[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Notices]
[Pages 38437-38439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18965]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23310; 812-7860]
McLaughlin, Piven, Vogel Securities, Inc.; Notice of Application
July 10, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for an exemption under the Investment
Company Act of 1940 (the ``Act'').
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SUMMARY OF APPLICATION: Applicant requests a conditional order under
section 9(c) exempting applicant from the disqualification provisions
of section 9(a) solely with respect to a securities related injunction
entered against one of applicant's affiliates. The conditional order
would permit applicant to act as sponsor, depositor, and principal
underwriter for one or more unit investment trusts.
FILING DATES: The application was filed on January 30, 1992, and
amendments to the application were filed on March 5, 1992, August 6,
1992, October 6, 1992, March 4, 1997, and January 20, 1998.
HEARING OF 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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC 5:30 p.m. on August 4, 1998, 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 writers's interest, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, 30 Wall Street, New York, New York 10005.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Attorney Advisor, at (202) 942-0574, or Nadya B.
Roytblat, Assistant Director, (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 by
writing to SEC's Public Reference Branch at 450 Fifth Street, N.W.,
Washington, D.C. 20549, tel. (202) 942-8090.
Applicant's Representatives
1. Applicant is a New York corporation engaged in the underwriting
and securities brokerage business. Applicant is a member of the
National Association of Securities Dealers, Inc. and is registered with
the Commission as a broker-dealer.
2. Subject to receiving the requested exemption, applicant proposes
to serve as sponsor, principal underwriter, and depositor for the
Traditional Value Guaranteed Income Trust, Series 1, and subsequent
series (the ``Trust''), a unit investment trust to be registered under
the Act. Units of the Trust are to be registered for sale to the public
under the Securities Act of 1933 (the ``1933 Act''). Applicant also may
serve as sponsor, principal underwriter, and depositor for future
series of the Trust and for other unit investment trusts that it may
organize in the future.
3. James J. McLaughlin (``McLaughlin'') is the Senior Vice-
President and a director of applicant, and owns 52.32% of applicant's
shares. In 1973, the Commission brought an action alleging that
McLaughlin, an assistant sales vice president of Paragon Securities
Incorporated of New York (``Paragon''), acting in concert with others,
violated section 17(a) of the 1933 Act and sections 10(b), 15(a),
15(b), and 15(c) of the Securities Exchange Act of 1934 (the ``1934
Act''), and various rules thereunder in connection with Paragon's
activities as a broker-dealer. Securities and Exchange Commission v.
Paragon Securities Co., Civil Action No. 1120 (D.C. N.J.). On October
3, 1974, without admitting or denying wrongdoing, McLaughlin consented
to the entry of a permanent injunction (the ``Injunction'') enjoining
him from conduct in violation of such provisions. In addition,
McLaughlin agreed to disgorge $8,450. Applicant represents that since
1974, McLaughlin has not been the subject of any proceedings, or
allegations of violations of state or federal securities laws other
than those discussed in the application.\1\
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\1\ Although certain actions have been brought against applicant
and McLaughlin, these actions do not trigger the disqualification
provisions of section 9(a) of the Act. In December 1992, applicant
and McLaughlin, without admission of liability or wrongdoing,
entered into a settlement agreement in the amount of $250,000. The
complaint arose out of plaintiff's purchase of bonds issued by the
Washington Public Power Supply System and alleged violations by the
defendants of section 10(b) of the 1934 Act and rule 10b-5
thereunder, as well as common law fraud and breach of contract. In
addition, thirteen separate orders and sanctions have been imposed
against applicant by state regulatory agencies during the period
from 1982 to the present. The violations included acting as a
broker-dealer in states where applicant was unregistered; the sale
of securities by unlicensed employees of applicant; and the failure
to file required documents. In addition, in November 1995, the New
York Stock Exchange affirmed a hearing panel decision in which
Applicant was fined $15,000 for including in its registered
representative employment agreements a provision which waived
arbitration. In December 1996, the SEC affirmed the hearing panel's
decision.
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4. Applicant is not currently in violation of the provisions of
section 9(a), as it does not serve as an 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.
Because McLaughlin has been permanently enjoined from engaging in
certain conduct in connection with his activities at paragon, however,
applicant is prohibited under section 9(a)(3) of the Act from acting as
an 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. Accordingly, applicant seeks the requested relief solely with
respect to the Injunction so that it may engage in the proposed
activities.
Applicant's Legal Analysis
1. Section 9(a)(2) of the Act, in pertinent part, prohibits any
person who have been enjoined from engaging in or continuing any
conduct or practice in connection with the purchase or sale of
[[Page 38438]]
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).
2. 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.
3. As a result of the Injunction, applicant is subject to the
disqualification provisions of section 9(a). Applicant asserts that the
application of such provisions to applicant is unduly and
disproportionately severe. Applicant notes that almost twenty years
have passed since the activities which gave rise to the Injunction.
Applicant states that since the entry of the Injunction in 1974,
McLaughlin has not been enjoined by any court, or sanctioned by the
Commission, any self-regulatory organization, or any state securities
commission. Applicant also states that to the best of its knowledge,
there have been no customer complaints against McLaughlin, nor any
securities related administrative or legal proceedings involving
McLaughlin, except as described in footnote 1.
4. Applicant further asserts that McLaughlin's conduct has been
such as to not make it against the public interest or protection of
investors to grant the requested relief. The conduct that give rise to
the Injunction was not in any way related to investment company
activities.
5. Applicant states that it will undertake every effort to ensure
that McLaughlin does not and will not serve in any capacity related to
applicant's role as depositor for any registered investment company or
as principal underwriter for any registered unit investment trust.
Applicant states that McLaughlin's role as an officer and director of
applicant will not involve him in investment company activities.
Applicant states that McLaughlin is semi-retired and is no longer
involved in the daily management or operation of applicant. Moreover,
applicant has consented to the conditions set forth below, which are
intended to ensure that McLaughlin will not serve in any capacity
related to applicant's role as sponsor, depositor, and principal
underwriter for a unit investment trust.
6. In addition, applicant retained outside counsel to conduct an
independent review of compliance by applicant with the state and
federal securities laws affecting applicant's business as a broker-
dealer and of the adequacy of the procedures applicant has in place to
provide reasonable assurance of compliance. Based upon its review,
counsel made a number of recommendations with respect to applicant's
compliance and supervisory procedures, including, among other things,
the revision of applicant's supervisory manual and education of
applicant's personnel. In a letter dated August 4, 1992, counsel
certified that applicant's revised compliance procedures and practices,
if adhered to, should provide reasonable assurance that applicant will
comply with the provisions of the 1934 Act, the laws of the states
relating to broker-dealer and broker-dealer representative
registration, and the provisions of the Act in connection with
applicant's proposed role as sponsor, principal underwriter, and
depositor for unit investment trusts.\2\
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\2\ The certification is attached as an exhibit to the amendment
to the application filed on August 6, 1992. An additional
certification is attached as an exhibit to the amendment to the
application filed on January 20, 1998. The two certifications are
referred to collectively as the ``Certification.''
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Applicant's Conditions
Applicant agrees that any order granted by the Commission pursuant
to the application will be subject to the conditions set forth below:
1. McLaughlin will not serve in any capacity directly related to
providing investment advice to, or acting as depositor for, any
registered investment company, or acting as principal underwriter for
any registered open-end company, registered unit investment trust, or
registered face amount certificate company without making further
application to the Commission. McLaughlin will not sell interests in
investment companies sponsored by applicant, or for which applicant
serves as principal underwriter or depositor.
2. Applicant's legal department or its counsel shall develop, and
applicant shall adopt, written procedures designed to ensure that
McLaughlin does not and will not serve in any capacity directly related
to providing investment advice to, or acting as depositor for, any
registered investment company, or acting as principal underwriter for
any registered open-end company, registered unit investment trust, or
registered face amount certificate company. Such procedures shall
include, but shall not be limited to, the following: (a) applicant
shall notify in writing its Chairman of the Board, its owners and
executive officers, its Chief Compliance Officer, and all employees
working under the direct supervision of McLaughlin (collectively, the
``Affected Personnel'') immediately upon the granting of any order
issued pursuant to the application, with respect to the
responsibilities of and restrictions on McLaughlin. Applicant shall
notify in writing any new member of the Affected Personnel upon his or
her employment by or affiliation with applicant, with respect to the
responsibilities of and restrictions on McLaughlin. Receipt of
notification will be acknowledged in writing by each recipient and
returned to applicant; and (b) applicant will obtain, on an annual
basis, written certification from each member of the Affected Personnel
that he or she has not discussed any matters relating to the Trust with
McLaughlin.
3. McLaughlin will not attend any future meetings of applicant's
board of directors where the operations of any investment company for
which applicant acts as depositor or principal underwriter, including
the Trust, are on the agenda.
4. McLaughlin shall be excused from all meetings of applicant's
board of directors where the operations of any investment company for
which applicant acts as depositor or principal underwriter, including
the Trust, are proposed to be discussed prior to any such discussion.
5. Applicant's general counsel or chief executive officer will
certify on an annual basis that applicant and McLaughlin have complied
with the procedures referred to above and the conditions set forth
above.
6. The certificates, acknowledgements of notification, and
procedures referred to in these conditions shall be maintained as part
of the records of applicant and shall be available for inspection by
the Commission staff.
7. Applicant's general counsel or its chief executive officer will
certify on an annual basis that applicant has complied with the
procedures and practices referred to in the Certification and that such
procedures and practices continue to be sufficient to insure
applicant's compliance with the state
[[Page 38439]]
and federal securities laws noted in the Certification.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18965 Filed 7-15-98; 8:45 am]
BILLING CODE 8010-01-M