[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Notices]
[Pages 33555-33557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16453]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22035; 812-10098]
Trend Capital Management, Inc.; Notice of Application
June 21, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Permanent Exemption under the
Investment Company Act of 1940 (the ``Act'').
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APPLICANT: Trend Capital Management, Inc. (``Trend'').
RELEVANT ACT SECTIONS: Order requested under section 9(c) of the Act
granting an exemption from section 9(a) of the Act.
SUMMARY: Trend Capital requests an order from the prohibitions of
section 9(a) to the extent necessary to relieve Trend of any
ineligibility resulting from Trend's employment of an individual who is
subject to a securities-related injunction.
FILING DATES: The application was filed on April 23, 1996 and amended
on May 30, 1996. Applicant has agreed to file an amendment during the
notice period, the substance of which is included in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested person 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 July 16, 1996
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 writers' 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 5th Street N.W., Washington, D.C. 20549.
Applicant, 950 Interchange Tower, 600 South Highway 169, Minneapolis,
Minnesota 55426.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Alison E.
Baur, 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. Trend is a registered investment adviser under the Investment
Advisers Act of 1940 and has one office in Minneapolis, Minnesota.
Since 1992, Trend has served as an investment adviser to more than 17
institutional and individual clients. Trend does not have a parent
company and does not own directly or indirectly any subsidiary
companies.
2. Since 1992, Trend has employed Bryce Kommerstad (``Kommerstad'')
as Director of Marketing and Sales. Kommerstad is responsible for
general sales and marketing, long-term client development, and the
servicing of existing customer accounts. Kommerstad does not develop or
manage Trend's investment advisory services nor does he participate in
decisions relating to the composition of Trend's model portfolios or
the allocation of client assets among the various portfolios.
3. On July 18, 1988, Kommerstad was enjoined by the U.S. District
Court for the District of Minnesota in an action commenced by the SEC
(SEC Litigation
[[Page 33556]]
Release No. 11818 (July 26, 1988)). From September 1982 through
February 1984, Kommerstad was a registered representative employed by
Dean Witter Reynolds, Inc. at its Wayzata, Minnesota office. In its
complaint, the SEC alleged that during this time Kommerstad solicited
several customers to purchase shares of Continental Materials, Inc.
about which he made misrepresentations and failed to state material
facts. Without admitting or denying the allegations, Kommerstad
consented to the entry of a final judgment of permanent injunction by
the court (the ``Injunction''). The court enjoined Kommerstad from
violating section 10(b) of the Securities Exchange Act of 1934 and rule
10b-5 thereunder and section 17(a) of the Securities Act of 1933.
Kommerstad was also suspended by the SEC for 12 months. Since the entry
of the Injunction in 1988, applicant states that Kommerstad has not
been enjoined by any court or sanctioned by the SEC, any self-
regulatory organization, or any state securities commission. Also since
1988, to the best of applicant's knowledge, there has not been a
customer complaint relating to Kommerstad. Applicant also states that,
to the best of its knowledge and after reasonable and appropriate
inquiry, none of its other affiliated persons are disqualified under
section 9 of the Act.
4. Trend proposes to enter into advisory or sub-advisory agreements
with various registered investment management companies, pursuant to
which Trend will agree to provide investment advisory services. As a
result of the Injunction, however, Kommerstad is subject to the
provisions of section 9(a)(2) of the Act and Trend is prohibited, under
section 9(a)(3) of the Act, from, among other things, acting as
investment adviser or depositor of any registered investment company,
or principal underwriter for any registered open-end investment company
unless an exemption is obtained pursuant to section 9(c).
5. When Tend learned, in connection with certain negotiations for
an investment advisory agreement, that Kommerstad was statutorily
disqualified under section 9(a) of the Act, Trend immediately developed
and adopted the following written procedures relating to all
prospective employees:
a. Whenever Trend intends to hire an employee, its compliance
committee (the ``Compliance Committee'') conducts a background
investigation of the prospective employee to determine whether the
person is subject to a statutory disqualification.\1\ Depending on the
scope of other information available to Trend, the background
investigation may include a fingerprint check by the local law
enforcement agency, inquiries to registered securities associations,
and discussions with previous securities related employers.
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\1\ The Compliance Committee consists of Trend's president, and
chief financial officer. These positions currently are held by
Thomas G. Fox and Darrel R. Lynn, respectively.
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b. The prospective employee is required to complete an employment
application that includes a questionnaire specifically designed to
ensure disclosure of any criminal conviction, injunction, or other
disqualifying condition.
c. If the prospective employee is subject to a statutory
disqualification, then such person will not be offered employment
until: (i) a section 9(c) order of exemption has been obtained; (ii)
the Compliance Committee determines, with advice from counsel, that a
section 9(c) order of exemption already exists that will cover the
person's employment with Trend; or (iii) the Compliance Committee
determines, with advice from counsel, that the SEC has adopted a rule
that such person may rely upon.
d. If the prospective employee subject to a statutory
disqualification is offered employment upon completion of one of the
three steps set forth in paragraph (c), then such person's scope of
employment will be restricted so that the employee will not act in any
capacity as an investment adviser, or depositor of any registered
investment company, or principal underwriter for any registered open-
end investment company, registered unit investment trust, or registered
face amount certificate company.
Applicant's Legal Analysis
1. Trend requests a permanent order under section 9(c) of the Act
exempting it from the disqualification provisions of section 9(a)
solely with respect to the Injunction. Trend requests that the relief
extend to all entities that may become affiliated persons (as that term
is defined in section 2(a)(3) of the Act) of Trend in the future. No
affiliated person of Trend currently requires such relief or currently
intends to rely upon the requested relief.
2. Section 9(a)(2) of the Act, in pertinent part, prohibits any
person who has been enjoined from engaging in or continuing any conduct
or practice in connection with the purchase or sale of a security from
acting as an 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. A company with an employee or other ``affiliated person''
ineligible to serve in any of these capacities under section 9(a)(2) is
similarly ineligible under section 9(a)(3).
3. Section 9(c) of the Act provides that, upon application, the SEC
shall grant an exemption from the provisions of section 9(a), either
unconditionally or on appropriate temporary or other conditional basis,
if it is established that the prohibitions of section 9(a), as applied
to the applicant, are unduly or disproportionately severe, or the
conduct of such person has been such as to not make it against the
public interest or protection of investors to grant the application. In
addition, 17 C.F.R. 200.30-5(a)(8) provides that the Division of
Investment Management, under delegated authority, may issue a permanent
order under section 9(c) if: the prohibitions of section 9(a) of the
Act, as applied to the applicant, may be unduly or disproportionately
severe, or the applicant's conduct has been such as not to make it
against the public interest or the protection of investors to grant the
exemption; the prohibitions arise under section 9(a)(3) of the Act
solely because the applicant employs, or will employ, a person who is
disqualified under section 9(a) (1) or (2) of the Act; and the employee
does not and will not serve in any capacity directly related to
providing investment advice to, or acting as principal underwriter for
any registered open-end company, registered unit investment trust, or
registered face amount certificate company.
4. Trend states that the SEC's 1988 action against Kommerstad did
not relate to investment company activities. The terms of the
Injunction do not bar Kommerstad from acting as an affiliated person of
an investment adviser or depositor of any registered investment
company, or principal underwriter for any registered open-end
investment company, registered unit investment trust, or registered
face amount certificate company. Trend argues that, given the absence
of any direct relationship between the Injunction and Kommerstad's
current and future activities at Trend, it would be unnecessary for the
protection of investors and inappropriate in light of the circumstances
to permit the Injunction to bar Trend from providing investment
advisory or other services to a registered investment company.
[[Page 33557]]
5. Trend asserts that its investment advisory services are and will
be developed and managed by Trend's chief investment officer,
operations manager, or assistant portfolio manager (the ``Investment
Management Team'').\2\ Kommerstad is not, nor will be become, a member
of the investment management team. He does not and will not serve in a
policy-making role. He does not and will not participate in the
management of Trend relating to providing investment advice to
registered investment companies.\3\ Kommerstad is not, and will not
become, a member of Trend's board of directors and is not, and will not
become, an officer of Trend.
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\2\ Currently, Thomas G. Fox serves as chief investment officer,
Darrel R. Lynn serves as operations manager, and Wayne R. Eskew
serves as assistant portfolio manager.
\3\ If, in the future, Kommerstad's marketing and sales efforts
for Trend bring him into contact with a prospective client that is a
registered investment company, Kommerstad immediately will refrain
from developing the registered investment company as a client and
will refer the prospective client to Trend. Kommerstad will not be
compensated, directly or indirectly, for such referrals.
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6. Kommerstad is affiliated with Trend solely due to his status as
an employee. He presently owns less than 5% of the outstanding voting
securities of Trend. Kommerstad will not be permitted to own 5% or more
of the outstanding voting securities, or otherwise become affiliated
with Trend for any reason other than employment, absent any future
relief that may specifically cover affiliations other than employment.
7. Trend believes, for the reasons stated above, that the section
9(a) prohibitions regarding the Injunction would be unduly or
disproportionately severe and Kommerstad's conduct was not such as to
make it against the public interest or protection of investors for the
SEC to grant the requested relief.
Applicant's Condition
Applicant agrees that any order granted by the SEC pursuant to the
application will be subject to the following conditions:
Neither Trend, nor any affiliated person of Trend relying upon the
relief granted pursuant to the application, will employ Kommerstad in
any capacity related directly to the provision of investment advice to,
or acting as depositor of, any registered investment company, or to
acting as principal underwriter for any registered open-end company,
registered unit investment trust, or registered face amount certificate
company.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16453 Filed 6-26-96; 8:45 am]
BILLING CODE 8010-01-M