[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62846-62848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26242; 812-12958]


Goldman Sachs & Co., et al.; Notice of Application and Temporary 
Order

October 31, 2003.
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 (``Act'').

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Summary of Application: Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Goldman, Sachs & Co. (``Goldman Sachs'') on 
October 31, 2003 by the U.S. District Court for the Southern District 
of New York (the ``Federal Injunction''), until the earlier of the date 
the Commission takes action on an application for a permanent order, or 
two years from the date of the Federal Injunction. Applicants have 
requested a permanent order.

Applicants: Goldman Sachs, Goldman Sachs Asset Management, L.P., and 
Goldman Sachs Asset Management International (together, the 
``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which Goldman Sachs 
is or hereafter becomes an affiliated person (included in the term 
Applicants).

Filing Dates: The application was filed and amended on April 28, 2003. 
Applicants have agreed to file an amendment to the application during 
the notice period, the substance of which is reflected in this notice. 
Applicants also have agreed to file additional amendments to the 
application reflecting the issuance of each State Injunction (as 
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defined below).

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 November 25, 2003, 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: Goldman Sachs, 85 Broad Street, New York, NY 
10004; Goldman Sachs Asset Management, L.P., 32 Old Slip, New York, NY 
10005; Goldman Sachs Asset Management International, Christchurch 
Court, 10-15 Newgate Street, London, England, EC1A7HD.

FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at 
(202) 942-0528, or Todd Kuehl, 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 may be obtained 
for a fee at the Commission's Public Reference Branch, 450 Fifth Street 
NW., Washington, DC 20549-0102, telephone: (202) 942-8090.

Applicants' Representations

    1. Goldman Sachs, a New York limited partnership, is a full service 
investment banking firm, engaged in securities underwriting, sales and 
trading, investment banking, financial advisory services, and 
investment research services. The Applicants serve as investment 
adviser or sub-adviser for one or more registered investment companies 
(``Funds''). Goldman Sachs also acts as the principal underwriter for 
Funds.
    2. On October 31, 2003, the U.S. District Court for the Southern 
District of New York entered the Federal Injunction against Goldman 
Sachs in a matter brought by the Commission.\2\ The Commission alleged 
in the complaint (``Complaint'') that Goldman Sachs violated certain 
Conduct Rules of the National Association of Securities Dealers 
(``NASD'') and Rules of the New York Stock Exchange (``NYSE'') (the 
NASD Conduct Rules and NYSE Rules together, the ``Exchange Rules'') by 
engaging in acts and practices that created or maintained inappropriate 
influence by Goldman Sachs' investment banking business (the 
``Investment Banking Department'') over

[[Page 62847]]

the research analysts in Goldman Sachs' research department (the 
``Research Division''). The Federal Injunction enjoined Goldman Sachs 
directly or through its officers, directors, agents and employees, from 
violating the Exchange Rules cited in the Complaint. Without admitting 
or denying the allegations in the Complaint, Goldman Sachs consented to 
the entry of the Federal Injunction as well as the payment of 
disgorgement and penalties and other equitable relief, including 
undertakings by Goldman Sachs to adopt and implement policies and 
procedures relating to certain research activities. Applicants state 
that Goldman Sachs expects to enter into settlement agreements relating 
to the activities referred to in the Complaint with certain state and 
territorial agencies which may result in an injunction by a court of 
competent jurisdiction that is based on the same conduct and the same 
facts as the Complaint (each, a ``State Injunction,'' and, together 
with the Federal Injunction, the ``Injunctions''). Applicants request 
that this application cover any disqualifications of the Applicants 
under Section 9(a) resulting from the Injunctions.
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    \2\ Securities and Exchange Commission v. Goldman, Sachs & Co., 
03 Civ. 2944 (WHP) (S.D.N.Y., filed April 28, 2003).
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Applicants' Legal Analysis

    1. Section 9(a)(2) 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 an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered UIT or registered 
face-amount certificate company. Section 9(a)(3) of the Act makes the 
prohibition in section 9(a)(2) applicable to a company, any affiliated 
person of which has been disqualified under the provisions of section 
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person. Applicants state that 
Goldman Sachs is an affiliated person of each of the other Applicants 
within the meaning of section 2(a)(3) of the Act. Applicants further 
state that the entry of the Injunctions would result in Applicants 
being subject to the disqualification provisions of section 9(a) of the 
Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
Applicants, are unduly or disproportionately severe or that the 
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) seeking a 
temporary and permanent order exempting them from the disqualification 
provisions of section 9(a) of the Act.
    3. Applicants believe they meet the standard for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them 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 the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state that the conduct giving rise to the Injunctions 
did not involve any of the Applicants acting in the capacity of 
investment adviser, sub-adviser, depositor, or principal underwriter 
for a Fund. Applicants state that the Complaint did not expressly 
reference the conduct of any current or former personnel of any of the 
Applicants who is or was involved in providing advisory, sub-advisory 
or underwriting services to the Funds advised or underwritten by 
Applicants.\3\ While the Applicants' portfolio managers had access to 
research reports issued by the Research Division, there is no 
indication that the portfolio managers relied on these research reports 
more than any other data that would have been considered by the 
portfolio managers in making investment decisions for the Funds, except 
as noted in the application.\4\ Although some of the Funds held 
securities in their portfolios at the time that Goldman Sachs issued 
research reports concerning the issuers of such securities, as far as 
Applicants are aware, none of the officers, portfolio managers, or any 
other investment personnel employed by the Applicants made any 
investment decisions based on any non-public information relating to 
the conduct underlying the Final Judgment. In addition, each of the 
Applicants that serve as an investment adviser or sub-adviser to Funds 
has adopted policies regarding information barriers (the ``Policies'') 
designed to protect the Funds from certain conflicts of interest that 
may arise between portfolio managers and other employees of Goldman 
Sachs. The Policies, which were in effect at the time of the conduct 
described in the Complaint, restrict communications between portfolio 
managers and certain other employees of Goldman Sachs.
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    \3\ The Complaint also refers to general practices regarding the 
relationship between the Investment Banking Department and Research 
Division of Goldman Sachs. It is possible that one or more current 
or former personnel of the Applicants who is or was involved in 
providing advisory, subadvisory or underwriting services to the 
Funds was at some time an officer or employee of the Investment 
Banking Department or Research Division of Goldman Sachs.
    \4\ Applicants state that they act as investment adviser, 
principal underwriter, or depositor to a Fund whose portfolio 
securities were formerly selected based primarily on a list of 
recommended securities compiled by the Research Division.
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    5. The Applicants will distribute written materials, including an 
offer to meet in person to discuss the materials, to the board of 
directors or trustees of each Fund (each, a ``Board''), including the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Fund, and their independent legal counsel, 
if any, regarding the Injunctions, any impact on the Funds, and this 
application. The Applicants will provide the Boards with all 
information concerning the Injunctions and this application that is 
necessary for the Funds to fulfill their disclosure and other 
obligations under the Federal securities laws.
    6. Applicants state that the inability to continue providing 
advisory services to the Funds and the inability to continue serving as 
principal underwriter to the Funds would result in potentially severe 
hardships for the Funds and their shareholders. Applicants also assert 
that, if they were barred from providing services to the Funds, the 
effect on their businesses and employees would be severe. Goldman Sachs 
previously has received exemptions under section 9(c) as the result of 
conduct that triggered section 9(a) as described in greater detail in 
the application.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be 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 Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.

[[Page 62848]]

    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants are granted a temporary exemption from the provisions of 
section 9(a), effective forthwith, solely with respect to the 
Injunctions, subject to the condition in the application, until the 
date the Commission takes final action on their application for a 
permanent order or, if earlier, October 31, 2005.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27984 Filed 11-5-03; 8:45 am]
BILLING CODE 8010-01-P