[Federal Register Volume 66, Number 246 (Friday, December 21, 2001)]
[Notices]
[Pages 66003-66005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31482]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25318; 812-12726]


HSBC Holdings plc, et al.; Notice of Application

December 17, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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SUMMARY OF APPLICATION: Applicants have received a temporary order 
exempting them and other entities of which Republic New York Securities 
Corporation (``RNYSC'') is or becomes an affiliated person from section 
9(a) of the Act, with respect to a cooperation and plea agreement 
entered into on December 17, 2001 between RNYSC and the U.S. Attorney 
for the Southern District of New York, until the Commission takes final 
action on the application for a permanent order. Applicants also have 
requested a permanent order.
    Applicants: HSBC Holdings plc (``HSBC Holdings''), HSBC Asset 
Management (Americas) Inc. (``HAMU''), HSBC Asset Management (Taiwan) 
Ltd. (``HAMT'') and Framlington Overseas Investment Management Ltd. 
(``Framlington'').
    Filing Date:The application was filed on December 17, 2001.
    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 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 January 11, 2002, 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.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants: Winthrop N. Brown, Esq., Milbank, Tweed, Hadley 
& McCloy, LLP, 1825 Eye Street, Suite 1100, Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, 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 summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. HSBC Holdings is a U.K. corporation that, together with its 
subsidiaries and affiliates, provides a wide range of banking and 
financial services worldwide. HAMU, a New York corporation, is 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act'') and acts as an investment adviser and subadviser to several 
registered investment companies (``funds''). HAMU is wholly owned by 
HSBC Bank USA (``HSBC Bank''), a New York state-chartered banking 
corporation and the principal U.S. bank subsidiary of HSBC Holdings. 
HAMT and Framlington, each indirect subsidiaries of HSBC Holdings, are 
registered under the Advisers Act and act as investment advisers and 
subadvisers to funds.\1\ An indirect wholly owned subsidiary of HSBC 
Holdings, HSBC USA Inc. (``HSBC USA''), is the parent company of RNYSC. 
HSBC Holdings acquired Republic New York Corporation, the then parent 
company of RNYSC, on December 31, 1999.
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other entity of which RNYSC is or 
hereafter becomes an affiliated person (together with applicants, 
the ``Covered Persons'').
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    2. On December 17, 2001, the U.S. Attorney for the Southern 
District of New York filed a two-count information (the 
``Information'') in the U.S. District Court for the Southern District 
of New York alleging conspiracy in violation of 18 U.S.C. 371 and 
securities fraud in violation of 15 U.S.C. 78j(b) and 78ff. The 
Information charges RNYSC with conspiring to defraud certain Japanese 
entities (the ``Japanese Entities'') as a result of the conduct of 
certain employees of RNYSC. The conduct arises out of the involvement 
of the Futures Division of RNYSC with its customers, which included 
various special purpose entities with ``Princeton Global Management 
Limited'' in their names, Princeton Economics International (together, 
``Princeton'') and the latter's chairman, Martin Armstrong. Mr. 
Armstrong sold approximately $3 billion (face value) of promissory 
notes to the Japanese Entities, the proceeds of which were deposited in 
Princeton accounts maintained at the Futures Division of RNYSC. 
Employees of the Futures Division of RNYSC issued letters containing 
inflated balances of the net asset values of certain of the Princeton 
accounts, some of which were provided by Mr. Armstrong to some of the 
Japanese Entities. The conduct at issue in the Information occurred 
over a four-year period beginning in 1995.
    3.On December 17, 2001, RNYSC entered a plea of guilty to the 
charge in the Information pursuant to a written cooperation and plea 
agreement (the ``Cooperation and Plea Agreement'').\2\ In the 
Cooperation and Plea Agreement, RNYSC agreed to compensate certain of

[[Page 66004]]

the Japanese Entities by making restitution payments, and HSBC USA 
agreed to compensate the Japanese entities to the extent that the 
restitution amount exceeds the capital of RNYSC. As a result of the 
events leading up to the Information and the Cooperation and Plea 
Agreement, the Commodity Futures Trading Commission is entering an 
administrative order and simultaneously settling an administrative 
enforcement action against RNYSC alleging violations of sections 4b, 
4d(a)(2), and 4(g) of the Commodity Exchange Act. Also as a result of 
the events leading to the Information and Cooperation and Plea 
Agreement, on December 17, 2001, the Commission entered an 
administrative order and simultaneously settled an administrative 
enforcement action against RNYSC alleging violations of section 17(a) 
of the Securities Act of 1933, as amended, and section 10(b) of the 
Securities Exchange Act of 1934, as amended, and revoking RNYSC's 
registrations as a broker-dealer.
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    \2\ Applicants have agreed to promptly file a copy of the 
Information and the Cooperation and Plea Agreement as an amendment 
to this Application.
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Applicants' Legal Analysis

    1. Section 9(a)(1) of the Act, in relevant part, prohibits a person 
from serving or acting in the capacity of an investment adviser, 
principal underwriter, or depositor for any registered investment 
company if the person has been convicted of any felony or misdemeanor 
involving the purchase or sale of any security or arising out of the 
person's conduct, among other things, as an underwriter, broker, 
dealer, investment adviser, or transfer agent. Section 9(a)(3) of the 
Act makes the prohibition in section 9(a)(1) applicable to a company 
any affiliated person of which has been convicted of a crime described 
in section 9(a)(1). The entry of the Cooperation and Plea Agreement 
makes the applicants subject to the prohibition in section 9(a)(3) of 
the Act. Other Covered Persons would be similarly disqualified pursuant 
to section 9(a)(3) of the Act were they to act in any of the capacities 
stated in section 9(a) of the Act with respect to a fund.
    2. Section (c) of the Act provides that the Commission shall grant 
an application for an exemption from the disqualification provisions of 
section 9(a) of the Act if it is established that these provisions, as 
applied to applicants, are unduly or disproportionately severe or that 
applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the application. 
Applicants have filed an application pursuant to section 9(c) of the 
Act seeking temporary and permanent orders exempting them from the 
provisions of section 9(a) of the Act.
    3. Applicants state that the prohibitions of section 9(a) as 
applied to applicants and other Covered Persons would be unduly and 
disproportionately severe and that the conduct of applicants has been 
such as not to make it against the public interest or protection of 
investors to grant the application. Applicants state that, if the 
exemption were not granted, the prohibition in section 9(a) would have 
a severe impact on the businesses of applicants that involve providing 
investment advisory services to funds even though those businesses were 
not involved in the matters underlying the Cooperation and Plea 
Agreement.
    4. Applicants state that the prohibitions of section 9(a) of the 
Act would be especially unfair as applied to applicants and other 
Covered Persons, because they became subject to the section 9(a) 
prohibition solely because RNYSC became an affiliated person of 
applicants after the conduct underlying the Cooperation and Plea 
Agreement occurred.
    5. Applicants 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 state that the 
matters forming the basis of the Cooperation and Plea Agreement are 
unrelated to the investment company business of applicants. The 
activities of RNYSC giving rise to the Cooperation and Plea Agreement 
do not involve or relate in any way to investment advisory services for 
funds, and applicants have not been able to identify any fund clients 
of applicants or any stockholders of any investment company client of 
applicants as having been affected by the matters giving rise to the 
Cooperation and Plea Agreement.
    6. Applicants undertake to provide the funds that are advised or 
sub-advised by them with all information concerning the Cooperation and 
Plea Agreement and the exemptive application necessary for those funds 
to fulfill their disclosure and other obligations under the federal 
securities laws.
    7. Applicants state that the employees of RNYSC who were identified 
by HSBC Holdings and RNYSC as having been responsible for the matters 
underlying the Cooperation and Plea Agreement are no longer employed by 
RNYSC or any Covered Person. Applicants also state that neither they 
nor any other Covered Person has ever previously applied for an 
exemption pursuant to section 9(c) of the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    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 involved 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. Neither applicants nor any of the other Covered Persons will 
employ any of the former employees of RNYSC who have previously or who 
may subsequently be identified as having been responsible for the 
conduct underlying the Cooperation and Plea Agreement, in any capacity 
without first making further application to the Commission pursuant to 
section 9(c).

Temporary Order

    The Commission has considered the matter and finds that applicants 
have made the necessary showing to justify granting of a temporary 
exemption.
    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 Cooperation and Pleas 
Agreement, subject to the conditions in the application, until the 
Commission takes final action on the application fo

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r a permanent order.

    By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-31482 Filed 12-20-01; 8:45 am]
BILLING CODE 8010-01-P