[Federal Register Volume 59, Number 2 (Tuesday, January 4, 1994)]
[Notices]
[Pages 338-340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-48]
[[Page Unknown]]
[Federal Register: January 4, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-19983; 812-8726]
NBD Bank, N.A. et al.; Application
December 27, 1993.
AGENCY: Securities and Exchange Commission (the ``SEC'' or
``Commission'').
ACTION: Notice of application for permanent order under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: NBD Bank, N.A. (``NBD''), NBD Bank, and NBD Bancorp, Inc.
RELEVANT ACT SECTIONS: Permanent order requested under 9(c) for an
exemption from the provisions of section 9(a).
SUMMARY OF APPLICATION: On December 17, 1993, the Commission issued a
conditional temporary order and notice of application for permanent
order under section 9(c) of the Act exempting applicants from the
disqualification provisions of section 9(a) solely with respect to a
securities-related injunction entered against NBD.\1\ Applicants have
discovered that the application, and consequently the notice, contains
a factual misstatement with respect to the composition of the board of
trustees of the Woodward Funds and Renaissance Assets Trust. Applicants
have filed an amended application to correct the misstatement.
\1\Investment Company Act Release No. 19961 (Dec. 17, 1993).
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FILING DATE: The application was filed on December 17, 1993, and
amended on December 23, 1993.
HEARING OR NOTIFICATION OF HEARING: Interested persons may request a
hearing on the application by writing to the SEC's Secretary and
serving applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on January
18, 1994, 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 who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549;
Applicants, NBD and NBD Bancorp, Inc., 611 Woodward Avenue, Detroit,
Michigan 48266. NBD Bank, 211 South Wheaton Avenue, Wheaton, Illinois
60189.
FOR FURTHER INFORMATION CONTACT:
John V. O'Hanlon, Senior Attorney, at (202) 272-3922, or Elizabeth G.
Osterman, Branch Chief, at (202) 272-3016 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. NBD is a national banking association and a wholly-owned
subsidiary of NBD Bancorp, Inc. NBD serves as investment adviser to The
Woodward Funds and Renaissance Assets Trust (the ``Funds''). The Funds
are open-end management investment companies registered under the Act.
The Woodward Funds consist of thirteen separate portfolios: Woodward
Growth/Value Fund; Woodward Opportunity Fund; Woodward Intrinsic Value
Fund; Woodward Equity Index Fund; Woodward Intermediate Bond Fund;
Woodward Bond Fund; Woodward Money Market Fund; Woodward Government
Fund; Woodward Treasury Money Market Fund; Woodward Tax-Exempt Money
Market Fund; Woodward Michigan Tax-Exempt Money Market Fund; Woodward
Municipal Bond Fund; and Woodward Michigan Municipal Bond Fund. It is
anticipated that additional portfolios will commence operation at
calendar year-end 1993 or shortly thereafter. Renaissance Assets Trust
consists of two separate portfolios: the Renaissance Government Fund
and the Renaissance Money Market Fund.
2. NBD Bank is a wholly-owned subsidiary of NBD Illinois, Inc.,
which is a wholly-owned subsidiary of NBD Bancorp. NBD Bank is not
currently an investment adviser to any registered investment company.
NBD Bank has entered into an agreement to act as sub-investment adviser
to the Separate Account I (the ``Separate Account'') of the Washington
National Life Insurance Company (``Washington National'').
3. NBD Bancorp, Inc. is a bank holding company incorporated under
Delaware law.
4. On December 17, 1993, the Commission filed a complaint in the
United States District Court for the Southern District of New York in a
civil action entitled Securities and Exchange Commission v. Comerica
Bank (the ``SEC'' Action''). The complaint alleged that NBD violated
Regulation U, as promulgated by the Board of Governors of the Federal
Reserve System under section 7(d) of the Securities Exchange Act of
1934, in connection with extensions of credit in a custodial trust
account maintained for an individual named Mark Sendo.\2\
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\2\The Commission brought an action against Sendo and two of his
associates for ``free-riding''--paying for purchases of securities
with anticipated proceeds from offsetting sales of the same
securities--in violation of the antifraud and margin provisions of
the federal securities laws in June 1991. SEC v. Sendo, Burman and
Tringale, 91 Civ. 4408 (S.D.N.Y.), Litigation Release No. 12894
(Jun. 27, 1991). Summary judgment was rendered in favor of the
Commission in October 1992. Litigation Release No. 13475 (Dec. 17,
1992).
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5. On the same day, NBD consented to the entry of a Final Judgment
of Permanent Injunction and Other Relief (the ``Final Judgment''),
without admitting or denying any of the allegations in the Commission's
complaint except as to jurisdiction. The Final Judgment enjoins NBD
from further violations of Regulation U. The Final Judgment requires
that NBD disgorge $2,500, which represents its gross custodian services
fees earned on Sendo's accounts. In addition, the Final Judgment
requires NBD to pay a civil money penalty of $100,000. The Final
Judgment also requires NBD to adopt internal procedures designed to
prevent a recurrence of the violative conduct.
6. Applicants have been advised by the trustees of the Funds and by
Washington National that (a) the trustees of the Funds and the
directors of Washington National have reviewed the circumstances
pertinent to the Final Judgment, and, in the case of the Funds, have
considered the prior services rendered to the Funds by NBD; and (b)
after review and consideration of such factors as they deemed
appropriate, a majority of the trustees of the Woodward Funds who are
not interested persons with respect to applicants, a majority of the
trustees of Renaissance Assets Trust who are not interested persons
with respect to applicants, and the directors of Washington National
have determined that the retention of NBD in the case of the Funds and
of NBD Bank in the case of Washington National as investment adviser is
in the best interests of the Funds' shareholders and the account
holders of the Separate Account.
7. In making the application, applicants acknowledge, understand,
and agree that the application and any temporary exemption issued by
the Commission shall be without prejudice to the Commission's
consideration of any application for exemptions from statutory
requirements, including the consideration of the instant application
for a permanent exemption pursuant to section 9(c) or the revocation or
removal of any temporary exemption granted in connection with the
application.
Applicants' Legal Analysis
1. Applicants seek a permanent order exempting applicants and their
affiliates from the provisions of section 9(a) of the Act solely with
respect to the Final Judgment.
2. Section 9(a) of the Act, in pertinent part, disqualifies any
person or company from serving or acting in the capacity of employee,
officer, director, member of an advisory board, investment adviser, or
depositor of any registered investment company, or principal
underwriter for any registered open-end company, registered unit
investment trust, or registered face amount certificate company if such
person, or an affiliated person of such person, has, by reason of
misconduct, been permanently or temporarily enjoined by an order,
judgment, or decree from any court of competent jurisdiction from
acting as an underwriter, broker, dealer, or investment adviser, or
from engaging in or continuing any conduct or practice in connection
with any such activity or in connection with the purchase or sale of
any security.
3. Section 9(c) provides that the Commission shall grant an
application for an exemption from the disqualification provisions of
section 9(a), either unconditionally or on an appropriate temporary or
other conditional basis, if it is established that these provisions, as
applied to the applicant, are unduly or disproportionately severe or
that the conduct of the applicant has been such as not to make it
against the public interest or protection of investors to grant such
application.
4. As a result of the Final Judgment, NBD and its affiliated
persons are subject to the disqualification provisions of section 9(a).
Applicants assert that the application of such provisions to applicants
is unduly and disproportionately severe. Applicants further assert that
NBD's conduct has been such as not to make it against the public
interest or protection of investors to grant the requested relief.
5. Applicants state that the conduct that gave rise to the Final
Judgment was not in any way related to activities of applicants as
investment advisers. Applicants further state that neither applicants'
senior management nor anyone involved in the management of investment
advisory services on applicants' behalf were involved in the activities
giving rise to the SEC Action.
6. Applicants assert that denial of the requested order would cause
irreparable injury to applicants and to the Funds' investors because
the investors would no longer have the services of their investment
adviser. In addition, investors could be harmed by the uncertainty
caused by applicants being prohibited from serving as investment
advisers to the Funds.
7. NBD has implemented policies and procedures designed to prevent
a recurrence by other account holders of the type of conduct that gave
rise to the SEC Action. In addition, pursuant to the Final Judgment,
NBD has taken or will take the following steps to remedy its conduct
and prevent the recurrence of violations:
a. NBD will maintain policies and procedures to ensure that it
complies with Regulation U, including policies to ensure that purchases
of securities in custodial accounts are not paid for with proceeds from
sales of the same securities in the accounts.
b. Within thirty days after the entry of the Final Judgment, NBD
will retain an independent consultant who will review NBD's custodial
securities clearing operations and who will make such recommendations
as are necessary with respect to NBD's policies and procedures to
ensure that NBD complies with Regulation U.
c. The consultant will issue a report within sixty days of its
retention setting forth its findings and recommendations and will
forward the report to the New York Regional Office.\3\ Unless the
Commission objects to the consultant's recommendations within thirty
days, applicants will implement the consultant's recommendations by no
later than forty days after the end of the period for the Commission to
object.
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\3\Applicants state that in a report dated July 12, 1993, an
independent consultant concluded that, based on its review, the
policies and procedures of the custodian securities clearing
operations for non-investment adviser accounts of NBD are reasonably
designed to ensure compliance with the requirements of Regulation U.
Applicants state that the recommendations of the independent
consultant have been implemented.
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8. Applicants state that they have not been the subject of prior
Commission enforcement proceedings, and have not previously filed an
application for relief pursuant to section 9(c) of the Act.
Applicants' Condition
Applicants agree that any order granted by the Commission pursuant
to the application will be subject to the condition that NBD will
comply with the Final Judgment.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-48 Filed 1-3-94; 8:45 am]
BILLING CODE 8010-01-M