[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51589-51590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20859]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30174; 812-14068]


ReconTrust Company, N.A., et al.; Notice of Application and 
Temporary Order

August 20, 2012.
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 ReconTrust Company, N.A. (``ReconTrust'') on 
August 20, 2012 by the United States District Court for the Western 
District of Washington (the ``Injunction''), until the Commission takes 
final action on an application for a permanent order. Applicants have 
requested a permanent order.
    Applicants: ReconTrust, BofA Advisors, LLC (``BofA Advisors''), 
BofA Distributors, Inc. (``BofA Distributors''), Bank of America 
Capital Advisors LLC (``BACA''), KECALP Inc. (``KECALP''), and Merrill 
Lynch Global Private Equity Inc. (``MLGPE'') (collectively, other than 
ReconTrust, the ``Fund Servicing Applicants,'' and, together with 
ReconTrust, 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 ReconTrust is 
an affiliated person or may become an affiliated person in the 
future (together with the Applicants, the ``Covered Persons'').
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    Filing Date: The application was filed on August 15, 2012, and 
amended on August 20, 2012.
    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 September 14, 2012, 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, ReconTrust, 1800 
Tapo Canyon Road, Simi Valley, CA 93063; BofA Advisors, BofA 
Distributors and BACA, 100 Federal Street, Boston, MA 02110; and KECALP 
and MLGPE, 767 Fifth Avenue, 7th Floor, New York, NY 10153.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at 
(202) 551-6868, or Daniele Marchesani, 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 
via the Commission's Web site by searching for the file number, or an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. Each of the Applicants is a direct or indirect wholly-owned 
subsidiary of Bank of America Corporation (``BAC''). ReconTrust is a 
chartered national trust bank that, among other things, acts as 
foreclosure trustee responsible for conducting nonjudicial foreclosures 
within several states, including the state of Washington until 
recently. ReconTrust is not registered as a broker-dealer under the 
Securities Exchange Act of 1934 or as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act'').
    2. BofA Advisors is a registered investment adviser that serves as 
investment adviser and subadviser to certain money market funds 
registered under the Act. BofA Distributors, a limited purpose broker-
dealer registered with the Commission, serves as principal underwriter 
of some of the same money market funds. BACA is a registered investment 
adviser that serves as investment adviser to certain closed-end 
investment companies also registered under the Act.
    3. KECALP and MLGPE each serves as investment adviser to certain 
employees' securities companies within the meaning of section 2(a)(13) 
of the Act (``ESCs''). KECALP and MLGPE are registered as investment 
advisers under the Advisers Act.
    4. On August 20, 2012, the United States District Court for the 
Western District of Washington entered the Injunction against 
ReconTrust, in a matter brought by the Attorney General of the State of 
Washington (the ``AG'').\2\ The complaint filed by the AG 
(``Complaint'') \3\ alleged that ReconTrust failed to comply with the 
procedures of the Washington Deeds of Trust Act (``Deeds of Trust 
Act'') in foreclosures it conducted since at least June 12, 2008. 
Denying any wrongdoing as alleged by the AG or otherwise, ReconTrust 
consented to the entry of the Injunction, which enjoined ReconTrust 
from doing business as a foreclosure trustee under deeds of trust with 
respect to property located in the State of Washington, except in 
certain circumstances.\4\
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    \2\ State of Washington v. ReconTrust Company, N.A. No. 2:11-cv-
1460 (W.D. Wash. August 20, 2012).
    \3\ The Complaint was initially filed in the State of Washington 
King County Superior Court in a civil action and the matter was 
later removed to the United States Western District Court of 
Washington.
    \4\ This Injunction will terminate three years after its entry. 
As described in the application, ReconTrust is required to take 
certain remedial actions to address the conduct that served as the 
basis for the Injunction.
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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 acting as a bank, or from engaging in or 
continuing any conduct or practice in connection with such activity, 
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 extends the prohibitions of section 9(a)(2) 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, among others, any person directly or 
indirectly controlling, controlled by, or under common control with, 
the other person. Applicants state that ReconTrust is, or may be 
considered to be, under common control with and therefore an affiliated 
person of each of

[[Page 51590]]

the other Applicants. Applicants state that the entry of the Injunction 
may result in Applicants being subject to the disqualification 
provisions of section 9(a) of the Act because ReconTrust is enjoined 
from engaging in or continuing particular conduct or practice in 
connection with banking activity.\5\
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    \5\ Applicants represent that the foreclosure trustee activity 
specified in the Injunction is the same as or similar to at least 
some of the loan servicing activity deemed banking activity by an 
administrative order issued by the Office of the Comptroller of the 
Currency. See In the Matter of Bank of America, N.A., The Office of 
the Comptroller of the Currency Stipulation & Consent Order No. AA-
EC-11-12 (Apr. 13, 2011) (the ``OCC Order''). Applicants state that 
under the standard set forth in the OCC Order, ReconTrust is 
enjoined from engaging in or continuing particular conduct or 
practice in connection with banking activity.
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    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 exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
temporary and permanent order exempting the Applicants and the other 
Covered Persons 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 Injunction 
did not involve any of the Applicants acting in the capacity as 
investment adviser, sub-adviser, or principal underwriter (as defined 
in section 2(a)(29) of the Act) for any registered investment companies 
(``RIC'') or ESCs (together with any business development company, 
``Funds''). Applicants state that to the best of their reasonable 
knowledge none of the Applicants' current directors, officers or 
employees who is involved in providing services as investment adviser, 
subadviser or depositor for any Funds or principal underwriter (as 
defined in section 2(a)(29) of the Act) for any registered open-end 
company, UIT or registered face amount certificate company 
(collectively, the ``Fund Servicing Activities'') (or any other persons 
in such roles during the time period covered by the Complaint) 
participated in the conduct alleged in the Complaint that constitutes 
the violations that provide a basis for the Injunction. Applicants also 
state that the alleged conduct giving rise to the Injunction did not 
involve any Fund for which an Applicant provided Fund Servicing 
Activities.
    5. Applicants further represent that the inability of Applicants 
(except for ReconTrust) to continue providing Fund Servicing Activities 
would result in potentially severe financial hardships for both the 
Funds and their shareholders. Applicants state that they will 
distribute written materials, including an offer to meet in person to 
discuss the materials, to the board of directors of each Fund 
(excluding the ESCs), including the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of such Fund, 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 Funds 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 the Applicants were barred from 
engaging in Fund Servicing Activities, the effect on their businesses 
and employees would be severe. The Applicants state that they have 
committed substantial resources to establishing expertise in providing 
Fund Servicing Activities.
    7. Applicants also state that disqualifying KECALP and MLGPE from 
continuing to provide investment advisory services to their ESCs is not 
in the public interest or in furtherance of the protection of investors 
and would frustrate the expectations of eligible employees who invest 
in the ESCs that the ESCs would be managed by an affiliate of their 
employer.
    8. Applicants state that several Applicants and certain of their 
affiliates have previously received orders under section 9(c), 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, 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 the 
Applicants and the other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective forthwith, 
solely with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20859 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P