[Federal Register Volume 80, Number 82 (Wednesday, April 29, 2015)]
[Notices]
[Pages 23826-23830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09965]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC--31577; 812-14448]


Deutsche Bank AG, et al.; Notice of Application and Temporary 
Order

April 23, 2015.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Temporary order and notice of application for a permanent 
order under

[[Page 23827]]

section 9(c) of the Investment Company Act of 1940 (``Act'').

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SUMMARY:  Applicants have received a temporary order (the ``Temporary 
Order'') exempting them from section 9(a) of the Act, with respect to a 
guilty plea entered April 23, 2015, by DB Group Services (UK) Ltd. (the 
``Settling Firm'') in the U.S. District Court for the District of 
Connecticut (the ``District Court'') in connection with a plea 
agreement between the Settling Firm and the U.S. Department of Justice 
(``DOJ''), until the Commission takes final action on an application 
for a permanent order. Applicants have also requested a permanent order 
(the ``Permanent Order,'' and with the Temporary Order, the 
``Orders'').

Applicants:  Deutsche Investment Management Americas, Inc. (``DIMA''), 
Deutsche Asset & Wealth Management International GmbH (``DeAWMI''), 
Deutsche Investments Australia Limited (``DIAL''), RREEF America L.L.C. 
(``RREEF''), Deutsche Alternative Asset Management (Global) Limited 
(``DAAM Global''), DBX Advisors LLC (``DBX Advisors''), DBX Strategic 
Advisors LLC (``DBX Strategic Advisors''), DeAWM Distributors, Inc. 
(``DDI''), Harvest Global Investments Limited (``Harvest'') (each, a 
``Fund Servicing Applicant''); and the Settling Firm (with the Fund 
Servicing Applicants, the ``Applicants''), and Deutsche Bank AG (``DB 
AG'').

Filing Date:  The application was filed on April 23, 2015.

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 18, 2015, and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, 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: DB AG, Taunusanlage 
12, 60325 Frankfurt am Main, Germany; DIMA, DBX Advisors, and DBX 
Strategic Advisors, 345 Park Avenue, New York, NY 10154; DeAWMI, 
Mainzer Landstrasse 178-190, Frankfurt am Main, 60327, Germany; DIAL, 
Deutsche Bank Place, Level 16, CNR Hunter and Phillip Streets, Sydney, 
NSW 2000, Australia; RREEF and DDI, 222 South Riverside Plaza, Chicago, 
IL 60606; DAAM Global, Winchester House, 1 Great Winchester Street, 
London, United Kingdom EC2N 2DB; Harvest, 31/F One Exchange Square, 8 
Connaught Place, Central Hong Kong, Hong Kong; and the Settling Firm, 
23 Great Winchester Street, London, EC2P 2AX, United Kingdom.

FOR FURTHER INFORMATION CONTACT: David J. Marcinkus, Senior Counsel, at 
202-551-6882 or David P. Bartels, Branch Chief, at 202-551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a temporary order and 
summary of the application. The complete application may be obtained 
via the Commission's Web site by searching for the file number, or for 
an applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. DB AG, a stock corporation under the laws of Germany, is a 
financial services firm. Each of the Applicants, except Harvest, is 
either a direct or indirect wholly-owned subsidiary of DB AG. DIMA, a 
corporation organized under the laws of Delaware, is an investment 
adviser registered under the Investment Advisers Act of 1940 (the 
``Advisers Act''). DeAWMI, a corporation organized under the laws of 
Germany, is an investment adviser registered under the Advisers Act. 
DIAL, a corporation organized under the laws of Australia, is an 
investment adviser registered under the Advisers Act. RREEF, a Delaware 
limited liability company, is an investment adviser registered under 
the Advisers Act. DAAM Global, a UK limited company, is an investment 
adviser registered under the Advisers Act. DBX Advisors, a Delaware 
limited liability company, is an investment adviser registered under 
the Advisers Act. DBX Strategic Advisors, a Delaware limited liability 
company, is an investment adviser registered under the Advisers Act. 
DDI, a corporation organized under the laws of Delaware, is a broker-
dealer registered under the Securities Exchange Act of 1934. Harvest, a 
Hong Kong limited company by shares, is the wholly owned subsidiary of 
a joint venture in which DB AG has an indirect minority interest.
    2. The Settling Firm, a UK limited company, is an indirect wholly 
owned subsidiary of DB AG. The Settling Firm employs London-based 
employees across DB AG's businesses. Applicants state that the Settling 
Firm is a service company that does not serve as an investment adviser, 
principal underwriter, or depositor for any Fund (defined below). 
Applicants represent that the Settling Firm does not engage, has not 
engaged, and will not engage in Fund Servicing Activities (defined 
below).
    3. Each of the Fund Servicing Applicants serves either as 
investment adviser (as defined in section 2(a)(20) of the Act) to 
investment companies registered under the Act or series of such 
companies (``Funds'') or as principal underwriter (as defined in 
section 2(a)(29) of the Act) to open-end management investment 
companies registered under the Act (``Open-End Funds''). While the 
Settling Firm does not serve, and no existing company of which the 
Settling Firm is an ``affiliated person'' within the meaning of section 
2(a)(3) of the Act (``Affiliated Person''), other than the Fund 
Servicing Applicants, currently serves as an investment adviser or 
depositor of any Fund or employees' securities company (``ESC'') or 
investment company that has elected to be treated as a business 
development company under the Act, or principal underwriter for any 
Open-End Fund, unit investment trust registered under the Act, or face-
amount certificate company registered under the Act (such activities, 
collectively, (``Fund Servicing Activities''), Applicants request that 
any relief granted also apply to any existing company of which the 
Settling Firm is an Affiliated Person and to any other company of which 
the Settling Firm may become an Affiliated Person in the future 
(together with the Fund Servicing Applicants, the ``Covered Persons'').
    4. On April 23, 2015, the DOJ filed a one-count criminal 
information (the ``Information'') in the District Court charging the 
Settling Firm with one count of wire fraud, in violation of Title 18, 
United States Code, Section 1343.\1\ The Information charges that 
between approximately 2003 and at least 2010 the Settling Firm engaged 
in a scheme to defraud counterparties to interest rate derivatives 
trades executed on its behalf by manipulating certain benchmark 
interest rates to which the profitability of those trades was tied. The 
Information charges that, in furtherance

[[Page 23828]]

of this scheme, on or about July 20, 2006, the Settling Firm 
transmitted, or caused the transmission of (i) an electronic chat 
between a submitter for the London Interbank Offered Rate for U.S. 
Dollar (``USD LIBOR'') employed by the Settling Firm and a derivatives 
trader employed by Deutsche Bank AG who was located in the United 
States at the time of the chat, (ii) a subsequent USD LIBOR submission 
from the Settling Firm to Thomson Reuters and (iii) a subsequent 
publication of a USD LIBOR rate through international and interstate 
wires.
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    \1\ Information, United States v. DB Group (UK) Ltd., No. 3:15-
cr-62 (D. Conn.).
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    5. Pursuant to a plea agreement (the ``Plea Agreement''), the 
Settling Firm entered a plea of guilty in the District Court. In the 
Plea Agreement, the Settling Firm agreed to, among other things, a 
monetary fine and to full cooperation with law enforcement. On April 
23, 2015, the District Court entered a judgment against the Settling 
Firm (the ``Judgment'').
    6. In addition to the Plea Agreement, DOJ also filed a two-count 
criminal information (the ``DB AG Information'') in the District Court 
charging DB AG with one count of wire fraud and one count of price-
fixing. The DB AG Information charges that, between 2003 and 2010, DB 
AG engaged in a scheme to defraud counterparties to interest rate 
derivatives trades executed on its behalf by manipulating certain 
benchmark interest rates to which the profitability of those trades was 
tied. In connection with the DB AG Information, DB AG entered into a 
deferred prosecution agreement with DOJ on April 23, 2015 (the 
``Deferred Prosecution Agreement''). In the Deferred Prosecution 
Agreement, DB AG agrees, among other things, to (i) full cooperation 
with law enforcement, (ii) installation of an independent compliance 
monitor, (iii) strengthening its internal controls as recommended by 
the monitor and as required by certain other U.S. and non-U.S. 
regulatory agencies that have addressed the relevant misconduct, and 
(iv) payment of a monetary fine.
    7. In connection with the same misconduct described above, on April 
23, 2015 the U.S. Commodity Futures Trading Commission entered an order 
(the ``CFTC Order'') on consent, finding that DB AG made false reports 
regarding, attempted to manipulate, and in some cases successfully 
manipulated, certain benchmark interest rates. The CFTC Order requires 
DB AG to cease and desist from certain violations of the Commodity 
Exchange Act, to pay a monetary fine, and to agree to certain remedial 
undertakings.
    8. In connection with the same misconduct described above, on April 
23, 2015, the U.K. Financial Conduct Authority entered a final notice 
(the ``FCA Final Notice'') finding that DB AG violated Principles 3, 5 
and 11 of the FCA's Principles for Business and imposing a monetary 
fine.
    9. On April 23, 2015, the New York State Department of Financial 
Services entered a consent order against DB AG (the ``DFS Order'') 
relating to the same misconduct described above and imposing a civil 
monetary fine and certain undertakings, including engaging an 
independent compliance monitor.
    10. In response to the misconduct described above, Applicants 
represent that they have engaged in various remedial measures. 
Applicants state that this has included implementing a ``three lines of 
defense'' model for benchmark submissions. According to Applicants, 
this restructuring involved segregating benchmark submission activities 
from other bank activities to reduce conflicts, creating an independent 
control group that monitors benchmark submissions and engaging in 
regular internal and external audits. Applicants state that DB AG has 
also formed a governance body to oversee these lines of defense and 
resolve material issues. Applicants further state that they have 
adopted specific standards, guidelines, policies and training for 
benchmark submissions, which did not exist during the period of 
misconduct. Applicants assert that they have been careful to ensure 
that the new control framework meets the requirements of regulatory 
undertakings required in previously announced settlements concerning 
similar misconduct.

Applicants' Legal Analysis

    1. Section 9(a)(1) of the Act provides, in pertinent part, that a 
person may not serve or act as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company or registered unit investment 
trust, if such person within ten years has been convicted of any felony 
or misdemeanor arising out of such person's conduct, as, among other 
things, an investment adviser, a broker or dealer, or a bank. Section 
2(a)(10) of the Act defines the term ``convicted'' to include a plea of 
guilty. Section 9(a)(3) of the Act extends the prohibitions of section 
9(a)(1) to a company any affiliated person of which has been 
disqualified under the provisions of section 9(a)(1). 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 the 
Settling Firm is an Affiliated Person of each of the other Applicants 
within the meaning of section 2(a)(3). Applicants state that the guilty 
plea would, upon entry of the Judgment, result in a disqualification of 
each Applicant for ten years under section 9(a) of the Act because the 
Settling Firm would become the subject of a conviction described in 
section 9(a)(1).
    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 
temporary and permanent orders exempting the Applicants and other 
Covered Persons from the disqualification provisions of section 9(a) of 
the Act. The Fund Servicing Applicants and other Covered Persons (but 
not the Settling Firm) may, if the relief is granted, in the future act 
in any of the capacities contemplated by section 9(a) of the Act 
subject to the conditions of the Temporary Order and the Permanent 
Order.
    3. Applicants believe they meet the standard for exemption 
specified in section 9(c) of the Act. Applicants state that the 
prohibitions of section 9(a) as applied to them would be unduly and 
disproportionately severe and that the conduct of the Fund Servicing 
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 assert that the conduct underlying the Plea Agreement 
(the ``Conduct'') did not involve any of Applicants acting as an 
investment adviser or depositor of any Fund, ESC or business 
development company or principal underwriter for any Open-End Fund, 
unit investment trust registered under the Act, or face amount 
certificate company registered under the Act. Applicants state that the 
Conduct similarly did not involve any Fund, ESC or business development 
company with respect to which Applicants engaged in Fund Servicing 
Activities.
    5. Applicants further represent that (a) none of the current or 
former directors, officers or employees of the Fund Servicing 
Applicants had any knowledge of, or had any involvement in, the 
Conduct; (b) except as discussed

[[Page 23829]]

below, no current or former employee of the Settling Firm or of any 
Covered Person who previously has been or who subsequently may be 
identified by the Settling Firm, DB AG or any U.S. or non-U.S. 
regulatory or enforcement agencies as having been responsible for the 
Conduct will be an officer, director, or employee of any Applicant or 
of any other Covered Person; (iii) no employee of the Settling Firm or 
of any Covered Person who was involved in the Conduct had any, or will 
have any future, involvement in the Covered Persons' activities in any 
capacity described in section 9(a) of the Act; and (iv) because the 
personnel of the Fund Serving Applicants did not have any involvement 
in the Conduct, shareholders of the Funds were not affected any 
differently than if the Funds had received services from any other non-
affiliated investment adviser or principal underwriter.
    6. Applicants represent that they have taken all possible steps, 
consistent with German and other relevant foreign employment law, to 
terminate the employment of all individuals responsible for the 
Conduct. However, as a consequence of proceedings under German labor 
law, four individuals who were identified as being responsible for the 
Conduct and were terminated are currently employed in non-risk-taking 
positions. Applicants state that DB AG has entered into court-mediated 
settlements with these individuals. Pursuant to the settlements, the 
two more senior employees will remain on paid leave through the end of 
2015 and then will have no association with DB AG. Applicants represent 
that, although the two more junior employees have returned to DB AG, 
these employees (a) will not serve in risk-taking roles or the roles in 
which they served during the Conduct; (b) will not be employed by the 
Covered Persons relying on the relief or otherwise involved in the Fund 
Servicing Activities; and (c) will not be in a compliance monitoring 
role or have any influence over policy-making concerning the Fund 
Servicing Activities. DB AG states that it will take action to 
terminate any additional employee who is determined to have been 
responsible for the Conduct.
    7. Except as discussed above, Applicants have agreed that neither 
they nor any of the other Covered Persons will employ any of the 
current or former employees of the Settling Firm or any Covered Person 
who previously have been or who subsequently may be identified by the 
Settling Firm, DB AG or any U.S. or non-U.S. regulatory or enforcement 
agencies as having been responsible for the Conduct in any capacity 
without first making a further application to the Commission pursuant 
to section 9(c). Applicants also have agreed that each Applicant (and 
any Covered Person that acts in any capacity described in section 9(a) 
of the Act) will adopt and implement policies and procedures reasonably 
designed to ensure compliance with the terms and conditions of the 
order granted under section 9(c). In addition, the Settling Firm has 
agreed to comply in all material respects with the material terms and 
conditions of the Plea Agreement, and DB AG has agreed to comply in all 
material respects with the material terms and conditions of the 
Deferred Prosecution Agreement, CFTC Order, FCA Final Notice and DFS 
Order.
    8. Applicants state that (a) inability of the Fund Servicing 
Applicants to continue providing investment advisory services to Funds 
would result in the Funds and their shareholders facing potential 
hardship and (b) the inability of DDI to continue to serve as principal 
underwriters to the Open-End Funds would similarly result in potential 
hardship to the Open-End Funds and their shareholders. Applicants 
represent that they will distribute to the board of trustees/directors 
of the Funds (the ``Boards'') written materials describing the 
circumstances that led to the Plea Agreement, any impact on the Funds, 
and the application. The written materials will include an offer to 
discuss the materials at an in-person meeting with each Board for which 
Applicants provide Fund Servicing Activities, including the directors 
who are not ``interested persons'' of the Fund as defined in section 
2(a)(19) of the Act, and their independent legal counsel as defined in 
rule 0-1(a)(6) under the Act. Applicants state that they will provide 
the Boards with the information concerning the Plea Agreement and the 
application that is necessary for those Funds to fulfill their 
disclosure and other obligations under the federal securities laws and 
will provide them a copy of the Judgment as entered by the District 
Court.
    9. Applicants state that if the Fund Servicing Applicants were 
barred under section 9(a) of the Act from engaging in Fund Servicing 
Activities and were unable to obtain the requested exemption, the 
effect on their businesses and employees would be severe because they 
have committed substantial resources to establishing an expertise in 
the provision of Fund Servicing Activities. Applicants further state 
that prohibiting them from providing Fund Servicing Activities would 
not only adversely affect their business, but would also adversely 
affect their employees who are involved in those activities.
    10. Applicants argue that section 9(a) should not operate to bar 
them from serving the Funds and their shareholders in the absence of 
improper activities relating to their Fund Servicing Activities. 
Applicants state that the section 9(a) disqualification would disrupt 
the operations of the Funds as they sought to engage new advisers and 
distributors. Applicants assert that these effects would be unduly 
severe and disproportionately harsh given the Fund Servicing 
Applicants' lack of involvement in the Conduct. Moreover, Applicants 
state that the Settling Firm and DB AG have taken remedial actions to 
address the Conduct, as outlined in the application. Applicants also 
assert that the Conduct did not constitute conduct that would make it 
against the public interest or protection of investors to issue the 
Orders.
    11. Applicants state that certain of the Applicants and their 
affiliates have received exemptive orders under section 9(c), as 
described in greater detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. 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.
    2. Except as set out in Section IV.E of the application, neither 
the Applicants nor any of the other Covered Persons will employ any of 
the current or former employees of the Settling Firm or any Covered 
Person who previously has been or who subsequently may be identified by 
the Settling Firm, DB AG, or any U.S. or non-U.S. regulatory or 
enforcement agency as having been responsible for the Conduct, without 
first making a further application to the Commission pursuant to 
section 9(c).
    3. Each Applicant and Covered Person will adopt and implement 
policies and procedures reasonably designed to ensure that it will 
comply with the terms and conditions of the Orders

[[Page 23830]]

within 60 days of the date of the Permanent Order or, with respect to 
condition 4, such later date as may be contemplated by the Plea 
Agreement, the Deferred Prosecution Agreement, the CFTC Order, the FCA 
Final Notice, and the DFS Order.
    4. The Settling Firm will comply in all material respects with the 
material terms and conditions of the Plea Agreement, and DB AG will 
comply in all material respects with the material terms and 
undertakings of the Deferred Prosecution Agreement, the CFTC Order, the 
FCA Final Notice, and the DFS Order.
    5. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of the Orders 
within 30 days of discovery of the material violation.

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 
Applicants and any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the Judgment, subject to the representations and conditions in the 
application, from April 23, 2015, until the date the Commission takes 
final action on their application for a permanent order.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-09965 Filed 4-28-15; 8:45 am]
 BILLING CODE 8011-01-P