[Federal Register Volume 78, Number 231 (Monday, December 2, 2013)]
[Notices]
[Pages 72132-72133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28759]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30808; 812-14232]
RBS Securities Inc. and Citizens Investment Advisors; Notice of
Application and Temporary Order
November 25, 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'').
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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 RBS Securities Inc. (``RBS Securities'') on
November 25, 2013, by the United States District Court for the District
of Connecticut (the ``District Court'') until the Commission takes
final action on an application for a permanent order. Applicants also
have applied for a permanent order.
Applicants: RBS Securities and Citizens Investment Advisors (``Citizens
IA''), a separately identifiable department of RBS Citizens, N.A. (each
an ``Applicant'' and collectively, the ``Applicants'').\1\
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\1\ Applicants request that any relief granted pursuant to the
application also apply to any existing company of which RBS
Securities is an affiliated person within the meaning of section
2(a)(3) of the Act (an ``Affiliated Person'') and to any other
company of which RBS Securities may become an Affiliated Person in
the future (together with the Applicants, the ``Covered Persons'')
with respect to any activity contemplated by Section 9(a) of the
Act.
DATES: Filing Date: The application was filed on November 7, 2013, and
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amended on November 25, 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 December 20, 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 Securities, 600 Washington Boulevard, Stamford, CT 06901; Citizens
IA, c/o RBS Citizens Financial Group Inc., 101 Park Avenue, 10th Floor,
New York, NY 10178.
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. RBS Securities, a Delaware corporation, is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended
(the ``Exchange Act''), and is an indirect wholly-owned subsidiary of
the Royal Bank of Scotland Group plc (``RBSG''). RBS Securities does
not serve as investment adviser, depositor or principal underwriter to
any registered investment company. Citizens IA, an investment adviser
registered under the Investment Advisers Act of 1940, is a separately
identifiable department of RBS Citizens, N.A., which is an indirect
wholly-owned subsidiary of RBSG and bank subsidiary of RBS Citizens
Financial Group, Inc. (``CFG''). CFG is a wholly-owned subsidiary of
RBSG. Citizens IA serves as investment sub-adviser to one management
investment company registered under the Act, Aquila Narragansett Tax-
Free Income Fund (the ``Fund''). The Applicants and other Covered
Persons 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.
2. On November 7, 2013, the Commission filed a complaint (the
``Complaint'') against RBS Securities in the District Court in a civil
action captioned Securities and Exchange Commission v. RBS Securities
Inc. The Complaint alleged that RBS Securities violated sections
17(a)(2) and (3) of the Securities Act of 1933 (the ``Securities Act'')
arising out of a single offering of residential mortgage-backed
securities in 2007 (the ``Conduct''). In settlement of this action, RBS
Securities submitted an executed Consent of Defendant RBS Securities
Inc. (the ``Consent''). In the Consent, RBS Securities agreed to the
entry of a final judgment, without admitting or denying the allegations
made in the Complaint (other than those relating to the jurisdiction of
the District Court over it and the subject matter, solely for the
purposes of this action). On November 25, 2013, the District Court
entered a judgment against RBS Securities (the ``Judgment'') \2\ that
enjoined RBS Securities from violating, directly or indirectly,
sections 17(a)(2) and (a)(3) of the Securities Act (the
``Injunction''). Additionally, pursuant to the Judgment, RBS Securities
will pay disgorgement, prejudgment interest and a civil monetary
penalty.
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\2\ Securities and Exchange Commission v. RBS Securities Inc.,
Case Number 1:13-cv-01643-WWE (D. Conn. Nov. 25, 2013).
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Applicants' Legal Analysis
1. Section 9(a)(2) of the Act, in relevant part, prohibits a person
who has been enjoined from engaging in or continuing any conduct or
practice in connection with the purchase or sale of a security, or in
connection with activities as an underwriter, broker or dealer, 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 UIT, or registered
face-amount certificate company (such activities, collectively, ``Fund
Services Activities''). Section 9(a)(3) of the Act makes the
prohibition in section 9(a)(2) applicable 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: (A) any person directly or indirectly owning,
controlling, or holding with power to vote, five per centum or more of
the outstanding voting securities of such other person; (B) any person
five per centum or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote,
by such other person; and (C) any person directly or indirectly
controlling, controlled by, or under common control, with the other
person.
[[Page 72133]]
Applicants state that RBS Securities is an Affiliated Person of
Citizens IA. Applicants state that, taken together, sections 9(a)(2)
and 9(a)(3) would have the effect of precluding Citizens IA from acting
as a sub-adviser to the Fund.
2. Section 9(c) of the Act provides that, upon application, the
Commission shall grant an application for exemption from the
disqualification provisions of section 9(a) of the Act if it is
established that these provisions, as applied to the Applicants, are
unduly or disproportionately severe or that the conduct of the
Applicants 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 them and other Covered Persons from the
disqualification provisions of section 9(a).
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 the 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 did not involve any of the
Applicants' Fund Service Activities. Applicants state that RBS
Securities does not serve in any of the capacities described in section
9(a) of the Act. In addition, Applicants state that the Conduct did not
involve the Fund, or the assets of the Fund, with respect to which the
Applicants provided Fund Service Activities.
5. Applicants also state to the best of their knowledge (i) none of
the current directors, officers, or employees of Citizens IA that are
involved in providing Fund Service Activities (or any other persons in
such roles during the time period covered by the Complaint) had
knowledge of or participated in the conduct alleged in the Complaint to
have constituted the violations that provide a basis for the
Injunction; (ii) the directors, officers and employees at RBS
Securities who participated in the conduct alleged in the Complaint to
have constituted the violations that provide a basis for the Injunction
have had no, and will not have any, involvement in providing Fund
Service Activities on behalf of the Applicants or other Covered
Persons; and (iii) because the personnel of Citizens IA did not
participate in the conduct alleged in the Complaint to have constituted
the violations that provide a basis for the Injunction, the
shareholders of the Fund were not affected any differently than if the
Fund had received services from any other non-affiliated investment
adviser or principal underwriter.
6. Applicants submit that they have taken sufficient remedial
actions to address the conduct that served as the basis for the
Injunction and that granting the exemption requested is consistent with
the public interest and the protection of investors.
7. Applicants state that the inability of Citizens IA to continue
providing Fund Service Activities to the Fund would result in the Fund
and its shareholders facing potential hardship. Applicants state that
they will distribute to the board of trustees of the Fund (the
``Board'') written materials describing the circumstances that led to
the Injunction, any impact on the Fund, and the application. The
written materials will include an offer to discuss the materials at an
in-person meeting with the Board, 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
Board with the information concerning the Injunction and the
application that is necessary for the Fund to fulfill its disclosure
and other obligations under the federal securities laws.
8. Applicants state that if Citizens IA were barred from providing
investment advisory services to the Fund, the effect on its businesses
and employees would be severe. Applicants state that Citizens IA has
committed substantial capital and other resources to establish an
expertise in sub-advising registered investment companies. Applicants
further state that prohibiting Citizens IA from providing Fund Service
Activities would not only adversely affect its business, but would also
adversely affect its employees that are involved in those activities.
Applicants state that many of these employees could experience
significant difficulties in finding alternative fund-related
employment.
9. Applicants state that Applicants and certain other affiliated
persons of the Applicants have previously received an order under
section 9(c) of the Act, as the result of conduct that triggered
section 9(a), 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 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
Applicants and any other Covered Persons are granted a temporary
exemption from the provisions of section 9(a), solely with respect to
the Injunction, subject to the condition in the application, from
November 25, 2013, until the Commission takes final action on their
application for a permanent order.
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28759 Filed 11-29-13; 8:45 am]
BILLING CODE 8011-01-P