[Federal Register Volume 61, Number 45 (Wednesday, March 6, 1996)]
[Notices]
[Pages 8987-8989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5217]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21792; 812-10016]
McDonald & Company Securities, Inc., et al.; Temporary Order
February 29, 1996.
Agency: Securities and Exchange Commission (``SEC'').
ACTION: Temporary Order and Notice of Application for Permanent
Exemption under the Investment Company Act of 1940 (the ``Act'').
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APPLICANT: McDonald & Company Securities, Inc. (``McDonald'').
RELEVANT ACT SECTIONS: Permanent order requested, and temporary order
issued, under section 9(c) granting an exemption from section 9(a).
SUMMARY: McDonald has received a temporary order for sixty days, and
has requested a permanent order exemption it from the prohibitions of
section 9(a), solely with respect to its conviction on a misdemeanor
charge entered by the Common Pleas Court of Franklin County, Ohio, on
February 29, 1996. Pending the SEC's action on the request for the
permanent order, McDonald has requested an additional temporary order.
FILING DATE: The application was filed on February 29, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on (30 days
following publication in the federal registrar] and should be
accompanied by proof of service on applicant, 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 reasons for the
request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549.
Applicant, 800 Superior Avenue, Cleveland, Ohio 44114.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Robert A
Robertson,
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Branch Chief, at (202) 942-0572, or Robert A. Robertson, Branch Chief,
at (202) 942-0564 (Division of Investment Management, Office of
Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants Representations
1. McDonald is registered as a broker-dealer and an investment
adviser. McDonald serves as underwriter and, through its Gradison
Division, as investment adviser to four open-end series investment
companies (the ``Funds''). The Gradison Division is not organized as a
separate legal entity. The Funds consist of eight series with total
assets of approximately $2 billion and 60,000 shareholder accounts as
of December 31, 1995.
2. On February 29, 1996, McDonald pled no contest to a fourth
degree misdemeanor charge under the laws of the state of Ohio in the
Common Pleas Court of Franklin County, Ohio, (Docket No. 96CF 02-1274)
and was fined $2,000 (the ``Conviction''). McDonald was found to have
violated section 101.71(c) of the Ohio Revised Code (``ORC'') by
failing to report its expenditures accurately to state legislators
during the period of May through August of 1993.
3. Section 101.73 of the ORC requires a ``statement of
expenditures'' to be filed with the Ohio Joint Legislative Ethics
Committee by any employer of a legislative agent or the agent who makes
certain expenditures to the Ohio legislators or their staff. This
report must include the amount of the expenditures. Section 101.71(C)
provides that no person shall fail to file a statement required to be
filed pursuant to section 101.73. Section 101.99 of the ORC states that
failure to satisfy this duty is a fourth degree misdemeanor.
4. McDonald was found to have failed to report its expenditures
accurately as required pursuant to section 101.73. The expenditures in
question totaled $9,540. All but $40 of these expenditures represented
payments of honoraria to legislators for agreeing to attend a McDonald
sponsored seminar on two successive days. Payments of honoraria were
legally permissible under Ohio law at that time. The seminar at issue
was attended only by McDonald employees and government affairs
consultants acting as McDonald agents. The purpose of the seminar was
to educate McDonald employees on current matters pending before the
Ohio General Assembly. No specific legislation materially affecting
McDonald was discussed at the seminar.
Applicant's Legal Analysis
1. Section 9(a) of the Act disqualifies, among others, any person
or company from serving or acting in the capacity of investment adviser
or principal underwriter for any registered open-end company, if such
person, or an affiliated person of such person, within ten years has
been convicted of any felony or misdemeanor involving the purchase or
sale of any security or arising out of such person's conduct as, among
other things, an underwriter, a broker, or a dealer.
2. If the conduct that led to the Conviction is deemed to arise out
of McDonald's conduct as a underwriter, broker, or dealer, the
prohibitions in section 9(a) would apply to McDonald as a result of the
Conviction. In addition, the section 9(a) prohibitions would apply to
any company which is an affiliated person of McDonald.
3. Section 9(c) of the Act provides that, upon application, the SEC
shall grant an exemption from the provisions of section 9(a), either
unconditionally or on appropriate temporary or other conditional basis,
if it is established that the prohibitions of section 9(a), as applied
to the applicant, are unduly or disproportionately severe, or the
conduct of such person has been such as to not make it against the
public interest or protection of investors to grant the application.
4. McDonald requests a permanent order exempting it from the
disqualification provisions of section 9(a) solely with respect to the
Conviction, and a temporary order exempting it from section 9(a)
pending the SEC's determination with respect to the permanent order.
Applicant understands that the SEC's Division of investment Management
(the ``Division'') only has the delegated authority to issue a
temporary order for a period not to exceed sixty days. 17 C.F.R.
200.30-5(a)(7). Accordingly, applicant requests that the Division,
under its delegated authority, issue a temporary order for sixty days.
If the SEC has not made a final determination with respect to the
permanent order within the sixty day time period, applicant further
requests that the SEC issue an additional temporary order to remain in
effect until it makes a final determination concerning the permanent
order. McDonald requests that the requested relief extend to all
entities that may become affiliated persons (as that term is defined in
section 2(a)(3) of the Act) of McDonald in the future. No affiliated
person of McDonald currently requires such relief or currently intends
to rely upon the requested relief.
5. McDonald believes that the prohibitions of section 9(a) in
connection with the Conviction would be unduly or disproportionately
severe and its conduct is not such as to make it against the public
interest or protection of investors for the SEC to grant the requested
relief for the following reasons:
a. The ORC provisions which form the basis of the Conviction apply
to any person or organization required to register as an employer of a
legislative agent. These are statutes of general applicability and none
of these provisions relate solely to underwriters, brokers, or dealers.
b. The matters giving rise to the Conviction are unrelated to any
of McDonald's activities regrading registered investment companies,
including its position as principal underwriter and investment adviser
to the Funds.
c. Upon learning that a report had not been filed accurately,
McDonald took remedial actions, including the following: (i) it filed
an amended report which accurately reported the expenditures which had
been made, (ii) it reassigned direct responsibility for filing these
reports to a senior management official who has overall responsibility
for McDonald's financial reporting obligations, and (iii) it
established a procedure for the prior review of all such filings.
d. McDonald has never previously filed an application for relief
pursuant to section 9(c) and is not currently subject to any other
judgment or order that would disqualify it under section 9(a), besides
the Conviction described herein.
e. A denial of the requested orders would adversely affect the
Funds and their shareholders. The Funds and their shareholders would
incur additional costs and possible disruption of service if the Funds
were required to retain one or more new principal underwriters and
investment advisers and to seek related approvals of their boards of
trustees and shareholders.
f. In addition, McDonald states that granting a sixty day temporary
exemption would protect the interests of the Funds by allowing time for
the orderly consideration of the application for permanent relief by
the SEC.
g. If the requested exemption is not granted, section 9(a) would
have an unduly and disproportionately severe impact on McDonald. The
imposition of
[[Page 8989]]
these prohibitions would prohibit McDonald from acting as the principal
underwriter or investment adviser for the Funds and other registered
open-end investment companies in the future. McDonald states that
acting in these capacities for the Funds is an integral part of
McDonald's business as a full-service brokerage firm. McDonald states
that it would lose substantial revenue if it were prohibited from
conducting this business.
Applicant's Condition
Applicant agrees that the following condition may be imposed in any
order of the SEC granting relief:
Any temporary exemption issued pursuant to this application shall
be without prejudice to, and shall not limit the SEC's rights in any
manner with respect to, any SEC investigation of, or administrative
proceedings involving or against, applicant, including without
limitation, the consideration by the SEC of the application for a
permanent exemption from section 9(a) of the Act requested pursuant to
this application or the revocation or removal of any temporary
exemptions granted under the Act in connection with this application.
Temporary Order
The Division has considered the matter and, without necessarily
agreeing with all of the facts represented or all of the arguments
asserted by applicant, finds, in accordance with 17 CFR 200.30-5(a)(7),
that it appears that (i) the prohibitions of section 9(a), as applied
to applicant, may be unduly or disproportionately severe, (ii)
applicant's conduct has been such as not to make it against the public
interest or protection of investors to grant the temporary exemption,
and (iii) granting the temporary exemption would protect the interests
of the investment companies being served by applicant by allowing time
for the orderly consideration of the application for permanent relief.
Accordingly, it is hereby ordered, under section 9(c), that
applicant is granted a temporary exemption for sixty days from the
provisions of section 9(a), effective forthwith, solely with respect to
the Conviction, subject to the condition in the application.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-5217 Filed 3-5-96; 8:45 am]
BILLING CODE 8010-01-M
