Unassociated Document
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UNITED
STATES OF AMERICA
Before
the
SECURITIES
AND EXCHANGE COMMISSION
File
No. 812-13808
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APPLICATION
PURSUANT TO SECTION 9(c)
OF
THE INVESTMENT COMPANY ACT OF
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In
the Matter of
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1940
FOR TEMPORARY AND PERMANENT
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ORDERS
EXEMPTING APPLICANTS
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CITIGROUP
GLOBAL MARKETS INC.
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FROM
THE PROVISIONS OF SECTION 9(a)
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388
Greenwich Street
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OF
SUCH ACT
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New
York, NY 10013
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And
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CEFOF
GP I CORP.
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388
Greenwich Street
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New
York, NY 10013
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And
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CELFOF
GP CORP.
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388
Greenwich Street
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New
York, NY 10013
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And
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CITIBANK,
N.A.
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399
Park Avenue
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New
York, NY 10043
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And
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CITIGROUP
ALTERNATIVE INVESTMENTS LLC
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731
Lexington Avenue, 28th
Floor
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New
York, NY 10022
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And
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CONSULTING
GROUP ADVISORY SERVICES LLC
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222
Delaware Avenue
Wilmington,
DE 19801
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And
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CITIGROUP
CAPITAL PARTNERS I GP I CORP.
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388
Greenwich Street
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New
York, NY 10013
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And
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CITIGROUP
CAPITAL PARTNERS I GP II CORP.
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388
Greenwich Street
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New
York, NY 10013
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File
No. 812-13808
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This
Application consists of 34 pages.
2
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Citigroup
Global Markets Inc
CEFOF
GP I Corp.
CELFOF
GP Corp.
Citibank,
N.A.
Citigroup
Alternative Investments LLC
Consulting
Group Advisory Services LLC
Citigroup
Capital Partners I GP I Corp.
Citigroup
Capital Partners I GP II Corp.
(Names
of Applicants)
See
Above
(Addresses
of Applicants’ principal executive offices)
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Edward
G. Turan, Esq.
Managing
Director and Deputy General Counsel
Citigroup
Global Markets Inc.
388
Greenwich Street, 17th
Floor
New
York, NY 10013
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Gail
Ennis, Esq.
John
M. Faust, Esq.
Wilmer
Cutler Pickering Hale and Dorr LLP
1875
Pennsylvania Avenue, N.W.
Washington,
D.C. 20006-3642
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(Names
and addresses of persons to whom communications should be
directed)
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3
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UNITED
STATES OF AMERICA
Before
the
SECURITIES
AND EXCHANGE COMMISSION
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|
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)
)
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APPLICATION
PURSUANT TO
SECTION 9(c)
OF THE INVESTMENT
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In
the Matter of
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)
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COMPANY
ACT OF 1940 FOR
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)
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TEMPORARY
AND PERMANENT
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CITIGROUP
GLOBAL MARKETS, INC.
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)
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ORDERS
EXEMPTING APPLICANTS
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388
Greenwich Street
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)
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FROM
THE PROVISIONS OF SECTION 9(a)
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New
York, NY 10013
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)
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OF
SUCH ACT
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And
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)
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CEFOF
GP I CORP.
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)
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388
Greenwich Street
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)
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New
York, NY 10013
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)
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And
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)
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CELFOF
GP CORP.
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)
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388
Greenwich Street
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)
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New
York, NY 10013
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)
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And
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)
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CITIBANK,
N.A.
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)
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399
Park Avenue
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)
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New
York, NY 10043
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)
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And
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)
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CITIGROUP
ALTERNATIVE INVESTMENTS LLC
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)
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731
Lexington Avenue, 28th Floor
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New
York, NY 10022
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And
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)
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CONSULTING
GROUP ADVISORY SERVICES LLC
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222
Delaware Avenue
Wilmington,
DE 19801
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)
)
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And
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)
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CITIGROUP
CAPITAL PARTNERS I GP I CORP.
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)
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388
Greenwich Street
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)
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New
York, NY 10013
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)
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And
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)
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CITIGROUP
CAPITAL PARTNERS I GP II CORP.
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)
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388
Greenwich Street
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)
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New
York, NY 10013
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)
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File
No. 812-13808
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4
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,” and along with CGMI, CEFOF, CELFOF,
Citibank, Citigroup Alternative, Advisory Services, CCP I, and CCP II, the
“Applicants”) each hereby applies pursuant to Section 9(c) of the Investment
Company Act of 1940, as amended (the “Act”), for (i) an order of temporary
exemption from Section 9(a) pending the determination of the Securities and
Exchange Commission (the “Commission”) on this application (“Application”) for
an order of permanent exemption and (ii) a permanent order exempting it from the
provisions of Section 9(a) of the Act in respect of the Judgment, as defined
below, that has been entered
against Citigroup Inc. (“Citigroup”). Citigroup is a Delaware
corporation with its principal place of business in New York, New
York. Citigroup is a global financial services company that provides
a broad range of financial services to consumer and corporate
clients. Each of the Applicants is under the common control of
Citigroup. While no other existing company of which Citigroup is an
affiliated person currently serves as investment adviser (as defined in Section
2(a)(20) of the Act), depositor, or principal underwriter (as defined in Section
2(a)(29) of the Act) for any registered management investment company,
registered unit investment trust (“UIT”) (collectively, the “Funds”) or
registered face amount certificate company, Applicants request that any relief
granted by the Commission pursuant to this Application also apply to any other
existing company of which Citigroup is an affiliated person within the meaning
of Section 2(a)(3) of the Act and to any other company of which Citigroup may
become an affiliated person in the future (together with the Applicants, the
“Covered Persons”). Applicants
5
request
that the temporary order remain in effect until the Commission acts on the
Application for the permanent order.
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A.
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Applicants and the
Other Covered Persons
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CGMI, a
New York corporation and an indirect wholly owned subsidiary of Citigroup, is a
full service investment banking firm. CGMI engages in securities
underwriting, sales and trading, investment banking, financial advisory and
investment research services. CGMI is registered as a broker-dealer
with the Commission pursuant to Section 15 of the Securities Exchange Act of
1934, as amended (“Exchange Act”). CGMI also is registered as an
investment adviser with the Commission pursuant to Section 203(a) of the
Investment Advisers Act of 1940, as amended (“Advisers Act”). As
reported in its Form ADV dated March 31, 2010, CGMI provided the following
investment advisory services during its most-recently completed fiscal year
ended December 31, 2009, to about 35,000 clients: financial planning services;
portfolio management for individuals and/or small businesses; portfolio
management for businesses or institutional clients (other than investment
companies); pension consulting services; selection of other advisers; and asset
allocation advice. As of March 31, 2010, CGMI managed approximately
29,928 accounts with assets of about $19.544 billion. CGMI serves as
principal underwriter for Funds, which are identified in Exhibit
A. CGMI currently does not serve as investment adviser or depositor
of any Fund or as principal underwriter for any registered face amount
certificate company, but it may seek to do so in the future.
Citigroup
Alternative, a Delaware limited liability company and an indirect wholly owned
subsidiary of Citigroup, is registered as an investment adviser with the
Commission pursuant to Section 203(a) of the Advisers Act. As
reported in its Form ADV update dated March 31, 2010,
6
Citigroup
Alternative provided the following investment advisory services during its
most-recently completed fiscal year ended December 31, 2009, to between 101 and
250 clients: portfolio management for individuals and/or small businesses;
portfolio management for businesses or institutional clients; portfolio
management for Funds; and selection of other advisers. As of March
31, 2010, Citigroup Alternative managed 169 accounts with assets of about $23
billion. Citigroup Alternative currently acts as investment adviser
to Funds, which are identified in Exhibit A. Citigroup Alternative
currently does not serve as depositor of any Fund or as principal underwriter
for any Fund or registered face amount certificate company, but it may seek to
do so in the future.
Advisory
Services, a Delaware limited liability company and wholly owned subsidiary of
Morgan Stanley Smith Barney Holding LLC in which Citigroup has an indirect
interest, is registered as an investment adviser with the Commission pursuant to
Section 203(a) of the Advisers Act. As reported in its Form ADV
update dated March 31, 2010, Advisory Services provided the following investment
advisory services during its most-recently completed fiscal year ended December
31, 2009, to between 11 to 25 clients: portfolio management for Funds, which are
identified in Exhibit A; selection of other advisers; and asset allocation
advice. As of March 31, 2010, Advisory Services managed 11 accounts
with assets of approximately $6.637 billion. Advisory Services
currently acts as investment adviser to Funds, which are identified in Exhibit
A. Advisory Services currently does not serve as depositor of any
Fund or as principal underwriter for any Fund or registered face amount
certificate company, but it may seek to do so in the future.
Each of
CEFOF, CELFOF, Citibank, Citigroup Alternative, CCP I, and CCP II (collectively,
the “ESC Advisers”) is either an indirect wholly-owned subsidiary of Citigroup
or is owned by an entity in which Citigroup has an indirect interest and serves
as investment adviser to certain employees’ securities companies within the
meaning of section 2(a)(13) of the Act
7
(employees’
securities companies are included in the term “Funds”) sponsored by Citigroup
and its affiliates (“ESCs”). 1 These ESCs are not offered to the
general public, but are intended to provide investment opportunities for
eligible current and former employees, officers, directors and persons on
retainer of Citigroup that are competitive with those at other financial
services firms and to facilitate the recruitment and retention of high caliber
professionals. None of the ESC Advisers provide any of the services
covered by Section 9(a) to Funds other than to the ESCs. The ESCs,
which are identified in Exhibit A, have been exempted from all provisions of the
Act (and the rules and regulations thereunder), except for certain sections,
including Section 9, pursuant to a Commission order (“ESC Order”).2
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B.
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The Consent and
Judgment
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After
lengthy settlement negotiations, on July 19, 2010, Citigroup executed a Consent
of Defendant Citigroup Inc. (the “Consent”), in which it consented to the entry
of a judgment in the form attached to the Consent that restrains and enjoins
Citigroup and imposes certain other relief on Citigroup. The
Commission approved the proposed settlement, and on July 29, 2010, the
Commission filed a complaint (the “Complaint”) against Citigroup in the United
States District Court for the District of Columbia (the “District Court”) in a
civil action captioned Securities and Exchange
Commission v. Citigroup Inc.,
1 Citibank
advises at least one of the employees’ securities companies through one of its
divisions, i.e.,
Citigroup Venture Capital International Advisers.
2 Investment
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367 (Jan. 16,
2002) (order).
8
Civil
Action No. 1:10-cv-01227 (ESH) (D.D.C. July 29, 2010) (the
“Action”). The Commission alleged in the Complaint that Citigroup had
violated Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”),
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 Citibank’s investment banking unit. The
specific allegations are that Citigroup misled investors when it stated that it
had reduced the investment bank’s subprime exposure from $24 billion at the end
of 2006 to $13 billion or slightly less than that amount, while, in fact, the
investment bank’s subprime exposure also included approximately $43 billion of
“super senior” tranches of subprime collateralized debt obligations and related
instruments called “liquidity puts.” Citigroup neither admitted nor denied any
of the allegations in the Complaint, except as to personal and subject matter
jurisdiction.
On October 7, 2010, Citigroup executed an amended Consent of
Defendant Citigroup Inc. with a proposed final judgment (“Amended Consent”)
which included certain undertakings requested by the District Court. The Amended
Consent was filed with the District Court on October 7, 2010.
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II.
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Application of Section
9 of the Act
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Section
9(a)(2) of the Act provides, in pertinent part, that a person may not serve or
act as, among other things, an investment adviser or depositor of any investment
company registered under the Act or as a principal underwriter for any
registered open-end investment company, registered UIT, or registered face
amount certificate company if the person, by reason of any misconduct, is
permanently or temporarily enjoined by order, judgment, or decree of any court
of
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).
9
competent
jurisdiction from, among other things, engaging in or continuing any conduct or
practice in connection with the purchase or sale of any security or in
connection with activities as an underwriter, broker, or
dealer. Section 9(a)(3) of the Act extends the prohibitions of
Section 9(a)(2) to a company any “affiliated person” of which is disqualified
under the provisions of Section 9(a)(2). “Affiliated person” is
defined in Section 2(a)(3) of the Act to include, among others, any person
directly or indirectly controlling, controlled by, or under common control with,
the other person.
The entry
of the Judgment results in a disqualification of Citigroup insofar as it is
enjoined permanently by the District Court from engaging in or continuing
particular conduct or practice in connection with the purchase or sale of any
security or in connection with activities as an underwriter, broker, or
dealer. Taken together, Sections 9(a)(2) and 9(a)(3) would have the
effect of also precluding the Applicants from providing advisory or sub-advisory
services to, or serving as depositor of, any Fund, and would preclude such
Applicants from serving as principal underwriter for any Fund or registered face
amount certificate company. The entry of the Judgment results in a
disqualification of the Applicants under Section 9(a)(3) because Citigroup is an
affiliated person of the Applicants within the meaning of Section 2(a)(3) of the
Act, given that they are under the common control of Citigroup. Other
Covered Persons similarly would be disqualified pursuant to Section 9(a)(3) were
they to act in any of the capacities listed in Section 9(a) with respect to a
Fund.
Section
9(c) of the Act provides that, upon application, the Commission shall by order
grant a person an exemption from the provisions of Section 9(a), either
unconditionally or on an appropriate temporary or other conditional basis, if
the person establishes that: (1) the prohibitions of Section 9(a), as
applied to the person, are unduly or disproportionately severe; or (2) the
conduct
10
In light
of the Judgment, the Applicants submit this Application pursuant to Section 9(c)
of the Act. In order to ensure the eligibility of all the Applicants
to continue to serve as investment adviser of, or principal underwriter for
Funds, and of the Applicants and other Covered Persons to serve in the future as
investment adviser or depositor of any Fund, or principal underwriter for any
Fund or registered face amount certificate company, Applicants seek (1) an order
granting the requested relief to the Applicants and any other Covered Person on
a temporary basis pending the Commission’s determination with respect to a
permanent exemption and (2) a permanent order of the Commission exempting the
Applicants and any other Covered Persons from the provisions of Section 9(a) of
the Act.
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III.
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Statement in Support
of Application
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In
support of their position that the Commission should issue the orders granting
the temporary and permanent exemptions requested above from the provisions of
Section 9(a) of the Act, Applicants assert the following:
4 Cf. Applications for Relief
from Disqualification, Investment Company Act Release No. 8689 (Feb. 26,
1975).
11
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A.
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The Limited Scope of
the Alleged Misconduct
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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 for a Fund or principal underwriter for any Fund. Citigroup
did not provide any investment advisory or subadvisory services to Funds and the
alleged conduct giving rise to the Injunction did not involve any Fund to which
Citigroup provided principal underwriting services. 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.
5 Investment
Trusts and Investment Companies: Hearings on S. 3580 Before the Subcomm. on
Securities and Exchange of the Senate Comm. on Banking and Currency, 76th Cong.,
3d Sess. 874 (1940) (statement of Judge Healy).
12
As a
result of the foregoing, the conduct of Applicants has not been such as to make
it against the public interest or the protection of investors to grant
Applicants’ Application.
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B.
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Adverse Effect on
Applicants
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The
Judgment subjects each of the Applicants to the prohibitions of Section 9(a) of
the Act solely because Citigroup is an affiliated person of these companies
within the meaning of the Act. Only Citigroup was a party to the
Action and was alleged to have been involved in the activities that form the
basis for the Action. No director, officer, or employee of the
Applicants who is or was involved in providing advisory, depository, or
principal underwriting services to the Funds participated in the conduct that
resulted in the Injunction.
If the
Applicants were deemed to be barred under Section 9(a) from continuing to serve
as investment adviser or principal underwriter to Funds and were unable to
obtain the requested exemption, the effect on their businesses and employees
would be severe. The Applicants have committed substantial resources
to establishing an expertise in providing services covered by Section 9(a) of
the Act to Funds. The Applicants currently employ about 250 persons
who are involved in performing the advisory and/or underwriting function for
Funds. Prohibiting the Applicants from continuing to serve as
advisers and/or principal underwriters to Funds not only would affect
Applicants’ businesses adversely, but also Applicants’ employees. For
the foregoing reasons, the Section 9(a) prohibitions as applied to the
Applicants would be unduly and disproportionately severe.
With
respect to the ESC Advisers in particular, their disqualification from providing
advisory or subadvisory services to the ESCs listed in Exhibit A would not be in
the public interest or in furtherance of the protection of investors, and indeed
such disqualification would frustrate the expectations of the eligible employees
who invested in the ESCs. It would not be consistent
with
13
the
purposes of the employees’ securities company provisions of the Act or the
representations made in the terms and conditions of 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 in the ESCs with the expectation that the ESCs would be managed by an
affiliate of Citigroup.
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C.
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Involvement of
Applicants’ Personnel
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With
respect to the Applicants, none of their current or former directors, officers,
or employees participated in the violative conduct alleged in the Complaint,
with the exception of one employee.6 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 Funds, or principal underwriting services to the
Funds. Shareholders of the Funds, to which the Applicants provided
advisory, subadvisory, depository, and/or principal underwriting services, would
not have been affected any differently if companies not affiliated with
Citigroup had provided such services to those Funds.
As a
result of the foregoing, it is clear that Applicants’ conduct has not been such
as to make it against the public interest or protection of investors to grant
their Application.
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D.
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Actions Taken with
Respect to the Funds
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To
provide further assurance that the exemptive relief being requested herein would
be consistent with the public interest and the protection of investors, the
Applicants have distributed,
6 One
current Citigroup employee, who participated in the alleged conduct at
Citigroup, was employed by an Applicant for a period of time after the alleged
conduct. This employee, however, was not involved in providing
advisory, depository, or principal underwriting services to the
Funds.
14
or will
distribute as soon as reasonably practical, written materials to, including an
offer to meet in person to discuss the materials with, the boards of directors
of Funds for which any of the Applicants serve as investment adviser or
principal underwriter, including the directors who are not “interested persons”
as defined in Section 2(a)(19) of the Act of such Funds, and their independent
legal counsel as defined in Rule 0-1(a)(6) under the Act, if
any. These written materials will concern the Judgment, this
Application, and any impact on the Funds of the Judgment and/or the
Application. The Applicants undertake to provide the Funds with all
information concerning the Judgment and this Application necessary for the Funds
to fulfill their disclosure and other obligations under the federal securities
laws.
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E.
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Hardships on the Funds
and their Shareholders
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The
inability of the Applicants to continue to serve as adviser and/or principal
underwriter of the Funds would result in the Funds and their shareholders facing
potentially severe hardships. Neither the protection of investors nor
the public interest would be served by permitting the Section 9(a)
disqualifications to apply to the Applicants because those disqualifications
would deprive the shareholders of such Funds of the advisory and underwriting
services that shareholders expected the Funds would receive when they decided to
invest in the Funds. In addition, the Funds would have to expend time
and other resources to engage substitute advisers or principal
underwriters. The prohibitions of Section 9(a) could, therefore,
operate to the detriment of the financial interests of such Funds and their
shareholders.
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F.
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Prior Section 9(c)
Applications Filed
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Certain
of the Applicants previously have applied for and obtained the following orders
under Section 9(c). Because these previously obtained Section 9(c)
orders were necessitated by enforcement actions brought by the Commission in the
past, they should have little, if any,
15
relevance
to whether this Application is granted. Rather, the Application
should be judged on its own merits.
On March
9, 1978, the Commission filed a complaint in the United States District Court
for the Southern District of New York in an action entitled Securities and Exchange
Commission v. Sun Company, Inc. (78 Civ. 1055), against various
defendants, including Salomon Brothers. The complaint alleged that
Salomon Brothers and others violated the beneficial ownership and tender offer
provisions of the Exchange Act. On February 14, 1980, after it had
found violations of the federal securities laws in July 1979, the Court signed
an order relating to Salomon Brothers that required it to comply with a
stipulation of settlement to which it had agreed (“Salomon Brothers
Order”). The stipulation required Salomon Brothers in the future to
make the initial filings required under Sections 13(d) and 14(d) of the Exchange
Act and to have or continue in practice certain procedures relating to the
filing requirements of those sections of the Exchange Act.
Salomon
Brothers sought a Section 9(c) order so that it could continue to serve as
principal underwriter for registered investment companies. In April
1980, the Commission pursuant to Section 9(c) permanently exempted Salomon
Brothers and any company with which it then was an affiliated person from the
prohibitions of Section 9(a) of the Act with respect to the Salomon Brothers
Order. Investment Company Act Release Nos. 11050 (Feb. 15, 1980)
(notice and temporary order) and 11119 (Apr. 8, 1980) (permanent
order).
7 Salomon
Brothers was a New York limited partnership engaged in the investment banking
and brokerage business. In 1997, Smith Barney Holdings Inc. was
combined with Salomon, Inc. to form Salomon Smith Barney Holdings Inc., which
indirectly wholly owned CGMI.
16
On May 2,
1985, Hutton pled guilty to charges that it violated federal mail and wire fraud
statutes by engaging in certain practices to obtain interest-free use of bank
funds through its accounts at various banks. United States v. E.F. Hutton
& Co., Crim. No. 85-00083 (M.D. Pa.). In a companion civil
action, Hutton and Group were enjoined from, among other things, using certain
elements of Hutton’s cash management system without the written consent of the
banks involved and drafting checks in arbitrary amounts unrelated to ledger
balances. United States v. The E.F.
Hutton Group, Civ. No. 85-0601 (M.D. Pa.) (“DOJ
injunction”). Later, on October 29, 1985, the Commission filed a
complaint against Group alleging that it had violated Sections 13(a) and
13(b)(2) of the Exchange Act, and rules promulgated thereunder, by, among other
things, making false and misleading statements in the MD&A section of its
Forms 10-K regarding the sources of its interest income and by failing to
maintain a system of adequate internal controls. SEC v. The E.F. Hutton
Group, Civ. No. 85-3419 (D.D.C. Oct. 29, 1985). Without
admitting or denying these allegations, Group agreed to the entry of a final
order permanently enjoining it from such violations in the future.9
8 Hutton
was a registered broker-dealer, investment adviser, and wholly-owned subsidiary
of Group. In April 1988, Hutton became an indirect, wholly-owned
subsidiary of Shearson Lehman Brothers, Inc. In July 1993, the then
corporate parent of Smith Barney, Harris Upham & Co., Inc. (“SBHU”) acquired
the retail brokerage and asset management operations of Shearson Lehman Brothers
and combined them with SBHU, a predecessor of CGMI.
9 Hutton
also consented to entry of a permanent injunction in a civil action brought by
New York State, which was based on the criminal conviction, DOJ injunction and
the conduct underlying them. N.Y. v. E.F. Hutton &
Co., Index No. 85-43176 (Sup. Ct. N.Y. Cty. Oct. 29, 1985).
17
Hutton
and Group sought a Section 9(c) order. In September 1986, the
Commission permanently and conditionally exempted Hutton and Group from the
prohibitions of Section 9(a) of the Act with respect to the criminal conviction
and civil injunctions described in the application. Investment
Company Act Release Nos. 14499 (May 2, 1985) (notice and temporary order), 14772
(Oct. 28, 1985) (order amending existing temporary order to include the New York
State injunction), 14774 (Oct. 29, 1985) (order granting further temporary
relief until the earlier of the date on which the Commission takes final action
on the application for a permanent order, or one year from date of the order),
and 15287 (Sept. 5, 1986) (permanent conditional order).
Hutton, Shearson Lehman
Hutton Inc. (“Shearson”), and 11 Other Applicants10
On May
16, 1988, Hutton pled guilty to charges that it had conspired to violate, and
had violated, certain provisions of the Bank Secrecy Act due to a failure to
file currency transaction reports with the IRS. United States v. E.F. Hutton
& Company Inc. (D.R.I.). The unlawful conduct did not
occur later than October 1984—more than three years before Shearson acquired
Hutton.
Hutton
and the other applicants sought a Section 9(c) order. In June 1989,
the Commission permanently exempted the applicants from the provisions of
Section 9(a) of the Act by reason of the judgment of conviction entered against
Hutton. Investment Company Act Release Nos. 16401 (May 16, 1988)
(notice and temporary order) and 17036 (June 30, 1989) (permanent
order).
10 See
footnote 11, supra, for a
discussion of relevant business transactions occurring in 1988 and
1993.
18
At the
time of the application, SBHU employed three individuals subject to
securities-related injunctions. The existence of the injunctions
against the employees disabled SBHU from acting in the capacities with respect
to Funds described in the application.
In order
to continue serving in capacities described in the application, SBHU sought a
Section 9(c) order. In May 1990, the Commission permanently and
conditionally exempted SBHU from the provisions of Section 9(a) of the Act that
were operative as a result of the injunctions entered against the three
employees. Investment Company Act Release Nos. 17404 (Apr. 2, 1990)
(notice and temporary conditional order), 17404A (Apr. 11, 1990) (corrected
notice and temporary conditional order), and 17501 (May 21, 1990) (permanent
conditional order).
Salomon Brothers Asset
Management Inc (“SBAM”) and Salomon Brothers Inc. (“Salomon
Brothers”)12
On May
20, 1992, the Commission filed a complaint in the United States District Court
for the Southern District of New York in an action entitled Securities and Exchange
Commission v. Salomon Inc. and Salomon Brothers Inc., 92 Civ. No.
3691. The complaint alleged, among other things, that Salomon
Brothers repeatedly had submitted false bids in auctions for U.S. Treasury
securities. On the day that the complaint was filed, the two
defendants consented to the entry of judgments of permanent
injunction. Its injunction prohibited Salomon Brothers from
committing
11 Smith
Barney, Inc. was the direct parent corporation of SBHU, which is a predecessor
of CGMI.
12 Salomon
Brothers, a registered broker-dealer and registered investment adviser, and
SBAM, a registered investment adviser, each were indirect wholly-owned
subsidiaries of Salomon Inc. In 1997, Salomon Inc. was combined with
Smith Barney Holdings Inc. to form Salomon Smith Barney Holdings Inc., an
indirect parent of CGMI.
19
future
violations of Section 17(a) of the Securities Act, Sections 15(c)(1) and 17(a)
of the Exchange Act, and various Exchange Act rules.
SBAM and
Salomon Brothers sought a Section 9(c) order. In October 1992, the
Commission permanently exempted SBAM and Salomon Brothers from the prohibitions
of Section 9(a) of the Act with respect to the May 20, 1992
injunction. Investment Company Act Release Nos. 18717 (May 20, 1992)
(notice and conditional temporary order) and 19051 (Oct. 21, 1992) (permanent
order).
SBHU
In March
1993, the parent of SBHU entered into an acquisition agreement, pursuant to
which it agreed to acquire the domestic retail brokerage and asset management
businesses of Shearson Lehman Brothers Inc. (“Shearson”) and combine it with
SBHU. During the due diligence review of Shearson’s operations, it
was learned that two employees of Shearson and one of its subsidiaries were
subject to securities-related injunctions; the two employees resigned from their
respective positions at Shearson and its subsidiary. SBHU proposed to
hire the two employees as registered representatives at the earliest possible
time, subject to receiving the registered exemption, because hiring the
employees would subject SBHU to the disqualification provisions of Section 9(a)
of the Act. In July 1993, the Commission pursuant to Section 9(c) of
the Act permanently and conditionally exempted SBHU from the prohibitions of
Section 9(a) with respect to the employment of the two
employees. Investment Company Act Release Nos. 19478 (May 18, 1993)
(notice and temporary order) and 19560 (July 2, 1993) (permanent conditional
order).
SBHU
In April
1993, an individual who was subject to a securities-related injunction applied
for employment as a financial consultant at Shearson, which declined to process
the job application.
20
SBHU
proposed to hire the individual as a registered representative at the earliest
possible time, subject to receiving the requested exemption, because hiring the
employee would subject SBHU to the disqualification provisions of Section 9(a)
of the Act. In July 1993, the Commission permanently and
conditionally exempted SBHU from the prohibitions of Section 9(a) with respect
to the employment of the employee. Investment Company Act Release
Nos. 19557 (July 2, 1993) (notice and temporary order) and 19597 (July 28, 1993)
(permanent conditional order).
CGMI and Twelve Other
Applicants
On
October 31, 2003, a federal district court entered an injunction against CGMI in
a matter brought by the Commission. Securities and Exchange
Commission v. Citigroup Global Markets Inc. f/k/a/ Salomon Smith Barney
Inc., 03 Civ. 2945 (S.D.N.Y., filed April 28, 2003). The
complaint alleged that the firm’s research department and investment banking
department issued research reports that were fraudulent, violated SRO rules
regulating members’ communications with the public, and allocated hot IPO shares
to executives of current or potential investment banking clients and provided
special treatment for those executives. CGMI consented to the entry
of the injunction, as well as the payment of disgorgement and penalties and
other equitable relief.
CGMI and
the other applicants sought a Section 9(c) order. On November 9,
2005, the Commission permanently exempted CGMI and the other applicants from the
prohibitions of Section 9(a) of the Act with respect to the October 31, 2003
injunction. Investment Company Act Release Nos. 26240 (Oct. 31, 2003)
(notice and temporary order) and 27143 (Nov. 9, 2005) (permanent
order).
CGMI and Twelve Other
Applicants
On July
27, 2007, a federal district court entered an injunction against The BISYS
Group, Inc., n/k/a Citi Investor Services, Inc., in a matter brought by the
Commission. Securities
and
21
Exchange Commission v. The
BISYS Group, Inc., 07 Civ. 4010 (KMK) (S.D.N.Y., filed May 23,
2007). The complaint alleged that BISYS had engaged in improper
accounting practices that resulted in an overstatement of BISYS’s financial
results for several fiscal years. Without admitting or denying the
allegations in the complaint, except as to jurisdiction, BISYS consented to the
entry of the injunction, as well as the payment of disgorgement and prejudgment
interest. On August 1, 2007, Citigroup acquired BISYS, making BISYS
an affiliate of other Citigroup affiliates that then served as investment
advisers, principal underwriters, or depositors of investment companies and
employees’ securities companies.
CGMI and
twelve other applicants sought a Section 9(c) order. On October 22,
2007, the Commission permanently exempted CGMI and the other applicants from the
prohibitions of Section 9(a) of the Act with respect to the July 27, 2007,
injunction. Investment Company Act Release Nos. 27978 (Sept. 24,
2007) (notice and temporary order) and 28017 (Oct. 22, 2007) (permanent
order).
CGMI and Seven Other
Applicants
On December 23, 2008, a federal
district court entered an injunction against CGMI in a matter brought by the
Commission. Securities and Exchange
Commission v. Citigroup Global Markets Inc., 08 Civ. 10753 (S.D.N.Y.,
filed December 11, 2008). The complaint alleged that, among other
things, CGMI misled its customers regarding the fundamental nature of and risks
associated with auction rate securities that CGMI underwrote, marketed, and
sold. CGMI consented to the entry of the injunction, as well as other
equitable relief.
CGMI and the other applicants sought a
Section 9(c) order. On January 16, 2009, the Commission permanently
exempted CGMI and the other applicants from the prohibitions of Section 9(a) of
the Act with respect to the December 23, 2008, injunction. Investment
Company
22
Act
Release Nos. 28572 (Dec. 23, 2008) (notice and temporary order) and 28605 (Jan.
16, 2009) (permanent order).
Automated Trading Desk
Specialists, LLC and Eight Other Applicants
On March 11, 2009, a federal district
court entered an injunction against Automated Trading Desk Specialists, LLC
(“ATDS”) in a matter brought by the Commission. Securities and Exchange
Commission v. Automated Trading Desk Specialists, LLC., 1:09cv1977 (LTS)
(S.D.N.Y. Mar. 4, 2009). The complaint alleged that, among other
things, ATDS violated certain rules of the Chicago Stock Exchange by engaging in
improper trades for its own proprietary accounts by trading ahead of, instead of
matching customer orders, interpositioning and trading ahead of unexecuted open
or cancelled orders. ATDS consented to the entry of the injunction,
as well as other equitable relief.
ATDS and the other applicants sought a
Section 9(c) order. On April 7, 2009, the Commission permanently
exempted ATDS and the other applicants from the prohibitions of Section 9(a) of
the Act with respect to the March 11, 2009, injunction. Investment
Company Act Release Nos. 28647 (Mar. 12, 2009) (notice and temporary order) and
28688 (Apr. 7, 2009) (permanent order).
The
Applicants agree that any order granted by the Commission pursuant to this
Application 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
23
temporary
exemptions granted under the Act in connection with the
Application.
For the
reasons set forth above, each of the Applicants meets the standards for
exemption specified in Section 9(c) of the Act and, therefore, respectfully
applies for the entry of the following orders by the Commission as soon as may
be practicable:
1. that,
pursuant to Section 9(c) of the Act, each of the Applicants and the other
Covered Persons be temporarily exempted from any of the provisions of Section
9(a) of the Act that might otherwise be operative as a result of the Judgment
pending final determination by the Commission of the Application for an order
permanently exempting the Applicants and the other Covered Persons from any of
the provisions of Section 9(a) of the Act that might otherwise be operative as a
result of the Judgment; and
2. that,
pursuant to Section 9(c) of the Act, each of the Applicants and the other
Covered Persons be permanently exempted from any of the provisions of Section
9(a) of the Act that might otherwise be operative as a result of the
Judgment.
Pursuant
to Rule 0-2(f) under the Act, the Applicants state that their addresses are as
indicated on the cover page of this Application and further state that all
communications or questions concerning this Application should be directed
to:
Edward G.
Turan, Esq.
Managing
Director and Deputy General Counsel
Citigroup
Global Markets Inc.
388
Greenwich Street, 17th
Floor
New York,
NY 10013
with a
copy to:
Gail
Ennis, Esq.
John M.
Faust, Esq.
Wilmer
Cutler Pickering Hale and Dorr LLP
1875
Pennsylvania Avenue, N.W.
Washington,
D.C. 20006-3642
24
The
Applicants request that the Commission issue the requested orders pursuant to
Rule 0-5 under the Act without conducting a hearing.
Pursuant
to Rule 0-2(c)(1) under the Act, each Applicant states that under the provisions
of each Applicant’s governing instruments, the responsibility for the management
of its affairs and business is vested in its Chief Executive Officer, Board of
Directors, officers, or other governing body, as applicable. Each
Applicant represents that the undersigned individual is authorized to file this
Application in its name and on its behalf. The certifications
required by Rule 0-2(c)(1) under the Act are included on the signature pages to
this Application.
25
Pursuant
to Rule 0-2(c)(1) under the Act, CGMI hereby states that its undersigned
Managing Director and Deputy General Counsel is authorized to sign and file this
Application in its name and on its behalf and that CGMI has complied with all
requirements for the execution and filing of this application in its name and on
its behalf.
Dated:
October 19, 2010
CITIGROUP
GLOBAL MARKETS INC.
By: /s/ Edward G.
Turan
Name: Edward
G. Turan
Title: Managing
Director and Deputy General Counsel
26
Pursuant
to Rule 0-2(c)(1) under the Act, Citigroup Alternative hereby states that its
undersigned Secretary is authorized to sign and file this Application in its
name and on its behalf and that Citigroup Alternative has complied with all
requirements for the execution and filing of this application in its name and on
its behalf.
Dated:
October 19, 2010
CITIGROUP
ALTERNATIVE INVESTMENTS LLC
By: /s/ Craig
Barrack
Name: Craig
Barrack
Title:
Secretary
27
Pursuant
to Rule 0-2(c)(1) under the Act, CEFOF hereby states that its undersigned
Secretary is authorized to sign and file this Application in its name and on its
behalf and that CEFOF has complied with all requirements for the execution and
filing of this application in its name and on its behalf.
Dated:
October 19, 2010
CEFOF GP
I CORP.
By: /s/ Jason
Ment
Name:
Jason Ment
Title:
Secretary
28
Pursuant
to Rule 0-2(c)(1) under the Act, CELFOF hereby states that its undersigned
Secretary is authorized to sign and file this Application in its name and on its
behalf and that CELFOF has complied with all requirements for the execution and
filing of this application in its name and on its behalf.
Dated:
October 19, 2010
CELFOF GP
CORP.
By: /s/ Jason
Ment
Name:
Jason Ment
Title:
Secretary
29
Pursuant
to Rule 0-2(c)(1) under the Act, Citibank hereby states that its undersigned
Assistant Secretary is authorized to sign and file this Application in its name
and on its behalf and that Citibank has complied with all requirements for the
execution and filing of this application in its name and on its
behalf.
Dated:
October 19, 2010
CITIBANK,
N.A.
By:
/s/ Edward G.
Turan
Name:
Edward G. Turan
Title:
Assistant Secretary
30
Pursuant
to Rule 0-2(c)(1) under the Act, CCP I hereby states that its undersigned
Secretary is authorized to sign and file this Application in its name and on its
behalf and that CCP I has complied with all requirements for the execution and
filing of this application in its name and on its behalf.
Dated:
October 19, 2010
CITIGROUP
CAPITAL PARTNERS I GP I CORP.
By: /s/ Jason
Ment
Name:
Jason Ment
Title:
Secretary
31
Pursuant
to Rule 0-2(c)(1) under the Act, CCP II hereby states that its undersigned
Secretary is authorized to sign and file this Application in its name and on its
behalf and that CCP II has complied with all requirements for the execution and
filing of this application in its name and on its behalf.
Dated:
October 19, 2010
CITIGROUP
CAPITAL PARTNERS I GP II CORP.
By: /s/ Jason
Ment
Name:
Jason Ment
Title:
Secretary
32
Pursuant
to Rule 0-2(c)(1) under the Act, Advisory Services hereby states that its
undersigned Secretary is authorized to sign and file this Application in its
name and on its behalf and that Advisory Services has complied with all
requirements for the execution and filing of this application in its name and on
its behalf.
Dated:
October 19, 2010
CONSULTING
GROUP ADVISORY SERVICES LLC
By: /s/ Anne Cooney
Name:
Anne Cooney
Title:
Secretary
33
EXHIBIT
A
|
REGISTERED
INVESTMENT COMPANIES TO WHICH
APPLICANTS
OR ITS AFFILIATES PROVIDE SERVICES
|
|
Fund
Name
|
Principal
Underwriter (U) /Adviser (A)
|
|
|
|
|
Consulting
Group Capital Markets Funds
|
Consulting
Group Advisory Services LLC (A); CGMI (U)
|
|
Large
Capitalization Growth Investments Portfolio
|
|
|
Large
Capitalization Value Equity Investments Portfolio
|
|
|
Small
Capitalization Growth Investments Portfolio
|
|
|
Small
Capitalization Value Equity Investments Portfolio
|
|
|
International
Equity Investments Portfolio
|
|
|
Emerging
Markets Equity Investments Portfolio
|
|
|
Core
Fixed Income Investments Portfolio
|
|
|
High
Yield Investments Portfolio
|
|
|
International
Fixed Income Investments Portfolio
|
|
|
Municipal
Bond Investments Portfolio
|
|
|
Money
Market Investments Portfolio
|
|
|
|
|
|
LMP
Corporate Loan Fund Inc., f/n/a Citigroup Investments Corporate Loan Fund
Inc.
|
Citigroup
Alternative Investments LLC
(A)
|
34
|
EMPLOYEES’ SECURITIES
COMPANIES ADVISED BY ESC ADVISERS
|
|
ESC
Name
|
Investment
Adviser(s)
|
|
Citigroup
Capital Partners II U.S. Employee Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Capital Partners II U.K. Employee Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Capital Partners II Cayman Employee Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Capital Partners II U.S.-UK. Employee Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Capital Partners II U.K. Underlying Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Capital Partners II Employee Master Fund, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
Citigroup
Employee Fund of Funds (DE-UK) I, LP
|
CEFOF
GP I Corp.
|
|
|
|
|
Citigroup
Employee Fund of Funds (UK) I, LP
|
CEFOF
GP I Corp.
|
|
|
|
|
Citigroup
Employee Fund of Funds (Cayman) I, LP
|
CEFOF
GP I Corp.
|
|
|
|
|
Citigroup
Employee Fund of Funds (US-UK) I, LP
|
CELFOF
GP Corp.
|
|
|
|
|
Citigroup
Employee Fund of Funds 1, LP
|
CELFOF
GP Corp.
|
|
|
|
|
Citigroup
Employee Fund of Funds (Master Fund) I, LP
|
CELFOF
GP Corp.
|
|
|
|
|
Citigroup
Venture Capital International Growth Partnership (Employee) II,
L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
The
Citigroup Private Bank Employee Co-Investment Program, LP
|
Citibank,
N.A.
|
|
|
|
|
The
Citigroup Private Bank Employee Co-Investment Program II,
LP
|
Citibank,
N.A.
|
|
|
|
|
The
Citigroup Private Bank Co-Investment Program (Feeder),
Ltd.
|
Citibank,
N.A.
|
|
|
|
|
The
Citigroup Private Bank Co-Investment Program (Feeder) II,
Ltd.
|
Citibank,
N.A.
|
|
|
|
|
SSB
Capital Partners (DE-UK) I, LP
|
Citigroup
Capital Partners I GP I Corp.
|
|
|
|
|
SSB
Capital Partners (UK) I, LP
|
Citigroup
Capital Partners I GP I Corp.
|
|
|
|
|
SSB
Capital Partners (Cayman) I, LP
|
Citigroup
Capital Partners I GP I Corp.
|
|
|
|
|
SSB
Capital Partners (US-UK) I, LP
|
Citigroup
Capital Partners I GP II Corp.
|
|
|
|
|
SSB
Capital Partners I, LP
|
Citigroup
Capital Partners I GP II Corp.
|
|
|
|
|
SSB
Capital Partners (Master Fund) I, LP
|
Citigroup
Capital Partners I GP I Corp.
|
|
|
|
|
CVCIGP
II U.S. Employee, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
CVCIGP
II U.S.-U.K. Employee, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
CVCIGP
II Delaware Employee, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
CVCIGP
II Cayman Employee, L.P.
|
Citigroup
Alternative Investments LLC
|
|
|
|
|
CVCIGP
II Offshore Employee, L.P.
|
Citigroup
Alternative Investments
LLC
|