[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