[Federal Register Volume 64, Number 28 (Thursday, February 11, 1999)]
[Notices]
[Pages 6930-6932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3319]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23682; 812-11498]


Stephens Group, Inc. et al.; Temporary Order and Notice of 
Application

February 5, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for permanent order 
under section 9(c) of the Investment Company Act of 1940 (the ``Act'').

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SUMMARY: Applicants have received a temporary order exempting them from 
section 9(a) of the Act, with respect to a securities-related 
injunction entered in 1978, until the Commission takes final action on 
the application for a permanent order or, if earlier, April 5, 1999. 
Applicants also have requested a permanent order.

APPLICANTS: Stephens Group, Inc. (``Stephens''), Stephens Inc. 
(``SI''), and Jackson T. Stephens (``Mr. Stephens'').

FILING DATE: The application was filed on February 5, 1999.

HEARING OR NOTIFICATION OF HEARING: Interested persons may request a 
hearing by writing to the Commission's Secretary and serving applicants 
with a copy of the request, personally or by mail. Hearing requests 
should be received by the Commission by 5:30 p.m. on March 1, 1999 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 writer's 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 
Commission's Secretary. An order granting the application will be 
issued unless the Commission orders a hearing or extends the temporary 
exemption.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549; Applicants, 111 Center Street, 
Little Rock, AR 72201.

FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or Mary Kay Frech, Branch Chief, at (202) 942-0564, 
Division of Investment Management, Office of Investment Company 
Regulation.

SUPPLEMENTARY INFORMATION: The following is a temporary order and a 
summary of the application. The complete application is available for a 
fee from the Commission's Public Reference Branch, 450 Fifth Street, 
N.W., Washington, D.C. 20549 (tel. 202-942-8090).

Applicants' Representations

    1. Stephens is a Arkansas corporation formed in 1933. Stephens, 
directly and through its subsidiaries, engages in a broad-based 
merchant and investment banking business. Stephens Holding Company 
(``Stephens Holding''), a wholly owned subsidiary of Stephens, owns SI, 
a broker-dealer registered under the Securities Exchange Act of 1934 
(``Exchange Act'') and an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act'').
    2. Mr. Stephens served as Stephens' chief executive officer and 
chairman of the board of directors from 1956 until 1986. Mr. Stephens 
currently serves as chairman of the board of directors of Stephens and 
Stephens Holding. Mr. Stephens is not an officer or director of SI.\1\
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    \1\ Mr. Stephens is a registered representative with SI and 
would be considered an employee and associated person of SI.
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    3. SI has served as principal underwriter and administrator for 
registered investment companies (``funds'') since 1988. SI currently 
serves in those capacities for three sets of bank proprietary funds: 
Stagecoach Funds advised by Wells Fargo Bank, Masterworks Funds advised 
by Barclays Global Investors, and Nations Funds advised by NationsBanc 
Advisors, Inc., a wholly-owned subsidiary of Bank of America 
(collectively, ``Bank Funds''). The Bank Funds include 119 individual 
funds with total assets in excess of $71 billion.
    4. It is anticipated that, in connection with a recent merger 
between Wells Fargo & Company and Norwest Corporation, certain 
Stagecoach Funds

[[Page 6931]]

may be merged with certain funds advised by subsidiaries of Norwest 
Corporation. In addition, in connection with merger of BankAmerica and 
NationsBank, Pacific Horizon Funds, the proprietary funds of 
BankAmerica, may be merged with Nations Funds. The two mergers are 
collectively referred to in this notice as the ``Banks Funds Merger.'' 
SI has been proposed to serve as a principal underwriter and 
administrator to the merged funds.
    5. In 1997, Stephens Capital Management, a division of SI, also 
began serving as a subadviser to Stephens Intermediate Bond Fund, a 
fund advised by Diversified Investment Advisors, Inc. (``Subadvised 
Fund''). The Subadvised Fund has approximately $21 million in assets.
    6. On March 18, 1978, Stephens consented to judgment of permanent 
injunction issued by the U.S. District Court for the District of 
Columbia in a matter brought by the Commission (``1978 
Injunction'').\2\ The Commission alleged that Stephens and Mr. Stephens 
acted as part of a group of persons, within the meaning of section 
13(d) of the Exchange Act, for the purpose of acquiring, holding or 
disposing of the common stock of Financial General Bankshares Inc., a 
bank holding company, and did not make the filings required by section 
13(d) of the Exchange Act. In consenting to the 1978 Injunction, 
Stephens undertook, among other things, to implement and maintain 
certain procedures designed to prevent future violations of section 
13(d) of the Exchange Act. SI disclosed the 1978 Injunction on both its 
Form ADV filed under the Advisers Act and Form BD filed under the 
Exchange Act.\3\
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    \2\ SEC v. BCCI, et al. (U.S.D.Ct., D.C. March 18, 1978) (Final 
Judgment of Permanent Injunction and Other Equitable Relief).
    \3\ In 1980, Stephens and Mr. Stephens also sought and received 
relief from the Commission removing a bar arising from the 1978 
Injunction on their ability to rely on Regulation A under the 
Securities Act of 1933. Letter from George A. Fitzsimmons, 
Secretary, SEC to Larry W. Burks (Nov. 17, 1980).
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    7. Applicants state that they did not seek an order under section 
9(c) around the time of the 1978 Injunction because SI did not begin to 
engage in any fund-related activities until 1988. Applicants also state 
that they did not become aware of the section 9(a) violation until late 
November 1998, when the violation was discovered by counsel in 
preparation for the Bank Funds Merger.
    8. Since the 1978 Injunction, Stephens has been involved in a 
number of securities related administrative proceedings with the 
Commission, state securities regulators and self-regulatory 
organizations. Three of these proceedings involved SI's investment 
advisory and fund-related activities. In 1997, SI consented to the 
imposition of a cease-and-desist order by the Commission that found, 
among other things, that SI violated the Advisers Act by failing to 
provide its clients with adequate disclosure concerning principle 
transactions in securities.\4\ In 1996, SI entered into a consent order 
with the National Association of Securities Dealers, Inc. (``NASD'') 
accepting, among other things, a finding by the NASD that SI failed to 
exercise reasonable supervision over its representatives in connection 
with wholesale marketing of two closed-end funds.\5\ In 1995, SI 
entered into an administrative settlement order with the Securities 
Division of the Massachusetts Secretary of State in connection with 
SI's failure not to sell shares of an open-end fund to 23 purchasers in 
Massachusetts prior to registration in Massachusetts.\6\ Applicants 
state that none of the other administrative proceedings, all of which 
are listed in an exhibit to the application, involved Stephens' 
investment advisory or fund-related activities.
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    \4\ Advisers Act Release No. 1666 (Sept. 16, 1997).
    \5\ Letter of Acceptance, Waiver and Consent No. C059600 (Oct. 
14, 1996).
    \6\ In the Matter of Stephens, Inc., No. E-94-108 (Feb. 16, 
1995) (settlement order).
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Applicants' Legal Analysis

    1. Section 9(a) of the Act, in relevant part, prohibits a 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, among other things, as a principal underwriter or investment 
adviser for a registered investment company. Applicants state that, as 
a result of the 1978 Injunction, Stephens and Mr. Stephens may be 
prohibited by section 9(a) from serving as a principal underwriter or 
investment adviser to funds.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for an exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
the applicant, are unduly or disproportionately severe or that the 
conduct of applicant has been such as not to make it against the public 
interest or the protection of investors to grant the application.
    3. Applicants seek temporary and permanent orders under section 
9(c) with respect to the 1978 Injunction to permit SI to continue to 
serve as principal underwriter and investment adviser to funds, 
including the Bank Funds and the Subadvised Fund. As noted above, 
applicants state that they did not seek an order under section 9(c) 
around the time of the 1978 Injunction because SI did not begin to 
engage in any fund-related activities until 1988. Applicants also state 
that they did not become aware of the section 9(a) violation until late 
November 1998, when the violation was discovered by counsel in 
preparation for the Bank Funds Merger.
    4. SI has undertaken to develop procedures designed to prevent 
violations of section 9(a) by SI and its affiliated persons. Applicants 
also have agreed that, before any permanent relief may be granted 
pursuant to the application, SI's general counsel must attest that he 
has reviewed SI's compliance policies and procedures relating to 
compliance with section 9(a); that he reasonably believes that the 
policies and procedures have been fully implemented; and that the 
policies and procedures are designed reasonably to prevent violations 
of section 9(a) by SI and its affiliated persons.
    5. Applicants state that the prohibitions of section 9(a) as 
applied to them would be unduly and disproportionately severe. 
Applicants assert that SI's inability to act as a principal underwriter 
to the Bank Funds and as a subadviser to the Subadvised Fund would 
result in the Funds and their shareholders facing potentially severe 
hardships. Applicants state that the Bank Funds would incur significant 
time, effort and expense to replicate the extensive selling network 
established by SI, and the disruption may have a significant effect on 
the management and expense ratios of the Bank Funds. Applicants also 
state that the Subadvised Fund would face similar consequences if 
required to change the subadviser. Applicants assert that 
representatives of the Bank Funds and the Subadvised Funds have 
expressed satisfaction with the services provided by SI and a desire 
that SI continue to provide the services.
    6. Applicants state that the boards of directors, including the 
disinterested directors, of the Bank Funds and the Subadvised Funds 
(``Boards'') have been apprised of Stephens' section 9(a) violation. 
Applicants represent that before any permanent relief is granted, the 
Boards will consider whether retaining SI as a principal underwriter 
(in the case of Bank Funds) or as a subadviser (in the case of the 
Subadvised Fund) is in the best interests of the Funds and their 
shareholders. Applicants further represent that the boards of directors 
of the funds with which certain of the Bank Funds are

[[Page 6932]]

expected to merge will consider the 1978 Injunction in determining 
whether to approve the proposed mergers.
    7. Applicants assert that if SI were prohibited from providing 
services to the Bank Funds and the Subadvised Fund, the effect on SI's 
business and employees would be severe. Applicants state that SI has 
committed substantial resources over the past 10 years to establishing 
expertise in servicing funds, has developed extensive selling networks, 
and has over 80 employees dedicated to providing fund distribution and 
subadvisory services.
    8. Applicants also assert that their conduct has been such as not 
to make it against the public interest or the protection of investors 
to grant the exemption from section 9(a). Applicants note that over 20 
years have passed since the 1978 Injunction. Applicants also note that 
the 1978 Injunction did not in any way involve fund-related activities. 
Applicants further state that since the 1978 Injunction, neither SI nor 
any affiliated person of SI has engaged in conduct that would result in 
disqualification under section 9(a) of the Act. Applicants assert that 
SI has implemented policies and procedures designed to improve its 
securities law compliance.
    9. Applicants state that Mr. Stephens has at no time in the past 
been involved in SI's fund-related activities and will not be involved 
in that business in the future. Applicants also note that one of the 
conditions to the requested relief provides that Mr. Stephens will not 
be involved in SI's business of providing services to funds, and 
requires applicants to develop appropriate procedures.

Applicants' Conditions

    Applicants agree that the following conditions may be imposed in 
any order granting the requested relief:
    1. Any temporary exemption granted pursuant to the application 
shall be without prejudice to, and shall not limit the Commission's 
rights in any manner with respect to, any Commission investigation of, 
or administrative proceedings involving or against, applicants, 
including without limitation, the consideration by the Commission of a 
permanent exemption from section 9(a) of the Act requested pursuant to 
the application or the revocation or removal of any temporary 
exemptions granted under the Act in connection with the application.
    2. Before any permanent relief is granted pursuant to the 
application, SI's General Counsel will attest that he has reviewed SI's 
compliance policies and procedures relating to compliance with section 
9(a) of the Act; that he reasonably believes that the policies and 
procedures have been fully implemented; and that the policies and 
procedures are designed reasonably to prevent violations of section 
9(a) by SI and its affiliated persons.
    3. Mr. Stephens will not be involved in SI's business of providing 
services to registered investment companies. Applicants will develop 
procedures designed reasonably to assure compliance with this 
condition.

Temporary Order

    The Division has considered the matter and, without necessarily 
agreeing with all of the facts represented or all of the arguments 
asserted by applicants, finds, in accordance with 17 CFR 200.30-
5(a)(7), that it appears that (i) the prohibitions of section 9(a), as 
applied to applicants, may be unduly or disproportionately severe, (ii) 
applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the temporary 
exemption, and (ii) granting the temporary exemption would protect the 
interests of the investment companies served by applicants by allowing 
time for the orderly consideration of the application for permanent 
relief.
    Accordingly, it is hereby ordered, under section 9(c), that 
applicants are granted a temporary exemption from the provisions of 
section 9(a), effective forthwith, solely with respect to the 1978 
Injunction, subject to the conditions in the application, until the 
Commission takes final action on the application for a permanent order 
or, if earlier, April 5, 1999.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3319 Filed 2-10-99; 8:45 am]
BILLING CODE 8010-01-M