[Federal Register Volume 78, Number 87 (Monday, May 6, 2013)]
[Notices]
[Pages 26410-26412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10607]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30497; 812-14135]


Beverly Hills Bancorp Inc.; Notice of Application

April 30, 2013.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order under sections 6(c) and 6(e) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
all provisions of the Act, except sections 9, 17(a), 17(d), 17(e), 
17(f), 36 through 45, and 47 through 51 of the Act and the rules 
thereunder, modified as discussed in the application.

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SUMMARY: Summary of Application: The requested order would exempt the 
applicant, Beverly Hills Bancorp Inc. (``BHBC''), from certain 
provisions of the Act until the earlier of one year from the date of 
the requested order or such time as BHBC would no longer be required to 
register as an investment company under the Act. The requested 
exemption would extend an exemption originally granted until May 15, 
2013.\1\
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    \1\ Beverly Hills Bancorp Inc., Investment Company Act Release 
Nos. 30036 (April 18, 2012) (notice) and 30064 (May 15, 2012) 
(order) (``Original Order'').

DATES: Filing Dates: The application was filed on March 15, 2013 and 
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amended on April 26, 2013.

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 May 23, 2013 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. Applicant, Post Office Box 8280, 
Calabasas, CA 91372.

FOR FURTHER INFORMATION CONTACT: Deepak Pai, Senior Counsel, at (202) 
551-6876, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Exemptive Applications Office).

SUPPLEMENTARY INFORMATION: The following is 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.

Applicant's Representations

    1. BHBC is a bank holding company that conducted its banking and 
lending

[[Page 26411]]

operations through its wholly-owned subsidiary First Bank of Beverly 
Hills, a California banking corporation (the ``Bank''). From its 
incorporation in 1996 until April 24, 2009, the Bank was the source of 
substantially all of BHBC's revenues and income. The Bank sustained 
substantial losses in its real estate loan and mortgage-backed 
securities portfolios, and as of December 31, 2008, it no longer met 
applicable regulatory capital requirements. As a result, on February 
13, 2009, the Federal Deposit Insurance Corporation (``FDIC'') and the 
California Department of Financial Institutions (the ``CDFI'') issued 
an order requiring the Bank to increase its regulatory capital within 
60 days. Because the Bank was unable to increase its regulatory capital 
within the specified time period, on April 24, 2009, the CDFI closed 
the Bank and the FDIC was appointed as the Bank's receiver.
    2. BHBC has one class of common stock outstanding, which it 
voluntarily delisted from the NASDAQ Global Select Market on February 
12, 2009. On February 19, 2009, BHBC deregistered its common stock 
under Section 12(g) of the Securities Exchange Act of 1934, as amended 
(the ``Exchange Act''), and on March 13, 2009, its reporting 
obligations under Section 15(d) of the Exchange Act were suspended. As 
such, BHBC is no longer subject to the reporting requirements of the 
Exchange Act and its common stock is traded on the Pink Sheets. As of 
February 28, 2013, BHBC had 79 holders of record.
    3. BHBC has options outstanding under an equity incentive plan, the 
2002 Equity Participation Plan (the ``Plan''). All outstanding awards 
under the Plan were granted prior to the FDIC's appointment as receiver 
for the Bank. As of February 28, 2013, the only options outstanding 
under the Plan are options to purchase 120,000 shares of BHBC common 
stock, all of which are held by four persons, each of whom is a 
director and/or officer of BHBC. BHBC will not issue any additional 
awards under the Plan.
    4. As of January 31, 2013, on a consolidated basis, for financial 
reporting purposes BHBC has assets of $7.9 million, liabilities of 
$40.4 million, and a stockholders' equity of negative $32.5 million. On 
a non-consolidated basis, BHBC's assets total approximately $6.3 
million. BHBC currently has invested the assets in Permitted Securities 
(as defined below) since the Original Order.
    5. BHBC has several direct or indirect wholly owned subsidiaries, 
none of which has any ongoing business or operations. As of January 31, 
2013, the following assets were held by BHBC subsidiaries: (i) Wilshire 
Acquisitions Corporation (``Wilshire Asquisitions'') has assets with a 
book value of $161,936 consisting of accrued interest and prepaid 
expenses related to a subsidiary trust; (ii) WFC Inc. has assets with a 
book value of $331,589 consisting of approximately 16 small consumer 
and residential mortgage loans, cash, and prepaid expenses; and (iii) 
BH Commercial Capital I, Inc. has assets with a book value of 
$1,084,799 consisting of two secured commercial real estate loans 
(collectively, the ``Subsidiary Assets''). In addition, BHBC also 
either directly or indirectly owns the common securities of two 
subsidiary trusts that were formed in connection with offerings of 
trust preferred securities in which the trust subsidiaries issued their 
common securities to BHBC or Wilshire Acquisitions and their preferred 
securities to third party investors. The subsidiary trusts then loaned 
all the proceeds of the sale of trust preferred securities to BHBC or 
Wilshire Acquisitions in exchange for junior subordinated debentures 
(the ``Subordinated Debentures''). The subsidiary trusts have no assets 
other than the Subordinated Debentures.
    6. BHBC's liabilities consist principally of $25.8 million of the 
Subordinated Debentures issued to its two direct trust subsidiaries and 
$10.3 million of Subordinated Debentures issued to its indirect trust 
subsidiary. In the aggregate, interest in an approximate amount of 
$900,000 accrues on a yearly basis pursuant to these three series of 
Subordinated Debentures. BHBC states that there is no public market for 
the Subordinated Debentures or the trust preferred securities. Under 
the terms of the Subordinated Debentures, BHBC may defer interest 
payments for up to 20 consecutive quarters.\2\ On January 29, 2009, 
BHBC elected to exercise this right and no payments are due under the 
Subordinated Debentures until March, 2014.
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    \2\ During the period when interest payments are being deferred, 
interest continues to accrue, compounding quarterly, at an annual 
rate equal to the interest in effect for such period and must be 
paid at the end of the deferral period.
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    7. BHBC may be subject to contingent liabilities of uncertain 
amounts related to claims associated with its former operations, as 
well as regulatory and stockholder claims in connection with the 
failure of the Bank. In addition, current and former directors and 
officers of the Bank are subject to two pending actions (the 
``Actions'') in connection with the failure of the Bank. These are: (a) 
An administrative action brought by the FDIC in 2011 against two former 
officers (one of whom has settled) seeking certain administrative 
sanctions and penalties; and (b) a lawsuit brought by the FDIC in 
April, 2012 against the Bank's former directors (including all four 
current members of the board of directors of BHBC) and several former 
officers of the Bank for negligence, gross negligence, and breach of 
fiduciary duty in connection with their activities with the Bank. The 
latter action seeks $100.6 million in damages related to losses 
allegedly incurred by the Bank on certain loans.
    8. BHBC states that it is subject to indemnification and expense 
obligations in connection with various actions brought against its 
current and former directors, officers, employees or agents. As a 
result, BHBC is indemnifying these directors and officers in connection 
with the Actions. The potential amount of the indemnification claim is 
unknown.
    9. Since the Bank was placed into receivership, BHBC has had no 
active business or operations. Within several months of the 
receivership, BHBC terminated all employees, and since that time has 
paid two consultants on an hourly basis primarily for administrative 
and accounting services. BHBC does not maintain an office and is 
managed by its four member board of directors, which has considered 
various alternatives, including liquidation and acquisition of an 
operating business, while preserving its assets. BHBC states that 
because of its financial condition and contingent liabilities, pursuing 
these courses of action has not been feasible.

Applicant's Legal Analysis

    1. Section 3(a)(1)(A) of the Act defines an investment company as 
any issuer who ``is or holds itself out as being engaged primarily . . 
. in the business of investing, reinvesting or trading in securities.'' 
Section 3(a)(1)(C) of the Act further defines an investment company as 
an issuer who is engaged in the business of investing in securities 
that have a value in excess of 40% of the issuer's total assets 
(excluding government securities and cash).
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person from any provision of the Act if such exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Section 6(e) provides that, in connection 
with any order exempting an investment company from any provision of 
section 7, certain provisions of the Act, as specified by the 
Commission, shall apply to the company and other persons

[[Page 26412]]

dealing with the company, as if such company were a registered 
investment company.
    3. BHBC acknowledges that it may be deemed to fall within one of 
the Act's definitions of an investment company. Accordingly, BHBC 
requests an order of the Commission pursuant to sections 6(c) and 6(e) 
of the Act exempting it from all provisions of the Act, subject to 
certain exceptions described below. BHBC requests an exemption until 
the earlier of one year from the date of the requested order or such 
time as it would no longer be required to register as an investment 
company under the Act. During the term of the proposed exemption, BHBC 
states that it will comply with sections 9, 17(a), 17(d), 17(e), 17(f), 
36 through 45, and 47 through 51 of the Act and the rules thereunder, 
subject to certain modifications described in the application.
    4. BHBC requests exemptive relief to the extent necessary to permit 
it to hold certain types of instruments that may be considered 
``securities'', as defined in section 2(a)(36) under the Act, such as 
short-term U.S. government securities, certificates of deposit and 
deposit accounts with banks that are insured by the FDIC, shares of 
registered money market funds, and any instruments that are eligible 
for investment by money market funds consistent with rule 2a-7 under 
the Act (collectively, ``Permitted Securities'') without being required 
to register as an investment company under the Act. BHBC requests this 
relief in order to permit it to preserve the value of its assets for 
the benefit of its security holders, and submits that this relief is 
necessary and appropriate for the public interest.
    5. In determining whether to grant relief for a company in an 
extended transition period, the following factors are considered: (a) 
Whether the failure of the company to become primarily engaged in a 
non-investment business or excepted business or to liquidate within one 
year was due to factors beyond its control; (b) whether the company's 
officers and employees during that period tried, in good faith, to 
effect the company's investment of its assets in a non-investment 
business or excepted business or to cause the liquidation of the 
company; and (c) whether the company invested in securities solely to 
preserve the value of its assets. BHBC believes that it meets these 
criteria.
    6. BHBC believes its failure to become primarily engaged in a non-
investment business or to liquidate within a year following the 
receivership of the Bank is due to factors beyond its control. The 
board of directors of BHBC has regularly considered the feasibility of 
liquidating or engaging in an operating non-investment business and 
concluded that it is not feasible to commence or acquire a non-
investment business or liquidate as a result of BHBC's negative net 
worth and the uncertainties associated with actual and potential 
litigation and regulatory claims. BHBC states that the contingent 
liabilities make it impossible to liquidate BHBC and distribute its 
assets to creditors and make it imprudent to utilize any substantial 
part of its assets in an operating business. BHBC states that these 
circumstances are unlikely to change over the requested one-year period 
in light of the nature of the actual and contingent liabilities. BHBC 
states that it has invested its liquid assets solely to preserve the 
value of its assets and has invested solely in Permitted Securities 
since the Original Order. BHBC does not believe its current ownership 
of certain loans acquired prior to its receivership is inconsistent 
with its purpose of preserving the value of its assets for the benefit 
of its security holders. BHBC thus believes that the public interest 
will be best served by permitting it to continue to invest in Permitted 
Securities while its liabilities are resolved.

Applicant's Conditions

    Applicant agrees that the requested order will be subject to the 
following conditions:
    1. BHBC will not purchase or otherwise acquire any securities other 
than Permitted Securities, except that BHBC may acquire equity 
securities of an issuer that is not an ``investment company'' as 
defined in section 3(a) of the Act or is relying on an exclusion from 
the definition of ``investment company'' under section 3(c) of the Act 
other than section 3(c)(1) or 3(c)(7), in connection with the 
acquisition of an operating business as evidenced by a resolution 
approved by BHBC's board of directors. BHBC may continue to hold the 
Subsidiary Assets.
    2. BHBC will not hold itself out as being engaged in the business 
of investing, reinvesting, owning, holding, or trading in securities.
    3. BHBC will not make any primary or secondary public offerings of 
its securities, and it will notify its stockholders that an exemptive 
order has been granted pursuant to sections 6(c) and 6(e) of the Act 
and that BHBC and other persons, in their transactions and relations 
with BHBC, are subject to sections 9, 17(a), 17(d), 17(e), 17(f), 36 
through 45, and 47 through 51 of the Act, and the rules thereunder, as 
if BHBC were a registered investment company, except as permitted by 
the order requested hereby.
    4. Notwithstanding sections 17(a) and 17(d) of the Act, an 
affiliated person (as defined in section 2(a)(3) of the Act) of BHBC 
may engage in a transaction that otherwise would be prohibited by these 
sections with BHBC:
    (a) If such proposed transaction is first approved by a bankruptcy 
court on the basis that (i) the terms thereof, including the 
consideration to be paid or received, are reasonable and fair to BHBC, 
and (ii) the participation of BHBC in the proposed transaction will not 
be on a basis less advantageous to BHBC than that of other 
participants; and
    (b) in connection with each such transaction, BHBC shall inform the 
bankruptcy court of: (i) The identity of all of its affiliated persons 
who are parties to, or have a direct or indirect financial interest in, 
the transaction; (ii) the nature of the affiliation; and (iii) the 
financial interests of such persons in the transaction.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-10607 Filed 5-3-13; 8:45 am]
BILLING CODE 8011-01-P