80 FR 30301 - J.P. Morgan Chase & Co., et al.; Notice of Application and Temporary Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 101 (May 27, 2015)

[Federal Register Volume 80, Number 101 (Wednesday, May 27, 2015)]
[Notices]
[Pages 30301-30304]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12755]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31613; File No. 812-14466]


J.P. Morgan Chase & Co., et al.; Notice of Application and 
Temporary Order

May 20, 2015.
AGENCY:  Securities and Exchange Commission (``Commission'')

ACTION:  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 Application: Applicants have received a temporary order 
(``Temporary Order'') exempting them from section 9(a) of the Act, with

[[Page 30302]]

respect to a guilty plea entered on May 20, 2015, by J.P. Morgan Chase 
& Co. (``JPMC'' or the ``Settling Firm''), a Delaware corporation, in 
the United States District Court for the District of Connecticut (the 
``District Court'') in connection with a plea agreement (``Plea 
Agreement'') between JPMC and the United States Department of Justice 
(``DOJ''), until the Commission takes final action on an application 
for a permanent order (the ``Permanent Order,'' and with the Temporary 
Order, the ``Orders''). Applicants also have applied for a Permanent 
Order.

Applicants: JPMC, J.P. Morgan Investment Management Inc. (``JPMIM''), 
J.P. Morgan Institutional Investments, Inc. (``JPMII''), J.P. Morgan 
Partners, LLC (``JPMP''); J.P. Morgan Private Investments Inc. 
(``JPMPI''), J.P. Morgan Alternative Asset Management, Inc. 
(``JPMAAM''); Bear Stearns Asset Management Inc. (``BSAM''); BSCGP Inc. 
(``BSCGP''); Constellation Growth Capital LLC (``Constellation''); 
Constellation Ventures Management II, LLC (``Constellation II''); JF 
International Management Inc. (``JFIMI''); JPMorgan Distribution 
Services, Inc. (``JPMDS''); OEP Co-Investors Management II, Ltd. (``OEP 
II''); OEP Co-Investors Management III, Ltd. (``OEP III,'' and together 
with OEP II, the ``OEP Entities''); Security Capital Research & 
Management Incorporated (``Security Capital''); and Sixty Wall Street 
Management Company, LLC (``Sixty Wall Management'', and together with 
JPMIM, JPMII, JPMP, JPMPI, JPMAAM, BSAM, BSCGP, Constellation, 
Constellation II, JFIMI, JPMDS, the OEP Entities, and Security Capital, 
the ``Fund Servicing Applicants'') (each an ``Applicant'' and 
collectively, the ``Applicants'').

Filing Date: The application was filed on May 20, 2015.

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 June 15, 2015, and should be accompanied by proof of service on 
Applicants, in the form of an affidavit, or for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the 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 who wish to be notified of a hearing 
may request notification by writing to the Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: JPMC, JPMIM, JPMII, 
JPMP, JPMPI, JPMAAM, BSAM, BSCGP, Constellation II and Sixty Wall 
Management, 270 Park Avenue, New York, NY 10017; Constellation, 40 W. 
57th Street, 32nd Floor, New York, NY 10019; JFIMI, 21st Floor, Chater 
House, 8 Connaught Road Central, Hong Kong; JPMDS, 1111 Polaris 
Parkway, Columbus, Ohio 43240; OEP II and OEP III, 270 Park Avenue, 
10th Floor, New York, NY 10017; and Security Capital, 10 South Dearborn 
Street, Suite 1400, Chicago, Illinois 60063.

FOR FURTHER INFORMATION CONTACT:  Elizabeth G. Miller, Senior Counsel, 
Vanessa M. Meeks, Senior Counsel, or Holly Hunter-Ceci, Branch Chief, 
at (202) 551-6825 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION:  The following is a temporary order and a 
summary of the application. The complete application may be obtained 
via the Commission's Web site by searching for the file number, or an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. JPMC, a Delaware corporation, is a financial services holding 
company whose businesses provide a broad range of financial services to 
consumer and corporate customers. JPMC is also the ultimate parent of 
each of the Fund Servicing Applicants. JPMC does not provide Fund 
Service Activities (as defined below) to any Fund.\1\
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    \1\ For purposes of the application, ``Funds'' refer to any 
registered investment company, business development company, or ESC 
for which a Covered Person serves, or may in the future serve, as an 
investment adviser, sub-adviser, general partner or depositor, or 
any registered open-end investment company, registered unit 
investment trust or registered face amount certificate company for 
which a Covered Person (as defined below) serves, or may in the 
future serve, as principal underwriter.
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    2. JPMIM, JPMPI, JPMAAM, JFIMI and Security Capital are registered 
as investment advisers under the Investment Advisers Act of 1940, as 
amended (the ``Advisers Act'') and serve as investment advisers or sub-
advisers to various Funds. JPMP and Sixty Wall Management are 
registered as investment advisers under the Advisers Act and serve as 
investment advisers or sub-advisers to ESCs. BSAM is registered as an 
investment adviser under the Advisers Act and serves as general partner 
that provides investment advisory services to various ESCs (as defined 
below).\2\ BSCGP, Constellation II and the OEP Entities serve as 
general partners that provide investment advisory services to various 
ESCs. Constellation serves as a sub-adviser to various ESCs. JPMDS and 
JPMII are registered as broker-dealers under the Securities Exchange 
Act of 1934 and serve as principal underwriter to various Funds.
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    \2\ Every Applicant that is a general partner that provides 
investment advisory services to one or more ESCs believes, for 
purposes of the application, that it is performing a function that 
falls within the definition of ``investment adviser'' in section 
2(a)(20) of the Act.
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    3. Other than the Fund Servicing Applicants, no existing company of 
which JPMC is an affiliated person currently serves as an investment 
adviser (as defined in section 2(a)(20) of the Act), or depositor of 
any Fund, employees' securities companies (as defined in section 
2(a)(13) of the Act) subject to section 9 of the Act (``ESCs'') or 
investment company that has elected to be treated as a business 
development company under the Act, or principal underwriter for any 
registered open-end company, unit investment trust under the Act 
(``UIT''), or face-amount certificate company registered under the Act 
(such activities, collectively, ``Fund Service Activities''). 
Applicants request that any relief granted by the Commission also apply 
to any other existing company of which JPMC is an affiliated person 
within the meaning of section 2(a)(3) of the Act and to any other 
company of which JPMC may become an affiliated person in the future 
(together with the Applicants, the ``Covered Persons'').
    4. On May 20, 2015, the DOJ filed a one-count criminal information 
in the District Court charging JPMC with a one-count violation of the 
Sherman Antitrust Act, 15 U.S.C. 1 (the ``Information''). The 
Information charges that from July 2010 until at least January 2013, 
JPMC, through one of its euro/U.S. dollar (``EUR/USD'') traders, 
entered into and engaged in a conspiracy to fix, stabilize, maintain, 
increase or decrease the price of, and rig bids and offers for, the 
EUR/USD currency pair exchanged in the FX spot market by agreeing to 
eliminate competition in the purchase and sale of the EUR/USD currency 
pair in the U.S. and elsewhere (the ``Conduct''). The Conduct involved 
near daily conversations, some of which were in code, in an exclusive 
electronic chat room used by certain EUR/USD traders, including the 
EUR/USD trader employed by JPMC.

[[Page 30303]]

    5. JPMC has agreed to resolve the action brought through the Plea 
Agreement presented to the District Court on May 20, 2015. Under the 
Plea Agreement, JPMC agreed to enter a plea of guilty to the charge set 
out in the Information (the ``Plea''). In addition, JPMC will make an 
admission of guilt to the District Court. Applicants expect that the 
District Court will enter a judgment against JPMC that will require 
remedies that are materially the same as set forth in the Plea 
Agreement. According to the Plea Agreement, JPMC agrees that the 
District Court shall order a term of probation, which would include 
certain conditions, as outlined in the application. Along with the DOJ, 
the Board of Governors of the Federal Reserve System (``FRB''), the 
Office of the Comptroller of the Currency (``OCC''), the U.S. Commodity 
Futures Trading Commission (``CFTC''), and the United Kingdom Financial 
Conduct Authority (``FCA'') have or have been conducting investigations 
into the practices of JPMC and its direct and indirect subsidiaries 
relating to FX trading. Specifically, the FRB entered a cease and 
desist order on May 20, 2015 against JPMC concerning unsafe and unsound 
banking practices relating to JPMC's FX business (``FRB Order''); the 
OCC entered a cease and desist order on November 11, 2014 against 
JPMorgan Chase Bank, N.A. (``JPMCB'') concerning deficiencies and 
unsafe or unsound practices relating to JPMCB's wholesale FX business 
(``OCC Order''); the CFTC entered a cease and desist order on November 
11, 2014 against JPMCB relating to certain FX trading activities 
(``CFTC Order''); and the FCA entered a warning notice on November 11, 
2014 against JPMCB for failing to control business practices in its G10 
spot FX trading operations (``FCA Order'').

Applicants' Legal Analysis

    1. Section 9(a)(1) 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 business development company or as a principal underwriter for any 
registered open-end investment company, registered UIT, or registered 
face-amount certificate company, or as investment adviser of an ESC if 
the person ``within 10 years has been convicted of any felony or 
misdemeanor . . . arising out of such person's conduct'' as a bank, 
among other things. Section 2(a)(10) of the Act defines the term 
``convicted'' to include a plea of guilty. Section 9(a)(3) of the Act 
extends the prohibitions of section 9(a)(1) to a company, any 
``affiliated person'' of which is disqualified under the provisions of 
section 9(a)(1). ``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. Applicants state that JPMC is an affiliated person of the Fund 
Servicing Applicants within the meaning of section 2(a)(3). Applicants 
state that a guilty plea would result in a disqualification of such 
Fund Servicing Applicants and other Covered Persons for ten years under 
section 9(a) of the Act because JPMC would become the subject of a 
conviction described in 9(a)(1).
    2. 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 of the person 
has been such as not to make it against the public interest or the 
protection of investors to grant the exemption. Applicants have filed 
an application pursuant to section 9(c) seeking a Temporary Order and a 
Permanent Order exempting the Applicants and other Covered Persons from 
the disqualification provisions of section 9(a) of the Act. The 
Applicants and other Covered Persons may, if the relief is granted, in 
the future act in any of the capacities contemplated by section 9(a) of 
the Act subject to the applicable terms and conditions of the Orders.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants assert that the prohibitions of 
section 9(a), if applied to Covered Persons, would be unduly or 
disproportionately severe, and that the conduct of JPMC is not such as 
to make it against the public interest or the protection of investors 
to issue the Orders. Applicants represent that the Conduct giving rise 
to the Plea did not involve any of the Applicants acting in the 
capacity of investment adviser, sub-adviser, or depositor for a Fund 
(including as general partner providing investment advisory services to 
ESCs) or principal underwriter for any registered open-end investment 
company, registered UIT, or registered face amount certificate company. 
Applicants further represent that the Conduct did not relate to the 
Funds' management or distribution, and that the Conduct did not involve 
any Fund or the assets of any Fund. Applicants also state that the 
individual referenced in the Complaint as responsible for the Conduct 
is no longer employed by JPMC or its affiliates. As a result of the 
foregoing, Applicants assert that the conduct of Applicants has not 
been such as to make it against the public interest or the protection 
of investors to grant the application.
    4. Applicants assert that their inability to continue to serve as 
investment adviser or sub-adviser of the Funds (including as general 
partner providing investment advisory services to ESCs) or principal 
underwriter for the Funds that are registered open-end investment 
companies would result in the Funds and their shareholders facing 
potentially severe hardships. Applicants argue that 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 the Funds of the investment advisory or sub-advisory 
and underwriting services (including as general partner providing 
investment advisory services to ESCs) that shareholders expected the 
Funds would receive when they decided to invest in the Funds. 
Applicants also outline a number of other uncertainties, 
inefficiencies, and expenses that they submit would result from the 
prohibitions of section 9(a) and operate to the detriment of the 
financial interests of the Funds and their shareholders.
    5. Applicants further assert that the prohibitions of section 9(a) 
would have an adverse effect on the Applicants, including their 
employees, as outlined in the application. Applicants therefore assert 
that the imposition of the section 9(a) disqualification on the Fund 
Servicing Applicants would be unduly and disproportionately severe.
    6. Applicants represent that: (i) None of the current or former 
directors, officers or employees of the Fund Servicing Applicants had 
any knowledge of, or had any involvement in, the Conduct; (ii) no 
current or former employee of JPMC or of any other Covered Person who 
previously has been or who subsequently may be identified by JPMC, or 
any U.S. or non-U.S. regulatory or enforcement agencies as having been 
responsible for the Conduct will have any involvement in providing Fund 
Service Activities (including as general partners providing advisory 
services to ESCs) or will be an officer, director, or employee of any 
Applicant or of any other Covered Person; (iii) no employee of JPMC or 
of any other Covered Person who was involved in the Conduct had any, or

[[Page 30304]]

will have any future, involvement in the Covered Persons' activities in 
any capacity described in section 9(a) of the Act; and (iv) because the 
personnel of the Fund Servicing Applicants did not have any involvement 
in the Conduct, shareholders of the Funds were not affected any 
differently than if the Funds had received services from any other non-
affiliated investment adviser or principal underwriter. Applicants 
assert that the conduct of Applicants has not been such as to make it 
against the public interest or the protection of investors to grant the 
requested exemption from section 9(a).
    7. 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 undertake that they will, as 
soon as reasonably practicable, distribute to the boards of directors 
(``Boards'') of the Funds written materials describing the 
circumstances that led to the Plea, any impact on the Funds and the 
application. The written materials will include an offer to discuss the 
materials at an in-person meeting with each Board for which the 
Applicants provide Fund Service Activities (excluding for this purpose, 
the ESCs), including the directors who are not ``interested persons'' 
of such Funds as defined in section 2(a)(19) of the Act and their 
independent legal counsel as defined in rule 0-1(a)(6) under the Act. 
The Applicants undertake to provide such Funds' Boards with the 
information concerning the Plea Agreement and the application necessary 
for those Funds to fulfill their disclosure and other obligations under 
the federal securities laws and will provide them a copy of the Plea 
Agreement as entered by the District Court.
    8. Applicants further state that JPMC has implemented remedial 
measures to protect against conduct similar to the Conduct, as outlined 
in greater detail in the application. For example, JPMC has enhanced 
governance through the development of a Macro Trading Business Control 
Committee. JPMC has improved its compliance risk assessment to better 
identify risks, including the types of risk identified during the FX 
matters, through improvements to: (1) The risk assessment framework, 
which includes more detailed guidance and procedures to enhance quality 
and consistency of execution; (2) the risk assessment tool and process, 
which includes improvements to compliance officers' ability to document 
risk/control impact at a more granular level; and (3) qualitative data 
collection to improve the qualitative information gathered by 
Compliance, including about lessons from internal and external control 
issues. JPMC has also developed a plan to improve monitoring and 
surveillance, including, among other things, expanding transaction 
surveillance across thirty-six currency pair benchmarks and 
establishing a process whereby it reviews its electronic communication 
lexicons and transaction surveillance scenarios and makes enhancements, 
as appropriate, at least annually. JPMC has also identified 
improvements in its internal audit function that it has taken or will 
take, including the establishment of a team dedicated to the 
identification of, and focus on, cross business issues and emerging 
risks.
    9. Applicants state that certain of the Applicants and their 
affiliates have previously received an order under section 9(c) of the 
Act, as the result of conduct that triggered section 9(a), as described 
in greater detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. 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 temporary 
exemptions granted under the Act in connection with the application.
    2. Neither the Applicants nor any of the other Covered Persons will 
employ any of the current or former employees of the Settling Firm or 
any Covered Person who previously has been or who subsequently may be 
identified by the Settling Firm or any U.S. or non-U.S. regulatory or 
enforcement agency as having been responsible for the Conduct, without 
first making a further application to the Commission pursuant to 
section 9(c).
    3. Each Applicant and Covered Person will adopt and implement 
policies and procedures reasonably designed to ensure that it will 
comply with the terms and conditions of the Orders within 60 days of 
the date of the Permanent Order or, with respect to condition 4, such 
date as may be contemplated by the Plea Agreement, or the CFTC Order, 
the OCC Order, the FRB Order, the FCA Order, or any other orders issued 
by regulatory or enforcement agencies addressing the Conduct.
    4. The Settling Firm will comply in all material respects with the 
material terms and conditions of the Plea Agreement, the CFTC Order, 
the OCC Order, the FRB Order, the FCA Order, or any other orders issued 
by regulatory or enforcement agencies addressing the Conduct.
    5. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of any of the 
Orders within 30 days of discovery of the material violation.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants and any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the guilty plea entered into pursuant to the Plea Agreement, subject to 
the representations and conditions in the application, from May 20, 
2015 until the Commission takes final action on their application for a 
permanent order.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-12755 Filed 5-26-15; 8:45 am]
 BILLING CODE 8011-01-P