[Federal Register Volume 78, Number 75 (Thursday, April 18, 2013)]
[Notices]
[Pages 23316-23318]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-09118]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30462; 812-14148]
The Royal Bank of Scotland plc, et al.; Notice of Application and
Temporary Order
April 12, 2013.
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'').
SUMMARY: Applicants have received a temporary order exempting them
from section 9(a) of the Act, with respect to a guilty plea entered on
April 12, 2013, by RBS Securities Japan Limited (the ``Settling Firm'')
in the U.S. District Court for the District of Connecticut (``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 applied for a permanent order.
APPLICANTS: The Royal Bank of Scotland plc (``RBS plc''), Citizens
Investment Advisors (``Citizens IA''), a separately identifiable
department of RBS Citizens, N.A., and the Settling Firm (each an
``Applicant'' and collectively, the ``Applicants'').\1\
---------------------------------------------------------------------------
\1\ Applicants request that any relief granted pursuant to the
application also apply to any existing or future company of which
the Settling Firm is or may become an affiliated person within the
meaning of section 2(a)(3) of the Act (together with the Applicants,
the ``Covered Persons'') with respect to any activity contemplated
by section 9(a) of the Act.
---------------------------------------------------------------------------
Filing Date: The application was filed on April 12, 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 7, 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: Elizabeth M. Murphy, Secretary, U.S. Securities and
Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
Applicants: RBS plc, RBS, Gogarburn, PO Box 1000, Edinburgh, EH12 1HQ,
Scotland; Citizens IA, c/o RBS Citizens, N.A., Mail Stop RC 03-30, One
Citizens Plaza, Providence, Rhode Island 02903; Settling Firm, Shin-
Marunouchi Center Building, 1-6-2 Marunouchi, Chiyoda-ku, Tokyo 100-
0005, Japan.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817 or Daniele Marchesani, Branch Chief, at (202) 551-6821
(Division of Investment Management, Exemptive Applications Office).
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 Applicant is either a direct or indirect wholly-owned
subsidiary of The Royal Bank of Scotland Group plc (``RBSG''). RBSG and
RBS plc, a company organized under the laws of Scotland, are
international banking and financial services companies that provide a
wide range of products and services to companies around the world.
Citizens IA, an investment adviser registered under the Investment
Advisers Act of 1940, is a separately identifiable department of RBS
Citizens, N.A. Citizens IA serves as investment sub-adviser to Aquila
Narragansett Tax-Free Income Fund (the ``Fund'') (such activity, ``Fund
Service Activities''). The Settling Firm, a company with its principal
place of business in Tokyo, Japan, engages in securities business
operations, including derivatives trading.
2. On April 12, 2013, the Fraud Section of the Criminal Division
and the Antitrust Division of the DOJ filed a one-count criminal
information (the ``Information'') in the District Court charging one
count of wire fraud, in violation of Title 18, United States Code,
Section 1343. The Information charges that between approximately 2006
and at least 2010, the Settling Firm engaged in a scheme to defraud
counterparties to interest rate derivatives trades executed on its
behalf by secretly manipulating benchmark interest rates to which the
profitability of those trades was tied. The Information charges that,
in furtherance of this scheme, on or about October 5, 2009, the
Settling Firm committed wire fraud in violation of Title 18, United
States Code, Section 1343 by transmitting, or causing the transmission
of, (i) An electronic chat between a derivatives trader employed by the
Settling Firm and an RBS plc derivatives trader, (ii) a subsequent
submission for the London InterBank Offered Rate for Japanese Yen
(``Yen LIBOR'') to Thomson Reuters, and (iii) a subsequent publication
of a Yen LIBOR rate through international and interstate wires.
3. Pursuant to a plea agreement (the ``Plea Agreement''), attached
as exhibit to the application, the Settling Firm entered a plea of
guilty (the ``Guilty Plea'') on April 12, 2013, in the District Court.
In the Plea Agreement, the Settling Firm, among other things, agreed to
a fine of $50 million. Applicants expect that the District Court will
enter a judgment against the Settling Firm that will require remedies
that are materially the same as set forth in the Plea Agreement. In
addition, RBS plc entered into a deferred prosecution agreement with
DOJ (the ``Deferred Prosecution Agreement'') relating to submissions of
the Yen LIBOR and other benchmark interest rates. In the Deferred
Prosecution Agreement, RBS plc has agreed to, among other things, (i)
Continue to provide full cooperation with DOJ and any other law
enforcement or government agency designated by DOJ until the conclusion
of all investigations and prosecutions arising out of the conduct
described in the Deferred Prosecution Agreement; (ii) strengthen its
internal controls as required by certain other U.S. and non-U.S.
regulatory agencies that have addressed the misconduct described in the
Deferred Prosecution Agreement; and (iii) the payment of $150 million,
which includes amounts incurred by the Settling Firm for criminal
penalties arising from the Judgment. The individuals at the Settling
Firm and at any other Covered Person who were identified by the
Settling Firm, RBS plc or any U.S. or non-U.S. regulatory or
enforcement agencies as being responsible for the conduct underlying
the Plea Agreement, including the conduct described in any of the
exhibits
[[Page 23317]]
thereto (the ``Conduct''), have either resigned or have been
terminated.\2\
---------------------------------------------------------------------------
\2\ The Applicants note that a junior level employee of a
Covered Person (the ``Employee'') who was not responsible for the
Conduct remains employed by a Covered Person. The Applicants have
concluded that the Employee was not responsible for the Conduct and
the Employee has not been identified by any U.S. or non-U.S.
regulatory or enforcement agencies as being responsible for the
Conduct. The Applicants acknowledge that the Commission has not been
asked to determine, and has not determined, whether or not the
Employee is responsible for the Conduct.
---------------------------------------------------------------------------
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, a broker or dealer. 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 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 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 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 assert that the Conduct did not involve any of the
Applicants' Fund Service Activities, and that the Settling Firm does
not serve in any of the capacities described in section 9(a) of the
Act. Additionally, Applicants assert that the Conduct did not involve
the Fund or the assets of the Fund. Applicants further assert that (i)
None of the current or former directors, officers or employees of the
Applicants (other than certain personnel of the Settling Firm and RBS
plc who were not involved in any of the Applicants' Fund Service
Activities) had any knowledge of, or had any involvement in, the
Conduct; (ii) no former employee of the Settling Firm or of any other
Covered Person who previously has been or who subsequently may be
identified by the Settling Firm, RBS plc 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
not 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 Applicants (other than certain personnel of the
Settling Firm and RBS plc who were not involved in any of the
Applicants' Fund Service Activities) did not have any involvement in
the Conduct, shareholders of the Fund were not affected any differently
than if the Fund had received services from any other non-affiliated
investment adviser. Applicants have agreed that neither they nor any of
the other Covered Persons will employ any of the former employees of
the Settling Firm or any other Covered Person who previously have been
or who subsequently may be identified by the Settling Firm, RBS plc or
any U.S. or non-U.S. regulatory or enforcement agency as having been
responsible for the Conduct in any capacity without first making a
further application to the Commission pursuant to section 9(c).
5. Applicants further represent that the inability of Citizens IA
to continue providing Fund Service Activities would result in potential
hardships for both the Fund and its shareholders. Applicants state that
they will distribute written materials, including an offer to meet in
person to discuss the materials, to the board of trustees of the Fund,
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 Guilty Plea, any impact on the Fund, and the application.
The Applicants will provide the Fund with all information concerning
the Plea Agreement and the application that is necessary for the Fund
to fulfill its disclosure and other obligations under the federal
securities laws.
6. Applicants also state that, if Citizens IA was barred from
providing Fund Service Activities to the Fund, the effect on its
business and employees would be severe.
7. Applicants state that none of the Applicants has previously
applied for an exemptive order under section 9(c) of the Act.
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. Neither the Applicants nor any of the other Covered Persons will
employ any of the former employees of the Settling Firm or of any other
Covered Person who previously has been or who subsequently may be
identified by the Settling Firm, RBS plc or any U.S. or non-U.S.
regulatory or enforcement agency as having been responsible for the
Conduct, in any capacity, without first making a further application to
the Commission pursuant to section 9(c).
Temporary Order
The Commission has considered the matter and finds that the
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
[[Page 23318]]
exemption from the provisions of section 9(a), effective forthwith,
solely with respect to the Guilty Plea, subject to the conditions 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. 2013-09118 Filed 4-17-13; 8:45 am]
BILLING CODE 8011-01-P