T. Rowe Price Associates, Inc. and T. Rowe Price International Ltd; Notice of Application, 14189-14191 [2015-06110]
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Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices
competitive standing in the financial
markets.
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues. In such an
environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) of the Act 8 and
subparagraph (f)(2) of Rule 19b–4
thereunder,9 because it establishes a
due, fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) of the Act 10 to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2015–13 on the subject line.
8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
10 15 U.S.C. 78s(b)(2)(B).
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549.
All submissions should refer to File
Number SR–NYSEArca–2015–13. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2015–13 and should be
submitted on or before April 8, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Brent J. Fields,
Secretary.
[FR Doc. 2015–06125 Filed 3–17–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–4046/803–00224]
T. Rowe Price Associates, Inc. and T.
Rowe Price International Ltd; Notice of
Application
March 12, 2015.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
exemptive order under Section 206A of
AGENCY:
9 17
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14189
the Investment Advisers Act of 1940
(the ‘‘Advisers Act’’) and Rule 206(4)–
5(e) thereunder.
Applicant: T. Rowe Price Associates,
Inc. (‘‘TRPA’’) and T. Rowe Price
International Ltd (‘‘TRPIL’’ and, together
with TRPA, the ‘‘Advisers’’ or the
‘‘Applicants’’).
Relevant Advisers Act Sections:
Exemption requested under Section
206A of the Advisers Act and Rule
206(4)–5(e) thereunder from Rule
206(4)–5(a)(1) under the Advisers Act.
Summary of Application: The
Applicants request that the Commission
issue an order under Section 206A of
the Advisers Act and Rule 206(4)–5(e)
thereunder exempting them from Rule
206(4)–5(a)(1) under the Advisers Act to
permit Applicants to receive
compensation from certain government
entities for investment advisory services
provided to the government entities
within the two-year period following a
contribution by a covered associate of
the Applicants to an official of the
government entities.
DATES: Filing Dates: The application was
filed on May 6, 2014, and an amended
and restated application was filed on
October 29, 2014.
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 April 6, 2015, and
should be accompanied by proof of
service on the Applicants, 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: Brent J. Fields, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090. Applicants, TRPA and
TRPIL, T. Rowe Price Associates, Inc.,
100 East Pratt Street, Baltimore,
Maryland 21202.
FOR FURTHER INFORMATION CONTACT: Kyle
R. Ahlgren, 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
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application. The complete application
may be obtained via the Commission’s
Web site either at https://www.sec.gov/
rules/iareleases.shtml or by searching
for the file number, or for an applicant
using the Company name box, at
https://www.sec.gov/search/search.htm,
or by calling (202) 551–8090.
Applicant’s Representations
1. The Applicants are registered with
the Commission as investment advisers
under the Advisers Act. T. Rowe Price
Group, Inc. (‘‘TRPG’’) is the parent
company of both Applicants. The
Applicants serve as adviser or
subadviser to companies that are
registered with the Commission as
investment companies (‘‘RICs’’) under
the Investment Company Act of 1940
(the ‘‘1940 Act’’). In addition, TRPIL
acts as an adviser to the T. Rowe Price
Trust Company (‘‘TRPTC’’) in
connection with assets of defined
contribution and benefit plans of
companies and governmental entities
that are invested in the Emerging
Markets Equity Trust Fund, a common
trust fund exempt under Section
3(c)(11) of the 1940 Act and of which
TRPTC is the Trustee (the ‘‘Fund’’).
Certain public pension plans that are
government entities of Wisconsin (the
‘‘Clients’’) have selected a RIC as an
investment option for participants in
participant-directed plans. One Client
had been invested in the Fund since
2003 but divested its investment by May
2012. The investment decisions for the
Clients are overseen by boards of
trustees, and Gubernatorial appointees
sit on these boards. Due to this power
of appointment, the Governor is an
‘‘official’’ of each Client under Rule
206(4)–5(f)(6)(ii). The Governor,
however, does not sit on any Client’s
board or have any direct involvement in
any Client’s investment decisions.
2. Applicants represent that Michael
McGonigle (the ‘‘Contributor’’) is a Vice
President of TRPG and TRPA. He has
been a director of credit research in the
Fixed Income Division since 2010 and
is a member of the Fixed Income
Steering Committee. In his role as a
director of credit research, he supervises
approximately 15 research analysts in
TRPA and eight research analysts in
TRPIL, some of whom may occasionally
meet with government entity clients or
prospective clients, or with consultants
for prospective clients. The Contributor
is, therefore, a ‘‘covered associate’’ of
TRPA and TRPIL, as defined in Rule
206(4)–5(f)(2)(ii). The Advisers have
identified only one meeting with a
Wisconsin government entity client at
which an analyst supervised by the
Contributor was present since March 14,
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2011, the effective date of Rule 206(4)–
5 (the ‘‘Rule’’). The Contributor has not
participated in any such meetings with
any state or local government entity
client or prospective client of the
Advisers since the effective date of the
Rule.
3. The recipient of the Contribution
was Scott Walker (the ‘‘Official’’), the
Governor of Wisconsin, who took office
in January 2011. The Contribution was
made on February 5, 2012 to the
Official’s recall primary election
campaign for the amount of $250 (the
‘‘Contribution’’). The Wisconsin
Campaign Finance Information System
reported it as received by the campaign
on February 26, 2012. Although not
entitled to vote in Wisconsin elections,
the Contributor was interested in the
highly contentious and publicized recall
election, given his political views that
are in line with those of the Official.
The Contributor remembers watching
television coverage of the recall election
and receiving telephone solicitations for
political contributions during this time.
To the best of the Contributor’s
recollection, he made the Contribution
pursuant to such a telephone
solicitation. The Contributor has never
met the Official or dealt with the
Official in any capacity. The Contributor
has never solicited or coordinated any
contributions for or on behalf of the
Official. The Contribution is consistent
with other political contributions made
by the Contributor (which were made
prior to the effective date of the Rule).
4. Applicants represent that the
Clients’ relationship with the
Applicants pre-dates the Contribution.
The Adviser’s relationship with one
Client dates back to at least 2003 when
the Client invested in the Fund. This
Client began withdrawing its investment
from the Fund in 2011 and was fully
divested in May 2012. The Clients with
a RIC advised by the Advisers began
their relationship with the Advisers in
2005 and 2008.
5. Applicants represent that at no time
did any employees of the Applicants
other than the Contributor have any
knowledge of the Contribution prior to
the Applicants’ legal department’s
discovery of the Contribution. The
Contribution was discovered in the
course of compliance testing by the
Advisers’ legal department on or around
March 18, 2014. Subsequently, the
Applicants and the Contributor obtained
the Official’s agreement to return the
full amount of the Contribution, which
was returned on May 1, 2014. After
identifying the Contribution, the
Advisers established an escrow account
and deposited in the account an amount
equal to the sum of all fees paid to the
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Advisers, directly or indirectly, with
respect to the Clients between February
5, 2012 through February 26, 2014. The
Advisers have notified the Client
invested in the Fund, each affected RIC,
and each Client that offers as an
investment option in a participantdirected plan an affected RIC that is
directly advised by the Advisers, of the
Contribution and the resulting two-year
prohibition on compensation absent
exemptive relief from the Commission.
The Advisers have informed such
Clients and each affected RIC that the
fees attributable to the Clients since the
date of the Contribution through the
two-year period were being placed in
escrow and that, absent exemptive relief
from the Commission, those fees would
be distributed in a way that is
permissible under applicable laws and
the Rule.
6. Applicants represent that the
Advisers’ policies and procedures
regarding pay-to-play (‘‘Pay-to-Play
Policies and Procedures’’) in place at the
time of the Contribution required all
employees to pre-clear contributions to
state and local officials and candidates.
Employees must annually certify their
compliance with the Advisers’ Code of
Ethics, which describes the Advisers’
preclearance policy for political
contributions, through an Annual
Verification Questionnaire (the
‘‘Questionnaire’’). The Questionnaire
requires employees to certify their
compliance with the Policy. The
Contributor has completed his annual
online training and Questionnaire
certification each year since the
effective date of the Rule. The legal
department or specific business units of
the Advisers also occasionally send
reminder emails about the Policy. The
Advisers have also started to include
searches of public Web sites for
contributions made by employees, and
it was in the course of developing this
testing program that the Contribution
was discovered by the Advisers.
7. Applicants represent that to the
best of the Contributor’s recollection,
the Contributor’s violation of
Applicant’s Pay-to-Play Policies and
Procedures resulted from his simply
forgetting to pre-clear his contribution
as required, due to his becoming
impassioned about the recall election
while watching televised reports about
it and receiving a telephone solicitation
while doing so. Applicants note that on
May 31, 2012, pursuant to the Advisers’
policies and procedures, the Contributor
requested pre-clearance from Advisers’
legal department to make a contribution
to the Official’s campaign for the recall
general election and received
permission to make a $150 contribution.
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As noted above, however, the
Contributor did not disclose the
Contribution to the Applicants and the
Applicants had no knowledge of the
Contribution when the Contributor
received approval for the May 31, 2012
contribution for the recall general
election.
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. Each 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
Official 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 RICs and the
Funds are ‘‘covered investment pools,’’
as defined in rule 206(4)–5(f)(3).
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
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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
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. The Applicants request an order
pursuant to section 206A and rule
206(4)–5(e), exempting them from the
two-year prohibition on compensation
imposed by rule 206(4)–5(a)(1) with
respect to investment advisory services
provided to the Clients within the twoyear period following the Contribution.
5. The Applicants submit 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 Act. The
Applicants further submit that the other
factors set forth in Rule 206(4)–5
similarly weigh in favor of granting an
exemption to the Applicants to avoid
consequences disproportionate to the
violation. The Applicants note that
causing the Advisers to serve without
compensation for a two-year period
could result in a financial loss that is
approximately 24,000 times the amount
of the Contribution.
6. The Applicants represent that
neither the Advisers nor the Contributor
sought to interfere with the Clients’
merit-based selection process for
advisory services, nor did they seek to
negotiate higher fees or greater ancillary
benefits than would be achieved in
arms’-length transactions. The
Applicants note that the Advisers’
relationship with the Clients pre-date
the Contribution, and that one Client
divested its investment in the Fund
shortly after the Contribution. The
Applicants represent that they have no
reason to believe that the Contribution
undermined the integrity of the market
for advisory services or resulted in a
violation of the public trust in the
process for awarding contracts.
7. The Applicants note that the
Advisers adopted and implemented
pay-to-play policies and procedures on
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14191
the Rule’s effective date, March 14, 2011
that are fully compliant with the Rule’s
requirements. The Applicants further
note that the Advisers began developing
compliance testing that includes
random searches of public campaign
databases for contributions by
employees. The Applicants represent
that at no time did any employees of the
Advisers other than the Contributor
have any actual knowledge that the
Contribution had been made prior to its
discovery by the Advisers in March
2014. The Applicants further represent
that the Advisers and the Contributor
obtained the Official’s agreement to
return the Contribution, which was
subsequently returned, and the Advisers
established an escrow account for all
fees attributable to the Clients’
relationships with the Advisers accrued
between February 5, 2012 and February
26, 2014.
8. The Applicants state that the
Contributor’s apparent intent in making
the Contribution was not to influence
the selection or retention of the
Advisers, and that the Contribution was
consistent with prior political donations
made by the Contributor in support of
other candidates who share the political
views of the Official.
9. The Applicants represent that the
Contributor has had no direct contact or
involvement with any of the Clients,
and that the Contributor’s only indirect
involvement with one of the Clients was
through a single meeting at which a
research analyst who reported to the
Contributor met with the Client.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015–06110 Filed 3–17–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74484; File No. SR–BATS–
2015–20]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of BATS Exchange, Inc.
March 12, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 2,
2015, BATS Exchange, Inc. (the
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 80, Number 52 (Wednesday, March 18, 2015)]
[Notices]
[Pages 14189-14191]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4046/803-00224]
T. Rowe Price Associates, Inc. and T. Rowe Price International
Ltd; Notice of Application
March 12, 2015.
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) thereunder.
-----------------------------------------------------------------------
Applicant: T. Rowe Price Associates, Inc. (``TRPA'') and T. Rowe
Price International Ltd (``TRPIL'' and, together with TRPA, the
``Advisers'' or the ``Applicants'').
Relevant Advisers Act Sections: Exemption requested under Section
206A of the Advisers Act and Rule 206(4)-5(e) thereunder from Rule
206(4)-5(a)(1) under the Advisers Act.
Summary of Application: The Applicants request that the Commission
issue an order under Section 206A of the Advisers Act and Rule 206(4)-
5(e) thereunder exempting them from Rule 206(4)-5(a)(1) under the
Advisers Act to permit Applicants to receive compensation from certain
government entities for investment advisory services provided to the
government entities within the two-year period following a contribution
by a covered associate of the Applicants to an official of the
government entities.
DATES: Filing Dates: The application was filed on May 6, 2014, and an
amended and restated application was filed on October 29, 2014.
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 April 6, 2015, and should be accompanied by proof of
service on the Applicants, 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: Brent J. Fields, Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants,
TRPA and TRPIL, T. Rowe Price Associates, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202.
FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, 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
[[Page 14190]]
application. The complete application may be obtained via the
Commission's Web site either at https://www.sec.gov/rules/iareleases.shtml or by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicant's Representations
1. The Applicants are registered with the Commission as investment
advisers under the Advisers Act. T. Rowe Price Group, Inc. (``TRPG'')
is the parent company of both Applicants. The Applicants serve as
adviser or subadviser to companies that are registered with the
Commission as investment companies (``RICs'') under the Investment
Company Act of 1940 (the ``1940 Act''). In addition, TRPIL acts as an
adviser to the T. Rowe Price Trust Company (``TRPTC'') in connection
with assets of defined contribution and benefit plans of companies and
governmental entities that are invested in the Emerging Markets Equity
Trust Fund, a common trust fund exempt under Section 3(c)(11) of the
1940 Act and of which TRPTC is the Trustee (the ``Fund''). Certain
public pension plans that are government entities of Wisconsin (the
``Clients'') have selected a RIC as an investment option for
participants in participant-directed plans. One Client had been
invested in the Fund since 2003 but divested its investment by May
2012. The investment decisions for the Clients are overseen by boards
of trustees, and Gubernatorial appointees sit on these boards. Due to
this power of appointment, the Governor is an ``official'' of each
Client under Rule 206(4)-5(f)(6)(ii). The Governor, however, does not
sit on any Client's board or have any direct involvement in any
Client's investment decisions.
2. Applicants represent that Michael McGonigle (the
``Contributor'') is a Vice President of TRPG and TRPA. He has been a
director of credit research in the Fixed Income Division since 2010 and
is a member of the Fixed Income Steering Committee. In his role as a
director of credit research, he supervises approximately 15 research
analysts in TRPA and eight research analysts in TRPIL, some of whom may
occasionally meet with government entity clients or prospective
clients, or with consultants for prospective clients. The Contributor
is, therefore, a ``covered associate'' of TRPA and TRPIL, as defined in
Rule 206(4)-5(f)(2)(ii). The Advisers have identified only one meeting
with a Wisconsin government entity client at which an analyst
supervised by the Contributor was present since March 14, 2011, the
effective date of Rule 206(4)-5 (the ``Rule''). The Contributor has not
participated in any such meetings with any state or local government
entity client or prospective client of the Advisers since the effective
date of the Rule.
3. The recipient of the Contribution was Scott Walker (the
``Official''), the Governor of Wisconsin, who took office in January
2011. The Contribution was made on February 5, 2012 to the Official's
recall primary election campaign for the amount of $250 (the
``Contribution''). The Wisconsin Campaign Finance Information System
reported it as received by the campaign on February 26, 2012. Although
not entitled to vote in Wisconsin elections, the Contributor was
interested in the highly contentious and publicized recall election,
given his political views that are in line with those of the Official.
The Contributor remembers watching television coverage of the recall
election and receiving telephone solicitations for political
contributions during this time. To the best of the Contributor's
recollection, he made the Contribution pursuant to such a telephone
solicitation. The Contributor has never met the Official or dealt with
the Official in any capacity. The Contributor has never solicited or
coordinated any contributions for or on behalf of the Official. The
Contribution is consistent with other political contributions made by
the Contributor (which were made prior to the effective date of the
Rule).
4. Applicants represent that the Clients' relationship with the
Applicants pre-dates the Contribution. The Adviser's relationship with
one Client dates back to at least 2003 when the Client invested in the
Fund. This Client began withdrawing its investment from the Fund in
2011 and was fully divested in May 2012. The Clients with a RIC advised
by the Advisers began their relationship with the Advisers in 2005 and
2008.
5. Applicants represent that at no time did any employees of the
Applicants other than the Contributor have any knowledge of the
Contribution prior to the Applicants' legal department's discovery of
the Contribution. The Contribution was discovered in the course of
compliance testing by the Advisers' legal department on or around March
18, 2014. Subsequently, the Applicants and the Contributor obtained the
Official's agreement to return the full amount of the Contribution,
which was returned on May 1, 2014. After identifying the Contribution,
the Advisers established an escrow account and deposited in the account
an amount equal to the sum of all fees paid to the Advisers, directly
or indirectly, with respect to the Clients between February 5, 2012
through February 26, 2014. The Advisers have notified the Client
invested in the Fund, each affected RIC, and each Client that offers as
an investment option in a participant-directed plan an affected RIC
that is directly advised by the Advisers, of the Contribution and the
resulting two-year prohibition on compensation absent exemptive relief
from the Commission. The Advisers have informed such Clients and each
affected RIC that the fees attributable to the Clients since the date
of the Contribution through the two-year period were being placed in
escrow and that, absent exemptive relief from the Commission, those
fees would be distributed in a way that is permissible under applicable
laws and the Rule.
6. Applicants represent that the Advisers' policies and procedures
regarding pay-to-play (``Pay-to-Play Policies and Procedures'') in
place at the time of the Contribution required all employees to pre-
clear contributions to state and local officials and candidates.
Employees must annually certify their compliance with the Advisers'
Code of Ethics, which describes the Advisers' preclearance policy for
political contributions, through an Annual Verification Questionnaire
(the ``Questionnaire''). The Questionnaire requires employees to
certify their compliance with the Policy. The Contributor has completed
his annual online training and Questionnaire certification each year
since the effective date of the Rule. The legal department or specific
business units of the Advisers also occasionally send reminder emails
about the Policy. The Advisers have also started to include searches of
public Web sites for contributions made by employees, and it was in the
course of developing this testing program that the Contribution was
discovered by the Advisers.
7. Applicants represent that to the best of the Contributor's
recollection, the Contributor's violation of Applicant's Pay-to-Play
Policies and Procedures resulted from his simply forgetting to pre-
clear his contribution as required, due to his becoming impassioned
about the recall election while watching televised reports about it and
receiving a telephone solicitation while doing so. Applicants note that
on May 31, 2012, pursuant to the Advisers' policies and procedures, the
Contributor requested pre-clearance from Advisers' legal department to
make a contribution to the Official's campaign for the recall general
election and received permission to make a $150 contribution.
[[Page 14191]]
As noted above, however, the Contributor did not disclose the
Contribution to the Applicants and the Applicants had no knowledge of
the Contribution when the Contributor received approval for the May 31,
2012 contribution for the recall general election.
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.
Each 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 Official 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 RICs and the Funds are ``covered
investment pools,'' as defined in rule 206(4)-5(f)(3).
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
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. The Applicants request an order pursuant to section 206A and
rule 206(4)-5(e), exempting them from the two-year prohibition on
compensation imposed by rule 206(4)-5(a)(1) with respect to investment
advisory services provided to the Clients within the two-year period
following the Contribution.
5. The Applicants submit 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 Act. The Applicants further submit that the other
factors set forth in Rule 206(4)-5 similarly weigh in favor of granting
an exemption to the Applicants to avoid consequences disproportionate
to the violation. The Applicants note that causing the Advisers to
serve without compensation for a two-year period could result in a
financial loss that is approximately 24,000 times the amount of the
Contribution.
6. The Applicants represent that neither the Advisers nor the
Contributor sought to interfere with the Clients' merit-based selection
process for advisory services, nor did they seek to negotiate higher
fees or greater ancillary benefits than would be achieved in arms'-
length transactions. The Applicants note that the Advisers'
relationship with the Clients pre-date the Contribution, and that one
Client divested its investment in the Fund shortly after the
Contribution. The Applicants represent that they have no reason to
believe that the Contribution undermined the integrity of the market
for advisory services or resulted in a violation of the public trust in
the process for awarding contracts.
7. The Applicants note that the Advisers adopted and implemented
pay-to-play policies and procedures on the Rule's effective date, March
14, 2011 that are fully compliant with the Rule's requirements. The
Applicants further note that the Advisers began developing compliance
testing that includes random searches of public campaign databases for
contributions by employees. The Applicants represent that at no time
did any employees of the Advisers other than the Contributor have any
actual knowledge that the Contribution had been made prior to its
discovery by the Advisers in March 2014. The Applicants further
represent that the Advisers and the Contributor obtained the Official's
agreement to return the Contribution, which was subsequently returned,
and the Advisers established an escrow account for all fees
attributable to the Clients' relationships with the Advisers accrued
between February 5, 2012 and February 26, 2014.
8. The Applicants state that the Contributor's apparent intent in
making the Contribution was not to influence the selection or retention
of the Advisers, and that the Contribution was consistent with prior
political donations made by the Contributor in support of other
candidates who share the political views of the Official.
9. The Applicants represent that the Contributor has had no direct
contact or involvement with any of the Clients, and that the
Contributor's only indirect involvement with one of the Clients was
through a single meeting at which a research analyst who reported to
the Contributor met with the Client.
For the Commission, by the Division of Investment Management,
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-06110 Filed 3-17-15; 8:45 am]
BILLING CODE 8011-01-P
