Angelo, Gordon & Co., L.P.; Notice of Application, 39292-39294 [2016-14211]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 116 (Thursday, June 16, 2016)]
[Notices]
[Pages 39292-39294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14211]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-4418/803-00227]


Angelo, Gordon & Co., L.P.; Notice of Application

June 10, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an exemptive order under Section 206A 
of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule 
206(4)-5(e).

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Applicant:  Angelo, Gordon & Co., L.P. (``Applicant'' or ``Adviser'').

Relevant Advisers Act Sections:  Exemption requested under section 206A 
of the Advisers Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under 
the Advisers Act.

Summary of Application:  Applicant requests that the Commission issue 
an order under section 206A of the Advisers Act and rule 206(4)-5(e) 
exempting it from rule 206(4)-5(a)(1) under the Advisers Act to permit 
Applicant to receive compensation from a government entity for 
investment advisory services provided to the government entity within 
the two-year period following a contribution by an individual who 
subsequently became a covered associate of the Applicant to an official 
of the government entity.

Filing Dates:  The application was filed on December 19, 2014, and 
amended and restated applications were filed on May 26, 2015 and May 2, 
2016.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on July 5, 2016, and should be accompanied by proof of service on 
Applicant, in the form of an affidavit or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Advisers Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicant: Angelo, Gordon & Co., L.P., 
c/o D. Forest Wolfe, Esq., 245 Park Avenue, New York, NY 10167.

FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Senior Counsel, or 
Melissa R. Harke, Branch Chief, at (202) 551-6825 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site at https://www.sec.gov/rules/iareleases.shtml or 
by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a Delaware limited partnership registered with the 
Commission as an investment adviser under the Advisers Act. Applicant 
provides discretionary investment advisory services to private funds 
(the ``Funds''). Each of these Funds is a covered investment pool as 
defined in Rule 206(4)-5(f)(3)(ii). One of the private funds for which 
the Applicant acts as investment adviser is AG Core Plus Realty Fund 
IV, L.P. (''Core Plus IV''), a fund excluded from the definition of 
investment company by Section 3(c)(7) of the Investment Company Act of 
1940.
    2. The individual who made the campaign contribution that triggered 
the two-year compensation ban (the

[[Page 39293]]

``Contribution'') is Christopher Williams (the ``Contributor''). The 
Contributor was hired by the Adviser on September 29, 2014 to serve as 
a senior investment professional at the Adviser and co-manager of a new 
investment strategy for the Adviser. The Contributor made the 
Contribution at a time when he was not working for an investment 
adviser and almost a year before he would begin working for the Adviser 
(indeed, months before he entered into employment discussions with the 
Adviser).
    3. An investor in the Funds is a public pension plan identified as 
a government entity, as defined in Rule 206(4)-5(f)(5)(ii), with 
respect to the State of Illinois (the ``Client'').
    4. The recipient of the Contribution was Bruce Rauner (the 
``Recipient''), who was a private citizen then running for Governor of 
Illinois. The investment decisions for the Client, including the hiring 
of an investment adviser, are overseen by a nine-member board of 
trustees, with five gubernatorial appointments, two other state elected 
officials sitting ex officio, and the chairs of two retirement boards 
sitting ex officio. Due to the Governor's power of appointment, a 
candidate for Governor such as the Recipient is an ``official'' of the 
Client. The Recipient was elected governor of Illinois on November 4, 
2014 and took office on January 12, 2015. The Recipient appointed five 
members between January 30, 2015 and June 5, 2015.
    5. The Contribution that triggered rule 206(4)-5's prohibition on 
compensation under rule 206(4)-5(a)(1) was given on November 7, 2013 
for the amount of $892.17 as an in-kind contribution to Citizens for 
Rauner. The Contribution consisted of payments to two vendors to defray 
expenses of a small meet-and-greet reception (the ``Reception'') for 
the Rauner campaign. The Contributor's first and only meeting with 
Bruce Rauner consisted of a 5 to 10 minute conversation at the 
Reception on November 7, 2013. The Contributor did not seek out or 
initiate contact with the Recipient. At the time of the Contribution, 
the Contributor had no intention of soliciting investment advisory 
business from the Client or any other government entity of which Rauner 
was an official. At no time did any employees of the Adviser other than 
the Contributor have any knowledge that the Contribution had been made 
prior to its discovery by the Adviser in October 2014 as a result of 
its routine new employee onboarding procedures.
    6. The Client's contacts with the Adviser date back to at least 
2001, before the Contributor was employed by the Adviser. On September 
25, 2014, the Client committed to a substantial investment in one of 
the Funds, Core Plus IV, a Fund that does not participate in the 
strategy for which the Contributor is a co-manager. A procedure has 
been established to segregate any compensation (including carried 
interest and management fees) attributable to the Client's investment 
in Core Plus IV and withhold them from the Adviser. The Contributor has 
no role with respect to the Client. The Client is not considered a 
prospective investor for the investment strategy for which he is a co-
manager. The Contributor has had no contact with any representative of 
the Client, and no contact with any member of the Client's board.
    7. The Contribution was discovered by the Adviser's compliance 
department in the course of new employee onboarding that included 
review of a political contribution questionnaire on which the 
Contributor disclosed the Contribution. Within one week of discovering 
the Contribution on October 3, 2014, the Adviser and Contributor 
obtained the Recipient's agreement to return the full Contribution. A 
check refunding the full amount of the Contribution was received on 
October 24, 2014. The Adviser promptly notified the Client of the 
Contribution and resulting two-year prohibition on compensation absent 
exemptive relief from the Commission. The Adviser told the Client that 
fees charged to the Client's capital account in the Core Plus IV would 
be placed in escrow and that, absent exemptive relief from the 
Commission, those fees would be refunded and no additional fees would 
be charged to the Client for the duration of the two-year period.
    8. The Adviser's Pay-to-Play Policies and Procedures (``Policy'') 
were adopted and implemented before the Contribution was made. The 
Policy was initially adopted in May 2009, more than a year before rule 
206(4)-5 (the ``Rule'') was adopted. All contributions to federal, 
state and local office incumbents and candidates are subject to pre-
clearance, not post-contribution reporting, by employees under the 
Policy. There is no de minimis exception from pre-clearance for small 
contributions to these state and local officials. All employees of the 
Adviser are subject to the Policy. In June 2010--before the Rule was 
adopted--the Adviser instituted a Political Contribution Questionnaire 
that all new employees of the Adviser are required to complete 
regarding all political contributions of any size at any level for the 
three year period before beginning employment.

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the Advisers Act prohibits a 
registered investment adviser from providing investment advisory 
services for compensation to a government entity within two years after 
a contribution to an official of the government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
The Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule 
206(4)-5(f)(2), and the Recipient is an ``official'' as defined in rule 
206(4)-5(f)(6). Rule 206(4)-5(c) provides that when a government entity 
invests in a covered investment pool, the investment adviser to that 
covered investment pool is treated as providing advisory services 
directly to the government entity. The Funds are ``covered investment 
pools,'' as defined in rule 206(4)-5(f)(3)(ii).
    2. Section 206A of the Advisers Act grants the Commission the 
authority to ``conditionally or unconditionally exempt any person or 
transaction . . . from any provision or provisions of [the Advisers 
Act] or of any rule or regulation thereunder, if and to the extent that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of [the Advisers Act].''
    3. Rule 206(4)-5(e) provides that the Commission may exempt an 
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon 
consideration of the factors listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Advisers 
Act;
    (2) Whether the investment adviser: (i) Before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the rule; 
and (ii) prior to or at the time the contribution which resulted in 
such prohibition was made, had no actual knowledge of the contribution; 
and (iii) after learning of the contribution: (A) Has taken all 
available steps to cause the contributor involved in making the 
contribution which resulted in such prohibition to obtain a return of 
the contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a

[[Page 39294]]

covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. Applicant requests an order pursuant to section 206A and rule 
206(4)-5(e), exempting it from the two-year prohibition on compensation 
imposed by rule 206(4)-5(a)(1) with respect to investment advisory 
services provided to the Client within the two-year period following 
the Contribution.
    5. Applicant submits that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Advisers Act. Applicant further submits that the 
other factors set forth in rule 206(4)-5(e) similarly weigh in favor of 
granting an exemption to the Applicant to avoid consequences 
disproportionate to the violation.
    6. Applicant contends that given the nature of the Rule violation 
and the lack of any evidence that the Adviser or the Contributor 
intended to, or actually did, interfere with the Client's merit-based 
process for the selection or retention of advisory services, the 
interests of the Client are best served by allowing the Adviser and the 
Client to continue their relationship uninterrupted. Applicant states 
that causing the Adviser to serve without compensation for the 
remainder of the two year period could result in a financial loss that 
is more than 300 times the amount of the Contribution. Applicant 
suggests that the policy underlying the Rule is served by ensuring that 
no improper influence is exercised over investment decisions by 
governmental entities as a result of campaign contributions and not by 
withholding compensation as a result of unintentional violations.
    7. Applicant represents that it had adopted and implemented the 
Policy which is fully compliant with, and more rigorous than, the 
Rule's requirements and that it had also implemented a political 
contribution questionnaire for all new employees, and performed 
compliance testing that included random searches of campaign 
contribution databases for the names of employees. Applicant notes that 
it was this questionnaire that was effective in identifying the 
Contribution.
    8. Applicant asserts that actual knowledge of the Contribution at 
the time of its making cannot be imputed to the Adviser, given that the 
Contributor was not an employee of the Adviser and had not yet 
participated in any of the discussions that would ultimately lead to 
his employment with the Adviser. Applicant represents that at no time 
did any employees of the Adviser other than the Contributor have any 
knowledge that the Contribution had been made prior to its discovery by 
the Adviser in October 2014 as part of its standard employee onboarding 
process.
    9. Applicant asserts that after learning of the Contribution, the 
Adviser and the Contributor took all available steps to obtain a return 
of the Contribution and implement additional measures to prevent a 
future error, including modification of the new employee onboarding 
process to require the completion of the political contribution 
questionnaire before the Adviser's final decision to hire a new 
employee.
    10. Applicant states that it informed the Contributor that he could 
have no contact with any representative of the Client other than 
potentially making substantive presentations to the Client's 
representatives and consultants about the investment strategy the 
Contributor manages in the event the Client requested a presentation of 
that strategy. The Contributor was directed to maintain a log of such 
interactions in accordance with the retention requirements set forth in 
Rule 204-2(e). Applicant further states that the Contributor ultimately 
had no contact with any representative of the Client and no contact 
with any member of the Client's board.
    11. Applicant notes that it has had ongoing contacts with the 
Client that predate the Contributor's employment with the Adviser, and 
that the Contribution was consistent with the political affiliation of 
the Contributor and his wife. Applicant asserts that the Contributor 
also had a legitimate interest in the outcome of the campaign given 
that he and his family live in Illinois. Applicant also asserts that 
the Contributor's action in making a contribution that would later 
trigger a ban resulted from his lack of knowledge about the Rule's 
look-back provisions and, thus, his failure to appreciate the fact that 
the Contribution might impact potential future activities for an 
investment advisory firm.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14211 Filed 6-15-16; 8:45 am]
 BILLING CODE 8011-01-P