[Federal Register Volume 72, Number 5 (Tuesday, January 9, 2007)]
[Notices]
[Pages 1034-1036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-60]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27652; 812-13351]
FBR Fund Advisers, Inc., et al.; Notice of Application
December 29, 2006.
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 from section 9(a) of the Act, with respect to an
injunction entered against Friedman, Billings, Ramsey & Co., Inc.
(``FBR & Co.'') on or about December 22, 2006 by the United States
District Court for the District of Columbia, until the Commission takes
final action on an application for a permanent order. Applicants also
have applied for a permanent order.
APPLICANTS: FBR Fund Advisers, Inc. (``FBR Advisers''), FBR Investment
Services, Inc. (``FBRIS''), and FBR Investment Management, Inc.
(``FBRIM'') (collectively, 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 FBR & Co. is or
becomes an affiliated person, other than any company of which
Emanual J. Friedman is or becomes an affiliated person (together
with Applicants, ``Covered Persons'').
FILING DATE: The application was filed on December 22, 2006. Applicants
have agreed to file a final amendment during the notice period, the
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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 January 23, 2007, 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, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, c/o William
Ginivan, General Counsel, Friedman, Billings, Ramsey Group, Inc.,
Potomac Tower, 1001 Nineteenth Street North, Arlington, VA 22209.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)
551-6813, 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, 100 F Street,
NE., Washington, DC 20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. FBR Advisers, FBRIS, and FBRIM are wholly-owned subsidiaries of
Friedman, Billings, Ramsey Group, Inc. (``FBR''). FBR, a Virginia
corporation, is a diversified financial services holding company that
engages in investment banking, institutional brokerage and asset
management services, among other activities. FBR Advisers, an
investment adviser registered under the Investment Advisers Act of 1940
(``Advisers Act''), serves as investment adviser to certain series of
FBR Funds (the ``Funds''), an open-end management investment company
organized as a Delaware statutory trust and registered under the Act.
FBRIS, a broker-dealer registered under the Securities Exchange Act of
1934 (``Exchange Act''), serves as principal underwriter and
distributor of shares of the Funds. FBRIM, an investment adviser
registered under the Advisers Act, serves as investment adviser to
certain employees' securities companies (``ESCs''), as defined in
section 2(a)(13) of the Act, which are
[[Page 1035]]
investment vehicles formed for the benefit of employees of FBR and its
affiliates.
2. On or about December 22, 2006, the United States District Court
for the District of Columbia entered a final judgment against FBR &
Co., a broker-dealer registered under the Exchange Act, in a matter
brought by the Commission (the ``Final Judgment'').\2\ FBR & Co. is a
wholly-owned subsidiary of FBR. The Commission alleged in the complaint
(``Complaint'') that, in connection with a Private Investment in Public
Equity offering of stock by CompuDyne Corporation, for which FBR & Co.
served as placement agent, FBR & Co. failed to establish, maintain and
enforce policies and procedures reasonably designed to prevent the
misuse of material, nonpublic information, unlawfully traded while
aware of material nonpublic information and conducted unregistered
sales of securities. One of the individuals alleged to have been
involved in the conduct underlying the Complaint is Emanuel J.
Friedman, the former co-chairman and co-chief executive officer of FBR,
former chairman and co-chief executive officer of FBR & Co., and former
chairman and co-chief executive officer of FBRIM. Without admitting or
denying any of the allegations in the Complaint, except as to
jurisdiction, FBR & Co. consented to the entry of the Final Judgment.
The Final Judgment permanently restrains and enjoins FBR & Co., and its
agents, servants, employees, and attorneys, from violating sections
10(b) and 15(f) of the Exchange Act and rule 10b-5 thereunder and
sections 5 and 17(a) of the Securities Act of 1933 (``Securities Act'')
(the ``Injunction'').\3\ FBR & Co. also consented to the payment of
disgorgement plus prejudgment interest in addition to civil penalties
in an aggregate amount of approximately $3.7 million.\4\
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\2\ Securities and Exchange Commission v. Friedman, Billings,
Ramsey & Co., Inc., et al., Final Judgment as to Friedman, Billings,
Ramsey & Co., Inc., 06-CV-02160 (RCL) (D.D.C., filed Dec. 22, 2006).
\3\ The Final Judgment also enjoins Mr. Friedman from violating
section 5 of the Securities Act and, as a controlling person
pursuant to section 20(a) of the Exchange Act, from violating
sections 10(b) and 15(f) of the Exchange Act and rule 10b-5
thereunder. The Final Judgment also imposes civil penalties on Mr.
Friedman. Mr. Friedman is an affiliated person of FBR under section
2(a)(3)(A) of the Act by virtue of his ownership of 6.09% of the
outstanding voting securities of FBR. The requested temporary and
permanent orders will not apply to Mr. Friedman or to any company of
which Mr. Friedman is or becomes an affiliated person, which
currently includes FBR.
\4\ FBR & Co. also has agreed to certain undertakings designed
to ensure that it does not commit future violations with respect to
the misuse of material nonpublic information.
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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). ``Affiliated person'' is defined in
section 2(a)(3) of the Act to include any person directly or indirectly
controlling, controlled by, or under common control with, the other
person. Applicants state that FBR & Co. is an affiliated person of each
of the Applicants within the meaning of section 2(a)(3) of the Act
because FBR controls FBR & Co., FBR Advisers, FBRIS and FBRIM.
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 an exemption from the disqualification provisions of
section 9(a) of the Act if it is established that these provisions, as
applied to the applicants, are unduly or disproportionately severe or
that the conduct of the applicants has been such as not to make it
against the public interest or protection of investors to grant the
exemption. Applicants have filed an application pursuant to section
9(c) seeking temporary and permanent orders 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 although Mr. Friedman was co-chairman and
co-chief executive officer of FBR, co-chairman and co-chief executive
officer of FBRIM and also participated in the conduct described in the
Injunction, Mr. Friedman is no longer employed by FBR, FBRIM or FBR &
Co. Applicants also state that none of their officers, directors or
employees who are engaged in the provision of investment advisory or
underwriting services to the Funds or investment advisory services to
the ESCs participated in any way in the conduct underlying the
Injunction. Applicants further state that the conduct underlying the
Injunction did not involve any Funds or ESCs.
5. Applicants state that the inability to continue providing
advisory and underwriting services 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 practicable, 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. 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 and advising the
Funds. The Applicants have never before received an exemptive order
under section 9(c).
7. Applicants further state that prohibiting FBRIM from continuing
to serve as investment adviser to the ESCs is not in the public
interest or in furtherance of the protection of investors. Because the
ESCs relate to employee retention and compensation matters and are
sponsored for employees of FBR and its affiliates, it would not be
consistent with the purposes of the employees' securities company
provisions of the Act to require another entity not affiliated with FBR
to serve as investment adviser to the ESCs. In addition, the
participating employees have agreed to participate in the ESCs with the
expectation that the ESCs will be managed by their employer.
[[Page 1036]]
Applicants' Condition
Applicants agree that any order granting the requested relief shall
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 exemption
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 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.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E7-60 Filed 1-8-07; 8:45 am]
BILLING CODE 8011-01-P