Stephens Inc., 49255-49257 [2017-22955]
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Federal Register / Vol. 82, No. 204 / Tuesday, October 24, 2017 / Notices
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 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–2017–119 and should be
submitted on or before November 14,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–22973 Filed 10–23–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Advisers Act Release No. 4797;
File No. 803–00238]
Stephens Inc.
October 18, 2017.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
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AGENCY:
Notice of application for an exemptive
order under Section 206A of the
Investment Advisers Act of 1940 (the
‘‘Act’’) and Rule 206(4)–5(e).
APPLICANT: Stephens Inc. (‘‘Applicant’’
or ‘‘Adviser’’).
RELEVANT SECTIONS OF THE ACT:
Exemption requested under section
206A of the Act and rule 206(4)–5(e)
from rule 206(4)–5(a)(1) under the Act.
SUMMARY OF APPLICATION: Applicant
requests that the Commission issue an
order under section 206A of the Act and
rule 206(4)–5(e) exempting it from rule
206(4)–5(a)(1) under the Act to permit
Applicant 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 Applicant to an official of the
government entities.
20 17
CFR 200.30–3(a)(12).
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The application was filed
on December 20, 2016, and an amended
and restated application was filed on
June 21, 2017.
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 November 13, 2017, and
should be accompanied by proof of
service on Applicant, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons may request notification of a
hearing by writing to the Commission’s
Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–1090.
Applicant: Stephens Inc., 111 Center
Street, Little Rock, AR 72201.
FOR FURTHER INFORMATION CONTACT:
Rachel Loko, Senior Counsel, or Holly
Hunter-Ceci, Assistant Chief Counsel, at
(202) 551- 6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site at https://www.sec.gov/rules/
iareleases.shtml or by calling (202) 551–
8090.
FILING DATES:
Applicant’s Representations
1. Applicant is a financial services
firm established in Little Rock, Arkansas
and registered with the Commission as
an investment adviser under the Act.
Applicant provides discretionary
investment advisory services to a wide
variety of investors.
2. The individual who made the
campaign contribution that triggered the
two-year compensation ban (the
‘‘Contribution’’) is J. Bradford Eichler
(the ‘‘Contributor’’). The Contributor is
an Executive Vice President of the
Applicant and is the head of Investment
Banking for the firm. The Contributor’s
role focuses on oversight of the
Adviser’s corporate finance division.
Applicant submits that, because the
Contributor is and at the time of the
contribution was, an executive officer of
the Adviser, he is, and at all relevant
times was, a covered associate.
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49255
3. Three of the Adviser’s clients are
government entities of the City of Little
Rock (the ‘‘Clients’’). Client A and
Client B are city pension funds and
Client C is a fund maintained by the city
for certain expenses. The Clients are
government entities as defined in Rule
206(4)–5(f)(5)(i).
4. The recipient of the Contribution
was Capi Peck (the ‘‘Official’’), who, at
the time of the Contribution, was
seeking the office of director on the
Little Rock Board of Directors. The
Board of Directors appoints a board
member of Client A, appoints a city
official with authority to hire an
investment manager for Client B and has
ultimate investment authority over
Client C. Due to her position as a
director, the Official is an ‘‘official’’ of
the Clients as defined in Rule 206(4)–
5(f)(6)(ii). As of the date of the
application, the Official has not
participated in the appointment of
anyone with authority on Client A or
Client B’s decision to select an
investment adviser, nor has she
participated in a decision affecting
Client C’s investment with the Adviser.
5. The Contribution that triggered rule
206(4)–5’s prohibition on compensation
under rule 206(4)–5(a)(1) was made
online on October 17, 2016 for the
amount of $1,000. Applicant submits
that the Contribution was not motivated
by any desire to influence the award of
investment advisory business.
Applicant represents that the
Contributor does live in Little Rock and
has a longstanding friendship with the
Official. The Contributor has known the
Official for approximately 30 years and
known her ex-husband and business
partner for approximately 35 years. The
Contributor and the official’s exhusband also have a shared interest in
competitive swimming. The Contributor
lived with them for a long time during
college, worked at their restaurant and
has maintained close relationships. His
decision to make the Contribution was
spontaneous and motivated by his
longstanding friendship with the
Official. Applicant submits that
although the Contributor and the
Official are friends, they have not
discussed the Adviser’s advisory
business or the potential investments by
the Clients. The Contributor did not
seek or coordinate any other
contribution for the Official. Applicant
represents that the Contributor did not
have any intention to seek, and no
action was taken by the Contributor or
the Applicant to obtain, any direct or
indirect influence from the Official or
any other person.
6. The Adviser has been doing
business with Little Rock, its home city,
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since its founding in 1933. The
investments were all made before the
date of the Contribution and before the
Official took office. The Clients current
accounts were initiated between 2006
and 2014. Applicant represents that
none of the Clients have materially
increased the amounts of assets
managed by the Adviser, initiated new
investment mandates, or opened new
accounts with the Adviser since the
Contribution was made. Neither the
Contributor nor anyone whom he
supervises was in any way involved in
soliciting the Clients with respect to any
business.
7. The Adviser became aware of the
Contribution on November 16, 2016
when the Contributor remembered that,
pursuant to the Adviser’s pay-to-play
policy (the ‘‘Policy’’), he was required to
obtain pre-approval for his political
contributions and, at his initiative,
contacted the Adviser’s general counsel
to inform him about the Contribution.
The Contributor requested a refund of
the full $1,000 that day and received the
refund on November 18, 2016. The
Adviser established an escrow account
on December 5, 2016 into which it has
been depositing an amount equal to the
compensation received with respect to
the Clients’ investments since the date
of the Contribution, October 17, 2016.
Applicant submits that all management
fees earned with respect to Clients’
investments since the date of the
Contribution have been placed in
escrow and will continue to be placed
in escrow pending the outcome of this
application.
8. The Policy was adopted on March
3, 2011. The Applicant submits that all
contributions by the Adviser’s managing
members, executive officers and other
‘‘covered associates,’’ as well as those
who could in the future become covered
associates, to any person who was at the
time of the contribution an incumbent,
candidate or successful candidate for an
elective office of a government entity
must be precleared. There is no de
minimis exception from the preclearance requirement. Under the
existing Policy, the Adviser circulated
reminders of the need to preclear.
Employees subject to the Policy must
certify quarterly their contributions. In
addition, annual employee audit
questionnaires ask about the employee’s
political contributions, the Adviser does
internet searches for contributions and
verifies the results of the quarterly
certifications with its preclearance
records.
Applicant’s Legal Analysis
1. Rule 206(4)–5(a)(1) under the Act
prohibits a registered investment
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adviser from providing investment
advisory services for compensation to a
government entity within two years
after a contribution to an official of a
government entity is made by the
investment adviser or any covered
associate of the investment adviser.
Each of the Clients 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 Act authorizes
the Commission to ‘‘conditionally or
unconditionally exempt any person or
transaction . . . from any provision or
provisions of [the 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 Act].’’
3. Rule 206(4)–5(e) provides that the
Commission may conditionally or
unconditionally grant an exemption to
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 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
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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 twoyear 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. 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(e) similarly weigh
in favor of granting an exemption to the
Applicant to avoid consequences
disproportionate to the violation.
6. Applicant contends that given the
nature of the Contribution, and the lack
of any evidence that the Adviser or the
Contributor intended to, or actually did,
interfere with any client’s merit-based
process for the selection or retention of
advisory services, the Clients’ interests
are best served by allowing the Adviser
and its Clients to continue their
relationship uninterrupted. Applicant
states that causing the Adviser to serve
without compensation for a two- year
period could result in a financial loss of
approximately $1 million or 1000 times
the amount of the Contribution.
Applicant suggests that the policy
underlying rule 206(4)–5 is served by
ensuring that no improper influence is
exercised over investment decisions by
governmental entities as a result of
campaign contributions and not by
withholding compensation as a result of
unintentional violations.
7. Applicant represents that the Policy
was adopted and published in March
2011, well before the Contribution was
made. Applicant further represents that,
at all times, the Policy has conformed to
the requirements of rule 206(4)–5 and
has been more rigorous than rule
206(4)–5’s requirements as the Adviser
does internet testing as part of its annual
audit process and requires covered
associates to certify their compliance
with the Policy and disclose all
contributions quarterly.
8. Applicant asserts that at no time
did any employee or covered associate
of the Adviser other than the
Contributor have any knowledge that
the Contribution had been made before
its discovery by the Adviser in
November 2016 when the Contributor
self-reported the Contribution to the
Adviser.
9. Applicant asserts that after learning
of the Contribution, the Adviser caused
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the Contributor to immediately obtain a
full refund of the Contribution.
Applicant submits that the Adviser
reviewed its Policy and concluded that
it was adequate for preventing
impermissible contributions.
10. Applicant states that after learning
of the Contribution, it confirmed that
the although the Contributor’s job
would not ordinarily cause him to
interact with the Clients, after learning
of the Contribution, the Adviser, out of
an abundance of caution, instructed him
not to solicit or otherwise communicate
with the Clients for two years following
the date of the Contribution.
11. Applicant asserts that the Clients’
decisions to invest with the Adviser
occurred long before the Contribution
was made, in October 2016.
Furthermore, no investments were made
in the month-long period between the
date of the Contribution and the day it
was refunded. Applicant states that, at
the time of the Contribution and at the
time of the investments by the Clients,
the Official has not had any role in the
Clients’ investment decisions. Applicant
also submits that the apparent intent in
making the Contribution was not to
influence the selection or retention of
the Adviser. Applicant represents that
the Contributor and the Official have a
long standing friendship as the
Contributor worked at the Official’s
restaurant and lived with the Official
and her ex-husband when he was in
college. Applicant finally states that it
was because of that relationship, and
not any desire to influence the award of
investment advisory business that the
Contributor made the Contribution to
the Official’s campaign.
12. Applicant submits that neither the
Adviser 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. Applicant further submits
that there was no violation of the
Adviser’s fiduciary duty to deal fairly or
disclose material conflicts given the
absence of any intent or action by the
Adviser or the Contributor to influence
the selection process. Applicant
contends that in the case of the
Contribution, the imposition of the twoyear prohibition on compensation does
not achieve rule 206(4)–5’s purposes
and would result in consequences
disproportionate to the mistake that was
made.
Applicant’s Conditions
The Applicant agrees that any order of
the Commission granting the requested
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relief will be subject to the following
conditions:
1. The Contributor will be prohibited
from discussing the business of the
Adviser with any ‘‘government entity’’
client for which the Official is an
‘‘official,’’ each as defined in Rule
206(4)–5(f), until October 18, 2018.
2. The Contributor will receive a
written notification of this condition
and will provide a quarterly certificate
of compliance until October 18, 2018.
Copies of the certifications 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 Adviser, and be
available for inspection by the staff of
the Commission.
3. The Adviser 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 Adviser, and be available
for inspection by the staff of the
Commission.
The subject matters of the closed
meeting will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed; please contact
Brent J. Fields from the Office of the
Secretary at (202) 551–5400.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
AGENCY:
[FR Doc. 2017–22955 Filed 10–23–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
2:00 p.m. on Thursday,
October 26, 2017.
PLACE: Closed Commission Hearing
Room 10800.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (a)(5), (a)(7),
(a)(9)(ii) and (a)(10), permit
consideration of the scheduled matters
at the closed meeting.
Chairman Clayton, as duty officer,
voted to consider the items listed for the
closed meeting in closed session.
TIME AND DATE:
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Dated: October 19, 2017.
Brent J. Fields,
Secretary.
[FR Doc. 2017–23123 Filed 10–20–17; 11:15 am]
BILLING CODE 8011–01–P
SELECTIVE SERVICE SYSTEM
Forms Submitted to the Office of
Management and Budget for Extension
of Clearance
ACTION:
Selective Service System.
Notice.
The following forms have been
submitted to the Office of Management
and Budget (OMB) for extension of
clearance in compliance with the
Paperwork Reduction Act:
SSS Forms 2, 3A, 3B and 3C
Title: Selective Service System Change of
Information, Correction/Change Form, and
Registration Status Forms.
Purpose: To insure the accuracy and
completeness of the Selective Service System
registration data.
Respondents: Registrants are required to
report changes or corrections in data
submitted on the SSS Form 1.
Frequency: When changes in a registrant’s
name or address occur.
Burden: A burden of two minutes or less
on the individual respondent.
Copies of the above identified forms
can be obtained upon written request to
the Selective Service System, Reports
Clearance Officer, 1515 Wilson
Boulevard, Arlington, Virginia 22209–
2425.
Written comments and
recommendations for the proposed
extension of clearance of the form
should be sent within 60 days of the
publication of this notice to the
Selective Service System, Reports
Clearance Officer, 1515 Wilson
Boulevard, Arlington, Virginia 22209–
2425.
A copy of the comments should be
sent to the Office of Information and
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]]>Agencies
[Federal Register Volume 82, Number 204 (Tuesday, October 24, 2017)]
[Notices]
[Pages 49255-49257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22955]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Advisers Act Release No. 4797; File No. 803-00238]
Stephens Inc.
October 18, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an exemptive order under Section 206A of
the Investment Advisers Act of 1940 (the ``Act'') and Rule 206(4)-5(e).
Applicant: Stephens Inc. (``Applicant'' or ``Adviser'').
Relevant Sections of the Act: Exemption requested under section 206A of
the Act and rule 206(4)-5(e) from rule 206(4)-5(a)(1) under the Act.
Summary of Application: Applicant requests that the Commission issue an
order under section 206A of the Act and rule 206(4)-5(e) exempting it
from rule 206(4)-5(a)(1) under the Act to permit Applicant 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 Applicant to an
official of the government entities.
Filing Dates: The application was filed on December 20, 2016, and an
amended and restated application was filed on June 21, 2017.
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 November 13, 2017, and should be accompanied by proof of
service on Applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090. Applicant: Stephens Inc., 111 Center
Street, Little Rock, AR 72201.
FOR FURTHER INFORMATION CONTACT: Rachel Loko, Senior Counsel, or Holly
Hunter-Ceci, Assistant Chief Counsel, at (202) 551- 6825 (Division of
Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site at https://www.sec.gov/rules/iareleases.shtml or
by calling (202) 551-8090.
Applicant's Representations
1. Applicant is a financial services firm established in Little
Rock, Arkansas and registered with the Commission as an investment
adviser under the Act. Applicant provides discretionary investment
advisory services to a wide variety of investors.
2. The individual who made the campaign contribution that triggered
the two-year compensation ban (the ``Contribution'') is J. Bradford
Eichler (the ``Contributor''). The Contributor is an Executive Vice
President of the Applicant and is the head of Investment Banking for
the firm. The Contributor's role focuses on oversight of the Adviser's
corporate finance division. Applicant submits that, because the
Contributor is and at the time of the contribution was, an executive
officer of the Adviser, he is, and at all relevant times was, a covered
associate.
3. Three of the Adviser's clients are government entities of the
City of Little Rock (the ``Clients''). Client A and Client B are city
pension funds and Client C is a fund maintained by the city for certain
expenses. The Clients are government entities as defined in Rule
206(4)-5(f)(5)(i).
4. The recipient of the Contribution was Capi Peck (the
``Official''), who, at the time of the Contribution, was seeking the
office of director on the Little Rock Board of Directors. The Board of
Directors appoints a board member of Client A, appoints a city official
with authority to hire an investment manager for Client B and has
ultimate investment authority over Client C. Due to her position as a
director, the Official is an ``official'' of the Clients as defined in
Rule 206(4)-5(f)(6)(ii). As of the date of the application, the
Official has not participated in the appointment of anyone with
authority on Client A or Client B's decision to select an investment
adviser, nor has she participated in a decision affecting Client C's
investment with the Adviser.
5. The Contribution that triggered rule 206(4)-5's prohibition on
compensation under rule 206(4)-5(a)(1) was made online on October 17,
2016 for the amount of $1,000. Applicant submits that the Contribution
was not motivated by any desire to influence the award of investment
advisory business. Applicant represents that the Contributor does live
in Little Rock and has a longstanding friendship with the Official. The
Contributor has known the Official for approximately 30 years and known
her ex-husband and business partner for approximately 35 years. The
Contributor and the official's ex-husband also have a shared interest
in competitive swimming. The Contributor lived with them for a long
time during college, worked at their restaurant and has maintained
close relationships. His decision to make the Contribution was
spontaneous and motivated by his longstanding friendship with the
Official. Applicant submits that although the Contributor and the
Official are friends, they have not discussed the Adviser's advisory
business or the potential investments by the Clients. The Contributor
did not seek or coordinate any other contribution for the Official.
Applicant represents that the Contributor did not have any intention to
seek, and no action was taken by the Contributor or the Applicant to
obtain, any direct or indirect influence from the Official or any other
person.
6. The Adviser has been doing business with Little Rock, its home
city,
[[Page 49256]]
since its founding in 1933. The investments were all made before the
date of the Contribution and before the Official took office. The
Clients current accounts were initiated between 2006 and 2014.
Applicant represents that none of the Clients have materially increased
the amounts of assets managed by the Adviser, initiated new investment
mandates, or opened new accounts with the Adviser since the
Contribution was made. Neither the Contributor nor anyone whom he
supervises was in any way involved in soliciting the Clients with
respect to any business.
7. The Adviser became aware of the Contribution on November 16,
2016 when the Contributor remembered that, pursuant to the Adviser's
pay-to-play policy (the ``Policy''), he was required to obtain pre-
approval for his political contributions and, at his initiative,
contacted the Adviser's general counsel to inform him about the
Contribution. The Contributor requested a refund of the full $1,000
that day and received the refund on November 18, 2016. The Adviser
established an escrow account on December 5, 2016 into which it has
been depositing an amount equal to the compensation received with
respect to the Clients' investments since the date of the Contribution,
October 17, 2016. Applicant submits that all management fees earned
with respect to Clients' investments since the date of the Contribution
have been placed in escrow and will continue to be placed in escrow
pending the outcome of this application.
8. The Policy was adopted on March 3, 2011. The Applicant submits
that all contributions by the Adviser's managing members, executive
officers and other ``covered associates,'' as well as those who could
in the future become covered associates, to any person who was at the
time of the contribution an incumbent, candidate or successful
candidate for an elective office of a government entity must be
precleared. There is no de minimis exception from the pre-clearance
requirement. Under the existing Policy, the Adviser circulated
reminders of the need to preclear. Employees subject to the Policy must
certify quarterly their contributions. In addition, annual employee
audit questionnaires ask about the employee's political contributions,
the Adviser does internet searches for contributions and verifies the
results of the quarterly certifications with its preclearance records.
Applicant's Legal Analysis
1. Rule 206(4)-5(a)(1) under the 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 a government entity is made by the
investment adviser or any covered associate of the investment adviser.
Each of the Clients 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 Act authorizes the Commission to
``conditionally or unconditionally exempt any person or transaction . .
. from any provision or provisions of [the 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 Act].''
3. Rule 206(4)-5(e) provides that the Commission may conditionally
or unconditionally grant an exemption to 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 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 Clients 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(e) similarly weigh in favor of granting an
exemption to the Applicant to avoid consequences disproportionate to
the violation.
6. Applicant contends that given the nature of the Contribution,
and the lack of any evidence that the Adviser or the Contributor
intended to, or actually did, interfere with any client's merit-based
process for the selection or retention of advisory services, the
Clients' interests are best served by allowing the Adviser and its
Clients to continue their relationship uninterrupted. Applicant states
that causing the Adviser to serve without compensation for a two- year
period could result in a financial loss of approximately $1 million or
1000 times the amount of the Contribution. Applicant suggests that the
policy underlying rule 206(4)-5 is served by ensuring that no improper
influence is exercised over investment decisions by governmental
entities as a result of campaign contributions and not by withholding
compensation as a result of unintentional violations.
7. Applicant represents that the Policy was adopted and published
in March 2011, well before the Contribution was made. Applicant further
represents that, at all times, the Policy has conformed to the
requirements of rule 206(4)-5 and has been more rigorous than rule
206(4)-5's requirements as the Adviser does internet testing as part of
its annual audit process and requires covered associates to certify
their compliance with the Policy and disclose all contributions
quarterly.
8. Applicant asserts that at no time did any employee or covered
associate of the Adviser other than the Contributor have any knowledge
that the Contribution had been made before its discovery by the Adviser
in November 2016 when the Contributor self-reported the Contribution to
the Adviser.
9. Applicant asserts that after learning of the Contribution, the
Adviser caused
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the Contributor to immediately obtain a full refund of the
Contribution. Applicant submits that the Adviser reviewed its Policy
and concluded that it was adequate for preventing impermissible
contributions.
10. Applicant states that after learning of the Contribution, it
confirmed that the although the Contributor's job would not ordinarily
cause him to interact with the Clients, after learning of the
Contribution, the Adviser, out of an abundance of caution, instructed
him not to solicit or otherwise communicate with the Clients for two
years following the date of the Contribution.
11. Applicant asserts that the Clients' decisions to invest with
the Adviser occurred long before the Contribution was made, in October
2016. Furthermore, no investments were made in the month-long period
between the date of the Contribution and the day it was refunded.
Applicant states that, at the time of the Contribution and at the time
of the investments by the Clients, the Official has not had any role in
the Clients' investment decisions. Applicant also submits that the
apparent intent in making the Contribution was not to influence the
selection or retention of the Adviser. Applicant represents that the
Contributor and the Official have a long standing friendship as the
Contributor worked at the Official's restaurant and lived with the
Official and her ex-husband when he was in college. Applicant finally
states that it was because of that relationship, and not any desire to
influence the award of investment advisory business that the
Contributor made the Contribution to the Official's campaign.
12. Applicant submits that neither the Adviser 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. Applicant further submits that there was no violation of
the Adviser's fiduciary duty to deal fairly or disclose material
conflicts given the absence of any intent or action by the Adviser or
the Contributor to influence the selection process. Applicant contends
that in the case of the Contribution, the imposition of the two-year
prohibition on compensation does not achieve rule 206(4)-5's purposes
and would result in consequences disproportionate to the mistake that
was made.
Applicant's Conditions
The Applicant agrees that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The Contributor will be prohibited from discussing the business
of the Adviser with any ``government entity'' client for which the
Official is an ``official,'' each as defined in Rule 206(4)-5(f), until
October 18, 2018.
2. The Contributor will receive a written notification of this
condition and will provide a quarterly certificate of compliance until
October 18, 2018. Copies of the certifications 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
Adviser, and be available for inspection by the staff of the
Commission.
3. The Adviser 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 Adviser, and be
available for inspection by the staff of the Commission.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22955 Filed 10-23-17; 8:45 am]
BILLING CODE 8011-01-P
