[Federal Register Volume 65, Number 110 (Wednesday, June 7, 2000)]
[Notices]
[Pages 36175-36176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14246]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24486; 812-12122]


The Toronto Dominion Bank et al.; Temporary and Notice of 
Application

May 31, 2000.
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 into in 1989, until the Commission takes final 
action on the application for a permanent order or, if earlier, July 
31, 2000. Applicants also have requested a permanent order.
    Applicants: The Toronto Dominion Bank ``TD Bank'', TD Investment 
Managewment Inc. (``TDIM''), TD Securities (USA) Inc., TD Waterhouse 
Asset Management, Inc. (``WAM''), TD Waterhouse Investor Services, 
Inc., and CT Investment Counsel (U.S.), Inc.
    Filing Date: The application was filed on May 31, 2000.
    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 June 26, 
2000 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 NW, 
Washington, DC 20549-0609
TD Bank, P.O. Box 1, Toronto Dominion Centre, Toronto, Ontario, Canada 
M5K 1A2
TDIM, 10th Floor, TD Tower, 55 King Street West, Toronto, Ontario, 
Canada M5K 1A2:
TD Securities (USA) Inc., 31 West 52nd Street, New York, NY 10019;
WAM and TD Waterhouse Investor Services, Inc., 100 Wall Street, New 
York, NY 10005; and
CT Investment Counsel (U.S.), Inc., 110 Yong Street, 10th Floor, 
Toronto, Ontario, Canada M5C 1T4.

FOR FURTHER INFORMATION CONTACT: Nadya B. Roytbalt, Assistant Director, 
at (202) 942-0610, 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 NW, 
Washington, DC 20549-0102; tel: (202) 942-8090.

Applicant's Representations

    1. TD Bank is the fifth largest chartered bank in Canada. Directly 
and through its subsidiaries, TD Bank provides a range of financial 
services to individuals, corporate and commercial enterprises, 
financial institutions and governments.
    2. WAM, a Delaware corporation, is an indirect wholly-owned 
subsidiary of TD Bank and is an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). WAM was acquired by 
TD Bank in 1996 when TD Bank purchased its parent company, Waterhouse 
Investor Services, Inc. (``Waterhouse''). WAM serves as investment 
adviser to three open-end management investment companies registered 
under the Act, consisting of nine portfolios (``WAM Funds''), with 
aggregate assets of approximately $12 billion. TDIM, a Canadian 
corporation and a wholly-owned subsidiary of TD Bank, was formed in 
1999 and is registered under the Advisers Act. TDIM currently does not 
provide any services to registered investment companies (``funds'').
    3. On September 12, 1989, the U.S. District Court for the Southern 
District of New York (``District Court''), entered a Final Judgment of 
Permanent Injunction and Other Equitable Relief in a matter brought by 
the Commission (``1989 Injunction'').\1\ The Commission alleged that, 
in connection with certain so-called ``free riding'' transactions by 
certain securities clearance customers, TD Bank violated the margin 
lending requirements of Regulation U promulgated by the Board of 
Governors of the Federal Reserve Board, under section 7(d) of the 
Securities Exchange Act of 1934. In consenting to the 1989 Injunction, 
TD Bank undertook, among other things, to implement and maintain 
certain policies, procedures and training programs designed to detect 
and prevent future violations of the margin regulations. Under the 
terms of the 1989 Injunction, TD Bank also hired an independent outside 
consultant to conduct an audit of TD Bank's compliance policies and 
procedures and to report its findings to the Commission.
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    \1\ SEC v. Jury Matt Hansen, et al., Final Judgment of Permanent 
Injunction and Equitable Relief as to The Toronto-Dominion Bank and 
the Toronto-Dominion Bank Trust Company, 89 Civ. 5242 (RO) (S.D.N.Y. 
Sept. 12, 1989).
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    4. Applicants state that, in 1996, in connection with the 
acquisition by TD Bank of Waterhouse, at the request of TD Bank, the 
Commission supported a motion by TD Bank to the District Court for the 
issuance of an order modifying the 1989 Induction to enable Waterhouse 
to continue to provide securities clearance services. The modification 
to the 1989 Injunction was issued in 1996.\2\
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    \2\ SEC v. Jury Matt Hansen, et al., Stipulation & Order, 89 
Civic. 5242 (RO) (S.D.N.Y. filed July 29, 1996).
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    5. Applicants also state that, at the time of TD Bank's acquisition 
of Waterhouse in 1996, WAM already was registered under the Advisers 
Act. Applicants further state that, following TD Bank's acquisition of 
Waterhouse, on November 27, 1996, WAM filed an amended Form ADV that 
disclosed the 1989 Injunction. Applicants also state that TDIM 
disclosed the 1989 Injunction

[[Page 36176]]

on its initial Form ADV filed in December 1999.
    6. Applicants state that they did not seek an order under section 
9(c) around the time of the 1989 Injunction because TD Bank did not 
begin to engage in any fund-related activities until 1996 following the 
acquisition of Waterhouse. Applicants also state that they did not 
become aware of the section 9(a) violation until late December 1999.
    7. Since the 1989 Injunction, several of TD Bank's subsidiaries--
but not TD Bank, WAM or TDIM--have been involved in several 
administrative proceedings with state securities law administrators and 
self-regulatory organizations. Applicants state that none of these 
administrative proceedings, all of which are listed in the application, 
involved investment advisory or fund-related activities.

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 1989 Injunction, TD Bank and its affiliates may be 
prohibited by section 9(a) from serving as an 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 1989 Injunction to permit TD Bank and its 
affiliates to serve an investment advisers to funds, including the WAM 
Funds, and in the future to provide other services to funds that might 
be prohibited by section 9(a). As noted above, applicants state that 
they did not seek an order under section 9(c) around the time of the 
1989 Injunction because TD Bank did not begin to engage in any fund-
related activities until 1996. Applicants also state that they did not 
become aware of the section 9(a) violation until late December 1999.
    4. TD Bank has undertaken to develop procedures designed to prevent 
violations of section 9(a) by it and its affiliated persons. TD Bank's 
general counsel also has attested that he has reviewed TD Bank'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 TD bank 
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 WAM's inability to act as an investment adviser 
to the WAM Funds would result in the WAM Funds and their shareholders 
facing potentially severe hardships. Applicants state that, at a 
special meeting of the boards of directors of the WAM Funds on February 
10, 2000, the directors were apprised, among other things, of the 
circumstances surrounding the 1989 Injunction and the directors' 
fiduciary responsibilities in these circumstances. The boards found 
that the alleged misconduct underlying the 1989 Injunction does not 
adversely affect WAM's continuing ability to provide investment 
advisory services to the Funds or diminish the value of the services 
already provided. The boards unanimously voted to continue the Funds' 
current investment advisory contracts with WAM.
    6. Applicants assert that if WAM were prohibited from providing 
services to the WAM Funds, the effect on WAM's business and employees 
would be severe. Applicants state that WAM has committed substantial 
resources over the past five years to establishing expertise in 
advising registered investment companies.
    7. 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 10 
years have passed since the 1989 Injunction. Applicants also note that 
the 1989 Injunction did not in any way involve fund-related activities. 
Applicants state that all of the employees, including senior 
management, involved in the matters underlying the 1989 Injunction are 
no longer employed at TB Bank or any of its affiliates. Applicants 
further state that since the 1989 Injunction, neither TD Bank nor any 
affiliated person of TD Bank has engaged in conduct that would result 
in disqualification under section 9(a) of the Act.

Applicants' Condition

    Applicants agree that the requested order is subject to the 
following condition:
    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.

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 make it against the public 
interest or the protection of investors to grant the temporary 
exemption; and (iii) 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 1989 
Injunction, subject to the condition in the application, until the 
Commission takes final action on the application for a permanent order 
or, if earlier, July 31, 2000.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14246 Filed 6-6-00 8:45 am]
BILLING CODE 8010-01-M