[Federal Register Volume 76, Number 141 (Friday, July 22, 2011)]
[Notices]
[Pages 44055-44057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18505]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29726; 812-13910]
BAC Home Loans Servicing, LP, et al.; Notice of Application and
Temporary Order
July 18, 2011.
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: 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 BAC Home Loans Servicing, LP (``HLS'') on
May 31, 2011 by the United States District Court for the Central
District of California (the ``Injunction''), until the Commission takes
final action on an application for a permanent order. Applicants have
requested a permanent order.
Applicants: HLS, BofA Advisors, LLC (``BofA Advisors''), BofA
Distributors, Inc. (``BofA Distributors''), Bank of America Capital
Advisors LLC (``BACA''), KECALP Inc. (``KECALP''), Merrill Lynch
Ventures, LLC (``Ventures'') and Merrill Lynch Global Private Equity
Inc. (``MLGPE'') (collectively, other than HLS, the ``Fund Servicing
Applicants,'' and, together with HLS, 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 HLS is an
affiliated person or may become an affiliated person in the future
(together with the Applicants, the ``Covered Persons'').
DATES: Filing Date: The application was filed on May 27, 2011 and
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amended it on June 1, 2011.
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 August 12, 2011, 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, HLS, 6400 Legacy
Drive, Plano, TX 75024; BofA Advisors, BofA Distributors and BACA, 100
Federal Street, Boston, MA 02110; and KECALP, Ventures and MLGPE, 767
Fifth Avenue, 7th Floor, New York, NY 10153.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, 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.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''). HLS is an entity
that services mortgage loans and provides mortgage services, including
conducting foreclosures on mortgages, on behalf of holders of
residential mortgages and mortgage loan asset-backed certificates. HLS
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, Ventures and MLGPE each serves as investment adviser to
certain employees' securities corporations within the meaning of
section 2(a)(13) of the Act (``ESCs''). Of these three ESC advisers,
only KECALP is registered as an investment adviser under the Advisers
Act.
4. On May 31, 2011, the United States District Court for the
Central District of
[[Page 44056]]
California entered the Injunction against HLS, formerly Countrywide
Home Loans Servicing LP, in a matter brought by The United States
Department of Justice (``DOJ''). The complaint filed by DOJ
(``Complaint'') alleged that, between 2006 and 2009, HLS wrongfully
foreclosed without court orders on approximately 160 properties owned
by servicemembers protected by the Servicemembers Civil Relief Act
(``SCRA''). Additionally, the Complaint alleged that HLS, from 2006
through May 31, 2009, failed to consistently determine the military
status of mortgage loan borrowers in foreclosure. Denying any
wrongdoing as alleged by the United States or otherwise, HLS consented
to the entry of the Injunction against violating the SCRA.
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 HLS is, or may be considered to
be, under common control with and therefore an affiliated person of
each of 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 HLS is
permanently enjoined from engaging in or continuing particular conduct
or practice in connection with banking activity.\2\
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\2\ 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) and In the Matter of Bank of America
Corporation, The Board of Governors of the Federal Reserve Consent
Order, No. 11-029-B-HC (Apr. 13, 2011). Applicants state that the
OCC Order deemed certain loan servicing activity as banking
activity, and the loan servicing activity specified in the
Injunction is a subset of the loan servicing activity deemed banking
activity by the OCC Order. Therefore, Applicants believe that HLS is
permanently 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. On June 1, 2011 the Applicants received a temporary
conditional order from the Commission exempting them from section 9(a)
of the Act with respect to the Injunction until the Commission takes
final action on an application for a permanent order or, if earlier,
July 29, 2011.\3\
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\3\ Investment Company Act Release No. 29688 (June 1, 2011).
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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, the ``Funds''). Applicants state that to
the best of their 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 HLS) 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 (the ``Boards'') 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, Ventures 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
[[Page 44057]]
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. 2011-18505 Filed 7-21-11; 8:45 am]
BILLING CODE 8011-01-P