[Federal Register Volume 61, Number 140 (Friday, July 19, 1996)]
[Notices]
[Pages 37779-37780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18302]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22068; No. 812-10026]
EQ Financial Consultants, Inc., et al.
July 12, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of Application for an Order pursuant to the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: EQ Financial Consultants, Inc. (``EQ Financial'') and The
Equitable Life Assurance Society of the United States (``Equitable'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 9(c)
granting exemption from the provisions of Section 9(a).
SUMMARY OF APPLICATION: Applicants seek an order of the Commission
pursuant to Section 9(c) of the 1940 Act to enable EQ Financial,
Equitable and any subsidiary of Equitable affected in the future
(collectively, ``The Equitable Subsidiaries'') to employ Paul Donnelly
(``Donnelly''), who is subject to a securities related injunction
described below.
FILING DATE: The application was filed on March 4, 1996, and amended on
July 12, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on August 6, 1996, and must 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 of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC. 20549. Applicants, c/o Marcia L. MacHarg,
Debevoise & Plimpton, 555 Thirteenth Street, NW., Washington, DC.
20004.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, Office of Insurance Products
(Division of Investment Management), at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Public
Reference Branch of the Commission.
Applicants' Representations
1. EQ Financial (formerly named Equico Securities, Inc.) is a
corporation all of the outstanding shares of which are owned by
Equitable. EQ Financial is a broker-dealer registered under the
Securities Exchange Act of 1934 (``Exchange Act'') and a principal
underwriter for various entities registered under the 1940 Act and may
in the future be investment adviser or depositor for entities that are
registered under the 1940 Act.
2. Equitable is a New York stock life insurance company, a broker-
dealer registered under the Exchange Act and an investment adviser
registered under the Investment Advisers Act of 1940. Equitable is the
depositor for two separate accounts that are registered under the 1940
Act and may in the future be investment adviser or principal
underwriter for entities that are registered under the 1940 Act.
3. The Equitable Subsidiaries are also, or may in the future be,
investment advisers, principal underwriters and/or depositors for
entities that are registered under the 1940 Act.
4. In 1985, Donnelly was permanently enjoined by consent from
engaging in certain acts or practices. The injunction resulted from a
complaint filed by the Commission alleging violations of Sections 5(a),
5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 12(g),
13(a), 17A(c) and 17A(d) of the Exchange Act and Rules 10b-5, 12b-20,
13a-11, 13a-13, 17Ad-4, 17Ad-6, and 17Ad-7 thereunder. SEC v. Netelkos,
Litigation Release No. 10918 (Oct. 30, 1985). The Commission's
complaint alleged, among other things, that, from June 1982 to January
1984, Donnelly and others caused Falcon Sciences, Inc. (``Falcon'') to
issue unregistered, unauthorized and counterfeit stock, that Donnelly
knowingly instructed Falcon's public accountant to report certain
contracts between Falcon and other companies as arm's length agreements
when they were not and that Donnelly assisted in the preparation of
various documents Falcon filed with the Commission, including annual
and quarterly reports, that he knew contained untrue and misleading
statements of material facts.
5. Donnelly became a life insurance agent for Equitable in 1984.
For several months before the entry of the injunction, Donnelly was
also a registered representative of EQ Financial and of Equitable.
After the entry of the injunction, Donnelly ceased being a registered
representative of EQ Financial and of Equitable. He continued to be a
life insurance agent for Equitable and was acting in that capacity as
of the date the application was filed.
6. EQ Financial and Equitable now propose to employ Donnelly as a
registered representative. They are aware that to do so without an
order of the Commission under Section 9(c) would disqualify them from
acting in certain capacities to entities registered under the 1940 Act.
In this regard, EQ Financial and Equitable note that they have
extensive compliance registration procedures to ensure that they do not
employ persons who are subject to a statutory disqualification under
Section 9(a) of the 1940 Act until the Section 9 issues are resolved.
Applicants also note that, as an agent for Equitable, Donnelly is not
an employee of Equitable and thus Equitable is not currently
disqualified from acting as a depositor for separate accounts.
Applicants' Legal Analysis
1. Section 9(a) of the 1940 Act provides, in relevant part,
that:
It shall be unlawful for any of the following persons to serve
or act 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 until investment trust, or registered
face amount certificate company.
* * * * *
(2) any person who, by reason of any misconduct, is permanently
or temporarily enjoined by order, judgment, or decree of any court
of competent jurisdiction from acting as an underwriter, broker,
dealer, investment adviser, municipal securities dealer, government
securities broker, government securities dealer, transfer agent, or
entity or person required to be registered under the Commodity
Exchange Act, or as an affiliated person, salesman, or employee or
any registered investment company, bank, insurance company, or
entity or person required to be registered under the Commodity
Exchange Act, 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; or
(3) a company any affiliated person of which is ineligible, by
reason of paragraph * * * (2), to serve or act in the foregoing
capacities.
2. Section 9(c) of the 1940 Act provides that:
Any person who is ineligible, by reason of subsection (a), to
serve or act in the capacities enumerated in that subsection,
[[Page 37780]]
may file with the Commission an application for an exemption from
the provisions of that subsection. The Commission shall by order
grant such application, either unconditionally or on an appropriate
temporary or other conditional basis, if it is established that the
prohibitions of subsection (a), as applied to such person, are
unduly or disproportionately severe or that the conduct of such
person has been such as not to make it against the public interest
or protection of investors to grant such application.
3. If Donnelly becomes an employee of EQ Financial, Equitable and/
or any of The Equitable Subsidiaries, the employer will become subject
to the disqualification provisions of Section 9(a) because Donnelly
will be an affiliated person of the employer.
4. Applicants submit that the statutory standards set forth above
will be satisfied with respect to the relief requested under Section
9(c) of the 1940 Act. In this connection, Applicants believe that the
application of the prohibitions of Section 9(a) to Applicants and The
Equitable Subsidiaries because of the employmenmt of Donnelly would be
unduly and disproportionately severe. Applicants also assert that their
conduct and the conduct of the Equitable Subsidiaries has been such as
to make it not against the public interest or the protection of
investors to grant the requested relief.
5. Donnelly will not serve in any capacity related in any way to
the provision of investment advice to any registered investment company
or to acting as principal underwriter to any registered open-end
investment company or registered face-amount certificate company or as
principal underwriter or depositor to any registered unit investment
trust.\1\ Donnelly will not be a corporate officer of EQ Financial,
Equitable or any of The Equitable Subsidiaries or serve in a policy-
making role or participate in the management or administrative
activities of EQ Financial, Equitable or any of The Equitable
Subsidiaries relating to registered investment companies.
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\1\ Applicants expect that Donnelly will be involved to some
degree in the retail sale of investment company securities,
including variable insurance products funded by separate accounts
organized as unit investment trusts.
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6. Applicants state that the conduct complained of by the
Commission on the part of Donnelly did not relate to investment company
activities. The injunction against Donnelly was entered more than 10
years ago and the events to which it related occurred more than 12
years ago. Applicants state that Donnelly has not been subject to
similar action, or any action relating to his conduct as an agent of
Equitable, nor to the best knowledge of Applicants after reasonable
inquiry have any complaints been filed against Donnelly with the
Commission, any self-regulatory organization, any state securities
commission or any insurance regulatory authority since the date of the
injunction.
7. Applicants state that Donnelly has informed Applicants that he
complied with the disgorgement and payment obligations imposed on him
under the injunction.
8. Applicants assert that the balance of fairness requires that the
requested relief be granted. If the exemption is not granted, EQ
Financial, Equitable and The Equitable Subsidiaries will not employ
Donnelly because to do so would subject them to a Section 9(a) bar on
investment company activities. Consequently, Donnelly would continue to
be unable to offer his clients the full range of financial services
available to be provided by a registered representative of EQ Financial
and Equitable. Applicants believe this would unduly limit his business
activities.
9. Finally, Applicants assert that the relief they request is
virtually identical in all material respects to relief the Commission
has granted on numerous previous occasions. See e.g. Gruntal & Co.,
Incorporated, Inv. Co. Act Rel. No. 19793 (Oct. 18, 1993).
Applicants' Condition
Applicants agree that the Commission's order granting the requested
relief shall be subject to the following condition:
EQ Financial, Equitable and The Equitable Subsidiaries will not
employ Donnelly in any capacity related directly to the provision of
investment advisory services for a registered investment company, or
acting as a principal underwriter for a registered open-end
investment company or registered face-amount certificate company, or
as a principal underwriter or depositor for a registered unit
investment trust.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18302 Filed 7-18-96; 8:45 am]
BILLING CODE 8010-01-M