[Federal Register Volume 75, Number 205 (Monday, October 25, 2010)]
[Notices]
[Pages 65534-65536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26870]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. IC-29464; 812-13808]
Citigroup Global Markets Inc., et al.; Notice of Application and
Temporary Order
October 19, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Temporary order and notice of application for a permanent order
under section 9(c) of the Investment Company Act of 1940 (``Act'').
-----------------------------------------------------------------------
SUMMARY: Summary of Application: Applicants have received a temporary
order exempting them from section 9(a) of the Act, with respect to an
injunction entered against Citigroup Inc. (``Citigroup'') on October
19, 2010 by the United States District Court for the District of
Columbia (the ``Injunction''), until the Commission takes final action
on an application for a permanent order. Applicants also have applied
for a permanent order.
Applicants: Citigroup Global Markets Inc. (``CGMI''), CEFOF GP I
Corp. (``CEFOF''), CELFOF GP Corp. (``CELFOF''), Citibank, N.A.
(``Citibank''), Citigroup Alternative Investments LLC (``Citigroup
Alternative''), Consulting Group Advisory Services LLC (``Advisory
Services''), Citigroup Capital Partners I GP I Corp. (``CCP I''), and
Citigroup Capital Partners I GP II Corp. (``CCP II'') (collectively,
``Applicants'').\1\
---------------------------------------------------------------------------
\1\ Applicants request that any relief granted pursuant to the
application also apply to any other company of which Citigroup is or
hereafter may become an affiliated person within the meaning of
section 2(a)(3) of the Act (together with the Applicants, the
``Covered Persons'').
DATES: Filing Date: The application was filed on July 29, 2010 and
amended on July 30, 2010, and amended on October 19, 2010.
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
[[Page 65535]]
by 5:30 p.m. on November 12, 2010, and should be accompanied by proof
of service on Applicants, in the form of an affidavit, or for lawyers,
a certificate of service. Hearing requests should state the nature of
the writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants: CGMI, CEFOF,
CELFOF, CCP I and CCP II, 388 Greenwich Street, New York, NY 10013;
Citibank, 399 Park Avenue, New York, NY 10043; Citigroup Alternative,
731 Lexington Avenue, 28th Floor, New York, NY 10022; and Advisory
Services, 222 Delaware Avenue, Wilmington, DE 19801.
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-6873, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a temporary order and a
summary of the application. The complete application may be obtained
via the Commission's Web site by searching for the file number, or for
an applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. Each of the Applicants is either an indirect wholly-owned
subsidiary of Citigroup or is owned by an entity in which Citigroup has
an indirect interest. Citigroup is a global financial holding company
whose businesses provide a broad range of financial services. CGMI is
registered as a broker-dealer under the Securities Exchange Act of 1934
(``Exchange Act'') and serves as principal underwriter for one or more
registered investment companies (``Funds''). Citigroup Alternative and
Advisory Services are registered as investment advisers under the
Investment Advisers Act of 1940 and serve as investment advisers for
one or more Funds. CEFOF, CELOF, Citibank, Citigroup Alternative, CCP I
and CCP II (``ESC Advisers'') serve as investment advisers to certain
employees' securities companies within the meaning of section 2(a)(13)
of the Act, which provide investment opportunities for certain eligible
employees, officers, directors and persons on retainer of Citigroup and
its affiliates (``ESCs'' and included in the term ``Funds'').\2\
---------------------------------------------------------------------------
\2\ Greenwich Street Employees Fund, L.P., et al., Investment
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367
(Jan. 16, 2002) (order) (``ESC Order'').
---------------------------------------------------------------------------
2. On October 19, 2010, the United States District Court for the
District of Columbia (``District Court'') entered a judgment against
Citigroup (``Judgment'') in a matter brought by the Commission.\3\ The
Commission alleged in the complaint (``Complaint'') that Citigroup had
violated section 17(a)(2) of the Securities Act of 1933 and section
13(a) of the Exchange Act and Exchange Act rules 12b-20 and 13a-11 in
connection with disclosures made between July 2007 and October 2007
about the subprime exposure in Citigroup's investment banking unit.
Without admitting or denying the allegations in the Complaint, except
as to jurisdiction, Citigroup consented to the entry of the Judgment
that included, among other things, the entry of the Injunction, a civil
penalty of $75 million, and certain undertakings requested by the
District Court.
---------------------------------------------------------------------------
\3\ Securities and Exchange Commission v. Citigroup Inc.,
Judgment on Consent Against Defendant Citigroup Inc., Civil Action
No. 1:10-cv-01277 (ESH) (D.D.C. October 19, 2010).
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Section 9(a)(2) of the Act, in relevant part, prohibits a person
who has been enjoined from engaging in or continuing any conduct or
practice in connection with the purchase or sale of a security or in
connection with activities as an underwriter, broker or dealer, from
acting, among other things, as an investment adviser or depositor of
any registered investment company or a principal underwriter for any
registered open-end investment company, registered unit investment
trust or registered face-amount certificate company. Section 9(a)(3) of
the Act makes the prohibition in section 9(a)(2) applicable to a
company, any affiliated person of which has been disqualified under the
provisions of section 9(a)(2). Section 2(a)(3) of the Act defines
``affiliated person'' to include any person directly or indirectly
controlling, controlled by, or under common control with, the other
person. Applicants state that Citigroup is an affiliated person of each
of the Applicants within the meaning of section 2(a)(3) of the Act.
Applicants state that the entry of the Injunction results in Applicants
being subject to the disqualification provisions of section 9(a) of the
Act.
2. Section 9(c) of the Act provides that the Commission shall grant
an application for exemption from the disqualification provisions of
section 9(a) if it is established that these provisions, as applied to
the Applicants, are unduly or disproportionately severe or that the
Applicants' conduct has been such as not to make it against the public
interest or the protection of investors to grant the exemption.
Applicants have filed an application pursuant to section 9(c) seeking a
temporary and permanent order exempting them and Covered Persons from
the disqualification provisions of section 9(a) of the Act.
3. Applicants believe they meet the standard for exemption
specified in section 9(c). Applicants state that the prohibitions of
section 9(a) as applied to the Applicants would be unduly and
disproportionately severe and that the conduct of Applicants has been
such as not to make it against the public interest or the protection of
investors to grant the exemption from section 9(a).
4. Applicants state that the alleged conduct giving rise to the
Injunction did not involve any of the Applicants acting in the capacity
of investment adviser, subadviser or depositor to a Fund, or principal
underwriter for any Fund, and no such Funds bought or held any
securities issued by Citigroup during the period of misconduct alleged
in the Complaint, other than with respect to index Funds. Applicants
also state that none of the current or former directors, officers, or
employees of the Applicants participated in the violative conduct
alleged in the Complaint, with the exception of one employee of an
Applicant. Applicants further state that the personnel at Citigroup who
were involved in the violations alleged in the Complaint are either no
longer employed at Citigroup or have had no and will not have any
future involvement in providing advisory, subadvisory or depository
services to the Funds, or principal underwriting services to the Funds.
5. Applicants state that the inability of the Applicants to
continue to serve as investment adviser, depositor or principal
underwriter to the Funds would result in potentially severe financial
hardships for the Funds and their shareholders. The Applicants have
distributed, or will distribute as soon as reasonably practical,
written materials, including an offer to meet in person to discuss the
materials, to the board of directors of each Fund, including the
directors who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of such Fund, and their independent legal counsel
as defined in rule 0-1(a)(6) under the Act, if any, regarding the
Judgment, any impact on the Funds, and the application. The Applicants
state they will provide the
[[Page 65536]]
Funds with all information concerning the Judgment and the application
that is necessary for the Funds to fulfill their disclosure and other
obligations under the Federal securities laws.
6. Applicants also state that, if they were barred from continuing
to serve as investment adviser or principal underwriter to the Funds,
the effect on their businesses and employees would be severe.
Applicants state that they have committed substantial resources to
establish an expertise in providing services covered by section 9(a) of
the Act to Funds. Applicants further state that prohibiting them from
continuing to serve as investment adviser or principal underwriter to
Funds would not only adversely affect their businesses, but would also
adversely affect approximately 250 employees that are involved in those
activities. Applicants also state that disqualifying the ESC Advisers
from continuing to provide investment advisory services to ESCs is not
in the public interest or in furtherance of the protection of
investors. Because the ESCs have been formed for certain eligible,
officers, directors and persons on retainer of Citigroup and its
affiliates, it would not be consistent with the purposes of the ESC
provisions of the Act or the ESC Order to require another entity not
affiliated with Citigroup to manage the ESCs. In addition,
participating employees of Citigroup and its affiliates subscribed for
interests with the expectation that the ESCs would be managed by an
affiliate of Citigroup.
7. Applicants previously have received exemptions under section
9(c) as the result of conduct that triggered section 9(a) as described
in greater detail in the application.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Any temporary exemption granted pursuant to the application shall
be without prejudice to, and shall not limit the Commission's rights in
any manner with respect to, any Commission investigation of, or
administrative proceedings involving or against, Covered Persons,
including without limitation, the consideration by the Commission of a
permanent exemption from section 9(a) of the Act requested pursuant to
the application or the revocation or removal of any temporary
exemptions granted under the Act in connection with the application.
Temporary Order
The Commission has considered the matter and finds that Applicants
have made the necessary showing to justify granting a temporary
exemption.
Accordingly,
It is hereby ordered, pursuant to section 9(c) of the Act, that the
Applicants and any other Covered Persons are granted a temporary
exemption from the provisions of section 9(a), solely with respect to
the Injunction, subject to the condition in the application, from
October 19, 2010, until the Commission takes final action on their
application for a permanent order.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-26870 Filed 10-22-10; 8:45 am]
BILLING CODE 8011-01-P