Crescent Capital Group, LP; Notice of Application, 42857-42859 [2015-17715]
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Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices
whether between the Exchange and its
competitors, or among market
participants. Instead, the proposed rule
change is designed to allow the SPY
Pilot Program to continue as the
Exchange believes other competing
options exchanges will also extend the
SPY Pilot Program for another year.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder.5
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 6 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 7
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Exchange believes
that waiver of the operative delay is
consistent with the protection of
investors and the public interest
because it will allow the SPY Pilot
Program to continue without
interruption. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.8
At any time within 60 days of the
filing of the proposed rule change, the
5 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
6 17 CFR 240.19b–4(f)(6).
7 17 CFR 240.19b–4(f)(6)(iii).
8 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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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
to determine whether the proposed rule
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:
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–
MIAX–2015–46 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2015–46. 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
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42857
available publicly. All submissions
should refer to File Number SR–MIAX–
2015–46, and should be submitted on or
before August 10, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–17659 Filed 7–17–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–4140/803–00219]
Crescent Capital Group, LP; Notice of
Application
July 14, 2015.
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.
AGENCY:
Crescent Capital Group, LP
(‘‘Applicant’’).
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: Applicant
requests that the Commission issue an
order under Section 206A of the
Advisers Act and Rule 206(4)–5(e)
thereunder exempting Applicant from
Rule 206(4)–5(a)(1) under the Advisers
Act to permit Applicant to receive
compensation from a government entity
client for investment advisory services
provided to the government entity
within the two-year period following a
contribution by a covered associate of
Applicant to an official of the
government entity.
FILING DATES: The application was filed
on October 31, 2013, and an amended
and restated application was filed on
March 12, 2015.
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 August 10, 2015, and
should be accompanied by proof of
APPLICANT:
9 17
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Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices
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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: Brent J. Fields, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090. Applicant, Crescent
Capital Group, LP, c/o George Hawley,
Esq., 1100 Santa Monica Boulevard,
Suite 2000, Los Angeles, CA 90025.
FOR FURTHER INFORMATION CONTACT: Kyle
R. Ahlgren, Senior Counsel, or Holly L.
Hunter-Ceci, 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 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. Applicant is registered with the
Commission as an investment adviser
under the Advisers Act. Applicant
provides investment advisory services
to two private equity funds formed in
2006 and 2008, TCW/Crescent
Mezzanine Partners IV, L.P. (‘‘Fund IV’’)
and TCW/Crescent Mezzanine Partners
V, L.P. (‘‘Fund V’’, and together with
Fund IV, the ‘‘Funds’’), as well as
additional funds. The Funds are
‘‘covered investment pools’’ as defined
in Rule 206(4)-5(f)(3)(ii) under the
Advisers Act that make long-term
investments in private companies and
other illiquid assets.
2. Mr. Jean Marc Chapus (the
‘‘Contributor’’) is a managing partner of
Applicant. The Contributor is, and was
at all relevant times, a ‘‘covered
associate’’ of Applicant as that term is
defined in Rule 206(4)–5(f)(2). The
Contributor frequently has been
solicited for, and has made, political
contributions in the past.
3. The Los Angeles City Employees’
Retirement System (the ‘‘Plan’’) falls
within the definition of a ‘‘government
entity’’ as that term is defined in Rule
206(4)–5(f)(5)(iii). The Plan invested in
the Funds in 2006 and 2008, (for Fund
IV and Fund V, respectively) and each
Fund has been closed to new investors
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Jkt 235001
since that time. Under the terms of the
governing documents of the Funds,
investors, including the Plan, are not
permitted to withdraw their
investments, except under extraordinary
circumstances that are beyond the
control of either Applicant or the Plan,
for a period of ten years following the
date of the investment (2016 or 2018 for
Fund IV and Fund V, respectively).
Applicant’s fees were established at the
inception of the Funds and are not
subject to renegotiation during the term
of the investment.
4. In June 2011, an individual known
to the Contributor, but unrelated to
Applicant, contacted him directly and
requested a contribution to the
campaign of Mr. Austin Beutner (the
‘‘Recipient’’), a candidate for the office
of Mayor of Los Angeles (the ‘‘Office’’).
The Office is entitled to appoint
members of the Plan’s Board of
Administration who can influence the
selection of investment advisers for the
Plan and other related public pension
plans. On June 10, 2011, the Contributor
made a contribution of $1,000 (the
‘‘Contribution’’) to the Austin Beutner
for Los Angeles Mayor 2013 Exploratory
Committee (the ‘‘Committee’’). At the
time of the Contribution, each of the
Committee and the Recipient was an
‘‘official’’ for purposes of Rule 206(4)–
5(f)(6). The Recipient withdrew from the
campaign prior to the election.
5. At the time of the Contribution,
there was no discussion of the Office’s
appointment powers, influence or
responsibilities involving any
investment of public pension funds.
Neither Applicant nor the Contributor
sought to interfere with the Plan’s meritbased selection process for advisory
services, nor did they seek to negotiate
higher fees or greater ancillary benefits
than would be achieved in an arm’s
length transactions, nor could they
have, as the selections pre-dated the
Contribution. Applicant had an existing
relationship with the Plan at the time of
the Contribution, but did not engage in
any new sales efforts involving limited
partnership interests in the Funds,
including any efforts designed to retain
the investments in the Funds or to
renegotiate its fees.
6. Applicant first became aware of the
Contribution one month following the
date it was made when, in July 2011, as
a result of a quarterly survey of political
contributions conducted by Applicant’s
compliance department pursuant to
Applicant’s contribution policies and
procedures, the Contribution was selfreported by the Contributor. Upon
learning of the Contribution,
Applicant’s chief compliance officer,
with the cooperation of the Contributor,
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
promptly contacted the Committee,
which returned the Contribution shortly
thereafter. At the same time, Applicant
created an escrow account to custody
advisory fees for the Funds that were
attributable to the Plan. The fees that
Applicant otherwise would have earned
during the two-year period following
the Contribution (the ‘‘Time Out
Period’’) remain in the escrow account.
7. At the time of the Contribution,
Applicant had developed written
policies and procedures to assure
compliance with Rule 206(4)–5. The
policies and procedures included a
requirement for pre-clearance of all
political contributions and provided for
quarterly surveys of all covered
associates. Such policies and
procedures were designed, among other
things, to assure that any unreported
political contributions were detected by
Applicant’s compliance department in a
timely fashion.
8. At the time of the Contribution,
communication from the Committee, as
well as the Committee’s Web site and
other published information, referred
consistently to its ‘‘exploratory’’
nature.1 While the Contributor had
received compliance training, he did not
consider whether Rule 206(4)–5 and
Applicant’s pre-clearance requirement
would have applied to contributions
made to exploratory committees. The
Contributor therefore did not pre-clear
the Contribution with Applicant as
required under its policies.
9. Subsequent to the Contribution,
Applicant has enhanced its training
program by stressing the importance of
its pre-clearance requirement and has
highlighted the fact that contributions to
exploratory and other political
committees are subject to its preclearance requirement, among other
things.
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 Plan 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 each of the Committee and
the Recipient is an ‘‘official’’ as defined
1 The Committee had in fact filed as a campaign
committee with the local election commission.
Under Rule 206(4)–5(f)(6), the term ‘‘official’’
includes election committees.
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Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices
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
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
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16:30 Jul 17, 2015
Jkt 235001
206(4)–5(e), exempting it from the twoyear prohibition on compensation
imposed by Rule 206(4)–5(a)(1) with
respect to investment advisory services
provided to the Funds within the twoyear 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 Act. Applicant
further submits that the other factors set
forth in Rule 206(4)–5 similarly weigh
in favor of granting an exemption to
Applicant to avoid consequences
disproportionate to the violation.
6. Applicant states that the Plan first
determined to invest in the Funds
before the Contribution was made, and
established and maintained its
relationships with Applicant on an
arm’s length basis free from any
improper influence as a result of the
Contribution. Applicant notes that: (i)
The Plan’s most recent investment
decision was made in 2008, prior to the
Contribution, at the time of its last
investment commitment in Fund V; and
(ii) due to the committed nature of the
Plan’s investment in the Funds, the Plan
had no investment decision to consider
at the time of the Contribution.
7. Applicant states that it had
developed policies and procedures to
assure compliance with Rule 206(4)–5,
which included a requirement for preclearance of all political contributions
and provided for quarterly surveys of all
covered associates, and that such
quarterly survey prompted the
Contributor to report the Contribution.
Applicant further states that training
was provided to Applicant’s employees,
including the Contributor, that
addressed Rule 206(4)–5 and
Applicant’s policies and procedures.
8. Applicant states that at no time did
any employees of Applicant, other than
the Contributor, have any knowledge
that the Contribution had been made
prior to its disclosure by the Contributor
in July 2011.
9. Applicant states that once the
Contribution was discovered, Applicant
began to gather additional facts about
the Contribution and the Committee,
and fees attributable to the Plan’s
investment in the Funds were placed in
escrow. Applicant further states that
after learning of the Contribution,
Applicant took steps to limit the
Contributor’s contact with any
representative of the Plan or related
plans for the duration of the Time Out
Period, and that the Contributor had no
contact with any representative of the
Plan or related plans during the Time
Out Period.
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42859
10. Applicant states that the
Contribution was made solely for the
purpose of participating in the local
election process, and was not intended
to improperly influence any decision by
the Plan. Applicant notes that the
Contributor resides in the community in
which the Recipient was running for
office and that the Contributor was
entitled to vote in the election.
Applicant further states that the
Contributor has a history of making
political contributions to candidates for
elected office.
11. Applicant states that Applicant
had an existing relationship with the
Plan at the time of the Contribution, but
did not engage in any new sales efforts
involving limited partnership interests
in the Funds, including any efforts
designed to retain the investments in
the Funds or to renegotiate its fees.
12. Applicant contends that imposing
a limitation on the receipt of advisory
compensation associated with the Plan’s
investment in the Funds would result in
a disproportionate consequence to
Applicant that is not necessary to
achieve the intended purposes of Rule
206(4)–5. Applicant states that neither
Applicant nor the Contributor sought to
interfere with the Plan’s merit-based
selection process for advisory services,
nor did they seek to negotiate higher
fees or greater ancillary benefits than
would be achieved in an arm’s length
transactions, nor could they have, as the
selections pre-dated the Contribution.
Applicant further states that there was
no violation of Applicant’s fiduciary
duty to deal fairly or disclose material
conflicts of interest given the absence of
any intent or action by Applicant or the
Contributor to influence the selection
process.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–17715 Filed 7–17–15; 8:45 am]
BILLING CODE 8011–01–P
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]]>Agencies
[Federal Register Volume 80, Number 138 (Monday, July 20, 2015)]
[Notices]
[Pages 42857-42859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17715]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4140/803-00219]
Crescent Capital Group, LP; Notice of Application
July 14, 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: Crescent Capital Group, LP (``Applicant'').
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: Applicant requests that the Commission issue an
order under Section 206A of the Advisers Act and Rule 206(4)-5(e)
thereunder exempting Applicant from Rule 206(4)-5(a)(1) under the
Advisers Act to permit Applicant to receive compensation from a
government entity client for investment advisory services provided to
the government entity within the two-year period following a
contribution by a covered associate of Applicant to an official of the
government entity.
Filing Dates: The application was filed on October 31, 2013, and an
amended and restated application was filed on March 12, 2015.
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 August 10, 2015, and should be accompanied by proof of
[[Page 42858]]
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: Brent J. Fields, Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant,
Crescent Capital Group, LP, c/o George Hawley, Esq., 1100 Santa Monica
Boulevard, Suite 2000, Los Angeles, CA 90025.
For Further Information Contact: Kyle R. Ahlgren, Senior Counsel, or
Holly L. Hunter-Ceci, 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 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. Applicant is registered with the Commission as an investment
adviser under the Advisers Act. Applicant provides investment advisory
services to two private equity funds formed in 2006 and 2008, TCW/
Crescent Mezzanine Partners IV, L.P. (``Fund IV'') and TCW/Crescent
Mezzanine Partners V, L.P. (``Fund V'', and together with Fund IV, the
``Funds''), as well as additional funds. The Funds are ``covered
investment pools'' as defined in Rule 206(4)-5(f)(3)(ii) under the
Advisers Act that make long-term investments in private companies and
other illiquid assets.
2. Mr. Jean Marc Chapus (the ``Contributor'') is a managing partner
of Applicant. The Contributor is, and was at all relevant times, a
``covered associate'' of Applicant as that term is defined in Rule
206(4)-5(f)(2). The Contributor frequently has been solicited for, and
has made, political contributions in the past.
3. The Los Angeles City Employees' Retirement System (the ``Plan'')
falls within the definition of a ``government entity'' as that term is
defined in Rule 206(4)-5(f)(5)(iii). The Plan invested in the Funds in
2006 and 2008, (for Fund IV and Fund V, respectively) and each Fund has
been closed to new investors since that time. Under the terms of the
governing documents of the Funds, investors, including the Plan, are
not permitted to withdraw their investments, except under extraordinary
circumstances that are beyond the control of either Applicant or the
Plan, for a period of ten years following the date of the investment
(2016 or 2018 for Fund IV and Fund V, respectively). Applicant's fees
were established at the inception of the Funds and are not subject to
renegotiation during the term of the investment.
4. In June 2011, an individual known to the Contributor, but
unrelated to Applicant, contacted him directly and requested a
contribution to the campaign of Mr. Austin Beutner (the ``Recipient''),
a candidate for the office of Mayor of Los Angeles (the ``Office'').
The Office is entitled to appoint members of the Plan's Board of
Administration who can influence the selection of investment advisers
for the Plan and other related public pension plans. On June 10, 2011,
the Contributor made a contribution of $1,000 (the ``Contribution'') to
the Austin Beutner for Los Angeles Mayor 2013 Exploratory Committee
(the ``Committee''). At the time of the Contribution, each of the
Committee and the Recipient was an ``official'' for purposes of Rule
206(4)-5(f)(6). The Recipient withdrew from the campaign prior to the
election.
5. At the time of the Contribution, there was no discussion of the
Office's appointment powers, influence or responsibilities involving
any investment of public pension funds. Neither Applicant nor the
Contributor sought to interfere with the Plan's merit-based selection
process for advisory services, nor did they seek to negotiate higher
fees or greater ancillary benefits than would be achieved in an arm's
length transactions, nor could they have, as the selections pre-dated
the Contribution. Applicant had an existing relationship with the Plan
at the time of the Contribution, but did not engage in any new sales
efforts involving limited partnership interests in the Funds, including
any efforts designed to retain the investments in the Funds or to
renegotiate its fees.
6. Applicant first became aware of the Contribution one month
following the date it was made when, in July 2011, as a result of a
quarterly survey of political contributions conducted by Applicant's
compliance department pursuant to Applicant's contribution policies and
procedures, the Contribution was self-reported by the Contributor. Upon
learning of the Contribution, Applicant's chief compliance officer,
with the cooperation of the Contributor, promptly contacted the
Committee, which returned the Contribution shortly thereafter. At the
same time, Applicant created an escrow account to custody advisory fees
for the Funds that were attributable to the Plan. The fees that
Applicant otherwise would have earned during the two-year period
following the Contribution (the ``Time Out Period'') remain in the
escrow account.
7. At the time of the Contribution, Applicant had developed written
policies and procedures to assure compliance with Rule 206(4)-5. The
policies and procedures included a requirement for pre-clearance of all
political contributions and provided for quarterly surveys of all
covered associates. Such policies and procedures were designed, among
other things, to assure that any unreported political contributions
were detected by Applicant's compliance department in a timely fashion.
8. At the time of the Contribution, communication from the
Committee, as well as the Committee's Web site and other published
information, referred consistently to its ``exploratory'' nature.\1\
While the Contributor had received compliance training, he did not
consider whether Rule 206(4)-5 and Applicant's pre-clearance
requirement would have applied to contributions made to exploratory
committees. The Contributor therefore did not pre-clear the
Contribution with Applicant as required under its policies.
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\1\ The Committee had in fact filed as a campaign committee with
the local election commission. Under Rule 206(4)-5(f)(6), the term
``official'' includes election committees.
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9. Subsequent to the Contribution, Applicant has enhanced its
training program by stressing the importance of its pre-clearance
requirement and has highlighted the fact that contributions to
exploratory and other political committees are subject to its pre-
clearance requirement, among other things.
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 Plan 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 each of the Committee and the Recipient is an ``official''
as defined
[[Page 42859]]
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
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 Funds 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 Act. Applicant further submits that the other factors
set forth in Rule 206(4)-5 similarly weigh in favor of granting an
exemption to Applicant to avoid consequences disproportionate to the
violation.
6. Applicant states that the Plan first determined to invest in the
Funds before the Contribution was made, and established and maintained
its relationships with Applicant on an arm's length basis free from any
improper influence as a result of the Contribution. Applicant notes
that: (i) The Plan's most recent investment decision was made in 2008,
prior to the Contribution, at the time of its last investment
commitment in Fund V; and (ii) due to the committed nature of the
Plan's investment in the Funds, the Plan had no investment decision to
consider at the time of the Contribution.
7. Applicant states that it had developed policies and procedures
to assure compliance with Rule 206(4)-5, which included a requirement
for pre-clearance of all political contributions and provided for
quarterly surveys of all covered associates, and that such quarterly
survey prompted the Contributor to report the Contribution. Applicant
further states that training was provided to Applicant's employees,
including the Contributor, that addressed Rule 206(4)-5 and Applicant's
policies and procedures.
8. Applicant states that at no time did any employees of Applicant,
other than the Contributor, have any knowledge that the Contribution
had been made prior to its disclosure by the Contributor in July 2011.
9. Applicant states that once the Contribution was discovered,
Applicant began to gather additional facts about the Contribution and
the Committee, and fees attributable to the Plan's investment in the
Funds were placed in escrow. Applicant further states that after
learning of the Contribution, Applicant took steps to limit the
Contributor's contact with any representative of the Plan or related
plans for the duration of the Time Out Period, and that the Contributor
had no contact with any representative of the Plan or related plans
during the Time Out Period.
10. Applicant states that the Contribution was made solely for the
purpose of participating in the local election process, and was not
intended to improperly influence any decision by the Plan. Applicant
notes that the Contributor resides in the community in which the
Recipient was running for office and that the Contributor was entitled
to vote in the election. Applicant further states that the Contributor
has a history of making political contributions to candidates for
elected office.
11. Applicant states that Applicant had an existing relationship
with the Plan at the time of the Contribution, but did not engage in
any new sales efforts involving limited partnership interests in the
Funds, including any efforts designed to retain the investments in the
Funds or to renegotiate its fees.
12. Applicant contends that imposing a limitation on the receipt of
advisory compensation associated with the Plan's investment in the
Funds would result in a disproportionate consequence to Applicant that
is not necessary to achieve the intended purposes of Rule 206(4)-5.
Applicant states that neither Applicant nor the Contributor sought to
interfere with the Plan's merit-based selection process for advisory
services, nor did they seek to negotiate higher fees or greater
ancillary benefits than would be achieved in an arm's length
transactions, nor could they have, as the selections pre-dated the
Contribution. Applicant further states that there was no violation of
Applicant's fiduciary duty to deal fairly or disclose material
conflicts of interest given the absence of any intent or action by
Applicant or the Contributor to influence the selection process.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-17715 Filed 7-17-15; 8:45 am]
BILLING CODE 8011-01-P
