[Federal Register Volume 70, Number 40 (Wednesday, March 2, 2005)]
[Notices]
[Pages 10157-10159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-825]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26764; 812-13159]


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

February 23, 2005.
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 
February 8, 2005 by the United States District Court for the Southern 
District of New York (the ``Injunction''), until the Commission takes 
final action on an application for a permanent order. Applicants also 
have applied for a permanent order.
    Applicants: Goldman Sachs, Goldman Sachs Asset Management, L.P., 
Goldman Sachs Asset Management International, and Goldman Sachs 
Princeton 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 Goldman Sachs 
is or hereafter becomes an affiliated person in the future (together 
with Applicants, ``Covered Persons'').
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    Filing Dates: The application was filed on January 25, 2005. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.
    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 March 21, 2005, 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 Howard Surloff, Esq., Goldman, Sachs & Co., 
37th Floor, One New York Plaza, New York, NY 10004.

FOR FURTHER INFORMATION, CONTACT: Courtney S. Thornton, Senior Counsel, 
or Mary Kay Frech, Branch Chief, at 202-551-6821 (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. Each Applicant is an investment adviser registered under the 
Investment Advisers Act 1940 (the ``Advisers Act''). Goldman Sachs, a 
New York limited partnership, is a global investment banking and 
securities firm. Goldman

[[Page 10158]]

Sachs is also registered as a broker-dealer under the Securities 
Exchange Act of 1934 (the ``Exchange Act''). Goldman Sachs acts as 
principal underwriter of certain registered investment companies 
(``Funds'') and, at the time of the violations alleged in the Complaint 
(as defined below), served as an adviser and subadviser of certain of 
the Funds. Each of the other Applicants currently serves as investment 
adviser or subadviser to one or more of the Funds or expects to serve 
as investment adviser or subadviser to an investment company whose 
registration statement has not yet been declared effective.
    2. On February 8, 2005, the United States District Court for the 
Southern District of New York entered the Injunction against Goldman 
Sachs in a matter brought by the Commission.\2\ The Commission alleged 
in the complaint (``Complaint'') that Goldman Sachs violated Rule 101 
of Regulation M under the Exchange Act by attempting to induce, or 
inducing, certain institutional customers to place orders for shares in 
the aftermarket for certain initial public offerings (``IPOs'') it 
underwrote during the restricted period of such IPOs. The alleged 
violations occurred in connection with certain IPOs underwritten by 
Goldman Sachs during 1999 and 2000. Without admitting or denying any of 
the allegations in the Complaint, except as to jurisdiction, Goldman 
Sachs consented to the entry of the Injunction as well as the payment 
of a civil penalty of $40 million.
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    \2\ Securities and Exchange Commission v. Goldman, Sachs & Co., 
05 CV 853 (S.D.N.Y. Feb. 8, 2005).
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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 unit investment 
trust 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 because they are under the common control of The Goldman Sachs 
Group, Inc. Applicants state that, as a result of the Injunction, they 
would be subject to the prohibitions of section 9(a).
    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 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 standards 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, to the best of their knowledge, none of 
their officers or employees who are engaged in the provision of 
investment advisory or underwriting services to the Funds participated 
in any way in the conduct underlying the Injunction. Applicants further 
state that the conduct underlying the Injunction did not involve any 
Funds.
    5. Applicants state that the inability to continue providing 
advisory services to the Funds (and, with respect to GS Princeton, the 
investment company for which it anticipates that it will begin to 
provide investment advisory services when its registration statement is 
declared effective by the Commission) 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 state that they have distributed, or will distribute as 
soon as reasonably practical, written materials, including an offer to 
meet in person to discuss the materials, to the boards of directors or 
trustees of the Funds (the ``Boards''), including the directors who are 
not ``interested persons,'' as defined in section 2(a)(19) of the Act, 
of such Funds and their independent legal counsel, as defined in rule 
0-1(a)(6) under the Act, if any, regarding the Injunction, any impact 
on the Funds, and the application. The Applicants will provide the 
Boards with all information concerning the Injunction and the 
application that is necessary for the Funds to fulfill their disclosure 
and other obligations under the Federal securities laws.
    6. Applicants also assert that, if they were barred from providing 
services to the Funds, the effect on their businesses and employees 
would be severe. Applicants state that they have committed substantial 
resources to establish an expertise in underwriting, advising and 
subadvising Funds. Applicants recently applied for an exemption 
pursuant to section 9(c) of the Act for conduct relating to certain 
research analysts' conflicts of interest.\3\ In addition, Goldman Sachs 
previously sought and received exemptions under section 9(c) of the Act 
on two occasions.\4\
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    \3\ Goldman, Sachs & Co., Investment Company Act Release Nos. 
26242 (Oct. 31, 2003) (notice and temporary order) and 26603 (Sept. 
20, 2004) (permanent order).
    \4\ Goldman, Sachs & Co., Investment Company Act Release Nos. 
8342 (May 2, 1974) (notice and temporary order) and 8553 (Oct. 22, 
1974) (permanent order); and Goldman, Sachs & Co., Investment 
Company Act Release Nos. 6189 (Sept. 15, 1970) (notice and temporary 
order) and 6200 (Sept. 30, 1970) (permanent order).
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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, Covered Persons, 
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 Covered Persons are granted a temporary exemption from the 
provisions of section 9(a), effective as of the date of the Injunction, 
solely with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on an 
application for a permanent order.


[[Page 10159]]


    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-825 Filed 3-1-05; 8:45 am]
BILLING CODE 8010-01-P