Questions, U.S. SEC (last visited Nov. 20,2011), http://www.sec.gov/answers/ponzi.htm#PonziWhatIsMoreover, this definition is also consistent with opinions issued by the Second Circuit: “A ‘Ponzi’ or ‘Pyramid’scheme is a fraudulent investment scheme in which money contributed by later investors is used to pay artificiallyhigh dividends to the original investors, creating an illusion of profitability, thus attracting new investors.” Bear,Stearns Sec. Corp. v. Gredd (In re Manhattan Inv. Fund Ltd.), 397 B.R. 1, 8 (S.D.N.Y. 2007); aff’d, 328 Fed. Appx.709 (2d Cir. N.Y. 2009).196 Alex Altman, A Brief History of Ponzi Schemes, (Dec. 15, 2008); Time (last visited Aug. 11, 2011),http://www.time.com/time/business/article/0,8599,1866680,00.html.



solicited investment from other individuals and use that investment to pay the previously

promised return (hereinafter referred to as “Other People’s Money”). In strict accounting

terms, money is paid out as a return, described as income, but is actually a distribution of

capital. Instead of returning profits, the fraudster spends cash reserves.197

238. The appearance of a successful investment often draws more investors into the scheme. In

fact, many of the original investors will reinvest their proceeds and principal back with the

fraudster. This infusion of cash aids the fraudster in continually paying out the next round of

investors.198 Instead of actually investing the money the fraudster collects, the funds not used

to pay other investors are usually used for personal enrichment.

239. The Ponzi scheme is dependent on a continuous flow of funds for its existence. Without cash

coming in, the scheme is no longer able to pay older investors and collapse is inevitable.199

Early investors who exit the scheme in time often escape with their principal and a substantial

“phantom gain,” so called because the gain is just a portion of other investors’ principal. It is

the later investors, and those who have not withdrawn from the scheme, who suffer the fallout

upon collapse.200

ii. There was no legitimate trading or investment activity and, therefore, noprofits from House 17.

240. As noted herein, a Ponzi scheme: (1) purports to be a legitimate business; (2) is dependent on

a continuous flow of funds for its existence; and (3) generates artificially high dividends for

the original investors. The only source of cash to House 17 sufficient to pay off investors was

generated through a steady network of closely guarded relationships that helped to feed cash

into House 17. House 17 had no profits from trading, received limited monies from House 5

and had no evidence of any outside financial support sufficient to fund pay offs to investors.

The only source of cash available sufficient enough for House 17 to pay purported investment

profits as well as redemption requests to its investors was from Other People’s Money.

197 Encyclopedia of Fraud 603 (3rd ed. 2007).198 Encyclopedia of Fraud 601 (3rd ed. 2007).199 Steven L.Skalak, Thomas W. Golden, Mona M. Clayton & Jessica S. Pill, A Guide to Forensic AccountingInvestigation, 496 (2nd Edition, Wiley, 2011).200 Id.



a. No trading occurred in House 17 and redemptions were made usingOther People’s Money.

241. In order for House 17 to have realized the investment returns as reported on its customer

statements and continue to make cash disbursements to customers from these earnings, the

purported trades would have had to have been actually executed in the market. They were not.

In comparison to House 5, which had nearly 80 connections to handle order flow, execution

capabilities through its proprietary MISS system, connections to the exchanges and real time

market data and information providers, House 17 had limited connectivity to the world

outside of House 5. House 17’s computer systems consisted largely of the AS/400 and

hardware and software necessary only to perpetrate the fictitious trading activities and

produce customer statements and related fictitious trading documentation.

242. As detailed above, the investigation and analysis of House 17 showed that beginning at least

in the 1970s, the trades that House 17 purported to trade could not have been executed. The

analyses show, among others:

Trading volumes that exceed the daily U.S. trading volume for securities;

Trading prices that were either above or below the reported daily market trading

price range;

Dividends that were not recorded to customers;

Trades executed on holidays and weekends;

Trades that settled at non-standard settlement durations; and

Purchasing of securities at market lows and selling securities at market highs at an

unattainable consistent rate.

243. Further, had the securities reported on the House 17 customer statements actually been

executed, a custody record would be available from the DTC. Analyses conducted during this

investigation, however, show that only those securities traded through House 5 were

custodied at or cleared through BLMIS’s DTC and OCC accounts. As the DTC is also the

clearing and custody agent for OTC trading, House 17 trades could not have been executed in

the OTC market.



244. The trading of derivatives, such as options, in the OTC market is largely conducted under

agreements published by the International Swaps and Derivatives Association (“ISDA”).

ISDA agreements set forth the standard terms to which the counterparties would be bound by

the derivative transaction. While ISDA agreements were in effect for BLMIS, they were

executed for derivative trades outside the scope of House 17’s strategy (e.g., swaps) and were

issued and signed by House 5 employees. No ISDA agreements were located for any

purported House 17 option trades.

245. The investigation showed that not only were House 17 trades not executed through House 5,

but they could not have been executed by MSIL on European exchanges. In many instances

trades purportedly traded by House 17 were not traded on European exchanges since those

equities were not registered to be sold on those exchanges. In other instances, the purported

trades were traded at volumes on those European exchanges that were dwarfed by the

volumes reflected on House 17 customer statements confirming that they were not legitimate

trades.

246. The investigation and analyses show that, without actual trades being executed through House

17, payment of fictitious profits as well as customer redemptions could only have been

fulfilled using Other People’s Money.

b. No other legitimate income-producing business activities were identified.

247. House 17 had no legitimate income-producing activities. Although acting as an investment

adviser, no trades were executed and the entity was dependent on an increasing supply of

investor funds in order to continually meet investor redemptions. Further evidence shows that

Madoff was not charging an investment advisory fee, which is normal in the industry.

Despite claims of charging a few cents per share commission on each trade, any such

commission income was illusory as no trading actually took place. Accordingly, there is no

evidence of any other legitimate business or any other legitimate source that would potentially

provide a revenue stream for House 17 sufficient enough to cover distributions to its

customers.



c. Dividends that were purported to have been distributed to House 17customers were paid with Other People’s Money.

248. Dividends that were to be paid to the purported owners of securities on record were not paid

to House 17 customers from actual corporate dividend distributions. Instead, they were paid

with Other People’s Money. No records exist showing actual transfers of corporate dividend

distributions to the House 17 bank accounts nor is there evidence of communication between

House 17 and the transfer agents or corporations that would have disbursed the dividends.

From 1995 to 2008, nearly $4.6 billion in purported dividends were paid out to House 17

customers using Other People’s Money (see discussion supra).

d. Apart from the liquidity crisis, no financial support vis-à-vis any profitsfrom House 5 was evidenced.

249. The investigation and analysis of cash flows and cash transfers between House 5 and House

17 show that aside from the House 17 liquidity crisis (described infra) and transfers during

the waning days of BLMIS in December 2008, House 5 did not provide financial support to

House 17. Furthermore, other than during the House 17 liquidity crisis, the investigation

shows that House 17 received no financial support from third parties (i.e., loans). Therefore,

any distributions to House 17 customers came from Other People’s Money.

250. In fact, monies were being diverted not from House 5 to House 17, but from House 17 to

House 5. During the investigation it was discovered that a significant percentage of the

revenue accounted for in the FOCUS reports for House 5 was derived from Other People’s

Money being transferred to House 5 via (1) House 17 directly, (2) House 17 to a third party

brokerage account, or (3) House 17 to MSIL (see Table 10).



Table 10

e. The 703 Account dealt almost entirely with customer deposits andredemptions.

251. The main account used by House 17, the 703 Account, consisted almost entirely of deposits

from customers (which were commingled) and inflows and outflows from overnight interest-

bearing accounts, which were themselves funded from customer money. There were no

additions as a result of trading, dividends or any other legitimate income producing source.

Revenue reported on

FOCUS Reports

("A")

House 17 Other

People's Money in

FOCUS Report

("B")

Total Excluding

House 17 Other

People's Money in

FOCUS Report

("C")

"B" as a percent

of "A"

2000 $209,788,597.00 $75,582,928.71 $134,205,668.29 36.0%

2001 169,110,236.00 72,403,594.92 96,706,641.08 42.8%

2002 106,009,938.00 60,483,440.69 45,526,497.31 57.1%

2003 128,868,567.00 97,366,815.48 31,501,751.52 75.6%

2004 138,684,401.00 88,966,001.61 49,718,399.39 64.1%

2005 113,506,829.00 69,307,036.65 44,199,792.35 61.1%

2006 163,150,034.00 73,217,621.96 89,932,412.04 44.9%

2007 167,439,512.00 121,243,287.50 46,196,224.50 72.4%

2008 91,112,071.00 56,372,251.50 34,739,819.50 61.9%

Total $1,287,670,185.00 $714,942,979.02 $572,727,205.98 55.5%

Note: 2008 figures are through Q3 2008.



Figure 45201

252. Since there is no income-producing activity, Ponzi schemes are at risk of liquidity shortages

when incoming cash flows diminish and outgoing redemptions increase. At one point, the

balance of the 703 Account became so dangerously low that House 17 faced a severe liquidity

crisis, which nearly forced the Ponzi scheme to unravel. From approximately October 2005

through June 2006, House 17 investor redemptions requests far exceeded investor deposits

during this period. BLMIS survived, in part, by borrowing bonds from a long-time customer

of Madoff, and transferring cash from the House 5 bank accounts to meet redemptions.

253. On November 14, 2005, BLMIS requested a $95 million loan202 from JPMC, collateralized by

a Federal Home Loan Bank Bond in the principal amount of $100 million due April 8,

2009.203 According to JPMC records, the $100 million Federal Home Loan Bank Bond was

received from the customer on November 4, 2005. However, BLMIS paid the customer

approximately 30% interest204 on the bond by quarterly deposits into various accounts at

JPMC held by the customer.

201 Based on account activity from December 1998 to December 2008. “Other” transactions include, but are notlimited to, overnight sweep additions, other incoming wires or checks.202BLMIS request for loan to JPMorgan on November 14, 2005. JPMSBT0002332 at 2336.203 Id.; JPMorgan Position Statement as of December 31, 2005. SECSBM0000041204 Customer loan account document. MADTSS01163051

97%

3%

Cash Additions to 703 Account

CustomerAdditions

Other



254. JPMC credited $95 million to the 703 Account on November 14, 2005.205

255. On January 18, 2006, BLMIS requested an additional $50 million loan206 from JPMC.

Collateral for this loan was two more Federal Home Loan Bank Bonds from the customer,

one bond was worth $9 million and the other was worth $45 million, together totaling $54

million.207

256. On January 23, 2006, JPMC credited the 703 Account with $50 million.208

257. On June 1, 2006, BLMIS notified JPMC that it was repaying both loans, for a total amount of

approximately $145 million209 in principal, from the 703 Account.

258. Separately, the House 17 bank accounts were reduced so dramatically during the liquidity

crisis that BLMIS used the House 5 bank account (“621 account”) to meet four separate

investor redemption requests totaling approximately $262 million.210

259. By June 2006, after the liquidity crisis had subsided, BLMIS transferred $261.8 million of

new investor money in the House 17 bank accounts to the House 5 bank accounts. The

transfer effectively reimbursed the House 5 bank accounts for the investor redemptions paid

from those accounts.

260. The liquidity crisis is but another indicator that House 17 was a Ponzi scheme.

f. House 17 was dependent on increasing cash inflows and promised largereturns to customers.

261. In order to continue its Ponzi scheme, House 17 was dependent on a constant and ever

increasing inflow of cash in order to satisfy customer redemptions. As shown in Figure 46, a

very large network of feeders beginning in the early 1990s (e.g., Fairfield Greenwich Group

205 JPMorgan Chase Statement of Account ending November 30, 2005, JPMSAB0002491 at 2511.206 BLMIS request for loan to JPMorgan on November 14, 2005. JPMSBT0002332 at 2338 and 2341207 Id.208 JPMorgan Chase Statement of Account ending January 31, 2006, JPMSAB0002865 at 2909209 JPMSBT0002332 at p. 2342210

BONY bank statements SECSBJ0008118, SECSBJ0008135 and SECSBJ0008137 and Customer StatementsMDPTPP05530971, MDPTPP00020510 and MDPTPP02979426.



established its first account at House 17 in 1991) sustained a much smaller group of House 17

customers who were withdrawing large sums of cash from customer accounts.211

262. The split strike conversion accounts (blue line) consisted of nearly 4,500 accounts; the non-

split strike conversion accounts (red line) consisted of only 300 accounts. As the non-split

strike conversion accounts began to withdraw greater amounts of money from at least 1992,

House 17 was forced to attract increasingly greater amounts of cash through its investors,

many of which were feeder funds.

Figure 46

263. Given there were no profits from actual trading, investment or other legitimate business

activity, House 17 had to use Other People’s Money to pay back other investors thereby

meeting the classic definition of a Ponzi scheme (see Figure 47).

211 Figure 46 assumes a zero dollar start beginning in 1991.

($10)

($5)

$0

$5

$10

$15

$20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$B

illi

on

s

Net Cash Holdings of Split Strike Accounts andNon-Split Strike Accounts

Split Strike Accounts

Non-Split Strike Accounts



Figure 47

iii. Further evidence that House 17 was not a legitimate business and was a Ponzischeme is that BLMIS was hopelessly insolvent.

264. The term “insolvent” means:

(A) with reference to an entity other than a partnership and a municipality, financial condition

such that the sum of such entity's debts is greater than all of such entity's property, at a fair

valuation, exclusive of

(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud

such entity's creditors; and

(ii) property that may be exempted from property of the estate under section 522 of this

title.212

265. Madoff’s business was run as a sole proprietorship until 2001 at which time it was converted

to a Limited Liability Corporation named Bernard L. Madoff Investment Securities, LLC with

Madoff being the sole member/shareholder. At the time and all times thereafter, BLMIS was

212 11 U.S.C. § 101(32) (2011).

House 17

House 5

TradingThird-PartyFinancing

Otherincome-

producingbusinesses

Dividends

New Customer Cash Additions Older Customer Cash Withdrawals



comprised of the operations of both House 5 and House 17. (See discussion supra on the

description of House 5 and House 17.) On December 11, 2008, BLMIS was placed into

bankruptcy and on June 9, 2009 a consolidation order was granted by the United States

Bankruptcy Court for the Southern District of New York, which had the effect of

consolidating the bankruptcy of Bernie Madoff with that of BLMIS.

266. In assessing the legitimacy of House 17, the solvency of BLMIS was evaluated as of

December 11, 2002 (a date selected by counsel for the six-year period prior to the BLMIS

bankruptcy filing date). To complete the solvency analysis, the relevant assets and liabilities

of both House 5 and House 17 were considered.

267. Important assumptions involving solvency: In evaluating the solvency of BLMIS, an

important predicate assumption has been made. The standard of value that was assumed was

Fair Market Value (“FMV”). Fair Market Value as used herein is defined as the price at

which property would change hands between a willing buyer and willing seller, neither being

under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

213 Accordingly, in the case of assessing the FMV of BLMIS, a willing buyer is assumed to

be a hypothetical one that would have completed proper due diligence and if fraud at BLMIS

was discovered at that time (i.e. December 2002), would have assessed that fact and any

resulting value ascribed would be materially less than any value assuming no fraud existed.

268. In fact once the fraud was discovered, BLMIS was liquidated and under an order signed by

U.S. Bankruptcy Judge Burton Lifland, a bidding process was ordered for House 5 with an

auction proceeding on April 27, 2009. Castor Pollux Securities bought the trading business

for $25.5 million, with $1 million payable at closing and $24.5 million in deferred

compensation through December 2013.214 By August 2011, however, the board of directors

of Castor Pollux decided to voluntarily wind-down the business as attempts to raise additional

capital had failed. According to publicly available data, the Trustee has only received

approximately $1.2 million from the sale.215

213 Treas. Reg. § 20.2031-1b; Rev. Rul. 59-60, 1959-1 C.B. 41.214 See Press Release Irving H. Picard – Trustee Announces Winning Bid of Up to $25.5 Million for Madoff MarketMaker Business. PR Newswire (last visited Nov. 18, 2011), http://www.prnewswire.com/news-releases/trustee-announces-winning-bid-of-up-to-255-million-for-madoff-market-maker-business-61997332.html.215 See http://online.wsj.com/article/SB10001424052970203388804576617230200603402.html



269. However, to conduct a solvency analysis in the light most favorable to a finding of solvency,

House 5 was valued using the FMV standard of value which assumes House 5 as a going

concern rather than in a liquidation which would have yielded little if any value as evidenced

by the Trustee’s sale discussed above. Additionally, where other assumptions were made in

the analysis, those assumptions were generally made in the light most favorable to the

determination of a finding of solvency. Further, certain assumptions regarding aggregate

compensation expense were made solely for the purposes of assessing the solvency of

BLMIS. Accordingly, no analysis and, therefore, no opinion is made as to the reasonableness

of, or the propriety of the compensation or other perquisites received by any individual

employee, director or officer of BLMIS during these time periods.

270. To evaluate the solvency of BLMIS as of the Valuation Date, three tests are typically used

when a company is in bankruptcy.216 These tests include:

Balance Sheet217

Ability to Pay Debts218

Capital Adequacy219

271. Under these tests, to be solvent, a company is required to pass the Balance Sheet Test (further

described below). The company is also required to have the ability to pay debts and be

adequately capitalized in order to be considered solvent.220

216 11 U.S.C. § 548217 11 U.S.C. § 548 (a)(1)(B)(ii)(I)218 11 U.S.C. § 548(a)(1)(B)(ii)(III)219 11 U.S.C. § 548(a)(1)(B)(ii)(II)220 Adequate Capital requires that a company’s capital be sufficient to afford managers a reasonable chance ofexecuting a reasonable business strategy in expected market conditions. Judgment of capital adequacy shouldconsider: (1) capital already obtained; (2) capital to which the company has reasonable access; and (3) theCompany’s flexibility to meet unexpected developments. In general, a company’s capital requirements are driven bycharacteristics of its industry, its business strategy, the reasonably foreseeable actions of competitors, customers andsuppliers, and contemporary external economic and capital market conditions. In its plainest meaning, the ability topay debts is the ability to avoid default. Put another way, default is the inability to pay one’s debts. Thus thesimplest measure of ability to pay is (one minus) the probability of default. It is, for example, the probability ofdefault that a credit rating is intended to reflect.



a. Balance Sheet Test:221

272. Solvency, employing the Balance Sheet Test, is generally defined as the Fair Market Value

of a company’s assets (often determined by valuing the business enterprise on a going

concern basis versus a liquidation basis) exceeding the stated amount (or expected value

where appropriate) of its liabilities. There are three approaches commonly used to estimate

the FMV of assets: an Adjusted Balance Sheet Approach, an Income Approach and a Market

Approach.

273. A major assumption in the determination of FMV is that all of the relevant information as of

the valuation date is disclosed to a hypothetical buyer of the business. This information

includes, but is not limited to, accurate financial information and any other operating

performance information that might affect the perception of value. In the case of House 5, it

is now known that the revenue information that was contained in the FOCUS reports was

significantly overstated, utilizing fictitious revenues derived from Other People’s Money from

House 17. Combined with the fact that House 17 was not a legitimate business and was

perpetrating a Ponzi scheme, these facts would have had a materially negative impact on any

FMV attributable to House 5 as of December 11, 2002 (see discussion supra). Moreover, to

the extent that it would have been publicly known at the time that House 5 was reporting

revenues that included hundreds of millions of dollars of Other People’s Money from the IA

Business, House 5 would have been so tainted by the negative association to the problems

identified throughout this report that the House 5 business would have been virtually

valueless.

274. Adjusted Balance Sheet Approach:222 The Adjusted Balance Sheet Approach begins with a

review of a company’s balance sheet, prepared in accordance with U.S. generally accepted

accounting principles (“GAAP”) as of or near the valuation date. Assets and liabilities

omitted from U.S. GAAP accounts (i.e., off balance sheet assets and liabilities) are then

221 As of December 2002, for purposes of the solvency analysis, House 5 was considered to be a going concern andwas valued as such. A liquidation value would not have been appropriate in this analysis and would have produced asignificantly lower value than a value premised on a going concern value.222 AICPA Consulting Services Executive Committee, Statement on Standards for Valuation Services 18, June 2007.This approach is further detailed in Shannon P. Pratt, Robert F. Reilly & Robert P. Schweihs, Valuing a Business 311,(McGraw-Hill 4th Ed. 2000).



considered. Finally, the adjusted balance sheet analysis revalues all assets to reflect their

FMV and subtracts all non-operating liabilities at their stated values (or expected costs basis

where appropriate).

275. Income Approach:223 The Income Approach indicates the FMV of a business based on the

value of the cash flows that the business can be expected to generate in the future. This

approach evaluates the present value of the future economic benefits that accrue to an investor

in a business. These benefits, or future cash flows, are discounted to the present at a rate

commensurate with the company’s inherent risks. The present worth of future cash flows

determines the FMV of the business. The approach thus necessitates projections of future free

cash flows and an estimation of the terminal value representing the value of the cash flows

after the end of the projection period. The formula is as follows:

where:

PV = Present value;

n = The last period for which economic income is expected; n may equal infinity (i.e., ∞) if

the economic income is expected to continue in perpetuity;

Ei = Expected economic income in the ith period in the future (paid at the end of the period);

k = Discount rate (the cost of capital, e.g., the expected rate of return available in the market

for other investments of comparable risk and other investment characteristics

i = The period (usually stated as a number of years) in the future in which the prospective

economic income is expected to be received

276. As explained above the present value calculation utilizes a discount rate represented by k.

The discount rate here was calculated using the CAPM and was determined to be 16.5

percent.224 See Appendix C for further detail.

223 Statement on Standards for Valuation Services, supra, 16-18; Pratt, Reilly& Schweihs, supra,153-154.224 The CAPM rate of return on equity capital is calculated using the formula: Ke = Rf + B * ERP + Ssp + Alphawhere:Ke = Rate of return on equity capital; Rf = Risk free rate of return; B = Beta or systematic risk for this type ofequity investment; ERP = Equity risk premium; The expected return on a broad portfolio of stocks in the market(Rm) less the risk free rate (Rf); Ssp = The small company premium adjustment to the cost of equity due to the sizeof the subject company; Alpha =Adjustment to the cost of equity due to characteristics specific to the subjectcompany.

n

ik

Ei

iPV1

1



277. Market Approach:225 The Market Approach indicates the FMV of a business based on a

comparison of the business to comparable firms in similar lines of business that are publicly-

traded, comparable public or private sale transactions in similar businesses or prior

transactions in a company’s securities is generally estimated in this approach through the

Guideline Company Method or the Guideline Transaction Method.

278. Guideline Company Method:226 The Guideline Company Method indicates the FMV of a

business by comparing it to publicly-traded companies in similar lines of business. The

conditions and prospects of companies in similar lines of business depend on common factors

such as overall demand for their products and services. An analysis of the market multiples of

companies engaged in similar businesses yields insight into investor perceptions, and

therefore, the value of the subject company.

279. After identifying and selecting the guideline publicly-traded companies, their business and

financial profiles are analyzed for relative similarity. Considerations of factors such as size,

growth, profitability, risk, and return on investment are also analyzed and compared to the

comparable businesses. Once these differences and similarities are assessed, for purposes of

the House 5 valuation, equity value (“EV”) multiples (i.e., EV/ Book Value) of the publicly-

traded companies are calculated. These multiples are then applied to the subject company’s

operating results, and adjusted for special and nonrecurring items, to estimate the FMV of the

subject company’s enterprise. A control premium is then applied to this value to calculate the

indicated Fair Market Value of the equity on a marketable, controlling basis.

280. Guideline Transaction Method: The Guideline Transaction Method estimates the FMV of a

business based on exchange prices in actual transactions and on asking prices for controlling

interests in public or private companies currently offered for sale. The process essentially

involves comparison and correlation of the subject company with other similar companies.

Adjustments for differences in factors described earlier (i.e., size, growth, profitability, risk,

and return on investment) are also considered.

281. In selecting comparable transactions, merger and acquisition databases and financial

publications are typically searched to identify transactions that are disclosed and to gather

225 Statement on Standards for Valuation Services, supra, 18-20; Pratt, Reilly & Schweihs, supra, 226.226 Pratt, Reilly & Schweihs, supra, 260-261.



information about the prices paid for similar businesses under similar circumstances. The

acquisitions are relevant indicators of an actual market participant’s perception of Fair Market

Value, and therefore, are a useful valuation indicator.

(i) Determination of Solvency of BLMIS

282. The Balance Sheet Test was employed to evaluate the solvency of BLMIS.227 Two business

segments of BLMIS were considered: House 17 and House 5. First, House 17, was analyzed.

As discussed supra, House 17 was a Ponzi scheme and was not a legitimate business. Since it

would be inappropriate to consider House 17 as a going concern for purposes of a solvency

analysis, the only relevant balance sheet components to consider are the cash held by

BLMIS’s House 17, its customer liabilities and other liabilities of general creditors. Second,

House 5, which was treated in this analysis as a going concern as of the December 2002 was

analyzed (see discussion supra regarding critical predicate assumptions). To determine the

FMV of House 5, a complete business valuation of House 5 was performed. The resulting

components of House 17 and House 5 were combined in order to arrive at a final conclusion

of whether BLMIS was insolvent as of December 11, 2002.

283. The information relied upon for the solvency analysis was the best information available to

form the basis for the opinions expressed herein. FOCUS reports, filed with the SEC, were

obtained and the financial information contained in the reports was used as the basis for

analyzing BLIMS’s historical and projected financial performance. However, as more fully

described below as well as in other sections of this Report, the FOCUS reports are known to

have contained false information regarding the operations of BLMIS and were adjusted

accordingly.

284. Cash Held as of December 11, 2002 - The total positive balances in the House 17 related

accounts were approximately $1.5 billion as of December 11, 2002.228

227 The Balance Sheet Test is the most clearly defined test by the Bankruptcy code and it is the first test typicallyemployed when determining the solvency of an enterprise. That notwithstanding, as will be demonstrated below, thedepth of BLMIS’s insolvency is so great that there is virtually no way that BLMIS’s debts (predominantly customerliabilities of $12 billion as of December 31, 2002) could be paid as they came due nor did BLMIS have a level of realcapital adequate to run its business.228 It has been assumed for purposes of the solvency analysis, that certain brokerage/other accounts were businessaccounts attributable to House 17 rather than personal accounts of Madoff and/or his wife Ruth. Account opening



285. Customer Liabilities of House 17 as of December 2002- In order to determine customer

liabilities, FTI calculated which customers had contributed more cash to House 17 than they

withdrew. These amounts for all of these customers were aggregated on a given day to

derive the total customer liability as of that date. As of October 31, 2002 and December 31,

2002 the customer liability was $11.9 billion and $12.0 billion, respectively.229

286. FTI determined the principal balance of a customer by crediting the amount of cash deposited

from the inception of the customer account and subtracting the amount of cash withdrawn

from a customer account through the date of determination.230 In addition to accounting for

the cash-in and cash-out transactions, FTI also accounted for the direct transfer and

withdrawal of real securities that were either deposited or withdrawn by customers from their

accounts. By focusing on cash (or securities) deposited or withdrawn from a customer’s

account, the method excluded the following:

Any purported earnings/gains from trading activity reflected in the account

holders’ account statements;231

Any interest earned on cash balances from customer deposits in House 17’s 703

Account; and

Any transfers of Other People’s Money between accounts (i.e., transfers to an

account for which the transferor account did not have sufficient principal at the

time of the transfer).

287. In order to assess the accuracy of FTI’s calculation of the principal balance of a customer a

review of the full customer liabilities was undertaken for purposes of inclusion in a solvency

analysis. Access was provided to information including numerous data bases including

information derived from customer statements (or alternative sources if necessary) and other

documentation that would indicate whether the account was a business or personal account was notavailable. However, to view the facts in the light most favorable to the determination of solvency, we have includedthe value of those accounts in the analysis.229

Net Loser Amounts by Account - 09302011.xlsx. MOTTAA00000922230 Id. In certain circumstances customers deposited securities into their accounts. For purposes of calculating thecustomer liability, the customer’s account was credited with a principal deposit at the time that the securities wereliquidated.231 Any adjustment for the time value of money is also excluded from the calculation. To the extent that some formof investment return or time value of money was deemed appropriate, the customer liability would increase, whichwould have the effect of further deepening BLMIS’s insolvency.



information which isolated the cash transactions that allowed for the calculation of customer

liabilities described above. Additional testing for completeness and accuracy of the

information was conducted by comparing the information in the databases to source

documents as well as the replication of queries that were used to extract relevant information

from the date bases. 232 Finally, a recalculation of customer liabilities was completed. As a

result of testing the majority of the tables provided it was determined for purposes of the

solvency analysis contained herein, that the customer liabilities was materially accurate and

reliable for purposes of use in the solvency analysis.

288. Valuation of House 5 as of December 11, 2002 - To determine the value of House 5, a

business valuation was performed as described below. Due to the situation at hand, the lack

of transparent financial information, with limited access to detailed underlying support, was a

limiting factor in conducting the business valuation. In order to conduct the analysis in the

light generally most favorable to the solvency of BLMIS, where transparency was lacking, a

judgment was made to generally err in favor of adjustments that supported a higher value of

House 5.

a. House 5 Financial Background

289. House 5 operated as a securities broker-dealer registered with the SEC. It provided

executions for broker-dealers, banks, and financial institutions, and was a member of the

National Association of Securities Dealers, Inc.

290. In order to properly understand the financial condition of House 5, its financial statements

covering two decades as well as numerous industry and equity analyst reports were analyzed

and relied upon. For purposes of this Report, all financial information is presented for the

year ending (“y/e”) December 31 (unless otherwise noted) and based on Adjusted FOCUS

report data (see definition of “Adjusted” in Appendix C). The following table shows

summary financial data for the periods prior to the valuation date.

232 The customer statements were retrieved from Microfilm and electronic (StorQM) records retained by BLMIS.These records were compiled electronically by the Trustee’s consultants. Bank records were obtained directly fromthe banks or retrieved from BLMIS files for the period December 1998 to December 2008 and compiledelectronically as well. These electronic data bases were tested and validated at the 98% confidence level with avariation of only 2%, the data was determined to be accurate and reliable in all material respects.



Table 11

Adjusted FOCUS Report Historical Financials233

iv. Selected Valuation Approaches

291. The Income Approach and Market Approach were selected to estimate the Fair Market Value

of House 5, as explained below. For the Income Approach the discounted cash flow

233 Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, anyevidence to the contrary would have a significant negative impact on the valuation.

House 5 – Adjusted Financialsy/e

2000y/e

2001y/e

2002

($ in millions)

Total Revenue 134.2 96.7 45.5

Commissions and clearance paid to all other brokers 30.6 13.8 4.8

Clearance paid to non-brokers 4.1 2.6 2.9

Communications 8.6 5.6 6.8

Occupancy and equipment costs 2.9 3.3 3.9

Adjustment for advisor occupancy -.5 -.6 -.7

Promotional costs .2 .1 .1

Data processing costs .6 .8 .7

Regulatory fees and expenses 6.5 4.4 4.8

Other expenses 69.2 39.2 31.8

Total Operating Expenses before Compensation 122.0 69.2 55.1

Pre-Comp Operating Income 12.2 27.5 -9.6

Clerical and administrative employees' expenses 45.8 52.3 23.1

Adjustment to market participant headcount reduction -6.9 -7.8 -3.5

Operating Income (EBIT) -26.7 -16.9 -29.2

Interest expense .5 .0 .0

Income before income taxes (EBT) -27.2 -16.9 -29.3

Tax Expense @ 40% -10.9 -6.8 -11.7

After Tax Income (Loss) -16.3 -10.2 -17.6



(“DCF”) method was considered. For the Market Approach, the Guideline Company and

Comparable Transaction Methods were considered.

a. Income Approach

292. The most common and generally accepted method within the Income Approach is the DCF

method. A DCF model is typically developed based on estimates of future revenues, overall

operating costs, working capital requirements and capital expenditures, among other things.

For House 5, projected financial information (“PFI”) was derived based on a review and

analysis of House 5’s historical operating and financial performance, as well as a comparison

to other industry participants. After conducting additional analysis, PFI was estimated for the

calendar years ending December 31, 2003 through 2007 (the “Projection Period”).

293. As of the Valuation Date, House 5 was operating sub-optimally with less leverage and more

non-restricted cash than its peers. Specifically, the calculated Leverage Ratio for House 5 as

of the Valuation Date was 1.55, while the weighted average Leverage Ratio of the Concluded

Guideline Companies was 3.17.234 Additionally, House 5 held $107 million of non-restricted

cash, for a Cash Ratio of 27 percent, compared to eight percent for the Concluded Guideline

Companies as of the Valuation Date.235 House 5’s financial performance was adjusted to

reflect a higher Leverage Ratio and lower Cash Ratio, which had the effect of increasing the

valuation. By relevering the business, the resulting value derived is significantly increased.

The predicate assumption for re-levering is based on the assumption that the business would

be able to borrow more money to invest in the business. Accordingly, if the fraud and/or

Ponzi was known at that time, the ability to borrow additional funds for House 5 would have

been severely negatively impacted. See Appendix C for further detail.

294. Pro forma year end 2002 financial statements were derived by estimating income and expense

based on historical information adjusted for the recapitalization describe above and in greater

detail in Appendix C. PFI for the projection period was estimated by extrapolating growth in

revenue and expenses over the Projection Period. Below is a table of projected income and

expenses for the period from 2003-2007.236

234 The ratio of total assets to total liabilities. See page 8 of Appendix C.235 The ratio of non restricted cash to total assets. See page 8 of Appendix C.236 See Appendix C for assumptions related to this projection.



Table 12

Financial Metrics 2003 2004 2005 2006 2007

($ in millions)Pre-Comp Operating Income $58.5 $61.7 $64.8 $68.3 $72.0

Comp Expense 19.4 20.5 21.5 22.7 23.9

Adjustment -2.9 -3.1 -3.2 -3.4 -3.6

Net Compensation 16.5 17.4 18.3 19.3 20.3

EBIT $42.0 $44.3 $46.5 $49.0 $51.7

295. The estimated Fair Market Value of House 5 was then calculated as the sum of the present

value of the projected Free Cash Flows and the present value of the terminal value. The Fair

Market Value of House 5 on a marketable, controlling interest basis was estimated to be $460

million using the Income Approach and is predicated on the caveats detailed supra in

paragraphs 267 and 268. (See Appendix C for a detailed discussion of the valuation including

assumptions used and limiting conditions).

b. Guideline Company Method

296. A series of selection criteria were applied to publicly traded companies to derive a group of

comparable companies most similar to House 5 (see Appendix C for a discussion of specific

selection criteria).

297. Once the Concluded Guideline Company set was established, trading multiples of the

comparable companies were computed to be uses to estimate the value of House 5. First, EV

was calculated on a marketable, controlling interest basis, reflecting a control premium. The

EV for each company was calculated as the product of the closing stock price as of the day

prior to the Valuation Date and the number of shares outstanding from most recent quarterly

report as of the Valuation Date, plus a control premium of 40 percent.237 Then multiples of

EV to Book Value (“BV”), Revenue, and Cash Earnings were then calculated for the selected

237 The control premium of 40 percent is based on the mean and median Mergerstat control premium study duringthe three years preceding the Valuation Date. 2002 Mergerstat Yearbook Industry Premiums.



comparable companies. The results from the comparable companies were then applied to

House 5 to estimate value. See Appendix C for further detail.

298. Based on the Guideline Company Method as described above, the indicated Fair Market

Value of House 5 on a marketable, controlling interest basis was $420 million as of the

Valuation Date and is predicated on the caveats detailed supra in paragraphs 267 and 268.

This concluded value is based on the average of the range of results indicated by application

of the BV, Cash Earnings and Revenue multiples as calculated using the Concluded Guideline

Companies’ valuations and financial metrics as described above and in Appendix C.

c. Comparable Transaction

299. To identify comparable transactions, merger transactions were screened in the relevant

industry group or met keyword criteria that occurred in the two years prior to the valuation

date. These criteria identified 13 potentially similar transactions; however, in each case the

resulting company was too dissimilar to House 5 to make a reliable comparison for purposes

of estimating value. As a result, the Comparable Transaction Method was not directly relied

upon as a value indicator and was instead used primarily to corroborate the results of the

Income Approach.

300. Based on the above analyses, the Fair Market Value of 100 percent of the equity of House 5,

on a marketable, controlling interest basis, was estimated at $450 million, as of the Valuation

Date. The following table summarizes these findings:

Table 13

Valuation Approach

Indicated Fair

Market Value

($ millions)

Income Approach $460

Guideline Company Approach $420

Concluded Fair Market Value (rounded) $450

Note: Since the valuation conclusion in this report is based on the premise of value that House 5

is a going concern, any evidence to the contrary would have a significant negative impact on the valuation.



301. Accordingly, the solvency of BLMIS as of December 11, 2002 was computed as follows:

302. The resulting negative $9.95 billion demonstrates that BLMIS was deeply insolvent as of

December 11, 2002.238 As a result of failing the Balance Sheet Test, it was determined that

an analysis of BLMIS’s capital adequacy or ability to pay debts was unnecessary since it is

inconceivable that the business could pay its debts or operate based on the depth of its

insolvency. Further, as a result of the growing customer liability from approximately $12

billion in December 2002 to approximately $19.7 billion on December 11, 2008, it is my

opinion the BLMIS was insolvent at all times after December 11, 2002 as well.

303. It is my opinion, that even if you ascribed any additional value to the individual assets of

Bernie and Ruth Madoff, or MSIL as of December 2002 through anytime up to December

2008, the significantly deep level of insolvency for BLMIS would not be affected in an

amount anywhere closely sufficient to render BLMIS solvent.

v. The evidence shows that House 17 was a Ponzi scheme.

304. The investigation as detailed above shows that House 17 was a Ponzi scheme based on the

fact that:

There was no legitimate income producing activities and limited outside financial

support—as a result all redemptions and payments to customers was facilitated

using Other People’s Money;

238 For purposes of the analysis the information provided by counsel regarding the assets of Bernie and Ruth Madoff(including real properties, investments, etc.) were considered (for example Bernie and Ruth’s personal bank accountshad a balance of $24.8 million on December 11, 2002). An estimate of value of MSIL was also considered, which,based on a multiple of 1.5 (rounded) times book value is $68.4 million. There could also be potential other creditorliabilities that may also have a negative impact on solvency. To the best of my knowledge I am unaware of any assetamounts that would change the conclusion of insolvency of BLMIS. These assets were not formally included in theanalysis.

(in $ billions)

FMV of House 5 $0.45

PLUS: House 17 Cash Balances $1.50

LESS: Customer Liabilities $11.90

INSOLVENT ($9.95)



Greater inflows of cash from investors, including institutional feeder funds, were

required to satisfy increasing outflows from a smaller group of customers; and

House 17 was insolvent.

VII. BASES FOR THE OPINIONS IN MY REPORT

305. I base my opinions below on my formal education and over twenty eight years of practical

experience as a C.P.A. and an expert in forensic accounting, fraud examinations, computer

forensics, accounting, taxation, business valuations, bankruptcy accounting and investment

advisory services. Additionally, my opinions and the bases for them are based in part on my

knowledge of Generally Accepted Accounting Principles, industry accepted accounting

practices, fraud examination theory, forensic accounting theory, commercial damage theory,

business valuation theory, the Internal Revenue Code and related taxing authority

pronouncements and rulings, investment theory and knowledge, investment advisory

knowledge and economic forecasting methodology.

306. I further base my opinions on the documents that were made available to me by the lawyers at

Baker. These documents are listed in Appendix B. I understand that these documents have,

or will be produced by the parties in this litigation. I reserve the right to supplement and/or

amend my opinions contained in this report should additional materials and/or documents

become available that require such supplementation.

________________________________________

Bruce G. Dubinsky, MST, CPA, CFE, CVA, CFF, CFFANovember 22, 2011 (originally submitted)

January 6, 2012 (submitted with corrections)



APPENDICES



APPENDIX A

QUALIFICATIONS OF BRUCE G. DUBINSKY


Phone: 202-649-1212 Fax: 240-312-2340 Mobile: 240-413-3145 E-mail: [email protected]

4520 East West Highway, Suite 640, Bethesda, MD 20814

Bruce Dubinsky, MST, CPA, CVA, CFE, CFF, CFFA is a Managing Director in theDispute and Legal Management Consulting Practice and City Leader of the Washington,D.C. office of Duff & Phelps, LLC. Bruce has over twenty-eight years experience providingaccounting, tax, expert witness and forensic accounting services.

Bruce’s practice places special emphasis on providing dispute consulting, forensicaccounting and expert witness services to a variety of clients including law firms, generalcounsels of corporations, governmental agencies and law enforcement bodies. Brucefrequently works on complex litigation cases where the claims in many instances are in thetens of billions dollars.

Bruce has been qualified and testified as an expert witness in cases involving criminal andcivil fraud, commercial business damages, intellectual property and patent damages,business valuations, federal income taxation, bankruptcy, accounting malpractice andstandard of care cases as well as various other disputes. He has been employed onnumerous occasions as an expert for federal income tax matters by the United StatesDepartment of Justice as well as the Office of Chief Counsel for the Internal RevenueService. Many of these cases involved abusive tax shelters and Listed Transactionswhich surrounded the purchase and sale of notional principle contracts for a variety ofderivative financial instruments valued in the hundreds of millions of dollars.

Bruce is currently leading the forensic investigation on campaign finance fraud for the UnitedStates Department of Justice through appointment by the U.S. District Court for theSouthern District of New York for the 2010-2011 International Brotherhood of Teamsters(IBT) International Officers Election. Bruce has led the forensic investigation for the pastthree election cycles for the IBT dating to 1997.

During 2009, Bruce was one of the forensic accounting investigators who worked on theLehman Brothers bankruptcy investigation conducted by the Special Examiner appointed bythe bankruptcy trustee for the Lehman Brothers bankruptcy estate.

In 2003, Bruce and his team investigated fraud allegations on behalf of the WashingtonTeachers Union where the presiding officers were thought to have embezzled millions ofdollars from union coffers. This investigation resulted in the perpetrators being convicted ofvarious federal crimes in the United States District Court for the District of Columbiaand incarcerated as a result.

Bruce G. DubinskyManaging DirectorDuff & Phelps, LLC

ProfessionalExperience

P R O F E S S I O N A L C R E D E N T I A L S


Bruce G. Dubinsky, Managing Director

Page 2

ProfessionalExperience(continued)

Areas of Bruce’s practice included: Fraud Investigations Complex Tax Controversy Cases Commercial Damage/Lost Profits Analysis Intellectual Property Damages Accounting Malpractice

Bankruptcy Investigations/Compliance Investment/Securities Damages Campaign Finance Compliance White Collar Criminal Fraud Boardroom Investigations

Representative Cases:

Hired as a testifying forensic accounting expert for the defense in the Parmalat SpAfraud case, one of the world’s largest accounting fraud cases to date. Provided experttestimony in multi-day deposition regarding various matters including the nature of thefrauds perpetrated, methods utilized by various alleged fraudsters and the underlyingtransactions at issue.

Hired as a testifying damages expert for the defense in a case with nearly $1 billiondollars of alleged damages for an alleged patent licensing breach of contract caseinvolving hard disk drive spindle motors and related hard disk drive component products.

Hired as a testifying forensic accountant and damages expert in a case involving hundredsof millions of dollars of consumer credit card and debt accounts in several asset-backedsecuritization vehicles.

Hired as a testifying forensic accountant expert in several cases surrounding allegedfraudulent tax shelters involving hundreds of millions of dollars in unpaid federal incometaxes.

Hired as a testifying forensic accountant in a white collar criminal case involvingallegation of bankruptcy and tax fraud.

Hired as a testifying damages expert in a health care insurance case involving breach ofcontract and other claims.

Hired as a testifying damages expert in a case involving lost profits arising from intentionaldisruption of distributorship channels.

Hired as a testifying damages expert in a case involving lost profits and damages arisingfrom alleged trespassing and unauthorized utilization of a internet service providernetwork.



Page 3

Selected Professional Accomplishments:

In 2007 Bruce was named one of the “Top 100 Most Influential People in the AccountingProfession” by Accounting Today, the premier news vehicle for the tax and accountingcommunity for over 22 years.. He was described in the article as “a pioneer of forensicaccounting.”

In 2005 Bruce received the distinguished award as the Fraud Examiner of the Year fromthe Washington Metropolitan Chapter of Certified Fraud Examiners for his work on theWashington Teachers Union embezzlement case. He also received the Fraud Examinerof the Year in 2001 for his efforts in the International Brotherhood of Teamstersinvestigative work.

Bruce currently serves on Editorial Board of The Value Examiner, an independent,professional development journal dedicated to the exploration of value and itsramifications for consultants. It is the singular source of timely, technical, in-deptharticles written for consultants by practitioners and academics at the top of theirrespective fields.

Bruce was a contributing editor for the CPA Digest, a nationally published, technicaljournal for the accounting profession, for two years. After serving as a contributing editorand writer, he remained an Editorial Board Advisor for one year. Bruce also served as aContinuing Education Course evaluator for McGraw Hill Publishing Company as well asa technical reviewer for Fraud Alert, published by PDI, Inc. in Chicago, IL. He has writtenand published articles on various matters relating to forensic accounting, fraudinvestigations, business valuations and commercial damages for a variety of legal andprofessional publications.

Bruce has also served as a member of the Commercial Panel of Arbitrators for theAmerican Arbitration Association. He was selected to the panel on the basis of hisinvolvement in the business and legal community, in recognition of his expertise andleadership in forensic and public accounting, and his reputation for integrity and fairjudgment.

Bruce has been quoted as an expert in numerous print media as well as appearing on localand national television and radio newscasts, to discuss various tax, accounting and fraudissues.

Bruce frequently lectures at the college level on issues relating to forensic accounting andaccounting ethics. He has presented seminars to law firms, professional groups and lawenforcement bodies, including the Federal Bureau of Investigation.

ProfessionalExperience

(continued)



Page 4

ProfessionalExperience(continued)

Prior Relevant Work Experience:

Mr. Dubinsky began his career as an auditor at one of the large international publicaccounting firms. Following several years practicing as an auditor, he served in the taxdepartment as a Senior Tax Specialist, including a position in the National Tax PracticeGroup. Following the public accounting firm, he served as an officer for a financial acquisitiongroup, and then co-founded a multi-faceted real estate development and construction company.He later served as the head of the tax department for a C.P.A. firm in Maryland. Prior to joiningDuff and Phelps, Mr. Dubinsky became a partner in another C.P.A. firm where he built theforensic accounting and litigation services practice group which eventually split off andbecame Dubinsky & Company, P.C., which was later acquired by Duff and Phelps.

Masters of Science-Taxation, (high honors), Georgetown University, Washington, D.C. – 1986

Bachelors of Science - Accounting, University of Maryland – 1983

Mr. Dubinsky continues his education in the field of forensic accounting, damage analysis,data mining, computer forensics and related topics through annual extensive course study

Certified Public Accountant - Maryland, 1985

Certified Fraud Examiner - Association of Certified Fraud Examiners, 1998

Certified Valuation Analyst - National Association of Certified Valuators and Analysts,

1997

Certified Forensic Financial Analyst - National Association of Certified Valuators and

Analysts, 2008

Certified in Financial Forensics - American Institute of Certified Public Accountants,

2010

Commercial Arbitrator - American Arbitration Association, 2002-2004

Registered Investment Advisor Representative - State of Maryland, 1999-2008

National Association of Certified Valuators and Analysts

Litigation and Forensics Board, Term: 2007-2010 Chair- 2008-2010

Editorial Review Board, 2010-present

Association of Certified Fraud Examiners

American Institute of Certified Public Accountants Business Valuation & Forensic Services Section

Education &Certifications

ProfessionalAssociations &Affiliations


www.duffandphelps.com

BRUCE G. DUBINSKY, MST, CPA, CVA, CFE, CFF, CFFAFEDERAL RULE 26(a)(2)(B) DISCLOSURE

FEDERAL RULES OF CIVIL PROCEDURE

TESTIMONY AT TRIAL AND/OR DEPOSITION(underline denotes party represented)

Estate of Elizabeth S. Snow, Deceased, PhilipF. Brown, Executor v. United States ofAmericaU.S. District Court of Washington at TacomaCase No. 3:10-cv-05793-RBLOctober 27, 2011 (Deposition)

South Florida Physician’s Network, LLCand United Health Networks, Inc. andUnited Health Network of Florida, Inc.American Arbitration AssociationCase No. 32 193 Y 00567 10August 11, 2011 (Deposition)

Clay Vance Richardson et al v. FrontierSpinning Mills Inc. et al.General Court of JusticeSuperior Court, North CarolinaCase No: 10 CVS 1040June 3, 2011 (Deposition)

Glynn v. EDO CorporationU.S. District Court for the District ofMarylandCase No. 1:07-cv-01660-JFMFebruary 25, 2011 (Deposition)

HCP et al v. Sunrise Senior LivingManagement, Inc. et al.Court of Chancery of the State of DelawareCase Nos. 4691-VCS; 4692-VCS; 4693-VCS;4694-VCS; 4696-VCS; 4697-VCS; 4698-VCS;4699-VCSJuly 21, 2010 (Deposition)

Perot Systems Government Services, Inc. v.21st Century Systems, Inc. et al.Circuit Court for Fairfax County VirginiaCase No. 2009-08867June 22, 2010 (Trial)May 28, 2010 (Deposition)

ClassicStar Mare Lease LitigationJames D. Lyon, Chapter 7 Trustee ofClassicStar, LLC v. Tony P. Ferguson et al.U.S. District Court Eastern District ofKentucky, LexingtonMDL No. 1877; Civil Action No. 5:07-cv0353-JMH and 5:09-215-JMHMay 13, 2010 (Deposition)

Sands Capital Management, LLC v. Scott E.O’GormanAmerican Arbitration AssociationCase No. 16 148 Y 00459 09April 28, 2010 (Trial)

Bemont Investments LLC v. United StatesUnited States District Court for the EasternDistrict of Texas-Sherman DivisionCase No: 4:07cv9 & 4:07cv10March 25, 2010 (Trial)August 28, 2009 (Deposition)June 24, 2008 (Deposition)

HCP Laguna Creek CA et al v. SunriseSenior Living Management, Inc.U.S. District Court for the District of EasternVirginiaCase No: 1:09 CV 824-GBL/JFAFebruary 26, 2010 (Deposition)



2 of 6

Global Express Money Orders, Inc. v. Farmers& Merchants Bank et alCircuit Court for Baltimore CityCase No: 24-C-08-004896 OTJanuary 13, 19 & 25, 2010 (Deposition)

In re UnitedHealth Group, et al. v. AmericanMultispecialty Group d/b/a/ Esse HealthAmerican Arbitration AssociationCase No. 57 193 Y 00004 08June 9 & 10, 2009 (Trial)April 24, 2009 (Deposition)

Wills Family Trust v. Martin K. Alloy et al.Circuit Court for Montgomery County, MDCase Nos: 252430-V & 2722511-VJune 1 & 2, 2009 (Trial)Judge Ronald B. RubinApril 10, 2009 (Deposition)

Southgate Master Fund v. United StatesU.S. District Court for the Northern District ofTexas – Dallas DivisionCase No: 3:06-CV-2335-KJanuary 14-15, 2009 (Trial)September 17, 2008 (Deposition)

Elize T. Meijer and Marcel Windt, Trustees inthe Bankruptcy for KPNQwest, N.V. andGlobal Telesystems v. H. Brian ThompsonU.S. District Court for the Eastern District ofVirginia – Alexandria DivisionCase No: 1:08CV673December 2, 2008 (Deposition)

Hoehn Family, LLC v. Price WaterhouseCoopers, LLCCircuit Court of Jackson County Missouri atIndependenceCase No: 0516-CV36227September 3, 2008 (Deposition)

World-Wide Network Services, LLC, et al. v.Dyncorp, Inc. and EDO Corp.United States District Court for the EasternDistrict of VirginiaCase No:1:07-cv-00627-GBL-BRPJanuary 24, 2008 (Deposition)

Calomiris v. Tompros, et al.Superior Court for the District of ColumbiaCase No: ADM 2000-2175-00January 17, 2008 (Trial)

Harslem et al. v. Ernst & Young, LLPAmerican Arbitration AssociationCase No: 30 107 Y 00303 06November 6 & 7, 2007 (Trial)

Rosenbach et al. v. KPMG, LLP et al.American Arbitration AssociationCase No: 13 181 Y 00437 06October 22, 2007 (Trial)

United States v. Timothy D. Naegele,DefendantU.S. District Court for the District of ColumbiaCriminal Action: Case No. 05-0151 (PLF)September 24 & 25, 2007 (Trial);January 9, 2007 and January 10, 2007 (DaubertTestimony)

Autoscribe Corp. v. 9801WashingtonianOffice, Inc. et al.Circuit Court for Montgomery County,MarylandCivil Action: Case No. 274847September 11, 2007 (Deposition)

In re Parmalat Securities LitigationU.S. District Court for the Southern District ofNew YorkCivil Action: Case No. 04 MD 1653 (LAK)August 22-24, 2007 (Deposition)

Jerald M. Spilsbury et al. v. KPMG, LLP etal.District Court, Clark County, NevadaCivil Action: Case No: A479003July 12, 2007 (Deposition)

John E. Gallus et al. v. Ameriprise Financial,Inc.United States District Court, District ofMinnesotaCivil Action, Docket No.: 0:04-cv-4498January 23, 2007 (Deposition)

Michael J. Sullivan and Jill P. Sullivan v.KPMG LLP and QA Investments LLCSuperior Court of New Jersey Law Division,Monmouth CountyCivil Action, Docket No.: MON-L-4279-04November 30, 2006 & December 12, 2006(Deposition)



3 of 6

In Re: Estate of First Pay, Inc.; BankruptcyNo. 03-30102-PMUnited States Bankruptcy Court – District ofMaryland (Greenbelt Division)Michael G. Wolff v. United States of America:Adversary No 05-1700-PMJudge MannesAugust 9, 2006 (Trial)

Robert K. Cohen, et al. v. KPMG, L.L.P., etal.State Court of Fulton County, GeorgiaCase No. 2003VS060471May 23, 2006 (Deposition)

Riddle Farm Financial Limited Partnership v.Route 50 Partners, LP and WorcesterPartners, LP and Riddle Farm Associates, LPand Goodwin H. Taylor, Jr.Circuit Court for Worcester County, State ofMarylandCase No. 23-C-03-0913April 4 & 5, 2006 (Trial)February 3, 2006 (Deposition)May 16, 2005 (Hearing)

Estate of Keith R. Fetridge v. Aronson &Company, A Professional CorporationCircuit Court for Montgomery County,MarylandCase No. 256856Judge Eric JohnsonMarch 9, 2006 (Trial)

Tolt Ventures, L.L.C., et al. v. KPMG, LLP etal.District Court of Harris County, Texas, 333rdJudicial DistrictCause No. 2003-69957January 27, 2006 (Deposition)

William C. Eacho III & Donna Eacho v.KPMG, LLP et al.Superior Court for the District of ColumbiaCase No. 04-005746November 29 & December 1, 2005(Deposition)

Richard W. Coleman, Jr. v. KPMG et al.Matter in Arbitration by Agreement of thePartiesOctober 31-November 2, 2005 (Trial)October 17-19, 2005 (Trial)August 22, 2005 (Deposition)

Lawrence L. Gaslow v. KPMG et al.Supreme Court Of The State Of New YorkCounty Of New YorkCase No. 600771/04August 8, July 1, and June 30, 2005(Deposition)

Minebea Co., Ltd, Precision Motors DeutscheMinebea GmbH, and Nippon MiniatureBearing Corp. v. George Papst, PapstLicensing GmbH, andVerwaltungsgesellachaft MIT BeschrankterHaftungU.S. District Court for the District of ColumbiaCase No. 97-05-90 (SSH) (DAR)August 4 & 5, 2005 (Trial);June 2, 2005 (Hearing)May 11, 2005 (Deposition)

Joseph J. Jacoboni v. KPMG LLPUnited States District Court for the MiddleDistrict of Florida – Orlando DivisionCase No. 6:02-CV-510-Orl-22DAB(M.D.Fla.)May 4, 2005 (Deposition)

Hemanth Rao, et al. v. H-QUOTIENT, Inc.,Douglas A. Cohn, and Laurence BurdenUnited States District Court for the District ofVirginia- Eastern DistrictFebruary 10 and 11, 2005 (Trial)

James, LTD. v. Saks Fifth Avenue, et al.Circuit Court for Arlington County, VirginiaChancery No. 03-802January 12 and 25, 2005 (Trial)December 10, 2004 (Deposition)



4 of 6

Sensormatic Security Corp. v. SensormaticElectronics Corporation, ADT SecurityServices, Inc., & Wallace Computer Services,Inc.United States District Court for the District ofMaryland Southern DivisionCase No. 02-Civ-1565 (DKC)September 28, 2004, February 19, 2004 &October 24, 2003 (Deposition)

Todd Roy Earl Bentley III v. Deutsche PostGlobal Mail, LTDSuperior Court of The State of CaliforniaFor The County of Los AngelesCase No: BC 293389September 23, 2004 & September 14, 2004(Deposition)

Alex Alikhani v. System EngineeringInternational, Inc.American Arbitration AssociationNo. 16 168 00611 03August 31, 2004 (Trial)

Ruben A. Perez, et al v. KPMG LLP, et al92nd Judicial District CourtHidalgo County, TexasCause No: C-2593-02-ANovember 7, 2003 (Deposition)

Joseph J. Jacoboni v. KPMG LLPUnited States District Court for the MiddleDistrict Of FloridaOrlando DivisionCase No. 6:02-CV-510-Orl-22DAB (M.D.Fla.)October 15, 2003 (Deposition)

Semtek International, Inc. v. LockheedMartin CorporationCircuit Court for Baltimore City, MarylandCase No. 97183023/CC 3762September 30 – October 1, 2003 (Trial)June 17, 2003 & May 27, 2003 (Deposition)

Jordan v. Washington Mutual Bank, F.A.United States District Court, District ofMarylandCase No. H02CV1465March 12, 2003 (Deposition)

Midland Credit v. MBNA America BankSuperior Court State Of Arizona, County OfMaricopaCase No. CV2001-002497February 27, 2003 & November 26, 2002(Deposition)

Epstein v. EpsteinCircuit Court for Montgomery County,MarylandFamily law No: 21608January 8, 2003 (Trial)

Surface Joint Venture v. E.I. Dupont DeNemours & Company, Inc.United States District Court For The WesternDistrict Of Texas, Austin DivisionCivil Action No. A 02CA 04 3SSJanuary 3, 2003 (Deposition)

Cates v. CatesCircuit Court of Fairfax County, VirginiaChancery No 176170June 17, 2002 (Deposition)

Phil Adams Company Profit Sharing Plan v.Trautman Wasserman, Inc.& CIBC Oppenheimer, Inc.NASD Arbitration, Washington, D.C.May 22, 2002 (Trial)

Boryczka, et al. v. Phil Collyer v. Apex DataServices, Inc.Circuit Court of Fairfax County, VirginiaChancery No 171437March 12, 2002 (Deposition)

Frank A. Pietranton, Jr. et al. v. Kenneth J.Mahon & Mahon, Inc.Circuit Court of Arlington County, VirginiaChancery No. 00-617Judge Benjamin NA KendrickFebruary 13, 2002 (Trial)

Rinearson v. RinearsonCircuit Court of Fairfax County, VirginiaChancery No. 170354Judge Robert Wooldridge, Jr.January 24, 2002 (Trial)

Amtote International, Inc., v. Bally’s ofMaryland, Inc.Circuit Court for Baltimore County, MarylandCiv. No. 03-C-01-001715October 19, 2001 (Deposition)



5 of 6

America Online, Inc., v. Netvision Audiotext,Inc. et al.United States District Court- Eastern District ofVirginiaCase No 99-1186-AOctober 16, 2001 (Deposition)

In Re: Robert S. Beale, Jr.In Re: Robert S. Beale, Jr., M.D., P.A.United States Bankruptcy Court – District ofMaryland (Baltimore Division)Case Nos: 99-65815-ESD; 00-55731-ESDJudge E. Stephen DerbyAugust 2, 2001 (Trial)

Marvin BenBassett v. Ritz Camera Centers,Inc.Circuit Court for Montgomery County,MarylandCase No. 207934February 23, 2001 (Deposition)

Diamond v. DiamondCircuit Court of Fairfax County, VirginiaChancery No. 165804Judge M. Langhorne KeithFebruary 6, 2001 (Trial)

Giesting & Associates, Inc. v. Harris Corp.Inc.United States District Court, Middle District ofFlorida, Orlando DivisionNo. 6:98-cv-1363-Orl-3ABF (M.D. Fla.)Judge David A. BakerNovember, 2000 (Trial)

Bell Atlantic-Maryland, Inc. v. FurgusonTrenching Company, Inc. et al.Circuit Court for Anne Arundel County,MarylandCase No. C-98-498130CJudge Michael LooneyNovember 1, 2000 (Trial)

First Guaranty Mortgage Corporation v.Greater Atlantic Federal Savings Bank, et al.Circuit Court for Arlington County, VirginiaChancery No. 99-488Judge Joann AlperSeptember 29, 2000 (Trial)

United States of America v. Lawrence EdwinCrumblissUnited States District Court, Eastern Districtof North Carolina, Western DivisionCriminal Case No: 5:99-CR-24-BRJudge BrittJuly 21, 2000 (Trial)

Sportsolution, Inc. v. National FootballLeague Players AssociationUnited States District Court, Middle District ofFlorida, Orlando DivisionCase No. 98-1154-Civ-Orl-22CJudge DuffyMarch 22-23, 2000 (Trial)

Kontzias v. CVS, Inc.Circuit Court of Fairfax County, VirginiaCivil Action No. 178049Judge ThatcherMarch 21, 2000 (Trial)

York Distributors, A Division Of HomeParamount Pest Control Companies, Inc. v.FMC Corporation/Agricultural ProductsGroupIn The United States District Court For TheDistrict Of MarylandCivil Action No. L-98-2533January 27, 2000 (Deposition)

Brown v. BrownCircuit Court for Baltimore County, MarylandCase No. 03-C-98-003633Judge DanielsSeptember 30, 1999 (Trial)

Laura I. Merriex, et al. v. Robert S. Beale, Jr.,M.D., PCSuperior Court For The District of ColumbiaCase No. 96-CA05313Judge DiazAugust 1999 (Trial)

Rees, Broome & Diaz, P.C. v. Bella VistaCondominium AssociationCircuit Court for Arlington County, VirginiaChancery No. 98-260Judge Joann AlperJune 2, 1999 (Trial)



6 of 6

Charnis v. Kats et. al.Circuit Court for Montgomery County,MarylandCivil No.174341-VJudge DonohueMarch 1999 (Trial)

Robert S. Joselow v. Robert J. Katz, et. al.Superior Court of the District of ColumbiaCivil No.96-00871May 4, 1998 (Deposition)

Regina L. Amann v. Washington RomanceWriters (Board of Directors), et. al.Circuit Court for Montgomery County,MarylandCivil No.166949February 1998 (Deposition)

International Fidelity Company v. WilliamsOverman Pierce & Company LLPIn the United States District CourtFor the Eastern District of North CarolinaRaleigh DivisionCase No. 5:96-CV-1001-BO(1)October 1997 (Deposition)

Kasten v. KastenDistrict of Columbia Superior CourtJudge Duncan-PetersMarch 1997 (Trial)

Roddy v. O'BrienCircuit Court of Maryland for MontgomeryCountyMaster of the Court MahayfeeOctober 1996 (Trial)

Zittelman v. The Sun Box CompanyArbitration Case- Rockville, MarylandJudge MillerDecember 1995 (Trial)

Commercial Recovery Systems, Inc. v. MCITelecommunications Company, Inc.Arbitration Case-Washington, D.C.January 1995 (Trial)

Revised 11/11


Revised 11/2011

Articles Published ByBruce G. Dubinsky, MST, CPA, CVA, CFE, CFF, CFFA

Bruce G. Dubinsky and W. Christopher Bakewell et al., Valuation of Patents: Legislative andJudicial Developments on Damages in Infringement Cases, The Value Examiner, May/June2009.

Steve Pomerantz and Bruce G. Dubinsky, Monte Carlo Simulation Analysis: A Tool forProjecting the Unknown, CPA Expert, AICPA Newsletter for Providers of Business Valuation,Forensic & Litigation Services, Winter 2007.

Steve Pomerantz and Bruce G. Dubinsky, Monte Carlo Simulation Analysis: Part II: Beyond theTheory, CPA Expert, AICPA Newsletter for Providers of Business Valuation, Forensic &Litigation Services, Spring 2007.

Steve Pomerantz and Bruce G. Dubinsky, Monte Carlo Simulation Analysis: Part III: A CaseStory, CPA Expert, AICPA Newsletter for Providers of Business Valuation, Forensic &Litigation Services, Summer 2007.

Bruce G. Dubinsky and Christine L. Warner, Uncovering Accounts Payable Fraud Using “FuzzyMatching Logic: Part 1,” Fraud Magazine (Journal of the Association of Certified FraudExaminers), July/August 2006.

Bruce G. Dubinsky and Christine L. Warner, Uncovering Accounts Payable Fraud Using “FuzzyMatching Logic: Part 2,” Fraud Magazine (Journal of the Association of Certified FraudExaminers), July/August 2006.

Bruce G. Dubinsky, The Quagmire of Business Valuation, The Legal Times, Washington, D.C.,October 21, 2002.

Bruce G. Dubinsky, Cooking the Books, Maryland State Bar Association Newsletter, Baltimore,April 2002.

Bruce G. Dubinsky, Math Formula Fights Fraud, The Legal Times, Washington, D.C., February2001.

Bruce G. Dubinsky, Fraud Specialists, The Legal Times, Washington, D.C., March 2000.

Bruce G. Dubinsky, Protect Your Firm Against Fraud, The Legal Times, Washington, D.C.,February 2000.

The CPA Digest, Harcourt Brace Publishing Company, 116 articles published on varioussubjects from April 1993 to September 1994.


APPENDIX B

DOCUMENTS CONSIDERED



Appendix “B”

Page 1 of 50

Page 1 of 50

APPENDIX “B”

LISTING OF DOCUMENTSCONSIDERED BY

BRUCE G. DUBINSKY, MST, CPA, CVA, CFE, CFF, CFFA

I have considered the pleadings in this case, as well as documents & other information

produced by the parties to this case & gathered during my research. Accordingly, my report &

Appendix C contain various footnote references & discussion of documents specifically relied

upon by me in issuing my expert opinions in this case. In addition to the documents cited in my

report & Appendix C, the following documents were considered by me in issuing my expert

opinions in this report. Documents identified / named below are to be considered inclusive of

any & all exhibits to the particular document.

DOCUMENTS

ARTICLES

1Alex Altman, A Brief History of Ponzi Schemes, Time (Dec. 15, 2008)http://www.time.com/time/business/article/0,8599,1866680,00.html.

2Bala Arshanapalli, Frank Fabozzi, Lorne N. Switzer, Guillaume Gosselin, New Evidence on theMarketImpact of Convertible Bond Issues in the U.S.(Jan. 2004).

3Frank J. Fabozzi, Jinlin Liu, & Lorne N. Switzer, Market Efficiency & Returns from CovertibleBond Hedging & Arbitrage Strategies, The J. of Alternative Investments (Winter 2009).

4George Batta, Gerorge Chacko, & Bala G. Dharan, A liquidity-Based Explanation of ConvertibleArbitrage Alphas (May 2010).

5Igor Lonkasrki, Jenke ter Horst, & Christ Veld, The Rise & Demise of the Convertible ArbitrageStrategy (Jan. 23, 2009).

6Jacob Bunge, Trading Firm, Built on Madoff Platform, Closes Doors, Wall St. J. (Oct. 7, 2011)http://online.wsj.com/article/SB10001424052970203388804576617230200603402.html.

7Linda Sandler & Allan Dodds Frank, Madoff's Tactics Date to 1960s When Father-In-Law WasRecruiter, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=at1ierlaVQyg.

8 Mark Hutchinson & Liam Gallagher, Convertible Bond Arbitrage (June 2004).9 Michael Ocrant, Madoff Tops Charts; Skeptics Ask How at 1, 89 MAR/Hedge, May 2001.

10Rene M. Stulz, Hedge Funds: Past, Present, & Future, 21:2 J. of Economic Perspectives (Spring2007).



Appendix “B”

Page 2 of 50

Page 2 of 50

BOOKS

11Association of Certified Fraud Examiners, Fraud Examiners Manual (Association of CertifiedFraud Examiners 2009).

12David Cushin, The Transaction Cost Challenge: A Comprehensive Guide for Institutional EquityInvestors & Traders (ITG Inc. 1999).

13 Frank J. Fabozzi, The Handbook of Fixed Income Securities (7th Ed. 2005).

14Henry Campbell Black, Black’s Law Dictionary (Bryan A. Garner, ed. West Publishing 7th ed.1999).

15Shannon P. Pratt, Robert F. Reilly, & Robert P. Schweihs, Valuing a Business 311 (McGraw-Hill4th ed. 2000).

16 Standard & Poor's, Stock & Bond Guide (McGraw-Hill 1985).

17Steven L. Skalak, Thomas W. Golden, Mona M. Clayton & Jessica S. Pill, A Guide to ForensicAccounting Investigation (John Wiley & Sons 2d ed. 2011).

STATUTES

18 11 U.S.C. § 101(32) (2011).19 11 U.S.C. § 548 (2010).20 11 U.S.C. § 548 (a)(1)(B)(1) (2010).21 11 U.S.C. § 548(a)(1)(B)(2) (2010).22 11 U.S.C. § 548(a)(1)(B)(III) (2010).23 17 C.F.R. § 210.2-01(b)(c).24 17 C.F.R. § 240.17(a)-5(f)(3).25 8 NYCRR§ 29.10a(5)

26Code of Professional Conduct, ET § 101 (Am. Inst. of Certified Pub. Accountants 1988)Professional Standards, Auditing Section 220.03

27 Investment Advisers Act § 203(b)(3).28 Investment Advisers Act Rule §§ 203-1 & 203(b).29 SEC Rule 17a-5, 17 C.F.R. 240.17a5.30 The Securities Exchange Act of 1934, 15 U.S.C. § 80-b-3 (2010); [44 FR 21008, Apr. 9, 1979]31 The Securities Exchange Act § 17A(c), 15 U.S.C. §78 (2010).32 Treas. Reg. § 20.203191b; Rev. Rul. 59-60, 1959-1 C.B. 41.

ONLINE RESOURCES

33 Code of Ethics, ACFE, http://www.acfe.com/code-of-ethics.aspx.

34Company Information, Bernard L. Madoff Investment Securities, (Apr. 2001) http://www.madoff.com/letters/mvl.asp?home=1.

35Company Information, Bernard L. Madoff Investment Securities, (Dec. 2001) http://www.madoff.com/letters/mvl.asp?home=1.

36Company Information, Bernard L. Madoff Investment Securities, (Jan. 2002) http://www.madoff.com/letters/mvl.asp?home=1.



Appendix “B”

Page 3 of 50

Page 3 of 50

ONLINE RESOURCES

37Company Information, Bernard L. Madoff Investment Securities, (July 2000) http://www.madoff.com/letters/mvl.asp?home=1.

38Company Information, Bernard L. Madoff Investment Securities, (July 2000) http://www.madoff.com/letters/mvl.asp?home=1.

39Company Information, Bernard L. Madoff Investment Securities, (June 1998) http://www.madoff.com/letters/mvl.asp?home=1.

40Company Information, Bernard L. Madoff Investment Securities, (June 2000) http://www.madoff.com/letters/mvl.asp?home=1.

41Company Information, Bernard L. Madoff Investment Securities, (Mar. 2000) http://www.madoff.com/letters/mvl.asp?home=1.

42Company Information, Bernard L. Madoff Investment Securities, (May 2006) http://www.madoff.com/letters/mvl.asp?home=1.

43Company Information, Bernard L. Madoff Investment Securities, (Oct. 1997) http://www.madoff.com/letters/mvl.asp?home=1.



46Frontline Transcript of Interview of Michael Bienes, available athttp://www.pbs.org/wgbh/pages/frontline/madoff/interviews/bienes.html

47Legitimate, Merriam Webster (Nov. 20, 2011), http://www.merriam-webster.com/dictionary/legitimate

48New York Stock Exchange Special Closings, New York Stock Exchange,http://www.nyse.com/pdfs/presidents_closings.pdf.

49Office of the Professions, New York State Education Department (Nov. 20, 2011),http://www.nysed.gov/coms/op001/opsc2a?profcd=07&plicno=017210&namecheck=HOR.

50 Schtup, Yiddish Dictionary Online, http://www.yiddishdictionaryonline.com.

51Standard & Poor's Reports Index Returns, Standard & Poor's,http://www.st&ard&poors.com/indices/sp-100/en/us/?indexld=spusa-100-usduf--p-us-1--.

52The Hedge Fund 100, Institutional Investor,http://www.institutionalinvestor.com/default.asp?page=250.

AGENCY RESOURCES

53 AICPA, Statement on Standards for Valuation Services (June 2007).54 AIPCA, Professional Standards, Auditing Section 220.0355 FASB, Accounting Standards Codification 305-10-20 (2010).

56FINRA Notice 95-26, Conversion To T+3 Settlement, Reg. T, & SEC Rule 15c3-3(m), & Ex-Dividend Schedule (Apr. 1995).

57 National Securities Clearing Corporation, Rules & Procedures (Oct. 21, 2011).58 New York State Accountancy Regulations, Title 8, Section 29.10a-5.

59Press Release, U.S. Attorney’s Office, Manhattan Attorney Announces Guilty Plea Of AnotherEmployee Of Bernard L. Madoff Investment Securities LLC (June 6, 2011).

60 SEC, Frequently Asked Questions, http://www.sec.gov/answers/ponzi.htm#PonziWhatIs.



Appendix “B”

Page 4 of 50

Page 4 of 50

AGENCY RESOURCES

61 SEC, Holding your Securities - Get The Facts, http://www.sec.gov/investor/pubs/holdsec.htm.62 SEC, Transfer Agents, http://www.sec.gov/answers/transferagent.htm.

63The Depository Trust & Clearing Corp., About DTCC: National Securities Clearing Corporation(Aug. 17, 2011) http://www.dtcc.com/about/subs/nscc.php..

64The Depository Trust & Clearing Corp., An Introduction to DTCC Services & Capabilities (Aug.16, 2011).

65The Depository Trust & Clearing Corp., AnOverview,http://www.dtcc.com/downloads/about/Introduction_to_DTCC.

66The Depository Trust & Clearing Corp., Following a Trade: A Guide to DTCC’s Pivotal Roles inHow Securities Change H&s (Aug. 16, 2011).

67The Depository Trust & Clearing Corp., Products & Services Equities Clearance,http://www.dtcc.com/downloads/about/Broker_to_Broker_Trade.

68The Depository Trust Corp., Rules, By-Laws, & Organization Certificate of the Depository TrustCompany a(June 2011).

69The Options Clearing Corp., Index Options Product Specifications,http://www.optionsclearing.com/clearing/clearing-services/specifications-index-options.jsp

70The Options Clearing Corp., What is the OCC?, http://www.theocc.com/about/corporate-information/what-is-occ.jsp.

OTHER RESOURCES

71Press Release, Trustee Announces Winning Bid of Up to $25.5 Million for Madoff Market MakerBusiness (New York: Apr. 27, 2011) http://www.prnewswire.com/news-releases/trustee-announces-winning-bid-of-up-to-255-million-for-madoff-market-maker-business-61997332.html.

72 Providence Capital, LLC., Providence Select Fund (May 2005) (presentation).73 Thomas Leung, Convertible Arbitrage Portfolio Manager Position Business Plan.

PLEADINGS

74 Transcript from Hearing, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Aug. 19, 2011).

75Administrative Proceeding, Initial Decision, In the Matter of Marc N. Geman, No. 3-9032 (SECAug. 5, 1997).

76 Appeal Memorandum, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Oct. 1, 2011).77 Appeal Motion, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Oct. 7, 2011).

78Appendix to Sonnenschein Invesetors’ Motion & Memorandum of Law in Support of Motion toExclude the Expert Report & Testimony of William Lenhart, In re Bayou Group LLC, No. 06-22306 (Bankr. S.D.N.Y. 2007).

79Brief for Appellants Sterling Equities Associates, et. al., In re Bernard L. Madoff Inv. Sec. LLC, 10-2378-bk(L) (2d. Cir. Aug. 6, 2010).

80Brief for Trustee-Appellee Irving H. Picard, In re Bernard L. Madoff Inv. Sec. LLC, 10-2378-bk(L)(2d. Cir. Sept. 20, 2010).

81Brief of Appellee SIPC, In re Bernard L. Madoff Inv. Sec. LLC, 10-2378-bk(L) (2d. Cir. Sept. 20,2010).



Appendix “B”

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Page 5 of 50

PLEADINGS

82 Case Management Order, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 28, 2011).

83Civil Cover Sheet on Motion to Withdraw the Reference, Picard v. Katz, No. 10-5287 (BRL)(Bankr. S.D.N.Y. May 31, 2011).

84Complaint for Preliminary & Permanent Injunctive & Other Equitable Relief, SEC v. Avellino &Bienes, No. 92-CV-08314 (JES) (S.D.N.Y. Nov. 25, 1992).

85 Complaint, Picard v. Avellino, No. 10-05421 (BRL) (Bankr. S.D.N.Y. Dec. 10, 2010).86 Complaint, Picard v. Bongiorno, No. 10-04215 (BRL) (Bankr. S.D.N.Y. Nov. 12, 2010).87 Complaint, Picard v. Bonventre, No. 10- (BRL) (Bankr. S.D.N.Y.).88 Complaint, Picard v. Crupi, No. 10-04216 (BRL) (Bankr. S.D.N.Y. Nov. 12, 2010).89 Complaint, Picard v. O'Hara, 09 CV 9425 (S.D.N.Y. Nov. 13, 2009).90 Complaint, Picard v. Pitz, No. 10-04213 (BRL) (Bankr. S.D.N.Y. Nov. 12, 2010).91 Complaint, SIPC v. Friehling, 09 CV 2467 (S.D.N.Y. Mar. 18, 2009).92 Complaint, SIPC v. Madoff, 08 CIV 10791 (S.D.N.Y. Dec. 11, 2008).

93Consent Consolidation Order, In re Bernard L. Madoff Inv. Sec. LLC, No. 08-1789 (BRL) (Bankr.S.D.N.Y., Jun. 9, 2009).

94Cooperation Agreement from Department of Justice, United States v. Lipkin, S3 Cr. 228 (LTS)(S.D.N.Y. May 31, 2011).

95Decision Granting Order Upholding Trustee's Determination of Net Equity, etc., In re Bernard L.Madoff Inv. Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. Mar. 1, 2010).

96Declaration in support of the Trustee's Opp to Sterling Defs' Motion to Withdraw Reference, Picardv. Katz, No. 10-5287 (BRL) (Bankr. S.D.N.Y. June 17, 2011).

97Declaration in Support of Trustee's Opp to the Sterling Defs' Motion to Dismiss, Picard v. Katz, No.10-5287 (BRL) (Bankr. S.D.N.Y. July 8, 2011).

98Defs' Answer to Complaint, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Oct. 11,2011).

99 Defs' Initial Disclosures, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 26, 2011).

100Defs' Objection to Trustee's Determination of Claims, Picard v. Katz, No. 10-5287 (BRL) (Bankr.S.D.N.Y. Apr. 7, 2011).

101Expert Report of Lisa M. Collura, FTI Consulting, In re Bernard L. Madoff Inv. Sec. LLC, No. 11Civ. 03605 (JSR) (HBP) (S.D.N.Y. Nov. 22, 2011).

102Expert Report of Matthew B. Greenblatt, FTI Consulting, In re Bernard L. Madoff Inv. Sec. LLC,No. 11 Civ. 03605 (JSR) (HBP) (S.D.N.Y. Nov. 22, 2011).

103Hearing Transcript, United States v. Bernard L. Madoff, 08 MJ 2735 (DC) (S.D.N.Y. Mar. 10,2009).

104 Indictment, United States v. Bonventre, S1 10 Cr. 228 (LTS) (S.D.N.Y.).105 Indictment, United States v. O'Hara, 10 CRIM 228 (S.D.N.Y. Mar. 17, 2010).106 Information, United States v. Friehling, S1 09 Cr. 700 (AKH) (S.D.N.Y. July 17, 2009).107 Information, United States v. Kugel, No. 10-CR-228 (LTS) (S.D.N.Y. Nov. 21, 2011).108 Information, United States v. Lipkin, S3 10 Cr. 228 (LTS) (S.D.N.Y. Jun. 6, 2011).

109Joseph Looby's Affidavit in Support of Net Equity, In re Bernard L. Madoff Inv. Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. Oct.16, 2009).

110Jury Trial Dem&ed Complaint, Goldweber v. Sterling Equities Associates, 10 CV 5786 (S.D.N.Y.Jul. 30, 2010).



Appendix “B”

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Page 6 of 50

PLEADINGS

111Memo of Law in of SIPC in Support of Trustee's Motion for Cert, Picard v. Katz, No. 11-CV-03605(JSR) (HBP) (S.D.N.Y. Oct. 7, 2011).

112Memo of Law in Support of Motion to Dismiss or for Summary Judgment, Picard v. Katz, No. 10-5287 (BRL) (Bankr. S.D.N.Y. July 7, 2011).

113Memorandum of Law in Support of Sterling Defendants’ Motion to Dismiss the AmendedComplaint or, in the Alternative, for Summary Judgment, SIPC v. Bernard L. Madoff Inv. Sec.LLC, No. 08-01789 (BRL) (S.D.N.Y.).

114Motion to Dismiss or in the Alternative For Summary Judgment, Picard v. Katz, No. 10-5287 (BRL)(Bankr. S.D.N.Y. July 7, 2011).

115Notice of Motion to Direct Entry of Final Judgment & Cert, Picard v. Katz, No. 11-CV-03605 (JSR)(HBP) (S.D.N.Y. Oct. 7, 2011).

116Notice of Motion to Dismiss the Amended Complaint or, in the Alternative, for Summary Judgment,Sec. Investor Protection Corp. v. Bernard L. Madoff Inv. Sec., No. 08-01789 (BRL) (S.D.N.Y.).

117 Opinion, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 27, 2011).

118Order Appointing Trustee & Removing to Bankruptcy Court, S.E.C. v. Bernard L. Madoff, Civ. 08-10791 (S.D.N.Y. Dec. 15, 2008).

119Order Appointing Trustee & Removing to Bankruptcy Court, S.E.C. v. Bernard L. Madoff, Civ. 08-10791 (S.D.N.Y. Dec. 15, 2008).

120Order of the Court Regarding Lipkin Charges, United States v. Lipkin, S3 10 Cr. 228 (LTS)(S.D.N.Y. Jun. 6, 2011).

121 Order, In re Bernard L. Madoff Inv. Sec. LLC, 10-2378-bk (L) (2d. Cir. Aug. 16, 2011).122 Order, In re Bernard L. Madoff Inv. Sec. LLC, 10-2378-bk(L) (2d. Cir. Aug. 16, 2011).123 Order, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 28, 2011).

124Partial Judgment on Consent Imposing Permanent Injunction, S.E.C. v. Friehling, 09 Civ. 2467(S.D.N.Y. Nov. 4, 2009).

125Plea Agreement from Department of Justice, United States v. Friehling, S1 09 Cr. 700 (AKH)(S.D.N.Y. Nov. 3, 2009).

126 Plea Allocution, United States v. Bernard L. Madoff, 08 MJ 2735 (DC) (S.D.N.Y. Mar. 12, 2009).127 Plea Allocution, United States v. Friehling, S1 09 Cr. 700 (AKH) (S.D.N.Y. Nov. 3, 2009).128 Plea, United States v. DiPascali, 09 CR 764 (RJS) (S.D.N.Y. Aug. 11, 2009).

129Press Release of Plea from U.S. Attorney's Office, United States v. Lipkin, S3 10 Cr. 228 (LTS)(S.D.N.Y. Jun. 6, 2011).

130 Production Request, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 16, 2011).131 Redacted Complaint, Picard v. Lipkin, No. 10-04218 (BRL) (Bankr. S.D.N.Y. Nov. 12, 2010).

132Reply Brief for Appellants Sterling Equities Associates, et. al., In re Bernard L. Madoff Inv. Sec.LLC, 10-2378-bk(L) (2d. Cir. Oct. 11, 2010).

133Rule 56.1 Sterling Defs' Statement of Material Facts, Picard v. Katz, No. 10-5287 (BRL) (Bankr.S.D.N.Y. July 7, 2011).

134 Sealed Complaint, United States v. O'Hara, 09 MAG 2484 (S.D.N.Y. Nov. 12, 2009).

135Sentencing Transcript, United States v. Bernard L. Madoff, 08 MJ 2735 (DC) (S.D.N.Y. June 29,2009).

136Superseding Indictment, United States v. Bonventre, S2 10 Cr. 228 (LTS) (S.D.N.Y. Nov. 18,2010).



Appendix “B”

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Page 7 of 50

PLEADINGS

137Supp Memo of Law in Further Opp to Sterling Defs' Motion to Dismiss, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. July 22, 2011).

138Supp Memo of Law in Further Opp to Sterling Defs' Motion to Dismiss, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. July 22, 2011).

139Supp Memo of Law in Further Support to Sterling Defs' Motion to Dismiss, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Aug. 12, 2011).

140 Transcript from Hearing, Picard v. Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Sept. 28, 2011).

141Trustee's Amended Third Interim Report, In re: Bernard L. Madoff Inv. Sec. LLC, No. 08-1789(BRL) (Bankr. S.D.N.Y. Apr. 14, 2009).

142Trustee's Counter-Statement to Rule 56.1, Picard v. Katz, No. 10-5287 (BRL) (Bankr. S.D.N.Y. July8, 2011).

143Trustee's Fifth Interim Report for the Period Ending Mar. 31, 2011, In re Bernard L. Madoff Inv.Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. May 16, 2011).

144Trustee's First Interim Report for the Period Dec. 11, 2008 through June 30, 2009, In re Bernard L.Madoff Inv. Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. July 9, 2009).

145Trustee's Fourth Interim Report for the Period Ending Sept. 30, 2010, In re Bernard L. Madoff Inv.Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. Oct. 29, 2010).

146Trustee's Memo in Opp to the Sterling Defs' Motion to Dismiss, Picard v. Katz, No. 10-5287 (BRL)(Bankr. S.D.N.Y. July 8, 2011).

147Trustee's Memo of Law in Opp to Sterling Defs' Motion to Withdraw Reference, Picard v. Katz, No.10-5287 (BRL) (Bankr. S.D.N.Y. June 17, 2011).

148Trustee's Memo of Law in Support of Motion to Direct Entry of Final Judgment & Cert, Picard v.Katz, No. 11-CV-03605 (JSR) (HBP) (S.D.N.Y. Oct. 7, 2011).

149Trustee's Second Interim Report for the Period Ending Oct. 31, 2009, In re Bernard L. Madoff Inv.Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. Nov. 23, 2009).

150Trustee's Third Interim Report for the Period Ending Mar. 31, 2010, In re Bernard L. Madoff Inv.Sec. LLC, No. 08-1789 (BRL) (Bankr. S.D.N.Y. Apr. 14, 2010).

151 United States v. Madoff, 586 F.Supp.2d 240, 244 (S.D.N.Y. 2009).

INVESTMENT DATA

152 Acton Corp. at 2004, Moody's Industrial Manual (1981).153 Aetna Life at 3953, Moody's Bank & Finance Manual (1979).154 Aetna Life at 4303, Moody's Bank & Finance Manual (1980).155 AGS Computers Inc. at 2514, Moody's Industrial Manual (1987).156 Air Florida System Inc. at 1429, Moody's Industrial Manual (1980).157 AlcoStard Corp., Moody's Industrial Manual (1987).158 Allied Stores Corp. at 42, Moody's Industrial Manual (1979).159 Aluminum Co. of America at 651, Moody's Industrial Manual (1981).160 AMAX Inc. at 566, Moody's Industrial Manual (1980).161 AMAX Inc. at 63, Moody's Industrial Manual (1978).162 Amerada Hess Corp. at 1382, Moody's Industrial Manual (1979).163 American Airlines Inc. at 1049, Moody's Transportation Manual (1978).164 American Airlines Inc. at 1433, Moody's Transportation Manual (1980).



Appendix “B”

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Page 8 of 50

INVESTMENT DATA

165 American Broadcasting Companies Inc. at 667, Moody's Industrial Manual (1981).166 American Broadcasting Companies Inc. at 871, Moody's Industrial Manual (1982).167 American Brothers Inc. at 579, Moody's Industrial Manual (1980).168 American Brothers Inc. at 661, Moody's Industrial Manual (1981).169 American Express Co. NY at 2451, Moody's Bank & Finance Manual (1982).170 American General Corp. Tex at 2908, Moody's Bank & Finance Manual (1985).171 American General Corp. Tex at 3008, Moody's Bank & Finance Manual (1986).172 American General Insurance Co. Houston at 17, Moody's Bank & Finance Manual (1978).173 American General Insurance Co. Houston at 2101, Moody's Bank & Finance Manual (1980).174 American Group at 3024, Moody's Bank & Finance Manual (1986).175 American Group at 3967, Moody's Bank & Finance Manual (1979).176 American Home Products Corp. at 1390, Moody's Industrial Manual (1979).177 American Maize Products at 2554, Moody's Industrial Manual (1989).178 American Medical at 677, Moody's Industrial Manual (1981).179 American Telephone at 108, Moody's Public Utility Manual (1979).180 American Telephone at 34, Moody's Public Utility Manual (1980).181 Ames Department Stores Inc. at 2555, Moody's Industrial Manual (1985).182 Amfac Inc. at 3016, Moody's Industrial Manual (1988).183 AMR at 1420, Moody's Transportation Manual (1985).184 Anacomp Inc. at 704, Moody's OTC Industrial Manual (1980).185 Anadarko Petroleum Corp. at 2589, Moody's Industrial Manual (1990).186 Anheuser Busch Companies Inc. at 923, Moody's Industrial Manual (1982).187 Anheuser Busch Companies Inc. at 975, Moody's Industrial Manual (1986).188 Apache Corp. at 2576, Moody's Industrial Manual (1989).189 Argo Petroleum Corp. at 1712, Moody's Industrial Manual (1980).190 Argo Petroleum Corp. at 567, Moody's OTC Industrial Manual (1979).191 ArmCo. Inc. at 143, Moody's Industrial Manual (1979).192 ASE Daily Stock Price Record, Quarter 1 (1981).193 ASE Daily Stock Price Record, Quarter 1 (1981).194 ASE Daily Stock Price Record, Quarter 1 (1982).195 ASE Daily Stock Price Record, Quarter 1 (1983).196 ASE Daily Stock Price Record, Quarter 2 (1980).197 ASE Daily Stock Price Record, Quarter 2 (1981).198 ASE Daily Stock Price Record, Quarter 2 (1983).199 ASE Daily Stock Price Record, Quarter 2 (1983).200 ASE Daily Stock Price Record, Quarter 3 (1980).201 ASE Daily Stock Price Record, Quarter 3 (1980).202 ASE Daily Stock Price Record, Quarter 3 (1980).203 ASE Daily Stock Price Record, Quarter 3 (1981).204 ASE Daily Stock Price Record, Quarter 3 (1983).205 ASE Daily Stock Price Record, Quarter 4 (1978).206 ASE Daily Stock Price Record, Quarter 4 (1980).207 ASE Daily Stock Price Record, Quarter 4 (1981).208 ASE Daily Stock Price Record, Quarter 4 (1983).



Appendix “B”

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Page 9 of 50

INVESTMENT DATA

209 ASE Daily Stock Price Record, Quarter 4 (1985).210 Ashl Oil Inc. at 167, Moody's Industrial Manual (1979).211 Ashl Oil Inc. at 60, Moody's Industrial Manual (1982).212 Associated Dry Goods Corp. at 1048, Moody's Industrial Manual (1983).213 Atlantic Richfield Co. at 182, Moody's Industrial Manual (1979).214 Atlantic Richfield Co. at 185, Moody's Industrial Manual (1978).215 AvCo. Corp. at 1034, Moody's Industrial Manual (1984).216 AvCo. Corp. at 1389, Moody's Industrial Manual (1978).217 AvCo. Corp. at 1433, Moody's Industrial Manual (1979).218 Avnet Inc. at 1436, Moody's Industrial Manual (1979).219 Baldwin United Corp. at 10, Moody's Bank & Finance Manual.220 Bally Manufacturing Corp. at 202, Moody's Industrial Manual (1979).221 BanCorp Hawaii Inc. at 838, Moody's Bank & Finance Manual (1983).222 Bangor Punta Corp. at 208, Moody's Industrial Manual (1979).223 Bangor Punta Corp. at 681, Moody's Industrial Manual (1980).224 BarclayHedge BenchMark DataFeeder (Aug 2011).225 BarclayHedge Global DataFeeder (Aug. 2011).226 BarclayHedge Graveyard DataFeeder (July 2011).227 BarclayHedge Historical Hedge Fund Data (1980-1989).228 Barnett s of Florida Inc. at 955, Moody's Bank & Finance Manual (1985).229 Baxter Travenol Laboratories Inc. at 108, Moody's Industrial Manual (1981).230 Baxter Travenol Laboratories Inc. at 219, Moody's Industrial Manual (1978).231 Baxter Travenol Laboratories Inc. at 220, Moody's Industrial Manual (1979).232 Baxter Travenol Laboratories Inc. at 86, Moody's Industrial Manual (1980).233 Beatrice Foods Co. at 2598, Moody's Industrial Manual (1983).234 Beatrice Foods Co. at 2604, Moody's Industrial Manual (1984).235 Beech Aircraft Corp. at 1412, Moody's Industrial Manual (1978).236 Beech Aircraft Corp. at 1454, Moody's Industrial Manual (1979).237 Begen Brunswig Corp. at 2099, Moody's Industrial Manual (1981).238 BelCo Petroleum Corp. at 1455, Moody's Industrial Manual (1979).239 Belden Corp. at 1947, Moody's Industrial Manual (1980).240 Bell at 2606, Moody's Industrial Manual (1983).241 Bell at 2614, Moody's Industrial Manual (1984).242 Bendix Corp. at 1000, Moody's Industrial Manual (1982).243 Bendix Corp. at 231, Moody's Industrial Manual (1979).244 Beneficial Corp. at 1944, Moody's Bank & Finance Manual (1979).245 Beneficial Corp. at 45, Moody's Bank & Finance Manual (1978).246 BF Goodrich Co. at 1525, Moody's Industrial Manual (1983).247 Birmingham Steel Corp. at 2630, Moody's Industrial Manual (1988).248 Bloomberg Historical Hedge Fund Data (1980-1989).249 Bloomberg, Barmenia Renditefonds DWS Hedge Fund Description (Oct. 25, 2011).250 Bloomberg, DWS Akkumula Hedge Fund Description (Sept. 30, 2011).251 Bloomberg, DWS Intervest Hedge Fund Description (Oct. 25, 2011).252 Bloomberg, Ermitage Selz Fund Ltd - € Hedge Fund Description (Sept. 30, 2011).



Appendix “B”

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Page 10 of 50

INVESTMENT DATA

253 Bloomberg, First Eagle Global - A Hedge Fund Description (Oct. 25, 2011).254 Bloomberg, GAM Japan Equity Inc - USD Hedge Fund Description (Oct. 24, 2011).255 Bloomberg, GAM Selection Hedge Inc Hedge Fund Description (Oct. 14, 2011).256 Bloomberg, GAM Singapore/Malaysia EQTY Hedge Fund Description (Oct. 24, 2011).257 Bloomberg, GAM Worldwide Inc Hedge Fund Description (Oct. 24, 2011).258 Bloomberg, Haussman Holdings NV-A USD Hedge Fund Description (Oct. 14, 2011).259 Bloomberg, Liberty Ermitage Selz - € - Feb Hedge Fund Description (Aug. 31, 2011).260 Bloomberg, Permal U.S. Opportunities - A Hedge Fund Description (Oct. 14, 2011).261 Bloomberg, ZWEIG - DIMENNA Intl LTD - A Hedge Fund Description (Aug. 31, 2011).262 Boeing Co. at 1074, Moody's Industrial Manual (1985).263 Bristol Myers Co. at 737, Moody's Industrial Manual (9180).264 Bristol Myers Co. at 807, Moody's Industrial Manual (1981).265 Brunswick Corp. at 1054, Moody's Industrial Manual (1982).266 Brunswick Corp. at 825, Moody's Industrial Manual (1981).267 Bunker Ramo Corp. at 1485, Moody's Industrial Manual (1979).268 Burlington Northern Inc. at 517, Moody's Transportation Manual (1980).269 Calanese Corp. at 1111, Moody's Industrial Manual (1982).270 Calanese Corp. at 1115, Moody's Industrial Manual (1982).271 Calfed Inc. at 950, Moody's Bank & Finance Manual (1987).272 Calfed Inc. at 958, Moody's Bank & Finance Manual (1986).273 Cannon Group Inc. at 2994, Moody's Industrial Manual (1986).274 Capital Cities ABC Inc. at 2659, Moody's Industrial Manual (1988).275 Cardinal Distribution Inc. at 1959, Moody's OTC Industrial Manual (1989).276 Carrier Corp. at 315, Moody's Industrial Manual (1978).277 Carrier Corp. at 318, Moody's Industrial Manual (1979).278 Castle Cooke at 2670, Moody's Industrial Manual (1988).279 Castle Cooke at 2672, Moody's Industrial Manual (1988).280 Caterpillar TraCor Co. at 329, Moody's Industrial Manual (1979).281 Caterpillar TraCor Co. at 332, Moody's Industrial Manual (1979).282 CBI Industries Inc. at 2715, Moody's Industrial Manual (1990).283 CBI Industries, Inc., Moody's Industrial Manual.284 CBS at 335, Moody's Industrial Manual (1978).285 CBS Inc. at 331, Moody's Industrial Manual (1978).286 Champion Corp. at 1177, Moody's Industrial Manual (1984).287 Champion Corp. at 348, Moody's Industrial Manual (1978).288 Champion Corp. at 892, Moody's Industrial Manual (1981).289 Champion Intl Corp. at 352, Moody's Industrial Manual (1978).290 Champion Intl Corp. at 818, Moody's Industrial Manual (1980).291 Champion Intl Corp. at 896, Moody's Industrial Manual (1981).292 Charter Co. at 2005, Moody's Industrial Manual (1979).293 Charter Co. at 2005, Moody's Industrial Manual (1980).294 Charter Co. at 2154, Moody's Industrial Manual (1980).295 Chemical New York Corp. at 102, Moody's Bank & Finance Manual (1986).296 Chemical New York Corp. at 91, Moody's Bank & Finance Manual (1984).



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INVESTMENT DATA

297 Chemical New York Corp. at 91, Moody's Bank & Finance Manual (1984).298 Chris Craft Industries at 2164, Moody's Industrial Manual (1981).299 Chris Craft Industries at 2164, Moody's Industrial Manual (1981).300 Chromalloy American Corp. at 1494, Moody's Industrial Manual (1978).301 Chromalloy Amern at 1495, Moody's Industrial Manual (1978).302 Chubb Corp. at 5587, Moody's Bank & Finance Manual (1986).303 Chubb Corp. at 7338, Moody's Bank & Finance Manual (1986).304 Circle K Corp. at 1171, Moody's Industrial Manual (1985).305 Circle K Corp. at 1173, Moody's Industrial Manual (1985).306 City Investing at 387, Moody's Industrial Manual (1979).307 City Investing at 388, Moody's Industrial Manual (1979).308 City Investing Co. at 383, Moody's Industrial Manual (1979).309 City Investing Co. at 383, Moody's Industrial Manual (1979).310 CityFed Fin at 985, Moody's Bank & Finance Manual (1986).311 CityFed Financial Corp. at 983, Moody's Bank & Finance Manual (1986).312 Cluett Peabody at 2704, Moody's Industrial Manual (1985).313 Cluett Peabody at 2705, Moody's Industrial Manual (1985).314 Coastal States Gas at 396, Moody's Industrial Manual (1978).315 Coastal States Gas at 408, Moody's Industrial Manual (1979).316 Coastal States Gas Corp. at 392, Moody's Industrial Manual (1978).317 Coastal States Gas Corp. at 403, Moody's Industrial Manual (1979).318 Colonial Gas Co. at 412, Moody's Public Utility Manual (1986).319 Colonial Gas Co. at 419, Moody's Public Utility Manual (1986).320 Colt Inds Inc. at 428, Moody's Industrial Manual (1979).321 Colt Inds Inc. at 884, Moody's Industrial Manual (1980).322 Colt Industries Inc. at 424, Moody's Industrial Manual (1979).323 Columbia Pictures Entertainment Inc. at 2746, Moody's Industrial Manual (1989).324 Columbia Pictures Entertainment Inc. at 1462, Moody's Industrial Manual (1989).325 Comcast at 458, Moody's OTC Industrial Manual (1989).326 Comcast Corp. at 456, Moody's OTC Industrial Manual (1989).327 Compact Video at 848, Moody's OTC Industrial Manual (1980).328 Compact Video Systems Inc. at 848, Moody's OTC Industrial Manual (1980).329 Compaq at 2720, Moody's Industrial Manual (1988).330 Compaq at 2781, Moody's Industrial Manual (1990).331 Compaq Computer Corp. at 2720, Moody's Industrial Manual (1988).332 Compaq Computer Corp. at 2780, Moody's Industrial Manual (1990).333 Concept Inc. at 1232, Moody's Industrial Manual (1982).334 Condec Corp. at 2046, Moody's Industrial Manual (1980).335 Conner Peripherals Inc. at 1581, Moody's Industrial Manual (1990).336 Conner Peripherals Inc. at 2789, Moody's Industrial Manual (1991).337 ConoCo Inc. at 899, Moody's Industrial Manual (1980).338 ConoCo Inc. at 899, Moody's Industrial Manual (1990).339 ConseCo Inc. at 5684, Moody's Bank & Finance Manual (1989).340 Consumers Power Co at 540, Moody's Public Utility Manual (1978).



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341 Consumers Power Co at 540, Moody's Public Utility Manual (1980).342 Continental Corp. at 4008, Moody's Bank & Finance Manual (1979).343 Continental Oil Co at 439, Moody's Industrial Manual (1978).344 Cooper Industries Inc. at 117, Moody's Industrial Manual (1980).345 Cooper Industries Inc. at 146, Moody's Industrial Manual (1981).346 Cooper Industries Inc. at 468, Moody's Industrial Manual (1979).347 Core Laboratories Inc. at 2060, Moody's Industrial Manual (1980).348 CPT Corp. at 1243, Moody's OTC Industrial Manual (1981).349 Crocker National Corp. at 316, Moody's Bank & Finance Manual (1980).350 Crouse Hinds Co. at 936, Moody's Industrial Manual (1980).351 Crown Zellerbach Corp. at 1026, Moody's Industrial Manual (1981).352 Crum Forster at 94, Moody's Bank & Finance Manual (1978).353 Crystal Oil Co. at 2220, Moody's Industrial Manual (1981).354 CSX Corp. at 643, Moody's Transportation Manual (1986).355 Curtiss Wright Corp. at 2730, Moody's Industrial Manual (1982).356 Damson Oil Corp. at 2230, Moody's Industrial Manual (1981).357 Dart Industries Inc. at 1142, Moody's Industrial Manual (1988).358 Dart Industries Inc. at 513, Moody's Industrial Manual (1979).359 Del Monte Corp. at 539, Moody's Industrial Manual (1979).360 Detroit Edison Co. at 630, Moody's Public Utility Manual (1979).361 Digital Equipment Corp. at 1605, Moody's Industrial Manual (1980).362 Digital Equipment Corp. at 2248, Moody's Industrial Manual (1981).363 Digital Equipment Corp. at 267, Moody's Industrial Manual (1986).364 Digital Equipment Corp. at 2753, Moody's Industrial Manual (1982).365 Digital Switch Corp. at 1283, Moody's OTC Industrial Manual (1982).366 Digital Switch Corp. at 522, Moody's OTC Industrial Manual (1983).367 Dillingham Corp. at 2100, Moody's Industrial Manual (1980).368 Dillingham Corp. at 2250, Moody's Industrial Manual (1981).369 Dreyfus Corp. at 5749, Moody's Bank & Finance Manual (1985).370 Eastern Air Lines Inc. at 1438, Moody's Transportation Manual (1980).371 Eaton Corp. at 1312, Moody's Industrial Manual (1982).372 Eaton Corp. at 296, Moody's Industrial Manual (1984).373 Eaton Corp. at 599, Moody's Industrial Manual (1979).374 Emhart Corp. at 600, Moody's Industrial Manual (1978).375 Emhart Corp. at 618, Moody's Industrial Manual (1979).376 Emons Industries Inc. at 1524, Moody's Transportation Manual (1979).377 Energy Factors Inc. at 1818, Moody's OTC Industrial Manual (1985).378 ENSTAR Corp. at 2822, Moody's Industrial Manual (1984).379 ERC Corp. at 2092, Moody's Bank & Finance Manual (1978).380 ERC Inc. at 2812, Moody's Industrial Manual (1985).381 Esterline Corp. at 2137, Moody's Industrial Manual (1980).382 Ethyl Corp. at 1645, Moody's Industrial Manual (1979).383 Evaluation Research Corp. at 2812, Moody's Industrial Manual (1983).384 Expeditors of Washington at 2175, Moody's Transportation Manual (1986).



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INVESTMENT DATA

385 Fairchild Industries Inc. at 1147, Moody's Industrial Manual (1981).386 Federal National Mortgage Ass'n at 2918, Moody's Bank & Finance Manual (1990).387 Federal National Mortgage Ass'n at 2924, Moody's Bank & Finance Manual (1988).388 Federal Paper Board Co. Inc. at 1657, Moody's Industrial Manual (1979).389 Federal Paper Board Co. Inc. at 2808, Moody's Industrial Manual (1982).390 Filmways Inc. at 1642, Moody's Industrial Manual (1978).391 Filmways Inc. at 1663, Moody's Industrial Manual (1979).392 First Boston Inc. at 5427, Moody's Bank & Finance Manual (1986).393 First Executive Corp. at 4033, Moody's Bank & Finance Manual (1979).394 First Executive Corp. at 4371, Moody's Bank & Finance Manual (1980).395 First Fiity BanCorp. at 1043, Moody's Bank & Finance Manual (1988).396 First Jersey National Corp. at 2635, Moody's Bank & Finance Manual (1985).397 First Pennsylvania at 192, Moody's Bank & Finance Manual (1977).398 First Pennsylvania at 221, Moody's Bank & Finance Manual (1978).399 First Pennsylvania Corp. at 100, Moody's Bank & Finance Manual (1977).400 First Pennsylvania Corp. at 219, Moody's Bank & Finance Manual (1978).401 First Pennsylvania Corp. at 219, Moody's Bank & Finance Manual (1978).402 First Pennsylvania Corp. at 321, Moody's Bank & Finance Manual (1986).403 First Pennsylvania Corp. at 327, Moody's Bank & Finance Manual (1987).404 First Pennsylvania Corp. at 327, Moody's Bank & Finance Manual (1987).405 First Pennsylvania Corp., Moody's Bank & Finance Manual.406 Fisher Scientific Co. at 2159, Moody's Industrial Manual (1980).407 Flagships Inc. at 1724, Moody's Bank & Finance Manual (1982).408 Fleet Norstar Financial Group Inc. at 2014, Moody's Bank & Finance Manual (1989).409 Flexi Van Corp. at 2071, Moody's Transportation Manual (1982).410 Flight Corp. at 1434, Moody's Transportation Manual (1981).411 Flowers Industries Inc. at 2991, Moody's Industrial Manual (1992).412 Fluor Corp. at 665, Moody's Industrial Manual (1978).413 FMC Corp. at 1114, Moody's Industrial Manual (1980).414 Foremost McKesson at 688, Moody's Industrial Manual (1978).415 Foremost McKesson at 707, Moody's Industrial Manual (1979).416 Forum Group Inc. at 1580, Moody's OTC Industrial Manual (1983).417 Forum Group Inc. at 1766, Moody's OTC Industrial Manual (1986).418 Forum Group Inc. at 1867, Moody's OTC Industrial Manual (1985).419 Frankfurter Allgemeine Daily Stock Price Record (Jan. 3, 1981).420 Frankfurter Allgemeine Daily Stock Price Record (Sept. 22, 1979).421 Fred Meyer Inc. at 1059, Moody's OTC Industrial Manual (1979).422 GAF Corp. at 1147, Moody's Industrial Manual (1980).423 GAF Corp. at 1223, Moody's Industrial Manual (1981).424 GAF Corp. at 1385, Moody's Industrial Manual (1985).425 GAF Corp. at 1424, Moody's Industrial Manual (1982).426 GAF Corp. at 1431, Moody's Industrial Manual (1984).427 GAF Corp. at 1477, Moody's Industrial Manual (1983).428 Galaxy Oil Co. at 854, Moody's OTC Industrial Manual (1979).



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INVESTMENT DATA

429 Galaxy Oil Co. at 993, Moody's OTC Industrial Manual (1980).430 GATX Corp. at 1156, Moody's Industrial Manual (1980).431 GATX Corp. at 350, Moody's Industrial Manual (1989).432 Geico Corp. at 4377, Moody's Bank & Finance Manual (1987).433 Geico Corp. at 5671, Moody's Bank & Finance Manual (1983).434 GenCorp. Inc. at 3050, Moody's Industrial Manual (1984).435 General Cinema Corp. at 333, Moody's Industrial Manual (1988).436 General Dynamics Corp. at 1237, Moody's Industrial Manual (1981).437 General Growth Properties at 6364, Moody's Bank & Finance Manual (1984).438 General Motors Corp. at 1292, Moody's Industrial Manual (1988).439 Giant Group Ltd at 2885, Moody's Industrial Manual (1987).440 Gould Inc. at 804, Moody's Industrial Manual (1978).441 Government Employees Insurance Co. at 133, Moody's Bank & Finance Manual (1978).442 Government Employees Insurance Co. at 4382, Moody's Bank & Finance Manual (1980).443 Government Employees Insurance Co. at 5677, Moody's Bank & Finance Manual (1983).444 Grace WR at 825, Moody's Industrial Manual (1979).445 Graphic Scanning Corp. at 1018, Moody's Industrial Manual (1980).446 Graphic Scanning Corp. at 1409, Moody's Industrial Manual (1982).447 Graphic Scanning Corp. at 907, Moody's Industrial Manual (1978).448 Great American Corp. at 1009, Moody's Bank & Finance Manual (1978).449 Great American Corp. at 2143, Moody's Bank & Finance Manual (1988).450 Great Western Financial Corp. at 2746, Moody's Bank & Finance Manual (1986).451 Greyhound Corp. at 2101, Moody's Transportation Manual (1983).452 Grumman Corp. at 1249, Moody's Industrial Manual (1980).453 GTE Corp. at 1872, Moody's Public Utility Manual (1986).454 GTE Corp. at 1936, Moody's Public Utility Manual (1982).455 Gulf at 1262, Moody's Industrial Manual (1980).456 Gulf at 845, Moody's Industrial Manual (1978).457 Gulf at 862, Moody's Industrial Manual (1979).458 Gulf United Corp. at 2757, Moody's Bank & Finance Manual.459 Gulf United Corp. at 2757, Moody's Bank & Finance Manual (1983).460 Hanna MA Co. at 3008, Moody's Industrial Manual (1989).461 Harnischfeger Industries Inc. at 1383, Moody's Industrial Manual (1987).462 Hartmarx Corp. at 2931, Moody's Industrial Manual (1985).463 Hasbro Inc. at 3038, Moody's Industrial Manual (1986).464 Hechinger Co. at 1737, Moody's OTC Industrial Manual (1987).465 Helen of Troy Corp. at 2049, Moody's OTC Industrial Manual (1989).466 Heritage Communications Inc. at 3041, Moody's Industrial Manual (1986).467 Hilton Hotels Corp. at 2031, Moody's Bank & Finance Manual (1979).468 HJ Heinz Co. at 1294, Moody's Industrial Manual (1980).469 Holiday Corp. Inc. at 1484, Moody's Transportation Manual (1986).470 Holiday Inns Inc. at 1369, Moody's Transportation Manual (1981).471 Holiday Inns Inc. at 1557, Moody's Transportation Manual (1982).472 Home Centers of America Inc. at 1659, Moody's OTC Industrial Manual (1983).



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INVESTMENT DATA

473 Home Depot Inc. at 2950, Moody's Industrial Manual (1987).474 Horn at 2942, Moody's Industrial Manual (1983).475 Hospital Corp. of America at 449, Moody's Industrial Manual (1982).476 Hospital Financial Corp. at 953, Moody's OTC Industrial Manual (1978).477 Household Corp. at 1741, Moody's Bank & Finance Manual (1978).478 Household Inc. at 4946, Moody's Bank & Finance Manual (1982).479 Household Inc. at 4946, Moody's Bank & Finance Manual (1982).480 Household Inc. at 5488, Moody's Bank & Finance Manual (1983).481 Household Inc. at 6494, Moody's Bank & Finance Manual (1984).482 Houston Oil at 2273, Moody's Industrial Manual (1980).483 Hughes Tool Co. at 2277, Moody's Industrial Manual (1980).484 Hutton EF Group Inc. at 5493, Moody's Bank & Finance Manual (1983).485 ICN Pharmaceuticals Inc. at 3045, Moody's Industrial Manual (1986).486 Imagine Films Entertainment Corp. at 259, Moody's OTC Industrial Manual (1986).487 Immunex Corp. at 584, Moody's OTC Industrial Manual (1990).488 Imperial Oil Ltd at 2894, Moody's Industrial Manual (1980).489 Imperial Oil Ltd at 557, Moody's International Manual (1981).490 INA Corp. Penn at 4061, Moody's Bank & Finance Manual (1979).491 Ingersoll R Co. at 1393, Moody's Industrial Manual (1981).492 Intl Steel Co. at 1325, Moody's Industrial Manual (1989).493 Intl Steel Co. at 948, Moody's Industrial Manual (1979).494 InsilCo. Corp. at 1404, Moody's Industrial Manual (1981).495 Integrated Resources Inc. at 3317, Moody's Bank & Finance Manual (1983).496 Integrated Resources Inc. at 3661, Moody's Bank & Finance Manual (1986).497 Intel Corp. at 1663, Moody's OTC Industrial Manual (1988).498 Intel Corp. at 1682, Moody's OTC Industrial Manual (1983).499 Intel Corp. at 1874, Moody's OTC Industrial Manual (1991).500 Intel Corp. at 2065, Moody's OTC Industrial Manual (1989).501 Intel Corp. at 2388, Moody's OTC Industrial Manual (1987).502 Intel Corp. at 397, Moody's OTC Industrial Manual (1990).503 InterCo. Inc. at 1616, Moody's Industrial Manual (1984).504 Intermagnetics General Corp. at 1689, Moody's OTC Industrial Manual (1983).505 International Game Technology at 2150, Moody's Industrial Manual (1988).506 International Harvester Co. at 506, Moody's Industrial Manual (1984).507 International Harvester Co. at 507, Moody's Industrial Manual (1985).508 International Harvester Co. at 507, Moody's Industrial Manual (1985).509 International Harvester Co. at 507, Moody's Industrial Manual (1985).510 International Harvester Co. at 523, Moody's Industrial Manual (1983).511 International Lease Corp. at 7034, Moody's Industrial Manual (1985).512 International Lease Finance Corp. at 7034, Moody's Bank & Finance Manual (1985).513 International Remote Imaging at 624, Moody's OTC Industrial Manual (1983).514 International Telephone at 1419, Moody's Industrial Manual (1981).515 International Telephone at 981, Moody's Industrial Manual (1978).516 International Telephone at 981, Moody's Industrial Manual (1978).



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INVESTMENT DATA

517 International Thoroughbred Breeders at 2981, Moody's Industrial Manual (1985).518 Interpace at 1788, Moody's Industrial Manual (1978).519 Interpace Corp. at 1788, Moody's Industrial Manual (1978).520 ITT Corp. at 1629, Moody's Industrial Manual (1984).521 IU Corp. at 1002, Moody's Industrial Manual (1978).522 James River Corp. of Virginia at 5152, Moody's Industrial Manual (1981).523 James River Corp. of Virginia at 5603, Moody's Industrial Manual (1982).524 Jewel Companies at 3751, Moody's Industrial Manual (1981).525 Jhirmack Enterprises at 1100, Moody's OTC Industrial Manual (1980).526 Jhirmack Enterprises at 962, Moody's OTC Industrial Manual (1979).527 Johnson Controls at 5157, Moody's Industrial Manual (1981).528 Katy Industries at 5624, Moody's Industrial Manual (1984).529 Kidde Inc. at 5633, Moody's Industrial Manual (1984).530 Kidde Inc. at 5728, Moody's Industrial Manual (1986).531 Kinder Care Learning Centers at 1120, Moody's OTC Industrial Manual (1980).532 Kinder Care Learning Centers at 2050, Moody's OTC Industrial Manual (1985).533 Kinney System at 2717, Moody's OTC Industrial Manual (1983).534 Koppers Co. Inc. at 3794, Moody's Industrial Manual (1981).535 Kroger The Co. at 5639, Moody's Industrial Manual (1982).536 Laidlaw Industries Inc. at 625, Moody's OTC Industrial Manual (1985).537 Lear Siegler Inc. at 3848, Moody's Industrial Manual (1978).538 Liberty National Corp. at 1493, Moody's Bank & Finance Manual (1981).539 Lifemark Corp. at 5406, Moody's Industrial Manual (1982).540 Lin Broadcasting Corp. at 2083, Moody's OTC Industrial Manual (1985).541 Lincoln National Corp. at 2054, Moody's Bank & Finance Manual (1979).542 Litton Industries Inc. at 4914, Moody's Industrial Manual (1980).543 Lockheed Corp. at 5211, Moody's Industrial Manual (1981).544 London Times Daily Stock Price Record (Feb. 17, 1981).545 London Times Daily Stock Price Record (Feb. 17, 1981).546 London Times Daily Stock Price Record (Feb. 18, 1981).547 London Times Daily Stock Price Record (Feb. 18, 1981).548 London Times Daily Stock Price Record (Feb. 19, 1981).549 London Times Daily Stock Price Record (Feb. 19, 1981).550 London Times Daily Stock Price Record (Feb. 20, 1981).551 London Times Daily Stock Price Record (Feb. 20, 1981).552 London Times Daily Stock Price Record (Feb. 21, 1981).553 London Times Daily Stock Price Record (Feb. 21, 1981).554 London Times Daily Stock Price Record (Feb. 25, 1981).555 London Times Daily Stock Price Record (Feb. 25, 1981).556 London Times Daily Stock Price Record (Feb. 26, 1981).557 London Times Daily Stock Price Record (Feb. 26, 1981).558 London Times Daily Stock Price Record (Feb. 27, 1981).559 London Times Daily Stock Price Record (Feb. 27, 1981).560 London Times Daily Stock Price Record (Feb. 28, 1981).



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INVESTMENT DATA

561 London Times Daily Stock Price Record (Feb. 28, 1981).562 London Times Daily Stock Price Record (Jan. 2, 1981).563 London Times Daily Stock Price Record (Jan. 2, 1981).564 London Times Daily Stock Price Record (Jan. 22, 1981).565 London Times Daily Stock Price Record (Jan. 22, 1981).566 London Times Daily Stock Price Record (Jan. 23, 1981).567 London Times Daily Stock Price Record (Jan. 23, 1981).568 London Times Daily Stock Price Record (Jan. 24, 1981).569 London Times Daily Stock Price Record (Jan. 24, 1981).570 London Times Daily Stock Price Record (Jan. 3, 1981).571 London Times Daily Stock Price Record (Jan. 3, 1981).572 London Times Daily Stock Price Record (Jan. 5, 1981).573 London Times Daily Stock Price Record (Jan. 5, 1981).574 London Times Daily Stock Price Record (Jan. 6, 1981).575 London Times Daily Stock Price Record (Jan. 6, 1981).576 London Times Daily Stock Price Record (Jan. 7, 1981).577 London Times Daily Stock Price Record (Jan. 7, 1981).578 London Times Daily Stock Price Record (Mar. 10, 1981).579 London Times Daily Stock Price Record (Mar. 10, 1981).580 London Times Daily Stock Price Record (Mar. 11, 1981).581 London Times Daily Stock Price Record (Mar. 11, 1981).582 London Times Daily Stock Price Record (Mar. 12, 1981).583 London Times Daily Stock Price Record (Mar. 12, 1981).584 London Times Daily Stock Price Record (Mar. 13, 1981).585 London Times Daily Stock Price Record (Mar. 13, 1981).586 London Times Daily Stock Price Record (Mar. 14, 1981).587 London Times Daily Stock Price Record (Mar. 14, 1981).588 London Times Daily Stock Price Record (Mar. 16, 1981).589 London Times Daily Stock Price Record (Mar. 16, 1981).590 London Times Daily Stock Price Record (Mar. 17, 1981).591 London Times Daily Stock Price Record (Mar. 17, 1981).592 London Times Daily Stock Price Record (Mar. 18, 1981).593 London Times Daily Stock Price Record (Mar. 18, 1981).594 London Times Daily Stock Price Record (Mar. 19, 1981).595 London Times Daily Stock Price Record (Mar. 19, 1981).596 London Times Daily Stock Price Record (Mar. 2, 1981).597 London Times Daily Stock Price Record (Mar. 2, 1981).598 London Times Daily Stock Price Record (Mar. 20, 1981).599 London Times Daily Stock Price Record (Mar. 20, 1981).600 London Times Daily Stock Price Record (Mar. 22, 1981).601 London Times Daily Stock Price Record (Mar. 22, 1981).602 London Times Daily Stock Price Record (Mar. 23, 1981).603 London Times Daily Stock Price Record (Mar. 23, 1981).604 London Times Daily Stock Price Record (Mar. 24, 1981).



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INVESTMENT DATA

605 London Times Daily Stock Price Record (Mar. 24, 1981).606 London Times Daily Stock Price Record (Mar. 25, 1981).607 London Times Daily Stock Price Record (Mar. 25, 1981).608 London Times Daily Stock Price Record (Mar. 26, 1981).609 London Times Daily Stock Price Record (Mar. 26, 1981).610 London Times Daily Stock Price Record (Mar. 27, 1981).611 London Times Daily Stock Price Record (Mar. 27, 1981).612 London Times Daily Stock Price Record (Mar. 28, 1981).613 London Times Daily Stock Price Record (Mar. 28, 1981).614 London Times Daily Stock Price Record (Mar. 3, 1981).615 London Times Daily Stock Price Record (Mar. 3, 1981).616 London Times Daily Stock Price Record (Mar. 4, 1981).617 London Times Daily Stock Price Record (Mar. 4, 1981).618 London Times Daily Stock Price Record (Mar. 5, 1981).619 London Times Daily Stock Price Record (Mar. 5, 1981).620 London Times Daily Stock Price Record (Mar. 6, 1981).621 London Times Daily Stock Price Record (Mar. 6, 1981).622 London Times Daily Stock Price Record (Mar. 7, 1981).623 London Times Daily Stock Price Record (Mar. 7, 1981).624 London Times Daily Stock Price Record (Mar. 9, 1981).625 London Times Daily Stock Price Record (Mar. 9, 1981).626 London Times Daily Stock Price Record (Nov. 13, 1979).627 London Times Daily Stock Price Record (Nov. 13, 1979).628 London Times Daily Stock Price Record (Nov. 14, 1979).629 London Times Daily Stock Price Record (Nov. 14, 1979).630 London Times Daily Stock Price Record (Nov. 15, 1979).631 London Times Daily Stock Price Record (Nov. 15, 1979).632 London Times Daily Stock Price Record (Nov. 16, 1979).633 London Times Daily Stock Price Record (Nov. 16, 1979).634 London Times Daily Stock Price Record (Nov. 17, 1979).635 London Times Daily Stock Price Record (Nov. 17, 1979).636 London Times Daily Stock Price Record (Nov. 18, 1979).637 London Times Daily Stock Price Record (Nov. 18, 1979).638 London Times Daily Stock Price Record (Nov. 19, 1979).639 London Times Daily Stock Price Record (Nov. 19, 1979).640 London Times Daily Stock Price Record (Nov. 20, 1979).641 London Times Daily Stock Price Record (Nov. 20, 1979).642 London Times Daily Stock Price Record (Nov. 21, 1979).643 London Times Daily Stock Price Record (Nov. 21, 1979).644 London Times Daily Stock Price Record (Nov. 23, 1979).645 London Times Daily Stock Price Record (Nov. 23, 1979).646 London Times Daily Stock Price Record (Nov. 24, 1979).647 London Times Daily Stock Price Record (Nov. 24, 1979).648 London Times Daily Stock Price Record (Nov. 26, 1979).



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INVESTMENT DATA

649 London Times Daily Stock Price Record (Nov. 26, 1979).650 London Times Daily Stock Price Record (Nov. 27, 1979).651 London Times Daily Stock Price Record (Nov. 27, 1979).652 London Times Daily Stock Price Record (Nov. 28, 1979).653 London Times Daily Stock Price Record (Nov. 28, 1979).654 London Times Daily Stock Price Record (Nov. 29, 1979).655 London Times Daily Stock Price Record (Nov. 29, 1979).656 London Times Daily Stock Price Record (Nov. 30, 1979).657 London Times Daily Stock Price Record (Nov. 30, 1979).658 London Times Daily Stock Price Record (Oct. 1979).659 Lorimar at 5411, Moody's Industrial Manual (1984).660 Lorimar Telepictures Corp. at 5514, Moody's Industrial Manual (1986).661 Louisiana L & Offshore Exploration at 2576, Moody's Industrial Manual (1979).662 LTV Corp. at 3828, Moody's Industrial Manual (1981).663 LTV Corp. at 3828, Moody's Industrial Manual (1981).664 Lucky Stores Inc. at 2586, Moody's Industrial Manual (1979).665 Lundy Electronics & Systems at 6259, Moody's Industrial Manual (1985).666 Macmillan Inc. at 4060, Moody's Industrial Manual (1987).667 Macmillan Inc. at 4079, Moody's Industrial Manual (1985).668 Magna Group Inc. at 1060, Moody's Bank & Finance Manual (1989).669 Magna Group Inc. at 2127, Moody's Bank & Finance Manual (1990).670 Mark Controls Corp. at 4941, Moody's Industrial Manual (1980).671 Martin Marietta Corp. at 4004, Moody's Industrial Manual (1984).672 Martin Marietta Corp. at 4103, Moody's Industrial Manual (1985).673 Mattel Inc. at 3119, Moody's Industrial Manual (1982).674 McDermott Inc. at 3173, Moody's Industrial Manual (1981).675 McDermott Inc. at 3234, Moody's Industrial Manual (1990).676 McDonnell Douglas Corp. at 4956, Moody's Industrial Manual (1980).677 McGraw Hill Inc. at 2623, Moody's Industrial Manual (1978).678 MCI Communications Corp. at 1047, Moody's OTC Industrial Manual (1979).679 MCI Communications Corp. at 1098, Moody's OTC Industrial Manual (1978).680 MCI Communications Corp. at 1181, Moody's OTC Industrial Manual (1980).681 MCI Communications Corp. at 1576, Moody's OTC Industrial Manual (1981).682 MCI Communications Corp. at 1576, Moody's OTC Industrial Manual (1982).683 MCI Communications Corp. at 1792, Moody's OTC Industrial Manual (1983).684 McKesson Corp. at 4030, Moody's Industrial Manual (1984).685 McKesson Corp. at 5932, Moody's Industrial Manual (1990).686 Mead Corp. at 3009, Moody's Industrial Manual (1980).687 Medco Research Inc. at 2430, Moody's OTC Industrial Manual (1987).688 Mercantile Shares Corp. at 1100, Moody's Bank & Finance Manual (1983).689 Mercantile Texas Corp. at 311, Moody's Bank & Finance Manual (1979).690 Mercantile Texas Corp. at 507, Moody's Bank & Finance Manual (1980).691 Merrill Lynch at 2789, Moody's Bank & Finance Manual (1982).692 Merrill Lynch at 3100, Moody's Bank & Finance Manual (1982).



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INVESTMENT DATA

693 Merrill Lynch at 3335, Moody's Bank & Finance Manual (1985).694 Merrill Lynch at 3420, Moody's Bank & Finance Manual (1986).695 MGF Oil Corp. at 1060, Moody's OTC Industrial Manual (1979).696 Missouri Pacific Corp. at 710, Moody's Transportation Manual (1980).697 Modern Merchandising Inc. at 3945, Moody's Industrial Manual (1978).698 Modern Merchandising Inc. at 3951, Moody's Industrial Manual (1979).699 Monarch Capital Corp. at 5750, Moody's Bank & Finance Manual (1987).700 Monsanto Co. at 2666, Moody's Industrial Manual (1978).701 Monsanto Co. at 3688, Moody's Industrial Manual (1980).702 Monsanto Co. at 4072, Moody's Industrial Manual (1982).703 Monsanto Co. at 4073, Moody's Industrial Manual (1984).704 Moran Bros Inc. at 1086, Moody's OTC Industrial Manual (1979).705 Moran Bros Inc. at 1219, Moody's OTC Industrial Manual (1980).706 Muse Air Corp. at 1437, Moody's Transportation Manual (1981).707 National Can Corp. at 2701, Moody's Industrial Manual (1978).708 National Can Corp. at 5002, Moody's Industrial Manual (1980).709 National Medical Enterprises Inc. at 3966, Moody's Industrial Manual (1978).710 National Medical Enterprises Inc. at 5985, Moody's Industrial Manual (1989).711 Natomas Co. at 2720, Moody's Industrial Manual (1978).712 Natomas Co. at 3028, Moody's Industrial Manual (1980).713 Natomas Co. at 3028, Moody's Industrial Manual (1980).714 NBD BanCorp. Inc. at 267, Moody's Bank & Finance Manual (1990).715 New York Exchange Bonds at 1-34, Wall St. J. (Jun. 8, 1979).716 New York Exchange Bonds at 20, Wall St. J. (Dec. 24, 1980).717 New York Exchange Bonds at 20, Wall St. J. (Dec. 24, 1980).718 New York Exchange Bonds at 20, Wall St. J. (Dec. 24, 1980).719 New York Exchange Bonds at 20, Wall St. J. (Dec. 24, 1980).720 New York Exchange Bonds at 21, Wall St. J. (Dec. 24, 1984).721 New York Exchange Bonds at 22, Wall St. J. (Jun. 4, 1980).722 New York Exchange Bonds at 24, Wall St. J. (Jan. 3, 1985).723 New York Exchange Bonds at 24, Wall St. J. (Jul. 6, 1979).724 New York Exchange Bonds at 24, Wall St. J. (Nov. 28, 1980).725 New York Exchange Bonds at 26, Wall St. J. (Aug. 1, 1980).726 New York Exchange Bonds at 26, Wall St. J. (Aug. 1, 1980).727 New York Exchange Bonds at 26, Wall St. J. (Aug. 29, 1980).728 New York Exchange Bonds at 26, Wall St. J. (Jan. 14, 1985).729 New York Exchange Bonds at 26, Wall St. J. (Jan. 14, 1985).730 New York Exchange Bonds at 26, Wall St. J. (Jun. 5, 1979).731 New York Exchange Bonds at 26, Wall St. J. (Mar. 9, 1979).732 New York Exchange Bonds at 27, Wall St. J. (Nov. 29, 1985).733 New York Exchange Bonds at 28, Wall St. J. (Jan. 11, 1985).734 New York Exchange Bonds at 28, Wall St. J. (Jan. 11, 1985).735 New York Exchange Bonds at 28, Wall St. J. (Jul. 28, 1980).736 New York Exchange Bonds at 29, Wall St. J. (Jan. 4, 1985).



Appendix “B”

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Page 21 of 50

INVESTMENT DATA

737 New York Exchange Bonds at 30, Wall St. J. (Aug. 3, 1979).738 New York Exchange Bonds at 30, Wall St. J. (Jul. 25, 1980).739 New York Exchange Bonds at 30, Wall St. J. (Jul. 9, 1979).740 New York Exchange Bonds at 30, Wall St. J. (Jul. 9, 1979).741 New York Exchange Bonds at 30, Wall St. J. (Jul. 9, 1979).742 New York Exchange Bonds at 31, Wall St. J. (Aug. 30, 1979).743 New York Exchange Bonds at 32, Wall St. J. (Apr. 6, 1979).744 New York Exchange Bonds at 32, Wall St. J. (Apr. 6, 1979).745 New York Exchange Bonds at 32, Wall St. J. (Jan. 18, 1985).746 New York Exchange Bonds at 32, Wall St. J. (Jan. 25, 1985).747 New York Exchange Bonds at 32, Wall St. J. (Jul. 23, 1982).748 New York Exchange Bonds at 32, Wall St. J. (Jul. 23, 1982).749 New York Exchange Bonds at 32, Wall St. J. (Jul. 23, 1982).750 New York Exchange Bonds at 32, Wall St. J. (Jul. 23, 1982).751 New York Exchange Bonds at 32, Wall St. J. (Nov. 23, 1979).752 New York Exchange Bonds at 32, Wall St. J. (Nov. 23, 1979).753 New York Exchange Bonds at 32, Wall St. J. (Nov. 23, 1979).754 New York Exchange Bonds at 33, Wall St. J. (Aug. 21, 1987).755 New York Exchange Bonds at 34, Wall St. J. (Jan. 21, 1985).756 New York Exchange Bonds at 34, Wall St. J. (Jul. 27, 1981).757 New York Exchange Bonds at 34, Wall St. J. (Jun. 4, 1979).758 New York Exchange Bonds at 34, Wall St. J. (May. 4, 1979).759 New York Exchange Bonds at 34, Wall St. J. (Oct. 13, 1980).760 New York Exchange Bonds at 36, Wall St. J. (Aug. 20, 1980).761 New York Exchange Bonds at 36, Wall St. J. (Dec. 23, 1980).762 New York Exchange Bonds at 36, Wall St. J. (Jan. 18, 1979).763 New York Exchange Bonds at 36, Wall St. J. (Jan. 18, 1979).764 New York Exchange Bonds at 36, Wall St. J. (Jan. 7, 1985).765 New York Exchange Bonds at 36, Wall St. J. (Jan. 9, 1986).766 New York Exchange Bonds at 36, Wall St. J. (Jan. 9, 1986).767 New York Exchange Bonds at 36, Wall St. J. (Jan. 9, 1986).768 New York Exchange Bonds at 36, Wall St. J. (Jul. 19, 1979).769 New York Exchange Bonds at 36, Wall St. J. (Jul. 31, 1980).770 New York Exchange Bonds at 36, Wall St. J. (Jul. 31, 1980).771 New York Exchange Bonds at 36, Wall St. J. (Jul. 31, 1980).772 New York Exchange Bonds at 36, Wall St. J. (Jun. 27, 1979).773 New York Exchange Bonds at 36, Wall St. J. (Jun. 3, 1985).774 New York Exchange Bonds at 36, Wall St. J. (Jun. 3, 1985).775 New York Exchange Bonds at 36, Wall St. J. (Jun. 3, 1985).776 New York Exchange Bonds at 36, Wall St. J. (Jun. 9, 1986).777 New York Exchange Bonds at 37, Wall St. J. (Jan. 19, 1987).778 New York Exchange Bonds at 38, Wall St. J. (Aug. 5, 1983).779 New York Exchange Bonds at 38, Wall St. J. (Jan. 12, 1981).780 New York Exchange Bonds at 38, Wall St. J. (Jul. 22, 1982).



Appendix “B”

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Page 22 of 50

INVESTMENT DATA

781 New York Exchange Bonds at 38, Wall St. J. (Jul. 22, 1982).782 New York Exchange Bonds at 38, Wall St. J. (Jul. 22, 1982).783 New York Exchange Bonds at 38, Wall St. J. (Jun. 29, 1979).784 New York Exchange Bonds at 38, Wall St. J. (Jun. 6, 1980).785 New York Exchange Bonds at 38, Wall St. J. (Jun. 6, 1980).786 New York Exchange Bonds at 38, Wall St. J. (Mar. 15, 1985).787 New York Exchange Bonds at 38, Wall St. J. (Mar. 8, 1979).788 New York Exchange Bonds at 40, Wall St. J. (Apr. 3, 1986).789 New York Exchange Bonds at 40, Wall St. J. (Apr. 3, 1986).790 New York Exchange Bonds at 40, Wall St. J. (Aug. 13, 1981).791 New York Exchange Bonds at 40, Wall St. J. (Aug. 13, 1981).792 New York Exchange Bonds at 40, Wall St. J. (Feb. 4, 1980).793 New York Exchange Bonds at 40, Wall St. J. (Jan. 31, 1979).794 New York Exchange Bonds at 40, Wall St. J. (Jun. 25, 1980).795 New York Exchange Bonds at 40, Wall St. J. (Nov. 26, 1979).796 New York Exchange Bonds at 40, Wall St. J. (Nov. 26, 1979).797 New York Exchange Bonds at 40, Wall St. J. (Nov. 26, 1979).798 New York Exchange Bonds at 41, Wall St. J. (Aug. 21, 1979).799 New York Exchange Bonds at 41, Wall St. J. (Feb. 1, 1985).800 New York Exchange Bonds at 42, Wall St. J. (Apr. 28, 1986).801 New York Exchange Bonds at 42, Wall St. J. (Apr. 28, 1986).802 New York Exchange Bonds at 42, Wall St. J. (Apr. 3, 1980).803 New York Exchange Bonds at 42, Wall St. J. (Apr. 3, 1980).804 New York Exchange Bonds at 42, Wall St. J. (Aug. 12, 1981).805 New York Exchange Bonds at 42, Wall St. J. (Aug. 7, 1979).806 New York Exchange Bonds at 42, Wall St. J. (Jan. 16, 1980).807 New York Exchange Bonds at 42, Wall St. J. (Jul. 10, 1979).808 New York Exchange Bonds at 42, Wall St. J. (Jul. 15, 1980).809 New York Exchange Bonds at 42, Wall St. J. (Jul. 23, 1980).810 New York Exchange Bonds at 42, Wall St. J. (Jun. 28, 1979).811 New York Exchange Bonds at 42, Wall St. J. (Jun. 28, 1979).812 New York Exchange Bonds at 42, Wall St. J. (Jun. 28, 1979).813 New York Exchange Bonds at 42, Wall St. J. (Jun. 9, 1980).814 New York Exchange Bonds at 42, Wall St. J. (Mar. 18, 1980).815 New York Exchange Bonds at 42, Wall St. J. (Mar. 28, 1979).816 New York Exchange Bonds at 42, Wall St. J. (May. 23, 1979).817 New York Exchange Bonds at 42, Wall St. J. (May. 24, 1979).818 New York Exchange Bonds at 42, Wall St. J. (May. 24, 1979).819 New York Exchange Bonds at 42, Wall St. J. (May. 31, 1985).820 New York Exchange Bonds at 42, Wall St. J. (May. 31, 1985).821 New York Exchange Bonds at 42, Wall St. J. (Nov. 29, 1978).822 New York Exchange Bonds at 43, Wall St. J. (Feb. 21, 1986).823 New York Exchange Bonds at 43, Wall St. J. (Jun. 13, 1986).824 New York Exchange Bonds at 44, (Oct. 26, 1978).



Appendix “B”

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Page 23 of 50

INVESTMENT DATA

825 New York Exchange Bonds at 44, Wall St. J. (Apr. 2, 1980).826 New York Exchange Bonds at 44, Wall St. J. (Apr. 2, 1980).827 New York Exchange Bonds at 44, Wall St. J. (Apr. 2, 1980).828 New York Exchange Bonds at 44, Wall St. J. (Apr. 20, 1979).829 New York Exchange Bonds at 44, Wall St. J. (Dec. 17, 1979).830 New York Exchange Bonds at 44, Wall St. J. (Dec. 17, 1979).831 New York Exchange Bonds at 44, Wall St. J. (Dec. 19, 1986).832 New York Exchange Bonds at 44, Wall St. J. (Dec. 5, 1978).833 New York Exchange Bonds at 44, Wall St. J. (Dec. 7, 1978).834 New York Exchange Bonds at 44, Wall St. J. (Feb. 27, 1980).835 New York Exchange Bonds at 44, Wall St. J. (Feb. 28, 1983).836 New York Exchange Bonds at 44, Wall St. J. (Jan. 11, 1981).837 New York Exchange Bonds at 44, Wall St. J. (Jan. 14, 1987).838 New York Exchange Bonds at 44, Wall St. J. (Jan. 23, 1980).839 New York Exchange Bonds at 44, Wall St. J. (Jan. 30, 1980).840 New York Exchange Bonds at 44, Wall St. J. (Jan. 7, 1981).841 New York Exchange Bonds at 44, Wall St. J. (Jan. 9, 1985).842 New York Exchange Bonds at 44, Wall St. J. (Jan. 9, 1986).843 New York Exchange Bonds at 44, Wall St. J. (Jul. 29, 1980).844 New York Exchange Bonds at 44, Wall St. J. (Jun. 5, 1980).845 New York Exchange Bonds at 44, Wall St. J. (Mar. 13, 1979).846 New York Exchange Bonds at 44, Wall St. J. (Mar. 21, 1979).847 New York Exchange Bonds at 44, Wall St. J. (Mar. 5, 1980).848 New York Exchange Bonds at 44, Wall St. J. (May. 15, 1979).849 New York Exchange Bonds at 44, Wall St. J. (May. 16, 1979).850 New York Exchange Bonds at 44, Wall St. J. (May. 21, 1980).851 New York Exchange Bonds at 44, Wall St. J. (May. 22, 1980).852 New York Exchange Bonds at 44, Wall St. J. (May. 29, 1980).853 New York Exchange Bonds at 44, Wall St. J. (May. 4, 1981).854 New York Exchange Bonds at 44, Wall St. J. (May. 4, 1981).855 New York Exchange Bonds at 44, Wall St. J. (May. 7, 1980).856 New York Exchange Bonds at 44, Wall St. J. (May. 7, 1980).857 New York Exchange Bonds at 44, Wall St. J. (May. 7, 1980).858 New York Exchange Bonds at 44, Wall St. J. (May. 8, 1980).859 New York Exchange Bonds at 44, Wall St. J. (Nov. 14, 1979).860 New York Exchange Bonds at 44, Wall St. J. (Nov. 15, 1979).861 New York Exchange Bonds at 44, Wall St. J. (Nov. 15, 1979).862 New York Exchange Bonds at 44, Wall St. J. (Nov. 21, 1979).863 New York Exchange Bonds at 44, Wall St. J. (Nov. 21, 1979).864 New York Exchange Bonds at 44, Wall St. J. (Nov. 22, 1978).865 New York Exchange Bonds at 44, Wall St. J. (Nov. 27, 1979).866 New York Exchange Bonds at 44, Wall St. J. (Nov. 27, 1979).867 New York Exchange Bonds at 44, Wall St. J. (Nov. 28, 1979).868 New York Exchange Bonds at 44, Wall St. J. (Nov. 29, 1979).



Appendix “B”

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Page 24 of 50

INVESTMENT DATA

869 New York Exchange Bonds at 44, Wall St. J. (Nov. 6, 1978).870 New York Exchange Bonds at 44, Wall St. J. (Nov. 7, 1978).871 New York Exchange Bonds at 44, Wall St. J. (Nov. 8, 1979).872 New York Exchange Bonds at 44, Wall St. J. (Oct. 2, 1979).873 New York Exchange Bonds at 44, Wall St. J. (Oct. 22, 1979).874 New York Exchange Bonds at 44, Wall St. J. (Oct. 3, 1979).875 New York Exchange Bonds at 44, Wall St. J. (Sep. 11, 1979).876 New York Exchange Bonds at 44, Wall St. J. (Sep. 11, 1980).877 New York Exchange Bonds at 44, Wall St. J. (Sep. 19, 1979).878 New York Exchange Bonds at 44, Wall St. J. (Sep. 20, 1979).879 New York Exchange Bonds at 44, Wall St. J. (Sep. 20, 1979).880 New York Exchange Bonds at 44, Wall St. J. (Sep. 26, 1979).881 New York Exchange Bonds at 44, Wall St. J. (Sep. 26, 1979).882 New York Exchange Bonds at 45, Wall St. J. (Feb. 13, 1987).883 New York Exchange Bonds at 45, Wall St. J. (Mar. 9, 1987).884 New York Exchange Bonds at 46, Wall St. J. (Aug. 19, 1981).885 New York Exchange Bonds at 46, Wall St. J. (Aug. 6, 1981).886 New York Exchange Bonds at 46, Wall St. J. (Feb. 11, 1982).887 New York Exchange Bonds at 46, Wall St. J. (Feb. 11, 1982).888 New York Exchange Bonds at 46, Wall St. J. (Jan. 16, 1985).889 New York Exchange Bonds at 46, Wall St. J. (Jan. 17, 1985).890 New York Exchange Bonds at 46, Wall St. J. (Jan. 31, 1985).891 New York Exchange Bonds at 46, Wall St. J. (Jun. 24, 1987).892 New York Exchange Bonds at 46, Wall St. J. (May. 21, 1987).893 New York Exchange Bonds at 46, Wall St. J. (May. 28, 1981).894 New York Exchange Bonds at 46, Wall St. J. (Oct. 27, 1980).895 New York Exchange Bonds at 46, Wall St. J. (Oct. 27, 1980).896 New York Exchange Bonds at 47, Wall St. J. (Dec. 22, 1986).897 New York Exchange Bonds at 47, Wall St. J. (Dec. 22, 1986).898 New York Exchange Bonds at 47, Wall St. J. (Feb. 17, 1982).899 New York Exchange Bonds at 48, Wall St. J. (Aug. 20, 1981).900 New York Exchange Bonds at 48, Wall St. J. (Feb. 17, 1982).901 New York Exchange Bonds at 48, Wall St. J. (Feb. 3, 1982).902 New York Exchange Bonds at 48, Wall St. J. (Feb. 4, 1982).903 New York Exchange Bonds at 48, Wall St. J. (Feb. 4, 1982).904 New York Exchange Bonds at 48, Wall St. J. (Jan. 24, 1985).905 New York Exchange Bonds at 48, Wall St. J. (Jan. 28, 1981).906 New York Exchange Bonds at 48, Wall St. J. (Jul. 10, 1985).907 New York Exchange Bonds at 48, Wall St. J. (Oct. 15, 1980).908 New York Exchange Bonds at 48, Wall St. J. (Sep. 24, 1980).909 New York Exchange Bonds at 49, Wall St. J. (Jun. 27, 1986).910 New York Exchange Bonds at 49, Wall St. J. (Jun. 27, 1986).911 New York Exchange Bonds at 50, Wall St. J. (Jan. 28, 1985).912 New York Exchange Bonds at 50, Wall St. J. (Jan. 8, 1985).



Appendix “B”

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Page 25 of 50

INVESTMENT DATA

913 New York Exchange Bonds at 50, Wall St. J. (Mar. 27, 1981).914 New York Exchange Bonds at 50, Wall St. J. (May. 9, 1985).915 New York Exchange Bonds at 50, Wall St. J. (Oct. 5, 1981).916 New York Exchange Bonds at 50, Wall St. J. (Oct. 5, 1981).917 New York Exchange Bonds at 50, Wall St. J. (Oct. 5, 1981).918 New York Exchange Bonds at 50, Wall St. J. (Oct. 5, 1981).919 New York Exchange Bonds at 50, Wall St. J. (Sep. 17, 1982).920 New York Exchange Bonds at 52, Wall St. J. (Apr. 13, 1983).921 New York Exchange Bonds at 52, Wall St. J. (Apr. 30, 1981).922 New York Exchange Bonds at 52, Wall St. J. (Dec. 12, 1980).923 New York Exchange Bonds at 52, Wall St. J. (Dec. 4, 1981).924 New York Exchange Bonds at 52, Wall St. J. (Jan. 10, 1985).925 New York Exchange Bonds at 52, Wall St. J. (Jan. 15, 1985).926 New York Exchange Bonds at 52, Wall St. J. (Jan. 22, 1985).927 New York Exchange Bonds at 52, Wall St. J. (Jan. 23, 1985).928 New York Exchange Bonds at 52, Wall St. J. (Jan. 27, 1981).929 New York Exchange Bonds at 52, Wall St. J. (Jan. 27, 1981).930 New York Exchange Bonds at 52, Wall St. J. (Jan. 27, 1982).931 New York Exchange Bonds at 52, Wall St. J. (Jan. 29, 1985).932 New York Exchange Bonds at 52, Wall St. J. (Jan. 29, 1985).933 New York Exchange Bonds at 52, Wall St. J. (Jun. 25, 1985).934 New York Exchange Bonds at 52, Wall St. J. (Jun. 26, 1986).935 New York Exchange Bonds at 52, Wall St. J. (Mar. 10, 1981).936 New York Exchange Bonds at 52, Wall St. J. (Mar. 12, 1981).937 New York Exchange Bonds at 52, Wall St. J. (Mar. 16, 1983).938 New York Exchange Bonds at 52, Wall St. J. (Mar. 21, 1985).939 New York Exchange Bonds at 52, Wall St. J. (May. 19, 1981).940 New York Exchange Bonds at 52, Wall St. J. (Nov. 16, 1982).941 New York Exchange Bonds at 52, Wall St. J. (Nov. 19, 1980).942 New York Exchange Bonds at 52, Wall St. J. (Nov. 25, 1980).943 New York Exchange Bonds at 52, Wall St. J. (Oct. 22, 1982).944 New York Exchange Bonds at 52, Wall St. J. (Oct. 28, 1980).945 New York Exchange Bonds at 52, Wall St. J. (Oct. 29, 1981).946 New York Exchange Bonds at 52, Wall St. J. (Oct. 7, 1981).947 New York Exchange Bonds at 52, Wall St. J. (Sep. 16, 1982).948 New York Exchange Bonds at 54, Wall St. J. (Mar. 23, 1983).949 New York Exchange Bonds at 54, Wall St. J. (Mar. 23, 1983).950 New York Exchange Bonds at 55, Wall St. J. (Mar. 24, 1986).951 New York Exchange Bonds at 56, Wall St. J. (Apr. 26, 1983).952 New York Exchange Bonds at 56, Wall St. J. (Oct. 9, 1986).953 New York Exchange Bonds at 6, Wall St. J. (Dec. 1, 1989).954 New York Exchange Bonds at 63, Wall St. J. (Dec. 8, 1987).955 New York Exchange Bonds at C14, Wall St. J. (Sep. 19, 1990).956 New York Exchange Bonds at C16, Wall St. J. (Jul. 7, 1992).



Appendix “B”

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Page 26 of 50

INVESTMENT DATA

957 New York Exchange Bonds, Wall St. J. (Apr. 29, 1988).958 New York Exchange Bonds, Wall St. J. (Aug. 22, 1988).959 New York Exchange Bonds, Wall St. J. (Aug. 23, 1988).960 New York Exchange Bonds, Wall St. J. (Dec. 1, 1989).961 New York Exchange Bonds, Wall St. J. (Feb. 10, 1988).962 New York Exchange Bonds, Wall St. J. (Feb. 15, 1990).963 New York Exchange Bonds, Wall St. J. (Feb. 27, 1989).964 New York Exchange Bonds, Wall St. J. (Jun. 16, 1988).965 New York Exchange Bonds, Wall St. J. (Jun. 7, 1989).966 New York Exchange Bonds, Wall St. J. (Mar. 14, 1990).967 New York Exchange Bonds, Wall St. J. (Mar. 24, 1983).968 New York Exchange Bonds, Wall St. J. (Mar. 6, 1990).969 New York Exchange Bonds, Wall St. J. (May. 23, 1990).970 New York Exchange Bonds, Wall St. J. (Nov. 1, 1988).971 New York Exchange Bonds, Wall St. J. (Nov. 1, 1988).972 Newell Co. at 4197, Moody's Industrial Manual (1989).973 Newmont Mining Corp. at 5021, Moody's Industrial Manual (1980).974 NFC Corp. at 5023, Moody's Industrial Manual (1980).975 NICo.R Inc. at 1304, Moody's Public Utility Manual (1979).976 Northwest Energy Co. at 2960, Moody's Public Utility Manual (1981).977 Northwest Industries Inc. at 2740, Moody's Industrial Manual (1978).978 Norton Simon Inc. at 2754, Moody's Industrial Manual (1978).979 Novell Inc. at 1746, Moody's Industrial Manual (1989).980 NuCorp. Energy Inc. at 598, Moody's Industrial Manual (1981).981 NWA Inc. at 1433, Moody's Transportation Manual (1986).982 NYSE Daily Stock Price Record, Quarter 1 (1979).983 NYSE Daily Stock Price Record, Quarter 1 (1980).984 NYSE Daily Stock Price Record, Quarter 1 (1980).985 NYSE Daily Stock Price Record, Quarter 1 (1981).986 NYSE Daily Stock Price Record, Quarter 1 (1981).987 NYSE Daily Stock Price Record, Quarter 1 (1982).988 NYSE Daily Stock Price Record, Quarter 1 (1982).989 NYSE Daily Stock Price Record, Quarter 1 (1982).990 NYSE Daily Stock Price Record, Quarter 1 (1983).991 NYSE Daily Stock Price Record, Quarter 1 (1984).992 NYSE Daily Stock Price Record, Quarter 1 (1985).993 NYSE Daily Stock Price Record, Quarter 1 (1985).994 NYSE Daily Stock Price Record, Quarter 1 (1986).995 NYSE Daily Stock Price Record, Quarter 1 (1987).996 NYSE Daily Stock Price Record, Quarter 1 (1987).997 NYSE Daily Stock Price Record, Quarter 1 (1988).998 NYSE Daily Stock Price Record, Quarter 1 (1989).999 NYSE Daily Stock Price Record, Quarter 1 (1990).

1000 NYSE Daily Stock Price Record, Quarter 1 (1995).



Appendix “B”

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Page 27 of 50

INVESTMENT DATA

1001 NYSE Daily Stock Price Record, Quarter 1 (2000).1002 NYSE Daily Stock Price Record, Quarter 2 (1979).1003 NYSE Daily Stock Price Record, Quarter 2 (1979).1004 NYSE Daily Stock Price Record, Quarter 2 (1980).1005 NYSE Daily Stock Price Record, Quarter 2 (1981).1006 NYSE Daily Stock Price Record, Quarter 2 (1982).1007 NYSE Daily Stock Price Record, Quarter 2 (1982).1008 NYSE Daily Stock Price Record, Quarter 2 (1983).1009 NYSE Daily Stock Price Record, Quarter 2 (1983).1010 NYSE Daily Stock Price Record, Quarter 2 (1984).1011 NYSE Daily Stock Price Record, Quarter 2 (1984).1012 NYSE Daily Stock Price Record, Quarter 2 (1985).1013 NYSE Daily Stock Price Record, Quarter 2 (1985).1014 NYSE Daily Stock Price Record, Quarter 2 (1986).1015 NYSE Daily Stock Price Record, Quarter 2 (1987).1016 NYSE Daily Stock Price Record, Quarter 2 (1988).1017 NYSE Daily Stock Price Record, Quarter 2 (1989).1018 NYSE Daily Stock Price Record, Quarter 2 (2007).1019 NYSE Daily Stock Price Record, Quarter 2.2 (1979).1020 NYSE Daily Stock Price Record, Quarter 3 (1979).1021 NYSE Daily Stock Price Record, Quarter 3 (1979).1022 NYSE Daily Stock Price Record, Quarter 3 (1980).1023 NYSE Daily Stock Price Record, Quarter 3 (1980).1024 NYSE Daily Stock Price Record, Quarter 3 (1981).1025 NYSE Daily Stock Price Record, Quarter 3 (1981).1026 NYSE Daily Stock Price Record, Quarter 3 (1982).1027 NYSE Daily Stock Price Record, Quarter 3 (1982).1028 NYSE Daily Stock Price Record, Quarter 3 (1983).1029 NYSE Daily Stock Price Record, Quarter 3 (1984).1030 NYSE Daily Stock Price Record, Quarter 3 (1985).1031 NYSE Daily Stock Price Record, Quarter 3 (1985).1032 NYSE Daily Stock Price Record, Quarter 3 (1986).1033 NYSE Daily Stock Price Record, Quarter 3 (1987).1034 NYSE Daily Stock Price Record, Quarter 3 (1988).1035 NYSE Daily Stock Price Record, Quarter 3 (1989).1036 NYSE Daily Stock Price Record, Quarter 4 (1978).1037 NYSE Daily Stock Price Record, Quarter 4 (1979).1038 NYSE Daily Stock Price Record, Quarter 4 (1979).1039 NYSE Daily Stock Price Record, Quarter 4 (1980).1040 NYSE Daily Stock Price Record, Quarter 4 (1981).1041 NYSE Daily Stock Price Record, Quarter 4 (1981).1042 NYSE Daily Stock Price Record, Quarter 4 (1982).1043 NYSE Daily Stock Price Record, Quarter 4 (1983).1044 NYSE Daily Stock Price Record, Quarter 4 (1983).



Appendix “B”

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Page 28 of 50

INVESTMENT DATA

1045 NYSE Daily Stock Price Record, Quarter 4 (1984).1046 NYSE Daily Stock Price Record, Quarter 4 (1985).1047 NYSE Daily Stock Price Record, Quarter 4 (1985).1048 NYSE Daily Stock Price Record, Quarter 4 (1986).1049 NYSE Daily Stock Price Record, Quarter 4 (1986).1050 NYSE Daily Stock Price Record, Quarter 4 (1987).1051 NYSE Daily Stock Price Record, Quarter 4 (1988).1052 NYSE Daily Stock Price Record, Quarter 4 (1988).1053 NYSE Daily Stock Price Record, Quarter 4 (1989).1054 NYSE Daily Stock Price Record, Quarter 4 (1990).1055 OAK Industries Inc. at 4002, Moody's Industrial Manual (1979).1056 OAK Industries Inc. at 5037, Moody's Industrial Manual (1980).1057 Occidental Petroleum Corp. at 2759, Moody's Industrial Manual (1979).1058 Occidental Petroleum Corp. at 3773, Moody's Industrial Manual (1980).1059 Occidental Petroleum Corp. at 4192, Moody's Industrial Manual (1987).1060 Occidental Petroleum Corp. at 4232, Moody's Industrial Manual (1986).1061 Offshore Logistics Inc. at 2038, Moody's Transportation Manual (1980).1062 Ogden Corp. at 5039, Moody's Industrial Manual (1980).1063 Olin Corp. at 4241, Moody's Industrial Manual (1986).1064 OTC Daily Stock Price Record, Quarter 1 (1979).1065 OTC Daily Stock Price Record, Quarter 1 (1980).1066 OTC Daily Stock Price Record, Quarter 1 (1981).1067 OTC Daily Stock Price Record, Quarter 1 (1982).1068 OTC Daily Stock Price Record, Quarter 1 (1983).1069 OTC Daily Stock Price Record, Quarter 1 (1985).1070 OTC Daily Stock Price Record, Quarter 1 (1985).1071 OTC Daily Stock Price Record, Quarter 1 (1986).1072 OTC Daily Stock Price Record, Quarter 1 (1987).1073 OTC Daily Stock Price Record, Quarter 1 (1990).1074 OTC Daily Stock Price Record, Quarter 2 (1979).1075 OTC Daily Stock Price Record, Quarter 2 (1980).1076 OTC Daily Stock Price Record, Quarter 2 (1981).1077 OTC Daily Stock Price Record, Quarter 2 (1982).1078 OTC Daily Stock Price Record, Quarter 2 (1983).1079 OTC Daily Stock Price Record, Quarter 2 (1984).1080 OTC Daily Stock Price Record, Quarter 2 (1984).1081 OTC Daily Stock Price Record, Quarter 2 (1985).1082 OTC Daily Stock Price Record, Quarter 2 (1986).1083 OTC Daily Stock Price Record, Quarter 2.1 (1985).1084 OTC Daily Stock Price Record, Quarter 3 (1979).1085 OTC Daily Stock Price Record, Quarter 3 (1979).1086 OTC Daily Stock Price Record, Quarter 3 (1980).1087 OTC Daily Stock Price Record, Quarter 3 (1981).1088 OTC Daily Stock Price Record, Quarter 3 (1982).



Appendix “B”

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INVESTMENT DATA

1089 OTC Daily Stock Price Record, Quarter 3 (1983).1090 OTC Daily Stock Price Record, Quarter 3 (1985).1091 OTC Daily Stock Price Record, Quarter 3 (1986).1092 OTC Daily Stock Price Record, Quarter 3 (1987).1093 OTC Daily Stock Price Record, Quarter 3 (1989).1094 OTC Daily Stock Price Record, Quarter 3 (1993).1095 OTC Daily Stock Price Record, Quarter 4 (1978).1096 OTC Daily Stock Price Record, Quarter 4 (1979).1097 OTC Daily Stock Price Record, Quarter 4 (1979).1098 OTC Daily Stock Price Record, Quarter 4 (1980).1099 OTC Daily Stock Price Record, Quarter 4 (1981).1100 OTC Daily Stock Price Record, Quarter 4 (1982).1101 OTC Daily Stock Price Record, Quarter 4 (1983).1102 OTC Daily Stock Price Record, Quarter 4 (1985).1103 OTC Daily Stock Price Record, Quarter 4.1 (1979).1104 Owens Illinois Inc. at 5807, Moody's Industrial Manual (1984).1105 Papercraft Corp. at 5808, Moody's Industrial Manual (1982).1106 Pengo Industries at 5818, Moody's Industrial Manual (1981).1107 Pengo Industries Inc. at 5063, Moody's Industrial Manual (1980).1108 Pengo Industries Inc. at 5357, Moody's Industrial Manual (1981).1109 Pengo Industries Inc. at 5818, Moody's Industrial Manual (1982).1110 Pengo NV at 1639, Moody's International Manual (1982).1111 Pengo NV at 6068, Moody's Industrial Manual (1981).1112 Penn Central at 3246, Moody's Industrial Manual (1981).1113 Pennwalt Corp. at 4184, Moody's Industrial Manual (1984).1114 Pennzoil Co. at 2793, Moody's Industrial Manual (1979).1115 Pennzoil Co. at 3838, Moody's Industrial Manual (1980).1116 Pentair at 2291, Moody's OTC Industrial Manual (1984).1117 Pentair at 2291, Moody's OTC Industrial Manual (1985).1118 Pep Boys Manny Moe at 5927, Moody's Industrial Manual (1986).1119 PepsiCo. at 3845, Moody's Industrial Manual (1979).1120 Petrie Stores Corp. at 5929, Moody's Industrial Manual (1986).1121 Petroleum at 1070, Moody's Bank & Finance Manual (1978).1122 Petroleum North America, Moody's International Manual (1986).1123 Pfizer Inc. at 4226, Moody's Industrial Manual (1982).1124 Phelps Dodge Corp. at 5911, Moody's Industrial Manual (1988).1125 Phelps Dodge Corp. at 5932, Moody's Industrial Manual (1986).1126 Piedmont Aviation Inc. at 1031, Moody's Transportation Manual (1979).1127 Piedmont Aviation Inc. at 1301, Moody's Transportation Manual (1987).1128 Pitney Bowes Inc. at 3041, Moody's Industrial Manual (1980).1129 Pitney Bowes Inc. at 3265, Moody's Industrial Manual (1981).1130 Ply Gem Industries Inc. at 6290, Moody's Industrial Manual (1986).1131 Prime Co.mputer Inc. at 4741, Moody's Industrial Manual (1980).1132 Quaker State Oil Refining Corp. at 4305, Moody's Industrial Manual (1986).



Appendix “B”

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INVESTMENT DATA

1133 Ramada Inns Inc. at 2792, Moody's Bank & Finance Manual (1983).1134 Rapid American Corp. at 4076, Moody's Industrial Manual (1978).1135 RCA Corp. at 4106, Moody's Industrial Manual (1981).1136 RCA Corp. at 4326, Moody's Industrial Manual (1985).1137 Reading Bates at 5114, Moody's Industrial Manual (1980).1138 Reading Bates Offshore at 4081, Moody's Industrial Manual (1978).1139 Reliance Electric Co. at 2873, Moody's Industrial Manual (1978).1140 Reliance Group Inc. at 207, Moody's Bank & Finance Manual (1978).1141 Reliance Group Inc. at 2092, Moody's Bank & Finance Manual (1979).1142 Reliance Group Inc. at 2092, Moody's Bank & Finance Manual (1979).1143 Reliance Group Inc. at 2478, Moody's Bank & Finance Manual (1980).1144 Reliance Group Inc. at 2478, Moody's Bank & Finance Manual (1980).1145 Reliance Group Inc. at 2616, Moody's Bank & Finance Manual (1981).1146 Reserve Oil at 4091, Moody's Industrial Manual (1978).1147 Reserve Oil at 4097, Moody's Industrial Manual (1979).1148 Rexnord Inc. at 2892, Moody's Industrial Manual (1978).1149 Reynolds Metals Co. at 2910, Moody's Industrial Manual (1979).1150 Richmond Tank Car Co. at 5427, Moody's Industrial Manual (1981).1151 Richmond Tank Car Co. at 5911, Moody's Industrial Manual (1980).1152 Rio Gre Industries Inc. at 381, Moody's Transportation Manual (1978).1153 Rio Gre Industries Inc. at 80, Moody's Transportation Manual (1980).1154 RJ Reynolds Industries Inc. at 2896, Moody's Industrial Manual (1978).1155 RJ Reynolds Industries Inc. at 2896, Moody's Industrial Manual (1978).1156 RJ Reynolds Industries Inc. at 2896, Moody's Industrial Manual (1978).1157 Rockwell Corp. at 4104, Moody's Industrial Manual (1978).1158 Rockwell Corp. at 4110, Moody's Industrial Manual (1979).1159 Rockwell Corp. at 5135, Moody's Industrial Manual (1980).1160 Rockwell Corp. at 5907, Moody's Industrial Manual (1984).1161 Rohr Industries Inc. at 4157, Moody's Industrial Manual (1981).1162 Rohr Industries Inc. at 4298, Moody's Industrial Manual (1983).1163 Rohr Industries Inc. at 4327, Moody's Industrial Manual (1982).1164 Rowan Companies Inc. at 5944, Moody's Industrial Manual (1980).1165 Rowan Companies Inc. at 6125, Moody's Industrial Manual (1987).1166 Sabine Corp. at 4750, Moody's Industrial Manual (1980).1167 Santa Fe Industries Inc. at 415, Moody's Transportation Manual (1979).1168 Seagull Energy Corp. at 954, Moody's Transportation Manual (1989).1169 Seagull Energy Corp. at 956, Moody's Transportation Manual (1990).1170 Seiscomta Inc. at 1279, Moody's OTC Industrial Manual (1979).1171 Seiscomta Inc. at 4753, Moody's Industrial Manual (1980).1172 Seiscomta Inc. at 5004, Moody's Industrial Manual (1981).1173 Sensormatic Electronics Corp. at 653, Moody's OTC Industrial Manual (1981).1174 Sheller Globe Corp. at 5957, Moody's Industrial Manual (1983).1175 Sheller Globe Corp. at 6045, Moody's Industrial Manual (1986).1176 Society Corp. Ohio at 1278, Moody's Bank & Finance Manual (1979).



Appendix “B”

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INVESTMENT DATA

1177 Southern Airways Inc. at 1071, Moody's Industrial Manual (1977).1178 Southern Airways Inc. at 1072, Moody's Industrial Manual (1978).1179 Sparkman Energy Corp. at 5968, Moody's Industrial Manual (1982).1180 Sparkman Energy Corp. at 6210, Moody's Industrial Manual (1981).1181 Sperry R Corp. at 4185, Moody's Industrial Manual (1979).1182 Sperry R Corp. at 4188, Moody's Industrial Manual (1978).1183 Stard Logic Inc. at 6211, Moody's Industrial Manual (1981).1184 Storer Broadcasting Co. at 4211, Moody's Industrial Manual (1979).1185 Storer Broadcasting Co. at 4213, Moody's Industrial Manual (1978).1186 Storer Communications Inc. at 6071, Moody's Industrial Manual (1985).1187 Summit Energy Inc. at 5235, Moody's Industrial Manual (1980).1188 Summit Energy Inc. at 5530, Moody's Industrial Manual (1981).1189 Sun Microsystems Inc. at 1862, Moody's OTC Industrial Manual (1989).1190 Sun Microsystems Inc. at 2120, Moody's OTC Industrial Manual (1990).1191 Sunshine Mining Co. at 4761, Moody's Industrial Manual (1980).1192 Sunstrand Corp. at 863, Moody's Industrial Manual (1970).1193 Syntex Corp. at 1728, Moody's International Manual (1982).1194 TanneCo Corp. at 3143, Moody's Industrial Manual (1979).1195 TeleCommunications Network at 2312, Moody's OTC Industrial Manual (1988).1196 TeleCommunications Network Inc., Moody's Industrial Manual (1988).1197 Telepictures Corp. at 750, Moody's OTC Industrial Manual (1985).1198 TenneCo. Corp. at 3143, Moody's Industrial Manual (1979).1199 TenneCo. Inc. at 3130, Moody's Industrial Manual (1979).1200 Tesoro Petroleum Corp. at 4320, Moody's Industrial Manual (1981).1201 Texas Eastern Corp. at 3054, Moody's Public Utility Manual (1989).1202 Texas Gas Transmission Corp. at 1936, Moody's Public Utility Manual (1979).1203 Texas General Group Inc. at 1905, Moody's OTC Industrial Manual (1981).1204 Texasgulf Inc. at 4344, Moody's Industrial Manual (1981).1205 Textron Inc. at 3522, Moody's Industrial Manual (1987).1206 Textron Inc. at 3553, Moody's Industrial Manual (1985).1207 The Daily Telegraph (Nov. 3, 1979).1208 The Limited Inc. at 6162, Moody's Industrial Manual (1982).1209 Thermo Electron Corp. at 5588, Moody's Industrial Manual (1986).1210 Tie Communications Inc. at 6040, Moody's Industrial Manual (1982).1211 Time Inc. at 3623, Moody's Industrial Manual (1985).1212 Time Inc. at 4497, Moody's Industrial Manual (1982).1213 Todd Shipyards Corp. at 5574, Moody's Industrial Manual (1981).1214 Tomlinson Oil at 681, Moody's OTC Industrial Manual (1981).1215 Total Petroleum North America at 1015, Moody's International Manual (1984).1216 Towner Petroleum at 5579, Moody's Industrial Manual (1981).1217 Trane Co. at 6053, Moody's Industrial Manual (1982).1218 Trans World Airlines at 1074, Moody's Transportation Manual (1978).1219 Trans World Corp. at 1441, Moody's Transportation Manual (1982).1220 Trans World Corp. at 6062, Moody's Industrial Manual (1984).



Appendix “B”

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INVESTMENT DATA

1221 TransCo Companies at 3568, Moody's Public Utility Manual (1981).1222 TransContinental Oil Corp. at 5038, Moody's Industrial Manual (1981).1223 Transworld Corp. at 6062, Moody's Industrial Manual (1984).1224 Transworld Corp. at 6145, Moody's Industrial Manual (1986).1225 Travelers Corp. at 2501, Moody's Bank & Finance Manual (1980).1226 Travelers Corp. at 2541, Moody's Bank & Finance Manual (1981).1227 TRE Corp. at 5583, Moody's Industrial Manual (1981).1228 Triangle Industries at 4495, Moody's Industrial Manual (1986).1229 Triton Oil at 5287, Moody's Industrial Manual (1980).1230 TRW Inc. at 4425, Moody's Industrial Manual (1987).1231 TRW Inc. at 4499, Moody's Industrial Manual (1986).1232 TRW Inc. at 4518, Moody's Industrial Manual (1982).1233 Twentieth Century Fox at 4229, Moody's Industrial Manual (1980).1234 Union Pacific Corp. at 221, Moody's Transportation Manual (1980).1235 Union Pacific Corp. at 243, Moody's Transportation Manual (1983).1236 Unisys Corp. at 3484, Moody's Industrial Manual (1988).1237 United States Gypsum at 4557, Moody's Industrial Manual (1982).1238 United States Steel Corp. at 6280, Moody's Industrial Manual (1985).1239 United Technologies Corp. at 4434, Moody's Industrial Manual (1981).1240 United Technologies Corp. at 4513, Moody's Industrial Manual (1983).1241 United Technologies Corp. at 4537, Moody's Industrial Manual (1986).1242 United Technologies Corp. at 4574, Moody's Industrial Manual (1982).1243 US Air Inc. at 1336, Moody's Transportation Manual (1981).1244 USLIFE Corp. at 3410, Moody's Bank & Finance Manual (1985).1245 USX Corp. at 6254, Moody's Industrial Manual (1987).1246 UV Industries at 4294, Moody's Industrial Manual (1979).1247 UV Industries at 4297, Moody's Industrial Manual (1978).1248 Valero Energy Corp. at 4380, Moody's Industrial Manual (1989).1249 Viacom at 6123, Moody's Industrial Manual (1984).1250 Wal Mart Stores at 6209, Moody's Industrial Manual (1986).1251 Walgreen Co. at 3520, Moody's Industrial Manual (1982).1252 Walter Jim Corp. at 6193, Moody's Industrial Manual (1985).1253 Wang Laboratories at 5643, Moody's Industrial Manual (1981).1254 Wang Laboratories at 6115, Moody's Industrial Manual (1982).1255 Wang Laboratories at 6129, Moody's Industrial Manual (1983).1256 Warner Communications at 4325, Moody's Industrial Manual (1979).1257 Warner Communications at 6414, Moody's Industrial Manual (1989).1258 Warner Communications Inc. at 4328, Moody's Industrial Manual (1978).1259 Warner Communications Inc. at 5345, Moody's Industrial Manual (1980).1260 Western Air Lines at 1449, Moody's Transportation Manual (1986).1261 Western Union Corp. at 3748, Moody's Public Utility Manual (1981).1262 Western Union Corp. at 3789, Moody's Public Utility Manual (1982).1263 Westinghouse Electric Corp. at 4402, Moody's Industrial Manual (1989).1264 Wetterau Inc. at 2655, Moody's OTC Industrial Manual (1985).



Appendix “B”

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INVESTMENT DATA

1265 Wheelabrator at 4636, Moody's Industrial Manual (1982).1266 White Consolidated Industries at 3337, Moody's Industrial Manual (1979).1267 Woolworth FW Co. at 3546, Moody's Industrial Manual (1985).1268 Woolworth FW Co. at 3642, Moody's Industrial Manual (1986).1269 Zenith National Insurance Corp. at 7327, Moody's Bank & Finance Manual (1985).1270 Zondervan Corp. at 1470, Moody's OTC Industrial Manual (1979).

DEPOSITIONS/UK INTERVIEW TRANSCRIPTS

1271 Alistair George Deposition May 11, 2009.1272 Amber Wood Deposition June 10, 2009 & May 18, 2010.1273 Anthony Marshall Deposition June 25, 2010.1274 Arthur Friedman Deposition June 22, 2010, June 23, 2010, June 24, 2010, & June 29, 2010.1275 Ashok Chachra Deposition Oct. 08, 2010.1276 Belle Jones Deposition May 17, 2010.1277 Carl Shapiro Deposition Dec. 14, 2009 & Dec. 15, 2009.1278 Charles Klein Deposition Nov. 08, 2010.1279 Chris Dale Deposition July 08, 2009 & July 19, 2010.1280 Chris Pengelly Deposition May 06, 2009.1281 Christopher Cutler Deposition Jan. 21, 2010.1282 Colin Bond Deposition June 25, 2010.1283 David Katz Deposition Aug. 31, 2010 & Sept. 1, 2010.1284 David Steinmann Deposition Sept. 29, 2010.1285 Dylan Grice Deposition May 05, 2009.1286 Elliot Margolis Deposition Aug. 12, 2010.1287 Felicity Raven Deposition July 28, 2010.1288 Frank Avellino & Michael Bienes Deposition July 7, 1992.1289 Frank Avellino Deposition Sept. 30, 2010.1290 Fred Wilpon Deposition July 20, 2010.1291 Gilles Frachet Deposition May 11, 2009.1292 James Henchey Deposition June 18, 2010.1293 John Purcell Deposition June 25, 2010.1294 Julia Fenwick Deposition June 04, 2009 & May 19, 2010.1295 Leon Flax Deposition Aug. 06, 2009 & July 21, 2010.1296 Leon Gross Deposition Oct. 22, 2010.1297 Linda Sutton Howard Deposition Aug. 17, 2010.1298 Malcolm Stephenson Deposition June 05, 2009 & Aug. 18, 2010.1299 Marcus Hagnesten Deposition May 05, 2009.1300 Mark Hughes Deposition May 20, 2009.1301 Mark Peskin Deposition July 29, 2010 & July 30, 2010.1302 Matthew Byrom Deposition May 11, 2009.1303 Michael Bienes Deposition Oct. 05, 2010.1304 Michael Lieberbaum Deposition July 29, 2010, Aug. 5, 2010, & Oct. 18, 2010.



Appendix “B”

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DEPOSITIONS/UK INTERVIEW TRANSCRIPTS

1305 Peter Allen Deposition July 15, 2009 & July 28, 2010.1306 Peter Deadman Deposition May 06, 2009.1307 Peter Stamos Deposition Aug. 19, 2010.1308 Philip Toop Deposition June 08, 2009 & July 16, 2010.1309 Richard Karyo Deposition Sept. 22, 2010.1310 Rodney Yates Deposition Sept. 06, 2010.1311 Saul Katz Deposition Aug. 04, 2010.1312 Stanley Shapiro Deposition Sept. 30, 2010 & Oct. 1, 2010.1313 Stephen Raven Deposition July 14, 2009 & July 26, 2010.1314 Tim Vines Deposition May 12, 2009.1315 William Hui Deposition May 18, 2009 & May 18, 2010.

BEGINNING BATES ENDING BATES

1316 17SH_02_OZ_00000001 17SH_02_OZ_000000171317 17SH_03_OZ_00000001 17SH_03_OZ_000000421318 17SH-OZ00000004 17SH-OZ000078191319 ABON_02_BR_00000001 ABON_02_BR_000078281320 ABON-BR00000004 ABON-BR000981221321 ACOP_03_BR_00000001 ACOP_03_BR_000013581322 ADAM_03_BR_00000001 ADAM_03_BR_000000011323 AFELD_03_BR_00000001 AFELD_03_BR_000014751324 AFOS-BR00000002 AFOS-BR000023761325 AGEO_02_BR_00000001 AGEO_02_BR_000000231326 AGEO-BR00000002 AGEO-BR000002951327 AGRE_03_BR_00000001 AGRE_03_BR_000001631328 AJOE_02_BR_00000001 AJOE_02_BR_000003351329 AJOE_03_BR_00000001 AJOE_03_BR_000000061330 AJOE-BR00000001 AJOE-BR000001331331 AKSSAA00000001 AKSSAA00000201332 AKSSAB0000001 AKSSAB00000711333 AKSSAC0000001 AKSSAC00000271334 AKSSAD0000001 AKSSAD00005731335 ALAN_03_BR_00000001 ALAN_03_BR_000017401336 ALBASAA0000001 ALBSAC00063591337 ALCO_03_BR_00000001 ALCO_03_BR_000587541338 ALLM_02_BR_00000001 ALLM_02_BR_000027951339 ALLM-BR00000003 ALLM-BR000189701340 ALON-BR00000001 ALON-BR000181411341 AMAD_02_BR_00000001 AMAD_02_BR_000033791342 AMAD_03_BR_00000001 AMAD_03_BR_000000511343 AMAD-BR00000057 AMAD-BR300021511344 AMAD-BRa00018510 AMAD-BRa00020372



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1345 AMAD-BRb00018538 AMAD-BRb000189271346 AMAD-BRc00018819 AMAD-BRc000188311347 AMAD-BRd00018826 AMAD-BRd000205641348 AMAD-BRf00000046 AMAD-BRf000018431349 AMF00022564 AMF003095181350 AMUI_02_BR_00000001 AMUI_02_BR_000003301351 AMUI-BR00000001 AMUI-BR000001251352 ARBS_03_BR_00000001 ARBS_03_BR_000002361353 ARICH_03_BR_00000001 ARICH_03_BR_000000011354 ARIG_03_BR_00000001 ARIG_03_BR_000007121355 BACK_03_BR_00000001 BACK_03_BR_001461881356 BARSAA0006285 BARSAA00195501357 BARSAD0000001 BARSAD00000371358 BASE_02_BR_00000001 BASE_02_BR_000001611359 BASE-BR00000001 BASE-BR000002211360 BATSAA0000001 BATSAA00028931361 BEN_03_BR_00000001 BEN_03_BR_000278861362 BGIM_03_BR_00000001 BGIM_03_BR_000226041363 BING0000001 BING00001701364 BLAR_03_BR_00000001 BLAR_03_BR_000000241365 BMAD_02_BR_00000001 BMAD_02_BR_000013651366 BMAD-BR00000029 BMAD-BR000001981367 BMAD-BR00018019 BMAD-BR000212721368 BMEDS_02_BR_00000001 BMEDS_02_BR_000000661369 BNYSAE0000010 BNYSAE00002441370 BOASAA0001412 BOASAA00046401371 BOASAB0000001 BOASAB00000431372 BOASAC0000001 BOASAC00003751373 BOASAD0000001 BOASAD00012811374 BOASAE0000001 BOASAE00039731375 BOASAF0000001 BOASAF00086051376 BOASAG0000001 BOASAG00005161377 BOASAH0000001 BOASAH00005651378 BOASAI0000001 BOASAI00026861379 BOASAJ0000001 BOASAJ00001101380 BOASAK0000001 BOASAK00003811381 BOASAL0000001 BOASAL00072621382 BOASAM0000001 BOASAM00000011383 BOASAN0000001 BOASAN00046591384 BOASAO0000001 BOASAO00116491385 BOASAP0000001 BOASAP00075491386 BOASAQ0000001 BOASAQ00018501387 BOASAR0000001 BOASAR00034271388 BOASAS0000001 BOASAS0000511



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1389 BOASAT0000001 BOASAT00006761390 BOASAU0000001 BOASAU00020441391 BOASAV0000001 BOASAV00035931392 BOASAW0000001 BOASAW00004861393 BOASAX0000001 BOASAX00031001394 BOASAY0000001 BOASAY00005521395 BOASAZ0000001 BOASAZ00008391396 BOASBA0000001 BOASBA00009851397 BOASBB0000001 BOASBB00001521398 BOASBC0000001 BOASBC00003441399 BOASBD0000001 BOASBD00000241400 BOASBE0000001 BOASBE00022821401 BOASBF0000001 BOASBF00003831402 BOASBG0000001 BOASBG00011431403 BOASBH0000001 BOASBH00015901404 BOASBI0000001 BOASBI00003061405 BOASBJ0000001 BOASBJ00007261406 BOASBK0000001 BOASBK00007081407 BOASBL00000001 BOASBL00080951408 BOASBM0000001 BOASBM00003801409 BOASBN0000001 BOASBN00054461410 BOASBO0000001 BOASBO00006191411 BOASBP0000001 BOASBP000004681412 BOASBQ0000001 BOASBQ00439731413 BOASBR0000001 BOASBR00046481414 BROS_03_BR_00000001 BROS_03_BR_000000161415 BRU-ACd00001070 BRU-ACd000013841416 BRU-ACe00000013 BRU-ACe000183061417 BRU-ACf00000146 BRU-ACf000480621418 BRU-ACg00000001 BRU-ACg000525581419 BRU-ACh00000001 BRU-ACh000024121420 BRU-ACi00000001 BRU-ACi000150831421 BRU-ACj00000003 BRU-ACj000465211422 BRU-ACk00000001 BRU-ACk000020351423 BRU-BA00000001 BRU-BA000429921424 BRU-BA00067990 BRU-BA000904451425 BRU-BA00090451 BRU-BA001460301426 BRU-BA00146033 BRU-BA001575771427 BRU-BB00000001 BRU-BB003956631428 BRU-BB00395666 BRU-BB004052811429 BRU-BC00000001 BRU-BC000208521430 BRU-BC00020880 BRU-BC000845931431 BRU-BC00089866 BRU-BC001167021432 BRU-BD00000005 BRU-BD00063181



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1433 BRU-BDf00018782 BRU-BDf000188411434 BRU-BE00000001 BRU-BE002874081435 BRU-BF00000001 BRU-BF000088081436 BRU-BF00008810 BRU-BF000179121437 BRU-BF00019784 BRU-BF000238701438 BRU-BG00000001 BRU-BG004217831439 BRU-BH00000001 BRU-BH002313831440 BRU-BI00000009 BRU-BI006975411441 BRU-BJ00000001 BRU-BJ001358161442 BRU-BK00000022 BRU-BK001922061443 BRU-BL00000008 BRU-BL002406031444 BRU-BM00000010 BRU-BM005530401445 BRU-BM00416200 BRU-BM004164011446 BRU-BM00416616 BRU-BM004166311447 BRU-BM00416736 BRU-BM005153441448 BRU-BM00450592 BRU-BM004505941449 BRU-BM00451057 BRU-BM005159811450 BRU-BM00451129 BRU-BM005167001451 BRU-BM00451244 BRU-BM004523811452 BRU-BM00452478 BRU-M000090801453 BRU-BM00452518 BRU-M000096121454 BRU-BM00453531 BRU-BM004535451455 BRU-BM00457759 BRU-M000094461456 BRU-BN00000001 BRU-BN000002941457 BRU-BN00000005 BRU-BN000000061458 BRU-BO00000008 BRU-BO000004581459 BRU-BO00000138 BRU-BO000001451460 BRU-CSa00000005 BRU-CSa000023681461 BRU-CSd00000001 BRU-CSd000071051462 BRU-CSd00000001 BRU-CSd000002641463 BRU-CSd00000001_1 BRU-CSd00006265_11464 BRU-CSd00006266_1 BRU-CSd00007105_11465 BRU-CSe00000001 BRU-CSe000373391466 BRU-CSe00000001 BRU-CSe000097831467 BRU-CSe00009784 BRU-CSe000143561468 BRU-CSe00014357 BRU-CSe000163851469 BRU-CSe00016386 BRU-CSe000373391470 BRU-CSf00000002 BRU-CSf000071341471 BRU-CSg00002901 BRU-CSg000070481472 BRU-CSh00000001 BRU-CSh000041621473 BRU-CSh00004869 BRU-CSh000048691474 BRU-CSi00000001 BRU-CSi000174611475 BRU-CSj00000111 BRU-CSj000427271476 BRU-CSj00043299 BRU-CSj00043317



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1477 BRU-CSj00044839 BRU-CSj001361101478 BRU-JTa00000129 BRU-JTa000437601479 BRU-JTa00000129 BRU-JTa000011241480 BRU-JTa00001984 BRU-JTa000311951481 BRU-JTa00032909 BRU-JTa000412011482 BRU-JTa00042085 BRU-JTa000437601483 BRU-JTc00000062 BRU-JTc005655571484 BRU-M00000001 BRU-M001516621485 BRU-M00000001 BRU-M000804971486 BRU-M00000295 BRU-M000092781487 BRU-M00000337 BRU-M000004021488 BRU-M00001299 BRU-M000013751489 BRU-M00001662 BRU-M000021521490 BRU-M00002011 BRU-M000020151491 BRU-M00002353 BRU-M000780591492 BRU-M00002405 BRU-M000024171493 BRU-M00002495 BRU-M000027811494 BRU-M00002828 BRU-M000028381495 BRU-M00002930 BRU-M000029811496 BRU-M00003122 BRU-M000031411497 BRU-M00003267 BRU-M000033051498 BRU-M00003466 BRU-M000034751499 BRU-M00003732 BRU-M000051641500 BRU-M00004739 BRU-M000048021501 BRU-M00004861 BRU-M000859481502 BRU-M00005230 BRU-M001376091503 BRU-M00006956 BRU-M000069561504 BRU-M00006966 BRU-M000069671505 BRU-M00007344 BRU-M000074191506 BRU-M00007478 BRU-M000075421507 BRU-M00007602 BRU-M000076441508 BRU-M00007785 BRU-M000095361509 BRU-M00009187 BRU-M000092001510 BRU-M00009509 BRU-M000095111511 BRU-M00077466 BRU-M000775971512 BRU-M00077799 BRU-M000778031513 BRU-M00077822 BRU-M000778321514 BRU-M00078074 BRU-M000803271515 BRU-M00078636 BRU-M000786431516 BRU-M00080375 BRU-M001516621517 BRUNA000000001 BRUNA0017835981518 BRUNA000000001 BRUNA0016781321519 BRUNA000471789 BRUNA0012347111520 BRUNA000785619 BRUNA001774328



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1521 BRUNA001235551 BRUNA0016819131522 BRUNA001681971 BRUNA0017550811523 BRUNA001755093 BRUNA0017835981524 BRUNB000002436 BRUNB0011856231525 BRUNB000002436 BRUNB0001789001526 BRUNB000025563 BRUNB0010680451527 BRUNB000178901 BRUNB0005613711528 BRUNB000178901_1 BRUNB000178901_11529 BRUNB000443290 BRUNB0010532481530 BRUNB000555356 BRUNB0006057731531 BRUNB001053291 BRUNB0010797511532 BRUNB001079752 BRUNB0011856231533 BRUNC000003071 BRUNC0007336551534 BRUNC000003071 BRUNC0006706991535 BRUNC000216434 BRUNC0004883371536 BRUNC000488340 BRUNC0006564421537 BRUNC000656479 BRUNC0007140511538 BRUNC000656680 BRUNC0007307661539 BRUNC000714052 BRUNC0007321151540 BRUNC000732116 BRUNC0007336551541 BRUND000000001 BRUND0009661121542 BRUND000000001 BRUND0004612651543 BRUND000461266 BRUND0007248301544 BRUND000500017 BRUND0009391621545 BRUND000726703 BRUND0009200241546 BRUND000920061 BRUND0009481561547 BRUND000948157 BRUND0009661121548 BRUNE000003392 BRUNE0006963241549 BRUNE000003392 BRUNE0005649651550 BRUNE000054217 BRUNE0006645141551 BRUNE000564971 BRUNE0006573521552 BRUNE000657415 BRUNE0006869641553 BRUNE000686966 BRUNE0006926371554 BRUNE000692640 BRUNE0006937941555 BRUNE000693795 BRUNE0006963241556 BRUNF000000001 BRUNF0002870861557 BRUNF000287142 BRUNF0004764541558 BRUNG000000001 BRUNG0000787511559 BRUNH000000001 BRUNH0001831491560 BRUNH000009648 BRUNH0001760681561 BRUNI000000001 BRUNI0000995241562 BRUNI000000001 BRUNI0000738101563 BRUNI000073813 BRUNI0000995241564 BRUNI000073929 BRUNI000091906



Appendix “B”

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1565 BRUNJ000000001 BRUNJ0006436851566 BRUNJ000000001 BRUNJ0003361741567 BRUNJ000336176 BRUNJ0005079041568 BRUNJ000347844 BRUNJ0005977271569 BRUNJ000507938 BRUNJ0006436851570 BRUNK000000001 BRUNK0005733741571 BRUNK000000001 BRUNK0002373341572 BRUNK000034291 BRUNK0005682531573 BRUNK000237390 BRUNK0004414541574 BRUNK000441515 BRUNK0005733741575 BRUNM000000001 BRUNM0003315421576 BRUNM000083342 BRUNM0000833421577 BRUNM000089046_1 BRUNM000089046_11578 BRUNM000235972 BRUNM0002359811579 BRUNN000000001 BRUNN0003383241580 BRUNN000000001 BRUNN0002819391581 BRUNN000199144 BRUNN0003001101582 BRUNN000282781 BRUNN0003383241583 BRUNY000000001 BRUNY0003533131584 BRUNY000000001 BRUNY0002433131585 BRUNY000044285 BRUNY0003470621586 BRUNY000243383 BRUNY0003533131587 BRU-OZa00000002 BRU-OZa000037801588 BRU-OZa00000002 BRU-OZa000036391589 BRU-OZa00003640 BRU-OZa000037801590 BRU-STa00000191 BRU-STa000111571591 BRU-STa00000191 BRU-STa000008791592 BRU-STa00000880 BRU-STa000008801593 BRU-STa00000940 BRU-STa000009401594 BRU-STa00000941 BRU-STa000084211595 BRU-STa00008422 BRU-STa000111571596 BRU-STa00011187 BRU-STd000012071597 BRU-STb00000058 BRU-STb000102501598 BRU-STc00000029 BRU-STc000068551599 BRU-STc00000029 BRU-STc000043171600 BRU-STc00004390 BRU-STc000043981601 BRU-STc00004634 BRU-STc000046921602 BRU-STc00004695 BRU-STc000068551603 BRU-STd00001714 BRU-STd000052371604 BRU-STe00000001 BRU-STe000126961605 BRU-STf00000001 BRU-STf000249771606 BRU-STj00006355 BRU-STj000213121607 BRU-STj00006355 BRU-STj000213101608 BRU-STj00021311 BRU-STj00021312



Appendix “B”

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1609 BRU-STk00000710 BRU-STk000007711610 BRU-STk00002164 BRU-STk000200401611 BRU-STl00000001 BRU-STl000242491612 BRU-STo00026264 BRU-STo000330231613 BRU-STo00033273 BRU-STo000742901614 BSCH_03_BR_00000001 BSCH_03_BR_000004391615 BSHE_03_BR_00000001 BSHE_03_BR_000025581616 BSTSAA0037217 BSTSAA00464081617 BSTSAB0320274 BSTSAB07952341618 BSTSAC0000002 BSTSAC00005741619 BULCC_02_B_00000001 BULCC_02_B_000009491620 BULCC-BR00000002 BULCC-BR000015791621 CBLSAA0000001 CBLSAA00001771622 CBOSAA0000001 CBOSAA00003401623 CBUL_02_BR_00000001 CBUL_02_BR_000000121624 CBUL-BR00000001 CBUL-BR000000381625 CDAL_02_BR_00000001 CDAL_02_BR_000000051626 CDAL-BR00000003 CDAL-BR000630521627 CJOA_03_BR_00000001 CJOA_03_BR_000000221628 CKUG_02_BR_00000001 CKUG_02_BR_000022541629 CKUG_03_BR_00000001 CKUG_03_BR_000123811630 CKUG-BR00000013 CKUG-BR011796541631 CKUG-BR00000013 CKUG-BR006728261632 CKUG-BR00672827 CKUG-BR011796541633 CLEO_03_BR_00000001 CLEO_03_BR_000000181634 CMAR_03_BR_00000001 CMAR_03_BR_000003441635 CRAD_03_BR_00000001 CRAD_03_BR_000000021636 CRAL_03_BR_00000001 CRAL_03_BR_000000011637 CSHI_03_BR_00000001 CSHI_03_BR_000001081638 CSSSAA0001601 CSSSAA00032771639 CTOM_03_BR_00000001 CTOM_03_BR_000000121640 CUWA_03_BR_00000001 CUWA_03_BR_000000791641 CWIE_02_BR_00000001 CWIE_02_BR_000009551642 CWIE_03_BR_00000001 CWIE_03_BR_000004071643 CWIE-BR00000006 CWIE-BR000197111644 DBER_02_BR_00000001 DBER_02_BR_000028181645 DBER-BR00000003 DBER-BR000518611646 DBON_02_BR_00000001 DBON_02_BR_000008901647 DBON-BR00000003 DBON-BR000123781648 DCON_02_BR_00000001 DCON_02_BR_000055831649 DCON-BR00000001 DCON-BR000003031650 DDAN_03_BR_00000001 DDAN_03_BR_000000021651 DERI_03_BR_00000001 DERI_03_BR_000676271652 DGRI_02_BR_00000001 DGRI_02_BR_00000070



Appendix “B”

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1653 DGRI-BR00000002 DGRI-BR000002621654 DKHA_02_BR_00000001 DKHA_02_BR_000000291655 DKHA-BR00000002 DKHA-BR000004371656 DKUG_02_BR_00000001 DKUG_02_BR_000011421657 DKUG_03_BR_00000001 DKUG_03_BR_000000191658 DKUG-BR00000005 DKUG-BR000139431659 DMAG_02_BR_00000001 DMAG_02_BR_000017991660 DMAG-BR00000007 DMAG-BR000004641661 DOWL0000001 DOWL00016571662 DPEN_03_BR_00000001 DPEN_03_BR_000000351663 DSR00000001 DSR000007481664 DTAR_03_BR_00000001 DTAR_03_BR_000001641665 ECOT_02_BR_00000001 ECOT_02_BR_000096981666 ECOT-BR00000001 ECOT-BR000285941667 ECOU_02_BR_00000001 ECOU_02_BR_000017561668 ECOU-BR00000001 ECOU-BR000214221669 ECOU-BRf00000002 ECOU-BRf000000391670 EDUA_03_BR_00000001 EDUA_03_BR_000000621671 EFLO_02_BR_00000001 EFLO_02_BR_000000041672 EFLO-BR00000002 EFLO-BR000223941673 EKAT_03_BR_00000001 EKAT_03_BR_000000191674 ELAI_03_BR_00000001 ELAI_03_BR_000000081675 ELIP_02_BR_00000001 ELIP_02_BRa000023781676 ELIP-BR00000017 ELIP-BR000944691677 ELIP-BRa00000002 ELIP-BRa000023711678 ELVI_03_BR_00000001 ELVI_03_BR_000000011679 EREA_03_BR_00000001 EREA_03_BR_000000061680 FCCSAA0000001 FCCSAA00124121681 FDIP_02_BR_00000001 FDIP_02_BR_000039971682 FDIP_02-BR00000001 FDIP_02-BR000000411683 FDIP-BR00000001 FDIP-BR000039461684 FILI-BR00000001 FILI-BR000010271685 FILI-BR00000238 FILI-BR000009601686 FMAD_03_03_03_BR_00000001 FMAD_03_BR_000558011687 FMRSAA0001062 FMRSAA01164561688 FRISAA0000001 FRISAA00000081689 FRISAB0000001 FRISAB00352661690 FRISAC0000001 FRISAC00000011691 FSTE_03_BR_00000001 FSTE_03_BR_000388771692 GARD0000001 GARD00000491693 GBRU_03_BR_00000001 GBRU_03_BR_000027691694 GDUP_02_BR_00000001 GDUP_02_BR_000000541695 GDUP-BR00000002 GDUP-BR000053671696 GFRA_02_BR_00000001 GFRA_02_BR_00000003



Appendix “B”

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1697 GFRA-BR00000002 GFRA-BR000135411698 GJAS_03_BR_00000001 GJAS_03_BR_000004411699 GKGL0000001 GKGL00000571700 GLEN_03_BR_00000001 GLEN_03_BR_000677971701 GLIZ_03_BR_00000001 GLIZ_03_BR_000000141702 GMAR_03_BR_00000001 GMAR_03_BR_000000351703 GNAN_03_BR_00000001 GNAN_03_BR_000270371704 GOLD0000001 GOLD00002671705 GPER_03_BR_00000001 GPER_03_BR_000000071706 GROB_03_BR_00000001 GROB_03_BR_000000011707 GVIN_03_BR_00000001 GVIN_03_BR_000000101708 HDAN_03_BR_00000001 HDAN_03_BR_000000161709 HRON_00000001 HRON_000000181710 HSBSAA0000663 HSBSAA00015451711 HWN00000001 HWN000032171712 IBLSAA0000001 IBLSAA00078701713 IBMVAA0000001 IBMVAA00001191714 ICEL-BR00000001 ICEL-BR004444121715 ICOH_03_BR_00000001 ICOH_03_BR_000085601716 IDEL_02_BR_00000001 IDEL_02_BR_000011361717 IDEL_03_BR_00000001 IDEL_03_BR_000013681718 IDEL-BR00000003 IDEL-BR000031011719 ILON-BR00000001 ILON-BR000000011720 ILON-BR00000003 ILON-BR000000241721 ILX_02_BR_00000001 ILX_02_BR_000000101722 ILX-BR00000001 ILX-BR000002301723 ITLM_02_BR_00000001 ITLM_02_BR_000000031724 ITLM-BR00000001 ITLM-BR000006861725 ITON_03_BR_00000001 ITON_03_BR_000100881726 IVYSAA0000302 IVYSAA05836651727 IVYSAB0000743 IVYSAB00490681728 IVYSAC0002074 IVYSAC00287901729 IVYSAD0000004 IVYSAD00000701730 JAJE_03_BR_00000001 JAJE_03_BR_000000301731 JANT_03_BR_00000001 JANT_03_BR_000000201732 JASI0000001 JASI00000801733 JBON_02_BR_00000001 JBON_02_BR_000023791734 JBON-BR00000001 JBON-BR000140861735 JCRU_02_BR_00000001 JCRU_02_BR_000038811736 JCRU-BR00000001 JCRU-BR000169771737 JDUM_03_BR_00000001 JDUM_03_BR_000098331738 JFEN_02_BR_00000001 JFEN_02_BR_000000071739 JFEN-BR00000002 JFEN-BR000012101740 JFER_02_BR_00000001 JFER_02_BR_00001318



Appendix “B”

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1741 JFER_03_BR_00000001 JFER_03_BR_000000031742 JFER-BR00000003 JFER-BR000083641743 JHEN_02_BR_00000001 JHEN_02_BR_000000571744 JHEN-BR00000002 JHEN-BR000002011745 JHSSAA0000001 JHSSAA00054321746 JHSSAB0000001 JHSSAB00021801747 JLAR_02_BR_00000001 JLAR_02_BR_000009741748 JLAR-BR00000003 JLAR-BR000056641749 JLEN_03_BR_00000001 JLEN_03_BR_000013651750 JNEW_02_BR_00000001 JNEW_02_BR_000000011751 JNEW-BR00000002 JNEW-BR000151731752 JOHA_03_BR_00000001 JOHA_03_BR_000000021753 JOHA-BR00000977 JOHA-BR000009771754 JPISAA0000011 JPISAA00000841755 JPMSAA0013051 JPMSAA00200791756 JPMSAB0000001 JPMSAB00045701757 JPMSAE0001247 JPMSAE00026691758 JPMSAF0000001 JPMSAF00729311759 JPMSAG0000002 JPMSAG00019121760 JPMSAH0000001 JPMSAH00028731761 JPMSAI0000001 JPMSAI00140061762 JPMSBL0000012 JPMSBL00004191763 JPMSBT0002332 JPMSBT0002343+C9181764 JPMSCQ0000001 JPMSCQ00000281765 JPMSDM0000001 JPMSDM00000091766 JPMTAA0000002 JPMTAA00003311767 JPMTAC0000001 JPMTAC00000641768 JPMTAD0000001 JPMTAD00002821769 JRIC_03_BR_00000001 JRIC_03_BR_000000021770 JROS_03_BR_00000001 JROS_03_BR_000036641771 KATT0000001 KATT20052531772 KFON-BR00000002 KFON-BR000488181773 KFON-BRf00000049 KFON-BRf000174351774 KKAN_03_BR_00000001 KKAN_03_BR_000017781775 KKIE_03_BR_00000001 KKIE_03_BR_000000011776 KNISAA0000001 KNISAA00007321777 KRAS0000001 KRAS00001901778 KWES_03_BR_00000001 KWES_03_BR_000096681779 LAND_03_BR_00000001 LAND_03_BR_000381531780 LARC-BR00488135 LARC-BR004881361781 LAWA0000001 LAWA00001381782 LAZAA0000001 LAZAA00046731783 LAZAA0000001 LAZAA00000451784 LAZAA0000160 LAZAA0004096



Appendix “B”

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1785 LAZAA0004101 LAZAA00042861786 LAZAA0004311 LAZAA00045901787 LAZA-BR00000001 LAZA-BR000005421788 LBRE_03_BR_00000001 LBRE_03_BR_000000181789 LBUC_02_BR_00000001 LBUC_02_BR_000000051790 LBUC-BR00000001 LBUC-BR000000961791 LBUL-BR00000001 LBUL-BR000166511792 LFLA_02_BR_00000001 LFLA_02_BR_000000321793 LFLA-BR00000003 LFLA-BR000067281794 LINE-BR00000001 LINE-BR000000091795 LITT0000001 LITT00014161796 MADTBA00303169 MADTBA003031731797 MADTBB01732636 MADTBB033730531798 MADTBB03342901 MADTBB033434661799 MADTEE00045777 MADTEE007462511800 MADTEE00115171 MADTEE007267311801 MADTNN00109620 MADTNN001273891802 MADTNN00126735 MADTNN001267351803 MADTSS00114387 MADTSS013801861804 MADTSS00114387 MADTSS013277971805 MADTSS00196027 MADTSS002011741806 MADTSS01380147 MADTSS013801861807 MADWAA00004137 MADWAA011220841808 MADWAA00010198 MADWAA011250311809 MAITAA0015875 MAITAA00164361810 MAITAD00000001 MAITAD000000021811 MBAC-BR00000001 MBAC-BR000000011812 MBYR_02_BR_00000001 MBYR_02_BR_000000081813 MBYR-BR00000003 MBYR-BR000009021814 MCFSAA0000011 MCFSAA00001291815 MDPTFF00000294 MDPTFF000007211816 MDPTGG00000001 MDPTGG000000261817 MDPTHH00000001 MDPTHH000000151818 MDPTPP00017576 MDPTPP076930951819 MDPTQQ00002368 MDPTQQ000028341820 MDPTSS00000001 MDPTSS000016881821 MDPTTT00000001 MDPTTT000027481822 MDPTVV00000001 MDPTVV003460361823 MEBU_03_BR_00000001 MEBU_03_BR_000107431824 MELSAA0000001 MELSAA00000371825 MELSAB0000001 MELSAD00016591826 MELSAB0000001 MELSAB00001081827 MESTAAC00000001 MESTAAC000001951828 MESTAAE00000004 MESTAAE00049382



Appendix “B”

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1829 MESTAAF00000001 MESTAAF001999721830 MESTAAG00000001 MESTAAG000551611831 MESTAAH00000001 MESTAAH000020341832 MESTAAK00000001 MESTAAK000000051833 MF00000001 MF007162121834 MF00000012 MF005450031835 MFER_02_BR_00000001 MFER_02_BR_000004181836 MFER_03_BR_00000001 MFER_03_BR_000000091837 MFER-BR00000001 MFER-BR000026681838 MGAV_02_BR_00000001 MGAV_02_BR_000007901839 MGAV_03_BR_00000001 MGAV_03_BR_000001431840 MGAV-BR00000023 MGAV-BR000071561841 MGRE_03_BR_00000001 MGRE_03_BR_000000451842 MGUT_03_BR_00000001 MGUT_03_BR_000014231843 MGUY_03_BR_00000001 MGUY_03_BR_000056101844 MHAG-BR00000002 MHAG-BR000015341845 MHUG_02_BR_00000001 MHUG_02_BR_000000401846 MHUG-BR00000002 MHUG-BR000001681847 MILL0000001 MILL00001471848 MKEV_03_BR_00000001 MKEV_03_BR_000799781849 MLISAA0000001 MLISAA00001811850 MLSIAB0000001 MLISAB00052121851 MMAD_02_BR_00000001 MMAD_02_BR_000033371852 MMAD_03_BR_00000001 MMAD_03_BR_000003671853 MMAD-BR00000029 MMAD-BR000353311854 MMAD-BRf00000002 MMAD-BRf000227481855 MMAN_02_BR_00000001 MMAN_02_BR_000000211856 MMAN-BR00000001 MMAN-BR000000101857 MMAR_03_BR_00000001 MMAR_03_BR_000000231858 MNEI_03_BR_00000001 MNEI_03_BR_000206611859 MOTTAA00000922 MOTTAA000009221860 MPAD_03_BR_00000001 MPAD_03_BR_000005751861 MSYSAB0000100 MSYSAB00004461862 MSYSAE0000468 MSYSAE00081211863 MTRSAA0000002 MTSSAA00000951864 MWPTAP000005673 MWPTAP000236131865 NIBR_02_BR_00000001 NIBR_02_BR_000000031866 NIBR-BR00000001 NIBR-BR000000271867 OCCSAA0000001 OCCSAA00039651868 OCCSAB0000001 OCCSAB00000591869 OCCSAC00000001 OCCSAC000033581870 OJAM_03_BR_00000001 OJAM_03_BR_000000121871 PALL_02_BR_00000001 PALL_02_BR_000000011872 PALL-BR00000001 PALL-BR00001163



Appendix “B”

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1873 PANL-BR00000001 PANL-BR000108621874 PAOL_03_BR_00000001 PAOL_03_BR_000000681875 PCISAA0000003 PCISAA00000081876 PDEA_02_BR_00000001 PDEA_02_BR_000000531877 PDEA-BR00000002 PDEA-BR000003071878 PELE_03_BR_00000001 PELE_03_BR_000000041879 PIDJ0000001 PIDJ00001271880 PJASAA0000001 PJASAA00000521881 PJASAB0000001 PJASAB00025421882 PJASAC0000001 PJASAC00010841883 PJASAD0000001 PJASAD00039541884 PJASAE0000001 PJASAE00011291885 PJASAF0000001 PJASAF00053111886 PJASAG0000001 PJASAG00019751887 PJASAH0000001 PJASAH00039881888 PJASAH0000001 PJASAI00000251889 PJASAI0000001 PJASAI00000251890 PJASAJ0000001 PJASAJ00000091891 PMAD_02_BR_00000001 PMAD_02_BR_000017141892 PMAD_03_BR_00000001 PMAD_03_BR_000000091893 PMAD-BR00000005 PMAD-BR000349061894 PMAT_03_BR_00000001 PMAT_03_BR_000001231895 PROS0000001 PROS00048121896 PUBLIC0000001 PUBLIC00166811897 PUBLIC0005382 PUBLIC00063571898 PVIC_03_BR_00000001 PVIC_03_BR_000057371899 PYEF_03_BR_00000001 PYEF_03_BR_000000011900 RCAR_02_BR_00000001 RCAR_02_BR_000004591901 RCAR_03_BR_00000001 RCAR_03_BR_000000471902 RCAR-BR00000024 RCAR-BR000018611903 RCOLL_03_BR_00000001 RCOLL_03_BR_000012361904 RECY_02_BR_00000001 RECY_02_BR_000007641905 RECY-BR00000007 RECY-BR000076561906 RENVAB0000001 RENVAB00081591907 RGUT_03_BR_00000001 RGUT_03_BR_000037911908 RMAD_02_BR_00000001 RMAD_02_BR_000002871909 RMAD-BR00000001 RMAD-BR000002641910 RMAS00000001 RMAS000000161911 RSHA_03_BR_00000001 RSHA_03_BR_000009081912 RSOB_03_BR_00000001 RSOB_03_BR_000000031913 RYEH_03_BR_00000001 RYEH_03_BR_000001301914 SAND_02_BR_00000001 SAND_02_BR_000021931915 SAND-BR00000001 SAND-BR000193511916 SAND-BR00000001 SAND-BR00000582



Appendix “B”

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1917 SAND-BR00000583 SAND-BR000193511918 SCOL_02_BR_00000001 SCOL_02_BR_000003031919 SCOLa-BR00000001 SCOLa-BR000045241920 SCOLb-BR00000001 SCOLb-BR000040971921 SCOL-BR00000002 SCOL-BR000004821922 SCOLc-BR00000164 SCOLc-BR000046571923 SCON_02_BR_00000001 SCON_02_BR_000000561924 SCON-BR00000001 SCON-BR000001591925 SDEC_03_BR_00000001 SDEC_03_BR_000022211926 SECSAG0000185 SECSAG00001881927 SECSAH0000307 SECSAH00023101928 SECSAI0004777 SECSAI00048581929 SECSAV0007977 SECSAV00095311930 SECSBA0000029 SECSBA00000541931 SECSBF0000016 SECSBF00028881932 SECSBJ0005595 SECSBJ00159461933 SECSBM0000041 SECSBM00000421934 SECSBP0007775 SECSBP00194891935 SECSBS0000001 SECSBS00000721936 SECSCC0000001 SECSCC00000011937 SECSCF0000001 SECSCF00000011938 SECSCR0000001 SECSCR00000761939 SECSDK0000014 SECSDK00102701940 SECSEE0000344 SECSEE00004241941 SECSFE0000001 SECSFE00034151942 SECSFF0000001 SECSFF00005211943 SEDI_03_BR_00000001 SEDI_03_BR_000008171944 SFRI_03_BR_00000001 SFRI_03_BR_000046991945 SHAN-BR00000002 SHAN-BR000003921946 SHEN_03_BR_00000001 SHEN_03_BR_000025831947 SKUR_03_BR_00000001 SKUR_03_BR_000000291948 SLYO-BR00002588 SLYO-BR000088851949 SMAD_02_BR_00000001 SMAD_02_BR_000043721950 SMAD-BR00000004 SMAD-BR200185651951 SNOW0000001 SNOW00088981952 SSMSAA0000001 SSMSAA24062041953 SSMSAB0000001 SSMSAB00001491954 SSMSAC0000001 SSMSAC00026251955 SSMSAD0000001 SSMSAD00000341956 SSMSAE0000001 SSMSAE00000911957 SSMSAF0000001 SSMSAF00001471958 SSMSAI0000001 SSMSAI00004481959 SSMSAJ0000001 SSMSAJ00001131960 SSMSAK0000001 SSMSAK0000811



Appendix “B”

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1961 SSMSAL0000001 SSMSAL00044301962 SSMSAM0000001 SSMSAM00000811963 SSMSAN0000001 SSMSAN00000091964 SSTE_03_BR_00000001 SSTE_03_BR_000147551965 SSUL_03_BR_00000001 SSUL_03_BR_000011451966 STESAA0000212 STESAA00217451967 STESAB0000001 STESAB00003561968 STESAC0000001 STESAC01359891969 STESAD0000001 STESAD01126421970 STESAE0000001 STESAE00000351971 STESAF0000001 STESAF01299071972 STESAG0000001 STEAG00260781973 STESAH0000001 STESAH00161461974 STESAI0000001 STESAI00195041975 STESAJ0000001 STESAJ00100951976 STESAK0000001 STESAK00041171977 STESAL0000001 STESAL00745521978 STESAM0000001 STESAM00000261979 STESAN0000001 STESAN00000841980 STESAO0000001 STESAO00030901981 STESAP0000001 STESAP00007031982 STESAQ0000001 STESAQ00018931983 STESAR0000001 STESAR00005991984 STESAS0000001 STESAS00006261985 STESAT0000001 STESAT00062341986 STESAU0000001 STESAU00008961987 STESAV0000001 STESAV00015161988 STESAW0000001 STESAW00009111989 STESAX0000001 STESAX00010881990 STESAY0000001 STESAY00029561991 STESAZ0000001 STESAZ00452671992 STESBA0000001 STESBA00000011993 STESBB0000001 STESBB00000551994 STESBC0000001 STESBC00023791995 STESBD0000001 STESBD00034361996 STESBE0000001 STESBE00202271997 STESBF0000001 STESBF00002621998 STESBG0000001 STESBG00010821999 STESBH0000001 STESBH00000472000 STESBI0000001 STESBI00134552001 STESBJ0000001 STESBJ00074962002 STESBK0000001 STESBK00041902003 STESBL0000001 STESBL00046062004 TCHE_02_BR_00000001 TCHE_02-BR00000023



Appendix “B”

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2005 TCHE_03_BR_00000001 TCHE_03_BR_000104582006 TCHE-BR00000018 TCHE-BR011197162007 TFUL-BR00000002 TFUL-BR000070082008 TLON-BR00000001 TLON-BR000000052009 UBSSAA0000084 UBSSAA00002182010 UKMSLLBE00000001 UKMSLLBE000064762011 UKMSLLBE00000670 UKMSLLBE000060562012 UKMSLLDI00000001 UKMSLLDI000023852013 UKMSLLES00000001 UKMSLLES000154212014 UKMSLLWA00000001 UKMSLLWA000043972015 UKSKO00000001 UKSKO000009442016 VHEN_03_BR_00000001 VHEN_03_BR_000000072017 WACSAA0000010 WACSAA00006372018 WFCSAA0000049 WFCSAA00001072019 WHIT0000001 WHIT00061482020 WHUI_02_BR_00000001 WHUI_02_BR_000000032021 WHUI-BR00000002 WHUI-BR000253752022 WILL0000001 WILL00003352023 WILM0000001 WILM00098242024 WJAC_02_BR_00000001 WJAC_02_BR_000000622025 WJAC_03_BR_00000001 WJAC_03_BR_000000012026 WJAC-BR00000002 WJAC-BR000003312027 WNA_03_BR_00000001 WNA_03_BR_000017002028 WSASAA0000024 WSASAA00000822029 XZHE_03_BR_00000001 XZHE_03_BR_000049652030 YPEC_03_BR_00000001 YPEC_03_BR_000056312031 YRIC_03_BR_00000001 YRIC_03_BR_000000052032 ZBAR_03_BR_00000001 ZBAR_03_BR_00001054

SQL QUERIES

2033Microsoft SQL Server Query File: Complaints Analysis -MASTER_Backdated_Trades_08252011.sql

2034Microsoft SQL Server Query File: Complaints Analysis -MASTER_Holiday_Trades_08252011.sql

2035Microsoft SQL Server Query File: Complaints Analysis -MASTER_OptionsAnalysis_ALL_08252011.sql

2036Microsoft SQL Server Query File: Complaints Analysis -MASTER_Out_of_Range_Trades_08252011.sql

2037Microsoft SQL Server Query File: Complaints Analysis -MASTER_Weekend_Trades_08252011.sql


APPENDIX C

VALUATION REPORT


House 5 Common Equity Valuation

As of December 11, 2002

November 22, 2011


November 22, 2011 2

01 Executive Summary 3

02 Defined Terms 7

03 Sources of Information 11

04 House 5 Description and Developments 13

05 Contemporaneous 2002 Industry Developments 17

06 General Economic Overview 21

07 Valuation Approaches 24

08 Selection of Discount Rate 28 Equity Cost of Capital 29

09 Income Approach 33 DCF Method 34 Free Cash Flows 37

10 Comparable Company Method 49 Market Approach 50 Application of the Comparable Company Method 50

11 Findings 56 Valuation Findings 57

12 Valuation Exhibits 58

13 Appendix 59 Comparable Transaction Method 60

Contents


Expert Report of Bruce G. Dubinsky Exhibit C

November 22, 2011 3

Section 01

Executive Summary



November 22, 2011 4

Summary of Scope

The Fair Market Value of a 100 percent interest in the common equity of the broker-dealer business (“House 5”) of Bernard L. Madoff Investment Securities LLC (“BLMIS”), on a marketable, controlling interest basis, as of December 11, 2002 (the “Valuation Date”) was determined. Definition of Fair Market Value

For purposes of this Report, the definition of fair market value (“Fair Market Value”) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.1 In estimating Fair Market Value, it is assumed House 5’s existing business is ongoing.

Disclaimers and Concluding Remarks

Valuation reports may contain estimates of future financial performance, based on reasonable expectations at a particular point in time but such information, estimates, or opinions are not offered as predictions or as assurances that a particular level of income or profit will be achieved, that events will occur, or that a particular price will be offered or accepted. Actual results achieved during the period covered by the prospective financial analyses will vary from those described in this Report, and the variations may be material.

The work performed did not include the performance of an audit, review, or examination (as defined by the American Institute of Certified Public Accountants) of any of the historical or prospective financial information used, or other information obtained in the course of the investigation, and, therefore, no opinion is expressed with regard to the same. Further, the valuation did not include any investigation of the titles to, or any liens against House 5 property.

1 Estate Tax Regs., Sec. 20.2031-1(b); Rev. Rul. 59-60, 1959-1 C.B. 237.



November 22, 2011 5

Findings2

Based on the analyses herein, the estimate of the Fair Market Value of 100 percent of the equity of House 5, on a marketable, controlling interest basis, is $450 million, as of the Valuation Date.3 The following table summarizes the findings:

Valuation Approach

Indicated Fair

Market Value

($ in millions) Income Approach $460 Comparable Company Method 420

Concluded Fair Market Value (rounded) 4 $450

Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any evidence to the contrary would have a significant negative impact on the valuation. The use of Fair Market Value as a valuation standard is premised upon both participants to the hypothetical transaction having full disclosure of all the relevant facts, known or knowable as of the Valuation Date, for the valuation to be reliable. The analysis included herein has been performed assuming that the information presented in the regulatory financial reports is correct with minimal adjustments required beyond the specific adjustments made and outlined herein (see definition of Adjusted). Evidence exists which indicates House 5 revenues were artificially enhanced via the transfer of customer monies from House 175 which had the effect of significantly overstating the reported revenues. Accordingly, adjustments have been made to as-reported historical FOCUS report data to remove these revenues. Further, since House 5 revenues were propped up by customer monies from House 17, it calls into question House 5’s ability to fund its

2 A calculation of the implied value of the United Kingdom-based entity Madoff Securities International Limited (“MSIL”) was performed by multiplying MSIL’s y/e 2002 book value of $46.5 million by the implied House 5 EV/BV multiples of 1.5x and 1.4x, averaging the implied values resulting in an implied value of $68.4 million. MSIL’s BV was converted from GBP to USD using the spot exchange rate as of December 11, 2002 of 1.5699 USD/GBP.

3 Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any evidence to the contrary would have a significant negative impact on the valuation. Further, there is evidence that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA Business.

4 Id. 5 House 17 is the investment advisory business of BLMIS. During the investigation it was

discovered that a significant percentage of the revenue accounted for in the FOCUS reports for House 5 was derived from Other People’s Money being transferred to House 5 via (1) House 17 directly, (2) House 17 to a third party brokerage account, or (3) House 17 to MSIL (See Table 10 of the Dubinsky expert report dated November 22, 2011 for more details).



November 22, 2011 6

own operations, and, therefore, calls into question its ability to operate as a going concern.



November 22, 2011 7

Section 02

Defined Terms



November 22, 2011 8

Defined Terms

The following is a non-exhaustive list of defined terms used throughout this Report:

FOCUS report data – refers to the Financial and Operational Combined Uniform Single (“FOCUS”) electronic data files including historical quarterly financial statements for BLMIS from 1Q 1983 through 3Q 2008.

Adjusted – the word “Adjusted,” where capitalized in this Report, refers to adjustments made to the as-reported FOCUS report data for 2000, 2001 and 2002. These adjustments were made to eliminate from revenues transfers of money from House 17, as shown in Table 10 of the Dubinsky expert report dated November 22, 2011, which did not support a legitimate business purpose. Additionally, the FOCUS report data was adjusted to eliminate employee expenses that were included for House 17 employees and any resulting adjustments that are required to the assets, liabilities, and equity accounts due to the changes in revenues and expenses.

Leverage Ratio – refers to the ratio of total assets to total equity on a book value basis.

Cash Ratio – refers to the ratio of non-restricted cash to total assets.

Trading Assets – refers to the securities and spot commodities owned at market value line item from FOCUS report data.

Trading Liabilities – refers to the securities sold, not yet repurchased at market value line item from FOCUS report data.

Short Ratio – refers to the ratio of Trading Liabilities, divided by Trading Assets on a book value basis.

Trading Revenue – refers to the sum of the following FOCUS report data line items:

Gains or losses on firm securities trading accounts – from market making in over-the-counter equity securities;

Gains or losses on firm securities trading accounts – from market making in options on a national securities exchange;

Gains or losses on firm securities trading accounts – from trading in debt securities;

Gains or losses on firm securities trading accounts – from all other trading; and

Other revenue related to securities business.



November 22, 2011 9

Turnover – refers, in this Report, to the ratio of Total Revenue, divided by Trading Assets, with Trading Assets stated on a book value basis.

Sustainable Growth Rate – refers, in this Report, to the ratio of return on assets, divided by the Short Ratio, and represents the implied rate of growth in Trading Assets that could be sustained by the operations, as forecast

Pre-Compensation Operating Expense – refers to all operating expense, other than compensation expenses.

Pre-Comp Operating Income – refers to Total Revenue, minus Pre-Compensation Operating Expenses.

Comp Expense – refers to clerical and administrative employees' expenses line item from FOCUS report data.

Payout Ratio – refers to the ratio of Comp Expense to Pre-Compensation Operating Income.

Debt – refers to bank loans payable line item from FOCUS report data for historical periods and the debt amount in pro forma 2002 and the Projection Period, stated on a book value basis.

Equity Value (“EV”) – refers to the market value of a company’s common equity, calculated as the share price as of the day prior to the Valuation Date, times the share count on the cover of the most recently-filed SEC filing on Form 10-Q as of the Valuation Date, times a factor of 140 percent, to reflect an estimated control premium6 and valuation on a controlling interest basis.

Book Value (“BV”) – refers to the balance sheet carrying amount of common equity as of the Valuation Date.

Tangible Book Value (“TBV”) – refers to the balance sheet carrying amount of common equity, less intangible assets, as of the Valuation Date.

Revenue – refers to LTM revenue available as of the Valuation Date.

Cash Earnings – refers to LTM net income, plus LTM amortization expense as of the Valuation Date.

6 The premium paid above the market price of the target company’s stock prior to a transaction’s announcement date will generally include consideration for the value of control and may also include synergy value in a controlling interest transaction.



November 22, 2011 10

Return on Equity (“ROE”) – refers to the calculation of LTM net income, divided by BV.

Concluded Comparable Companies – refers to Knight Capital Group, Inc. and LaBranche & Co. Inc.




Section 03

Sources of Information




In the course of the analyses, financial and other information, made available to or requested in electronic format from Baker as well as information available in the public domain or purchased databases was considered. The following is a partial listing of the information sources which were considered in the analysis:

Audited Financial Statements of BLMIS;

FOCUS Reports;

FOCUS report data;

House 17 revenue calculations (see Table 10 in the Dubinsky expert report dated November 22, 2011);

Salomon Smith Barney Equity Research, Brokers & Asset Managers, February 21, 2002 (the “Salomon Report”);

Deutsche Bank Equity Research, Brokers & Asset Managers, August 2002 (the “Deutsche Bank Report”);

U.S. Securities Exchange Commission, Regulatory and Compliance Issues in a Decimalized Environment, June 8, 2001;

U.S. Securities Exchange Commission, Testimony Concerning the Effects of Decimalization on the Securities Markets, May 24, 2001;

Standard & Poor’s, Industry Survey: Investment Services, October 31, 2002 (the “S&P Report”);

Securities Industry Association Research Reports, Bottom Formation: Securities Industry Update, November 29, 2002;

2002 Mergerstat Yearbook;

The Capital IQ, SNL Financial (“SNL”), Federal Reserve and Bloomberg on-line financial databases; and

Securities and Exchange Commission (“SEC”) filings, including annual reports on Form 10-K, and quarterly reports on Form 10-Q.




Section 04

House 5 Description and Developments




House 5 Description and Developments7

House 5 operated as a securities broker-dealer registered with the U.S. Securities and Exchange Commission in the United States. It provided executions for broker-dealers, banks, and financial institutions, and was a member of the National Association of Securities Dealers, Inc. House 5 commenced operations in 1960 and was headquartered in New York, NY.

House 5 was an international market maker. The firm provided executions for broker-dealers, banks, and financial institutions since its inception.

House 5’s customers included securities firms and banks. The firm was a market maker in S&P 500 stocks, US convertible bonds, preferred stocks, warrants, units, and rights. As-reported FOCUS report data indicated that market making generated approximately 45 percent of revenue in 2001 and 35 percent of revenue in 2002.

In addition to market making, House 5 acted as a proprietary trader on its own account. According to as-reported FOCUS report data, proprietary trading generated approximately 48 percent of revenue in 2001 and 59 percent in 2002.

Other revenue generated approximately 7 percent of revenue in 2001 and 6 percent of revenue in 2002.

Recent Financial Overview8

For purpose of this Report, unless otherwise noted, all financial information is presented as of and for the year ending (“y/e”) December 31, based on FOCUS report data.

Based on the unadjusted FOCUS reports, which are known to be incorrect, House 5’s BV at the y/e 2002 was $440 million, up from $413 million at the y/e 2001, representing growth due to earnings. Net capital information was made available as of the end of the fiscal quarters, and is presented below based on net capital at the fiscal year ended (“fye”) October 31. Net capital at fye 2002 was $351 million, or 80 percent of BV. The following table illustrates the amount of equity and net capital at fye 2001 and 2002:

7 All financial data referenced in this section is based on as-reported FOCUS report data, and, therefore, does not reflect any adjustments to remove the historical impact of House 17 revenue.





FYE October 31,

Equity Type9 2001 2002 Change ($ in millions) (%)

Total Ownership Equity $400 $438 9.5 Net Capital 311 351 12.8 Net Capital Margin (%) 77.7% 80.1% 2.4

Total Trading Revenue for the y/e 2002 approximated $106 million, a decline of 37 percent from the prior year, due to declines in all revenue types as indicated in the following table:

Revenue10

y/e 2001 y/e 2002 Change ($ in millions) (%)

Market Making $ 76 $ 36 (52) Proprietary Trading 81 63 (22) Other Revenue 12 6 (48)

Trading Revenue $169 $106 (37)

Non-Compensation Operating Expenses, including commissions, clearing fees, communications, occupancy costs, regulatory fees and other expenses related to trading on exchanges, equated to 41 percent and 53 percent of Trading Revenue for the y/e 2001 and 2002, respectively. The same measure averaged 49 percent of Trading Revenue for the ten years ended 2002.

Comp Expense equated to a 53 percent and 46 percent Payout Ratio for the y/e 2001 and 2002, respectively. The Payout Ratio averaged 38 percent over the ten years ended 2002.

Profit after tax was 17 percent and 16 percent for the y/e 2001 and 2002, respectively. While House 5 had always operated as a pass-through entity for income tax purposes, for purposes of this Report, income taxes were imputed, consistent with valuation approaches as of the Valuation Date, for each year presented.

As a result of the improper use of Other People’s Money, the following adjustments are required to recast the above FOCUS report financial information.


10 Id.




Adjustment11 y/e 2000

y/e 2001

Total

($ in millions)

House 17 Revenue (76)

(72)

(148)

House 17 Expenses Comp Expense (7)

(8)

(15)

Occupancy (1)

(1)

(1)

Pretax Income (68)

(64)

(132)

y/e 2001

As-Reported

Adjustments

Adjusted

($ in millions)

Cash 141

(51)

91 Trading Assets 428

(137)

291

Other Assets 214

(63)

151 Total Assets 783

(251)

533

Debt -

-

- Trading Liabilities 329

(105)

224

Other Liabilities 42

(13)

28 Total Liabilities 370

(118)

252

Book Value of Equity 413

(132)

281 Total Liabilities and Equity 783

(251)

533





Section 05

Contemporaneous 2002 Industry Developments




Current Industry Developments12

Market spreads in U.S. equity trading decreased in the years leading up to 2002. Average relative spreads on the National Association of Securities Dealers Automated Quotation or “NASDAQ” exchange decreased dramatically due to overall over-the-counter (“OTC”) trading spreads decreasing by 90 percent over past ten years ending June 2002. The New York Stock Exchange (“NYSE”) also saw trading spreads compressing, narrowing 37 percent between December 2000 and March 2001. The compression of trading spreads increased capital intensity for broker-dealers, resulting in consolidation in registered broker-dealer industry, leaving the 25 largest NYSE firms controlling 79 percent of capital and 75 percent of revenue as of December 1999.

Both exchanges not only saw market spreads decrease, but quote sizes as well. Quote sizes decreased 60 percent and 68 percent on the NYSE and NASDAQ, respectively as of May 2001. Smaller trades at smaller spreads led to significantly less revenue per trade and lower profitability. However, this was partially offset by an increase in trading frequency.

Most of these trends can be explained by the decimalization of the NYSE, which began in 2000. Trading volume increases, pricing spread decreases, increased competitiveness and the elimination of price disparities with international markets were also attributed to this conversion.

Trading volume increased dramatically in the years approaching the Valuation Date. From 1997 to 1999, daily on-line trading volume increased 400 percent overall, and increased from 7 percent to 16 percent on all equity trades. Despite low spreads and quote sizes, industry revenue was estimated to grow by 5 percent in 2003 due to the large increase in trading volume. A key reason was primarily due to the internet, allowing more people to invest and trade daily. Furthermore, the capabilities of the internet caused elimination of informational advantages of professional money managers.

In the broker-dealer industry, mark to market accounting of assets made and continues to make EV/BV multiple valuations the norm. Earnings are

12 Adapted from various sources: Salomon Smith Barney Equity Research, Brokers & Asset Manager, February 21, 2002; Deutsche Bank Equity Research, Brokers & Asset Managers, August 2002; U.S. Securities Exchange Commission, Regulatory and Compliance Issues in a Decimalized Environment, June 8, 2001; U.S. Securities Exchange Commission, Testimony Concerning the Effects of Decimalization on the Securities Markets, May 24, 2011; Standard & Poor’s, Industry Survey: Investment Services, October 31, 2002; and Securities Industry Association Research Reports, Bottom Formation: Securities Industry Update, November 29, 2002.




typically volatile, making price-to-earnings valuation ratios less reliable. As of the date of the Deutsche Bank Report, EV/BV valuations were in line with the historical range 1.5x - 2.5x, with the group trading, on average, at 1.95x as of the date of the source material referenced above.13

Financial Market Commentary14

As of the Valuation Date, year-to-date stock market indicators were broadly negative with the Dow Jones Industrial Average (“DJIA”), S&P 500, and NASDAQ 100 (“NDX”) down 14 percent, 21 percent, and 37 percent, respectively. Furthermore, the VIX volatility index was up 12 percent year-over-year. Compared to the 52-week high, the DJIA was down 19 percent, the S&P 500 was down 23 percent, and the NDX was down 38 percent. Compared to the 52-week low, the DJIA was up 18 percent, the S&P 500 was up 16 percent, and the NDX was up 65 percent.

Third quarter 2002 domestic securities industry profits were more than slashed in half to $0.9 billion from the second quarter’s $2 billion, which was already down one-third from the first quarter’s $3 billion. Fourth quarter profits were estimated at $2.0 billion for a full-year 2002 total of $7.9 billion, a seven-year low. While all revenue lines were down across the board in 3Q 2000 versus 2Q 2000, so too were every expense line, except for interest and floor costs. Securities industry layoffs had reached 10 percent of the workforce, worse than in the post-1987 environment, and in aggregate terms, at least 75,100 in the United States alone, double the post-1987 job losses.

Most, if not all, securities firms were focusing more intensely on core competencies and getting back to Wall Street’s business basics – improving customer satisfactions and operational efficiency – in hopes of ensuring an eventual long-term recovery of both margins and ROEs. With hopes of another major bull market unlikely before late 2003 or 2004, firms were expected to continue to reduce controllable expenses, at least sufficiently to offset largely non-controllable items, such as benefit costs per employee, which were still rising at double-digit annual rates.

One positive trend that emerged in 2002 was the end of the decades-long decline in average commission revenue earned by securities firms on each “ticket”. Average per-ticket commissions flattened out in the third quarter

13 The “group” referenced in the Deutsche Bank Report refers to the Independent Brokers (Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley) and the trading multiples were calculated using stock price data as of August 19, 2002 and financial metrics as of 2Q 2002.

14 Adapted from Securities Industry Association Research Reports, Bottom Formation: Securities Industry Update, November 29, 2002.




as the industry adjusted to the advent of decimal pricing and of compensation based on spreads. Deep discounting practices also subsided, allowing some restoration of “pricing power”.

Another positive trend was higher clearing revenues, reflecting higher fees charged on still strong volume in secondary markets. A third trend, was higher fees earned for financial advisory services provided to customers engaging in corporate restructuring, mergers and acquisitions and leverage buyouts, all types of activity that were expected to rise as economic activity slowed and uncertainty remained high in 4Q 2002.




Section 06

General Economic Overview




Introduction15

As part of the analysis, consideration was given to the general economic outlook as of the Valuation Date and its potential impact on House 5. An assessment of the general economy can often identify underlying causes for fluctuations in the financial and operating performance of a company. This overview of the general economic outlook is based on an examination of various economic analyses and the consensus forecasts of Blue Chip Economic Indicators (the “Consensus”).

Economic Growth

Following another month of discouraging reports, Consensus forecasts of U.S. economic growth for the final quarter of 2002 and for 2003 declined. The forecast annual real gross domestic product (“GDP”) growth dropped back to 2.3 percent for 2002, losing the 0.1 of a percentage point gained last month, and forecasts for 2003 were lowered another 0.2 of a percentage point to 2.8 percent. The Consensus estimates that real GDP growth in Q3 was 3.1 percent, based on strong truck and vehicle sales; however, this was half a percentage point below the prior month’s estimates. The forecast for growth in Q4 fell even further to 1.6 percent, down 0.6 of a percentage point from last month’s numbers, while expectations for Q1 of 2003 dropped from 3.4 percent in September to 2.7 percent in November 2002. The only forecast left unchanged from the prior month was for real GDP growth in Q2 of 2003, remaining at 3.3 percent. Current-dollar (nominal) GDP expectations slipped to 3.5 percent in 2002 and to 4.5 percent in 2003, compared to 2.6 percent in 2001.

A significant decline in vehicle sales in September led to the first drop in personal consumption expenditures (“PCE”) since November 2001, and car and light truck sales continued to decline slightly in October. In addition, reports indicated that the manufacturing sector was weakening at the end of Q3. In September, total industrial production fell 0.1 percent and manufacturing output dropped 0.3 percent, which led to a decline in capacity utilization for the second straight month. Many sectors at the time had a large amount of excess capacity, which led to a poor outlook for growth in capital spending. In October, the Institute of Supply Management’s index of activity in the factory sector fell to 48.5, the lowest level of the year. The average workweek, manufacturing workweek, and aggregate hours worked index also declined in October.

15 The General Economic Overview section is based off resources including: Blue Chip Economic Indicators, November 10, 2002; Standard & Poor’s Trends & Projections, November 14, 2002; and Federal Reserve Statistical Release, H.10, Foreign Exchange Rates, November 18, 2002.




Consumption and Investment

Based on strong vehicle sales during the first two months of Q3, the Consensus maintained its estimate of PCE growth in the third quarter at a rate of 4.2 percent, following the slight growth of 1.8 percent in Q2. For Q4, however, forecasts fell to just 1.1 percent, the weakest quarterly performance since the early 1990s. For 2002 as a whole, the panel expected PCE to grow 3.1 percent, whereas the forecast for calendar year 2003 declined to 2.6 percent.

The Consensus predicted new housing starts would total 1.67 million units in 2002 and 1.61 million units in 2003, compared to 1.60 million units in 2001. Total vehicle sales were expected to number 16.8 million units in 2002 and 16.5 million units in 2003, compared to 17.5 million units in 2001. Nonresidential investment was expected to decline by 5.5 percent in 2002 and to grow 4.0 percent in 2003 after declining 5.2 percent during 2001.

Inflation and Unemployment

The expectation of slower than predicted GDP growth in 2003 was also reflected in Consensus forecasts for inflation and unemployment. The Consensus maintained its prediction of an increase in the Consumer Price Index (“CPI”) of 1.6 percent in 2002, but lowered its prediction further to 2.2 percent in 2003, following a high of 2.5 percent in July. The chained-GDP price index, meanwhile, was expected to rise 1.2 percent in 2002 and 1.6 percent in 2003, after increasing 2.4 percent in 2001.

Unemployment was expected to peak in Q2 of 2003 and reach an average of 5.8 percent during both 2002 and 2003, compared to 4.8 percent in 2001.

Interest Rate Environment

On November 12, 2002, Fed funds were trading at 1.25 percent, three-month T-bills at 1.19 percent, and ten-year T-notes at 3.85 percent, while the dollar was trading at 120 yen and $1.01/euro. At its last meeting on November 6, 2002, the Federal Open Market Committee (“FOMC”) lowered the Fed funds rate to 1.25 percent and the discount rate to 0.75 percent.




Section 07

Valuation Approaches




In estimating the Fair Market Value of a 100 percent interest in the common equity of House 5, as of the Valuation Date, the Income Approach and the Market Approach were considered.

Income Approach

The Income Approach is a valuation technique that provides an estimation of the Fair Market Value of an asset or a business based on the cash flows that an asset or a business can be expected to generate over its remaining useful life. The Income Approach begins with an estimation of the annual cash flows a hypothetical buyer would expect the subject asset or business to generate over a discrete projection period. The estimated cash flows for each of the years in the discrete projection period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the projected cash flows. The present value of the estimated cash flows are then added to the present value equivalent of the residual value of the asset (if any) or the business at the end of the discrete projection period to arrive at an estimate of Fair Market Value.

Market Approach

The Market Approach is a valuation technique that provides an estimation of Fair Market Value based on market prices in actual transactions and on asking prices for assets or businesses. The valuation process is a comparison and correlation between the subject asset or business and other similar assets or businesses. Considerations such as time and condition of sale and terms of agreements are analyzed for comparable assets or businesses and are adjusted to arrive at an estimation of the Fair Market Value of the subject asset or business.

Comparable Company Method. The Comparable Company Method indicates the Fair Market Value of a business by comparing it to publicly-traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business depend on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of the subject company.

After identifying and selecting the guideline publicly-traded companies, their business and financial profiles are analyzed for relative similarity. Considerations for factors such as size, growth, profitability, risk, and return on investment are also analyzed and compared to the comparable businesses. Once these differences and similarities are assessed, the EV multiples (i.e., EV / BV, EV / Cash Earnings and EV / Revenue) of the publicly-traded companies are calculated. These EV multiples are then applied to the subject company’s operating results, adjusted for special




and nonrecurring items, to estimate the Fair Market Value of the subject company’s equity on a marketable, minority value. A control premium is then applied to this value to calculate the indicated Fair Market Value of the equity on a marketable, controlling basis.

Comparable Transaction Method. One variation of the Market Approach includes estimating the Fair Market Value of a business based on exchange prices in actual transactions and on asking prices for controlling interests in public or private companies currently offered for sale. The process essentially involves comparison and correlation of the subject company with other similar companies. Adjustments for differences in factors described earlier (i.e., size, growth, profitability, risk, and return on investment) are also considered.

In selecting comparable transactions, several merger and acquisition databases and financial publications are searched in which transactions are disclosed to gather information about the prices paid for similar businesses under similar circumstances. The acquisitions are relevant indicators of an actual market participant’s perception of Fair Market Value, and, therefore, are a useful valuation indicator. Based on a review of selected financial databases of companies in the industry, transactions are identified and selected.

In general, many transactions that would be relevant are either private, in which case sufficient information is not usually made available to the public, or deemed immaterial to the overall operations of larger companies that are parties to the transaction. If the transaction is deemed immaterial, the SEC does not require disclosure of information about the market transaction.

The Income Approach and Market Approach are used as the methods to estimate the Fair Market Value of a 100 percent interest in the common equity of House 5, as explained below. While a number of publicly-traded companies and market transactions involving companies providing services with some similarity to those of House 5 were identified, ultimately a set of two companies, referred to as the Concluded Comparable Companies, were utilized in estimating the Fair Market Value of a 100 percent interest in the common equity of House 5, as of the Valuation Date under the Market Approach. The Comparable Transactions Method under the Market Approach was deemed to be of limited applicability, due mostly to the target companies being more tilted toward retail brokerage activities (whereas House 5 dealt exclusively with institutions in its market making activities and had a significant portion of its Trading Revenue derived from proprietary trading activities). As a result, the Comparable Transaction




Method was used to generally corroborate the results using the Income Approach and Comparable Company Method.

Discount for Lack of Marketability

The holder of a non-marketable investment is subject to the risk that the investment’s value will decline before the investment can be sold to another investor in a private transaction. Conversely, the holder of an investment that is identical but for the fact that there exists an active public market is not subject to the same lack of marketability risk. Therefore, the holder of the non-marketable investment will have a higher required rate of return on the investment than the holder of the marketable investment. Consequently, the holder of the non-marketable investment will generally sell to the hypothetical willing buyer at a discount to the marketable investment. The factors that affect the size of the discount for lack of marketability fall into two general categories: (1) factors that affect the duration of the holding period necessary to locate a buyer and negotiate a sale, and (2) factors that affect the degree of risk faced per unit of time during this holding period. Risk per unit of time is expressed as the volatility of an investment’s total return (i.e., both dividends and capital appreciation), or the propensity for an investment’s actual return to differ from its expected return. Numerous factors are typically assessed in analyzing an equity investment’s marketability.




Section 08

Selection of Discount Rate




The equity cost of capital was calculated to be 16.5 percent16 (see Exhibit 2.C). This rate was applied to the equity cash flows expected to be generated by House 5 over the projection period and the terminal value at the end of the projection period to calculate the present value of both. Generally, the selection of a rate of return applicable to the valuation of a business is based on the required rates of return on the full complement of capital securities, including debt, preferred and common equity capital. Since House 5 and market participants are primarily financed with equity capital, and because the leveraged business model projections consider the financing cost on leverage directly in estimating net income after taxes, the equity cost of capital is computed using the Capital Asset Pricing Model (“CAPM”), as is described in more detail below.

CAPM

The rate of return on common equity capital was estimated using the CAPM. CAPM has been empirically tested and is widely accepted for the purpose of estimating a company’s required return on equity capital.17 In applying the CAPM, the rate of return on common equity is estimated as the current or normalized risk-free rate of return on long-term U.S. Government bonds as of the Valuation Date, plus a market risk premium expected over the risk-free rate of return, multiplied by the “beta” for the stock. Beta is defined as a risk measure that reflects the sensitivity of a company’s stock price to the movements of the stock market as a whole. Additional risk premiums, if applicable, may also be included in the calculation of the required return on common equity using the CAPM approach, such as a size-based premium and a company-specific risk premium, as described below.

The CAPM rate of return on equity capital is calculated using the formula:

Ke = Rf + B * ERP + Ssp + Alpha

where:

Ke = Rate of return on equity capital;

Rf = Risk free rate of return;

B = Beta or systematic risk for this type of equity investment;

ERP = Equity risk premium: The expected return on a broad portfolio of stocks in the market (Rm) less the risk free rate (Rf);


17 Investments, W.F.Sharpe, Prentice Hall: Englewood Cliffs, New Jersey (1985).

Equity Cost of Capital




Ssp = The small company premium adjustment to the cost of equity due to the size of the subject company; Alpha = Adjustment to the cost of equity due to

characteristics specific to the subject company.

Risk Free Rate of Return

The selected risk-free rate of return was the long-term local bond yield-to-maturity as of market close on December 10, 2002. The projections for House 5 were denominated in USD and thus the 20-year U.S. Treasury Bond was selected. The yield on the 20-year Treasury bond was 5.02 percent as of the Valuation Date.

Beta

Beta is a statistical measure of the volatility of the price of a specific stock relative to the movement of a general group. Generally, beta is considered to be indicative of the market’s perception of the relative risk of the specific stock. Practical application of the CAPM is dependent upon the ability to identify publicly-traded companies that have similar risk characteristics as the company, to derive a meaningful measure of beta that would apply to the company.

Betas reported in public sources are typically “leveraged,” meaning that they incorporate the added risk to a common equity investor due to the leveraged capital structure of the company. To derive a beta applicable to the equity investor in a business, the reported levered betas for publicly traded companies considered as comparable to the business must first be unlevered to estimate the beta risk to the equity investment as if 100 percent equity financed, and then re-levered at an assumed normalized market participant amount of debt in the capital structure. The un-levering and re-levering process is intended to normalize for any comparable companies that might have a materially different capital structure, and, therefore, levered beta, than that of the average comparable company. The market participant unlevered beta of 1.46 was re-levered based on a capital structure of 88 percent equity and 12 percent debt, consistent with the weighted average capital structure of the concluded comparable company set, resulting in a re-levered beta of 1.58.

Equity Risk Premium

Practical application of CAPM also relies on an estimate of the Equity Risk Premium. Since the expectations of the average investor are not directly observable, the Equity Risk Premium must be inferred using one of several methods. One approach is to use premiums that investors have historically earned over and above the returns on long-term government bonds. The premium obtained using the historical approach is sensitive to




the time period over which one calculates the average. Depending on the time period chosen, the historical approach yields an average premium of 5 to 8 percent. Another approach is to incorporate expected rates of return obtained from analysts who follow the stock market. Again, this approach will lead to differing estimates depending upon the source

An Equity Risk Premium of 6 percent was applied, based on the Long-Horizon Equity Risk Premium of 7.42 percent18 and adjusted 1.5 percent19 for survivorship bias.

Premium for Small Size

The CAPM rate of return is usually adjusted by a premium, which reflects the extra risk of an investment in a small company. This premium is derived from historical differences in returns between small companies and large companies, using data published by Morningstar. This adjustment is deemed applicable because the analysis behind the estimation of the Equity Risk Premium was based on large-capitalization stocks, and, therefore, would provide an indication only of the Equity Risk Premium applicable to an equity investment in a large capitalization stock. Since House 5 would not be considered a large-capitalization stock if publicly traded, a small stock premium was applied, based on the size of House 5, of 1.94 percent.20 This premium is based on the “8th decile” from a commonly-referenced Ibbotson Associates study.21

Alpha

The Alpha risk premium represents the additional return required by an investor due to risks that are unique to House 5, which typically relate to differences between House 5 and the comparable company set. In the analysis, an alpha adjustment was not applied to House 5 because the valuation methodology was applied to financial projections which were assembled according to the assumption that a market participant buyer of House 5 would increase the leverage of the company to a level that is more consistent with that of the market participants as of the Valuation Date. Therefore, the specific attributes of House 5 are replaced with those of a market participant in the application of the Income Approach, and, therefore, an Alpha premium was not applied.

18 Long-Horizon Equity Risk Premium based on the Market Total Return of the S&P 500 Index. Ibbotson Associates: Stocks, Bonds, Bills, & Inflation, 2002 Yearbook.

19 Copeland, Koller, and Murrin, 2000, Valuation: Measuring and Managing the Value of Companies.


21 Ibbotson Associates: Stocks, Bonds, Bills, & Inflation, 2002 Yearbook.




Concluded Equity Cost of Capital By substituting the appropriate factors in the CAPM as discussed above, the common equity rate of return applicable to an investment in the equity of House 5, as of the Valuation Date, was estimated to be approximately 16.5 percent, as summarized below:22

CAPM Input Input

Risk-free rate (Rf) 5.02% Beta (B) 1.58 Equity Risk Premium (ERP) 6.00% Small Stock Premium (Ssp) 1.94% Alpha (A) 0.00% Equity Cost of Capital (rounded) 16.5%





Section 09

Income Approach




The future cash flows of House 5 were estimated to assist with the calculation of the Fair Market Value of a 100 percent interest in the common equity of House 5 under the DCF Method.

Application of the DCF Method

Forecast Financial Information (“FFI”) was derived based on understanding the nature of the business of House 5, the reported historical financial performance as reported in the FOCUS reports, Adjusted FOCUS report data, and the attributes of the market participants. FFI was estimated for the calendar years ending December 31, 2003 through 2007 (the “Projection Period”).

The following tables illustrate the adjustments made to the as-reported financial data to eliminate House 17 revenues, certain employee and other costs associated with House 17 and the resulting effects on the assets, liabilities and equity accounts:

Adjustment23 y/e 2000

y/e 2001

Total

($ in millions)

House 17 Revenue (76)

(72)

(148)

House 17 Expenses Comp Expense (7)

(8)

(15)

Occupancy (1)

(1)

(1)

Pretax Income (68)

(64)

(132) y/e 2001

As-Reported

Adjustments

Adjusted

($ in millions)

Cash 141

(51)

91 Trading Assets 428

(137)

291

Other Assets 214

(63)

151 Total Assets 783

(251)

533

Debt -

-

- Trading Liabilities 329

(105)

224

Other Liabilities 42

(13)

28 Total Liabilities 370

(118)

252

Book Value of Equity 413

(132)

281 Total Liabilities and Equity 783

(251)

533


DCF Method




Consequently, FFI was based on the (i) Adjusted FOCUS report data, and (ii) an assumed re-capitalization of the Adjusted FOCUS report data based on market participant assumptions. The following steps were generally employed to derive Adjusted FOCUS report data, and estimate quarterly financial statements on a pro forma basis for the y/e 2002:

1) Subtracted House 17 revenues of $75.6 million, $72.4 million, and $60.5 million for the y/e 2000, 2001, and 2002, respectively from the as-reported Total Revenue;

2) Made historical expense adjustments to remove House 17-related expenses from as-reported Pre-Compensation Operating Expenses and Comp Expense;

3) Re-calculated the y/e 2000, 2001, and 2002 BV based on the adjustments to back out House 17 revenue and expenses;

4) Computed Adjusted Turnover on a quarterly basis for the y/e 2002 (see Exhibit 2.B);

5) Re-calculated as-reported assets and liabilities for the y/e 2000, 2001 and 2002 based on as-reported common-size ratios of BV, multiplied by the Adjusted BV;

6) Re-leveraged the business as of the y/e 2001, based on comparable company operating levels using a Leverage Ratio of 3.17 and a Cash Ratio of 8 percent;

7) Prepared pro forma 2002 quarterly financial statements as if the business had been operated according to market participant assumptions for the y/e 2002, and, excluding the estimable impact of removing House 17 revenue and expenses for the y/e 2000, 2001 and 2002;

8) Prepared pro forma Total Revenues that would be have been achieved by House 5 during 2002 by applying Adjusted Turnover24 to the pro forma level of Trading Assets;

9) Computed average historical Company margins and Comp Expense achieved during periods when House 5’s Leverage Ratio was in-line with current market participant levels for application to pro forma revenue streams;

10) Calculated pro forma earnings before interest and taxes (“EBIT”) based on the above assumptions;

11) Computed interest expense related to incremental debt used to leverage the business to market participant levels, and subtracted

24 Adjusted Turnover as calculated in Exhibit 2.B.




forecast interest expense to arrive at earnings before taxes (“EBT”);

12) Calculated income taxes based on effective tax rates of the Concluded Comparable Companies and subtracted those taxes from EBT to arrive at after tax income;

13) Used pro forma quarterly after tax income to calculate the increase in Trading Assets and Trading Liabilities that would be consistent with the operations;

14) Calculated end of quarter balance sheets based on aforementioned growth in Trading Assets and Trading Liabilities and commensurate growth in other assets and liabilities; and

15) Summed the quarterly income statements to estimate a pro forma income statement for the y/e 2002, which also forms the basis for LTM financials applied in the Market Approach.

Following the estimation of pro forma y/e 2002 financial statements, the following procedures were used to arrive at FFI for the Projection Period and to estimate the Fair Market Value of a 100 percent interest in the common equity of House 5 under the DCF Method:

16) Forecast Trading Asset growth for the Projection Period based on third-party research articles and reports, and also based on the Sustainable Growth Rate;

17) Estimated Total Revenue by applying Adjusted Turnover to average Trading Assets during each forecast year;

18) Computed forecast Pre-Compensation Operating Expense levels by growing expense line items either at the rate of growth in Trading Assets or the rate of growth due to inflation, or by applying the historical average expense ratio relative to Total Revenue, and subtracted the Pre-Compensation Operating Expense from Total Revenue to calculate Pre-Comp Operating Income;

19) Forecast Comp Expense based on the historical average25 Payout ratio of 33 percent, which is below-average compared to the Payout ratio of comparable companies, and subtracted Comp Expense to calculate EBIT;

25 Historical average expense ratio was calculated as the average ratio during historical years where the Leverage Ratio ranged from 3.0 to 4.0.




20) Calculated interest expense based on the average forecast Debt balance, times an implied interest rate of 3.75 percent,26 and subtracted interest expense from EBIT to calculate EBT;

21) Calculated income taxes based on effective tax rates of the Concluded Comparable Companies and subtracted those taxes from EBT to arrive at after tax income;

22) Calculated operating cash flow by summing after tax income with the net investment in non-cash assets and non-debt liabilities;

23) Calculated annual free cash flows to equity generated by House 5 during the Projection Period based on the assumption that Debt would remain at the y/e 2002 pro forma levels in all future periods;

24) Annual free cash flow to equity, if positive, was assumed to be distributed at the end of the calendar year and was discounted accordingly at the equity cost of capital of 16.5 percent and summed to arrive at the present value of free cash flows during the Projection Period;

25) Estimated the terminal value of the business beyond the Projection Period based on the application of an EV / BV multiple as of the December 31, 2007; and

26) Combined the present values of the aforementioned Projection Period cash flows, and the terminal value.

Recapitalization27

Based on a comparison to market participants, House 5 was operating at a below-average Leverage Ratio. For purposes of this analysis, it was presumed that House 5’s business was otherwise run in a similar manner to the market participants in terms of inter-period leverage and balance sheet common size metrics. The calculated Leverage Ratio for House 5 as of y/e 2002 was 1.55, as compared to a weighted average ratio of 3.17 for the Concluded Comparable Companies. Additionally, House 5’s Adjusted non-restricted cash balance at y/e 2002 was $106.9 million,28 or a

26 Calculated as Prime Rate, minus 0.50 percent, as of the Valuation Date, which is consistent with the implied historical average pricing of House 5’s Debt relative to the prevailing Prime Rate.

27 The calculated weighted average Leverage Ratio and Cash Ratio are based on results of the Concluded Comparable Companies, as well as three other similar, but significantly smaller companies, which were excluded from the Concluded Comparable Companies due to size.


Free Cash Flows




Cash Ratio of 27 percent (vs. 8 percent for the Concluded Comparable Companies) as of the Valuation Date. The following charts illustrate that House 5 operated with a higher Leverage Ratio in the past and that the Concluded Comparable Companies, as of the Valuation Date, operated with a higher Leverage Ratio than that of House 5:

(a) Adjusted, as defined in this Report.29


0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 (a) 2001 (a) 2002 (a)

House 5 Leverage Ratio





As seen in the above chart,31 as recently as 1998, House 5 had operated with a Leverage Ratio in excess of the Concluded Comparable Companies, which suggests that House 5 could operate at the Concluded Comparable Companies’ average Leverage Ratio as of the Valuation Date.

The following chart illustrates the historical Cash Ratio of House 5, based on as-reported FOCUS report data through 1999 and based on Adjusted FOCUS report data thereafter:


31 Charts were compiled using data from Capital IQ and SEC filings for LaBranche and Knight Capital, and using as-reported FOCUS report data.

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 (a)

2Q00 (a)

3Q00 (a)

4Q00 (a)

1Q01 (a)

2Q01 (a)

3Q01 (a)

4Q01 (a)

1Q02 (a)

2Q02 (a)

3Q02 (a)

LTM Average Leverage Ratio: House 5 vs. Concluded Comparable Companies

LaBranche

Knight Capital

House5





The above chart illustrates that the Cash Ratio was materially above historical levels, which suggests a lower level of investment relative to House 5 historical operations. The excessive Cash Ratio was interpreted to indicate the business held excess cash as of the Valuation Date.

Based on the presumption that a market participant buyer would recapitalize House 5 and operate it with a Leverage Ratio that is more consistent with industry norms, as indicated by the Concluded Comparable Companies, the Adjusted financials for the y/e 2002 were re-cast as if House 5 operated with a 3.17 Leverage Ratio and an 8 percent Cash Ratio at the beginning of 2002. Leverage was re-cast based on the premise that the Adjusted BV as of the y/e 2001 of $280.9 million could support $890.4 million of total assets, an increase of approximately $357.7 million versus Adjusted total assets. An approximate $377.1 million increase in Trading Assets would be funded by $235.3 million of Debt, $122.4 million of Trading Liabilities, and $19.4 million of excess cash.


0%

5%

10%

15%

20%

25%

30%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 (a) 2001 (a) 2002 (a)

House 5 Cash Ratio




y/e 200133

Balance Sheet Item Adjusted Pro Forma Change

($ in millions)

Cash 90.6 71.2 -19.4 Trading Assets 291.3 668.4 +377.1 Trading Liabilities 223.5 345.9 +122.4 Debt 0 235.3 +235.3

Total Revenue

Pro forma 2002 Total Revenue of approximately $99.1 million was calculated based on the pro forma balance sheet items illustrated in the above tables; the Total Revenue was forecast on a quarterly basis, based on Adjusted Turnover being multiplied by the leveraged Trading Asset balance. Total Revenue was forecast on a quarterly basis in 2003 using quarterly 2002 Adjusted Turnover expressed on average assets, multiplied by average Trading Assets during the quarter.

The following table summarizes pro forma 2002 and forecast 2003 quarterly Total Revenue and Trading Assets:

Financial Metric34

Q1 Q2 Q3 Q4 y/e

($ in millions) 2002 Total Revenue 26.0 23.2 22.3 27.5 99.1 2003 Total Revenue 27.4 24.4 23.5 28.9 104.2 % Change 5 5 5 5 5

2002 Trading Assets 678.9 687.3 695.2 706.7 706.7 2003 Trading Assets 712.8 721.7 730.0 742.1 742.1 % Change 5 5 5 5 5


34 Id.




Trading Assets were forecast during the Projection Period according to growth rates noted in research reports and observations from historical financials of House 5. The following table illustrates the Trading Asset growth rates during the Projection Period:

Financial Metric35

2003 2004 - 2007

(in percent)

Trading Assets 5 536 Total Revenue 5 5

Pre-Compensation Operating Expense

Broker-dealer and other investment industry businesses generally determine compensation payments to employees based on a targeted Payout Ratio. Thus, Pre-Compensation Operating Expense was identified from the FOCUS report data and was forecast based on either (i) the growth rate in Trading Assets, (ii) the growth rate due to inflation, or (iii) as a percentage of Total Revenue. The following points summarize the Pre-Comp Operating Expenses and the basis for their projections:

Commissions and clearance paid to all other brokers and clearance paid to non-brokers expenses were grown at the same rate as Trading Assets.

Communications, promotional costs, and regulatory fees and expenses were grown by forecast inflation rates of 2.9 percent for first three years, 2.6 percent in year four and 2.4 percent in year five and beyond.37

Occupancy and equipment costs were forecast based on contractual payments for all future years.38 A reduction was made to adjust for occupancy costs related to other activities of BLMIS outside of House 5. This adjustment approximated 19 percent of forecast occupancy and equipment costs before adjustment.39


36 Projection Period Trading Asset growth was based on the Sustainable Growth Rate, and, therefore, represents the amount of growth that would be supportable by the operations of House 5 as forecast.

37 Source: DRI-WEFA. 38 Contractual payments were based on the disclosure in the fiscal year 2002 audited

financial statements. 39 Based on 2008/09 floor plan information made available, and is calculated based on the

percent of total workstations for all occupied floors relating to House 17.




Other Expenses includes fees paid to exchanges on commission revenue. Such expenses were forecast at 21 percent of Total Revenue.40

Pre-Comp Operating Income and Comp Expense41

The above Pre-Compensation Operating Expense was subtracted to calculate Pre-Comp Operating Income during the Projection Period. Comp Expense was then calculated to equate to a 33 percent Payout Ratio.42 Similar to occupancy and equipment costs, an adjustment was made to remove headcount costs associated with other activities of BLMIS deemed to be outside of House 5. The adjustment approximated 15 percent of Comp Expense as calculated above.43

The following table summarizes Projection Period Pre-Comp Operating Income, Comp Expense, EBIT and margin:

Financial Metric44

2003 2004 2005 2006 2007

($ in millions)

Pre-Comp Operating Income

$58.5 $61.7 $64.8 $68.3 $72.0

Comp Expense 19.4 20.5 21.5 22.7 23.9

Adjustment -2.9 -3.1 -3.2 -3.4 -3.6

Net Compensation 16.5 17.4 18.3 19.3 20.3

EBIT $42.0 $44.3 $46.5 $49.0 $51.7 EBIT Margin (%) 40 41 41 41 41

Interest Expense

Interest expense was applied to the average Debt balance, which was presumed to be a fixed level of debt throughout the Projection Period. The

40 Represents the average other expense ratio of Total Revenue during historical periods when the Leverage Ratio ranged from 3.0 to 4.0.

41 The Payout Ratio is an aggregate expense amount based on historical performance as well as a review of market participants. No consideration was given to the compensation of any individual employee of BLMIS nor was any consideration given to the reasonableness of the amount paid to any individual employee based on the services that the individual provided.

42 Represents the average Payout Ratio during the historical periods when Leverage ratio ranged from 3.0 to 4.0.

43 Based on 2008/09 floor plan and seating charts and representing the 2002 Comp Expense associated with House 17.





level of Debt was determined to be approximately $235.3 million, based on the amount of financing required to fund the increase in Trading Assets to obtain a market participant Leverage Ratio, while considering the funding provided from other sources (an increase in Trading Liabilities and use of excess cash). The rate of interest applied in the Projection Period was 3.75 percent,45 which is consistent with implied pricing during historical periods when House 5 carried bank debt. The interest expense applied during the Projection Period was $8.8 million per year, and was subtracted from EBIT to calculate EBT.

Depreciation and Amortization

Non-cash expenses related to depreciation and amortization were not available in the FOCUS report data made available, but were identified in BLMIS audited financial statements. However, as is typically the case with financial services businesses, depreciation, amortization and capital expenditures are not material expenses or expenditure items and, therefore, for the purpose of estimating FFI, it was assumed that depreciation (a non-cash expense) would be 100 percent offset by capital expenditures, and accordingly, no specific adjustment is made to FFI.

Taxes

Cash income taxes were calculated based on taxable income and were deducted from EBT to estimate after-tax income. While House 5’s ownership structure was an LLC, and, therefore, no taxes were paid at the entity level, due to the fact that standard valuation practice would impute taxes in this situation, and that comparable companies are C-Corporations which pay income taxes, it was determined that the estimated Fair Market Value of a 100 percent interest in the common equity of House 5 should assume a willing buyer that is subject to a market participant tax rate. An average effective tax rate of 40 percent was calculated using available data from the Concluded Comparable Companies and calculated income taxes on this basis, which were subtracted from EBT to calculate after tax income.

After Tax Income and Free Cash Flow

After tax income was presumed as a proxy for cash basis income given the presumption that non-cash expenses were immaterial. Given the presumption of immaterial non-cash adjustments to after tax income, operating cash flow was calculated as after tax income, minus investment

45 An analysis of historical financial statement data from FOCUS reports indicated that interest expense, divided by average bank debt resulted in a rate of interest that was, on average, 50 basis points (“bps”) or 0.5 percent, below the prevailing average Prime Rate during the relevant year. The prevailing Prime Rate, taken from the Federal Reserve H15 release, as of the Valuation Date was 4.25 percent.




in non-cash assets (primarily Trading Assets), plus increase in non-debt liabilities (primarily Trading Liabilities).

The following is a listing of non-cash assets, as obtained from reading FOCUS report data files made available, and a description of growth assumptions applied in the FFI over the Projection Period:

Receivables from brokers or dealers and clearing organizations – grown based on Trading Asset growth rates;

Securities and spot commodities owned, at market value (Trading Assets) – grown assuming 100 percent reinvestment of earnings during pro forma 2002 and based on market participant growth rates for the Projection Period;

Memberships in exchanges – no growth is forecast on the basis that these investments would be held at cost;

Fixed assets – no growth is forecast on the basis that depreciation and capital expenditures would offset;

Other assets – grown based on Trading Asset growth rates.

The following is a listing of non-debt liabilities, as obtained from reading FOCUS report data files made available, and a description of growth assumptions applied in the FFI over the Projection Period:

Payable to brokers or dealers and clearing organizations – grown based on Trading Asset growth rates;

Securities sold, not yet repurchased at market value (Trading Liabilities) – forecast based on 52 percent of Trading Assets;46

Accounts payable and accrued liabilities – grown based on Trading Asset growth rates.

The investment in non-cash assets (see list above) represents a cash outflow, and the increase in non-debt liabilities represents effectively a cash inflow and the two are netted in the calculation of net investment.

The following table summarizes after tax income, the elements of net investment, and Free Cash Flow applied in pro forma 2002, which illustrate the assumption made that after tax income is 100 percent reinvested in the business through expansion of Trading Assets and Trading Liabilities:

46 Represents the average Short Ratio calculated during periods where the Leverage Ratio ranged 3.0 to 4.0.




Pro Forma 200247

Financial Metric (Cash Impact) Q1 Q2 Q3 Q4 y/e

($ in millions)

After tax income 5.0 4.1 3.8 5.6 18.5

Increase in Non-cash Assets -10.5 -8.5 -7.9 -11.5 -38.3

Increase in Non-debt Liabilities 5.4 4.4 4.1 6.0 19.8

Net Change in Debt 0.0 0.0 0.0 0.0 0.0 Free Cash Flow to Equity .0 .0 .0 .0 .0

The following table illustrates after tax income, the elements of net investment, and Free Cash Flow as forecast for the Projection Period:

Financial Metric (Cash Impact) 2003 2004 2005 2006 2007

($ in millions) After tax income 19.9 21.3 22.6 24.1 25.7 Increase in Non-cash Assets -42.1 -39.9 -42.7 -45.5 -48.6 Increase in Non-debt Liabilities 19.7 18.7 20.0 21.3 22.7 Net Change in Debt 0.0 0.0 0.0 0.0 0.0 Free Cash Flow to Equity -2.5 0.0 -0.1 -0.1 -0.2

As illustrated in the tables above, pro forma 2002 after tax income is assumed to be reinvested in the business to grow the balance sheet, and, it is assumed that, with the exception of 2003, balance sheet expansion reflects growth slightly in excess of earnings, with the shortfall being funded by the cash balance.

Free Cash Flow to Equity48

As illustrated above, Free Cash Flow to Equity (“Free Cash Flow”) was estimated at approximately -$2.5 million in 2003, and ranges from -$0.2 million to $0.0 million for 2004 to 2007. These annual Free Cash Flows, if positive, are assumed to be distributed to equity investors at the end of each year. If negative, Free Cash Flows are presumed to be absorbed by the cash balance. The Free Cash Flows are then discounted to their respective present values at the equity cost of capital of 16.5 percent and summed to calculate the sum of present value of Free Cash Flows. The sum of present value of Free Cash Flows was zero.


48 Id.




Terminal Value49

The terminal value of House 5, as of the y/e 2007 was computed by applying the selected terminal EV / BV multiple of 2.4x to the forecast y/e 2007 BV of $413 million, resulting in a terminal value as of the y/e 2007 of $991 million. The terminal value was then discounted to its present value based on the equity cost of capital of 16.5 percent to $458 million, which represents the amount an investor would pay for the rights to the cash flows of the business for years subsequent to the Projection Period.

The selected multiple of 2.4x was based on the following calculation:

Industry average multiple x (1 + control premium) x Relative Factor

The industry average multiple was calculated as the midpoint of the range of the Concluded Comparable Companies of 1.9x, which is also consistent with the midpoint of expected EV / BV multiples as indicated in the Deutsche Bank Report, of 2.0x.50 The control premium applied was 40 percent, which represents the average control premium from recently-completed merger transactions in the “Brokerage, Investment & Mgmt. Consulting” industry from 1999 to 2001.51 Additionally, a “Relative Factor” was applied to reflect primarily the difference in size between House 5 and the size of the industry comparable companies referred to in the Deutsche Bank Report and the Concluded Comparable Companies. The Relative Factor applied is 90 percent, and was calculated as the ratio of the concluded EV, divided by the EV based on a discount rate that does not include a small stock premium.

Results of the Income Approach

The estimated Fair Market Value of a 100 percent interest in the common equity of House 5 was then calculated as the sum of the present value of Free Cash Flows of zero and the present value of the terminal value of $458 million. Based on the Income Approach as described above and as detailed in Exhibit 2, the Fair Market Value of a 100 percent interest in the common equity of House 5, on a marketable, controlling interest basis was estimated to be $460 million. Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any


50 The Deutsche Bank Report indicates an expected trading range of 1.5 - 2.5 times BV, which was corroborated by the S&P Report which stated a range of 1.6 - 2.6.

51 2002 Mergerstat Yearbook industry premiums for “Brokerage, Investment & Mgmt. Consulting” industry.




evidence to the contrary would have a significant negative impact on the valuation. Further, there is evidence that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA Business.




Section 10

Comparable Company Method




The Market Approach indicates the EV, as defined in this Report, based on a comparison of the company to comparable firms in similar lines of business that are publicly traded or which are part of a public or private transaction. This methodology presumes that the comparable companies or the subject company are not tainted by fraud or other improprieties which would render the comparison invalid. This approach can be implemented through the Comparable Company Method and/or the Comparable Transaction Method. The Comparable Company Method was used in our determination of Fair Market Value and the Comparable Transaction Method was used to corroborate the results of the Income Approach and the Comparable Company Method.

Comparable Company Method

The Comparable Company Method indicates the value of a business by comparing it to publicly traded companies in the same or similar lines of business. The conditions and prospects of companies in similar lines of business depend on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged in the same or similar businesses yields insight into investor perceptions and, therefore, the value of the company.

Publicly-traded companies are selected and their financial profiles are analyzed relative to the business. Considerations for factors such as size, prices, growth, profitability, risk, and return on investment, etc. are also analyzed and compared to the comparable businesses. Once these differences and similarities are determined and proper adjustments are made, price or EV multiples of the publicly traded companies are calculated. These EV multiples are then applied to the operating results attributable to the company to estimate the EV of the company.

Determination of Concluded Comparable Companies An initial screen of companies using Capital IQ’s financial database was run to identify relevant comparable companies. Four filters were applied to narrow the database of companies. Filtering for publicly-traded companies returned 61,181 companies. The list was narrowed to include companies with a primary industry classification of “Security Brokers,” resulting in 188 companies. The next two filters identified companies with stocks trading as of December 10, 2002; this returned 102 companies. Finally, the list was filtered for companies geographically in the United States, narrowing the list to 10 companies.

To corroborate the list of comparable companies, the SNL database was searched to identify publicly-traded broker-dealers as of December 10,

Market Approach

Application of the Comparable Company Method




2002. To do so, the component companies of several SNL indexes were reviewed including: SNL U.S. National Broker-Dealer (7 companies), SNL U.S. Regional Broker-Dealer (14 companies), and SNL U.S. Institutional Broker-Dealer (24 companies).

The industry lists were then cross-referenced from equity analyst research reports. From the Solomon Report, the Large-Cap Brokers, Mid-Cap Broker, and Exchanges & Market Intermediaries companies were used. Online Brokers were excluded, which had fundamentally different business models. From the Deutsche Bank Report, the Independent Brokers, Universal Banks, and Regional Brokers companies were used.

To make the preliminary list of comparable companies as expansive as possible, proxy filings of the direct market making competitors were searched.

Once a list of potential comparable companies was formed, the list was narrowed by reading income statements to identify companies with similar line items and comparable revenue mixes (i.e. at least 75 percent of revenue from brokerage commissions and trading revenue). Additionally, due to the absence of beta estimates for certain companies, such companies were eliminated.

The list of companies is as follows:

Merriman Holdings, Inc.

LaBranche & Co. Inc.

Paulson Capital Corp.

Investors Capital Holdings, Ltd.

BGC Financial Group, Inc.

Instinet Group Incorporate

Investment Technology Group Inc.

Jesup & Lamont, Inc.

Westech Capital Corp.

Detwiler Fenton Group, Inc.

Dupont Direct Financial Holdings, Inc.

AB Watley Group Inc.

First Montauk Financial Corp.

Knight Capital Group Inc.




Progressive Asset Management, Inc.

Soundview Technology Group, Inc.

National Holdings Corp.

Millennium Healthcare, Inc.

BGC Partners, Inc.

Siebert Financial Corp.

Brandt, Inc.

Ladenburg Thalmann Financial Services Inc.

Furthermore, common-size income statements were calculated based on data from Capital IQ to determine the percentage of total revenue that related specifically to Capital IQ’s “trading revenue.” Since essentially 100 percent of House 5 revenue related to trading activity, it was determined that the Concluded Comparable Companies should include only those companies which generated at least 75 percent of revenues from trading and had a significant amount of revenue (measure of size, of at least $50 million) during the LTM period. The group of companies meeting these final criteria includes the following:

Knight Capital Group Inc.; and

LaBranche & Co Inc.

Concluded Comparable Companies:52 Knight Trading Group, Inc., a Delaware corporation, and its subsidiaries operate in two business segments: wholesale securities market-making and asset management. It was the leading wholesale equities market maker in The NASDAQ Stock Market and the Nasdaq Intermarket in the U.S., and, during the two years prior to the Valuation Date, it had established majority-owned wholesale equity market-making operations in Europe and Japan. The company also operated a leading listed options market-making business and a professional options execution business in the U.S. Through its Deephaven Capital Management LLC subsidiary, it also operated an asset management business for institutions and high net worth individuals.

LaBranche & Co Inc. was a holding company that was the sole member of LaBranche & Co. LLC and owned all the outstanding stock of LaBranche Financial Services, Inc. ("LFSI"). Founded in 1924, LaBranche & Co. LLC

52 The descriptions were taken from SEC filings of the Concluded Comparable Companies as of the Valuation Date.




was one of the oldest and largest specialist firms on the New York Stock Exchange. It also acted as a specialist in stocks and options on the American Stock Exchange. Its LFSI subsidiary was a clearing broker for customers of introducing brokers and provides direct access floor brokerage services to institutional customers, securities clearing and other related services to individual and institutional clients, including traders, professional investors and broker-dealers. In addition, LFSI also provided front-end order execution, analysis and reporting solutions for the wholesale securities dealer market. As of December 31, 2001, its former subsidiaries Henderson Brothers, Inc. and Internet Trading Technologies, Inc. were merged with and into its ROBB PECK McCOOEY Clearing Corporation subsidiary. RPM Clearing Corporation changed its name to LFSI in January 2002 and was a registered broker-dealer and NYSE member firm as of the Valuation Date.

Application of the Market Approach

Once the Concluded Comparable Companies were established, valuation multiples were computed. Valuation multiples are ratios of EV to the operating results of a company, where EV is calculated on a marketable, controlling interest basis, reflecting a control premium. The EV for each company was calculated as the product of the closing stock price as of the day prior to the Valuation Date and the share count on the cover of the most recent quarterly report as of the Valuation Date, plus a premium of 40 percent.53 Multiples were then calculated for EV to BV, Revenue, and Cash Earnings. The following points illustrate the multiples calculated for the Concluded Comparable Companies, and how those multiples were applied to House 5 financials to estimate Fair Market Value as of the Valuation Date:

EV / BV

The average multiple for the Concluded Comparable Companies, which included a control premium of 40 percent, was approximately 1.9x with a range of multiples of 1.2x to 2.5x. It was presumed that a relative adjustment of 90 percent is warranted to account for the smaller size of House 5 relative to the Concluded Comparable Companies. No other adjustments were included in the EV / BV multiple applied since it is presumed the pro forma ROE of House 5 would approximate that of the Concluded Comparable Companies.

A range of multiples of 1.1x to 2.3x was applied to the pro

53 The control premium of 40 percent is based on an analysis of recent comparable transactions occurring during the three years preceding the Valuation Date.




forma y/e 2002 BV of $299.4 million54 to arrive at a range of Fair Market Value of a 100 percent interest in the common equity of House 5 of approximately $329 to $677 million.

EV / Cash Earnings

The average multiple for the Concluded Comparable Companies, which included a control premium of 40 percent, was 26.9x. It was presumed that a relative adjustment of 90 percent is warranted to account for the smaller size of House 5 relative to the Concluded Comparable Companies. No other adjustments were included in the EV / Cash Earnings multiple applied since it is presumed the pro forma growth of House 5 would approximate that of the Concluded Comparable Companies.

A multiple of 24.2x was applied to House 5’s pro forma Cash Earnings of $18.5 million55 to arrive at an estimate of the indicated Fair Market Value of a 100 percent interest in the common equity of House 5 of approximately $448 million.

EV / Revenue The average multiple for the Concluded Comparable

Companies, which included a control premium of 40 percent, was approximately 3.6x with a range of multiples of 1.7x to 5.5x. It was presumed that a relative adjustment of 90 percent is warranted to account for the smaller size of House 5 relative to the Concluded Comparable Companies. No other adjustments were included in the EV / Revenue multiple applied since it is presumed the pro forma profit margin and growth of House 5 would approximate that of the Concluded Comparable Companies.

A range of multiples of 1.5x to 4.9x was applied to House 5’s pro forma 2002 Revenue of $99.1 million56 to arrive at a range of Fair Market Value of a 100 percent interest in the common equity of House 5 of approximately $152 to $490 million.



56 Id.




Results of the Comparable Company Method Based on the Comparable Company Method as described above, the indicated Fair Market Value of a 100 percent interest in the common equity of House 5 on a marketable, controlling interest basis was estimated to be $420 million, as of the Valuation Date. Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any evidence to the contrary would have a significant negative impact on the valuation. Further, there is evidence that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA Business. This concluded value is based on the average of the range of results indicated by application of the BV, Cash Earnings and Revenue multiples as calculated using the Concluded Comparable Companies’ valuations and financial metrics.

Refer to Exhibits 3 and 3.A for the details of the Comparable Company Method.




Section 11

Findings




Findings57

Based on the analyses herein, the estimated Fair Market Value of 100 percent of the equity of House 5, on a marketable, controlling interest basis, is $450 million, as of the Valuation Date. Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any evidence to the contrary would have a significant negative impact on the valuation. Further, there is evidence that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA Business. The following table summarizes the valuation findings:

Valuation Approach

Indicated Fair

Market Value

($ in millions)

Income Approach $460 Comparable Company Method 420

Concluded Fair Market Value (rounded) 58

$450

A discount for lack of marketability was considered as part of the determination of the Concluded Fair Market Value of a 100 percent equity interest on a controlling basis in House Five. As a privately held company with limited interim cash flow a discount for lack of marketability would generally be required. Moreover, given the existence of fraud and the fact that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA Business, a discount for marketability could be large and could approach 100 percent. In the interest of being conservative and generally presenting the valuation in the light most favorable to demonstrating solvency, no lack of marketability discount was applied for purposes of determining the Concluded Fair Market Value above.

57 A calculation of the implied value of MSIL was performed by multiplying MSIL’s y/e 2002 book value of $46.5 million by the implied House 5 EV/BV multiples of 1.5x and 1.4x, averaging the implied values resulting in an implied value of $68.4 million. MSIL’s BV was converted from GBP to USD using the spot exchange rate as of December 11, 2002 of 1.5699 USD/GBP.


Valuation Findings




Section 12

Valuation Exhibits


HOUSE 5 Exhibit 1

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002SUMMARY OF VALUES(USD in millions)

Indicated

Notes Value Equity Value Summary

(4)

Income Approach (1) $460 1.5X Exhibit 2

Market Approach (EV/TBV or EV/BV) (2) 420 1.4X Exhibit 3.A

Concluded Value (rounded) (3) $450 1.5X

Notes:(1)

(2)

(3)

(4) Implied multiple of tangible book value.

Implied

EV/BV

* * *IMPORTANT NOTICE TO READER* * *This schedule contains financial information based upon certain critical assumptions as set forth in the narrative section of the report. Accordingly, this schedule must be considered in conjunction with those assumptions and should not be read on a stand-alone basis.

Exhibit

Adjusted Capitalization DCF Approach based on recapitalization of House 5 in 2002 to reflect a Leverage Ratio of ConcludedComparable Companies and is assumed to reflect a controlling interest value. Assumed a Leverage Ratio of 3.17 and 8%Cash Ratio. Indicated value is the middle of the Adjusted Capitalization DCF range.Based on the range of values indicated by applying the price-to-tangible book value of the two Concluded ComparableCompanies. Indicated value is the median. Based on minority interest basis trading market values, plus a control premium of40%.Average of the indicated values from the Adjusted Capitalization Discounted Cash Flow and Concluded Comps methods.Rounded to the nearest $50 million.

DUFF &PHELPS Exhibits, Page 1 of 15


HOUSE 5 Exhibit 2

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002INCOME APPROACH: RECAPITALIZATION(USD in millions)

Notes 2000 2001 2002 Adj. Beg. 2002 2003 2004 2005 2006 2007INCOME STATEMENT

Reported Revenue 209.8 169.1 106.0

Revenue Adjustments (3) -75.6 -72.4 -60.5Total Revenue, As Adjusted (4) 134.2 96.7 45.5 99.1 104.2 109.1 114.1 119.4 125.1

% Growth -18% -28% -53% 2% 5% 5% 5% 5% 5%

Expenses

Commissions and clearance paid to all other brokers (5) 30.6 13.8 4.8 4.8 5.1 5.3 5.5 5.8 6.1Clearance paid to non-brokers (5) 4.1 2.6 2.9 2.9 3.1 3.2 3.4 3.5 3.7Communications (5) 8.6 5.6 6.8 6.8 7.0 7.2 7.4 7.6 7.8Occupancy and equipment costs (6) 2.9 3.3 3.9 3.9 3.9 3.9 3.9 3.9 3.9Adjustment for advisor occupancy (6) -.5 -.6 -.7 -.7 -.7 -.7 -.7 -.7 -.7Promotional costs (7) .2 .1 .1 .1 .1 .1 .1 .1 .1Data processing costs (7) .6 .8 .7 .7 .7 .7 .8 .8 .8Regulatory fees and expenses (7) 6.5 4.4 4.8 4.8 5.0 5.1 5.3 5.4 5.5Other expenses (8) 69.2 39.2 31.8 20.5 21.6 22.6 23.6 24.7 25.9

Total Operating Expenses before Compensation 122.0 69.2 55.1 43.9 45.7 47.5 49.3 51.1 53.1% of Revenue 91% 72% 121% 44% 44% 43% 43% 43% 42%

Pre-Comp Operating Income 12.2 27.5 -9.6 55.2 58.5 61.7 64.8 68.3 72.0

Clerical and administrative employees' expenses (9) 45.8 52.3 23.1 18.3 19.4 20.5 21.5 22.7 23.9Adjustment to market participant headcount reduction (10) -6.9 -7.8 -3.5 -2.7 -2.9 -3.1 -3.2 -3.4 -3.6

Comp % of Pre-Comp Operating Income (before adjustment) 376% 190% -240% 33% 33% 33% 33% 33% 33%

Operating Income (EBIT) -26.7 -16.9 -29.2 39.6 42.0 44.3 46.5 49.0 51.7EBIT Margin -20% -17% -64% 40% 40% 41% 41% 41% 41%

Interest expense (11) .5 .0 .0 8.8 8.8 8.8 8.8 8.8 8.8

Income before income taxes (EBT) -27.2 -16.9 -29.3 30.8 33.2 35.4 37.7 40.2 42.9

Tax Expense @ 40% (12) -10.9 -6.8 -11.7 12.3 13.3 14.2 15.1 16.1 17.1

After Tax Income (13) -16.3 -10.2 -17.6 18.5 19.9 21.3 22.6 24.1 25.7% of Revenue -12% -11% -39% 19% 19% 19% 20% 20% 21%

Projected year ending 12/31Pro Forma (2)

* * *IMPORTANT NOTICE TO READER* * *This schedule contains financial information based upon certain critical assumptions as set forth in the narrative section of the report. Accordingly, this schedule must be considered in

conjunction with those assumptions and should not be read on a stand-alone basis.

Historical year ending 12/31 (1)

See the footnotes, which are deemed an integral part of this exhibit, on Pages 6 and 7.



EXHIBIT 1

(Part 3 of 3)


HOUSE 5 Exhibit 2


Notes 2000 2001 2002 Adj. Beg. 2002 2003 2004 2005 2006 2007BALANCE SHEET (14) (14)

Assets

Cash (15) 38.1 90.6 106.9 -19.4 71.2 71.2 68.7 68.7 68.6 68.5 68.3Regulatory cash .1 .1 .0 .0 .1 .1 .1 .1 .1 .1 .1Receivable from brokers or dealers and clearing 160.5 133.5 72.9 .0 133.5 133.5 140.2 146.5 153.3 160.5 168.2Securities and spot commodities owned, at market value 312.9 291.3 194.8 377.1 668.4 706.7 742.1 775.5 811.4 849.6 890.3Memberships in exchanges (16) 2.3 2.3 2.3 .0 2.3 2.3 2.3 2.3 2.3 2.3 2.3PP&E, net (16) 7.8 12.7 10.5 .0 12.7 12.7 12.7 12.7 12.7 12.7 12.7Other Assets (16) 3.4 2.3 2.1 .0 2.3 2.3 2.4 2.5 2.6 2.7 2.8

Total Assets 525.1 532.7 389.5 357.7 890.4 928.7 968.3 1,008.2 1,050.8 1,096.2 1,144.7

Liabilities

Bank loans payable (17) .0 .0 .0 235.3 235.3 235.3 235.3 235.3 235.3 235.3 235.3Payables to broker-dealers or clearing organizations 4.5 1.3 1.3 .0 1.3 1.3 1.4 1.5 1.5 1.6 1.7Securities sold not yet purchased at market value (18) 233.7 223.5 133.6 122.4 345.9 365.8 384.1 401.4 419.9 439.7 460.8Accounts payable and accrued liabilities 29.1 27.0 3.0 .0 27.0 27.0 28.3 29.6 31.0 32.4 34.0

Total Liabilities 267.3 251.8 137.9 357.7 609.5 629.3 649.0 667.7 687.7 709.0 731.7

Ownership Equity

Beginning Equity 285.0 257.8 280.9 280.9 280.9 299.4 319.3 340.5 363.1 387.3Plus: New Equity (19) 40.0 .0 .0 .0 .0 .0 .0 .0Plus: Income -16.3 -10.2 -17.6 .0 18.5 19.9 21.3 22.6 24.1 25.7Plus: Adjustment for taxes not paid (20) -10.9 -6.8 -11.7 .0 .0 .0 .0 .0 .0 .0Less: Distributions (21) .0 .0 .0 .0 .0 .0 .0 .0 .0 .0

Total Ownership Equity (Year End) 257.8 280.9 251.6 .0 280.9 299.4 319.3 340.5 363.1 387.3 413.0

Total Liabilities and Ownership Equity 525.1 532.7 389.5 357.7 890.4 928.7 968.3 1,008.2 1,050.8 1,096.2 1,144.7




Pro Forma (2) Projected year ending 12/31Historical year ending 12/31 (1)



HOUSE 5 Exhibit 2


Notes 2000 2001 2002 Adj. Beg. 2002 2003 2004 2005 2006 2007CASH FLOW SUMMARY

Chg in cash (Non-cash assets) 53.7 45.0 159.5 -377.1 -38.3 -42.1 -39.9 -42.7 -45.5 -48.6Chg in cash (Non-interest bearing Liabilities) -53.6 -15.5 -113.9 122.4 19.8 19.7 18.7 20.0 21.3 22.7Net change in non-cash A&L (22) .1 29.5 45.6 -254.7 -18.5 -22.4 -21.2 -22.7 -24.2 -25.9

Plus: Profit After Tax -16.3 -10.2 -17.6 .0 18.5 19.9 21.3 22.6 24.1 25.7Plus: Unpaid Taxes (20) -10.9 -6.8 -11.7 .0 .0

Operating Cash Flow -27.1 12.5 16.3 -254.7 .0 -2.5 .0 -.1 -.1 -.2

Change in Debt (17) .0 .0 .0 235.3 .0 .0 .0 .0 .0 .0Equity Capital Raise .0 40.0 .0 .0 .0 .0 .0 .0 .0Equity Distribution (21) .0 .0 .0 .0 .0 .0

Financing Cash Flow .0 40.0 .0 235.3 .0 .0 .0 .0 .0 .0

Total Change in Cash -27.1 52.5 16.3 -19.4 .0 -2.5 .0 -.1 -.1 -.2

VALUATION - Discounted Cash Flow Approach

Interim Cash Flows (Distributions) (21) .0 .0 .0 .0 .0 .0Partial Period Adjustment 0.056 1.000 1.000 1.000 1.000 1.000End-of-Year Convention 0.056 1.056 2.056 3.056 4.056 5.056Present Value Factor @ 16.5% (23) 0.992 0.851 0.731 0.627 0.538 0.462

Present Value of Interim Cash Flows .0 .0 .0 .0 .0 .0Terminal Value

Projected Book Value 2007 413 Terminal Value MultipleP/Book Multiple (Average Projected ROE) (24) 2.4 6.4% 460.0 1.9 2.4 2.9Terminal Value 991 13.5% 410 520 630

16.5% 360 460 550Timing of terminal cash flow 5.056 19.5% 320 400 490Present Value Factor @ 16.5% (23) 0.462PV of Terminal Value 458 Implied L-T Growth RatePlus: Sum of Present Value of Distributions n/a 1.9 2.4 2.9

13.5% 7% 8% 9%Total Equity Value 460 16.5% 9% 10% 11%

19.5% 11% 12% 14%Equivalent Price / Book multiple 1.5X

Projected year ending 12/31Pro Forma (2)Historical year ending 12/31 (1)






HOUSE 5 Exhibit 2


Notes 2000 2001 2002 Adj. Beg. 2002 2003 2004 2005 2006 2007KEY RATIOS

% Change (YOY)

Trading Assets (4) n/a -7% -33% n/a n/a 143% 5% 5% 5% 5% 5%Trading Liabilities n/a -4% -40% n/a n/a 64% 5% 5% 5% 5% 5%Total Revenue n/a -28% -53% n/a n/a 2% 5% 5% 5% 5% 5%EBIT n/a -37% 73% n/a n/a -335% 6% 5% 5% 5% 5%Total Assets n/a 1% -27% n/a n/a 74% 4% 4% 4% 4% 4%Total Liabilities n/a -6% -45% n/a n/a 150% 3% 3% 3% 3% 3%Total Equity n/a 9% -10% n/a n/a 7% 7% 7% 7% 7% 7%Inflation estimate (7) n/a n/a n/a n/a n/a n/a 2.9% 2.9% 2.9% 2.6% 2.4%

Margins & Expenses

Compensation % of Pre-comp Profit (9) 376% 190% -240% n/a n/a 33% 33% 33% 33% 33% 33%Other expenses/ Revenue (8) 52% 41% 70% n/a n/a 21% 21% 21% 21% 21% 21%Operating Margin (25) -20% -17% -64% n/a n/a 40% 40% 41% 41% 41% 41%

Ratios & Average Balances As-Reported Adjusted DataAvg. Trading Assets 419.1 302.1 243.1 n/a n/a 687 724 759 793 830 870Avg. Equity 307.9 269.4 266.2 n/a n/a 290 309 330 352 375 400Avg. Trading Liabilities 301.0 228.6 178.6 n/a n/a 356 375 393 411 430 450Short Ratio 75% 77% 69% 32% 52% 52% 52% 52% 52% 52% 52%Cash Ratio 7% 17% 27% n/a 8% 8% 7% 7% 7% 6% 6%Turnover n/a 32% 19% n/a n/a 14% 14% 14% 14% 14% 14%Net Margin (26) -12% -11% -39% n/a n/a 19% 19% 19% 20% 20% 21%Asset Turnover (27) 24% 18% 9.9% n/a n/a 11% 11% 11% 11% 11% 11%Leverage Ratio (28) 2.0X 1.9X 1.5X n/a 3.2X 3.1X 3.0X 3.0X 2.9X 2.8X 2.8XReturn on Assets (29) -3% -2% -4% n/a n/a 2% 2% 2% 2% 2% 2%Return on Equity (30) -6% -4% -7% n/a n/a 6% 6% 6% 6% 6% 6%Avg. Short Ratio (31) 72% 76% 73% n/a n/a 52% 52% 52% 52% 52% 52%Pre-Tax Financing Cost (32) 0% 0% 0% n/a n/a 1% 1% 1% 1% 1% 1%After-Tax Financing Cost (33) 0% 0% 0% n/a n/a 1% 1% 1% 1% 1% 1%Operating Earnings Leverage (34) n/a 532% n/a n/a n/a n/a 118% 121% 112% 113% 114%

Historical year ending 12/31 (1) Projected year ending 12/31Pro Forma (2)






HOUSE 5 Exhibit 2


NOTES:

(1)

(2)

(3) Revenue Adjustments reflect reported revenue deemed attributable to House 17 operations. See Table 10 in the Dubinsky expert report dated November 22, 2011.(4)

(5) Expenses forecast to increase with Trading Assets.(6)

(7) Expense forecast to increase with annual inflation of 2.4% - 2.9%, as estimated by DFI-WEFA, Inc.(8)

(9)(10)

(11)(12) Median effective tax rate of the Concluded Comparable Companies.(13) Historical earnings figures were adjusted to reflect after-tax earnings at the effective tax rate of the Concluded Comparable Companies.

Pro Forma adjustments were made to the ending 2001 balance sheet to illustrate the impact of a market participant re-levering of the business. The pro forma adjustments include (a)the use of excess cash to increase Trading Assets, and (b) expansion of Trading Assets so as to produce a Leverage Ratio equal to the weighted average level for market participants,or 3.17, using a combination of Trading Liabilities and Debt. The pro forma 2002 revenue is projected quarterly, based on the actual historical Turnover and therefore presumes thatnet investment in Trading Assets and Trading Liabilities in the amount of net earnings generated during a quarter is made at the end of the quarter.



Interest expense on Debt after recapitalization at the Prime Rate of 4.25% less 50 bps, based on the average spread of House 5 historical implied interest rate versus the Prime Rate.

Other Expenses includes fees paid to exchanges on commission revenue. Forecast expense is based on the historical average measure of other expense as a % of revenue(approximately 21%) during periods where the Leverage Ratio ranged from 3.0 - 4.0.

Clerical and administrative employees' expenses reflects total compensation for both House 5 and House 17, projected based on recent levels of compensation expense as a % of pre-compensation income. Adjustment to market participant headcount reduces the expense by 15%. The adjustment is based on the percent of total compensation attributed to House 17employees; the House 17 employees were identified by cross-referencing the 2008 payroll data with the December 2008 and January 2009 floor plans.

Occupancy and equipment costs reflects the total expense for both House 5 and House 17. Adjustment for advisory reduces the expense by 19%. The adjustment is based thepercentage of work stations on the 17th floor, out of the total work stations for the 17th, 18th, and 19th floors. The work station count was determined using the December 2008 andJanuary 2009 floor plans.

Forecast to reflect a constant Payout Ratio based on actual experience during historical periods where the Leverage Ratio ranged from 3.0 - 4.0.

Historical results were adjusted for the removal of revenue and expenses related to House 17, whereby such adjustments flow directly to the Total Equity line. All assets and liabilitiesare re-cast from as-reported FOCUS report data based on Adjusted BV and as-reported common-size ratios expressed as a percent of Total Equity.

Pro Forma 2002 revenue projection is based on adjusted 2002 quarterly Turnover. Prospective revenue growth is based on the assumption that Trading Assets would grow 5% in 2003, based on Securities Industry Association estimates. The growth rate from 2004-2007 is based on the Sustainable Growth Rate of the business.



HOUSE 5 Exhibit 2


NOTES:

(14)

(15) Cash is projected as beginning of period cash, plus net cash flows after consideration for distributions to equity investors.(16)

(17)(18)(19) New Equity in 2001 reflects cash flows resulting from the business form transition from sole proprietorship to LLC.(20) An adjustment is made to historical periods to add back entity-level taxes to ensure the historical balance sheets balance.(21) Distributions are projected to be made to equity investors in the amount of any positive free cash flows from 2003 onward.(22) Represents the net investment in Trading Assets and Liabilities during the period, in addition to projected growth in other asset and liability balances.(23)(24)

(25) EBIT/ Total revenue.(26) Profit After Taxes/ Total Revenue.(27) Total Revenue/ Average Total Assets.(28) Average Total Assets/ Average Total Equity.(29) Profit After Taxes/ Average Total Assets.(30) Profit After Taxes/ Average Total Equity.(31) Average Trading Liabilities/ Average Trading Assets.(32) (Interest Expense)/ Avg. Total Liabilities.(33) [(Interest Expense)/ Avg. Total Liabilities] * (1 - effective tax rate).(34) % Change in EBIT/ % Change in Total Revenue.

Recapitalization is deemed to occur at the beginning of 2002, whereby the Cash Ratio is reduced to 8%, and Debt is issued and Trading Liabilities are grown to fund Trading Assetpurchases such that the Leverage Ratio is approximately equal to Concluded Comparable Companies' Leverage Ratio of 3.17. No cash is distributed directly as a result of therecapitalization.

PP&E is assumed to remain fixed at the Valuation Date level, and thus it is assumed that depreciation is equal to capital expenditure during the projection period. Memberships in exchanges and Other Assets presumed not to require any adjustment.



The present value factor is based on the discount rate and assumes that any distributions of positive free cash flow generated during the year are made at the end of the calendar year.

Projected Debt reflects the recapitalization Debt and is presumed to be carried at the pro forma 2002 balance in all future years to maintain leverage above actual 2002 levels.Forecast as a percentage of average Trading Assets based on actual experience during historical periods when the Leverage Ratio ranged 3.0 - 4.0.

The selected multiple represents the average of the range of P/BV multiples of the Concluded Comparable Companies observed in industry reports, adjusted by a control premium of 40%. A 10% discount was applied to account for House 5's smaller size.



HOUSE 5 Exhibit 2.A

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002LEVERAGE AND PRO FORMA FINANCIALS(USD in millions)

Current Capital IQ Name Mkt Cap

Book

Value Assets Cash

Leverage

Ratio

Equity %

of Assets

Cash

Ratio(1) (1) (1) (1)

Dupont Direct Financial Holdings, Inc. 2.7 2.0 4.6 0.8 2.25x 44% 17%Crown Financial Holdings, Inc 2.8 4.9 13.0 1.6 2.66x 38% 12%Knight Capital Group Inc. 667.9 765.0 3,337.5 340.0 4.36x 23% 10%LaBranche & Co. Inc. 1,617.2 900.7 1,949.0 100.1 2.16x 46% 5%INTL FCStone Inc. 5.2 3.9 14.7 2.0 3.74x 27% 14%

Totals & Weighted Average 2,295.9 1,676.6 5,318.8 444.5 3.17x 32% 8%

See the footnotes, which are deemed an integral part of this exhibit, on Page 9.




HOUSE 5 Exhibit 2.A

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002LEVERAGE AND PRO FORMA FINANCIALS(USD in millions)

12/31/01 Re-Cap Pro Forma Pro FormaNotes: Adjusted Change 01/01/02 1Q02 2Q02 3Q02 4Q02 2002

(2)Total Assets 532.7 357.7 890.4 900.9 909.3 917.2 928.7 928.7

Cash (3) 90.6 (19.4) 71.2 71.2 71.2 71.2 71.2 71.2 Trading Assets 291.3 377.1 668.4 678.9 687.3 695.2 706.7 706.7 Book Value 280.9 280.9 285.9 290.0 293.8 299.4 299.4

Debt - 235.3 235.3 235.3 235.3 235.3 235.3 235.3 Trading Liabilities 223.5 122.4 345.9 351.4 355.7 359.8 365.8 365.8 Leverage Ratio 1.90x 3.17x 3.15x 3.14x 3.12x 3.10x 3.10xShort Ratio 77% 52% 52% 52% 52% 52% 52%

Total Revenue 26.0 23.2 22.3 27.5 99.1 Turnover 3.9% 3.4% 3.3% 4.0% 14.4%

Notes:(1) As of the last available date prior to the Valuation Date. Leverage Ratio is calculated as Total Assets / Book Value.(2)

(3) The adjusted Cash Ratio was set equal to 8%.


The hypothetical adjustments required to (a) swap cash for Trading Assets to effect a reduction in the cash balance tolevels closer to market participant levels, while avoiding future debt raises in the projection period, and (b) adjust to marketparticipant leverage by issuing Debt and growing Trading Liabilities.



HOUSE 5 Exhibit 2.B

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002ASSET TURNOVER ADJUSTMENT(USD in millions)

TURNOVER RATIO ADJUSTMENT (1)2002 Financial Results

AsReported (2) Adjusted (3) Variance

a. Total Revenue 106.0 45.5 -60.5b. Beginning Trading Assets 428.3 291.3 -137.0c. Ending Trading Assets 340.7 194.8 -145.9d. Average Trading Assets 384.5 243.1 -141.4

Turnover Ratio (a ÷ d) 27.6% 18.7% 42.8%

Proportion (Adjusted/ Reported) 68%

2002 Quarterly ResultsQ1 Q2 Q3 Q4

As Reported (1)e. Total Revenue 24.6 24.1 24.5 32.8f. Beginning Trading Assets 428.3 478.3 512.8 563.5g. Turnover Ratio (e ÷ f) 5.7% 5.0% 4.8% 5.8%

h. Proportion 68% 68% 68% 68%

Adjusted Turnover (g * h) 3.9% 3.4% 3.3% 4.0%

Notes:(1)

(2) 2002 historical results as presented in FOCUS reports.(3) Adjusted Total Revenue and Trading Asset balances reflect House 5 financial results excluding revenue deemed attributable to House 17

from 2000 to 2002.


Calculations were made to approximate Adjusted Turnover, giving rise to the impact of removing House 17 revenue from as-reportedFOCUS report data.



HOUSE 5 Exhibit 2.C

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002ESTIMATION OF THE EQUITY COST OF CAPITAL(USD in millions)

Assumptions Source:

Risk-free Rate Rf = 5.02% 20 Year Treasury CMT Yield (Federal Reserve)Equity Risk Premium Rp = 6.00% (1) Ibbotson 2002 SBBI Valuation Yearbook (rounded)Small Stock Premium Ssp = 1.94% Ibbotson 2002 SBBI Valuation Yearbook (8th Decile)Effective Tax Rate t = 40.0% Market Participant Tax RateBeta B = 1.58 Industry Average

Comparable Company Analysis

Non-Trust Stock Common Market Common PreferredBarra Financing Preferred Price as of Shares Value of Total Equity / Equity / Debt / Tax Unlevered

US Beta Debt (D) Equity (Pref.) 12/10/2002 Outstanding Equity (E) Capital Capital Capital Capital Rate Beta(2) (3) (4) (in millions)

1 Knight Capital Group Inc. 1.86 - - 5.65 118.22 667.9 667.9 100.0% 0.0% 0.0% 28.7% 1.86

2 LaBranche & Co. Inc. 1.46 261.0 61.1 27.18 59.50 1,617.2 1,939.3 83.4% 3.2% 13.5% 49.3% 1.30

Weighted Average 1.57 87.6% 2.3% 10.0% 1.46

Relevered Beta Analysis Relevering Calculations

Beta (Unlevered) 1.46 Unlevered Beta = Beta (Observed) / [1 + D/E ( 1 - t ) + Pref./E]Industry D / E Ratio (5) 0.14 Relevered Beta = Unlevered Beta * [ 1 + D/E ( 1 - t ) + Pref./E]Industry Pref. / E Ratio (5) 0.00Tax Rate (6) 40.0%

Beta (Relevered) 1.58

Equity Cost of Capital - Capital Asset Pricing Model Rate of Return Weighting Equity Cost of Capital

Required Return on Equity Capital 16.5% x 100.0% = 16.5%Concluded Value (rounded to the nearest 50 basis points) 16.5%

See the footnotes, which are deemed an integral part of this exhibit, on Page 12.

* * *IMPORTANT NOTICE TO READER* * *This schedule contains financial information based upon certain critical assumptions as set forth in the narrative section of the report. Accordingly, this schedule must be considered in conjunction with those

assumptions and should not be read on a stand-alone basis.



HOUSE 5 Exhibit 2.C

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002ESTIMATION OF THE EQUITY COST OF CAPITAL(USD in millions)

Notes:(1)

(2) The predicted beta, calculated against the universe represented by the S&P 500 Index. Betas as of November 30, 2002, provided by BARRA.(3)

(4) Includes all other preferred equity, at carrying value. (5)(6)(7) Concluded cost of equity is on the basis that cash flows are net of interest expense on any applicable financing debt.



Based on a review of historic capitalization of the comparable companies, it was determined that preferred equity is not part of the normalized capital structure of a market participant.Tax rate is consistent with the effective tax rates of market participants.

Ibbotson 2002 SBBI Yearbook, as of December 31, 2001. The Equity Risk Premium is based on the S&P 500 Market Total Return of 12.65 percent and long-horizon risk free rate of 5.23 percent, adjusted by 1.5 percent for survivorship bias. Copeland, Koller, and Murrin (2000) recommend a downward adjustment of 1.5 to 2 percent for survivorship bias in the S&P 500 Index, using arithmetic mean estimates.

Debt includes long-term interest-bearing liabilities deemed to be financing debt, including subordinated debt and debentures, all at carrying value. Long-term liabilities include liabilities maturing more than five years following the date of the latest debt footnote, typically in the annual report for the most recent completed fiscal year prior to the Valuation Date.



HOUSE 5 Exhibit 3

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002MARKET APPROACH: COMPARABLE COMPANY METHOD(USD in millions)

Financial Data (1) Valuation Multiples

Equity Book Value

Tangible BV LTM LTM Return LTM Profit EV / EV / EV /

LTM as of Value (EV) (BV) (TBV) Revenue Earnings on BV Margin TBV Revenue Earnings(2)

Concluded Comparable Companies

LaBranche & Co. Inc. 9/30/2002 2,264.1 900.7 (80.3) 412.1 84.2 9.3% 20.4% excl. 5.5x 26.9xKnight Capital Group Inc. 9/30/2002 935.1 765.0 714.9 547.6 (26.2) N/M N/M 1.3x 1.7x excl.

CONCLUDED COMP SET

Average Value 832.8 317.3 479.9 29.0 9.3% 20.4% 1.3x 3.6x 26.9xMedian Value 832.8 317.3 479.9 29.0 9.3% 20.4% 1.3x 3.6x 26.9x

Notes:(1) Financial data as provided by Capital IQ. LTM income statement figures or actual balance sheet figures are as of the most recent filing date prior to the Valuation Date.(2)



EV is based on the closing share price on the day before the Valuation Date, multiplied by the share count on the most recently-issued regulatory filing prior to the Valuation Date and includes a control premium of 40%.



HOUSE 5 Exhibit 3.A


EV / EV / EV / EV /Concluded Comparable Companies BV TBV Revenue Earnings

LaBranche & Co. Inc. 2.5x excl. 5.5x 26.9xKnight Capital Group Inc. 1.2x 1.3x 1.7x excl.

Average Value 1.9x 1.3x 3.6x 26.9xMedian Value 1.9x 1.3x 3.6x 26.9x

Financial Relative Selected IndicatedFinancial Multiple Data Factor Multiple Range EV Range

(1) (2) (3) (4)

EV / BV 299.4 90% 1.1 x - 2.3 x 329 - 677

EV / Revenue 99.1 90% 1.5 x - 4.9 x 152 490

EV / LTM Earnings 18.5 90% 24.2 x - 24.2 x 448 448

Indicated Equity Value Range (controlling, marketable basis) (5) 310 - 538

Indicated Equity Value Range (controlling, marketable basis) 310 - 538

See footnotes, which are deemed an integral part of this exhibit, on Page 15.





HOUSE 5 Exhibit 3.A


Notes:(1)

(2)

(3)

(4)(5)



House 5 financials for the year ending 12/31/2002. BV and TBV are equivalent. Revenue and Earnings are pro forma as if the recapitalization was ineffect for the entire year of 2002.

Indicated EV range is calculated as the Selected Multiple Range x Financial Data.Calculated based on the average of the results indicated from the EV/BV, EV/Revenue and EV/LTM Earnings. Rounded to the nearest $1 million.

The selected range includes a control premium and is based on the range of multiples of Knight Capital Group, Inc. and LaBranche & Co. Inc., whichwere deemed to be the closest comparable companies in the analysis, given their similar size, concentration of revenue mix toward trading activities,business focus relating to market making in the case of Knight, and acting as a specialist in the case of LaBranche.

The Relative Factor is based on the relevant size of the Company as compared to the Concluded Comparable Companies. Otherwise, it is presumedthat the EV/BV multiple reflects the adjustments made to House 5 pro forma ROE, the EV/Revenue presumes a similar pro forma net margin of House 5relative to that of the Concluded Comparable Companies, and the EV/LTM Earnings presumes House 5 projected earnings growth rate is in-line withthat of the Concluded Comparable Companies.





Section 13

Appendix




The Market Approach, Comparable Transaction Method was considered, but ultimately not relied upon in the estimate of Fair Market Value due to the limited comparability of the indentified transaction targets to House 5. The targets were mostly retail brokerage firms, whereas House 5 focused on institutional markets, and on its proprietary trading activities. Transaction multiples were calculated from merger transactions in the relevant industry group by accessing the Capital IQ transactions database. The time frame considered spanned the two years leading up to and including the Valuation Date.

Determination of Comparable Transactions

In selecting comparable transactions, the Capital IQ database and financial publications in which transactions are disclosed were searched, to gather information about the prices paid for similar businesses under similar circumstances. The acquisitions are relevant indicators of an actual market participant’s perception of Fair Market Value, and, therefore, can be useful valuation indicators. Based on the research and accessing of the Capital IQ database and a review of SEC filings of the companies in the industry, 13 potential comparable transactions were identified.

The following is the list of 13 transaction identified (target company / acquiring company):

Harrisdirect LLC/Harris Financial Corporation

Consors Discount-Broker AG/Cortal Consors S.A.

Hoenig Group Inc./Investment Technology Group Inc. (NYSE:ITG)

Beeson Gregory Group plc/Evolution Group plc (LSE:EVG)

Dempsey & Company LLC/ETrade Financial Corporation

Tucker Anthony Sutro/Royal Bank of Canada

Morgan Keegan Inc./Regions Financial Corporation

Datek Online Holdings Corp./Ameritrade Holding Corporation

Dain Rauscher Corp./Royal Bank of Canada

H.D. Vest Inc./Wells Fargo & Company

Advest Group Inc./MONY Group Inc.

JWGenesis Financial Corp./First Union Corporation

Spear, Leeds & Kellogg LP/Goldman Sachs Inc.

The 13 transaction targets would, for the most part, most closely be classified as retail trading businesses, and hence most transactions are not directly representative of House 5. Spear, Leeds & Kellogg LP, while a

Comparable Transaction Method




comparable business, was not publicly traded and closed more than two years prior to the Valuation Date. As a result of the aforementioned issues, the results of the Comparable Transaction Method are used mainly to corroborate the results of the Income Approach and Comparable Company Method.

Application of the Comparable Transaction Method

Once the comparable transaction set was established, transaction multiples were computed. Transaction multiples are ratios of equity value to the operating results of a company. The EV for each target company was taken from the Capital IQ transaction database. Multiples were calculated for EV to BV, Revenue, and Earnings to the extent those financial metrics were available for the target companies. The following points illustrate the multiples calculated for the comparable transaction set, and how those multiples were applied to House 5 financials to estimate Fair Market Value as of the Valuation Date:

EV / BV

The average multiple for the transaction targets, which included a control premium, was approximately 3.6x, with a range of multiples of 1.4x to 11x.

The selected multiple of 1.6x was applied to the pro forma y/e 2002 BV of $299.1 million59 to arrive at a Fair Market Value of a 100 percent interest in the common equity of House 5 of $467 million. The selected multiple is based on the low-end of the range, due to below-average ROE of House 5 compared to the target firms.

Results of the Comparable Transaction Method Based on the Comparable Transaction Method as described above, an indicated Fair Market Value of a 100 percent interest in the common equity of House 5 on a marketable, controlling interest basis was $470 million, as of the Valuation Date. Since the valuation conclusion in this report is based on the premise of value that House 5 is a going concern, any evidence to the contrary would have a significant negative impact on the valuation. Further, there is evidence that House 5 was artificially supported by millions of dollars of Other People’s Money from the IA





Business. This concluded value is based on the time-weighted average EV / BV multiple of the target set.

See Appendix 1 for detailed calculations.


HOUSE 5 Appendix 1

ESTIMATION OF THE FAIR MARKET VALUE OF EQUITYAS OF DECEMBER 11, 2002MARKET APPROACH: COMPARABLE TRANSACTION METHOD(USD in millions)

Deals Closed By 12/11/2002

Implied 1-week Return LTMClosing Total Equity Transaction Total LTM LTM on Profit EV / EV / EV /

Target / Buyer Notes: Date Value (EV) Premium Assets BV Revenue Earnings BV Margin BV Revenue Earnings(1) (2)

Harrisdirect LLC/Harris Financial Corporation 2/4/02 520.0 N/A 252.7 178.7 289.8 -15.3 N/A N/A 2.9X 1.8X N/AConsors Discount-Broker AG/Cortal Consors S.A. 4/29/02 431.8 N/A 1774.6 314.6 189.3 -123.5 N/A N/A 1.4X 2.3X N/AHoenig Group Inc./Investment Technology Group Inc. (NYSE:ITG) 9/3/02 105.4 N/A 98.6 52.0 103.6 1.9 3.7% 1.8% 2.0X 1.0X 55.0 xBeeson Gregory Group plc/Evolution Group plc (LSE:EVG) 7/11/02 61.8 N/A 42.6 39.6 15.4 -5.7 N/A N/A 1.6X 4.0X N/ADempsey & Company LLC/ETrade Financial Corporation 10/1/01 178.2 N/A 52.6 16.2 152.9 40.9 251.9% 26.7% 11.0X 1.2X 4.4 xTucker Anthony Sutro/Royal Bank of Canada 10/31/01 625.0 -12.0% 717.7 347.8 654.7 22.8 6.6% 3.5% 1.8X 1.0X 27.4 xMorgan Keegan Inc./Regions Financial Corporation 3/30/01 789.2 49.0% 2057.5 267.4 444.7 47.3 17.7% 10.6% 3.0X 1.8X 16.7 xDatek Online Holdings Corp./Ameritrade Holding Corporation 9/9/02 989.2 N/A 0.0 316.9 291.8 21.6 6.8% 7.4% 3.1X 3.4X 45.8 xDain Rauscher Corp./Royal Bank of Canada 1/10/01 1469.7 24.0% 2814.6 469.0 1091.4 87.2 18.6% 8.0% 3.1X 1.3X 16.8 xH.D. Vest Inc./Wells Fargo & Company 7/2/01 114.1 N/A 50.1 11.4 195.6 1.6 13.6% 0.8% 10.0X 0.6X 73.5 xAdvest Group Inc./MONY Group Inc. 1/31/01 311.8 9.6% 1970.6 147.2 347.8 18.9 12.9% 5.4% 2.1X 0.9X 16.5 xJWGenesis Financial Corp./First Union Corporation 1/2/01 102.7 1.6% 95.9 64.7 165.1 13.3 20.5% 8.1% 1.6X 0.6X 7.7 xSpear, Leeds & Kellogg LP/Goldman Sachs Inc. 10/31/00 5512.6 N/A 25345.4 1501.7 1945.5 971.4 64.7% 49.9% 3.7X 2.8X 5.7 x

Average Value 14.4% 41.7% 12.2% 3.6X 1.7X 26.9XMedian Value 9.6% 15.7% 7.7% 2.9X 1.3X 16.8XTime-Weighted Average Value (5) 9.2% 24.9% 5.1% 3.4X 2.0X 23.7X

Selected EV / BV Multiple (6) 1.6XBV 299Indicated Fair Market Value (controlling, marketable) (rounded) 470

Notes:(1) Implied Total Equity Value (TEV), plus other consideration paid to non-common shareholders.(2) Calculated as (offer price - target stock price 1-week prior to offer date) / target stock price 1-week prior to offer date.(3) Financial information for comparable transaction target companies from SEC Filings, Published Transaction Overviews and Capital IQ. (4) Multiples are based on implied EV at the announcement date of the transaction.(5)

(6)

Time-weighted average places more weight on recent transactions to reflect the most current market dynamics in the calculation of multiples. The calculated multiples exclude those transactions where the price paid was less than TBV on the view that the discount is likely due to significant negative fair value adjustments to tangible net assets of the target.

Trailing Financial Data (3) Transaction Multiples (4)

* * *IMPORTANT NOTICE TO READER* * *This schedule contains financial information based upon certain critical assumptions as set forth in the narrative section of the report. Accordingly, this schedule must be considered in conjunction with those assumptions and should not be read on a stand-alone

basis.

The selected multiple is at the low end of the range, due to below-average ROE of House 5 compared to target firms.

DUFF & PHELPS Appendix, Page 1 of 1


UNITED STATES DISTRICT COURT SOUTHERN …...54. Attached as Exhibit 46 is a copy of AIPCA...

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