In re Petters Co.

ORDER GRANTING TRUSTEE’S MOTION FOR SUBSTANTIVE CONSOLIDATION

GREGORY F. KISHEL, Chief Judge.

INTRODUCTION

In the 1990s and the early years of the 2000s, Thomas J. Petters was a large public presence in the business and social community of Minnesota. Through holding companies he acquired full or partial ownership of several prominent business operations, including Sun Country Airlines, the Polaroid Corporation, and the Fingerhut Companies. Through other entities in his enterprise structure, he held himself out as an adept intermediator of consumer goods at the distribution level of the retail supply chain.

On September 24, 2008, the Federal Bureau of Investigation executed a search warrant at the Petters corporate headquarters in Minnetonka and other locations. On October 3, 2008, Tom Petters was arrested by the federal authorities. Soon after, he was charged in the United States District Court with the offenses of mail and wire fraud, money laundering, and conspiracy.

At the instance of the United States, a receivership proceeding over Tom Petters and a number of other persons and entities was commenced as an ancillary to the criminal cases. Between October 11 and 19, 2008, the Receiver filed petitions for bankruptcy relief under Chapter 11 for a number of the corporate entities in Tom Petters’s business structure. This commenced the cases at bar. The cases were put under joint administration. On later *789 motion of the United States Trustee, a trustee was appointed in all the cases. 1

By the motion at bar, the Trustee seeks to have the estates of the lead-named Debtor, Petters Company, Inc. (“PCI”), and those of all but one of the rest of the Debtors, substantively consolidated. 2

By this relief, a group of subsidiary-entities would be consolidated into their parent, for all remaining administration in bankruptcy that relates to all of them.

In the detail relevant to that: in Tom Petters’s original enterprise structure, PCI functioned both as an ostensibly-operating enterprise and as a holding company for all but one of the remaining Debtors that are subject to this motion. Tom Pet-ters was the sole shareholder of PCI. 3

In terms of function, the remaining Debtors all served separately as special purpose entities; that is to say, as vehicles for the execution of lending and security transactions with particular “investors”— i.e., lenders — that provided financing for PCI on a sustained basis. 4 Each special purpose entity (“SPE”) was identified to a single lender or a single grouping of affiliated lenders. On PCI’s application, the financing was given to fund the ostensible purchase and resale of large lots of consumer electronic goods. 5 The pretense was that PCI was actually negotiating and arranging transactions. As a general matter, the resulting financial attributes — the receipt of and the obligation for the credit, the repayment of the loan, and any collateral security related to the underlying diverting transaction — were to repose with an SPE. 6

*790 In reality — as the evidence for this motion and throughout many other legal proceedings has established without controversy — the ostensible business and its transactional structure were virtually all a facade. For a decade or more, there were few true third-party “diverting” transactions behind Tom Petters’s requests for outside financing. This whole part of his enterprise structure was run as a huge Ponzi scheme. 7

At least seven particular lenders (or groups of closely-affiliated lenders) transacted as “investors” with PCI through their own dedicated, PCI-related Debtor-entity. The other two provided “senior lending,” i.e., financing, to one of the direct lenders to facilitate its infusions into Tom Petters’s operations. The ‘ identification between each Debtor-SPE and its associated lender(s) is as follows:

PC Funding, LLC (“PC Funding”)

Thousand Lakes, LLC (“Thousand Lakes”)

SPF Funding, LLC, f/k/a Petters Finance, LLC (“SPF”)

PL Ltd., Inc., f/k/a/ Petters Ltd., Inc. (“PL”)

Edge One LLC (“Edge One”)

Opportunity Finance, LLC, et al (collectively, “Opportunity Finance”); senior lenders, DZ Bank AG Deutsche Zen-tral-Genossensschaftsbank, Frankfurt am Main (“DZ Bank”) and WestLB AG, New York Branch (“WestLB”)

Lancelot Investment Management, LLC, et al (collectively, “Lancelot”)

Opportunity Finance; senior lenders, DZ Bank and WestLB

Westford Special Situations Master Fund, L.P., Epsilon Global Active Value Fund Ltd., et al (collectively, “Epsilon/W estford”)

A to Z Investors Fund; Edge Capital, LP; Ark Discovery II, LP

*791 MGC Finance, Inc., f/k/a Petters I, Inc. (“MGC Finance”)

Arrowhead Capital Finance, Ltd., et al; Metro Gem Capital, LLC, et al; Arrowhead Capital Management Corp. (“Arrowhead”), servicer

PAC Funding, LLC (“PAC Funding”)

Acorn Capital Group, LLC, et al (“Acorn”)

Palm Beach Finance Holdings, Inc., ffk/sJ Petters Capital, Inc. (“Palm Beach”)

Palm Beach Finance Partners Holdings, LLC, et al

THIS MOTION, IN CONTEXT

Via the motion at bar, the Trustee seeks to have the bankruptcy estates of the PCI-related debtors, including PCI, substantively consolidated. He wants this grant of relief to be made effective as of October 11, 2008, the date on which the first cases in this grouping were commenced.

Five parties in interest or groupings of such parties actively opposed this request. The Committee of Unsecured Creditors for the cases supported it.

All of the objectors were defendants in adversary proceedings commenced by the Trustee in his “clawback” effort in the administration of the bankruptcy estates. 8 They challenged the Trustee on the merits of his case, both his evidentiary showing and the legal merits of granting such relief. They also accused the Trustee of seeking the relief for inappropriate strategic advantage in the avoidance litigation against them.

An evidentiary hearing on the Trustee’s motion consumed three long days in the courtroom. The Trustee’s opponents presented a united front against ordering any such relief on the general posture of these cases. In addition, each opponent linked to a particular Debtor challenged the consolidation of that Debtor’s estate with any other estate.

Requests for substantive consolidation of bankruptcy estates are very rare in this district. Since 1979 there have been no more than a small handful of active contests within that limited number. Binding precedent from the Eighth Circuit Court of Appeals recognizes the availability of substantive consolidation in cases under the Bankruptcy Code of 1978. That precedent is somewhat sparse, one fairly short opinion. Both before and after the issuance of the Eighth Circuit’s decision, other circuits have spoken to the remedy in very different ways.

This made the field of argument wide open. The Trustee’s opponents urged that the non-precedential appellate case law be considered and applied, on the pitch that *792 its elaborations are not inconsistent with the Eighth Circuit’s ruling. The Trustee relied on the very brevity of the Eighth Circuit precedent in the first instance; then he accommodated the other approaches in the buildout of his case. The record, then, requires careful consideration of a wide variety of evidence and legal principles alike.

SUBSTANTIVE CONSOLIDATION, IN GENERAL

The remedy of substantive consolidation has been variously described as “a construct of federal common law, eminat[ing] from equity,” In re Owens Corning, 419 F.3d 195, 205 (3rd Cir.2005); as available “by virtue of [the] general equitable powers” of the federal courts, In re Auto-Train Corp., Inc., 810 F.2d 270, 276 (D.C.Cir.1987); and as having “no express statutory basis, but [being] a product of judicial gloss,” In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515 , 518 (2nd Cir.1988). 9

The remedy had its antecedents in other principles of general equity jurisprudence-piercing of the corporate veil, “alter ego” liability, and the like. In re Owens Corning, 419 F.3d at 205-206 . However, in its specific construct, directed to the administration of an estate in a bankruptcy case under federal law, substantive consolidation had its origin in a 1941 decision of the United States Supreme Court, Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215 , 61 S.Ct. 904 , 85 L.Ed. 1293 (1941). Id. Under this framing, substantive consolidation is uniquely a matter of bankruptcy law, and its application is limited to bankruptcy cases. 10

*793 All of the circuits that have recognized the remedy articulate its outcome and effects in uniform fashion. When substantive consolidation is ordered for related bankruptcy cases, the respective debtors’ estates are merged and their debt structures are combined. In re Pacific Lumber Co., 584 F.3d 229, 249 (5th Cir.2009); In re Owens Corning, 419 F.3d at 206 . 11 Within the bankruptcy process, this undoes the consequences of the debtor-entities’ pre-petition status as separate legal persons. In re Owens Corning, 419 F.3d at 205-206 (classifying substantive consolidation as a remedy of (and for) “corporate disregard,” comparable in some aspects of its operation to piercing the corporate veil, “alter ego,” and equitable subordination). 12 Pre- (and post-) petition liens against particular assets are preserved, but otherwise the resultant pool of assets is subject to the resultant pool of unsecured claims. In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518. See also In re Owens Corning, 419 F.3d at 206 (substantive consolidation “brings all the assets of a group of entities into a single survivor,” i.e., the consolidated estate, and “merges liabilities as well”). Inter-company liabilities among the debtors are extinguished. Eastgroup Properties, 935 F.2d at 248; In re Auto-Train Corp., Inc., 810 F.2d at 276 .

That is the outcome, for the administration of the bankruptcy cases and the one resulting estate, going forward. The effects, however, are distinct. They, too, are recognized in pointed fashion by most of the circuits.

Put most succinctly, substantive consolidation “almost invariably redistributes wealth among the creditors of the various entities.” In re Auto-Train Corp., Inc., 810 F.2d at 276 . See also Eastgroup Properties, 935 F.2d at 248. It poses the possibility of “forcing creditors of one debtor to share on a parity with creditors of a less solvent debtor.” In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518. As observed by the circuit with the most jaundiced view toward the remedy:

The bad news for certain creditors is that, instead of looking to assets of the subsidiary with whom they dealt, they now must, share those assets with all creditors of all consolidated entities, raising the specter for some of a significant distribution diminution.

In re Owens Corning, 419 F.3d at 206 .

The judicial reaction to the potential effects is the most salient variable among the published opinions. It is voiced through the forcefulness with which the appellate courts endorse or reject a bankruptcy court’s use of the remedy, and the ways they identify and delimit the circumstances in which it is properly applied.

Most of the circuits caution that substantive consolidation is to be used “sparingly.” E.g., In re Owens Corning, 419 F.3d at 209 ; In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518. Most also require that the expectations of creditors be recognized at some stage in the analysis — i.e., creditors’ ex ante reliance on corporate separateness and on having recourse against their specific corporate counterparty and its assets for realization *794 on their claims upon default in payment. In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518-519; In re Auto-Train Corp., Inc., 810 F.2d at 276-277 ; In re Bonham, 229 F.3d at 766-767; In re Pacific Lumber Co., 584 F.3d at 250 n. 25; In re Owens Corning, 419 F.3d at 210-212 . 13 The strength of such suggested recognition varies among the opinions, however, including the way in which it plays into the articulation of standards for the application of the remedy.

Most circuits recognize the overriding tension in cases where the remedy is invoked. It lies between deference to creditors’ expectations on the one hand, and the practical difficulties of estate administration in tangled, related bankruptcy cases. The tension becomes stronger the more that cases have histories of complicated interplay in transaction and asset among debtors that have blurred their legal lines of distinction, whether inwardly (between them) or externally (among such debtors and their respective creditors). Such cases often involve accounting records in disarray, when they are not absent in whole or in part. That, in turn, leaves trustees with the burden of lengthy and costly reconstruction of the flow of intermingled funds, cross-payment of intercom-pany and third-party debt, and inappropriate commingling of other assets. When (as here) related debtor-corporations in Chapter 11 are all under administration by a trustee appointed pursuant to 11 U.S.C. § 1104 (a), the trustee has a specific statutory duty to investigate the financial affairs of the debtors, to ascertain and account for the assets that are the property of the estates of the debtors, and to determine the amount, validity, and status in bankruptcy of claims against the estates. 11 U.S.C. § 1106 (a)(1) (incorporating specific provisions of 11 U.S.C. § 704 (a) (duties of trustee under Chapter 7)).

When a trustee undertakes to do that for multiple related debtor-corporations, the costly pursuit of scant threads of evidence toward dividing assets on the niceties of corporate separateness can significantly diminish returns for creditors, in a literal, in-hand sense. And when creditors themselves were lax in recognizing the separateness of related counterparties and treating them as separate in line with legal formalities, the question is palpable: what interests really are to be served in the bankruptcy process by going through a long and costly exercise of reconstruction under the strict governance of law?

Along a continuum, some courts have put high primacy on deference to creditors’ reliance, citing a policy in favor of predictability in contract and the financial markets’ dependence on that predictability for their own stability. Owens Coming has the strongest statement to this effect, coming close to categorical. 419 F.3d at 210 . 14 To lesser impact, the Augie/Restivo court saw a creditor’s proven reliance as a *795 significant burden-shifter. 810 F.2d at 276 .

At the other end, some courts acknowledge such concerns, but then subordinate them at least in part. None does so expressly. 15 But several opinions from courts in this grouping justify a consolidation by considering the confounding pre-petition entanglement of the debtors’ affairs plus the prospect of a costly and difficult accounting and analytic challenge, to outweigh any negative results for particular creditors from readjusting pro rata entitlements into a pooled administration and away from the pre-petition governance of contract. E.g., In re Bonham, 229 F.3d at 766-768. 16

This difference in emphasis matches to the way in which the circuits have described the factors that justify substantive consolidation. In Owens Coming, the Third Circuit opined that “most courts slipstream[] behind two rationales” that were established in earlier substantive consolidation jurisprudence under the Bankruptcy Code of 1978: that of the Second Circuit in In re Augie/Restivo, and that of the D.C. Circuit in In re Auto-Train. Subject to a number of variant embellishments in the circuits’ opinions, this observation is broadly correct.

The Second Circuit identified the “critical factors” for consideration as:

1. “whether creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit”; and

2. “whether the affairs of the debtors are so entangled that consolidation will benefit all creditors,” by the substantial reduction of administrative expense that otherwise would be incurred to trace and allocate assets and liabilities for a distribution under the governance of nonbankrupt-cy legal principles.

In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518. Through a different take, the D.C. Circuit required a proponent to show:

1. “a substantial identity between the entities to be consolidated”; and

2. “that consolidation is necessary to avoid some harm or to realize some benefit,” which might focus on the substantial “cost of disentangling the corporate books” but which could take some other form.

In re Auto-Train Corp., 810 F.2d at 278 .

In a way, these two standards might be distinguished on their first factor as matters of “melding-in-dealing” versus “melding-in-fact.” Auto-Train’s first consideration is oriented internally, to the subject debtors and the relationships between them alone. Put another way, under Auto-Train’s framing the melding-oriented first consideration could be satisfied on proof of related debtors’ extensive and inappropriate cross-dealing among themselves, commingling, and flouting of the formalities of corporate separateness in their own internal dealings, alone. If all this had been wholly clandestine, it would not matter. The perceptions, expectations, or contractual rights of outside creditors would be irrelevant to the proponent’s prima facie case.

*796 On the other hand, Augie/Restivo’s first requirement is oriented externally: did third-party creditors deal with and treat the debtor-entities as all part of one, looking to all their resources in deciding to contract with them, understanding the vaguely-bounded whole to be responsible to them on resultant debt?

The D.C. Circuit does recognize the interests of such creditors, by also allowing them to raise their ex ante reliance and de facto prejudice in their opposition to consolidation. However, this avenue of objection only opens up “[a]t that time,” i.e., after the opponent has given its proof on the two identified elements. Id. Under the Auto-Train formulation, a movant for substantive consolidation would not have to address or prove the debtors’ melding-in-dealing with third parties as part of its prima facie case at all. 17

The Third Circuit characterized the distinction between the Augie/Restivo and Auto-Train standards as a sharp one. It used this distinction to stage its own analysis. For that, it “favor[ed]” the “analytic avenues ... of Augie/Restivo. ” In re Owens Corning, 419 F.3d at 210 . After criticizing Auto-Train for erecting a “low bar” in the framing of its second consideration, Owens Coming lambastes Auto-Train for assigning to the proponent a surrespon-dent’s burden of production that was “a threshold not sufficiently egregious and too imprecise for easy measurement.” 419 F.3d at 210 . This comes close to a categorical rejection of the availability of substantive consolidation, once an opponent proves up ex ante reliance on the identity and repayment ability of its contractual counterparty: “If an objecting creditor relied on the separateness of the entities, consolidation cannot be justified vis-a’-vis the claims of that creditor.” Id.

The other appellate opinions do not fall quite so neatly into a bipartite “slipstream-ing” as Owens Coming alleges. Nonetheless, there is a divide of sorts. It runs between courts on the one hand, that elevate ex ante reliance, standing alone, to a complete game-stopper or a decisive burden-shifter; and those on the other, that give greater attention and deference to a trustee’s administrative challenges in dealing with a snarl that grew to confounding complexity pre-petition, and that the trustee inherits without having participated in that growth.

The most recent circuit-level pronouncement on substantive consolidation expressly falls into the latter group, the one that is traced from Auto-Train. In Eastgroup, the Eleventh Circuit adopted the Auto-Train test, but also incorporated various principles from other cases. Specifically, it acknowledged that the proponent, in making its prima facie case, may frame its argument using various factors from other decisions. 935 F.2d at 249-50. First, it noted that In re Vecco Const. Industries, Inc., 4 B.R. 407, 410 (Bankr.E.D.Va.1980), outlined seven possibly useful factors:

(1) [t]he presence or absence of consolidated financial statements;

(2) [t]he unity of interests and ownership between various corporate entities;

(3) [t]he existence of parent and inter-corporate guarantees on loans;

*797 (4) [t]he degree of difficulty in segregating and ascertaining individual assets and liabilities;

(5) [t]he existence of transfers of assets without formal observance of corporate formalities;

(6) [t]he commingling of assets and business functions; and

(7) [t]he profitability of consolidation at a single physical location.

935 F.2d at 249 (citations omitted). Then, citing Pension Benefit Guar. Corp. v. Ouimet Corp., 711 F.2d 1085 , 1093 (1st Cir.1983), the Eleventh Circuit noted five additional factors that could be considered in some cases:

(1) the parent owning the majority of the subsidiary’s stock;

(2) the entities having common officers or directors;

(3) the subsidiary being grossly under-capitalized;

(4) the subsidiary transacting business solely with the parent; and

(5) both entities disregarding the legal requirements of the subsidiary as a separate organization.

935 F.2d at 250. The Eleventh Circuit stressed, however, that the Vecco and Oui-met factors were only “examples of information that may be useful to courts charged with deciding whether there is a substantial identity between the entities to be consolidated and whether consolidation is necessary to avoid some harm or to realize some benefit. No single factor is likely to be determinative in the court’s inquiry.” Id. Some factors “may support either element of the prima facie case or both elements — depending on the facts of the particular case.” Id. at n. 14.

With regard to the objecting party’s burden, the Eleventh Circuit drew upon In re Snider Brothers, 18 B.R. 230 (Bankr.D.Mass.1982), to espouse what is arguably a reasonably prudent person standard for analyzing a party’s reliance on separateness. The Eleventh Circuit noted that

[e]ven if an objecting creditor establishes reliance in fact, it may be es-topped from asserting this defense to consolidation where a reasonable creditor in a similar situation would not have relied on the separate credit of one of the entities to be consolidated — that is, “where such a claim would be unreasonable in light of all the facts.”

935 F.2d at 249 n. 11 (citing Snider Bros., 18 B.R. at 237, 235, 238 ).

THE BINDING PRECEDENT:

GILLER

The one unit of binding precedent for the motion at bar falls into the Auto-Train line by its substance, if not by express concession. In re Giller, 962 F.2d 796 (8th Cir.1992) is not a long opinion. It does not discuss the origins and nature of substantive consolidation. The analysis in Giller does not mention Augie/Restivo or Auto-Train, or examine their different substantive approaches. It does, however, structure an analysis for substantive consolidation around much the same considerations as those opinions do:

Factors to consider when deciding whether substantive consolidation is appropriate include 1) the necessity of consolidation due to the interrelationship among the debtors; 2) whether the benefits of consolidation outweigh the harm to creditors; and 3) prejudice resulting from not consolidating the debtors.

962 F.2d at 799 (citation omitted). After that, the Giller court went directly to the propriety of the lower court’s decision to grant substantive consolidation. “[P]er-eeivfing] no error in the bankruptcy court’s decision to consolidate the Debtors,” the Eighth Circuit affirmed. Id.

*798 The threshold finding went to a historical fact, “the interrelationship among the debtors.” The bankruptcy court had found multiple aspects of melding-in-fact within the debtors’ combined operations, which the Eighth Circuit termed “abuses of the corporate form.” 962 F.2d at 798-799 . These abuses “includ[ed] the potentially fraudulent or preferential transfer of assets.” The functionally-related instances were the use of one company’s assets to finance the others’ operations, but without express, objective terms of repayment; the use of one company’s physical facility for all companies’ operations without formalities or rent obligations; the pledging of one company’s assets for the debts of another; and the uncompensated use of one company’s employees in service to another. Id.

This holding was the platform for the observation that “there [was] evidence in the record indicating the necessity of consolidating the interrelated Debtors.” Id. (emphasis added). This phrasing is prospective in orientation. After an adjudication of historical fact (the melding-in-fact), it looks forward from the point at which the bankruptcy court was considering substantive consolidation. That wording must be deemed deliberate, and therefore important.

The “evidence,” i.e., the case-related grounds on which a grant of substantive consolidation was deemed appropriate, was:

Failure to consolidate the Debtors would prejudice the creditors of the insolvent Debtors because the insolvent Debtors could not afford to bring legal actions to recover transferred assets. Finally, the benefits of consolidating the Debtors outweigh the harms because the lawsuits may generate sufficient funds to pay creditors of the insolvent Debtors while still preserving the recovery by the creditors of the solvent Debtor.

Id.

And that is the sum of Giller’s discussion on the merits of the consolidation before it.

Ultimately, Giller is significant both for what it says, and for what it allows. In the case before it, consolidation had been ordered by the bankruptcy court on a combination of circumstances largely articulated in relation to the administrative process in bankruptcy. The Eighth Circuit endorsed the outcome and the basis alike. Its express concern was to promote the economical but full administration of estates toward maximizing recovery for as many creditors as possible.

To the extent that Giller’s articulated grounds entailed creditors’ original expectations, they did so in terms of the return on those expectations that could be had through administration in bankruptcy. They did not consider creditors’ expectations as they lay at the time of their original transacting with the debtor(s). They neither recognized nor gave primacy to the realization on such expectations that might be had under nonbankruptcy law and process.

Giller was decided in 1992. The Eighth Circuit could have affirmatively adopted either of the two rationales behind which most courts have “slipstreamed” — those being Auto-Train and Augie/Restivo. See Owens Corning, 419 F.3d at 207 (noting how courts have generally followed either rationale). Instead, the Eighth Circuit prescribed the consideration of the three factors noted above. 962 F.2d at 799 .

But despite the brevity of the Eighth Circuit’s discussion, it clearly reflects the touchstones of Auto-Train and East-group. *799 18 And, Giller draws upon the same or similar authority from lower-court decisions as Auto-Train and Eastgroup did— all of which was published before Au-gie/Restivo and Giller alike.

In turn, where the standards overlap, Giller’s non-exhaustive list of factors may be informed and supplemented by the Auto-Train progeny. This all gives a consistent, appropriate framework for analyzing a motion for substantive consolidation. In contrast, the approaches in Augie/Resti-vo and Owens Coming do not coordinate with Giller’s express articulation. This makes them less relevant to the framework that must be used in light of Giller’s precedential status — to the extent they are relevant at all.

There are many resonances in the ways Giller and the Auto-Train line of authority each frame the analysis. Like Auto-Train, Giller specifically encourages a weighing of the benefits versus the harm. See In re Affiliated Foods, Inc., 249 B.R. 770, 777 (Bankr.W.D.Mo.2000) (noting the similarity). Both cases also place great importance on the interrelatedness of the parties as a major factor for consideration. Meanwhile, consideration of creditor reliance is not at the forefront in either Auto-Train or Giller . As noted above, in Auto-Train, a balancing of benefits versus prejudice can actually override creditor reliance on separateness. 810 F.2d at 276 . Under the either/or approaches in Au-gie/Restivo and Owens Coming, interrelatedness can guide the result, but it is either adjudged from the creditors’ perspective or measured by the degree of commingling. That is a far cry from Giller and Auto-Train, where an objective analysis of interrelatedness can result in substantive consolidation notwithstanding creditors’ perspectives and expectations.

More crucially, as noted earlier, Giller and Auto-Train share similar roots. Of all sources, Giller plucked its three enumerated factors from In re N.S. Garrott & Sons, 48 B.R. 13 (Bankr.E.D.Ark.1984). Notably, the list in N.S. Garrott is a product of the early case law of the Bankruptcy Code era from trial courts in other circuits, including Vecco and Snider Brothers . As noted above, the majority of the additional factors in Eastgroup came from Vecco, and Auto-Train principally relied on Snider Brothers when it described the proponent’s prima facie burden. Eastgroup, 935 F.2d at 249-50 (citing Vecco with approval); Auto-Train, 810 F.2d at 276 (citing Snider Brothers with approval). 19

*800 In summary, principles from Auto-Train and Eastgroup logically fit within the Giller analysis, and thus should guide it. Creditor reliance may be considered, either at the stage of the necessity consideration (if creditor reliance was actually more on %o%-separateness), or possibly as an affirmative defense to substantive consolidation after the proponent has made a showing of interrelatedness. But at that latter stage it should not be an absolute defense. And within the context of Giller , the “necessity” of consolidation may still be established notwithstanding the reliance of creditors on the separateness of a particular debtor, if there is a sufficiently strong showing of substantial identity among related debtors via the presence of Vecco and Ouimet factors (i.e., commingling of assets and liabilities, difficulty in segregating assets and liabilities, unity of interests, etc.) and the equities of impact favor the estate.

GILLER IN APPLICATION TO THE EVIDENCE AT BAR

I. Entities and Transactions, Fictive and Actual

A. Structure, In the Abstract

Over a decade or more, a complex of structural relationships was created among relevant parties — PCI, the PCI-related debtors, and lenders identified to the PCI-related debtors. Those relationships were created in mind of transactions and transfers that were to take place in the operation of a diverting business based on so-called “purchase order financing.” Before treating the minutiae from the welter of evidence in the record, it is necessary to review those relationships in their broad and specific structure, in light of the envisioned transactions that the structure was formed to facilitate — and against what actually transpired in the operation of the Petters scheme. The Trustee’s case for substantive consolidation is premised on all this.

At some point, possibly as early as the mid-1990s, Tom Petters established a pretense of an active, large-scale diverting business, that convinced large numbers of parties that contracted with him. He carried forward largely on the pretense rather than a reality, i.e., the ostensible factoring of consumer goods inventory that originally came from a retailer or distributor that did not want it, to a retailer that wanted to acquire it for resale. The entity through which these ostensible transactions were pretensed was PCI.

Tom Petters, acting through the instrumentality of PCI, sought out financing from third-party lenders on the misrepresentation that PCI needed it to acquire the goods. At some point in the growth of the Petters scheme, the matter of presenting an ostensible supply of goods was standardized by enlisting the involvement of two ostensible vendor-entities, which apparently were pretensed as intermediary-factors themselves. These companies were Nationwide International Resources, Inc. (controlled by one Larry Reynolds) and Enchanted Family Buying Company (controlled by one Michael Catain). Nationwide and Enchanted were shells that never owned the assets represented. Their operators were confederates of Tom Petters, in knowing consort with the Ponzi scheme. For years, Reynolds and Catain extracted money for themselves out of lenders’ advances of funds, by taking os *801 tensible commissions on Active supply transactions.

For most of the loans in the later years of the scheme, an ostensible availability of goods from Nationwide or Enchanted was presented to lenders in connection with PCI’s requests for loans. The pretense was that they had the goods ready for the fulfillment of a purchase order from a customer of PCI. (The accompanying implication was, just trust us, don’t bother yourself with asking questions. Apparently, not many questions were asked, or verification sought.)

After that, the documentation for a corresponding purchase order from an ostensible customer of PCI was forged in-house by one of Tom Petters’s chief confederates, usually Deanna Coleman and sometimes another. This document was used as “proof’ of a deal-in-the-making, to induce prospective lenders to make an advance in an amount sufficient to fund the acquisition of the described goods and the costs through to sale, and to give PCI an ostensible profit for its role as diverter.

The alignment of parties, contractual responsibility for repayment, and provision of collateral security for such purchase order financing can vary in actual industry practice. They did among the lenders to the Petters operation, particularly if a given loan featured the presence of the other transactional structure that is directly at issue in this motion, a “bankruptcy-remote entity” as a vehicle for structured finance. (About that, more shortly.)

Over an extended period — possibly up to almost two decades — Tom Petters obtained loans of massive amounts of money on this combination of representation and pretense, to fund the growing scheme that centered around PCI. These funds came from a large number and assortment of sources, for a widely variant number of times and amounts.

Several of his lenders engaged in large numbers of loan transactions with his enterprise, for a more sustained period of time. Members of this cohort were generally well-funded themselves. One grouping of them — the entities affiliated with Opportunity Finance, LLC, identified supra at p. 790 — obtained much of the capital for their own lending activities with the Petters operation from so-called senior lenders, specifically DZ Bank and WestLB. The terms of Opportunity Finance’s credit arrangements with its senior lenders made it accountable in repayment to them in ways linked to its receipt of payment from its own borrowers. 20

The lenders in this number tended to be more sophisticated and more experienced in complex financial transactions, or at least considered themselves as such. Adopting a structural vehicle that had evolved in the commercial lending sector over the previous two decades, these lenders essayed to protect themselves from the possibility that Tom Petters’s enterprise would fail and formal bankruptcy proceedings would result.

That vehicle was to require the formation of a new artificial entity, a “special purpose entity,” within the ownership structure of Tom Petters’s enterprise but identified exclusively to the particular *802 lender. Each SPE was to be used exclusively as the vehicle through which lending transactions, rights to payment, and any related collateral security would be documented, committed, and executed for its associated lender.

The express reason for requiring the presence and use of this intermediate entity is revealed in its alternate name in financial-industry jargon, “bankruptcy-remote entity.” The thought was that, if contractual privity were strictly segregated through this sole and separate construct, and all flows of credit, inventory, rights to collateral, and/or funds relating to particular lendings were channeled through it, the lender would be immune from liability in avoidance under color of the law of preferential or fraudulent transfer were the main entity-edifice of the Petters operation to formally go into bankruptcy. 21

Eight (or nine) groupings of the major lenders to Tom Petters’s operation required the use of SPEs identified to them as parties within the structure of their lending transactions. These SPEs became debtors in bankruptcy in this case. They and their associated lenders were itemized supra at pp. 790-91.

B. Operation, in Actuality

The description of structure just given is broad. The details of structure varied somewhat among the SPE-Debtors, and the anticipated routing of transactions, money, and property into, within, and out of the structures differed correspondingly. At this point, it is appropriate to describe how Tom Petters and his confederates perverted that routing to operate and conceal the massive misappropriation of lender-infused cash that they effected under the pretense of diverting merchandise.

Once a fictitious purchase transaction was presented to a lender and the decision was made to loan the fictitious amount represented by the ostensible vendor (usually Nationwide or Enchanted) as its price for the goods, the lender transferred that sum to the SPE’s bank account. E.g., “Step 1,” Exh. Lakes_004.002. 22 The SPE would then execute a promissory note in favor of the lender.

The SPE would then transfer the fund to the vendor’s bank account. Id., “Step 2.” Once they were on deposit, the vendor would deduct and retain a fietive commission. Id., “Step 3.”

The vendor then transferred the balance to PCI’s bank account, which was maintained at M & I Bank. Id. The single M & I account received such funds from all of the SPE-Debtors and from other lenders that did not use SPEs for their lending to PCI.

PCI would then transfer funds from the M & I account back to the SPE’s account, ostensibly having completed the sale to the retailer. That amount was represented as the price received for the goods from the retailer-customer. Id., “Step 4.”

The SPE would use the funds it received from PCI to pay off the lender, in principal plus interest pursuant to the promissory *803 note. If any of the funds just received via the transfer from PCI were left, the SPE would transfer that residuum back to PCI, as ostensible “profit” internal to the diverting operation.

As the basic engine of the Ponzi scheme, this process involved commingling at two levels and misappropriation at four points. The diversion of the funds into the scheme and away from the lender-contemplated merchandise purchase was the first misappropriation. Nationwide and Enchanted commingled all funds they received from all of the SPE-related Debtors (and lenders without affiliated SPEs) in one account at each ostensible vendor. The funneling of all SPE-generated and vendor-channeled funds into PCI was a further misappropriation. No SPE’s relationship with its lender allowed diversion of funds away from the SPE-vendor-lender nexus. PCI then commingled all receipts from the vendors (and others) in the single, large-balance M & I account. Due to the need to maintain the pretense of a completed, profitable sale to a retailer-customer, the amount of the corresponding transfer of funds to the originating SPE was enhanced from the funds in the M & I account commingled in from other sources. And lastly, the payment to PCI of the residuum after payment to the lender, under the pretense of a wholly-spurious “profit” that was actually funded by stolen money, was a final misappropriation of commingled funds.

This was not the way it was supposed to work, under the SPE-based agreements contemplated by all of the related lenders. But that is how it actually ran. How it should have worked is relevant to the later analysis, and will be detailed then.

The legal status of the SPEs and the legal implications of the differences between the way they were constituted and used have not been called into issue in these cases until now. All of that subject matter is at the very heart of the Trustee’s case for substantive consolidation, however.

II. Giller’s Factors, on Consideration

A. Necessity of Consolidation Due to Interrelationship of Debtors

Giller’s first factor requires two different inquiries. The first is retrospective, i.e., it looks to the state of affairs before the commencement of the bankruptcy process: whether there was an intertwined relationship among debtor-entities that made them functionally one, rather than several. In his case in chief, the Trustee developed a complex record of circumstances that go to this consideration. In part, he relied on the testimony of Theodore Martens, the forensic accountant from the PricewaterhouseCoop-ers firm which he retained early in these cases to reconstruct the reality behind the pretense of the Petters operation.

1. Interrelatedness of Debtors

a. Preliminary Issue: Qualification of Theodore Martens as Expert Witness on Interrelatedness; Reliability of His Opinions

The Trustee proffered Martens’s testimony as that of an expert. To better support the findings on the ultimate issue, it is appropriate to treat this proffer under the terms of Fed.R.Evid. 702, in an overt and formal fashion. 23

*804 Theodore Martens is a CPA with a certification in financial forensics, a field in which he has long-term accounting experience. He has analyzed inflated financial documentation in other Ponzi scheme cases. He has years of intensive experience in completing other sorts of forensic reconstruction of financial actuality using accounting methods. See CV of Theodore Martens, Exh. PCI-004.

Just as in In re Bonham, the type of expert needed for the task at bar here is someone “who can take poorly kept, incomplete records, involving commingled funds, and reconstruct the business out of them.” 251 B.R. 113, 132 (Bankr.D.Alaska 2000). 24 Martens’s background qualifies him to give an expert opinion on the extent to which various entities’ funds were commingled, and the flow of those funds into and out of the nodes of commingling. 25

The Trustee offers Martens’s testimony to serve various purposes on Giller’s first consideration. On the first inquiry, relatedness, the Trustee argues that Petters used the SPEs for the “sole purpose of perpetrating a Ponzi scheme.” Trustee’s Closing Arg. Brief at 4. For this argument, the Trustee heavily relies on Martens’s testimony that the complicated operations and interaction of PCI and the SPEs fit the definition of a Ponzi scheme, operating as a single unit that funneled funds through PCI. Id. Second, the Trustee argues that the SPEs had no independent existence. Id. at 7. For this argument, the Trustee partly relies on Martens’s testimony — based on PwC’s forensic analysis— that PCI and the SPEs completely lacked independent governance and that the SPEs lacked sufficient capitalization. Id. at 9-10.

The respondents did not offer expert testimony on the issue of relatedness. More to the point, they did not challenge Marten’s conclusions on the high degree of structural and de facto operational interrelatedness among PCI and the SPE-Debtors, by any pointed evidence at all. 26

Regardless, a few rulings should be made. As to functional interrelatedness, Martens’s opinion meets the three-part test for admissibility under the Eighth Circuit’s construction of Fed.R.Evid. 702, as it was amended in the wake of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 , 113 S.Ct. 2786 , 125 L.Ed.2d 469 (1993). 27 See Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir.2001). *805 Given the large body of source material from which ultimate facts have to be gleaned, analysis for the existence of patterns and commonalities under the prescriptions of a professional discipline (accounting) is certainly useful to a finder of fact on this issue. The record established Martens as qualified to draw conclusions about such patterns from his application of the discipline. For the larger part of his initial engagement by the Trustee, Martens went through a lengthy and exacting process to reconstruct and identify the actual passage of money from SPE-affiliated lenders into the Petters edifice and to link the acts of infusion to the later satisfaction of the debts created by them. 28 Given the intensity of that investigation and his prior experience, Martens’s opinion as to the failure to observe functional, transaction-specific boundaries between and among PCI and the SPEs is reliable. Id.

While Martens’s work clearly was done in mind of the work-product’s use in litigation, it was also essential to the Trustee’s eventual administration of the estate(s) of the Debtors. The accounting work enabled the Trustee to identify both possible creditors’ claims and parties from which the recovery of avoidable transfers might be had. Given the sprawling mess the Trustee inherited on the failure of PCI, he had to ascertain whether, and how, the estate(s) could be administered and allocated to claimants on a basis structured from available documentation for transactions and liabilities.

Any conclusion that it could not be so administered obviously has an alternate application to substantive consolidation, a remedy which could be obtained only through litigation. However, the use for litigation was not the first or predominant reason to do the analysis. Thus, for application to this motion, Martens’s work is not deprived of reliability on the ground of a lack of “independence” on his part, i.e., his opinion on relatedness is not to be rejected as the slanted work of a hired gun. Cf. Lauzon, 270 F.3d at 687, 692 .

In sum, then, Marten’s opinion on functional interrelatedness is admissible. 29

b. Analysis: Interrelationship of Debtors

The evidence clearly shows that all of the PCI-related Debtors were interrelated to a degree that meets the first inquiry under Giller’s first factor.

i. Generally

As to the PCI-related Debtors, the Trustee’s evidence, as it goes to many of the Vecco factors, establishes a substantial identity, above and beyond an interrelationship among them. At the forefront, there was a unity of equity interests and ownership among the various Petters entities, a lack of formal observance of corporate formalities by the SPEs, and a huge commingling of assets and business functions in their function as the vehicles for a Ponzi scheme.

*806 The testimony of insiders in the Petters organization was particularly instructive. It included testimony from one of Tom Petters’s foremost active, knowing confederates in the whole scheme. Deanna Coleman testified that:

Tom Petters and PCI controlled the SPEs. Hrg. Tr. 39:12-14.

The SPEs were not managed independently from PCI. Hrg. Tr. 47:2-10.

The SPEs did not convene meetings of their own boards of directors. Hrg. Tr. 47:24 to 48:4.

The SPEs did not have their own office space, phone lines, employees, fax lines, or email addresses. Hrg. Tr. 48:11-21. When the SPEs incurred costs, PCI paid them. Hrg. Tr. 49:1 — 6). 30 During her decade-plus of directly assisting Tom Petters in the purveying of the Ponzi scheme, Coleman did not distinguish between the SPEs and PCI. To her, the transactions ran between PCI and the lenders without regarding the SPE as independent entity-actors. Hrg. Tr. 40:1-9.

On behalf of PCI, she manipulated Sandy Indahl’s accounting of the SPEs’ books and records by sending Indahl inaccurate spreadsheets of PCI’s bank account with M & I and other false source-data. Hrg. Tr. 52:18-22.

She and Tom Petters overtly considered the companies to be operating a “Ponzi scheme.” Hrg. Tr. 53:8 to 54:9.

In a similar vein, Sandy Indahl, an accountant-employee of PCI from 2002 to 2008, testified that the SPEs did not engage in any business transactions with third parties independently from PCI. In particular, as she observed in keeping QuickBooks accounting for the SPEs and PCI, all of the SPEs’ operating expenses, including professional fees, were booked to and directly paid by PCI. Hrg. Tr. 151:13-16.

In addition, as will be discussed in further detail regarding the “necessity” for substantive consolidation, Martens testified that his forensic analysis revealed that SPE-derived funds were commingled at two stages in the process through which lender infusions were churned through the Petters scheme, as they passed to and through PCI and its main accounts at M & I Bank. Hrg. Tr. 201:16-22. After Nationwide or Enchanted commingled the funds that they received ostensibly as vendors, directly or indirectly from lenders, PCI would commingle them on its receipt from the “vendor.” Hrg. Tr. 201:22 to 202:7. According to Martens, “PCI would act as sort of the central depository for all of these funds once they were coming back through from the vendors.” Hrg. Tr. 202:8-11.

Finally, as Martens saw in his review of his subjects’ structure, the SPEs’ governance had no independence whatsoever from PCI; all officers’ positions and all of the entities’ boards were composed of Tom Petters and no more than two or three persons who were almost invariably directly connected with him in the operation of the whole enterprise. 31 Martens Testimony, Hrg. Tr. 221:2-25, 222:1-21.

ii. Petters Finance, LLC a/k/a SPF Funding, LLC (“SPF”)

For a lengthy period of time, the Petters enterprise structure received loans from a group of entities centered around and owned by members of the Sabes family of Minneapolis. The main vehicle on the *807 Sabes side was initially known as International Investment Opportunities, LLC (“IIO”); its name was changed to Opportunity Finance, LLC around the turn of the 21st century and afterwards its affiliated entities bore variant names that included the word “Opportunity.” 32 At the instance of Sabes family members, the Sabes Family Foundation and the Minneapolis Foundation also “invested in” the Petters enterprise structure.

Opportunity Finance and the two foundations lent to the Petters enterprise structure in a total of 167 transactions evidenced by PCI-executed notes, using SPF as an SPE. Exh. PCI_006.0002. In the aggregate, the three lenders advanced approximately $234,000,000.00 through the instrumentality of SPF, and were repaid nearly $287,000,000.00. Exh. PCI-005.0002.

Petters Finance, LLC (so named on its formation in 2001; renamed to SPF in 2004) was the brainchild of Jon Sabes. Before SPF was formed, IIO had financed PCI directly. Exh. SPF_001.0044; Jon Sabes Testimony, Hrg. Tr. 346:21-24. According to Jon Sabes, he required Tom Petters to form SPF in 2001 in order to “clearly identify which accounts collateral-ized our loans, as well as we could ensure that the proceeds of our loans went to the specific vendor in such a way that it prevented any commingling of our lender funds in the creation of the assets that collateralized our loans.” Hrg. Tr. 352:11-17. Despite any such intention, SPF’s structure is significantly interrelated with PCI and other PCI-related entities, and it cannot be considered structurally or operationally separate.

The corporate data sheets provide a snapshot of the interrelatedness among SPF, PCI, and the other PCI-related Debtors. For example, PCI is the 100% owner of SPF; Tom Petters has been the sole governor, President, CEO, and CFO; Deanna Coleman was the Vice President until 2005. There has been no independent director, nor even a provision in SPF’s organic documents for one. Exh. SPFJ001.0002 to -001.0006. With Tom Pet-ters owning 100% of PCI, the lack of an independent director left SPF without any check against PCI’s influence over SPF’s actual usage or operations. With reference to the Vecco and Ouimet factors, the ownership and management structure demonstrates: (1) a unity of interests and ownership between corporate entities; (2) the parent owning the majority (here, all) of the subsidiary’s (or affiliate’s) stock; (3) and the entities having common officers or directors. See Eastgroup, 935 F.2d at 249-50 (listing factors).

As a transactional reflection by way of example, the closing documents of the April 2001 financing deal between IIO and Petters Finance highlight the interrelatedness. Tom Petters was the personal guarantor of the indebtedness and PCI was the corporate guarantor. Exh. SPF-003 OF_SC_00000102-_00000110. Pursuant to a Management Agreement, PCI was named Manager and Petters Finance was named Agent to itself, making PCI liable for any losses occurring in the operations of Petters Finance as a result of acts of “fraud, gross negligence or intentional wrongdoing” on the part of PCI. Exh. OF_065_0001-_0002 (subsumed within SPF-003). Provided there was no Event of Default under the financing agreement with IIO, PCI was able to extract money from Petters Finance, either as a management fee, repayment of loans, or an equity distribution from Petters Finance to PCI. *808 ¶7 of Email from Simon Root to Tom Petters, Exh. SPF_037.0001. Under Vecco, the existence of parent and intercorporate guarantees supports a finding of substantial identity between the parties. 4 B.R. at 410 . Here, not only did Tom Petters and PCI guarantee Petters Finance’s debts; they also managed Petters Finance with exclusive control and arrogated a right to reap some of Petters Finance’s profits to PCI with no real-life check on what they did.

It should be noted that there are some structurally-related aspects of the Credit Agreement that contemplate separateness. For example, under § 5.6, Petters Finance was required to maintain “books, records, financial statements and bank accounts separate from those of any of its Affiliates” and to be “a legal entity separate and distinct from any other entity (including [PCI] and any other Affiliate or Borrower);” and Petters Finance was prohibited from any commingling of “[Petters Finance’s] funds or other assets with those of [PCI] or any other Affiliate of [Petters Finance] or any other person or entity.” Exh. OF_060_0010-_0011 (subsumed within SPF_003). Also, Petters Finance could not disburse any loan proceeds directly to PCI; instead, funds had to go directly from IIO to Petters Finance, then from Petters Finance to the vendor. Exh. OF_060_0005 (subsumed within SPF_003).

Despite the requirements of the Credit Agreement, commingling of funds was actually countenanced (i.e., permitted by IIO/Opportunity Finance) and intentionally practiced on the SPF/PCI side. For example, under Part 11(3) of the Assignment Agreement, Petters Finance and PCI were required “to use commercially reasonable efforts to direct Buyers to make payments ... directly to [Petters Finance] for deposit into such account. ...” Exh. OF_062_0002-_0003 (subsumed within SPF_003). However, if payments were nonetheless made directly to PCI, PCI was required to immediately notify Petters Finance and IIO, to hold the payment in trust for Petters Finance and IIO, and to immediately turn the payment over to Petters Finance. Wires received by PCI had to be transferred to Petters Finance’s account “by the next business day.” Id. In practice, every single note from Petters Finance to Opportunity Finance was paid by funds that flowed through PCI’s M & I account, which means that every single dollar was commingled. Testimony of Jon Sabes, Hrg. Tr. 419:13-17. Under Vecco, the commingling of assets and business functions is a significant factor evidencing an identity between entities. 4 B.R. at 410 . Here, both PCI and Petters Finance were to try to direct buyers to make payments directly to Petters Finance’s account; but in consort these entities also set up a system that allowed for commingling and they clearly relied upon it in operation (however temporary the actual commingling turned out to be). SPF and the Sabeses never required or got the creation of a mechanism to prevent commingling.

Finally, there is the important fact that the Sabeses were unable to get the PCI side to provide a non-consolidation opinion as to SPF at the inception. This actually shows that Petters Finance was not even established with separateness in mind. In May 2001, after the April 2001 Petters Finanee/IIO contractual arrangement closed, Jon Sabes asked Fredrikson & Byron (then representing PCI and Tom Pet-ters) to provide an opinion with respect to Petters Finance that it would not be subject to consolidation if PCI filed for bankruptcy. Exh. SPF_038.0003. Simon Root of the firm told Sabes that they had not structured Petters Finance with non-consolidation in mind. Id. In deposition, Heather Thayer, an in-house attorney for *809 the Petters entities, reiterated and supported Root’s view. Thayer Depo., 132. 33

Sabes told Root that he was “surprised by [Root’s] response in that I thought we did create the structure with this idea in mind, e.g. isolating credit risk.” Exh. SPF_0S8.0003 (emphasis added). Root then explained to Sabes that he understood Petters Finance to have been created for the purpose of isolating IIO as a creditor, but without any consideration as to whether Petters Finance was structured in such a way as to avoid substantive consolidation in the event that PCI later filed for bankruptcy. Exh. SPF_038.0003.

In fact, Root and Thayer believed that it would be difficult to justify and subscribe to a non-consolidation opinion in light of various “unusual aspects” of the deal, such as the assignment agreement likely not meeting the very high standards of non-consolidation, the existence of the guarantees, and the lack of an independent director. Thayer Depo., 132; Exh. SPF_038.0001-_038.0002. According to Root, non-consolidation only came up as a separate “goal” after the parties closed the credit agreement signing. Exh. SPF_038.0002. 34 In turn, while Jon Sabes might have thought about the bankruptcy-remoteness of Petters Finance, bankruptcy-remoteness clearly was not a prerequisite or even a goal as the structure of Petters Finance and IIO’s relationship was finalized. The result eventuated: the end-product was not worthy of a non-consolidation opinion.

iii. PC Funding, LLC (“PCF”)

Opportunity Finance made a separate and large number of loans into the Petters operation using a second SPE, PC Funding, LLC. Opportunity Finance lent through PCF in a total of 546 note-evidenced transactions. Exh. PCI_006.0002. In the aggregate, Opportunity Finance advanced $1,949,456,003.00 through SPF, and received $2,039,994,706.00 in repayment. Exh. PCI 005.0002.

Formed in December 2001, PCF’s structure is slightly different from SPF. As with SPF, PCI was PCF’s sole owner; Tom Petters was the sole governor, President, CEO, and CFO; and Deanna Coleman was the Vice President. Exh. PCF_001.0005. However, there was an independent director at all relevant times, at least nominally. M 35 Further, neither *810 Tom Petters nor PCI provided any guarantees to Opportunity Finance. 36

The presence of an independent director and the lack of guarantees were Jon Sabes’s attempt to overcome the faults that existed with SPF. Other points going to separateness include § 9(k) of the LLC Agreement, which contains various “Separateness Covenants.” These provisions were aimed at preventing PCF from commingling assets; and requiring PCF to maintain separate books, to pay its own liabilities out of its own funds, to observe corporate formalities, to maintain separate office space, and more. Exh. PCF_001.0017-_001.0018. But notwithstanding efforts by Opportunity Finance to induce the creation of a “separate” entity, there is still a great amount of evidence to establish interrelatedness.

First, PCF was substantially dependent upon PCI to stay in business, de facto. This dependence was noted in an audit planning worksheet by BPK & Z for the years 2002 and 2003. See Exh. PCF_106.0047 (noting “dependence on parent company to stay in business” as a condition that caused serious doubt about PCF’s ability to continue as a going concern). To alleviate BPK & Z’s doubts regarding PCF’s going-concern ability, PCI re-characterized a debt obligation (accounts payable) owed by PCF to PCI as “contributed capital,” crediting it to PCI’s membership equity in PCF. Independent Auditor’s Report of PC Funding ¶ 6, Exh. OF_008_0010. This re-characterization by PCI to preserve an abstract basis on paper to classify PCF as a financially-viable going concern illustrates PCF’s strong dependence on PCI, as well as the broader interrelationship between PCI and PCF. 37

Second, Tom Petters could — and eventually did — utilize his control over other entities in his operation, and his access to their resources, to benefit PCF. For example, when PCF defaulted on its notes to Opportunity Finance in 2008, Bob Sabes demanded additional collateral from Tom Petters. Exh. PCF_146. In response, Tom Petters told Sabes that he was going to pledge “his” stock in the Fingerhut Companies. These shares actually were held in title by another entity that he controlled. Exh. PCF_147. 38 Interesting *811 ly, it seems that PCF’s own formation documents allowed Petters to do so. Section 8 of PCF’s LLC Agreement provided that all Officers of PCF, one of which was Tom Petters, “shall have and exercise all powers necessary, convenient or incidental to accomplish [PCF’s] purposes as set forth in Section 7” of the LLC Agreement, including carrying out all obligations under the agreements and notes. Exh. PCF_001.0014-_001.0015. The Written Action by the PCF board provides for this also. Exh. PCF_001.0038.

So, it appears that Tom Petters was broadly empowered to step in and help PCF meet its debt obligations, to prevent PCF’s failure as a going concern. Meanwhile, his ownership in, and power over, other entities provided him the de facto means to do so, whether his resort to them was lawful or not.

Third, as with SPF, the active and large-scale commingling of funds chargeable to PCF through the conduit of PCI was actually contemplated and practiced by both lender and borrower. Under Section 11(C) of the December 2001 Sale Agreement between PCI and PCF, PCI was required to direct account obligors to make payments “directly” to PCF’s account. Exh. PCF_1.0044. In the event PCI received payments, PCI was required to hold the funds in trust and immediately turn them over to PCF; in the event that PCI received wired payments, PCI was required to wire the payment to PCF’s account by the next business day. Id. Section 2.2(b) of the December 2001 PCF-Opportunity Finance Credit Agreement reiterated how payments would flow in the event that PCI received payments from the Buyer. In practice, as was the case with funds chargeable to SPF, every single note from PCF to Opportunity Finance was paid by funds that flowed through PCI’s M & I account. This means that every single dollar received by Opportunity Finance on PCF’s account was commingled at some point in time. Testimony of Jon Sabes, Hrg. Tr. 419:18-24.

iv. PL Ltd., Inc. f/k/a Petters Ltd., Inc. (“PL”) 39

Tom Petters formed Petters Ltd., Inc. in 1995, but the entity did not function as a lending-related SPE until 2001.

In 2001, the Epsilon/Westford entities began lending to the Petters enterprise structure, and Petters Ltd., Inc. was re-purposed for the administration of that lending relationship. Epsilon/Westford lent using Petters Ltd., Inc./PL in a total of about 151 note-evidenced transactions. Exh. PCI-006.0002. In the aggregate, Epsilon/Westford advanced $2,471,580,000.00 using PL as an SPE, and was repaid nearly $2,795,000,000.00. Exh. PCI_006.0002. The Epsilon/Westford indebtedness was fully paid (100% of principal advances plus approximately $324,000,000.00) by March, 2007.

In March, 2008, PCI repurposed PL a second time, to serve as SPE for a new lending relationship with Elistone Fund. During 2008 Elistone lent into the Petters operation in a total of 21 note-evidenced transactions. Exh. PCI_006.0002. In the aggregate, Elistone advanced $60,397,000.00 through PL as the SPE. By the time of the scheme’s collapse, it had been repaid nearly $27,000,000.00 in principal plus approximately $826,000.00 in interest. This left Elistone unsatisfied to the extent of nearly $34,000,000.00 in principal.

*812 From at least 2001 to early 2008, PL was substantially interrelated with PCI. For most of PL’s existence, Tom Petters owned 100% of PL’s shares in his individual right and was PL’s Director, CEO, and CFO. Exh. PL_EP_001.0006-0007. Deanna Coleman was the only other member of PL’s board, in the officer-capacity of Vice President. Exh. PL_EP_001.0007. During Epsilon’s tenure as a lender through PL (2001-2005), Tom Petters and PCI provided various guarantees to Epsilon. Tom Petters provided personal guarantees for the PL-Epsilon Loan Agreements of April 19, 2001 (PL_EP_002.0023), April 30, 2001 (PL_EP_003.0078), and May 25, 2001 (PL_EP_004.0038). Tom Petters and PCI provided the personal and corporate guarantees for the Loan Agreements of July 26, 2001 (PL_EP_005), July 31, 2001 (PL_EP_006), and August 31, 2001 (PL_EP_008), and for the Master Loan Agreement of October 31, 2001 (PL_EP_009).

After Epsilon’s exit from the debt-structure of the Petters operation, PL underwent at least three changes. On February 28, 2008, PL amended its Articles and Bylaws, and PL’s board approved the appointment of an independent director, Bernard Angelo, pursuant to the company’s Amended Articles and Bylaws. Exh. PL_EP_001.0009-0013; Exh. PL_EP_001.0036. On April 9, 2008, Tom Petters transferred all of his PL shares to PCI, making PCI the equity-owner of PL. Exh. PL_EP_001.0034. Even so, certain Vecco and Ouimet factors (e.g., unity of ownership among a tight group of entities, parent owning at least a majority of stock, common officers among entities) continued in the PCI/PL structure.

More crucially, bankruptcy-remoteness was not contemplated or intended as an incident of PL’s structuring. According to Heather Thayer, bankruptcy-remoteness barely came up in conversations with the lenders and was “fairly quickly dropped” because “that wasn’t what we were attempting with these [transactions].” Thayer Depo., 154. Instead, according to Thayer, the parties were consciously working to “have an entity that the lenders could do a blanket [UCC] filing on, because [they] couldn’t have blanket filings against Petters Company, Inc. because there were too many lenders and the priority issues became a problem.” Thayer Depo., 155.

v. Metro Gem Capital Finance, Inc f/k/a Petters I, Inc. (“MGC Finance”)

A Minnesota-based group of entities headed by Arrowhead Capital Management Corp. began lending to PCI in mid-2001. Petters I, Inc. was formed at that time to be the SPE-vehicle for this relationship. It changed its name to MGC Finance, Inc. in early 2005. The Arrowhead Capital group lent to the Petters operation through MGC Finance in a total of 1,240 note-evidenced transactions. Exh. PCI-006.0002. This involved a total of $4,600,102,428.00 in advances, and a repayment of $4,705,370,279.00 in principal and interest.

MGC Finance was not separate from PCI. At all times, PCI owned 100% of MGC Finance’s shares. Exh. MGC_001.0002-_001.0008. Tom Petters was always President, and Deanna Coleman was Vice President until the FBI raid. Id. MGC Finance’s board included Tom Petters, Thomas Hay (an attorney working within the Petters enterprise structure), and an independent director. Id. There is no evidence in the record that an actual board meeting was ever convened. This suggests that the independent director played no role in the decision-making processes. Coleman Testimony, Hrg. Tr. 47:24 to 48:4. Further, *813 even though Fredrikson & Byron (the outside counsel for the Petters organization) supplied the lender and borrower parties with a non-consolidation opinion on July 19, 2001, Exh. MGC-045, actions by MGC Finance and PCI undermined that opinion only one week later. Exh. MGC-046. Specifically, without formal corporate authorization, the parties “entered into a transaction in which approximately half of the purchase price [on an ostensible diverting transaction] was loaned to Petters Company, Inc. on an unsecured basis. PCI, in turn, made a capital contribution to Petters I in that amount to enable Petters I to purchase the inventory.” Exh. MGC-046.

Under Vecco, such action constituted a transfer of substantial assets without formal observance of corporate formalities. 4 B.R. at 410 . Under Ouimet, such action constituted a disregard of the legal obligation to maintain the subsidiary as a separate organization in operations, as was specifically contemplated by the SPE-principal relationship. 711 F.2d at 1093. Finally, the funds flowed through PCI’s account in a commingling, even though such was contrary to what Petters originally agreed. Thayer Depo., 101, 103; Thayer Depo. Exh. 29.

vi. Thousand Lakes, LLC

In late 2002, the Petters operation began borrowing from a Chicago-based group of entities for which Lancelot Investment Management, LLC was the investment manager. Thousand Lakes, LLC was formed at that time to be the SPE through which the Lancelot group’s lending was to be administered. After that, 496 different note-evidenced loan transactions were done using Thousand Lakes, for total advances of $8,792,413,871.00. The Lancelot group received repayment of a total of $8,027,787,980.00 in principal and interest. The outstanding balance on 73 open notes was $1,548,462,485.00. 40

Thousand Lakes is substantially interrelated with PCI. From 2002 to 2005, Tom Petters owned 99% of Thousand Lakes, while his confederate Robert White owned the remaining 1%. Tom Petters and White were the only officers. The Board of Managers consisted of Tom Petters, Bob White, and one independent manager named Orlanda Figueroa. Exh. Lakes_001.0001-_001.0002. From October 2005 to September 2008, PCI owned 100%, and Deanna Coleman replaced Bob White as manager and officer.

Not only did PCI or the officers of PCI own and functionally have control over Thousand Lakes, but the exercise of that ownership and control ultimately enhanced a clear unity of interests among it and various other corporate entities within the Petters enterprise structure. For example, in January 2005, Thousand Lakes and PCI amended the initial Thousand Lakes LLC Agreement, afer that to list three purposes of Thousand Lakes: (1) to acquire and sell goods, and to borrow in order to finance such activities; (2) to “guaranty the obligations of uBid, Inc. or such other affiliates of Petters Group Worldwide” for the benefit of Lancelot (“Affiliate Guaranty”); and “to borrow money to loan to Petters Capital, LLC” (“Affiliate Loan”). Amendment No. 2 ¶ 1, Exh. Lakes_001.0034. The amendment also required Thousand Lakes “to operate in *814 such a manner that, without taking into account the Affiliate Guaranty or the Affiliate Loan, it should not be substantively consolidated in the bankruptcy estate of any of the Members,” etc. Id. ¶ 2.

Notwithstanding the latter provision, the Affiliate Guaranty and the Affiliate Loan are prime examples of the coincidence and melding of interests among the affected Petters entities. Their structuring reflects how Tom Petters was able to use his position within each to accrete multiple levels of intercompany loans and guarantees. Another example of such activity is a September 2008 amendment whereby PCI, as sole member of Thousand Lakes, pledged 100% of the Thousand Lakes shares to Ritchie Capital Management. At the time, Ritchie Capital Management was not a creditor of Thousand Lakes. Amendment No. 3 ¶4, Exh. Lakes_001.0038_001.0039.

Finally, and again as with the other SPEs, funds identified to lending from the Lancelot entities were commingled at PCI’s M & I account long before the corresponding debt was repaid out of the Ponzi scheme. Exh. Lakes_004; Lakes_005; Lakes_006.

vii. Edge One, LLC

In 2007, a grouping of lenders consisting of AtoZ Investors Fund, LP; Edge One Capital, LP; and Ark Discovery II, LP, began advancing funds into the Petters operation. These parties used the newly-formed Edge One, LLC as the SPE-vehicle for their lending. Over the ensuing year, the Edge One group made a total of 29 note-evidenced loans, for a total advance of $159,010,000.00. The Edge One parties were repaid $36,302,900.00 in principal and interest before the collapse, leaving $122,707,100.00 in outstanding principal.

Edge One is substantially interrelated with PCI. Formed as Edge One in 2007, PCI has always owned 100% of its shares. Tom Petters was the President, CEO, and sole manager of the board. Exh. Edge_001.0010-_001.0011. PCI also provided a corporate guaranty in favor of the lender under the notes, Edge One Capital f/k/a AtoZ Investors Fund. Exh. Edge_002.0052. Finally, as with other SPE-associated lenders, funds received in borrowing from this group of lenders were commingled in PCI’s M & I account. Edge_004. 41

viii. PAC Funding, LLC (“PAC”)

Acorn Capital Group, LLC first became involved with the Petters operation in 2001, by loans to a Petters-owned entity called RedtagBiz, Inc. It began lending into PCI’s operation in mid-2002. In 2004, PAC was formed as the SPE-vehicle for Acorn Capital’s ongoing lending relationship "with the Petters operation, opening a line of credit. In the course of the relationship, Acorn made advances to PCI or PAC evidenced by a total of 709 notes. PCI-006.0002. The total of principal advanced under these notes was $2,525,082,443.00. PAC was repaid a total of $2,386,737,637.00 in principal and interest, leaving an outstanding balance of $267,887,980.00 in principal and interest. PCI-006.0002.

PAC Funding was substantially interrelated with PCI. At all relevant times, PCI owned 100% of the company equity, and Tom Petters was the President, Chief Manager, CFO, and sole director on the board. Tom Petters provided a personal guaranty on behalf of PAC Funding and in *815 favor of Acorn Capital. Exh. PAC-002.0040. Later, in July 2007, PCI, PAC Funding, and Petters Aviation provided an “unlimited guaranty” in favor of Acorn for Acorn’s loans to Petters Aircraft, a different entity in Tom Petters’s overall enterprise structure. Exh. PAC_003.0026.

Petters used his power over PAC Funding to cause it to guarantee the obligations of Zink Imaging, another Petters affiliate, to Acorn Capital Group. Exh. PAC-001.0025. In February 2008, Petters also used his control to subordinate the security interests that various Petters entities (PCI, Petters Company, LLC, Petters Capital, LLC, and Thomas Petters, Inc.) held in certain assets held by companies in the Polaroid enterprise structure, to PAC Funding’s and Acorn Capital’s interests in those assets. Exh. PAC_003.0036. Notably, the subordination agreement was entered into pursuant to a February 2008 forbearance agreement among PAC Funding, Tom Petters, and Acorn Capital. Exh. PAC_003.0042. In May 2008, section 2(e) of the Fifth Amendment to the Credit Agreement between PAC Funding and Acorn Capital clearly affected the rights and authority of Polaroid despite it not being a party to the agreement. Exh. PAC_003.0057. Finally, Acorn Capital transferred the note amount directly to PCPs account because PAC Funding did not even have its own bank account. Martens Testimony, Hrg. Tr. 229:3-5; see Exh. PAC-005.0002 (showing step 1 as a transfer between Acorn Capital and PCI). 42

ix. Palm Beach Finance Holdings, Inc., f/k/a Petters Capital, Inc. (“Palm Beach”)

Petters Capital, Inc. was formed in 1998 to hold a credit facility from another lender. 43 In late 2002, it was repurposed to be the SPE for a new lending relationship between a group of lenders headed up by Palm Beach Finance Partners, LP. As if to deliberately make things confusing, Tom Petters then renamed Petters Capital, Inc. to Palm Beach Finance Holdings, Inc. After that, the Palm Beach lenders advanced funds to the Petters operation in a total of 2,449 note-evidenced transactions. Exh. PCL.006.0002. They infused a total of $8,687,681,815.00 into the Petters operation and were repaid a total of $8,045,725,891.00 in principal and interest. Exh. PCI-006.0002. 44

Palm Beach is substantially interrelated with PCI. At all relevant times, Tom Pet-ters held 100% of its ownership and was the sole director of its board. Exh. Pal m_001.0001-_001.0003. Notably, Palm Beach did not have any officers at all. Id. The stock roster for Palm Beach reflects that Tom Petters eventually transferred 100% of his shares to PCI. Exh. Palm_001.0013.

In November 2002, PCI and Palm Beach entered into an Administrative Support Agreement, in which PCI agreed to keep Palm Beach’s books and records, to pay *816 Palm Beach’s expenses, to make Palm Beach’s equity distributions, and even to carry out Palm Beach’s banking activities. Exh. Palm_002.0036. In other words, PCI controlled Palm Beach, under contract and de facto. In Article VIII (“Bankruptcy Remote Protections”) of a July 2004 Sales and Servicing Agreement between PCI and Palm Beach, section 8.1 required Palm Beach’s board to have one independent director as “set forth in [Palm Beach’s] articles of incorporation.” Exh. Palm_003.0060. However, Palm Beach’s Articles of Incorporation provided for only one director on the board: Tom Petters. Exh. Palm_001.0007. Thus, Palm Beach’s own organic documents conflicted as to the lawfulness of having even one nominally-independent voice in governance. They conclusively memorialize a failure to be separate from Tom Petters. And as with the administration of indebtedness to the other SPEs, all funds from the Palm Beach lenders’ advances were commingled by passing through PCI’s M & I account. Exh. Palm_004; Exh. Palm_005.

2. Resultant Necessity of Consolidation

a. In Furtherance of Administration in Bankruptcy

i. Generally

The second inquiry for Giller’s first factor is prospective in orientation; it looks forward from a point after the initiation of bankruptcy. In doing so, Giller assigns high priority to the administrative process in bankruptcy, in its functional sense — i.e., the recovery of as much net value as possible for the satisfaction of creditors’ claims.

As such, the second inquiry mainly looks to whether substantive consolidation will simplify the administration. 45 This issue is especially salient where a high degree of commingling and intercom-pany transfers was among the abuses of the corporate form. Where tracing through such a history would involve large complications, substantive consolidation could greatly streamline the arithmetic (and the geometry) entailed in estate administration. That would be even more so in a case involving an incomplete, confusing, or facially unreliable documentary record from which the tracing would be made.

This streamlining would flow from three of the consequences of substantive consolidation: making intercompany transfers and claims irrelevant to administration; taking related, now-consolidated debtors out of the potential population of claimants against the estate; and making the claims of all “external” creditors allowable against a single pool of assets post-consolidation. Before consolidation, under the assumption of corporate separateness, there would have been a multiple layering of pro rata distribution — a complicated map for the tracing of distribution going forward. Upon a consolidation, that is reduced down to one level, subject internally to statutory priorities.

Thus, where a pre-petition breakdown of separate identity was so extensive that it approached a melding, substantive consolidation would be merited when it would make a trustee’s job significantly simpler, and where the administrative expense entailed in performing that job would be materially reduced.

The Trustee approached this aspect of the first consideration in a functional sense. He argues that finalizing a comprehensive roster of claimants entitled to a distribution would be vastly simplified *817 were substantive consolidation ordered now. And, he maintains, the estate’s administrative expenses would be reduced by ten million dollars in accounting costs alone.

His evidence to prove this, as a matter of fact, was the testimony of Theodore Martens. The respondents countered with the testimony of another accountant, Paul Charnetzki. 46

ii. Preliminary Issue: Reliability, Qualification, and Reliability as to Testimony Offered as Expert on Accounting-Related Costs of Administration

As before, though it is not technically required because none of the parties filed Daubert objections earlier, a Dau- bert-style analysis of the Trustee’s expert is necessary here for fact-finding. And, of course, the objectors’ proffer of another accountant’s opinion to counter that requires the two-stage analysis to be done for his testimony.

Theodore Martens (Trustee)

When called by the Trustee, Martens testified that the true state of the assets and liabilities of the PCI-related Debtors’ estates is massively obscured by the churn of commingling over the duration of the scheme, and hence would be prohibitively expensive to reconcile if that could be responsibly and accurately done. Hrg. Tr. 267-273. Opportunity Finance and the Epsilon/Westford parties attack the reliability of this opinion. 47 They argue that Martens’s conclusions are flawed because they are the result of an unreliable methodology. 48

This argument reflects the difference in the way the parties framed a larger issue, as well as their dispute over the admissibility and evidentiary use of the proffered opinions. The contest between the two sides’ accountant-witnesses is couched in terms of the methodologies they respectively used. However, in the end the probity of their respective opinions really depends on something different: the bankruptcy estate’s needs in the way of forensic accounting service, to address the imperatives of the Trustee’s duties for a specific phase of his administration. The service required to fulfill those duties is dictated in nature and proportion by all of the impediments that faced him when he undertook the administration.

For the second aspect of Giller’s first consideration, Martens was tasked with determining what accounting would have to be done to reconcile the PCI-related Debtors’ financial statements to reflect as closely as possible the actual obligations and rights cross-running among all of those entities as they stood in bankruptcy, but as created by their usage in the Ponzi scheme. The adjustment was to be made in light of the systemic misappropriation of funds lent into the Petters operation, away from the ostensible purposes for which they were lent, and their wrongful application to the support of the scheme.

Martens was to make this assessment on the assumption that PCI and all of the SPEs were to be treated as separate legal entities, each to be attributed with its own *818 designated assets and liabilities in consequence of all past acts done through it and in its right. Then he was to opine on the likelihood that such a reconstruction would be accurate, given the manifest deficits in source-documentation from the Petters operation. Finally, he was to aggregate the cost of obtaining that evaluation.

The stated goal of this forensic reconstruction was to liquidate the net liabilities and rights to payment running among all of the PCI-related Debtors (and only them). These attributes were to be isolated as dual “due to” and “due from” entries for each Debtor.

This booking would correspond to asset-attributes and debt-attributes, as they lay among the Debtors. The product was to result from the specific tracking of actual dollars coming in via a given third-party loan to an SPE, through the vendor commingling up through PCI and a separate commingling there, and out to a different, misappropriating end-recipient among the other PCI-related Debtors. 49 That party was to be identified as the Debtor that then disbursed the funds to recipients outside the group of the PCI-related Debtors. The funds were not to be traced beyond that end-recipient Debtor within the PCI-related group.

At the end of his methodology for this analysis, Martens was to record “due to” and “due from” dual entries resulting from an end-receipt of funds within the group of the PCI-related Debtors. Martens saw this formal tracing of every single such transfer within the maze of PCI-related Debtors, as absolutely essential to a final netting-out of obligations running within that group. However, as he saw it, while such an exercise would be required under the abstractions of accounting procedure, the outcome would be inherently unreliable. The reasons for that were several.

First would be the inadequacies of all source-documents from the Petters operation, many of them having been prepared from falsified data and in any event subject to an assumption of untrustworthiness per se from their tainted sources. Second would be the occasional opaqueness of banking records of receipts and transfers, stymying links to particular transactions. Third would be the number of arbitrary assumptions that would have to be made in tracing through the two nodes of commingling, both of which often were daily receiving massive amounts of money from multiple outside sources and disbursing as needed in wrongful diversion, contrary to lenders’ expectations. 50 And, apparently *819 there was at least some incidence of inter-company transfers booked without the actual passage of funds.

As Martens testified, a linear tracing of every infused dollar to an end-recipient among the SPE-related Debtors could be essayed, but only with the commitment of at least the same amount of accountant time as the preparation of the PwC report had entailed, and the accrual of the same cost: 33,000 hours and at least another ten million dollars in administrative expense to the estate. And, he testified, the end-result, an attribution to each SPE and PCI of net rights to payment and net liabilities running to all others among the PCI-related Debtors, would not be “reliable” under accounting standards, i.e., it could not be properly deemed to reflect the actual, real-life consequences of the scheme’s huge misappropriations. In his opinion, extensive fictitious assumptions would be necessary to complete tracing analysis within and out of the nodes of commingling. Hrg. Tr. 268:13-25, 269:1-27. Those would deprive the end result of reliability in that sense, as would the defects and incompleteness of the source material.

The objectors challenge both the predicates of Martens’s analysis and his end-opinion. They argue several grounds.

First, in the case of transfers from PCI to an SPE, the objectors argue that Martens’s accounting method would be “unreliable” because it would use fabricated documents (e.g., forged bank statements, false wire transfers, false purchase orders, etc.). They note that Martens himself expressed serious doubts about the reliability and utility of SPE financials. Id. at 272:12-21. Hence, they dispute that an analysis of transfers internal to the PCI-related Debtors beyond the receipt into a pooling by PCI is necessary for any administrative purpose.

Second, they argue that the end-step of Martens’s methodology would require the booking of non-existent transactions: no transactions actually ran directly between SPEs, and giving cognizance to such a fabrication would have no justification in accounting principles or otherwise. They use, as an example, that if PL received funds from PCI that had their traced origin in a loan to PC Funding, Martens would book a “due to PC Funding” on PL’s books and a “due from PL” on PC Funding’s books as the end-result.

Anchored by their own accountant’s testimony, the respondents make a fair point in the abstract: that documented transactions between the two SPEs, directly and in the strict and legitimate (contractual) sense, did not occur. In fact, they say, as evidenced by the claims registers for the various Debtors, all intercompany liabilities that are currently-asserted as a formal matter in these cases, run between PCI and individual SPEs or vice versa, and none run directly between two SPEs. See Addendum 1 to Trustee’s Closing Arg. Brief (summarizing the claims registers for these cases). 51

Third, the objectors point out that Martens’s proposed methodology would not trace any transfer of money outside the circle of PCI-related Debtors, even if records indicated that money in the flow went to another company in the Petters enterprise structure like the Polaroid Corporation. They impugn this as an inconsistency that Martens inexplicably refused to explain, and in consequence would have his whole methodology deemed unreliable on account of incompleteness.

*820 Paul Charnetzki (Epsilon/Westford)

Paul Charnetzki was proffered as an expert to counter Martens’s testimony. He is an accountant at Grant Thornton. He has an MBA from Carnegie Mellon, and he is a CPA with a certification in financial forensics. From 1977 to 2002, he worked at Arthur Anderson where he became a partner in 1989. Beginning in the mid-1980s, he began to concentrate on forensic accounting services. In 2002, he left to form Huron Consulting Group with a group of other partners from Arthur Anderson. There, he again focused on forensic accounting. Since 2010, he has done similar work at the Grant Thornton accounting firm. He has given testimony as an expert accountant at least 15 other times, “about the measuring damages, measuring assets and liability for solvency and sometimes about accounting transactions should have been accounted for.” Hrg. Tr. 878:5-9.

The Epsilon/Westford parties offer and rely on Charnetzki’s opinion that a forensically-reconstructed accounting for the assets and liabilities of each debtor as a separate legal entity would not be cost-prohibitive or particularly time-consuming. Opportunity Finance relies on his opinion for the same reasons. The Trustee argues that Charnetzki is unqualified and that his opinion is unreliable.

Compared to Martens, Charnetzki’s on-point expertise is lacking. Charnetzki is qualified to offer expert opinions for more general forensic accounting tasks. However, he does not have experience in tracing and splitting out the commingled assets and liabilities of entities embroiled in a Ponzi scheme. This lack of situation-specific expertise need not disqualify his expert testimony, as inadmissible. However, as a matter of credibility, his opinion is not entitled to as much weight as Martens’s.

As for Charnetzki’s reliability, the issue is two-fold: whether he reasonably applied a consistent methodology, toward the specific question before the court. Unlike Martens, who estimated the cost to be about ten million dollars, Charnetzki opined that the cost of what he envisioned would be about $600,000.00.

As noted above, Charnetzki’s accounting methodology would entail recording “due to” and “due from” entries for each of the transactions that actually occurred, pursuant to whatever objective memorialization may be linked to their occurrence. Hrg. Tr. 879:11-880:15. According to Charnetz-ki, this process would not be as time-consuming or expensive because PwC has “already” tracked all of the documented transactions. This methodology, the objecting parties argue, is more in line with accounting standards than Martens’s methodology because it would not attribute reality to hypothetical transactions running between SPEs and there would be no need to draw inferences about the sources and uses of money flowing through the SPEs toward PCI. The Epsilon/West-ford parties call Charnetzki’s approach “straightforward and simple.” E/W Closing Arg. Brief at 86.

The internal difference between Martens’s and Charnetzki’s approaches is the end-event contemplated by their methodology. Charnetzki would attribute a flow of specific money from the SPE-recipient of loaned funds, directly through an ostensible vendor, and the balance to PCI. He would do so on an assumption that all such movements took place very close in time, on the same day usually. And his methodology would then stop at PCI, in the repose of the pool in the M & I bank account. At that point, from the perspective of the original SPE-borrower, he would book a “due to” to the third-party lender, and a “due from” to PCI.

*821 His justification for ending there was his attribution to PCI of complete “discretion” in its control over the M & I account, which he equates to a right to direct any and all funds on deposit to wherever it chose, without an obligation to account to the original source-SPE. There seems to be an unvoiced quasi-legal predicate thought under this, that this “discretion” terminated any obligation that PCI would have had to account for its use of the commingled funds, to any party in the flow of funds toward PCI.

Charnetzki saw no need to recognize any commingling at the vendor-node, because he envisioned that point as a mere pass-through that happened so quickly (“immediately”), as to lack significance for accounting purposes. (He did not concede any effect on his characterization from the fact that the vendors consistently helped themselves to commissions; and he had no credible response when presented with evidence that Nationwide and Enchanted usually received multiple payments in large totals from several Petters-related SPEs and other sources almost every day, and deposited them in one pooled account from which they disbursed to PCI and elsewhere.)

He also flatly denied that any commingling of SPE-generated, lent-in funds could be recognized on or after receipt by PCI. He saw the relevant, bookable “asset” of the SPE-source at that point as being the resultant “due from” PCI, and he insisted that “that asset isn’t commingled.”

The Trustee argues that the simplicity of Charnetzki’s approach creates a lack of reliability. He insists that Charnetzki’s methodology ignores evidence, fails to recognize commingling at the vendor level and PCI level, and is grossly generalized.

Apart from the lesser weight to be accorded it on a weighing of the two experts’ qualifications, Charnetzki’s opinion on the necessary accounting tasks is just not reliable, because it is not directed to the issue actually at bar.

Under Daubert’s progeny, one important factor for reliability is whether the expert sufficiently connected the methodology for his analysis and the content of his opinion with the facts of the case. Lauzon, 270 F.3d at 687 . Charnetzki’s opinion is partly based on his unvarnished characterization that no commingling occurred at the vendor level, and his refusal to give any significance to what happened to lender-sourced money after PCI received it. Hrg. Tr. 896:22-24. According to Charnetzki, “the asset is still at the SPE level and it’s a due from PCI.” Id. at 896:17-21. In other words, once the funds left the SPE’s control, the SPE’s asset became a “due from PCI,” and that is the only recourse as to the funds that may be deemed for the purposes of accounting.

This treatment of assets and liabilities is far too abstract for the concrete mission in question here, and it does not even apply to it. Beyond that, Charnetzki did not explain whether his methodology is generally accepted, and he did not justify it in light of any standards for forensic accounting as applied to a scheme of fraud purveyed by commingling through multiple entities.

And, most damningly, his methodology simply did not respond to the specific needs of the bankruptcy estates as posed by this motion. Charnetzki refused to give any significance to the origin of the problem in a massive, multi-staged misappropriation of funds, at the end of which there were aggrieved SPE-parties linked to outside lenders satisfied or unsatisfied. Even at the abstract plane of accounting, where financial posture is to be reported transparently and accurately, he would just have the end-results of the fraud remain *822 where they were, i.e., net losers among the SPEs (and their associated lenders) left with a traceable avenue of recovery only through to PCI, and the end-recipient net winners, SPEs and their lenders, left with the benefit of their receipt of stolen money.

In administering the estate, a trustee in bankruptcy is not to accept the posture of assets and parties as they appear or as they stand, right after debtors’ financial failure. In a case where the failure was the result of debtor wrongdoing, and the law gives injured parties rights of recovery in consequence of that wrongdoing, a trustee must recognize such consequences and take them fully into account in administering assets and claims. And, in cases of related debtors where systemic wrongdoing gives rise to such claims cross-running between the estates, the trustee must take action to fix and liquidate those claims in order to finance distribution rights.

This is not at all what Charnetzki envisioned toward formulating the analysis for his proposal of tasks. He would take the tracing only so far — up to PCI — and would stop there. His rationale for curtailing the search neither had a sound basis in law or logic. Nor did it respond to the administrative need for professional service his opinion was to address.

For those reasons, Charnetzki’s opinion is not reliable, and hence is not probative of the actual issue at bar. 52 Martens’s opinion is the only one going to the need for particular accounting services to responsibly administer the PCI-related Debtors’ estates, were they left separate. 53

This is also why the objectors’ cavil fails, as to Martens’s refusal to trace beyond SPE-recipients to other Petters-related companies. Such an extended tracing simply was not relevant to the defined accounting task, which in turn was matched to only one part of the Trustee’s job of finalizing the complexion of assets and lia bilities — within the circle of the PCI-related Debtors. The potential recovery of money transferred outside of that ring was not among the trustee’s tasks for which the forensic reconstruction was to be done, that were relevant to the standard for substantive consolidation.

To explain: the Trustee was first confronted with a tight aggregation of related entities that had been very financially active with each other, bound together in a parent-subsidiary relationship and a web of contractual relationship but nonetheless having done all sorts of things among themselves that were not authorized under contract or law. That was the first tangle the Trastee had to remedy. It had to be *823 organized before he could parcel the estates’ value through the channels dictated by the intercompany structure. The problem was, the misuse of the structure and all of the unauthorized transfers created a tangle of obligations and rights under law that would have to factor into that channeling. 54

So the Trustee limited his inquiry to everything within that ring. What transpired when money departed the ring would be relevant to a different, later part of administration. Hence an accounting that included that tracing-out was simply not part of Martens’s charge. Nor was its end-result relevant to the issues before the court.

iii. Outcome, as to Inquiry into Cost and Burden

Martens’s testimony supports the findings now made, that an accounting to reconcile all intercompany transfers among the PCI-related Debtors would be costly (to the tune of at least ten million dollars, for at least 33,000 hours of accountant time), and once done would not be a wholly reliable reflection of cross-running assets and liabilities that were lawfully-entitled. The Trustee arguably could not make justified or responsible use of the end-product in mapping out the first stage of allocation in administration, among the separate estates of the PCI-related Debtors.

Substantive consolidation would make this whole exercise unnecessary. At the very least, it would save the estate the costs of the forensic accounting in reconstruction. Further along, it would save the estate the costs of defending Martens’s conclusions against challenge on the lack of the reliability he himself could not warrant, were the actual, dollar-measured parity between given SPEs ever to become an issue in the administration.

The conclusion is clear: the estates of all of the PCI-related Debtors would substantially benefit from substantive consolidation.

b. Necessity, as it Bears on Estate Administration

Under Vecco, a key factor to consider is the degree of difficulty in segregating and ascertaining individual assets and liabilities, among debtor-entities. 4 B.R. at 410 . Martens established that this would be very difficult, and the results not trustworthy, were this done on the posture of separate estates. This would make the likelihood of a fair, principled allocation much lower, and certainly more costly. And that allocation is not imperative in an equitable sense, with the ubiquity of commingling all the way through to the Debtors’ failure plus the degree of internal and external melding among them. As will be seen in the second and third considerations, upon consolidation the chance of disproportionate dilution falling on particular creditors is not high.

This record establishes that consolidation is necessary within Giller’s contemplation, to enable the fullest and most principled redress to all creditors of these Debtors.

c. Necessity, as it Bears on Adjudication in Equity (Consideration of Creditor Reliance)

A major portion of the three days’ worth of evidence was directed to one of the main thrusts of the respondents’ defense: the respondents had insisted on and obtained the establishment and maintenance of separateness between PCI and their own SPEs; and their reliance on that separateness was pivotal to their decisions to lend to the Petters enterprise. This reliance, they argue, supercedes all other consider *824 ations and gives them an unassailable bar to substantive consolidation. 55

The tone of this argument resonates most directly with the Third Circuit’s approach. It also dovetails into the standard adopted in Augie/Restivo. It has no firm basis in current Eighth Circuit precedent, however. Giller does not even expressly acknowledge ex ante reliance by creditors as a consideration, whether as part of a movant’s case in chief or as an affirmative defense, ala the tests from the Second and Third Circuits. Treating the motion at bar strictly within the four corners of Gil-ler’s analysis, it arguably would not be necessary to even address ex ante reliance.

However, on examination of the evolving theory of substantive consolidation, the Eighth Circuit may parse the remedy more closely and might take cognizance of ex ante reliance in a revision of the Giller standard. With that in mind, it is prudent to examine the detailed record that the parties made on this point, and to fit it into an analysis that otherwise must center on Giller’s rulings.

Examining creditor reliance on a refinement of Auto-Train, the court in East-group observed that a creditor may be estopped from asserting a reliance defense to substantive consolidation “where a reasonable creditor in a similar situation would not have relied on the separate credit of one of the entities to be consolidated ... in light of all the facts.” 935 F.2d at 249 n. 11 (emphasis added). Considered in that light, the consideration of ex ante reliance arguably factors into the analysis of necessity under the second aspect of Giller’s first consideration, as well, at least where the evidence makes out a lack of actual or reasonable reliance on separateness. The point here is that it may be “necessary” to consolidate the entities to reflect reality and maintain equity, if the objecting parties never expected to exclusively treat them as separate, and took actions that in fact did not treat them consistently and exclusively as separate. 56

Evidence going to creditors’ due diligence performance in the establishment and operation of related debtor-entities is relevant to this analysis, i.e., whether the parties reasonably relied on the separateness of the entities.

The parties offered the testimony of three witnesses, proffered as experts, as to the standards for lender due diligence in the context of transactions like those ostensibly purveyed by the Petters enterprise that were to be closed through an SPE structure. In total, three experts testified on due diligence standards: Myron Glucksman, Martin McKinley, and Kenneth Simon.

i. Side-Issue: Qualification of Myron Glucksman, Martin McKinley, and Kenneth Simon as Expert Witnesses; Reliability of Qualified Experts’ Opinions

Myron Glucksman (Epsilon/Westford)

Myron Glucksman is currently the president of his own consulting firm through *825 which he regularly provides expert advice to investment banks, law firms, and companies on asset-backed securities and other structured finance matters. He has a law degree. He was previously a managing director at Citibank, where he worked on “dozens” of transactions over the course of 16 years.

The Epsilon/Westford parties rely on Glucksman’s testimony that: (1) the structure of the Petters-related SPEs was typical of structured finance transactions; and (2) various factors highlighted by the Trustee (e.g., lack of an independent director, guarantees, flow of funds through the originator’s account prior to remittance to the SPE’s account) do not affect the separateness of the SPEs.

The Trustee’s argument is simple: Glucksman has no relevant experience. The Trustee is correct because Glucksman has no experience in purchase order financing, as granted to an SPE. Given the more complicated structures and processes used for the Petters lending transactions, with their specialized subject-transaction, multiple involved parties, and a variety of rules for queuing up the components of purchase-order financing, his testimony must be given relatively little weight.

In addition, the Trustee tacitly raised a Dcmbert issue. Glucksman’s analysis of separateness entailed the consideration of three factors: structure, documents, and conduct. Hrg. Tr. 864:2-6. During his testimony, the Trustee pressed Glucksman as to whether he would consider reliance on SPE separateness reasonable if he had seen that the lender had not engaged in any due diligence on the transaction. Glucksman responded: “No. I’d have a problem giving my opinion.” Id. at 864:7-12. It became clear during the hearing that Glucksman had not really looked into what, if any, due diligence the lenders to Petters had performed as to the underlying transactions. If he had, and had discovered that no due diligence was performed, then he necessarily would have had a “problem” delivering his opinion here. In other words, one key variable (due diligence) was not fully considered. Thus, Glucksman’s ultimate conclusions are not reliable because, under Daubert and its progeny, there is a “potential rate of error” and his broad-brush opinion is not sufficiently connected to the facts of these cases.

Martin McKinley (Trustee)

Martin McKinley has a banking background with Norwest Banks/Wells Fargo, where he gained experience in asset-based lending, and with Trans Cap Association, where he gained experience in purchase order financing. The Trustee offers McKinley’s testimony as an expert opinion on the due diligence required of lenders for purchase order financing.

In short, McKinley opined that: (1) there are three core disciplines of purchase order financing; (2) those disciplines were not followed by the lenders here; (3) if the disciples had been followed, the lenders would have discovered the fraudulent activity; (4) the loans were not securitiza-tions; and (5) given the lack of adherence to the core disciplines, no reasonable lender would have looked to the separateness of the SPEs as protection for the loans. Opportunity Finance and the Epsilon/Westford parties argue that his testimony is irrelevant and that he lacks experience. The Epsilon/Westford parties also argue that his testimony is unreliable.

As for relevancy, the objectors are correct in an isolated way; but they also miss the point. Surely, whether the lenders should have discovered the fraud is not an issue for substantive consolidation. However, what is relevant is what the lender would have discovered had they performed *826 their due diligence in accordance with the core disciplines.

As for his experience, the objecting parties note that he has no experience in purchase order financing involving SPEs. This misses the purpose of his testimony, which was to opine on the appropriate level of due diligence for a purchase order financing transaction, regardless of the vehicle. It appears that purchase order financing is more of a niche field than basic structured financing; so, experience with just purchase order financing rather than just undifferentiated financing through an SPE is more helpful for a fact-finder’s understanding of that industry.

Interestingly, the Epsilon/Westford parties’ reliability argument is tied to McKinley’s alleged lack of experience. They cite Housley v. Orteck Int’l, Inc., 488 F.Supp.2d 819, 825-26 (S.D.Iowa 2007), a non-controlling district court case that noted, “The Eighth Circuit when applying the Daubert standard requires that a proposed expert have formal training in the area he is called to testify about or, at the minimum, some practical knowledge or experience that would provide him the necessary expertise in that area.” As discussed previously, Daubert and its progeny in the Eighth Circuit treat the reliability of a qualified expert. Expert qualification is a preliminary issue, which the Epsilon/West-ford parties did not even formally raise. The Epsilon/Westford parties emphasize that McKinley’s opinions are based on his personal experience, noting that he did not survey other businesses in the industry. However, Daubert and its progeny make it clear that experience-based testimony is sufficient.

The only possible reliability issue is the application of purchase order financing due diligence principles to a situation involving SPEs. It is not unreasonable to apply such principles here, when the only difference would be uncertainty about which entity is charged with performing due diligence, i.e., the senior lender, the junior lender, or the servicer. To find it unreasonable would be to say that all due diligence principles that are core to the purchase order finance industry do not apply when the parties structure the transaction with a SPE. That makes little sense.

Kenneth Simon (Trustee)

Kenneth Simon is a licensed CPA at Loughlin Management Partners & Company in New York. See C.V. of Kenneth Simon, Exh. PCI_33. Since 1982, he has focused on bankruptcy matters, particularly from the side of creditor rights, providing financial advice to over 100 committees of unsecured creditors. He has worked on approximately 50 “retail bankruptcy cases.” Of those cases, he worked on one where the debtor was a wholesale distributor of consumer electronics and other products. Over the course of his career, he has become familiar with asset-based lending, special purpose entities, and even substantive consolidation. The Trustee relies on Simon’s identification of various due diligence procedures and his opinion that the parties failed to conduct effective due diligence, thereby rendering their reliance on the structure of the SPEs unreasonable.

Opportunity Finance and the Epsilon/Westford parties argue that Simon’s testimony is irrelevant and that he lacks the requisite experience and qualifications to opine about the appropriate level of due diligence in purchase order financing transactions. See Opp. Fin.’s Closing Arg. Brief at 34; E/W’s Closing Arg. Brief at 28. These objectors used the same arguments against McKinley’s testimony, but they are likely stronger against Simon’s testimony.

The objectors’ relevancy argument is as weak against Simon as against McKinley, *827 and one would have to accept that due diligence is irrelevant in order to agree with the objectors. However, in the objectors’ favor, Simon admitted that he is not an expert in purchase order financing and that he has never undertaken due diligence analysis for an entity considering lending to a diverting business. The lack of experience makes his testimony less credible. More importantly, his opinion is largely based on the opinions of others, whom he called to learn more about the steps for due diligence in purchase order financing. During testimony, he could not remember his sources’ names, and he did not know whether they had ever worked on a purchase order financing transaction involving a SPE. Hrg. Tr. 998:1-999:12. Beyond that, Simon did not undertake any factual investigation of any documents or other materials to determine whether any of the lenders here had undertaken the due diligence steps. Hrg. Tr. 1000:6-12. As a result, Simon’s testimony is not sufficiently reliable, even if received simply for education on due diligence principles without any concrete application via opinion.

Conclusions as to the Three

Of the three, Martin McKinley, one of the Trustee’s witnesses, offered the most helpful and reliable testimony because he actually has purchase order financing experience and he did not rely on the opinions of others in reaching any of his conclusions. The testimony of the Trustee’s other due diligence witness, Kenneth Simon, lacks reliability under Dau-bert, because he had to rely on the opinions of other unnamed sources as to the specific subject matter of purchase order financing. Hrg. Tr. 998:1 to 999:12. As for Myron Glueksman, Epsilon/Westford’s witness, his testimony is not reliable because he had no experience in purchase order financing.

McKinley identified three core principles, or “best practices,” of purchase order financing: (1) the lender must always verify the purchase order; (2) the lender must always maintain control over the movement of the goods; and (3) the lender must maintain cash dominion, meaning that payments are made directly to the lender. Hrg. Tr. 937:24 to 938:11. The Eighth Circuit recognizes that, in some cases, it is “important ‘for an expert to educate the factfinder about general principles, without ever attempting to apply these principles to the specific facts of the case.’ ” United States v. Contentos, 651 F.3d 809, 821 (8th Cir.2011) (quoting Fed.R.Evid. 702, Advisory Committee note). In turn, since due diligence for purchase order financing is outside the experience and knowledge of lay people, the principles outlined by McKinley may appropriately be used to draw inferences or conclusions without necessarily adopting McKinley’s conclusions.

Since McKinley is a Daubert-qualified reliable expert, however, his conclusions are helpful for the reasonable reliance analysis. Most importantly, he opined that, although the loans were ostensibly given to finance purchase order transactions, “none of the core disciplines of purchase order financing were practiced” by the objectors. Hrg. Tr. 936:1-5. The following fact-finding regarding each objecting party’s due diligence bears out McKinley’s own opinion.

ii. Analysis: Reasonableness of Lenders’ Reliance on Separateness SPF (Opportunity Finance f/k/a IIO)

Opportunity Finance’s reliance on the separateness of SPF, if any, was unreasonable.

First, as shown above, interrelatedness was obvious from the face of the foundational documents for the lending relationship. The proposal form, attached to the *828 Credit Agreement, requires SPF to disclose the identities of the seller and the buyer of the merchandise to Opportunity Finance. Exh. OF_060_0020 at “Exhibit A” (subsumed within SPF_003). Implicit in this structure is that SPF (or PCI) would have received a purchase order from the retailer-customer and had given a purchase order to the vendor. Id.; see also Exh. OF_060_0004 at 2.1(a)(i) (subsumed within SPF-003).

The other important term of the proposal was the details of the Assignment Agreement between PCI and SPF, under which PCI was to assign all right, title, and interest in the underlying inventory sale to SPF. Exh. OF_062_001 at I.B. (subsumed within SPF-003). This is source from which SPF was to eventually get the account receivable, which in turn was to be the source from which Opportunity Finance would be paid. The Credit Agreement and the Assignment Agreement have no provision dictating when the assignment was to occur. See Exh. OF_060; see also OF-062 (subsumed within SPF-003). It is implied that the account receivable was not in existence at the time of the assignment. This implication is also supported by the fact that the Purchase Order was the instrument assigned, with its associated rights as they arose later. See Exh. OF_062_0005 at “Exhibit A” (subsumed within SPF-003).

Once Opportunity Finance agreed to lend, it was to disburse to SPF. The Credit Agreement required that the funds be disbursed directly to the Seller (vendor). An intermediate transfer into the PCI account was not provided for. Exh. OF_060_0005 at 2.2(a) (subsumed within SPF-003). Once the goods were delivered to the retailer-customer, an account receivable was to be created. The Credit Agreement contemplates, or rather prefers, the payment of that account receivable directly to SPF. Id at 2.2(b).

In reality, funds pretensed as being linked to an account receivable were paid into PCI’s M & I account. From there money was wired within 24 hours to the SPF account. Martens Hrg. Tr. 60:19-23. After those funds made it into the SPF account, they were disbursed back to Opportunity Finance in repayment of the loan, with principal and interest. The remaining fictive balance was then transferred back to PCI as ostensible profit.

The Credit Agreement contemplates that SPF had the ability to broker these transactions itself from beginning to end. Exh. OF_060_004 at 2.1(a)® (subsumed within SPF-003). However, PCI and SPF entered a Management Agreement under which PCI was to act on SPF’s behalf and essentially perform every function of the deal-making. See Exh. OF-065 (subsumed within SPF-003). In theory, if PCI acquired an account receivable in its capacity as agent under the Management Agreement, the ownership was to rest in SPF and no assignment would be necessary. But for that to be documented toward legal effectiveness, Tom Petters (the one who was at the center) would have to take very careful, consistent, technical steps to refrain from purporting to act for PCI in a proprietary capacity, and to overtly act for SPF in an agent capacity. The likelihood of that being done consistently was most likely perceived as low, which is probably why this management agreement was put into place. In any case, there is no evidence that SPF ever purported to document transactions as directly brokered with an ostensible vendor and an ostensible retailer.

In the end, the key point for separateness is that Opportunity Finance was totally dependent upon PCI’s follow-through compliance with the Assignment Agree *829 ment. If PCI didn’t make the assignment, SPF would have been stuck in the lurch, with no capital and no ability to repay the outstanding debt to Opportunity Finance.

This argument is further bolstered by other provisions in the Credit Agreement:

§ 4.5 — Prohibited the Borrower (SPF) from owning any other material property beyond the inventory subject to the sales. SPF was prohibited from owning any hard assets that a lien could attach to or that could be liquidated to satisfy Opportunity Finance’s loan. Exh. OF_060_0009 (subsumed within SPF_003).

§ 5.6(a) — Prohibited the Borrower (SPF) from owning any other assets or conducting any other business than the Inventory Purchase/Sale deals contemplated in the credit agreement. Id. at _0010 (subsumed within SPF_003).

The only way terms of this arrangement permitted SPF to pay off a loan to Opportunity Finance was through the assignment of and the collection on the corresponding account receivable from PCI. The actual execution of that assignment was completely dependent on PCI’s good graces. The assignment of the rights to the transaction from PCI to SPF was not a condition precedent to the lending. The actual condition precedent is that the lending has to occur before the assignment and not vice versa. Exh. OF_062_0001 at I.B. (subsumed within SPF_003). 57 Clearly, Opportunity Finance was to lend the money and then hope PCI complied with its separate obligation to SPF.

Simon Root notified Jon Sabes of the lack of bankruptcy-remoteness between SPF and PCI by May 2001. But IIO (and then Opportunity Finance) continued to lend to Petters Finance/SPF after that. See PwC Flow of Funds Report, Exh. OF_024_0005 (listing notes to Opportunity Finance with starting dates). As that exhibit summarizes, Opportunity Finance continued to lend to SPF as late as March, 2005, a long time after Opportunity Finance and PCI created PCF in an attempt to address SPF’s lack of bankruptcy-remoteness. Another Opportunity Finance party, the Sabes Family Foundation, made loans to SPF until at least May 2007. Exh. OF_024_0009.

Second, Opportunity Finance continually relied on PCI as a financial “backstop.” Opportunity Finance accepted the possibility of Petters Finance/SPF drawing upon any external source in order to repay Opportunity Finance’s loans when due. Section 2.2(c) of the Credit Agreement allowed Petters Finance/SPF to draw upon sources other than the retailers in order to pay off its debts to Opportunity Finance. Exh. OF_060_0005-_0006 (subsumed within SPF_003). Just before closing on the original arrangement, the parties added § 2.2(c), which provided that each Promissory Note in favor of IIO was due on the 150th day or when Petters Finance received funds from the Buyer, “whether or not [Petters Finance] shall have received payment from the Buyer under the Buyer Purchase Order related to such Promissory Note.” Id. (emphasis added). See also Email from Simon Root to Tom Petters ¶ 1, Exh. SPF_037.0001 (noting addition). Pointedly, § 2.2(c) also provided:

It shall not be an Event of Default under this Agreement or the Loan Documents if a Buyer does not pay an underlying Buyer Purchaser Order when due, provided the related Promissory Note is paid on or before its due date (it being *830 acknowledged that Borrower has until the Promissory Note due date to receive payment from such Buyer or to otherwise pay the Promissory Note from other sources).

Exh. OF_060_0005_0006 (subsumed within SPF_003) (emphasis added).

Section 2.2(c) conclusively shows that Opportunity Finance knew it had a financial backstop beyond SPF that would help to ensure repayment when due. Meanwhile, Opportunity Finance also knew that the “separateness” covenants in the Credit Agreement contractually required SPF to pay all of its own liabilities out of its own funds. Section 2.2(c) undermined that covenant. The inconsistency established a lack of separateness.

Under the structure of this complex of relationships, Opportunity Finance took substantial risk on two levels: the first in lending money that might not get repaid, and the second in PCI’s compliance with the associated agreement.

Opportunity Finance tried to control that second risk, and it contracted for that control. The control lay in Opportunity Finance’s ability to take recourse against PCI on two levels. This clearly manifested reliance on PCI, as intertwined with SPF. See Exh. OF_060_0010 at 5.5 (subsumed within SPF_003); See also SPF_036 at Para. 1, SPF_037 at Para. 3.

First, the lending structure between Opportunity Finance and SPF provided that Opportunity Finance could receive payment from PCI directly. Opportunity Finance was permitted to file a financing statement against PCI directly, per the Assignment Agreement. Exh. OF_060_0010 at 5.5 (subsumed within SPF_003). The Assignment Agreement provided that if such an assignment were deficient, notwithstanding the intent of the parties, that PCI granted Opportunity Finance a security interest in the rights to the financed sale. Exh. OF_062_0003 at II.4 (subsumed within SPF_003).

Before the documents were executed, Simon Root warned Jon Sabes about this arrangement, and specifically advised that it might render the use of an SPE meaningless. Exh. SPF_036. If Opportunity Finance truly wanted to separate itself and SPF from PCI, the Sabeses should have limited their recourse to personal guarantees by PCI and Tom Petters, instead of taking security interests in assets held by PCI. They were warned of this fact before closing the transaction and ignored it. Opportunity Finance clearly wanted to make sure it could take all recourse against both PCI and SPF, as related entities.

The final aspect of Opportunity Finance’s use of PCI for backup recourse is the designation of Opportunity Finance as a third-party beneficiary to the Assignment Agreement between SPF and PCI. As such, Opportunity Finance granted the right to enforce all rights of the Assignee (SPF) against the Assignor (PCI).

The argument could be made that this was in fact a step toward remoteness. If there were no assignment because PCI chose not to assign, Opportunity Finance had to step in to pursue PCI directly. In that instance, it would be doing so only on behalf of another corporation, not for its own direct benefit.

However, given the limitations on SPF’s ability to generate income and the bar on its engagement of outside business, the reality is that Opportunity Finance would be financing a breach claim for its own benefit, in essence making it a lawsuit against PCI for itself. There does not appear to be a situation where Opportunity Finance would not have direct action or recourse against PCI. The direct recourse against PCI makes the entire existence of SPF largely irrelevant. But that, in turn, *831 was a feature of PCI’s entanglement in a financing transaction that was to have been segregated into a box around SPF.

Another factor undercutting separateness lay in the prominent role that PCI’s underlying credit-worthiness played in Opportunity Finance’s decision to deal through Petters Finance/SPF. As noted previously, PCI was a guarantor of the debt of Petters Finance/SPF to Opportunity Finance. Exh. SPF_003 OF_SC_00000102. Notably, PCI’s guaranty includes an acceleration clause that makes the total obligation due and payable immediately upon the dissolution or insolvency of PCI. Corporate Guaranty ¶ 4, Id. at OF_SC_00000108. Thus, given the face of the guaranty, at least as much importance was accorded to PCI’s credit-worthiness as to the integrity of the collateral given through PCI and/or Petters Finance/SPF. Jon Sabes confirmed during his testimony that, because of the guarantees, Opportunity Finance looked to the credit of PCI and Tom Petters when it made loans to Petters Finance. Hrg. Tr. 413:12 to 414:5.

This is embodied in an isolated side-aspect of Opportunity Finance’s rights on default. Since SPF’s only ability to pay off its loan to Opportunity Finance was through collection on an underlying sale of inventory to a buyer, that sale had to generate enough funds to cover repayment of the original loan amount plus any late payment penalty. Opportunity Finance took the risk that the underlying sale would not generate enough funds, in which SPF would be unable to pay off its penalty; and thus the recovery on that penalty payment would have to come from somewhere else-likely PCI. 58 As a result, Opportunity Finance cannot credibly argue that it did not rely on the credit-worthiness of PCI, or on the availability of satisfaction from PCI for the penalty charged. Section 2.4 of the Credit Agreement imposed a 20% APR interest on late payments. Exh. OF_060_0006 (subsumed within SPF_003).

Equally crucial is a circumstance from the parties’ actual practice: the Sabeses knowingly allowed commingling even though they knew it undermined separateness. As noted above, commingling was prohibited under the Credit Agreement; but to opposite effect the Assignment Agreement suffered it to occur, albeit temporarily. Compare Exh. OF_060_0011 at 5.6(h) (subsumed within SPF_003) with Exh. OF_062_0002-_0003 at II.3 (subsumed within SPF_003). Internally, Opportunity Finance was more than aware of this contradiction, and the jeopardy it caused to any assertion of separateness: in an August 2001 email to Bob Sabes, Steve Sabes opined that commingling of funds defeated the purpose of using an SPE. Exh. SPF_043. In fact, Opportunity Finance (at the behest of its senior lender) required PCI to take a stake in the purchase of inventory by contributing an “equity kicker,” i.e., a portion of the purchase price ostensibly to come from its own assets. See also OF_023_0002; Martens Hrg. Tr. 198:12-199:14.

Finally, Opportunity Finance failed to conduct reasonable due diligence for its provision of purchase order financing through the vehicle of SPF.

To be sure, some facial aspects of the transactions as pretensed might reason *832 ably provide comfort to a lender. For example, under § 4(f) of the April 2001 Security Agreement, Petters Finance represented that the Accounts (i.e., the purchase orders) “represent bona fide sales of inventory or rendering of services to Account Debtors.... ” Exh. OF_061_0006 (subsumed within SPF-003). Further, a guaranty of the bona fide character of submitted invoices with Costco as named and ostensible customer was among the closing documents for the April 2001 deal. Exh. SPF-003 OF_SC_00000132--00000134.

But even so, under § 3(c) of the Security Agreement, Opportunity Finance had a right, at any time, to “communicate with Account Debtors, parties to Contracts, ob-ligors of Instruments and obligors with respect of Chattel Paper to verify with such Persons, to [Petters Finance’s] satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.” Exh. OF_061_0005 (subsumed within SPF-003) (emphasis added). Despite that, Opportunity Finance invariably relied on blandishments from Petters Finance/SPF that the sales were actually in process. No one on behalf of Opportunity Finance ever contacted any of the identified ostensible retailers to verify the existence of the supply agreements or accounts for the ostensible diverting transactions. Jon Sabes Testimony, Hrg. Tr. 432:14-17, 500:18-20. In turn, Opportunity Finance did not comply with any of the core due diligence principles for giving purchase order financing that McKinley identified; and there is no evidence that contradicts McKinley’s opinion as to what those were and how they should have been observed.

PCF (Opportunity Finance)

Opportunity Finance’s reliance on the separateness of PCF, if any, was also unreasonable.

The evidence does indicate that Jon Sabes intended to form PCF as a bankruptcy-remote entity. Exh. OF_057_003. In practice, however, Opportunity Finance did not rely on the separateness of PCF; and even if it did, such reliance was unreasonable in light of all the circumstances.

First, Opportunity Finance relied on PCI to serve an integral role in financial support of the PCF financing arrangement through PCF. For example, Opportunity Finance required PCI to buy into, or participate in, the PCF deals, by a 2% contribution toward the cost of acquisition of goods. Jon Sabes Testimony, Hrg. Tr. 444:2-8; see also Letter from Root to Sabes, Exh. PCF-042.0001 (opining that the 2% from PCI was likely part of the internal credit approval procedures).

Just as for the SPF Credit Agreement, § 2.4 of the Credit Agreement with PCF imposed a 20% APR interest charge on late payments. PCF-001.0057. As noted for SPF, if Opportunity Finance was looking solely to the collateral for payment, but PCF’s satisfaction on the loan and any associated penalty was contingent upon collection on the receivable in an amount sufficient to cover what it owed, any deficiency attributable to the 20% late payment penalty could only come from another — outside—source. This was most likely PCI. As a result, it seems unreasonable on the part of Opportunity Finance to argue that it did not rely on the creditworthiness of PCI to make it whole.

Second, as with SPF but in different ways, the foundational documents for PCF set up PCF to be so dependent on outside resources that there was no operational separateness for Opportunity Finance to rely on. The LLC agreement for PCF’s formation stated that PCF’s existence was “limited solely to the following: ... to *833 purchase ... [receivables].” Exh. PCF_001.0014 at Section 7(a). The Credit Agreement between PCF and Opportunity Finance limited PCF’s use of the loan proceeds to acquisition of receivables from PCI and nothing more. See Exh. PCF_002.0004 at 2.2(a). The burden was then on PCI to acquire the inventory and sell it to a retailer in order to trigger the existence of the receivable. From the outset of the deal, PCF was totally reliant on PCI’s good graces and de facto follow-through for its ability to repay Opportunity Finance, just as SPF was.

And in different ways relating to asset acquisition and value accretion, PCF was unable to function without PCI’s involvement. The Credit Agreement with PCF required that PCF hold no other assets aside from the receivables acquired from PCI and PCF was only permitted to pay off its obligation to Opportunity Finance from those receivables. See Exh. PCF_002.0010 at 5.7(a) and (d). Unlike SPF, PCF had no opportunity to enter into inventory purchase/sale transactions in its own right and on its own motion. In order for PCF to generate any income, PCI had to do the deal.

At the fulfillment stage, and in like degree as SPF, PCF was completely dependent upon PCI for the performance on PCI’s underlying contracts with retailers-customers. If PCI did not, no receivable would ever exist. PCF would be obligated to Opportunity Finance, but it would have given the loan proceeds to PCI; and PCF would have no way to generate income to pay off its debt. And PCF also took on two levels of risk where SPF only had one. SPF ostensibly bore some sort of interest associated with the inventory since it was to disburse the loan proceeds to the vendor. With PCF, a risk lay with PCI’s follow-through, i.e., whether OCU would actually use the funds received from PCF to purchase inventory. The loan proceeds were to- be disbursed directly to PCI. Regardless of what PCI’s contractual obligation may have been to use those funds in a particular way, there was the chance of its nonperformance — which would have destroyed the eventual right to payment PCF bargained for and had to have to make good to Opportunity Finance.

The second risk PCF took once the inventory was acquired was whether PCI would actually sell the inventory to the retailer on acquisition in accordance with the underlying contract. Once PCI was to purchase the inventory from the seller, it became the owner of that inventory free and clear. See Exh. PCF_002.0049 at D.9.

In order for these deals to work smoothly for anyone to generate profit, and for PCF to remain solvent and in good standing, PCI had to follow through with its many extrinsic obligations by its own good graces.

Through the arrangements used, PCF did address a problem with the SPF structure, the acquisition of the receivable being triggered by a matter of law upon the occurrence of an event. But this did not address the de facto reliance on PCI; it merely shifted the risk to a different part of the deal.

PCF’s structure did fix the PCI SPF-related problem of being an essential backup on default — but only partially. The documents had no provision for Opportunity Finance to have a security interest enforceable against assets of PCI. However, Opportunity Finance was named a third party beneficiary to the Sale Agreement between PCF and PCI. This made PCI a de jure backup, just as it did in the SPF structure.

This whole structure clearly contemplates PCI as a security blanket for Opportunity Finance in the event of default *834 by PCF; PCI played an integral role in making the deal work under various permutations of risk. If PCI failed to follow through, everything fell apart for PCF and Opportunity Finance ... which is to say everything was reliant on PCI, which then could not be considered “separate from” PCF and vice versa.

And even if Opportunity Finance did actually or nominally rely on PCF’s separateness, the promise of returns that were facially high makes such reliance unreasonable. The 2002 audited financial statements for PCF indicate a net loss and the lack of an equity contribution. OF_008_0006. It shows revenue of $29,185,842 and cost of revenue of $31,666,374, resulting in a net loss of ($2,480,532) for 2002. It also shows the ending balance of member’s equity as negative ($2,480,532). Id. 59 This means that the membership equity had a beginning balance of $0 and then just kept going in the red. 60 In the meantime, PCF’s notes obligated it to pay 2.50% monthly for an annualized yield of 30%. There is no evidence in the record to show how this was sustainable independently on PCF’s own, isolated means. Exh. OF_026_0001.

As it turns out, Opportunity Finance is the entity that required the independent audits of PCF’s finances. Jon Sabes Testimony, Hrg. Tr. 393:25 to 394:10. According to Jon Sabes, the audit opinions gave Opportunity Finance “comfort” that PCF was living up to its covenants of separateness, that it was a going-concern enterprise, and that it was maintaining its own books and records and accounting for its own assets and liabilities. Hrg. Tr. 394:11-395:4. However, neither of the Sabeses or anybody else on behalf of Opportunity Finance apparently stopped to think how PCF could possibly keep paying such high rates of return on time; or the thought came, but there was no afterthought toward action. And crucially, Opportunity Finance provided loans to PCF long after seeing the audits. See Exh. OF_032_0013 (showing a promissory note dated Nov. 28, 2007).

Third, it was unreasonable for Opportunity Finance to rely on the non-consolidation opinions given by the Mayer Brown and Andrews Kurth law firms for any understanding that the entities on the Pet-ters side of the PCF arrangement were separate.

By way of background: in order for Opportunity Finance to secure its own financing from its senior lender DZ Bank, DZ Bank insisted that Opportunity Finance obtain non-consolidation opinions. This is reflected in the conditions precedent in paragraphs (h) and (p) of Schedule 1 to their Security Agreement. Exh. OF_006_0111. On December 28, 2001, Mayer Brown provided non-consolidation opinions for: (1) the transaction between PCF and PCI, Exh. PCF_005; and (2) the transaction between Opportunity Finance *835 and DZ Bank et al. Exh. PCF_004. 61 Jon Sabes testified that Opportunity Finance “relied” on the Mayer Brown substantive consolidation opinion when it entered into the December 2001 deal with PCF, and that Opportunity Finance would not have entered into the deal without the opinion. Hrg. Tr. 381:9-16.

There are at least three bases in the record that conclusively defeat a finding that Opportunity Finance actually and reasonably relied on the Mayer Brown opinion before committing to give credit to PCF. The first is that Opportunity Finance could not have actually relied on an opinion that was given after the transaction closed: notably, both opinions were dated after the Opportunity Finance and PCF deal closed on December 17, 2001.

The second reason is that Opportunity Finance was put well on notice by PCF’s attorneys that the Mayer Brown opinion rested upon factual inaccuracies. For example, in an email exchange between Simon Root and Jon Sabes on December 22, 2001 (notably also after the deal closed), Root recounted an argument that Heather Thayer had with a lawyer at Mayer Brown, and he re-expressed her concern to Sabes over the documentation being structured “as a receivable financing, even though it is far from a traditional receivables financing in so far as the right to payment is not yet earned at the time of the financing.” Root Email ¶ 3, Exh. PCF_050.0001. On December 26, 2001, Thayer emailed Opportunity Finance’s counsel at the Moss & Barnett law firm of Minneapolis, to express her disagreement with Mayer Brown’s non-consolidation opinion due to its reliance on a “fact pattern [that] was lifted from some other transaction-” PCF_051.0001. According to Thayer’s deposition testimony, she expressed her concerns about the “factual underpinnings” of the Mayer Brown opinion to Jon Sabes. Thayer Depo., 141. 62

The third reason is that the Mayer Brown opinion listed 12 indicia of SPE separateness that it assumed PCI and PCF did and would continue to maintain, without any verification of them. Exh. OF_010_0008-_010_0010. 63 It makes little sense to posit that Opportunity Finance could rely on this threshold assumption for purposes of believing the entities were separate.

The same analysis can be applied to any purported reliance on the Andrews Kurth non-consolidation opinion, which was given in connection with the WestLB-Opportunity Finance senior lending transaction. For instance, in March 2005, Andrews Kurth provided an opinion that was partly based on the assumption that “Lender is relying on the separate existence of each of each of SPE and Seller in entering into the Transactions and Lender believes that it would be harmed if such separate existence were not recognized.” Exh. OF_001_0003. On its face, but in context, this statement has a certain syllogistic character. It was unreasonable for Oppor *836 tunity Finance and WestLB to have relied on this assumption toward concluding that the entities were separate. 64

Fourth, Opportunity Finance failed to perform due diligence for the ostensible transactions through PCF for which it was providing financing, which made its reliance more unreasonable. Opportunity Finance never confirmed that the funds flowing into PCI in fact came from retailer-customers. This allowed the fraud to continue. In 2003 Jon Sabes did hire a private investigator to determine whether the retailers listed on the receipts provided by Petters had accounts at the banks listed on the receipts. Hrg. Tr. 430:3 to 431:12. While he considered this to be due diligence on Opportunity Finance’s part, his testimony and Exh. PCF_105 show that the private investigator could only confirm that the supposed retailers (named as BJ’s, Rex Stores, and Wal-Mart) had accounts at the banks noted. He could not confirm whether the supposed retailers were the holders of the specific accounts identified on the (forged) receipts furnished by the Petters operation. Hrg. Tr. 430:3 to 431:12; Exh. PCF_105.

Despite the investigator’s inability to confirm that the ostensible retailers actually made the payments, Opportunity Finance never contacted any of the retailers for verification. Jon Sabes testimony, Hrg. Tr. 500:18-20. Toward an excuse, Jon Sabes testified that Opportunity Finance was barred from doing so unless there was a default under the Credit Agreement, and that Tom Petters had warned Opportunity Finance against doing so. Hrg. Tr. 432:3-8.

But, when PCF did default in 2007 or 2008, Opportunity Finance still did not contact any retailers. Hrg. Tr. 432:9-17. Instead, Opportunity Finance accepted PGW’s stock in Fingerhut in lieu of exercising its rights under the Credit Agreement. Exh. PCF_147; Exh. PCF_001.0038. 65

Under the core disciplines McKinley described, a reasonable provider of purchase order financing would not bargain away its ability to verify purchase orders, or defer exercising such a right on the dissembling that Tom Petters gave and the Sabeses accepted. In connection with that, the Mayer Brown opinion specifically imposed the following condition on its non-consolidation opinion: “For the purposes of this opinion, we have assumed ... there has been no (and there will not be any) fraud in connection with any of the Transactions.” Exh. PCF_004.0003. Thus, the qualifications to the Mayer Brown opinion placed the onus on the parties to verify any circumstance potentially going to the existence of fraud. Simply accepting Tom Petters’s blandishment was not reasonable, particularly with respect to the assumption that there was not a fraud.

Fifth, Opportunity Finance became aware of various red flags, which made unreasonable any further reliance on the supposed separateness of PCF. One red flag (related to the lack of due diligence noted above) is that Opportunity Finance was denied leave to 66 — and then did not— *837 verify the authenticity of the purchase orders or the existence of the alleged inventory of goods.

In fact, verification seems not to have become an issue until DZ Bank pressured Opportunity Finance. For example, prior to a March 2003 meeting with DZ Bank, Jon Sabes relayed to Tom Petters a list of inquiries that DZ Bank was likely to make, one of which was, “How can DZ get satisfied with the existence and condition of inventories?” Exh. PCF_080.0001-_080.0004. Sabes described this inquiry as “not insurmountable, but somewhat problematic,” and termed the problems as the “GE problems.” PCF_080.0004. 67 Sabes also highlighted the physical location and existence of inventory as likely subjects for inquiry by DZ Bank, and he assigned the verification of inventory existence to the “aggregator’s [i.e., Nationwide’s or Enchanted’s] responsibility.” Exh. PCF_080.0003. 68

Significantly, by April 2004 Jon Sabes learned that it might be possible to check the status of purchase orders on the website of Sam’s Club (an ostensible PCI customer), as long as one had a vendor number. Exh. PCF_113. Deanna Coleman testified that Sabes’s inquiry about this caused her concern because — contrary to representations made to Opportunity Finance — Sam’s Club had never made any diverting-transaction purchases through PCI or its affiliates. Coleman Testimony, Hrg. Tr. 66:8-67:14. Coleman forwarded Jon’s email to Tom Petters and heard nothing further from him. Id. at 67:4-6. Later, in September 2007, Jon Sabes emailed Coleman an attachment regarding the proper conventions of form and content for Sam’s Club purchase orders, and he noted that “our deals from Sam’s do not conform to this convention. Any thoughts?” Exh. PCF 141. 69

But notwithstanding these several contradictory signs relating to purchase orders and inventory on ostensible PCF transactions that Opportunity Finance was funding, Opportunity Finance continued to lend to PCF until at least November 2007. See Exh. OF_032_0013 (showing a promissory note dated Nov. 28, 2007).

Another, major red flag was raised when Opportunity Finance was unable to get the Petters side of PCF financing transactions to stop its use of commingling, even though the Sabeses knew that commingling threatened any claim of separateness. From the Mayer Brown opinion, Opportunity Finance knew that commingling of assets is generally viewed as a negative factor on separateness, i.e., weighing in favor of substantive consolidation. Jon Sabes Testimony, Hrg. Tr. 419:4-12. However, only one month after closing the PCF and DZ Bank deals, Jon Sabes ae- *838 knowledged the presence of commingling in the post-lending flow of funds within the PCI structure, in a January 31, 2002 memorandum to Deanna Coleman. Exh. PCF_056.0001. Later, in July 2002, Jon Sabes informed Coleman that Grant Thornton required more information about PCI for its audit of the DZ Bank facility, including a possible warehouse walk-through inspection. But for that, he instructed Coleman, “One thing, unless directly questioned, do not bring up the fact that retailer payments are not sent directly to the PC Funding account. I[f] asked answer honestly.” Exh. PCF-062.

Sabes testified that he gave this instruction because he did not want retailer payments highlighted in the audit report to DZ Bank. Hrg. Tr. 473:3-9. Over one year after closing, in January 2003, Opportunity Finance and DZ Bank ultimately tried to establish a lock box account to prevent the flow of funds into PCI because of the following “legal concerns”: (1) “less risk of fraud by Petters Company”; and (2) “More that commingling of funds in a Petters Company general account exposes the lenders to the risks that their funds may be at risk as of the day Petters Company declares bankruptcy for funds in the Petters Company general account because of traceability problems.” Thayer Depo., Exh. 37; Exh. PCF-074.0002; Thayer Depo., 149-150. Under the new lock box proposal, a trust was to be created at a bank to ensure the proper flow of wired funds. However, contemporaneously Simon Root and Jon Sabes were discussing the “need to work through traceability of proceeds — is it always clear which payments relate to which deals?” Exh. PCF-074.0004.

Thus, from the inception of the PCF credit arrangement Opportunity Finance knew that commingling could undermine PCF’s separateness; yet when it was occurring Opportunity Finance did not require the Petters side to fix the problem, and Opportunity Finance continued to make loans to PCF for the duration.

PCF (DZ Bank)

DZ Bank, as senior lender to Opportunity Finance on the PCF facility, did not rely on the separateness of PCF when it made loans to the Opportunity Finance SPE. 70

The evidence establishes that DZ Bank relied on the credit of PCI. For example, at the inception of the Opportunity Finance-PCF arrangement in December 2001, DZ Bank required that PCI participate in the underlying diverting purchase, i.e., fund at least 2% of each purchase, so that no transaction was 100% debt-financed by the new PCF facility. Letter from Simon Root to Jon Sabes ¶ 3, Exh. PCF-42.0002. DZ Bank also required that it have limited — but direct — recourse against PCI in an amount not to exceed 2% of the maximum facility amount. Exh. PCF-061.0021. DZ Bank considered this limited recourse to be a “credit enhancement” for the loan facility between it and Opportunity Finance. PCF-038.0002.

In addition, prior to closing its arrangement for senior lending to Opportunity Finance, DZ Bank reviewed a February 2001 Arthur Andersen “Report on Financial Due Diligence,” which “verified” that *839 PCI had received payments from particular buyers for all fiscal year 2000 transactions, and that PCI was current on its obligations to each of its creditors. PCF_038.0022_038.0030. DZ Bank actively monitored PCI’s credit-worthiness after the deal closed, and while DZ Bank served as senior lender. For example, an internal May 2002 DZ Bank memorandum shows that DZ Bank reviewed a 2002 PCI balance sheet, a 2002 PCI profit and loss statement, and an April 2001 Arthur Andersen audit of PCI. Exh. PCF_038. According to Francine Farragher, DZ Bank analyzed PCI’s financial status to ensure that it had “a significant net worth or enough net worth to finance” the percentage that it was guaranteeing or putting into the facility. Farragher Depo., 62:22-25, Exh. PCI 034A. However, in the meantime, DZ Bank did not require financial statements of PCF. Farragher Depo., 91:16 to 92:3, Id.

Even if DZ Bank relied and continued to rely on just one entity, i.e., PCI, such rebanee was unreasonable and became more so. DZ Bank learned of certain defaults under its Security Agreement, but kept the senior lending facility open. In particular, DZ Bank knew that funds identified as retail customer payments flowed through PCI despite the requirement that retailer payment be made directly to PCF. Even though Jon Sabes tried to hide the issue from DZ Bank (as noted previously), DZ Bank discovered in April 2002 that ostensible retailer payments were being deposited in PCI’s general operating account — in breach of its Security Agreement with Opportunity Finance. Exh. PCF-079. 71 An August 2002 internal “due diligence” memorandum also noted this. See Exh. PCF-064 72 (noting that “all monies are going through the Peters Opper-ating Account [sic] prior to being trans-fered [sic] to the PC Funding Account {Peters [sic] SPV}. Additional testwork needs to be conducted to determine whether Peter’s [sic] is capitalizing on the float”). 73

In January 2003, DZ Bank finally notified the Sabeses that Opportunity Finance was in breach of its Security Agreement, due to the flow of funds issue. Exh. PCF-073. 74 The issue was never resolved, and DZ Bank ultimately exited the senior lending facility with Opportunity Finance *840 after an insurance downgrade and poor results from due diligence investigation made continued involvement unattractive.

DZ Bank’s reliance was also unreasonable due to inadequate due diligence on its part. Heather Thayer gave her quick take on DZ Bank and its risk-management practices by opining to Simon Root that DZ Bank was an investment bank, “so the chance that they’d be checking on the collateral is nil.” Exh. PCF-043.0001. To be sure, the Security Agreement for the senior lending facility did name Opportunity Finance as the Servicer, with authority to “service, administer and collect Pledged Receivables,” Exh. PCF_006.0040; and as Servicer, Opportunity Finance was charged with, among other things, the “duty” of “policing the collateral.” Security Agreement with DZ Bank, § 6.01(b), PCF-003.0074.

But even with that duty assignment, DZ Bank had the right under the Security Agreement to “contact any or all Opportunity Loan Borrowers [i.e., PCF] with respect to any Receivables which are Pledged hereunder in order to procure such information related to any or all such Opportunity Loan Borrowers, the related Contracts, and the Receivables,” up to twice each calendar year (or as frequently as desired in the event of a “Default”). Security Agreement § 6.13(b), Exh. PCF_006.0085. 75 Significantly, prior to opening its facility for Opportunity Finance, DZ Bank knew that Opportunity Finance “does not normally perform any notification procedures with the Buyer or Seller to verify the purchase order.” Exh. OF_006_0116. Thus, DZ Bank could not have reasonably expected Opportunity Finance to consistently or adequately verify purchase orders even given its formal policing duties as Servicer.

As it turns out, DZ Bank made an inquiry regarding the inventory on one instance. It did not go well. A March 20, 2003 internal memorandum recounted a meeting between DZ Bank, Opportunity Finance, and Tom Petters: “I have requested copies of the shipping documents whereby the goods that were sold to Pet-ters Company and ultimately sold by Pet-ters Company. As of May 21, 2003[sic], these documents have not been delivered. I have not examined documentation to support payment of the invoices in my [test] selection.... Mr. Petters would not disclose who comprised the supply chain of the goods that he purchased from the approved vendors.” Exh. PCF-081. Within a month, DZ Bank’s senior lending facility for PCF transactions would be wound down — partly due to this failure of verification. In memorializing that from a quarterly review of the facility, DZ Bank noted:

An on-site due diligence review was conducted on March 19, 2003, at the offices of both Opportunity Finance and Pet-ters. During our review, discussions were held regarding the goods “chain of ownership” in order to ascertain that evidence pertaining to the sale and delivery of goods was available and accurate. Based on discussions with Tom Petters, we were informed that the inventory is purchased from an approved manufacturer as defined in the RLSA. Evidence of this purchase was reviewed for a sample of receivables, without exception. While it was never contem *841 plated, that inventory would be physically verified at the warehouses, ASG determined that this inability coupled with the downgrade of RSA [the insurance company], and the failure of funds to be deposited directly to a lockbox (as identified during prior site review) presented ASG with risks that were unacceptable for the program. In May, Opportunity Finance began winding down the facility. It is anticipated that the facility will be paid in full by August 2003.

Exh. PCF_101.0004. The sequence of events established by this evidence shows that, had DZ Bank pushed to verify the collateral much earlier and more firmly as a diligent purchase order financer would have, it would have revealed an unmistakable red flag that could not reasonably be ignored — all per McKinley’s due diligence disciplines. 76

PCF (WestLB)

Two years after DZ Bank closed its credit facility for PCF, WestLB became the senior lender to Opportunity Finance.

Like DZ Bank, WestLB partially relied on PCI’s credit-worthiness. Matthew Tal-lo testified that WestLB relied on the separateness of both the Opportunity Finance SPE (Opportunity Finance Securitization III) and PCF. Hrg. Tr. 594:2-8. However, he also testified that, before closing the Opportunity Finance deal, WestLB reviewed PCI’s financial statements “to make sure” PCI had “financial wherewithal” and “financial standing.” Hr. Trans. 612:14 to 613:8.

Notably, WestLB also had information at its disposal that confirmed that PCF and Opportunity Finance both viewed PCI as a source of payment should ostensible retailer-customers default. For example, WestLB had required independent audits of PCF. Matthew Tallo Testimony, Hrg. Tr.: 607:19-22. In one financial statement, the auditors asserted that “[a]n allowance for uncollectible accounts.... [was] not considered necessary” because “[t]hese accounts receivable are purchased with recourse; therefore, the related party [i.e., PCI] bears the risk for uncollectible accounts.” Exh. PCF_106.0011. Thus, WestLB knew that the backup presence of PCI was integral to the viability of the PCF facility; that is why it inquired about and evaluated PCI’s “financial wherewithal.”

WestLB’s failure to conduct due diligence renders any reliance on separateness unreasonable. The Security Agreement between WestLB and Opportunity Finance was essentially the same as that between DZ Bank and Opportunity Finance; Opportunity Finance was again named Servicer with the duty of “policing” the collateral. Security Agreement § 6.01(b), Exh. PCF_007.0061. Tallo testified that WestLB relied on the Servicer “for policing and monitoring the collateral.” The result of that was that information from Opportunity Finance “is pretty much the only information we have relating to the actual performance of the receivables and the collateral.” Hrg. Tr. 592:9-12,18-23.

Actually, WestLB never verified collateral beyond requiring assurance from the *842 Petters organization of the existence of the ostensible receivable from a customer. Id. 605:5-15. Even so, like DZ Bank, WestLB had the right to “contact any or all Opportunity Loan Borrowers [i.e., PCF] with respect to any Receivables which are Pledged hereunder in order to procure such information related to any or all such Opportunity Loan Borrowers, the related Contracts, and the Receivables,” up to twice each calendar year (or as frequently as desired in the event of a Default). Security Agreement § 6.13(b), PCF_007.0071. 77 In turn, even though Opportunity Finance was generally in charge of policing the collateral, WestLB had the authority to contact PCF directly to inquire about the collateral. Like DZ Bank, these empowerments make it less credible for WestLB to assert its reliance on Opportunity Finance as its Servicer as an excuse for failing to engage in any of the due diligence disciplines itemized by

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