[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Notices]
[Pages 25929-25931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12060]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23828; 812-11548]
Bankers Trust Company, et al.; Notice of Application
May 7, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Extension of temporary order and notice of application for a
permanent order under section 9(c) of the Investment Company Act of
1940 (``Act'').
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SUMMARY OF THE APPLICATION: Applicants have received an extension of a
temporary order exempting them and other entities of which Bankers
Trust Company (``BT'') is or becomes an affiliated person from section
9(a) of the Act, with respect to a March 11, 1999 cooperation and plea
agreement between BT and the U.S. Attorney for the Southern District of
New York, until the Commission takes final action on an application for
a permanent order or, if earlier, November 8, 1999. Applicants also
have requested a permanent order.
APPLICANTS: BT, Investment Company Capital Corporation (``ICCC''), BT
Funds Management (International) Limited (``FMIL''), and Alex. Brown
Investment Management (``ABIM'').
FILING DATES: The application was filed on March 25, 1999 and amended
on April 28, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing or further
extends the temporary exemption. 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 June 1, 1999 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 may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.Y., Washington, D.C. 20549-0609. Applicants: BT, One Bankers
Trust Plaza, 31st Floor, New York, NY 10006; ICCC, One South Street,
Baltimore, MD 21202-3220; FMIL, The Chifley Tower, 2 Chifley Square,
Sydney, NSW 2000, Australia; and ABIM, 217 E. Redwood Street,
Baltimore, MD 21202.
FOR FURTHER INFORMATION, CONTACT: Rachel H. Graham, Senor Counsel at
(202) 942-0583, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is an extension of a temporary
order and a summary of the application. The complete application may be
obtained for a fee from the SEC's Public Reference Branch, 450 Fifth
Street, N.W., Washington, D.C. 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. BT, a New York banking corporation, is the principal bank
subsidiary of Bankers Trust Corporation (``BT Corp''), a New York
corporation that, together with its affiliates and subsidiaries,
performs a wide range of banking and financial services worldwide. BT,
which is exempt from registration under the Investment Advisers Act of
1940 (``Advisers Act''), serves as investment adviser or subadviser to
numerous investment companies registered under the Act (``funds'').
2. ICCC, a Maryland corporation, and FMIL, an Australian
corporation, are indirect wholly-owned subsidiaries of BT Corp. BT Corp
indirectly owns approximately 50% of ABIM, a Maryland limited
partnership. Accordingly, BT may be deemed to be under common control
with ICCC, FMIL, and ABIM (each an ``Affiliated Adviser'' and,
collectively, the ``Affiliated Advisers''). Each Affiliated Adviser is
registered under the Advisers Act and serves as investment adviser or
subadviser to various funds.
3. BT acts as administrator, custodian, transfer agent, and
shareholder servicing agent for certain funds advised by it or the
Affiliated Advisers. BT also acts as custodian for certain other funds.
ICCC acts as transfer agent for funds advised by it or other Affiliated
Advisers. BT and ICCC are registered as transfer agents under the
Securities Exchange Act of 1934.
4. On March 11, 1999, the U.S. Attorney for the Southern District
of New York filed a three-count felony information (``Information'') in
the United States District Court for the Southern District of New York
(``Court'') alleging violations of 18 U.S.C. section 1005. The
Information charges BT with making false entries on its books and
records as a result of the conduct of certain employees in BT's
processing services businesses in 1994-1996. The conduct involved the
transfer to reserve accounts and to income of aged credit
[[Page 25930]]
items that should have been paid to customers, other third parties, or
state abandoned property authorities.
5. On March 11, 1999, BT pleaded guilty to the charges in the
Information pursuant to a written cooperation and plea agreement
(``Cooperation and Plea Agreement''). As part of the Cooperation and
Plea Agreement, BT agreed to pay a $60 million fine and to place that
amount in escrow pending sentencing.\1\ The Cooperation and Plea
Agreement provides that sentencing will be adjourned to on or before
May 12, 1999.\2\
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\1\ As a result of the matters underlying the Cooperation and
Plea Agreement, BT also has agreed to pay a $3.5 million fine to the
State of New York.
\2\ Applicants have informed the staff of the Commission that
the Court has rescheduled the sentencing to June 21, 1999.
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Applicants' Legal Analysis
1. Section 9(a) of the Act, in relevant part, prohibits a person
and any company of which the person is an affiliated person from
serving or acting as an investment adviser, principal underwriter, or
depositor for any registered investment company if the person has been
convicted of any felony arising out of the person's conduct as, among
other things, an underwriter, broker, dealer, investment adviser, or
transfer agent. Applicants do not concede that the Cooperation and Plea
Agreement would disqualify BT, the Affiliated Advisers, and all other
entities of which BT is or becomes an affiliated person (together with
Applicants, the ``Covered Entities'') under section 9(a) of the Act. In
order to resolve any uncertainty, however, Applicants seek a permanent
order exempting them and all other Covered Entities from section 9(a)
of the Act with respect to the Cooperation and Plea Agreement.
2. Section 9(c) of the Act provides that the Commission shall grant
an application for an exemption from the disqualification provisions of
section 9(a) if it is established that these provisions, so applied to
the applicant, are unduly or disproportionately severe or that the
applicant's conduct has been such as not to make it against the public
interest or the protection of investors to grant the application.
3. On March 12, 1999, the Covered Entities received a temporary
conditional order from the Commission exempting them from section 9(a)
of the Act with respect to the Cooperation and Plea Agreement
(``Temporary Order'') (Investment Company Act Release No. 23737). The
Temporary Order stated that it would expire when the Commission took
final action on an application for a permanent order or, if earlier,
May 11, 1999.
4. As noted above, Applicants seek a permanent order exempting the
Covered Entities from section 9(a) with respect to the Cooperation and
Plea Agreement.\3\ Applicants also seek an extension of the Temporary
Order if the requested permanent order is not granted before the
Temporary Order expires.
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\3\ Applicants currently are the only Covered Entities that
intend to rely upon the requested relief. Applicants note that, upon
consummation of the pending merger between BT Corp and Deutsche Bank
AG, Covered Entities would also include entities of which, as a
result of the merger, BT becomes an affiliated person.
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5. Applicants assert that the prohibitions of section 9(a) as
applied to the Covered Entities would be unduly and disproportionately
severe. Applicants contend that, if the requested exemption is not
granted, the section 9(a) prohibition would have a devastating impact
on their investment advisory businesses. Applicants assert that those
businesses were not involved in the matters underlying the Cooperation
and Plea Agreement.\4\
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\4\ Applicants acknowledge that, in 1976, Alex. Brown & Sons,
Inc. applied for and received an exemption from section 9(a). Alex.
Brown & Sons, Investment Company Act Rel. Nos. 9246 (Apr. 13, 1976)
(notice) and 9377 (July 29, 1976) (order).
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6. Applicants believe that their inability to provide investment
advisory services could impair significantly the financial interests of
the funds they advise or subadvise and of the funds' shareholders.
Applicants state that they have distributed or will distribute, to the
boards of directors of the funds they advise and to the advisers of the
funds they subadvise, written materials regarding the Cooperation and
Plea Agreement and the reasons applicants believe relief from section
9(a) is appropriate. Applicants also state that they have offered, or
will offer, to meet in person with the boards and advisers to discuss
those materials. Further, Applicants will undertake to provide the
funds with all information concerning the Cooperation and Plea
Agreement and this application necessary for the funds to fulfill their
disclosure and other obligations under the federal securities laws.
7. Applicants assert that their conduct has been such as not to
make it against the public interest or the protection of investors to
grant this application. Applicants contend that the Cooperation and
Plea Agreement relates to books and records violations involving
payments by BT in performing various processing services. Applicants
state that BT has not been able to identify any fund client of its
custody services or any fund shareholder affected by its transfer agent
services who has been affected by the matters giving rise to the
Cooperation and Plea Agreement. Applicants also state that, although BT
has been unable to identify all persons to whom it improperly failed to
make payments, none of the identified persons are funds. Applicants
acknowledge that approximately $78,000 in aged credits from BT's unit
investment trust business that likely should have been escheated to one
or more states was improperly transferred to BT's reserve accounts.
Applicants state, however, that none of the other payments by BT as
paying agent were on behalf of fund issuers.
8. Applicants state that the persons identified as having been
responsible for the matters underlying the Cooperation and Plea
Agreement (``Identified Former Employees'') no longer are employed by
BT or any other Covered Entity. Applicants also state that, since 1996,
BT has taken steps to prevent future violations of applicable laws and
regulations relating to its handling of payments in its capacity as
custodian, paying agent, benefit plan agent and similar roles. In
particular, Applicants note that: a new senior management team has
assumed responsibility for the business out of which the Cooperation
and Plea Agreement arose; BT has implemented a formal ``Abandoned
Property and Escheatment Policy'' and appointed an Abandoned Property
Officer; BT has hired better qualified personnel to replace the
Identified Former Employees; and BT has engaged in an extensive effort
to redistribute the improperly transferred moneys to their rightful
owners (or, if applicable, to the proper abandoned property authority).
Applicants' Conditions
Applicants agree that any order issued on this application will be
subject to the following conditions:
1. The application and any exemption issued shall be without
prejudice to, and shall not limit the Commission's rights in any manner
with respect to, any commission investigations or enforcement actions
pursuant to the federal securities laws, or the consideration by the
Commission of any application for exemption from statutory requirements
including, without limitation, the revocation, removal, or further
extension of any temporary exemption granted under the Act in
connection with the application.
2. Neither applicants nor any of the other Covered Persons will
employ any of the Identified Former Employees, or any persons who
subsequently are identified as having been responsible for
[[Page 25931]]
the matters underlying the Cooperation and Plea Agreement, in any
capacity without first making further application to the Commission
pursuant to section 9(c).
Extension of Temporary Order
The Commission has determined that it requires additional time to
consider the issuance of a permanent order under section 9(c) of the
Act. Accordingly,
It is ordered, under section 9(c) of the Act, that the temporary
conditional order is extended until the date on which the Commission
takes final action on the application for a permanent order exempting
applicants and all other Covered Entities from section 9(a) of the Act
or, if earlier, November 8, 1999.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12060 Filed 5-12-99; 8:45 am]
BILLING CODE 8010-01-M
