Bankers Trust Company, et al.; Notice of Application

[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Notices]
[Pages 25929-25931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12060]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23828; 812-11548]


Bankers Trust Company, et al.; Notice of Application

May 7, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Extension of 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 THE APPLICATION: Applicants have received an extension of a 
temporary order exempting them and other entities of which Bankers 
Trust Company (``BT'') is or becomes an affiliated person from section 
9(a) of the Act, with respect to a March 11, 1999 cooperation and plea 
agreement between BT and the U.S. Attorney for the Southern District of 
New York, until the Commission takes final action on an application for 
a permanent order or, if earlier, November 8, 1999. Applicants also 
have requested a permanent order.

APPLICANTS: BT, Investment Company Capital Corporation (``ICCC''), BT 
Funds Management (International) Limited (``FMIL''), and Alex. Brown 
Investment Management (``ABIM'').

FILING DATES: The application was filed on March 25, 1999 and amended 
on April 28, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing or further 
extends the temporary exemption. 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 1, 1999 and 
should be accompanied by proof of service on applicants in the form of 
an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.Y., Washington, D.C. 20549-0609. Applicants: BT, One Bankers 
Trust Plaza, 31st Floor, New York, NY 10006; ICCC, One South Street, 
Baltimore, MD 21202-3220; FMIL, The Chifley Tower, 2 Chifley Square, 
Sydney, NSW 2000, Australia; and ABIM, 217 E. Redwood Street, 
Baltimore, MD 21202.

FOR FURTHER INFORMATION, CONTACT: Rachel H. Graham, Senor Counsel at 
(202) 942-0583, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is an extension of a temporary 
order and a summary of the application. The complete application may be 
obtained for a fee from the SEC's Public Reference Branch, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. BT, a New York banking corporation, is the principal bank 
subsidiary of Bankers Trust Corporation (``BT Corp''), a New York 
corporation that, together with its affiliates and subsidiaries, 
performs a wide range of banking and financial services worldwide. BT, 
which is exempt from registration under the Investment Advisers Act of 
1940 (``Advisers Act''), serves as investment adviser or subadviser to 
numerous investment companies registered under the Act (``funds'').
    2. ICCC, a Maryland corporation, and FMIL, an Australian 
corporation, are indirect wholly-owned subsidiaries of BT Corp. BT Corp 
indirectly owns approximately 50% of ABIM, a Maryland limited 
partnership. Accordingly, BT may be deemed to be under common control 
with ICCC, FMIL, and ABIM (each an ``Affiliated Adviser'' and, 
collectively, the ``Affiliated Advisers''). Each Affiliated Adviser is 
registered under the Advisers Act and serves as investment adviser or 
subadviser to various funds.
    3. BT acts as administrator, custodian, transfer agent, and 
shareholder servicing agent for certain funds advised by it or the 
Affiliated Advisers. BT also acts as custodian for certain other funds. 
ICCC acts as transfer agent for funds advised by it or other Affiliated 
Advisers. BT and ICCC are registered as transfer agents under the 
Securities Exchange Act of 1934.
    4. On March 11, 1999, the U.S. Attorney for the Southern District 
of New York filed a three-count felony information (``Information'') in 
the United States District Court for the Southern District of New York 
(``Court'') alleging violations of 18 U.S.C. section 1005. The 
Information charges BT with making false entries on its books and 
records as a result of the conduct of certain employees in BT's 
processing services businesses in 1994-1996. The conduct involved the 
transfer to reserve accounts and to income of aged credit

[[Page 25930]]

items that should have been paid to customers, other third parties, or 
state abandoned property authorities.
    5. On March 11, 1999, BT pleaded guilty to the charges in the 
Information pursuant to a written cooperation and plea agreement 
(``Cooperation and Plea Agreement''). As part of the Cooperation and 
Plea Agreement, BT agreed to pay a $60 million fine and to place that 
amount in escrow pending sentencing.\1\ The Cooperation and Plea 
Agreement provides that sentencing will be adjourned to on or before 
May 12, 1999.\2\
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    \1\ As a result of the matters underlying the Cooperation and 
Plea Agreement, BT also has agreed to pay a $3.5 million fine to the 
State of New York.
    \2\ Applicants have informed the staff of the Commission that 
the Court has rescheduled the sentencing to June 21, 1999.
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Applicants' Legal Analysis

    1. Section 9(a) of the Act, in relevant part, prohibits a person 
and any company of which the person is an affiliated person from 
serving or acting as an investment adviser, principal underwriter, or 
depositor for any registered investment company if the person has been 
convicted of any felony arising out of the person's conduct as, among 
other things, an underwriter, broker, dealer, investment adviser, or 
transfer agent. Applicants do not concede that the Cooperation and Plea 
Agreement would disqualify BT, the Affiliated Advisers, and all other 
entities of which BT is or becomes an affiliated person (together with 
Applicants, the ``Covered Entities'') under section 9(a) of the Act. In 
order to resolve any uncertainty, however, Applicants seek a permanent 
order exempting them and all other Covered Entities from section 9(a) 
of the Act with respect to the Cooperation and Plea Agreement.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for an exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, so applied to 
the applicant, are unduly or disproportionately severe or that the 
applicant's conduct has been such as not to make it against the public 
interest or the protection of investors to grant the application.
    3. On March 12, 1999, the Covered Entities received a temporary 
conditional order from the Commission exempting them from section 9(a) 
of the Act with respect to the Cooperation and Plea Agreement 
(``Temporary Order'') (Investment Company Act Release No. 23737). The 
Temporary Order stated that it would expire when the Commission took 
final action on an application for a permanent order or, if earlier, 
May 11, 1999.
    4. As noted above, Applicants seek a permanent order exempting the 
Covered Entities from section 9(a) with respect to the Cooperation and 
Plea Agreement.\3\ Applicants also seek an extension of the Temporary 
Order if the requested permanent order is not granted before the 
Temporary Order expires.
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    \3\ Applicants currently are the only Covered Entities that 
intend to rely upon the requested relief. Applicants note that, upon 
consummation of the pending merger between BT Corp and Deutsche Bank 
AG, Covered Entities would also include entities of which, as a 
result of the merger, BT becomes an affiliated person.
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    5. Applicants assert that the prohibitions of section 9(a) as 
applied to the Covered Entities would be unduly and disproportionately 
severe. Applicants contend that, if the requested exemption is not 
granted, the section 9(a) prohibition would have a devastating impact 
on their investment advisory businesses. Applicants assert that those 
businesses were not involved in the matters underlying the Cooperation 
and Plea Agreement.\4\
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    \4\ Applicants acknowledge that, in 1976, Alex. Brown & Sons, 
Inc. applied for and received an exemption from section 9(a). Alex. 
Brown & Sons, Investment Company Act Rel. Nos. 9246 (Apr. 13, 1976) 
(notice) and 9377 (July 29, 1976) (order).
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    6. Applicants believe that their inability to provide investment 
advisory services could impair significantly the financial interests of 
the funds they advise or subadvise and of the funds' shareholders. 
Applicants state that they have distributed or will distribute, to the 
boards of directors of the funds they advise and to the advisers of the 
funds they subadvise, written materials regarding the Cooperation and 
Plea Agreement and the reasons applicants believe relief from section 
9(a) is appropriate. Applicants also state that they have offered, or 
will offer, to meet in person with the boards and advisers to discuss 
those materials. Further, Applicants will undertake to provide the 
funds with all information concerning the Cooperation and Plea 
Agreement and this application necessary for the funds to fulfill their 
disclosure and other obligations under the federal securities laws.
    7. Applicants assert that their conduct has been such as not to 
make it against the public interest or the protection of investors to 
grant this application. Applicants contend that the Cooperation and 
Plea Agreement relates to books and records violations involving 
payments by BT in performing various processing services. Applicants 
state that BT has not been able to identify any fund client of its 
custody services or any fund shareholder affected by its transfer agent 
services who has been affected by the matters giving rise to the 
Cooperation and Plea Agreement. Applicants also state that, although BT 
has been unable to identify all persons to whom it improperly failed to 
make payments, none of the identified persons are funds. Applicants 
acknowledge that approximately $78,000 in aged credits from BT's unit 
investment trust business that likely should have been escheated to one 
or more states was improperly transferred to BT's reserve accounts. 
Applicants state, however, that none of the other payments by BT as 
paying agent were on behalf of fund issuers.
    8. Applicants state that the persons identified as having been 
responsible for the matters underlying the Cooperation and Plea 
Agreement (``Identified Former Employees'') no longer are employed by 
BT or any other Covered Entity. Applicants also state that, since 1996, 
BT has taken steps to prevent future violations of applicable laws and 
regulations relating to its handling of payments in its capacity as 
custodian, paying agent, benefit plan agent and similar roles. In 
particular, Applicants note that: a new senior management team has 
assumed responsibility for the business out of which the Cooperation 
and Plea Agreement arose; BT has implemented a formal ``Abandoned 
Property and Escheatment Policy'' and appointed an Abandoned Property 
Officer; BT has hired better qualified personnel to replace the 
Identified Former Employees; and BT has engaged in an extensive effort 
to redistribute the improperly transferred moneys to their rightful 
owners (or, if applicable, to the proper abandoned property authority).

Applicants' Conditions

    Applicants agree that any order issued on this application will be 
subject to the following conditions:
    1. The application and any exemption issued shall be without 
prejudice to, and shall not limit the Commission's rights in any manner 
with respect to, any commission investigations or enforcement actions 
pursuant to the federal securities laws, or the consideration by the 
Commission of any application for exemption from statutory requirements 
including, without limitation, the revocation, removal, or further 
extension of any temporary exemption granted under the Act in 
connection with the application.
    2. Neither applicants nor any of the other Covered Persons will 
employ any of the Identified Former Employees, or any persons who 
subsequently are identified as having been responsible for

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the matters underlying the Cooperation and Plea Agreement, in any 
capacity without first making further application to the Commission 
pursuant to section 9(c).

Extension of Temporary Order

    The Commission has determined that it requires additional time to 
consider the issuance of a permanent order under section 9(c) of the 
Act. Accordingly,
    It is ordered, under section 9(c) of the Act, that the temporary 
conditional order is extended until the date on which the Commission 
takes final action on the application for a permanent order exempting 
applicants and all other Covered Entities from section 9(a) of the Act 
or, if earlier, November 8, 1999.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12060 Filed 5-12-99; 8:45 am]
BILLING CODE 8010-01-M