[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Notices]
[Pages 24543-24546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9772]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30036; 812-13767]
Beverly Hills Bancorp Inc.; Notice of Application
April 18, 2012.
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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[[Page 24544]]
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.
Filing Dates: The application was filed on April 22, 2010, and
amended on October 18, 2010, and November 2, 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 May 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. Applicant, Post Office Box 8280,
Calabasas, CA 91372.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 551-6868, or May Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
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 was a bank holding company that conducted its banking and
lending 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
September 30, 2011, BHBC had 78 holders of record.
3. BHBC has options outstanding under two equity incentive plans,
the Amended and Restated 1999 Equity Participation Plan of Wilshire
Financial Services Group Inc. (the ``1999 Plan'') and the 2002 Equity
Participation Plan (the ``2002 Plan,'' and together with the 1999 Plan,
the ``Plans''). All outstanding awards under the Plans were granted
prior to the FDIC's appointment as receiver for the Bank. As of
September 30, 2011, there were options outstanding under the 1999 Plan
to purchase 32,667 shares of BHBC common stock, all of which were held
by one director of BHBC.\1\ As of September 30, 2011, the only options
outstanding under the 2002 Plan were options to purchase 137,333 shares
of BHBC common stock held by four individuals, each of whom is a
director and/or officer of BHBC. BHBC will not issue any additional
awards under the 2002 Plan. In addition, BHBC's four directors have
stock appreciation rights (SARs) with respect to 120,000 shares of
common stock.
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\1\ The 1999 Plan expired on September 30, 2009.
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4. As of September 30, 2011, on a consolidated basis, for financial
reporting purposes BHBC has assets of $11.9 million, liabilities of
$38.4 million, and a stockholders' equity of negative $26.5 million. On
a non-consolidated basis, BHBC's assets total approximately $10.3
million, and since the receivership of the Bank, these assets have
consisted almost exclusively of checking accounts at commercial banks
and shares of the Vanguard Short-Term Investment Grade Fund (Admiral
Shares) (the ``Vanguard Fund''), which BHBC has since liquidated and
invested the proceeds in Permitted Securities (as defined below).
5. BHBC has several direct or indirect wholly owned subsidiaries,
none of which has any ongoing business or operations. As of September
30, 2011, the following assets were held by BHBC subsidiaries: (i)
Wilshire Acquisitions Corporation (``Wilshire Asquisitions'') has
assets with a book value of $151,732 consisting of accrued interest and
prepaid expenses related to a subsidiary trust, (ii) WFC Inc. has
assets with a book value of $377,250 consisting of approximately 19
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
three 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 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 states that it and its current and former directors and
officers are subject to actual and potential
[[Page 24545]]
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. When the
Bank was closed and put into receivership with the FDIC, the FDIC
became successor to all of the Bank's claims, including claims against
BHBC and the current or former officers and directors of BHBC and the
Bank, for failure to maintain the net worth of the Bank, gross
negligence and breach of fiduciary duty. BHBC states that in addition
to any claims made directly against it, BHBC is subject to
indemnification and expense obligations in connection with various
actions brought against its current and former directors, officers,
employees or agents.
8. 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 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, commercial
paper rated A-1/P-1, 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 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 only in bank checking accounts and Permitted Securities after
liquidating the Vanguard Fund. 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 hold its liquid assets
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
[[Page 24546]]
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. 2012-9772 Filed 4-23-12; 8:45 am]
BILLING CODE 8011-01-P