83 FR 62636 - Apollo Management, L.P.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 233 (December 4, 2018)

Page Range		62636-62637
FR Document		2018-26264
Federal Register, Volume 83 Issue 233 (Tuesday, December 4, 2018)
[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62636-62637]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26264]



[[Page 62636]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Advisers Act Release No. 5068; 803-00244]


Apollo Management, L.P.

November 28, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an exemptive order under Section 206A of 
the Investment Advisers Act of 1940 (the ``Act'') and Rule 206(4)-5(e).
    Applicant: Apollo Management, L.P. (the ``Applicant'' or 
``Adviser'').
    Summary of Application: Applicant requests that the Commission 
issue an order under section 206A of the Act and rule 206(4)-5(e) 
exempting it from rule 206(4)-5(a)(1) under the Act to permit Applicant 
to receive compensation from certain government entities for investment 
advisory services provided to government entities within the two-year 
period following a contribution by a covered associate of the Applicant 
to an official of the government entities.
    Filing Dates: The application was filed on January 19, 2018, and an 
amended and restated application was filed on August 23, 2018.
    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 Applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on December 26, 2018, and should be accompanied by proof of 
service on Applicant, 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 may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090. Applicant: Apollo Management, L.P., 9 W 
57th Street, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT: Nick Cordell, Senior Counsel, or Aaron 
Gilbride, Branch Chief, at (202) 551-6825 (Division of Investment 
Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website at http://www.sec.gov/rules/iareleases.shtml or by 
calling (202) 551-8090.

Applicant's Representations

    1. Applicant is registered with the Commission as an investment 
adviser pursuant to the Act. Applicant acts as adviser to private funds 
exempt from registration under the Investment Company Act of 1940.
    2. The individual who made the campaign contribution that triggered 
the two-year compensation ban (the ``Contribution'') is Stephanie 
Drescher (the ``Contributor''). The Contributor is the Global Head of 
Business Development & Investor Relationship Management. The 
Contributor supervises the team that does most of the day-to-day 
solicitation of government entities and other prospective investors, 
and personally participates in some solicitations. Applicant submits 
that, because the Contributor supervises and participates in the 
solicitation of government entities, she is, and at all relevant times 
was, a covered associate pursuant to rule 206(4)-5(f)(2)(i).
    3. Two investors in funds advised by the Adviser, Client A and 
Client B, are Ohio state pension funds. The Clients are government 
entities as defined in Rule 206(4)-5(f)(5)(i).
    4. The recipient of the Contribution was John Kasich (the 
``Official''), the Governor of Ohio, in his campaign for President of 
the United States. The investment decisions of each Client are overseen 
by a board of trustees or directors (the ``Board'' or the ``Boards''), 
to which the Governor appoints certain members. The Applicant submits 
that due to the power of appointment, the Governor is an ``official'' 
of each Client under rule 206(4)-5.
    5. The Contribution that triggered rule 206(4)-5's prohibition on 
compensation under rule 206(4)-5(a)(1) was made online on April 22, 
2016 (``the Contribution Date'') for the amount of $1,000 to the 
Official's campaign for President of the United States. Applicant 
submits that the Contribution was not motivated by any desire to 
influence the award of investment advisory business and that the 
Contributor had no intention to seek, and no action was taken either by 
the Contributor or the Applicant to obtain, any direct or indirect 
influence from the Official or any other person. Applicant represents 
that the Contribution was motivated by the Contributor's belief that 
the Official was the candidate in the in the Republican field most in 
line with her views. Applicant further represents that the Contributor 
did not attend any campaign events for the Official and did not have 
any contact with the Official or the Official's campaign staff, and 
that she contributed to the presidential campaign of Hillary Clinton 
that same month. The Contributor did not solicit or coordinate any 
other contributions for the Official. Applicant also represents that, 
at the time of the Contribution, the Contributor was focused on the 
presidential election and forgot to pre-clear the contribution as 
required by the Adviser's policies and procedures. The Contributor was 
the only employee of the Adviser with knowledge of the Contribution 
prior to its discovery by the Adviser.
    6. The Applicant discovered the Contribution in December 2016 
during a search of the public record for political contributions. While 
the Applicant's compliance department noted the lack of pre-clearance 
as a violation of the Adviser's policy, it did not identify that the 
Contribution triggered a ban on compensation under rule 206(4)-5(a)(1). 
Media coverage of another investment adviser's application for an 
exemptive order related to a contribution to the Official prompted the 
Applicant to review its records in October 2017, at which point the 
Applicant identified the Contribution as triggering a ban on 
compensation under rule 206(4)-5(a)(1). The Contributor requested a 
refund of the full $1,000 and received a refund on November 9, 2017. 
Applicant represents that all compensation earned that is attributable 
to the Clients' investments since the Contribution Date has been placed 
in escrow pending the outcome of this Application.
    7. The Applicant's Political Contributions Policy (the ``Policy'') 
was adopted and implemented before the proposal of rule 206(4)-5 and 
was further amended before the rule's implementation date. The 
Applicant submits that at the time of the Contribution, the Policy 
required, and continues to require, that all employees pre-clear all 
contributions (including contributions made by family members that the 
employee financially supports) to any person (including any election 
committee for any person) who was, at the time of the contribution, an 
incumbent, candidate, or successful candidate for federal, state, or 
local office. There is no de minimis exception from the pre-clearance 
requirement. Under the existing Policy, the Adviser requires employees 
to certify annually to their compliance with the Policy and sends 
quarterly reminders about the Policy and its pre-clearance

[[Page 62637]]

requirement. In light of changes made to the Policy after the discovery 
of the Contribution, future quarterly compliance alerts will highlight 
in the reminders that federal contributions are covered. In addition, 
the Adviser periodically conducts searches of public websites for 
contributions made by employees.

Applicant's Legal Analysis

    1. Rule 206(4)-5(a)(1) under the 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 a government entity is made by the 
investment adviser or any covered associate of the investment adviser. 
Each of the Clients 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).
    2. Section 206A of the Act authorizes the Commission to 
``conditionally or unconditionally exempt any person or transaction . . 
. from any provision or provisions of [the 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 Act].''
    3. Rule 206(4)-5(e) provides that the Commission may conditionally 
or unconditionally grant an exemption to 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 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. Applicant requests 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. Applicant submits 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. Applicant further submits that the other factors 
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an 
exemption to the Applicant to avoid consequences disproportionate to 
the violation.
    6. Applicant contends that given the nature of the Contribution, 
and the lack of any evidence that the Adviser or the Contributor 
intended to, or actually did, interfere with any Client's merit-based 
process for the selection or retention of advisory services, the 
Clients' interests are best served by allowing the Adviser and their 
Clients to continue their relationship uninterrupted. Applicant states 
that causing the Adviser to forgo the impacted compensation 
attributable to the two-year period would result in a financial loss of 
approximately $9 million or 9,000 times the amount of the Contribution. 
Applicant suggests that the policy underlying rule 206(4)-5 is served 
by ensuring that no improper influence is exercised over investment 
decisions by governmental entities as a result of campaign 
contributions and not by withholding compensation as a result of 
unintentional violations.
    7. Applicant represents that the Policy was adopted and published 
well before the Contribution Date. Applicant further represents that, 
the Policy has conformed to the requirements of rule 206(4)-5 and has 
been more rigorous than rule 206(4)-5's requirements as the Policy 
requires internet testing.
    8. Applicant asserts that at no time did any employee or covered 
associate of the Adviser or any of its affiliates, other than the 
Contributor know of the Contribution until after it had happened.
    9. Applicant asserts that after learning of the Contribution, the 
Adviser caused the Contributor to obtain a full refund of the 
Contribution. Applicant submits that in response to the contribution, 
the Adviser implemented enhancements to the Policy that include: (a) 
Requiring covered associates to certify their compliance with the 
Policy and report any contributions made; (b) enhancing training for 
employees and compliance staff; and (c) developing a written checklist-
style procedures document for preclearing and reviewing contributions 
to prevent any future issues.
    10. Applicant states that the Contributor is and has, at all 
relevant times, been a covered associate of the Adviser.
    11. Applicant asserts that the bulk of Client A's investments 
predate the Contribution and that the Contributor had no direct contact 
with Client B. Applicant further asserts that the investment 
transactions with the Clients were done on an arm's length basis and 
the Contributor and the Applicant took no action to obtain any direct 
or indirect influence from the Official.
    12. Applicant submits that neither the Adviser 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. Applicant further submits that there was no violation of 
the Adviser's fiduciary duty to deal fairly or disclose material 
conflicts given the absence of any intent or action by the Adviser or 
the Contributor to influence the selection process. Applicant contends 
that in the case of the Contribution, the imposition of the two-year 
prohibition on compensation does not achieve rule 206(4)-5's purposes 
and would result in consequences disproportionate to the mistake that 
was made.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26264 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 / Notices 62637

requirement. In light of changes made to (3) Whether, at the time of the other than the Contributor know of the
the Policy after the discovery of the contribution, the contributor was a Contribution until after it had
Contribution, future quarterly covered associate or otherwise an happened.
compliance alerts will highlight in the employee of the investment adviser, or 9. Applicant asserts that after learning
reminders that federal contributions are was seeking such employment;
(4) The timing and amount of the of the Contribution, the Adviser caused
covered. In addition, the Adviser
contribution which resulted in the the Contributor to obtain a full refund
periodically conducts searches of public
websites for contributions made by prohibition; of the Contribution. Applicant submits
employees. (5) The nature of the election (e.g., that in response to the contribution, the
federal, state or local); and Adviser implemented enhancements to
Applicant’s Legal Analysis (6) The contributor’s apparent intent the Policy that include: (a) Requiring
1. Rule 206(4)–5(a)(1) under the Act or motive in making the contribution covered associates to certify their
prohibits a registered investment which resulted in the prohibition, as compliance with the Policy and report
adviser from providing investment evidenced by the facts and any contributions made; (b) enhancing
advisory services for compensation to a circumstances surrounding such training for employees and compliance
government entity within two years contribution. staff; and (c) developing a written
after a contribution to an official of a 4. Applicant requests an order checklist-style procedures document for
government entity is made by the pursuant to section 206A and rule preclearing and reviewing contributions
investment adviser or any covered 206(4)–5(e), exempting them from the to prevent any future issues.
associate of the investment adviser. two-year prohibition on compensation
Each of the Clients is a ‘‘government imposed by rule 206(4)–5(a)(1) with 10. Applicant states that the
entity,’’ as defined in rule 206(4)–5(f)(5), respect to investment advisory services Contributor is and has, at all relevant
the Contributor is a ‘‘covered associate’’ provided to the Clients within the two- times, been a covered associate of the
as defined in rule 206(4)–5(f)(2), and the year period following the Contribution. Adviser.
Official is an ‘‘official’’ as defined in 5. Applicant submits that the 11. Applicant asserts that the bulk of
rule 206(4)–5(f)(6). exemption is necessary and appropriate Client A’s investments predate the
2. Section 206A of the Act authorizes in the public interest and consistent Contribution and that the Contributor
the Commission to ‘‘conditionally or with the protection of investors and the had no direct contact with Client B.
unconditionally exempt any person or purposes fairly intended by the policy Applicant further asserts that the
transaction . . . from any provision or and provisions of the Act. Applicant
investment transactions with the Clients
provisions of [the Act] or of any rule or further submits that the other factors set
were done on an arm’s length basis and
regulation thereunder, if and to the forth in rule 206(4)–5(e) similarly weigh
extent that such exemption is necessary in favor of granting an exemption to the the Contributor and the Applicant took
or appropriate in the public interest and Applicant to avoid consequences no action to obtain any direct or indirect
consistent with the protection of disproportionate to the violation. influence from the Official.
investors and the purposes fairly 6. Applicant contends that given the 12. Applicant submits that neither the
intended by the policy and provisions of nature of the Contribution, and the lack Adviser nor the Contributor sought to
[the Act].’’ of any evidence that the Adviser or the interfere with the Clients’ merit-based
3. Rule 206(4)–5(e) provides that the Contributor intended to, or actually did, selection process for advisory services,
Commission may conditionally or interfere with any Client’s merit-based nor did they seek to negotiate higher
unconditionally grant an exemption to process for the selection or retention of fees or greater ancillary benefits than
an investment adviser from the advisory services, the Clients’ interests would be achieved in arms’ length
prohibition under rule 206(4)–5(a)(1) are best served by allowing the Adviser transactions. Applicant further submits
upon consideration of the factors listed and their Clients to continue their that there was no violation of the
below, among others: relationship uninterrupted. Applicant Adviser’s fiduciary duty to deal fairly or
(1) Whether the exemption is states that causing the Adviser to forgo
disclose material conflicts given the
necessary or appropriate in the public the impacted compensation attributable
interest and consistent with the absence of any intent or action by the
to the two-year period would result in
protection of investors and the purposes Adviser or the Contributor to influence
a financial loss of approximately $9
fairly intended by the policy and million or 9,000 times the amount of the the selection process. Applicant
provisions of the Act; Contribution. Applicant suggests that contends that in the case of the
(2) Whether the investment adviser: the policy underlying rule 206(4)–5 is Contribution, the imposition of the two-
(i) Before the contribution resulting in served by ensuring that no improper year prohibition on compensation does
the prohibition was made, adopted and influence is exercised over investment not achieve rule 206(4)–5’s purposes
implemented policies and procedures decisions by governmental entities as a and would result in consequences
reasonably designed to prevent result of campaign contributions and disproportionate to the mistake that was
violations of the rule; and (ii) prior to or not by withholding compensation as a made.
at the time the contribution which result of unintentional violations. For the Commission, by the Division of
resulted in such prohibition was made, 7. Applicant represents that the Policy Investment Management, under delegated
had no actual knowledge of the was adopted and published well before authority.
contribution; and (iii) after learning of the Contribution Date. Applicant further Eduardo A. Aleman,
the contribution: (A) Has taken all represents that, the Policy has
available steps to cause the contributor conformed to the requirements of rule Assistant Secretary.
involved in making the contribution 206(4)–5 and has been more rigorous [FR Doc. 2018–26264 Filed 12–3–18; 8:45 am]
which resulted in such prohibition to than rule 206(4)–5’s requirements as the BILLING CODE 8011–01–P
obtain a return of the contribution; and Policy requires internet testing.
(B) has taken such other remedial or 8. Applicant asserts that at no time
preventive measures as may be did any employee or covered associate
appropriate under the circumstances; of the Adviser or any of its affiliates,

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Document Created: 2018-12-04 00:43:00
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Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		The application was filed on January 19, 2018, and an amended and restated application was filed on August 23, 2018.
Contact		Nick Cordell, Senior Counsel, or Aaron Gilbride, Branch Chief, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office).
FR Citation		83 FR 62636