Citigroup Global Markets Inc., et al.; Notice of Application and Temporary Order, 80450-80452 [E8-31090]
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Federal Register / Vol. 73, No. 251 / Wednesday, December 31, 2008 / Notices
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The Commission amended rule 0–1 to
include the definition of the term
‘‘independent legal counsel’’ in 2001.5
This amendment was designed to
enhance the effectiveness of fund boards
of directors and to better enable
investors to assess the independence of
those directors. The Commission also
amended the exemptive rules to require
that any person who serves as legal
counsel to the independent directors of
any fund that relies on any of the
exemptive rules must be an
‘‘independent legal counsel.’’ This
requirement was added because
independent directors can better
perform the responsibilities assigned to
them under the Act and the rules if they
have the assistance of truly independent
legal counsel.
If the board’s counsel has represented
the fund’s investment adviser, principal
underwriter, administrator (collectively,
‘‘management organizations’’) or their
‘‘control persons’’ 6 during the past two
years, rule 0–1 requires that the board’s
independent directors make a
determination about the adequacy of the
counsel’s independence. A majority of
the board’s independent directors are
required to reasonably determine, in the
exercise of their judgment, that the
counsel’s prior or current representation
of the management organizations or
their control persons was sufficiently
limited to conclude that it is unlikely to
adversely affect the counsel’s
professional judgment and legal
representation. Rule 0–1 also requires
that a record for the basis of this
determination is made in the minutes of
the directors’ meeting. In addition, the
independent directors must have
obtained an undertaking from the
counsel to provide them with the
information necessary to make their
determination and to update promptly
that information when the person begins
to represent a management organization
or control person, or when he or she
materially increases his or her
representation. Generally, the
independent directors must re-evaluate
their determination no less frequently
than annually.
rule 15a–4(b)(2) (17 CFR 270.15a–4(b)(2)), rule 17a–
7 (17 CFR 270.17a–7), rule 17a–8 (17 CFR 270.17a–
8), rule 17d–1(d)(7) (17 CFR 270.17d–1(d)(7)), rule
17e–1(c) (17 CFR 270.17e–1(c)), rule 17g–1 (17 CFR
270.17g–1), rule 18f–3 (17 CFR 270.18f–3), and rule
23c–3 (17 CFR 270.23c–3).
5 See Role of Independent Directors of Investment
Companies, Investment Company Act Release No.
24816 (Jan. 2, 2001) (66 FR 3735 (Jan. 16, 2001)).
6 A ‘‘control person’’ is any person—other than a
fund—directly or indirectly controlling, controlled
by, or under common control, with any of the
fund’s management organizations. See 17 CFR
270.01(a)(6)(iv)(B).
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Any fund that relies on one of the
exemptive rules must comply with the
requirements in the definition of
‘‘independent legal counsel’’ under rule
0–1. We assume that approximately
4128 funds rely on at least one of the
exemptive rules annually.7 We further
assume that the independent directors
of approximately one-third (1376) of
those funds would need to make the
required determination in order for their
counsel to meet the definition of
independent legal counsel.8 We
estimate that each of these 1376 funds
would be required to spend, on average,
0.75 hours annually to comply with the
recordkeeping requirement associated
with this determination, for a total
annual burden of approximately 1032
hours. Based on this estimate, the total
annual cost for all funds’ compliance
with this rule is approximately
$145,168. To calculate this total annual
cost, the Commission staff assumed that
approximately two-thirds of the total
annual hour burden (688 hours) would
be incurred by compliance staff with an
average hourly wage rate of $180 per
hour,9 and one-third of the annual hour
burden (344 hours) would be incurred
by clerical staff with an average hourly
wage rate of $62 per hour.10
These burden hour estimates are
based upon the Commission staff’s
experience and discussions with the
fund industry. The estimates of average
burden hours are made solely for the
purposes of the Paperwork Reduction
Act. These estimates are not derived
from a comprehensive or even a
representative survey or study of the
costs of Commission rules.
7 Based on statistics compiled by Commission
staff, we estimate that there are approximately 4586
funds that could rely on one or more of the
exemptive rules. Of those funds, we assume that
approximately 90 percent (4128) actually rely on at
least one exemptive rules annually.
8 We assume that the independent directors of the
remaining two-thirds of those funds will choose not
to have counsel, or will rely on counsel who has
not recently represented the fund’s management
organizations or control persons. In both
circumstances, it would not be necessary for the
fund’s independent directors to make a
determination about their counsel’s independence.
9 The estimated hourly wages used in this PRA
analysis were derived from reports prepared by the
Securities Industry and Financial Markets
Association. See Securities Industry and Financial
Markets Association, Report on Management and
Professional Earnings in the Securities Industry—
2007 (2007), modified to account for an 1800-hour
work year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead;
and Securities Industry and Financial Markets
Association, Office Salaries in the Securities
Industry—2007 (2007), modified to account for an
1800-hour work year and multiplied by 2.93 to
account for bonuses, firm size, employee benefits
and overhead.
10 (688 × $180/hour) + (344 × $62/hour) =
$145,168).
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Compliance with the collection of
information requirements of the rule is
mandatory and is necessary to comply
with the requirements of the rule in
general. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
Please direct general comments
regarding the above information to the
following persons: (i) Desk Officer for
the Securities and Exchange
Commission, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503
or send an e-mail to:
Shagufta_Ahmed@omb.eop.gov ); and
(ii) Charles BoucherDirector/CIO,
Securities and Exchange Commission,
C/O Shirley Martinson, 6432 General
Green Way, Alexandria, VA 22312; or
send an e-mail to:
PRA_Mailbox@sec.gov. Comments must
be submitted to OMB within 30 days of
this notice.
Dated: December 22, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31091 Filed 12–30–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–28572; 812–13615]
Citigroup Global Markets Inc., et al.;
Notice of Application and Temporary
Order
December 23, 2008.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Temporary order and notice of
application for a permanent order under
section 9(c) of the Investment Company
Act of 1940 (‘‘Act’’).
SUMMARY OF APPLICATION: Applicants
have received a temporary order
exempting them from section 9(a) of the
Act, with respect to an injunction
entered against Citigroup Global
Markets Inc. (‘‘CGMI’’) on December 23,
2008 by the United States District Court
for the Southern District of New York
(the ‘‘Injunction’’), until the
Commission takes final action on an
application for a permanent order.
Applicants also have applied for a
permanent order.
APPLICANTS: CGMI, CEFOF GP I Corp.
(‘‘CEFOF’’), CELFOF GP Corp.
(‘‘CELFOF’’), Citibank, N.A.
(‘‘Citibank’’), Citigroup Alternative
Investments LLC (‘‘Citigroup
Alternative’’), Citigroup Investment
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Advisory Services Inc. (‘‘Citigroup
Advisory’’), Citigroup Capital Partners I
GP I Corp. (‘‘CCP I’’) and Citigroup
Capital Partners I GP II Corp. (‘‘CCP II’’)
(collectively, ‘‘Applicants’’).1
FILING DATE: The application was filed
on December 23, 2008.
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
Applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 15, 2009, and
should be accompanied by proof of
service on Applicants, in the form of an
affidavit, or for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE, Washington, DC 20549–
1090. Applicants: CGMI and Citigroup
Advisory, 787 Seventh Avenue, New
York, NY 10019; CEFOF, CELFOF, CCP
I and CCP II, 388 Greenwich Street, New
York, NY 10013; Citibank, 399 Park
Avenue, New York, NY 10043; and
Citigroup Alternative, 731 Lexington
Avenue, 28th Floor, New York, NY
10022.
FOR FURTHER INFORMATION CONTACT: John
Yoder, Senior Counsel, at (202) 551–
6878, or Julia Kim Gilmer, Branch Chief,
at (202) 551–6821, (Division of
Investment Management, Office of
Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The
following is a temporary order and a
summary of the application. The
complete application may be obtained
for a fee at the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549–1520 (tel. 202–
551–5850).
Applicants’ Representations:
1. Each of the Applicants is an
indirect wholly owned subsidiary of
Citigroup Inc., a financial holding
company whose businesses provide a
broad range of financial services. CGMI
is registered as a broker-dealer under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and serves as
1 Applicants request that any relief granted
pursuant to the application also apply to any other
company of which CGMI is or hereafter may
become an affiliated person (together with the
Applicants, the ‘‘Covered Persons’’).
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principal underwriter for one or more
registered investment companies and
unit investment trusts (‘‘UITs’’, together
with registered investment companies,
‘‘Funds’’). Citigroup Alternative and
Citigroup Advisory are registered as
investment advisers under the
Investment Advisers Act of 1940 and
serve as investment advisers for one or
more Funds. CEFOF, CELOF, Citibank,
CCP I and CCP II (‘‘ESC Advisers’’) serve
as investment advisers to certain
employees’ securities companies within
the meaning of section 2(a)(13) of the
Act, which provide investment
opportunities for certain eligible
employees, officers, directors and
persons on retainer of Citigroup and its
affiliates (‘‘ESCs’’ and included in the
term ‘‘Funds’’).2
2. On December 23, 2008, the United
States District Court for the Southern
District of New York entered a judgment
against CGMI (‘‘Judgment’’) in a matter
brought by the Commission.3 The
Commission alleged in the complaint
(‘‘Complaint’’) that CGMI violated
section 15(c) of the Exchange Act in
connection with the marketing and sale
of auction rate securities (‘‘ARS’’). The
Complaint alleged that CGMI misled its
customers regarding the fundamental
nature and increasing risks associated
with ARS that CGMI underwrote,
marketed and sold. The Complaint
further alleged that CGMI
misrepresented to its customers that
ARS were safe, highly liquid
investments that were equivalent to
money market instruments. Without
admitting or denying the allegations in
the Complaint, except as to jurisdiction,
CGMI consented to the entry of the
Judgment that included, among other
things, the entry of the Injunction and
other equitable relief including
undertakings to take various remedial
actions for the benefit of purchasers of
certain ARS.
Applicants’ Legal Analysis:
1. Section 9(a)(2) of the Act, in
relevant part, prohibits a person who
has been enjoined from engaging in or
continuing any conduct or practice in
connection with the purchase or sale of
a security or in connection with
activities as an underwriter, broker or
dealer, from acting, among other things,
as an investment adviser or depositor of
any registered investment company or a
principal underwriter for any registered
2 Greenwich Street Employees Fund, L.P., et al.,
Investment Company Act Release Nos. 25324 (Dec.
21, 2001) (notice) and 25367 (Jan. 16, 2002) (order).
3 United States Securities and Exchange
Commission v. Citigroup Global Markets Inc., 08–
CV–10753, Judgment as to Defendant Citigroup
Global Markets Inc. (S.D.N.Y.) (entered Dec. 23,
2008).
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80451
open-end investment company,
registered UIT or registered face-amount
certificate company. Section 9(a)(3) of
the Act makes the prohibition in section
9(a)(2) applicable to a company, any
affiliated person of which has been
disqualified under the provisions of
section 9(a)(2). Section 2(a)(3) of the Act
defines ‘‘affiliated person’’ to include
any person directly or indirectly
controlling, controlled by, or under
common control with, the other person.
Applicants state that CGMI is an
affiliated person of each of the other
Applicants within the meaning of
section 2(a)(3) of the Act. Applicants
state that the entry of the Injunction
results in Applicants being subject to
the disqualification provisions of
section 9(a) of the Act.
2. Section 9(c) of the Act provides that
the Commission shall grant an
application for exemption from the
disqualification provisions of section
9(a) if it is established that these
provisions, as applied to the Applicants,
are unduly or disproportionately severe
or that the Applicants’ conduct has been
such as not to make it against the public
interest or the protection of investors to
grant the exemption. Applicants have
filed an application pursuant to section
9(c) seeking a temporary and permanent
order exempting them and Covered
Persons from the disqualification
provisions of section 9(a) of the Act.
3. Applicants believe they meet the
standard for exemption specified in
section 9(c). Applicants state that the
prohibitions of section 9(a) as applied to
the Applicants would be unduly and
disproportionately severe and that the
conduct of Applicants has been such as
not to make it against the public interest
or the protection of investors to grant
the exemption from section 9(a).
4. Applicants state that the alleged
conduct giving rise to the Injunction did
not involve any of the Applicants acting
in the capacity of investment adviser,
subadviser or depositor to a Fund, or
principal underwriter for any open-end
Fund or UIT. Applicants also state that
none of the current or former directors,
officers, or employees of the Applicants
(other than CGMI) had any participation
in the violative conduct alleged in the
Complaint. Applicants further state that
the personnel at CGMI who were
involved in the violations alleged in the
Complaint have had no and will not
have any future involvement in
providing advisory, subadvisory or
depository services to Funds, or
principal underwriting services to openend Funds or UITs.
5. Applicants state that the inability of
the Applicants to continue to serve as
investment adviser, depositor or
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Federal Register / Vol. 73, No. 251 / Wednesday, December 31, 2008 / Notices
principal underwriter to the Funds
would result in potentially severe
financial hardships for the Funds and
their shareholders. The Applicants have
distributed, or will distribute as soon as
reasonably practical, written materials,
including an offer to meet in person to
discuss the materials, to the board of
directors of each Fund, including the
directors who are not ‘‘interested
persons,’’ as defined in section 2(a)(19)
of the Act, of such Fund, and their
independent legal counsel as defined in
rule 0–1(a)(6) under the Act, if any,
regarding the Judgment, any impact on
the Funds, and the application. The
Applicants state they will provide the
Funds with all information concerning
the Judgment and the application that is
necessary for the Funds to fulfill their
disclosure and other obligations under
the federal securities laws.
6. Applicants also state that, if they
were barred from serving as investment
adviser, depositor or principal
underwriter to the Funds, the effect on
their businesses and employees would
be severe. Applicants state that they
have committed substantial resources to
establish an expertise in providing
services covered by section 9(a) of the
Act to Funds. Applicants further state
that prohibiting them from providing
advisory and distribution services
would not only adversely affect their
businesses, but would also adversely
affect approximately 50 employees that
are involved in those activities.
Applicants also state that disqualifying
the ESC Advisers from continuing to
provide investment advisory services to
ESCs is not in the public interest or in
furtherance of the protection of
investors. Because the ESCs have been
formed for certain eligible officers,
directors and persons on retainer of
Citigroup and its affiliates, it would not
be consistent with the purposes of the
ESC provisions of the Act or the ESC
Order to require another entity not
affiliated with the ESC Advisers to
manage the ESCs. In addition,
participating employees of Citigroup
and its affiliates subscribed for interests
with the expectation that the ESCs
would be managed by an affiliate of
Citigroup.
7. Applicants previously have
received exemptions under section 9(c)
as the result of conduct that triggered
section 9(a) as described in greater
detail in the application.
Applicants’ Condition:
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Any temporary exemption granted
pursuant to the application shall be
without prejudice to, and shall not limit
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the Commission’s rights in any manner
with respect to, any Commission
investigation of, or administrative
proceedings involving or against,
Covered Persons, including without
limitation, the consideration by the
Commission of a permanent exemption
from section 9(a) of the Act requested
pursuant to the application or the
revocation or removal of any temporary
exemptions granted under the Act in
connection with the application.
Temporary Order:
The Commission has considered the
matter and finds that Applicants have
made the necessary showing to justify
granting a temporary exemption.
Accordingly,
It is hereby ordered, pursuant to
section 9(c) of the Act, that the
Applicants and any other Covered
Persons are granted a temporary
exemption from the provisions of
section 9(a), solely with respect to the
Injunction, subject to the condition in
the application, from December 23,
2008, until the Commission takes final
action on their application for a
permanent order.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31090 Filed 12–30–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC—28569; 812–13609]
UBS Securities LLC, et al.; Notice of
Application and Temporary Order
December 23, 2008.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Temporary order and notice of
application for a permanent order under
section 9(c) of the Investment Company
Act of 1940 (‘‘Act’’).
Summary of Application: Applicants
have received a temporary order
exempting them from section 9(a) of the
Act, with respect to an injunction
entered against UBS Securities LLC
(‘‘UBS Securities’’) and UBS Financial
Services Inc. (‘‘UBSFS,’’ and together
with UBS Securities, the ‘‘Settling
Firms’’) on December 23, 2008 by the
United States District Court for the
Southern District of New York
(‘‘Injunction’’) until the Commission
takes final action on an application for
a permanent order. Applicants also have
applied for a permanent order.
Applicants: UBS Securities; UBSFS;
UBS Fund Advisor, L.L.C. (‘‘UBSFA’’);
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UBS Willow Management, L.L.C. (‘‘UBS
Willow’’), UBS Eucalyptus
Management, L.L.C., UBS Tamarack
Management, L.L.C., UBS Juniper
Management, L.L.C., and UBS Enso
Management L.L.C. (collectively,
‘‘UBSFA Advisers’’); UBS Global Asset
Management (Americas) Inc. (‘‘UBS
Global AM Americas’’); UBS Global
Asset Management (US) Inc. (‘‘UBS
Global AM US’’); and UBS AG and UBS
IB Co-Investment 2001 GP Limited
(‘‘ESC GP’’) (together, other than UBS
Securities, ‘‘Fund Servicing Applicants’’
and together with UBS Securities, the
‘‘Applicants’’).1
Filing Dates: The application was
filed on December 16, 2008. Applicants
have agreed to file an amendment
during the notice period, the substance
of which is reflected in this notice.
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
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 15, 2009, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090; Applicants: UBS Securities, 299
Park Avenue, New York, NY 10171;
UBSFS, 1200 Harbor Boulevard,
Weehawken, NJ 07086; UBSFA, UBSFA
Advisers, and UBS Global AM US, 51
West 52nd Street, New York, NY 10019;
UBS Global AM Americas, One North
Wacker Drive, Chicago, IL 60606; and
UBS AG and ESC–GP, 677 Washington
Boulevard, Stamford, CT 06901.
FOR FURTHER INFORMATION CONTACT: John
Yoder, Senior Counsel, at 202–551–6878
or Julia Kim Gilmer, Branch Chief, at
202–551–6821 (Division of Investment
Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The
following is a temporary order and
summary of the application. The
1 Applicants request that any relief granted
pursuant to the application also apply to any other
company of which either of the Settling Firms is or
may become affiliated persons (together with the
Applicants, the ‘‘Covered Persons’’).
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]]>Agencies
[Federal Register Volume 73, Number 251 (Wednesday, December 31, 2008)]
[Notices]
[Pages 80450-80452]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-31090]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-28572; 812-13615]
Citigroup Global Markets Inc., et al.; Notice of Application and
Temporary Order
December 23, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Temporary order and notice of application for a permanent order
under section 9(c) of the Investment Company Act of 1940 (``Act'').
-----------------------------------------------------------------------
Summary of Application: Applicants have received a temporary order
exempting them from section 9(a) of the Act, with respect to an
injunction entered against Citigroup Global Markets Inc. (``CGMI'') on
December 23, 2008 by the United States District Court for the Southern
District of New York (the ``Injunction''), until the Commission takes
final action on an application for a permanent order. Applicants also
have applied for a permanent order.
Applicants: CGMI, CEFOF GP I Corp. (``CEFOF''), CELFOF GP Corp.
(``CELFOF''), Citibank, N.A. (``Citibank''), Citigroup Alternative
Investments LLC (``Citigroup Alternative''), Citigroup Investment
[[Page 80451]]
Advisory Services Inc. (``Citigroup Advisory''), Citigroup Capital
Partners I GP I Corp. (``CCP I'') and Citigroup Capital Partners I GP
II Corp. (``CCP II'') (collectively, ``Applicants'').\1\
---------------------------------------------------------------------------
\1\ Applicants request that any relief granted pursuant to the
application also apply to any other company of which CGMI is or
hereafter may become an affiliated person (together with the
Applicants, the ``Covered Persons'').
---------------------------------------------------------------------------
Filing Date: The application was filed on December 23, 2008.
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 Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on January 15, 2009, and should be accompanied by proof of service
on Applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE, Washington, DC 20549-1090. Applicants: CGMI and Citigroup
Advisory, 787 Seventh Avenue, New York, NY 10019; CEFOF, CELFOF, CCP I
and CCP II, 388 Greenwich Street, New York, NY 10013; Citibank, 399
Park Avenue, New York, NY 10043; and Citigroup Alternative, 731
Lexington Avenue, 28th Floor, New York, NY 10022.
FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202)
551-6878, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821,
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a temporary order and a
summary of the application. The complete application may be obtained
for a fee at the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1520 (tel. 202-551-5850).
Applicants' Representations:
1. Each of the Applicants is an indirect wholly owned subsidiary of
Citigroup Inc., a financial holding company whose businesses provide a
broad range of financial services. CGMI is registered as a broker-
dealer under the Securities Exchange Act of 1934 (``Exchange Act'') and
serves as principal underwriter for one or more registered investment
companies and unit investment trusts (``UITs'', together with
registered investment companies, ``Funds''). Citigroup Alternative and
Citigroup Advisory are registered as investment advisers under the
Investment Advisers Act of 1940 and serve as investment advisers for
one or more Funds. CEFOF, CELOF, Citibank, CCP I and CCP II (``ESC
Advisers'') serve as investment advisers to certain employees'
securities companies within the meaning of section 2(a)(13) of the Act,
which provide investment opportunities for certain eligible employees,
officers, directors and persons on retainer of Citigroup and its
affiliates (``ESCs'' and included in the term ``Funds'').\2\
---------------------------------------------------------------------------
\2\ Greenwich Street Employees Fund, L.P., et al., Investment
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367
(Jan. 16, 2002) (order).
---------------------------------------------------------------------------
2. On December 23, 2008, the United States District Court for the
Southern District of New York entered a judgment against CGMI
(``Judgment'') in a matter brought by the Commission.\3\ The Commission
alleged in the complaint (``Complaint'') that CGMI violated section
15(c) of the Exchange Act in connection with the marketing and sale of
auction rate securities (``ARS''). The Complaint alleged that CGMI
misled its customers regarding the fundamental nature and increasing
risks associated with ARS that CGMI underwrote, marketed and sold. The
Complaint further alleged that CGMI misrepresented to its customers
that ARS were safe, highly liquid investments that were equivalent to
money market instruments. Without admitting or denying the allegations
in the Complaint, except as to jurisdiction, CGMI consented to the
entry of the Judgment that included, among other things, the entry of
the Injunction and other equitable relief including undertakings to
take various remedial actions for the benefit of purchasers of certain
ARS.
Applicants' Legal Analysis:
1. Section 9(a)(2) of the Act, in relevant part, prohibits a person
who has been enjoined from engaging in or continuing any conduct or
practice in connection with the purchase or sale of a security or in
connection with activities as an underwriter, broker or dealer, from
acting, among other things, as an investment adviser or depositor of
any registered investment company or a principal underwriter for any
registered open-end investment company, registered UIT or registered
face-amount certificate company. Section 9(a)(3) of the Act makes the
prohibition in section 9(a)(2) applicable to a company, any affiliated
person of which has been disqualified under the provisions of section
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to
include any person directly or indirectly controlling, controlled by,
or under common control with, the other person. Applicants state that
CGMI is an affiliated person of each of the other Applicants within the
meaning of section 2(a)(3) of the Act. Applicants state that the entry
of the Injunction results in Applicants being subject to the
disqualification provisions of section 9(a) of the Act.
2. Section 9(c) of the Act provides that the Commission shall grant
an application for exemption from the disqualification provisions of
section 9(a) if it is established that these provisions, as applied to
the Applicants, are unduly or disproportionately severe or that the
Applicants' conduct has been such as not to make it against the public
interest or the protection of investors to grant the exemption.
Applicants have filed an application pursuant to section 9(c) seeking a
temporary and permanent order exempting them and Covered Persons from
the disqualification provisions of section 9(a) of the Act.
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\3\ United States Securities and Exchange Commission v.
Citigroup Global Markets Inc., 08-CV-10753, Judgment as to Defendant
Citigroup Global Markets Inc. (S.D.N.Y.) (entered Dec. 23, 2008).
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3. Applicants believe they meet the standard for exemption
specified in section 9(c). Applicants state that the prohibitions of
section 9(a) as applied to the Applicants would be unduly and
disproportionately severe and that the conduct of Applicants has been
such as not to make it against the public interest or the protection of
investors to grant the exemption from section 9(a).
4. Applicants state that the alleged conduct giving rise to the
Injunction did not involve any of the Applicants acting in the capacity
of investment adviser, subadviser or depositor to a Fund, or principal
underwriter for any open-end Fund or UIT. Applicants also state that
none of the current or former directors, officers, or employees of the
Applicants (other than CGMI) had any participation in the violative
conduct alleged in the Complaint. Applicants further state that the
personnel at CGMI who were involved in the violations alleged in the
Complaint have had no and will not have any future involvement in
providing advisory, subadvisory or depository services to Funds, or
principal underwriting services to open-end Funds or UITs.
5. Applicants state that the inability of the Applicants to
continue to serve as investment adviser, depositor or
[[Page 80452]]
principal underwriter to the Funds would result in potentially severe
financial hardships for the Funds and their shareholders. The
Applicants have distributed, or will distribute as soon as reasonably
practical, written materials, including an offer to meet in person to
discuss the materials, to the board of directors of each Fund,
including the directors who are not ``interested persons,'' as defined
in section 2(a)(19) of the Act, of such Fund, and their independent
legal counsel as defined in rule 0-1(a)(6) under the Act, if any,
regarding the Judgment, any impact on the Funds, and the application.
The Applicants state they will provide the Funds with all information
concerning the Judgment and the application that is necessary for the
Funds to fulfill their disclosure and other obligations under the
federal securities laws.
6. Applicants also state that, if they were barred from serving as
investment adviser, depositor or principal underwriter to the Funds,
the effect on their businesses and employees would be severe.
Applicants state that they have committed substantial resources to
establish an expertise in providing services covered by section 9(a) of
the Act to Funds. Applicants further state that prohibiting them from
providing advisory and distribution services would not only adversely
affect their businesses, but would also adversely affect approximately
50 employees that are involved in those activities. Applicants also
state that disqualifying the ESC Advisers from continuing to provide
investment advisory services to ESCs is not in the public interest or
in furtherance of the protection of investors. Because the ESCs have
been formed for certain eligible officers, directors and persons on
retainer of Citigroup and its affiliates, it would not be consistent
with the purposes of the ESC provisions of the Act or the ESC Order to
require another entity not affiliated with the ESC Advisers to manage
the ESCs. In addition, participating employees of Citigroup and its
affiliates subscribed for interests with the expectation that the ESCs
would be managed by an affiliate of Citigroup.
7. Applicants previously have received exemptions under section
9(c) as the result of conduct that triggered section 9(a) as described
in greater detail in the application.
Applicants' Condition:
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Any temporary exemption granted pursuant to the application shall
be without prejudice to, and shall not limit the Commission's rights in
any manner with respect to, any Commission investigation of, or
administrative proceedings involving or against, Covered Persons,
including without limitation, the consideration by the Commission of a
permanent exemption from section 9(a) of the Act requested pursuant to
the application or the revocation or removal of any temporary
exemptions granted under the Act in connection with the application.
Temporary Order:
The Commission has considered the matter and finds that Applicants
have made the necessary showing to justify granting a temporary
exemption.
Accordingly,
It is hereby ordered, pursuant to section 9(c) of the Act, that the
Applicants and any other Covered Persons are granted a temporary
exemption from the provisions of section 9(a), solely with respect to
the Injunction, subject to the condition in the application, from
December 23, 2008, until the Commission takes final action on their
application for a permanent order.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31090 Filed 12-30-08; 8:45 am]
BILLING CODE 8011-01-P
