[Federal Register Volume 69, Number 33 (Thursday, February 19, 2004)]
[Notices]
[Pages 7808-7809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3536]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-2215 / 803-175]


Criterion Research Group LLC; Notice of Application

February 11, 2004.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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Applicant: Criterion Research Group LLC.

Relevant Advisers Act Sections: Exemption requested under section 
203A(c) from section 203A(a).

Summary of Application: Applicant requests an order to permit it to 
register with the Commission as an investment adviser.

Filing Dates: The application was filed on July 17, 2003, amended on 
October 24, 2003, and amended further on December 15, 2003.

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 Applicant 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 8, 2004 and should be accompanied by proof of service on 
Applicant, 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 
may request notification of a hearing by writing to the Commission's 
Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549-0609. Applicant, Neil Baron, 
Chairman, Criterion Research Group LLC, 317 Madison Avenue, Suite 210, 
New York, New York 10017.

FOR FURTHER INFORMATION CONTACT: Catherine E. Marshall, Attorney, or 
Jennifer L. Sawin, Assistant Director, Division of Investment 
Management, Office of Investment Adviser Regulation, at (202) 942-0719.

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.

Applicant's Representations

    1. Applicant is a Delaware limited liability company with its 
principal place of business in New York, New York.
    2. Applicant is offering an internet-based subscription service to 
institutional investors such as portfolio managers, pension plans, 
insurance companies and commercial bank trust departments. Applicant 
represents that it will not market, offer or provide its services to 
individuals. Applicant further represents that it will not provide its 
services to broker-dealers for distribution to brokerage customers or 
otherwise, including as contemplated by the Global Settlement Related 
to Analysts Conflicts of Interest,\1\ unless Applicant first obtains an 
amended order from the Commission allowing it to do so.
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    \1\ The Global Settlement was entered into by ten large 
financial services firms with the Commission, the State of New York, 
the North American Securities Administrators Association, the NASD, 
the New York Stock Exchange, and other state securities regulators. 
The financial securities firms include: U.S. Bancorp Piper Jaffray, 
Inc.; Morgan Stanley & Co. Incorporated; Lehman Brother Inc.; 
Merrill Lynch, Pierce, Fenner & Smith Incorporated; J.P. Morgan 
Securities, Inc.; Goldman, Sachs & Co.; UBS Warburg LLC; Citigroup 
Global Markets Inc., f/k/a Saloman Smith Barney Inc.; Credit Suisse 
First Boston, LLC, f/k/a Credit Suisse First Boston Corporation, and 
Bear, Stearns & Co. Inc. The Global Settlement is comprised of ten 
Commission Final Judgments, ten Commission Litigation Releases, and 
is described in the Joint Press Release entitled ``Ten of Nation's 
Top Investment Firms Settle Enforcement Actions Involving Conflicts 
of Interest Between Research and Investment Banking,'' Press Release 
No. 2003-54 (Apr. 28, 2003) (http://www.sec.gov/news/press/2003-54.htm).
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    3. Applicant's services consist of independent analysis regarding 
fixed income and equity securities and recommendations about the 
purchase

[[Page 7809]]

and sale of securities. Research and recommendations are distributed to 
clients through Applicant's Web site, which is updated 2 to 5 times per 
week. Applicant accepts questions and comments from clients. Applicant 
does not tailor its research, recommendations or responses to questions 
to its clients' individual risk preferences or investment needs.

Applicant's Legal Analysis

    1. On October 11, 1996, the National Securities Markets Improvement 
Act of 1996 was enacted. Title III of that Act, the Investment Advisers 
Supervision Coordination Act (``Coordination Act''), added new section 
203A to the Advisers Act. Under section 203A(a)(1),\2\ an investment 
adviser that is regulated or required to be regulated as an investment 
adviser in the state in which it maintains its principal office and 
place of business is prohibited from registering with the Commission 
unless the investment adviser (i) has assets under management of not 
less than $25 million or (ii) is an investment adviser to an investment 
company registered under the Investment Company Act of 1940 
(``Investment Company Act''). Section 203A(a)(2) defines the phrase 
``assets under management'' as the ``securities portfolios with respect 
to which an investment adviser provides continuous and regular 
supervisory or management services.''\3\
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    \2\ 15 U.S.C. 80b-3a(a)(1).
    \3\ 15 U.S.C. 80b-3a(a)(2).
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    2. Applicant states that it does not qualify for registration as an 
investment adviser with the Commission. Applicant states that it does 
not have any assets under management; Applicant states that it does not 
actively manage any securities portfolios, either on a discretionary or 
a nondiscretionary basis, and does not provide ``continuous and regular 
supervisory or management services'' with respect to client accounts. 
Applicant also states that it does not serve as an investment adviser 
or subadviser to an investment company registered under the Investment 
Company Act. Applicant further states that it does not qualify for any 
exemption from the prohibition on registration with the Commission as 
provided in rule 203A-2 under the Advisers Act.
    3. Applicant notes that section 203A(c) of the Advisers Act 
authorizes the Commission to permit an investment adviser to register 
with the SEC if prohibiting registration would be ``unfair, a burden on 
interstate commerce, or otherwise inconsistent with the purposes of 
[section 203A].''\4\
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    \4\ 15 U.S.C. 80b-3a(c).
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    4. Applicant argues that prohibiting it from registering as an 
investment adviser with the Commission would be inconsistent with the 
purposes of section 203A. Applicant submits that Congress intended 
section 203A to divide responsibility for regulating investment 
advisers between the Commission and the states. Applicant argues that 
Congress determined that the states should be responsible for 
regulating advisers ``whose activities are likely to be concentrated in 
their home state,'' and that ``larger advisers, with national 
businesses'' should be regulated by the Commission and ``be subject to 
national rules.''\5\ Applicant asserts that Congress chose the ``assets 
under management'' requirement as a rough guide for this division, on 
the theory that investment advisers with $25 million or more of assets 
under management are likely to be national investment advisers that 
should be regulated by the Commission, while investment advisers 
managing less than $25 million in assets are likely to be smaller 
advisers that should be subject to the local rules of the states.
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    \5\ S. Rep. No. 104-293 (1996) at 4.
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    5. Applicant submits that Congress recognized that the ``assets 
under management'' requirement does not precisely differentiate 
national investment advisers from local investment advisers, and that 
some national investment advisers may not qualify for registration with 
the Commission under the test formulated by Congress. Applicant states 
that Congress acknowledged that ``the definition of `assets under 
management' * * * may, in some cases, exclude firms with a national or 
multistate practice from being able to register with the 
Commission.''\6\ Applicant further states that Congress intended the 
Commission to use its exemptive authority under section 203A(c) to 
remedy any unfairness, burdens or inconsistencies caused by the assets 
under management requirement by permitting, ``where appropriate, the 
registration of such firms with the Commission.''\7\
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    \6\ Id.
    \7\ Id. at 5.
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    6. Applicant argues that its activities affect the national 
securities markets and that it engages in a business of the type 
Congress contemplated when it provided the Commission with exemptive 
authority under section 203A(c). Applicant asserts that its services 
can be analogized to those of pension consultants because its services 
can affect large amounts of assets held throughout the United States. 
Applicant states that its activities, like those of pension consultants 
exempted by rule from the prohibition on registration with the 
Commission,\8\ have an effect on billions of dollars of institutional 
investors in the national securities markets because it provides 
services exclusively to institutional clients across the country.
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    \8\ See 17 CFR 275.203A-2(b).
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    7. Applicant submits further that prohibiting it from registering 
with the Commission is inconsistent with the purposes of section 203A. 
Applicant argues that the states do not have a primary interest in 
regulating advisory services to institutional clients. Applicant notes 
that, in section 203A, Congress preserved the states' ability to 
regulate certain investment adviser representatives of advisers 
registered with the Commission. Applicant further notes that under the 
Commission's definition of investment adviser representative,\9\ only 
personnel who work principally with individual, rather than 
institutional, clients are subject to state regulation. Applicant 
argues that this definition recognizes that, consistent with Congress' 
intent in the Coordination Act, the states' primary interest is in 
oversight of representatives who have an individual, not an 
institutional, clientele. Applicant submits that in fashioning this 
definition, the Commission noted its belief that distinguishing between 
retail and other clients was consistent with the intent of Congress as 
reflected in the Coordination Act.
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    \9\ See 17 CFR 275.203A-3(a)(1).
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    8. Applicant argues that it is the type of investment adviser that 
Congress intended the Commission to consider exempting under section 
203A(c). Applicant states that it provides services only to 
institutions and that it believes that its business will remain fully 
institutional. Applicant represents that it will not market, offer or 
provide its services to individual investors.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-3536 Filed 2-18-04; 8:45 am]
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