[Federal Register Volume 78, Number 205 (Wednesday, October 23, 2013)]
[Notices]
[Pages 63253-63255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24771]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-3693/803-00215]
Davidson Kempner Capital Management LLC; Notice of Application
October 17, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an exemptive order under Section 206A
of the Investment Advisers Act of 1940 (the ``Advisers Act'') and Rule
206(4)-5(e) thereunder.
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Applicant: Davidson Kempner Capital Management LLC (``Applicant'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act and rule 206(4)-5(e) thereunder from rule 206(4)-
5(a)(1) under the Advisers Act.
Summary of Application: Applicant requests that the Commission issue
an order under section 206A of the Advisers Act and rule 206(4)-5(e)
thereunder exempting it from rule 206(4)-5(a)(1) under the Advisers Act
to permit Applicant to receive compensation from three government
entities for investment advisory services provided to the government
entities within the two-year period following a contribution by a
covered associate of Applicant to an official of the government
entities.
DATES: Filing Dates: The application was filed on October 16, 2012, and
an amended and restated application was filed on July 5, 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 Applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on November 12, 2013, and should be accompanied by proof of
service on Applicant, 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant,
Davidson Kempner Capital Management LLC, c/o Shulamit Leviant, 65 East
55th Street, 19th Floor, New York, New York 10022.
FOR FURTHER INFORMATION CONTACT: Melissa S. Gainor, Senior Counsel, or
Sarah A. Buescher, Branch Chief, at (202) 551-6787 (Investment Adviser
Regulation Office, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 100 F Street NE., Washington, DC 20549-
0102 (telephone (202) 551-5850).
Applicant's Representations
1. Applicant is a limited liability company registered with the
Commission as an investment adviser under the Advisers Act. Applicant
serves as investment adviser to Davidson Kempner Institutional
Partners, L.P. (the ``Fund''), an issuer excluded from the definition
of investment company pursuant to section 3(c)(7) of the Investment
Company Act of 1940. Three of the investors in the Fund (the
``Clients'') are Ohio public pension plans. The investment decisions
for each Client are overseen by a board of between 9 and 11 trustees
that includes one individual appointed by the Ohio State Treasurer.
2. On May 22, 2011, Anthony Yoseloff, a managing member and senior
investment professional of Applicant (the ``Contributor''), made a
contribution of $2,500 (the ``Contribution'') to the federal senate
campaign of Joshua Mandel, the Ohio State Treasurer (the ``Official'').
The Contributor's wife also made a contribution for the same amount.
Applicant represents that the amount of the Contribution, profile of
the candidate and characteristics of the campaign are consistent with
the pattern of the Contributor's other political contributions.
3. Applicant represents that the Contributor did not solicit any
persons
[[Page 63254]]
to make contributions to the Official's campaign, and that the
executive managing member of Applicant was informed of the
Contributor's plan to meet with the Official, but never learned that
the Contributor made the Contribution.
4. Applicant represents that each Client's relationship with the
Applicant pre-dates the Contribution and only one investment made by
the Clients occurred after the contribution. The Applicant also
represents that it took steps designed to limit the Contributor's
contact with each Client and each Client's representatives during the
duration of the two-year compensation time out. Applicant represents
that the Contributor's role with the Clients was limited to making
substantive presentations to the Client's representatives regarding the
investment strategy for which the Contributor is a manager. Applicant
represents that the Contributor had no contact with any representative
of a Client outside of those presentations, and no contact with any
member of a Client's board. No member of a Client's board serving at
the time of the Contribution was appointed by the Official.
5. Applicant represents that at no time did any employees of the
Adviser other than the Contributor have any knowledge of the
Contribution prior to its discovery by the Adviser on November 2, 2011.
The Contribution was discovered by the Adviser's compliance department
during compliance testing that included random testing of campaign
contribution databases for the names of employees. After discovery of
the Contribution, the Adviser and Contributor obtained the Official's
agreement to return the full amount of the Contribution, which was
subsequently returned. An escrow account was established and all fees
paid from the Clients' capital accounts in the Fund for the two-year
period beginning on May 22, 2011 were deposited in the account.
Applicant represents that it notified each Client of the Contribution
and resulting two-year prohibition on compensation absent exemptive
relief from the Commission.
6. The Adviser's policies and procedures regarding pay-to-play
(``Pay-to-Play Policies and Procedures'') were initially adopted and
implemented in August 2009 and required covered employees of the
Adviser to pre-clear contributions to state and local office incumbents
(including state and local officials running for federal office) and
candidates. Applicant represents that the Contributor's violation of
Applicant's Pay-to-Play Policies and Procedures resulted from his
mistaken belief that all contributions to federal campaigns were
permissible and exempt from Pay-to-Play Policies and Procedures. After
learning of the Contributor's misunderstanding, Applicant represents
that it revised its Pay to Play Policies and Procedures to require
covered employees of the Adviser to pre-clear all campaign
contributions to avoid similar misunderstandings by covered associates.
Applicant's Legal Analysis
1. Rule 206(4)-5(a)(1) under the Advisers Act prohibits a
registered investment adviser from providing investment advisory
services for compensation to a government entity within two years after
a contribution to an official of the government entity is made by the
investment adviser or any covered associate of the investment adviser.
Each Client is a ``government entity,'' as defined in rule 206(4)-
5(f)(5), the Contributor is a ``covered associate'' as defined in rule
206(4)-5(f)(2), and the Official is an ``official'' as defined in rule
206(4)-5(f)(6). Rule 206(4)-5(c) provides that when a government entity
invests in a covered investment pool, the investment adviser to that
covered investment pool is treated as providing advisory services
directly to the government entity. The Fund is a ``covered investment
pool,'' as defined in rule 206(4)-5(f)(3)(ii).
2. Section 206A of the Advisers Act grants the Commission the
authority to ``conditionally or unconditionally exempt any person or
transaction . . . from any provision or provisions of [the Advisers
Act] or of any rule or regulation thereunder, if and to the extent that
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 Advisers Act].''
3. Rule 206(4)-5(e) provides that the Commission may exempt an
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon
consideration of the factors listed below, among others:
(1) Whether the 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 Advisers
Act;
(2) Whether the investment adviser: (i) Before the contribution
resulting in the prohibition was made, adopted and implemented policies
and procedures reasonably designed to prevent violations of the rule;
and (ii) prior to or at the time the contribution which resulted in
such prohibition was made, had no actual knowledge of the contribution;
and (iii) after learning of the contribution: (A) Has taken all
available steps to cause the contributor involved in making the
contribution which resulted in such prohibition to obtain a return of
the contribution; and (B) has taken such other remedial or preventive
measures as may be appropriate under the circumstances;
(3) Whether, at the time of the contribution, the contributor was a
covered associate or otherwise an employee of the investment adviser,
or was seeking such employment;
(4) The timing and amount of the contribution which resulted in the
prohibition;
(5) The nature of the election (e.g., federal, state or local); and
(6) The contributor's apparent intent or motive in making the
contribution which resulted in the prohibition, as evidenced by the
facts and circumstances surrounding such contribution.
4. Applicant requests an order pursuant to section 206A and rule
206(4)-5(e) thereunder, exempting it from the two-year prohibition on
compensation imposed by rule 206(4)-5(a)(1) with respect to investment
advisory services provided to the Clients within the two-year period
following the Contribution.
5. Applicant submits that the exemption is necessary and
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. Applicant further submits that the other factors
set forth in rule 206(4)-5(e) similarly weigh in favor of granting an
exemption to the Applicant to avoid consequences disproportionate to
the violation.
6. Applicant states that each Client determined to invest with
Applicant and established those advisory relationships on an arms'
length basis free from any improper influence as a result of the
Contribution. In support of this argument, Applicant notes that each
Client's relationship with the Applicant pre-dates the Contribution and
only one investment made by the Clients occurred after the
contribution. Furthermore, the Official's influence on each Client is
limited, as was the Contributor's contact with each Client's
representatives. Applicant also argues that the interests of the
Clients are best served by allowing the Applicant and its Clients to
continue their relationship uninterrupted.
7. Applicant notes that it adopted and implemented Pay-to-Play
Policies and Procedures compliant with the rule's
[[Page 63255]]
requirements and it implemented compliance testing procedures prior to
the date of the Contribution. Applicant further represents that at no
time did any employees of Applicant other than the Contributor have any
knowledge that the Contribution had been made prior to discovery by the
Applicant in November 2011. After learning of the Contribution,
Applicant and the Contributor obtained the Official's agreement to
return the Contribution, which was subsequently returned, and the
Applicant set up an escrow account for all fees charged to the Clients'
capital accounts in the Fund for the two-year period beginning May 22,
2011.
8. Applicant states that the Contributor's apparent intent in
making the Contribution was not to influence the selection or retention
of Applicant. Applicant represents that the amount of the Contribution,
profile of the candidate and characteristics of the campaign are
consistent with the pattern of the Contributor's other substantial
political donations. Applicant notes that the Contributor failed to
appreciate that contributions to federal candidates who held state or
local office could trigger the prohibition on compensation under Rule
206(4)-5 or that such contributions were subject to the Applicant's
Pay-to-Play Policies and Procedures. Applicant represents that the
Contributor had no contact with any representative of the Clients (or
their boards) outside of making limited substantive presentations to
the Clients' representatives and consultants about the investment
strategy he manages and that the Applicant took steps designed to limit
such contact during the duration of the two-year time out on
compensation.
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24771 Filed 10-22-13; 8:45 am]
BILLING CODE 8011-01-P