[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