[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62855-62856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27989]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26238; 812-12965]


U.S. Bancorp Piper Jaffray Inc., 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 U.S. Bancorp Piper Jaffray Inc. (``Piper'') 
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: Piper, U.S. Bancorp Asset Management, Inc. and Quasar 
Distributors, LLC (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 Piper is or 
hereafter becomes an affiliated person (included in the term 
Applicants).

Filing Dates: The application was filed on April 28, 2003. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice. Applicants have also 
agreed to file amendments to the application reflecting the issuance of 
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each State Injunction (as 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, c/o Joseph D. Edmondson, Jr., Foley & Lardner, 
3000 K Street, NW, Suite 500, Washington, DC 20007.

FOR FURTHER INFORMATION CONTACT: Stacy L. Fuller, Senior Counsel, or 
Annette M. Capretta, 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. Piper, a Delaware corporation, is a full service investment 
banking firm, engaged in securities underwriting, sales and trading, 
investment banking, financial advisory services, and investment 
research services. Certain Applicants serve as investment adviser or 
subadviser for one or more registered investment companies (``Funds''). 
Certain Applicants act as the depositor or 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 Piper in a 
matter brought by the Commission.\2\ The Commission alleged in the 
complaint (``Complaint'') that Piper violated section 17(b) of the 
Securities Act of 1933 (``Securities Act''), 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 Piper's 
investment banking business (the ``Investment Banking Department'') 
over the research analysts in Piper's research department (the 
``Research Department''). The Federal Injunction enjoined Piper 
directly or through its officers, directors, agents and employees, from 
violating section 17(b) of the Securities Act and the specific rules 
cited in the Complaint. Without admitting or denying the allegations in 
the Complaint, Piper consented to the entry of the Federal Injunction 
as well as the payment of disgorgement and penalties and other 
equitable relief, including undertakings by Piper to adopt and 
implement policies and procedures relating to certain research 
activities. Applicants state that Piper 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. U.S. Bancorp Piper 
Jaffray Inc., 03 CV 2942 (WHP) (S.D.N.Y., filed April 28, 2003).

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[[Page 62856]]

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 unit investment 
trust (``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 Piper 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, depositor or principal underwriter for a Fund. 
Applicants state that the Complaint did not expressly reference the 
conduct of any current or former employee of any of the Applicants,\3\ 
who is or was involved in providing advisory, sub-advisory or 
underwriting services to the Funds advised or underwritten by 
Applicants.\4\ While the Applicants' portfolio managers had access to 
research reports issued by the Research Department, 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. 
Although some of the Funds held securities in their portfolios at the 
time that Piper 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, Piper and USBAM have policies and procedures, which were in 
effect at the time of the conduct described in the Complaint, which 
prohibit (a) prepublication disclosure of research opinions, (b) 
disclosure of certain information concerning investment banking 
transactions prior to public announcement, and (c) trading based on 
material non-public information. Each of the Applicants that serve as 
an investment adviser or sub-adviser to the Funds also has adopted 
policies regarding information barriers (the ``Policies'') designed to 
protect the Funds from any conflict of interest that may arise between 
portfolio managers and other employees of Piper. The Policies restrict 
communications between portfolio managers and certain employees of 
Piper.
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    \3\ Applicants state that the former head of the Research 
Department whose activities are generally referred to in the 
Complaint is now the chief executive officer of USBAM.
    \4\ The Complaint refers to general practices regarding the 
relationship between the Investment Banking and Research 
Departments. It is possible that one or more current or former 
officers of USBAM or Quasar, other than the individual discussed in 
footnote 3, 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 or Research 
Department.
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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 Federal Injunction, any impact on the Funds, and 
this application.\5\ 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.
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    \5\ Applicants will advise the Boards of any State Injunctions 
that are issued.
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    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. The 
Applicants state that they have committed substantial resources to 
establish an expertise in advising and distributing Funds. Applicants 
state that no Applicant has previously applied for an exemption 
pursuant to section 9(c) of the Act.

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.
    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. 03-27989 Filed 11-5-03; 8:45 am]
BILLING CODE 8010-01-P