[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]
[Notices]
[Pages 53950-53952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25819]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21416; 812-9766]


United Financial Group, Inc.; Notice of Application

October 12, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANT: United Financial Group, Inc. (the ``Company'').

RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 6(e) of 
the Act granting an exemption from all provisions of the Act.

SUMMARY OF APPLICATION: Applicant requests an order that would exempt 
it from all provisions of the Act until December 30, 1996. The 
requested relief would extend an exemption originally granted until 
December 30, 1990, and extended by subsequent orders until December 30, 
1991, December 30, 1992, December 30, 1993, December 30, 1994, and 
December 30, 1995.

FILING DATES: The application was filed on September 15, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on November 6, 
1995, and should be accompanied by proof of service on applicant, 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 

[[Page 53951]]
hearing may request notification by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicant, 5847 San Felipe, Suite 2600, Houston, Texas 77057.

FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, at (202) 942-0565, or Robert A. Robertson, 
Branch Chief, at (202) 942-0564 (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 at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. The Company was a savings and loan holding company whose primary 
asset and source of income was the United Savings Association of Texas 
(``USAT''). As a result of the recession in Texas beginning in 1986, 
USAT's financial condition deteriorated, and on December 30, 1988 it 
was placed into receivership. The assets of USAT were sold to an 
unaffiliated third party and the Company received no consideration for 
the loss of its primary subsidiary, thereby generating a substantial 
tax loss. In light of this tax loss, the Company determined not to 
liquidate, but instead to acquire an operating business.
    2. The Company's efforts to acquire an operating business have been 
substantially hindered due to claims asserted against it by the Federal 
Savings and Loan Insurance Corporation (the ``FSLIC'') and its 
successor, the Federal Deposit Insurance Corporation (the '`FDIC''), 
which term as used herein includes the FSLIC. The FDIC asserted an 
approximately $534 million claim against the Company in January 1989 
for failure to maintain the net worth of USAT (the ``Net Worth Claim'') 
and an approximately $14 million claim concerning certain tax refunds 
alleged to have been received by the Company (together with the Net 
Worth Claim, the ``FDIC Claims''). In addition, the FDIC has asserted 
the existence of possible other claims (the ``Indemnified Claims'') 
against the Company and certain former officers and directors of the 
Company and USAT. The Company may have indemnification obligations to 
these former officers and directors. The FDIC has not alleged a dollar 
amount for any Indemnified Claims. Although the Company disputes the 
FDIC Claims and the Indemnified Claims, their existence constitutes a 
large contingent liability against the Company's assets, thus making it 
difficult for the Company to acquire an operating business.
    3. The Company's attempt to reorganize and seek to acquire an 
operating business has further been hampered by the existence of 
certain claims asserted by the Office of Thrift Supervision (``OTS''), 
whose jurisdiction covers areas not included within the scope of the 
FDIC's jurisdiction. The OTS is investigating the possibility of 
certain regulatory violations (the ``OTS Claims'') by the Company and 
its current and former officers and directors. The Company has been in 
negotiations with the OTS since September, 1994 concerning possible 
settlement of the OTS Claims. These claims constitute a substantial 
contingent liability against the Company's assets.
    4. During 1989 and 1990, the Company was in continuous negotiations 
with the FDIC in an attempt to reach a resolution of the FDIC Claims 
and in early 1990 the Company reached a tentative agreement. In 
December 1990, however, the FDIC rejected the Company's settlement 
offer and informed the Company that no counter proposal would be 
offered. In mid-1991, the Company again contacted the FDIC to determine 
whether a settlement could be reached, Beginning in July 1991, the 
Company and the FDIC's representatives again began negotiations and in 
August 1991, the Company offered a proposed settlement. Although the 
FDIC staff has not responded to the Company's settlement proposal, in 
December 1991 the FDIC requested, and the Company provided, an 
agreement to toll the statute of limitations for the period expiring 
July 31, 1992. This would give the FDIC adequate time to review any 
possible claims against the Company that might reflect on a global 
settlement. This tolling agreement was subsequently extended fourteen 
times, initially through September 30, 1992, then eventually through 
December 31, 1995.
    5. The Company and certain of its officers and directors also 
entered into tolling agreements with the OTS pursuant to which the OTS 
would have until the end of the tolling period to allege certain 
regulatory violations and seek regulatory enforcement. The OTS tolling 
agreement has been extended to December 31, 1995, subject to the right 
of the OTS to terminate the tolling agreement upon ten days' notice. 
During these tolling periods, the Company has engaged in continuous 
discussions with the OTS and FDIC staffs and as part of that process 
has furnished the OTS and FDIC staff members with documents and 
financial records for their review.
    6. On June 30, 1995, the Company held assets of approximately 
$11.52 million, comprised of approximately $.33 million in cash and 
cash equivalents, $9.54 million in short-term investments, $1.11 
million in loans and notes receivable, and $.54 million in other 
assets. The Company's common stock currently is traded sporadically in 
the over-the-counter market. The Company does not employ any full-time 
employees. The Company's administrative operations are handled by 
contract bookkeepers, accountants, and attorneys.
    7. Rule 3a-2 under the Act provides a one-year safe harbor to 
issuers that meet the definition of an investment company but intend to 
maintain that status only transiently. The Company relied on the safe 
harbor provided by this rule from December 30, 1988 until December 30, 
1989. The exportation of the safe harbor period necessitated the filing 
of an application for exemption. In 1990, the Company was granted 
conditional relief from all provisions of the Act until December 30, 
1990. The SEC extended this exemptive relief by five subsequent orders, 
most recently until December 30, 1995.\1\

    \1\Investment Company Act Release Nos. 17941 (Jan. 9, 1991) 
(notice) and 17989 (Feb. 7, 1991) (order); Investment Company Act 
Release Nos. 18430 (Dec. 5, 1991) (notice) and 18466 (Dec. 31, 1991) 
(order); Investment Company Act Release Nos. 19128 (Nov. 25, 1992) 
(notice) and 19175 (Dec. 22, 1992) (order); Investment Company Act 
Release Nos. 19839 (Nov. 5, 1993) (notice) and 19916 (Dec. 1, 1993) 
(order); and Investment Company Act Release Nos. 20545 (Sept. 12, 
1994) (notice) and 20608 (Oct. 7, 1994) (order) (the ``Prior 
Orders'').
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    8. As described in detail in the applications for the Prior Orders, 
during a portion of the period in which the requested exemption will be 
effective, it is possible that the Company will be subject to the 
jurisdiction of the federal bankruptcy courts. In this regard, the 
Company has formulated a plan of reorganization (the ``Reorganization 
Plan'') to be implemented under Chapter 11 of the Bankruptcy Code once 
the FDIC and the OTS approve a settlement of the FDIC Claims and the 
OTS Claims. The Reorganization Plan would settle the outstanding claims 
against the Company and provide a structure for the possible 
acquisition of a new operating business or businesses. Because the 
bankruptcy court is charged with protecting the interests of the 
Company's creditors and equity interest holders, the Company believes 
that it is not necessary for it to comply with section 17(a) or section 
17(d) with respect to transactions approved by the bankruptcy court.

[[Page 53952]]


Applicant's Legal Analysis

    1. Section 3(a)(3) of the Act defines an investment company as an 
issuer engaged in the business of investing, reinvesting, owning, 
holding, or trading in securities, and owning investment securities 
having a value exceeding 40% of the value of such issuer's total assets 
(exclusive of government securities and cash items). The Company 
acknowledges that, based on its current mix of assets, it may be deemed 
to be an investment company under section 3(a)(3).
    2. The Company requests, pursuant to sections 6(c) and 6(e) of the 
Act, that the SEC issue an order exempting the Company from all 
provisions of the Act, subject to certain exceptions, until December 
30, 1996. The requested order would extend the exemption granted by the 
Prior Orders.
    3. In determining whether to grant exemptive relief for a transient 
investment company, the SEC considers such factors as: (a) whether the 
failure of the company to become primarily engaged in a non-investment 
business or excepted business or liquidate within one year was due to 
factors beyond its control; (b) whether the company's officers and 
employees during that period tried, in good faith, to effect the 
company's investment of its assets in a non-investment business or 
excepted business or to cause the liquidation of the company; and (c) 
whether the company invested in securities solely to preserve the value 
of its assets. The Company believes that it meets these criteria.
    4. The Company believes that its failure to become primarily 
engaged in a non-investment business by December 30, 1995 is a result 
of factors beyond its control. The existence of the FDIC Claims and the 
OTS Claims has precluded the Company from investing its assets in a 
non-investment company business. Although the Company's executive 
officers reviewed numerous possible asset or business acquisitions, the 
magnitude of the FDIC Claims and the OTS Claims and the potential 
threat that the FDIC and the OTS would seek to enjoin any utilization 
of the company's assets has prevented the Company from investing its 
assets in a non-investment company business.
    5. Pending the settlement of the FDIC Claims and the OTS Claims, 
the Company has limited its investments to high quality marketable 
securities, cash or cash equivalents. Thus, the Company believes that 
it primarily invests in securities solely to preserve the value of its 
assets.
    6. Although the Company has made substantial efforts to formulate 
alternative methods by which it can acquire an operating business and 
utilize its tax loss, the pending settlement negotiations of the FDIC 
Claims and the OTS Claims make it necessary for the Company to seek 
relief extending the relief granted by the Prior Orders. This would 
allow the Company to seek an FDIC and OTS settlement and, if 
successful, to formulate and implement new plans for becoming an 
operating business and utilizing the tax loss.
    7. The Company believes that the issuance of an order exempting it 
from all provisions of the Act, subject to certain exceptions, until 
December 30, 1996 would be in the public interest and consistent with 
the protection of investors and the purposes of the Act.

Applicant's Conditions

    The Company agrees that the requested exemption will be subject to 
the following conditions, each of which will apply to the Company until 
it acquires an operating business or otherwise falls outside the 
definition of an investment company:
    1. During the period of time the Company is exempted from 
registration under the Act, it will not purchase or otherwise acquire 
any securities other than securities with a remaining maturity of 397 
days or less and that are rated in one of the two highest rating 
categories by a nationally recognized statistical rating organization, 
as that term is defined in rule 2a-7(a)(10) under the Act.
    2. The Company will continue to comply with sections 9, 17(e) and 
36 of the Act.
    3. The Company will continue to comply with sections 17(a) and 
17(d), subject to the following exceptions:
    (a) if the Company become subject to the jurisdiction of the 
bankruptcy court, the Company needed not comply with section 17(a) or 
section 17(d) with respect to any transaction, including without 
limitation the Reorganization Plan, that is approved by the bankruptcy 
court; and
    (b) the Company would not be required to comply with section 17(a) 
or section 17(d) with respect to any transaction or series of 
transactions that result in its ceasing to fall within the definition 
of an ``investment company'' provided that (i) no cash payments are 
made to an ``affiliated person'' (as defined in the Act) of the Company 
as part of such transaction or series of transactions, and (ii) no debt 
securities are issued to an affiliated person of the Company as part of 
such transaction or series of transactions unless such debt securities 
are expressly subordinated upon liquidation to claims of the holders of 
the Company's debentures.
    4. The Company will continue to comply with section 17(f) of the 
Act as provided in rule 17f-2

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-25819 Filed 10-17-95; 8:45 am]
BILLING CODE 8010-01-M