Fidelity Management & Research Company and FMR Co., Inc.; Notice of Application, 62123-62125 [2015-26146]
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Federal Register / Vol. 80, No. 199 / Thursday, October 15, 2015 / Notices
through issuance of an NSCC Important
Notice
2. Statutory Basis
Section 17A(b)(3)(F) of the Act
requires, in part, that NSCC’s Rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions and to protect
investors and the public interest.11 By
permitting additional, eligible
transactions to settle through CNS or the
Balance Order Accounting Operation,
and receive the benefit of NSCC’s
settlement services, including, in the
case of CNS, the central counterparty
trade guarantee, the proposal would
offer protection to investors and the
public interest by mitigating its
Members’ settlement risk and
counterparty risk with respect to those
transactions. Therefore, NSCC believes
the proposed rule change would
promote the prompt and accurate
clearance and settlement of securities
transactions by reducing these risks,
consistent with the requirements of the
Act, in particular section 17A(b)(3)(F),
cited above.
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC does not believe that the
proposed rule changes would have any
impact on competition because the
proposal would apply equally to all
NSCC Members that submit CMU trades
through NSCC’s RTTM service.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
NSCC has not received any written
comments relating to this proposal.
NSCC will notify the Commission of any
written comments received by NSCC.
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III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
11 15
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:
17:19 Oct 14, 2015
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–26151 Filed 10–14–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–
NSCC–2015–005 on the subject line.
[Release No. IA–4220/803–00225]
Fidelity Management & Research
Company and FMR Co., Inc.; Notice of
Application
October 8, 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).
AGENCY:
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–NSCC–2015–005. 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 the
filing also will be available for
inspection and copying at the principal
office of NSCC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–NSCC–
2015–005 and should be submitted on
or before November 5, 2015.
U.S.C. 78q–1(b)(3)(F).
VerDate Sep<11>2014
Fidelity Management &
Research Company (‘‘FMR’’) and FMR
Co., Inc. (‘‘FMRC’’ and, together with
FMR, ‘‘Applicants’’).
RELEVANT ADVISERS ACT SECTIONS:
Exemption requested under section
206A of the Advisers Act and rule
206(4)–5(e) from rule 206(4)–5(a)(1)
under the Advisers Act.
SUMMARY OF APPLICATION: Applicants
request that the Commission issue an
order under section 206A of the
Advisers Act and rule 206(4)–5(e)
exempting Applicants 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.
FILING DATES: The application was filed
on August 28, 2014, an amended and
restated application was filed on May
11, 2015, and a second amended and
restated application was filed on
September 24, 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
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 November 2, 2015, and
should be accompanied by proof of
APPLICANT:
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Federal Register / Vol. 80, No. 199 / Thursday, October 15, 2015 / Notices
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. Fidelity Management &
Research Company and FMR Co., Inc.,
245 Summer Street, Boston, MA 02210.
FOR FURTHER INFORMATION CONTACT: Kyle
R. Ahlgren, Senior Counsel, or Holly
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.
Applicants’ Representations:
1. Applicants are affiliated asset
management companies registered with
the Commission as investment advisers
under the Investment Advisers Act of
1940 (the ‘‘Act’’). Applicants manage
mutual funds offered as investment
options in participant-directed plans
sponsored by two Massachusetts
government entities (‘‘Client 1’’ and
‘‘Client 2’’, respectively, or collectively,
the ‘‘Clients’’). Client 1 initially entered
into its agreement with FMR in 2007
and Client 2 initially entered into its
agreement with FMR and FMRC in
1994.
2. Thomas Hense (the ‘‘Contributor’’)
is a Group Chief Investment Officer of
Applicants and a resident of
Massachusetts. He assumed his current
role in 2008, and is a ‘‘covered
associate’’ of the Applicants, as such
term is defined by rule 206(4)–5(f)(2)(i)
due to his role as a supervisor of one or
more employees who may solicit
investment advisory business from
government entities on behalf of each
Client. The Contributor has very limited
direct interactions with clients
regarding their investments. The
Contributor’s primary role is to
supervise a team of investment
professionals who manage client funds
and accounts. To the best of the
Contributor’s knowledge, the
Contributor attended only two meetings
VerDate Sep<11>2014
17:19 Oct 14, 2015
Jkt 238001
with any Massachusetts government
entities in the past two years, and
neither of those meetings involved the
solicitation of business or either of the
Clients.
3. The recipient of the Contribution
was Jeffrey McCormick (the
‘‘Recipient’’), an independent candidate
for Massachusetts Governor. The
investment providers and options of
Client 1 (including the mutual funds to
be offered as investment options to
employees) are directly selected by a
board that includes a majority of
gubernatorial appointees. The
investment decisions of Client 2
(including the selection of mutual funds
to be offered as investment options to
employees) are directly made by the
Treasurer of Client 2 under oversight of
the President of Client 2. The board of
Client 2, which includes a majority of
gubernatorial appointees, has authority
to appoint the Treasurer and President
of Client 2. As a result of these
appointment powers with respect to the
Clients, the Governor of Massachusetts
and any candidate for that office
(including the Recipient) is an ‘‘official’’
as that term is defined by rule 206(4)–
5(f)(6)(ii).
4. On December 21, 2013 (the
‘‘Contribution Date’’), the Contributor
made a contribution in the amount of
$500 to the Recipient’s campaign.
Because the Contributor was a ‘‘covered
associate’’ of Applicants, the Clients
were ‘‘government entities’’ and the
Recipient was an ‘‘official’’ as those
terms are defined in rule 206(4)–5(f), the
Contribution triggered Rule 206(4)–5’s
prohibition against receiving
compensation for advisory services
provided to the Clients during the two
years following the Contribution Date.
At the time of the Contribution,
Applicants were not discussing or
anticipating any new arrangements with
the Clients. No material changes in the
relationship between any of the funds
managed by Applicants and any
participant-directed plans sponsored by
the Clients or any other material
changes in relevant investment patterns
occurred after the Contribution.
5. The Contributor lives and works in
Massachusetts and has made prior
donations to Massachusetts candidates
for federal offices. The Contribution was
consistent in size and motivation with
those prior contributions. The
Contributor decided to make the
Contribution upon receiving an email
solicitation form the Recipient’s
campaign. The Contributor’s decision
was based entirely on the personal
friendship he maintained with the
Recipient and the fact that he supported
the Recipient in his efforts to run for
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Governor of Massachusetts. The reason
for the Contribution was wholly
unrelated to the investment advisory
services provided to the Clients by the
Applicants. The Contributor did not
discuss the Contribution with the
Recipient or with any of his staff, or
with the Applicants or their other
covered associates.
6. Applicants implemented pay-toplay policies and procedures (the
‘‘Policies’’) on March 8, 2011. In
accordance with the Policies, the
Contributor was required to pre-clear all
contributions to federal, state or local
candidates or organizations. The
Contributor annually received training
on the Policies. On January 6, 2014, the
Contributor promptly self-reported the
Contribution to the Applicants’
Compliance Department upon
completing his certification
questionnaire in accordance with the
Policies and realizing that he had failed
to pre-clear the Contribution. On
January 7, 2014, the Contributor
requested a full refund of the
Contribution from the Recipient’s
campaign. The Contributor received a
full refund on January 14, 2014.
7. Applicants established an escrow
account for the Clients and are currently
segregating all compensation for
advisory services paid to the Applicants
attributable to the Clients’ assets under
management of the Applicants for the
two-year period beginning on the
Contribution Date.
8. After learning of the Contribution,
the Applicants took steps to limit the
Contributor’s contact with any
representative of a Client for the
duration of the two-year period
beginning on the Contribution Date,
including informing the Contributor that
he could have no contact with any
representative of a Client other than
making substantive presentations to the
Client’s representatives and consultants
about the investment strategies that the
Applicants manage for the Clients.
Applicants’ 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).
2. Section 206A of the Advisers Act
grants the Commission the authority to
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Federal Register / Vol. 80, No. 199 / Thursday, October 15, 2015 / Notices
‘‘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. 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
(the ‘‘Order’’).
5. Applicants submit that the
exemption is necessary and appropriate
in the public interest and consistent
with the protection of investors and the
VerDate Sep<11>2014
17:19 Oct 14, 2015
Jkt 238001
purposes fairly intended by the policy
and provisions of the Act.
6. Applicants represent that the
Clients determined to invest with
Applicants and established those
advisory relationships on an arm’s
length basis free from any improper
influence as a result of the Contribution,
and there was no connection between
the Contribution and any past or
potential business between the Clients
and the Applicants.
7. Applicants note that causing the
Applicants to provide advisory services
without compensation for a two-year
period would result in a financial loss
to the Applicants of approximately $2.7
million—an amount that is 5,400 times
the amount of the Contribution.
Applicants contend that such a result is
greatly disproportionate to the violation
and is not consistent with the protection
of investors or a purpose fairly intended
by the policies and provisions of the
Act.
8. Applicants note that they had
adopted and implemented the Policies
at the time of the Contribution and had
the Policies in place at all times since
the adoption of rule 205(4)–5.
Applicants represent that they perform
compliance testing and they have a
rigorous and robust screening of
prospective hires and internal
employees being considered for covered
associate positions.
9. Applicants represent that at no time
did any employees or covered associates
of the Applicants, or any executive or
employee of the Applicants’ affiliates,
other than the Contributor, know of the
Contribution prior to the Contributor’s
self-report to Applicants’ compliance
personnel.
10. Applicants represent that the
Applicants and the Contributor took all
available steps to promptly obtain a
return of the Contribution after the
Contributor’s self-report to Applicants’
compliance personnel, and the full
amount of the Contribution was fully
refunded within one week of the refund
request. Applicants established an
escrow account for all compensation for
advisory services attributable to the
Clients’ assets under management of the
Applicants for the two-year period
beginning on the Contribution Date.
Applicants’ Conditions:
Applicants agree that the Order will
be subject to the following conditions:
1. The Contributor will be prohibited
from soliciting investments from any
‘‘government entity’’ client or
prospective ‘‘government entity’’ client
for which the Recipient is an ‘‘official’’
as defined in rule 206(4)–5(f)(6) until
December 21, 2015 (the ‘‘Restricted
Period’’).
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62125
2. Notwithstanding Condition 1, the
Contributor will be (i) permitted to
respond to inquiries from, and make
presentations to, any government entity
client described in Condition 1
regarding accounts already managed by
the Applicants as of December 21, 2013
and (ii) permitted to respond to
inquiries from any government entity
client regarding an account established
with the Applicants by such
government entity client after December
21, 2013. The Applicants will maintain
a log of such interactions, which will be
maintained and presented in an easily
accessible place for a period of not less
than five years, the first two years in an
appropriate office of the Applicants, and
will be available for inspection by the
staff of the Commission.
3. The Contributor will receive
written notification of these conditions
and will provide a quarterly
certification of compliance through the
Restricted Period. Copies of the
certifications will be maintained and
preserved by the Applicants in an easily
accessible place for a period of not less
than five years, the first two years in an
appropriate office of the Applicants and
will be available for inspection by the
Staff of the Commission.
4. The Applicants will conduct testing
reasonably designed to prevent
violations of the conditions of the Order
and maintain records regarding such
testing, which will be maintained and
preserved in an easily accessible place
for a period of not less than five years,
the first two years in an appropriate
office of the Applicants, and will be
available for inspection by staff of the
Commission.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–26146 Filed 10–14–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76106; File No. SR–CBOE–
2015–081]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Complex
Orders
October 8, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
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]]>Agencies
[Federal Register Volume 80, Number 199 (Thursday, October 15, 2015)]
[Notices]
[Pages 62123-62125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26146]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4220/803-00225]
Fidelity Management & Research Company and FMR Co., Inc.; Notice
of Application
October 8, 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).
-----------------------------------------------------------------------
Applicant: Fidelity Management & Research Company (``FMR'') and FMR
Co., Inc. (``FMRC'' and, together with FMR, ``Applicants'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under
the Advisers Act.
Summary of Application: Applicants request that the Commission issue an
order under section 206A of the Advisers Act and rule 206(4)-5(e)
exempting Applicants 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.
Filing Dates: The application was filed on August 28, 2014, an amended
and restated application was filed on May 11, 2015, and a second
amended and restated application was filed on September 24, 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 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 November 2, 2015, and should be accompanied by proof of
[[Page 62124]]
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. Fidelity
Management & Research Company and FMR Co., Inc., 245 Summer Street,
Boston, MA 02210.
FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Senior Counsel, or
Holly 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.
Applicants' Representations:
1. Applicants are affiliated asset management companies registered
with the Commission as investment advisers under the Investment
Advisers Act of 1940 (the ``Act''). Applicants manage mutual funds
offered as investment options in participant-directed plans sponsored
by two Massachusetts government entities (``Client 1'' and ``Client
2'', respectively, or collectively, the ``Clients''). Client 1
initially entered into its agreement with FMR in 2007 and Client 2
initially entered into its agreement with FMR and FMRC in 1994.
2. Thomas Hense (the ``Contributor'') is a Group Chief Investment
Officer of Applicants and a resident of Massachusetts. He assumed his
current role in 2008, and is a ``covered associate'' of the Applicants,
as such term is defined by rule 206(4)-5(f)(2)(i) due to his role as a
supervisor of one or more employees who may solicit investment advisory
business from government entities on behalf of each Client. The
Contributor has very limited direct interactions with clients regarding
their investments. The Contributor's primary role is to supervise a
team of investment professionals who manage client funds and accounts.
To the best of the Contributor's knowledge, the Contributor attended
only two meetings with any Massachusetts government entities in the
past two years, and neither of those meetings involved the solicitation
of business or either of the Clients.
3. The recipient of the Contribution was Jeffrey McCormick (the
``Recipient''), an independent candidate for Massachusetts Governor.
The investment providers and options of Client 1 (including the mutual
funds to be offered as investment options to employees) are directly
selected by a board that includes a majority of gubernatorial
appointees. The investment decisions of Client 2 (including the
selection of mutual funds to be offered as investment options to
employees) are directly made by the Treasurer of Client 2 under
oversight of the President of Client 2. The board of Client 2, which
includes a majority of gubernatorial appointees, has authority to
appoint the Treasurer and President of Client 2. As a result of these
appointment powers with respect to the Clients, the Governor of
Massachusetts and any candidate for that office (including the
Recipient) is an ``official'' as that term is defined by rule 206(4)-
5(f)(6)(ii).
4. On December 21, 2013 (the ``Contribution Date''), the
Contributor made a contribution in the amount of $500 to the
Recipient's campaign. Because the Contributor was a ``covered
associate'' of Applicants, the Clients were ``government entities'' and
the Recipient was an ``official'' as those terms are defined in rule
206(4)-5(f), the Contribution triggered Rule 206(4)-5's prohibition
against receiving compensation for advisory services provided to the
Clients during the two years following the Contribution Date. At the
time of the Contribution, Applicants were not discussing or
anticipating any new arrangements with the Clients. No material changes
in the relationship between any of the funds managed by Applicants and
any participant-directed plans sponsored by the Clients or any other
material changes in relevant investment patterns occurred after the
Contribution.
5. The Contributor lives and works in Massachusetts and has made
prior donations to Massachusetts candidates for federal offices. The
Contribution was consistent in size and motivation with those prior
contributions. The Contributor decided to make the Contribution upon
receiving an email solicitation form the Recipient's campaign. The
Contributor's decision was based entirely on the personal friendship he
maintained with the Recipient and the fact that he supported the
Recipient in his efforts to run for Governor of Massachusetts. The
reason for the Contribution was wholly unrelated to the investment
advisory services provided to the Clients by the Applicants. The
Contributor did not discuss the Contribution with the Recipient or with
any of his staff, or with the Applicants or their other covered
associates.
6. Applicants implemented pay-to-play policies and procedures (the
``Policies'') on March 8, 2011. In accordance with the Policies, the
Contributor was required to pre-clear all contributions to federal,
state or local candidates or organizations. The Contributor annually
received training on the Policies. On January 6, 2014, the Contributor
promptly self-reported the Contribution to the Applicants' Compliance
Department upon completing his certification questionnaire in
accordance with the Policies and realizing that he had failed to pre-
clear the Contribution. On January 7, 2014, the Contributor requested a
full refund of the Contribution from the Recipient's campaign. The
Contributor received a full refund on January 14, 2014.
7. Applicants established an escrow account for the Clients and are
currently segregating all compensation for advisory services paid to
the Applicants attributable to the Clients' assets under management of
the Applicants for the two-year period beginning on the Contribution
Date.
8. After learning of the Contribution, the Applicants took steps to
limit the Contributor's contact with any representative of a Client for
the duration of the two-year period beginning on the Contribution Date,
including informing the Contributor that he could have no contact with
any representative of a Client other than making substantive
presentations to the Client's representatives and consultants about the
investment strategies that the Applicants manage for the Clients.
Applicants' 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).
2. Section 206A of the Advisers Act grants the Commission the
authority to
[[Page 62125]]
``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. 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 (the ``Order'').
5. 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.
6. Applicants represent that the Clients determined to invest with
Applicants and established those advisory relationships on an arm's
length basis free from any improper influence as a result of the
Contribution, and there was no connection between the Contribution and
any past or potential business between the Clients and the Applicants.
7. Applicants note that causing the Applicants to provide advisory
services without compensation for a two-year period would result in a
financial loss to the Applicants of approximately $2.7 million--an
amount that is 5,400 times the amount of the Contribution. Applicants
contend that such a result is greatly disproportionate to the violation
and is not consistent with the protection of investors or a purpose
fairly intended by the policies and provisions of the Act.
8. Applicants note that they had adopted and implemented the
Policies at the time of the Contribution and had the Policies in place
at all times since the adoption of rule 205(4)-5. Applicants represent
that they perform compliance testing and they have a rigorous and
robust screening of prospective hires and internal employees being
considered for covered associate positions.
9. Applicants represent that at no time did any employees or
covered associates of the Applicants, or any executive or employee of
the Applicants' affiliates, other than the Contributor, know of the
Contribution prior to the Contributor's self-report to Applicants'
compliance personnel.
10. Applicants represent that the Applicants and the Contributor
took all available steps to promptly obtain a return of the
Contribution after the Contributor's self-report to Applicants'
compliance personnel, and the full amount of the Contribution was fully
refunded within one week of the refund request. Applicants established
an escrow account for all compensation for advisory services
attributable to the Clients' assets under management of the Applicants
for the two-year period beginning on the Contribution Date.
Applicants' Conditions:
Applicants agree that the Order will be subject to the following
conditions:
1. The Contributor will be prohibited from soliciting investments
from any ``government entity'' client or prospective ``government
entity'' client for which the Recipient is an ``official'' as defined
in rule 206(4)-5(f)(6) until December 21, 2015 (the ``Restricted
Period'').
2. Notwithstanding Condition 1, the Contributor will be (i)
permitted to respond to inquiries from, and make presentations to, any
government entity client described in Condition 1 regarding accounts
already managed by the Applicants as of December 21, 2013 and (ii)
permitted to respond to inquiries from any government entity client
regarding an account established with the Applicants by such government
entity client after December 21, 2013. The Applicants will maintain a
log of such interactions, which will be maintained and presented in an
easily accessible place for a period of not less than five years, the
first two years in an appropriate office of the Applicants, and will be
available for inspection by the staff of the Commission.
3. The Contributor will receive written notification of these
conditions and will provide a quarterly certification of compliance
through the Restricted Period. Copies of the certifications will be
maintained and preserved by the Applicants in an easily accessible
place for a period of not less than five years, the first two years in
an appropriate office of the Applicants and will be available for
inspection by the Staff of the Commission.
4. The Applicants will conduct testing reasonably designed to
prevent violations of the conditions of the Order and maintain records
regarding such testing, which will be maintained and preserved in an
easily accessible place for a period of not less than five years, the
first two years in an appropriate office of the Applicants, and will be
available for inspection by staff of the Commission.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26146 Filed 10-14-15; 8:45 am]
BILLING CODE 8011-01-P
