80 FR 14189 - T. Rowe Price Associates, Inc. and T. Rowe Price International Ltd; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 52 (March 18, 2015)

[Federal Register Volume 80, Number 52 (Wednesday, March 18, 2015)]
[Notices]
[Pages 14189-14191]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-06110]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-4046/803-00224]


T. Rowe Price Associates, Inc. and T. Rowe Price International 
Ltd; Notice of Application

March 12, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an exemptive order under Section 206A 
of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule 
206(4)-5(e) thereunder.

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    Applicant: T. Rowe Price Associates, Inc. (``TRPA'') and T. Rowe 
Price International Ltd (``TRPIL'' and, together with TRPA, the 
``Advisers'' or the ``Applicants'').
    Relevant Advisers Act Sections: Exemption requested under Section 
206A of the Advisers Act and Rule 206(4)-5(e) thereunder from Rule 
206(4)-5(a)(1) under the Advisers Act.
    Summary of Application: The Applicants request that the Commission 
issue an order under Section 206A of the Advisers Act and Rule 206(4)-
5(e) thereunder exempting them from Rule 206(4)-5(a)(1) under the 
Advisers Act to permit Applicants to receive compensation from certain 
government entities for investment advisory services provided to the 
government entities within the two-year period following a contribution 
by a covered associate of the Applicants to an official of the 
government entities.

DATES: Filing Dates: The application was filed on May 6, 2014, and an 
amended and restated application was filed on October 29, 2014.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 6, 2015, and should be accompanied by proof of 
service on the Applicants, in the form of an affidavit or, for lawyers, 
a certificate of service. Pursuant to Rule 0-5 under the Advisers Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES: Brent J. Fields, Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants, 
TRPA and TRPIL, T. Rowe Price Associates, Inc., 100 East Pratt Street, 
Baltimore, Maryland 21202.

FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Senior Counsel, or 
Melissa R. Harke, Branch Chief, at (202) 551-6825 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the

[[Page 14190]]

application. The complete application may be obtained via the 
Commission's Web site either at http://www.sec.gov/rules/iareleases.shtml or by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicant's Representations

    1. The Applicants are registered with the Commission as investment 
advisers under the Advisers Act. T. Rowe Price Group, Inc. (``TRPG'') 
is the parent company of both Applicants. The Applicants serve as 
adviser or subadviser to companies that are registered with the 
Commission as investment companies (``RICs'') under the Investment 
Company Act of 1940 (the ``1940 Act''). In addition, TRPIL acts as an 
adviser to the T. Rowe Price Trust Company (``TRPTC'') in connection 
with assets of defined contribution and benefit plans of companies and 
governmental entities that are invested in the Emerging Markets Equity 
Trust Fund, a common trust fund exempt under Section 3(c)(11) of the 
1940 Act and of which TRPTC is the Trustee (the ``Fund''). Certain 
public pension plans that are government entities of Wisconsin (the 
``Clients'') have selected a RIC as an investment option for 
participants in participant-directed plans. One Client had been 
invested in the Fund since 2003 but divested its investment by May 
2012. The investment decisions for the Clients are overseen by boards 
of trustees, and Gubernatorial appointees sit on these boards. Due to 
this power of appointment, the Governor is an ``official'' of each 
Client under Rule 206(4)-5(f)(6)(ii). The Governor, however, does not 
sit on any Client's board or have any direct involvement in any 
Client's investment decisions.
    2. Applicants represent that Michael McGonigle (the 
``Contributor'') is a Vice President of TRPG and TRPA. He has been a 
director of credit research in the Fixed Income Division since 2010 and 
is a member of the Fixed Income Steering Committee. In his role as a 
director of credit research, he supervises approximately 15 research 
analysts in TRPA and eight research analysts in TRPIL, some of whom may 
occasionally meet with government entity clients or prospective 
clients, or with consultants for prospective clients. The Contributor 
is, therefore, a ``covered associate'' of TRPA and TRPIL, as defined in 
Rule 206(4)-5(f)(2)(ii). The Advisers have identified only one meeting 
with a Wisconsin government entity client at which an analyst 
supervised by the Contributor was present since March 14, 2011, the 
effective date of Rule 206(4)-5 (the ``Rule''). The Contributor has not 
participated in any such meetings with any state or local government 
entity client or prospective client of the Advisers since the effective 
date of the Rule.
    3. The recipient of the Contribution was Scott Walker (the 
``Official''), the Governor of Wisconsin, who took office in January 
2011. The Contribution was made on February 5, 2012 to the Official's 
recall primary election campaign for the amount of $250 (the 
``Contribution''). The Wisconsin Campaign Finance Information System 
reported it as received by the campaign on February 26, 2012. Although 
not entitled to vote in Wisconsin elections, the Contributor was 
interested in the highly contentious and publicized recall election, 
given his political views that are in line with those of the Official. 
The Contributor remembers watching television coverage of the recall 
election and receiving telephone solicitations for political 
contributions during this time. To the best of the Contributor's 
recollection, he made the Contribution pursuant to such a telephone 
solicitation. The Contributor has never met the Official or dealt with 
the Official in any capacity. The Contributor has never solicited or 
coordinated any contributions for or on behalf of the Official. The 
Contribution is consistent with other political contributions made by 
the Contributor (which were made prior to the effective date of the 
Rule).
    4. Applicants represent that the Clients' relationship with the 
Applicants pre-dates the Contribution. The Adviser's relationship with 
one Client dates back to at least 2003 when the Client invested in the 
Fund. This Client began withdrawing its investment from the Fund in 
2011 and was fully divested in May 2012. The Clients with a RIC advised 
by the Advisers began their relationship with the Advisers in 2005 and 
2008.
    5. Applicants represent that at no time did any employees of the 
Applicants other than the Contributor have any knowledge of the 
Contribution prior to the Applicants' legal department's discovery of 
the Contribution. The Contribution was discovered in the course of 
compliance testing by the Advisers' legal department on or around March 
18, 2014. Subsequently, the Applicants and the Contributor obtained the 
Official's agreement to return the full amount of the Contribution, 
which was returned on May 1, 2014. After identifying the Contribution, 
the Advisers established an escrow account and deposited in the account 
an amount equal to the sum of all fees paid to the Advisers, directly 
or indirectly, with respect to the Clients between February 5, 2012 
through February 26, 2014. The Advisers have notified the Client 
invested in the Fund, each affected RIC, and each Client that offers as 
an investment option in a participant-directed plan an affected RIC 
that is directly advised by the Advisers, of the Contribution and the 
resulting two-year prohibition on compensation absent exemptive relief 
from the Commission. The Advisers have informed such Clients and each 
affected RIC that the fees attributable to the Clients since the date 
of the Contribution through the two-year period were being placed in 
escrow and that, absent exemptive relief from the Commission, those 
fees would be distributed in a way that is permissible under applicable 
laws and the Rule.
    6. Applicants represent that the Advisers' policies and procedures 
regarding pay-to-play (``Pay-to-Play Policies and Procedures'') in 
place at the time of the Contribution required all employees to pre-
clear contributions to state and local officials and candidates. 
Employees must annually certify their compliance with the Advisers' 
Code of Ethics, which describes the Advisers' preclearance policy for 
political contributions, through an Annual Verification Questionnaire 
(the ``Questionnaire''). The Questionnaire requires employees to 
certify their compliance with the Policy. The Contributor has completed 
his annual online training and Questionnaire certification each year 
since the effective date of the Rule. The legal department or specific 
business units of the Advisers also occasionally send reminder emails 
about the Policy. The Advisers have also started to include searches of 
public Web sites for contributions made by employees, and it was in the 
course of developing this testing program that the Contribution was 
discovered by the Advisers.
    7. Applicants represent that to the best of the Contributor's 
recollection, the Contributor's violation of Applicant's Pay-to-Play 
Policies and Procedures resulted from his simply forgetting to pre-
clear his contribution as required, due to his becoming impassioned 
about the recall election while watching televised reports about it and 
receiving a telephone solicitation while doing so. Applicants note that 
on May 31, 2012, pursuant to the Advisers' policies and procedures, the 
Contributor requested pre-clearance from Advisers' legal department to 
make a contribution to the Official's campaign for the recall general 
election and received permission to make a $150 contribution.

[[Page 14191]]

As noted above, however, the Contributor did not disclose the 
Contribution to the Applicants and the Applicants had no knowledge of 
the Contribution when the Contributor received approval for the May 31, 
2012 contribution for the recall general election.

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the Advisers Act prohibits a 
registered investment adviser from providing investment advisory 
services for compensation to a government entity within two years after 
a contribution to an official of the government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
Each Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule 
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule 
206(4)-5(f)(6). Rule 206(4)-5(c) provides that when a government entity 
invests in a covered investment pool, the investment adviser to that 
covered investment pool is treated as providing advisory services 
directly to the government entity. The RICs and the Funds are ``covered 
investment pools,'' as defined in rule 206(4)-5(f)(3).
    2. Section 206A of the Advisers Act grants the Commission the 
authority to ``conditionally or unconditionally exempt any person or 
transaction . . . from any provision or provisions of [the Advisers 
Act] or of any rule or regulation thereunder, if and to the extent that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of [the Advisers Act].''
    3. Rule 206(4)-5(e) provides that the Commission may exempt an 
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon 
consideration of the factors listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Advisers 
Act;
    (2) Whether the investment adviser: (i) Before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the rule; 
and (ii) prior to or at the time the contribution which resulted in 
such prohibition was made, had no actual knowledge of the contribution; 
and (iii) after learning of the contribution: (A) Has taken all 
available steps to cause the contributor involved in making the 
contribution which resulted in such prohibition to obtain a return of 
the contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. The Applicants request an order pursuant to section 206A and 
rule 206(4)-5(e), exempting them from the two-year prohibition on 
compensation imposed by rule 206(4)-5(a)(1) with respect to investment 
advisory services provided to the Clients within the two-year period 
following the Contribution.
    5. The Applicants submit that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act. The Applicants further submit that the other 
factors set forth in Rule 206(4)-5 similarly weigh in favor of granting 
an exemption to the Applicants to avoid consequences disproportionate 
to the violation. The Applicants note that causing the Advisers to 
serve without compensation for a two-year period could result in a 
financial loss that is approximately 24,000 times the amount of the 
Contribution.
    6. The Applicants represent that neither the Advisers nor the 
Contributor sought to interfere with the Clients' merit-based selection 
process for advisory services, nor did they seek to negotiate higher 
fees or greater ancillary benefits than would be achieved in arms'-
length transactions. The Applicants note that the Advisers' 
relationship with the Clients pre-date the Contribution, and that one 
Client divested its investment in the Fund shortly after the 
Contribution. The Applicants represent that they have no reason to 
believe that the Contribution undermined the integrity of the market 
for advisory services or resulted in a violation of the public trust in 
the process for awarding contracts.
    7. The Applicants note that the Advisers adopted and implemented 
pay-to-play policies and procedures on the Rule's effective date, March 
14, 2011 that are fully compliant with the Rule's requirements. The 
Applicants further note that the Advisers began developing compliance 
testing that includes random searches of public campaign databases for 
contributions by employees. The Applicants represent that at no time 
did any employees of the Advisers other than the Contributor have any 
actual knowledge that the Contribution had been made prior to its 
discovery by the Advisers in March 2014. The Applicants further 
represent that the Advisers and the Contributor obtained the Official's 
agreement to return the Contribution, which was subsequently returned, 
and the Advisers established an escrow account for all fees 
attributable to the Clients' relationships with the Advisers accrued 
between February 5, 2012 and February 26, 2014.
    8. The Applicants state that the Contributor's apparent intent in 
making the Contribution was not to influence the selection or retention 
of the Advisers, and that the Contribution was consistent with prior 
political donations made by the Contributor in support of other 
candidates who share the political views of the Official.
    9. The Applicants represent that the Contributor has had no direct 
contact or involvement with any of the Clients, and that the 
Contributor's only indirect involvement with one of the Clients was 
through a single meeting at which a research analyst who reported to 
the Contributor met with the Client.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-06110 Filed 3-17-15; 8:45 am]
 BILLING CODE 8011-01-P