[Federal Register Volume 59, Number 180 (Monday, September 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23050]
[[Page Unknown]]
[Federal Register: September 19, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20545; 812-9176]
United Financial Group, Inc.; Notice of Application
September 12, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: United Financial Group, Inc. (the ``Company'').
Relevant Act Sections: Order requested under sections 6(c) and 6(e) of
the Act granting a conditional exemption from all provisions of the
Act.
SUMMARY OF APPLICATION: Applicant seeks an order that would
conditionally exempt it from all provisions of the Act until December
30, 1995. The requested relief would extend an exemption originally
granted until December 30, 1990, and extended by subsequent orders
until December 30, 1991, December 30, 1992, December 30, 1993, and
December 30, 1994.
FILING DATE: The application was filed on August 18, 1994.
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 October 6, 1994,
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 reason
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 Fifth Street, N.W., Washington, D.C.
20549. Applicant, 5847 San Felipe, Suite 2600, Houston, Texas 77057.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, at (202) 942-0565, or C. David Messman,
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.
Applicant's Representations
1. The Company was a savings and loan holding company whose primary
asset and source of income was the United Savings Association of Texas
(``USAT''). As a result of the recession in Texas beginning in 1986,
USAT's financial condition deteriorated, and on December 30, 1988 it
was placed into receivership. The assets of USAT were sold to an
unaffiliated third party and the Company received no consideration for
the loss of its primary subsidiary, thereby generating a substantial
tax loss. In light of this tax loss, the Company determined not to
liquidate, but instead to acquire an operating business.
2. The Company's efforts to acquire an operating business have been
substantially hindered due to claims asserted against it by the Federal
Savings and Loan Insurance Corporation (the ``FSLIC'') and its
successor, the Federal Deposit Insurance Corporation (the ``FDIC''),
which term as used herein includes the FSLIC. The FDIC asserted an
approximately $534 million claim against the Company in January 1989
for failure to maintain the net worth of USAT (the ``Net Worth Claim'')
and an approximately $14 million claim concerning certain tax refunds
alleged to have been received by the Company (together with the Net
Worth Claim, the ``FDIC Claims''). In addition, the FDIC has asserted
the existence of possible other claims (the ``Indemnified Claims'')
against the Company and certain former officers and directors of the
Company and USAT. The Company may have indemnification obligations to
these former officers and directors. The FDIC has not alleged a dollar
amount for any Indemnified Claims. Although the Company disputes the
FDIC Claims and the Indemnified Claims, their existence constitutes a
large contingent liability against the Company's assets, thus making it
difficult for the Company to acquire an operating business.
3. During 1989 and 1990, the Company was in continuous negotiations
with the FDIC in an attempt to reach a resolution of the FDIC Claims
and in early 1990 the Company reached a tentative agreement. However,
in December 1990 the FDIC rejected the Company's settlement offer and
informed the Company that no counter proposal would be offered. In mid-
1991, the Company again contacted the FDIC to determine whether a
settlement could be reached on the FDIC Claims. Beginning in July 1991,
the Company and the FDIC's representatives again began negotiations and
in August 1991, the Company offered a proposed settlement. Although the
FDIC has not responded to the Company's settlement proposal, in
December 1991 the FDIC requested, and the Company provided, an
agreement to toll the statute of limitations for the period expiring
July 31, 1992. This would give the FDIC adequate time to review any
possible claims against the Company that might reflect on a global
settlement. This tolling agreement was subsequently extended eleven
times, initially through September 30, 1992, then eventually through
December 30, 1994. During this tolling period, the Company has engaged
in continuous discussions with the FDIC staff and as part of that
process has furnished the FDIC with documents and financial records for
their review.
4. On June 30, 1994, the Company held assets of approximately
$11.94 million, comprised of approximately $.27 million in cash and
cash equivalents, $9.92 million in short-term investments, $1.23
million in loans and notes receivable, and $.52 million in other
assets. The Company's common stock currently is traded sporadically in
the over-the-counter market. The Company does not employ any full-time
employees. The Company's administrative operations are handled by
contract bookkeepers, accountants, and attorneys.
5. Rule 3a-2 under the Act provides a one-year safe harbor to
issuers that meet the definition of an investment company but intend to
maintain that status only transiently. The Company relied on the safe
harbor provided by this rule from December 30, 1988 until December 30,
1989. The expiration of the safe harbor period necessitated the filing
of an application for exemption. In 1990, the Company was granted
conditional relief from all provisions of the Act until December 30,
1990 (the ``1990 Order''). The SEC extended this exemptive relief by
four subsequent orders, most recently until December 30, 1994.\1\
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\1\Investment Company Act Release Nos. 17941 (Jan. 9, 1991)
(notice) and 17989 (Feb. 7, 1991) (order); Investment Company Act
Release Nos. 18430 (Dec. 5, 1991) (notice) and 18466 (Dec. 31, 1991)
(order); Investment Company Act Release Nos. 19128 (Nov. 25, 1992)
(notice) and 19175 (Dec. 22, 1992) (order); and Investment Company
Act Release Nos. 19839 (Nov. 5, 1993) (notice) and 19916 (Dec. 1,
1993) (order) (together with the 1990 Order, the ``Prior Orders'').
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6. As described in detail in the applications for the Prior Orders,
during a portion of the period in which the requested exemption will be
effective, it is possible that the Company will be subject to the
jurisdiction of the federal bankruptcy courts. In this regard, the
Company has formulated a plan of reorganization (the ``Reorganization
Plan'') to be implemented under Chapter 11 of the Bankruptcy Code once
the FDIC approves a settlement of the FDIC Claims. The Reorganization
Plan would settle the outstanding claims against the Company and
provide a structure for the possible acquisition of a new operating
business or businesses. Because the bankruptcy court is charged with
protecting the interests of the Company's creditors and equity interest
holders, the Company believes that it is not necessary for it to comply
with section 17(a) or section 17(d) with respect to transactions
approved by the bankruptcy court.
Applicant's Legal Analysis
1. Section 3(a)(3) of the Act defines an investment company as an
issuer engaged in the business of investing, reinvesting, owning,
holding, or trading in securities, and owning investment securities
having a value exceeding 40% of the value of such issuers' total assets
(exclusive of government securities and cash items). The Company
acknowledges that, based on its current mix of assets, it may be deemed
to be an investment company under section 3(a)(3).
2. The Company requests, pursuant to sections 6(c) and 6(e) of the
Act, that the SEC issue an order exempting the Company from all
provisions of the Act, subject to certain exceptions, until December
30, 1995. The requested order would extend the exemption granted by the
Prior Orders.
3. In determining whether to grant exemptive relief for a transient
investment company, the SEC considers such factors as: (a) Whether the
failure of the company to become primarily engaged in a non-investment
business or excepted business or liquidate within one year was due to
factors beyond its control; (b) whether the company's officers and
employees during that period tried, in good faith, to effect the
company's investment of its assets in a non-investment business or
excepted business or to cause the liquidation of the company; and (c)
whether the company invested in securities solely to preserve the value
of its assets. The Company asserts that it meets these criteria.
4. The Company asserts that its failure to become primarily engaged
in a non-investment business by December 30, 1994 is a result of
factors beyond its control. The existence of the FDIC Claims has
precluded the Company from investing its assets in a non-investment
company business. Although the Company's executive officers reviewed
numerous possible asset or business acquisitions, the magnitude of the
FDIC Claims and the potential threat that the FDIC would seek to enjoin
any utilization of the Company's assets has prevented the Company from
investing its assets in a non-investment company business.
5. Pending the settlement of the FDIC Claims, the Company has
limited its investments to high quality marketable securities, cash or
cash equivalents. Thus, the Company asserts that it primarily invests
in securities solely to preserve the value of its assets.
6. Although the Company has made substantial efforts to formulate
alternative methods by which it can acquire an operating business and
utilize its tax loss, the pending settlement negotiations of the FDIC
Claims make it necessary for the Company to seek relief extending the
relief granted by the Prior Orders. This would allow the Company to
seek an FDIC settlement and, if successful, to formulate and implement
new plans for becoming an operating business and utilizing the Tax
Loss.
7. The Company believes that the issuance of an order exempting it
from all provisions of the Act, subject to certain exceptions, until
December 30, 1995 would be in the public interest and consistent with
the protection of investors and the purposes of the Act.
Applicant's Conditions
The Company agrees that the requested exemption will be subject to
the following conditions, each of which will apply to the Company until
it acquires an operating business or otherwise falls outside the
definition of an investment company:
1. During the period of time the Company is exempted from
registration under the Act, it will not purchase or otherwise acquire
any securities other than securities with a remaining maturity of 397
days or less and that are rated in one of the two highest rating
categories by a nationally recognized statistical rating organization,
as that term is defined in rule 2a-7(a)(10) under the Act.
2. The Company will continue to comply with section 9, 17(e) and 36
of the Act.
3. The Company will continue to comply with sections 17(a)
and17(d), subject to the following exceptions:
(a) if the Company becomes subject to the jurisdiction of the
bankruptcy court, the Company need not comply with section 17(a) or
section 17(d) with respect to any transaction, including without
limitation the Reorganization Plan, that is approved by the bankruptcy
court; and
(b) the Company would not be required to comply with section 17(a)
or section 17(d) with respect to any transaction or series of
transactions that result in its ceasing to fall within the definition
of an ``investment company'' provided that (i) no cash payments are
made to an ``affiliated person'' (as defined in the Act) of the Company
as part of such transaction or series of transactions, and (ii) no debt
securities are issued to an affiliated person of the Company as part of
such transaction or series of transactions unless such debt securities
are expressly subordinated upon liquidation to claim of the holders of
the Company's 9% Debentures.
4. The Company will continue to comply with section 17(f) of the
Act as provided in rule 17f-2.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23050 Filed 9-16-94; 8:45 am]
BILLING CODE 8010-01-M
