[Federal Register Volume 80, Number 82 (Wednesday, April 29, 2015)]
[Notices]
[Pages 23826-23830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC--31577; 812-14448]
Deutsche Bank AG, et al.; Notice of Application and Temporary
Order
April 23, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Temporary order and notice of application for a permanent
order under
[[Page 23827]]
section 9(c) of the Investment Company Act of 1940 (``Act'').
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SUMMARY: Applicants have received a temporary order (the ``Temporary
Order'') exempting them from section 9(a) of the Act, with respect to a
guilty plea entered April 23, 2015, by DB Group Services (UK) Ltd. (the
``Settling Firm'') in the U.S. District Court for the District of
Connecticut (the ``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 requested a permanent order
(the ``Permanent Order,'' and with the Temporary Order, the
``Orders'').
Applicants: Deutsche Investment Management Americas, Inc. (``DIMA''),
Deutsche Asset & Wealth Management International GmbH (``DeAWMI''),
Deutsche Investments Australia Limited (``DIAL''), RREEF America L.L.C.
(``RREEF''), Deutsche Alternative Asset Management (Global) Limited
(``DAAM Global''), DBX Advisors LLC (``DBX Advisors''), DBX Strategic
Advisors LLC (``DBX Strategic Advisors''), DeAWM Distributors, Inc.
(``DDI''), Harvest Global Investments Limited (``Harvest'') (each, a
``Fund Servicing Applicant''); and the Settling Firm (with the Fund
Servicing Applicants, the ``Applicants''), and Deutsche Bank AG (``DB
AG'').
Filing Date: The application was filed on April 23, 2015.
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 18, 2015, and should be accompanied by proof of service on
applicants, in the form of an affidavit or, for lawyers, a certificate
of service. Pursuant to rule 0-5 under the Act, hearing requests should
state the nature of the writer's interest, any facts bearing upon the
desirability of a hearing on the matter, 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: DB AG, Taunusanlage
12, 60325 Frankfurt am Main, Germany; DIMA, DBX Advisors, and DBX
Strategic Advisors, 345 Park Avenue, New York, NY 10154; DeAWMI,
Mainzer Landstrasse 178-190, Frankfurt am Main, 60327, Germany; DIAL,
Deutsche Bank Place, Level 16, CNR Hunter and Phillip Streets, Sydney,
NSW 2000, Australia; RREEF and DDI, 222 South Riverside Plaza, Chicago,
IL 60606; DAAM Global, Winchester House, 1 Great Winchester Street,
London, United Kingdom EC2N 2DB; Harvest, 31/F One Exchange Square, 8
Connaught Place, Central Hong Kong, Hong Kong; and the Settling Firm,
23 Great Winchester Street, London, EC2P 2AX, United Kingdom.
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. DB AG, a stock corporation under the laws of Germany, is a
financial services firm. Each of the Applicants, except Harvest, is
either a direct or indirect wholly-owned subsidiary of DB AG. DIMA, a
corporation organized under the laws of Delaware, is an investment
adviser registered under the Investment Advisers Act of 1940 (the
``Advisers Act''). DeAWMI, a corporation organized under the laws of
Germany, is an investment adviser registered under the Advisers Act.
DIAL, a corporation organized under the laws of Australia, is an
investment adviser registered under the Advisers Act. RREEF, a Delaware
limited liability company, is an investment adviser registered under
the Advisers Act. DAAM Global, a UK limited company, is an investment
adviser registered under the Advisers Act. DBX Advisors, a Delaware
limited liability company, is an investment adviser registered under
the Advisers Act. DBX Strategic Advisors, a Delaware limited liability
company, is an investment adviser registered under the Advisers Act.
DDI, a corporation organized under the laws of Delaware, is a broker-
dealer registered under the Securities Exchange Act of 1934. Harvest, a
Hong Kong limited company by shares, is the wholly owned subsidiary of
a joint venture in which DB AG has an indirect minority interest.
2. The Settling Firm, a UK limited company, is an indirect wholly
owned subsidiary of DB AG. The Settling Firm employs London-based
employees across DB AG's businesses. Applicants state that the Settling
Firm is a service company that does not serve as an investment adviser,
principal underwriter, or depositor for any Fund (defined below).
Applicants represent that the Settling Firm does not engage, has not
engaged, and will not engage in Fund Servicing Activities (defined
below).
3. Each of the Fund Servicing Applicants serves either as
investment adviser (as defined in section 2(a)(20) of the Act) to
investment companies registered under the Act or series of such
companies (``Funds'') or as principal underwriter (as defined in
section 2(a)(29) of the Act) to open-end management investment
companies registered under the Act (``Open-End Funds''). While the
Settling Firm does not serve, and no existing company of which the
Settling Firm is an ``affiliated person'' within the meaning of section
2(a)(3) of the Act (``Affiliated Person''), other than the Fund
Servicing Applicants, currently serves as an investment adviser or
depositor of any Fund or employees' securities company (``ESC'') or
investment company that has elected to be treated as a business
development company under the Act, or principal underwriter for any
Open-End Fund, unit investment trust registered under the Act, or face-
amount certificate company registered under the Act (such activities,
collectively, (``Fund Servicing Activities''), Applicants request that
any relief granted also apply to any existing company of which the
Settling Firm is an Affiliated Person and to any other company of which
the Settling Firm may become an Affiliated Person in the future
(together with the Fund Servicing Applicants, the ``Covered Persons'').
4. On April 23, 2015, the DOJ filed a one-count criminal
information (the ``Information'') in the District Court charging the
Settling Firm with one count of wire fraud, in violation of Title 18,
United States Code, Section 1343.\1\ The Information charges that
between approximately 2003 and at least 2010 the Settling Firm engaged
in a scheme to defraud counterparties to interest rate derivatives
trades executed on its behalf by manipulating certain benchmark
interest rates to which the profitability of those trades was tied. The
Information charges that, in furtherance
[[Page 23828]]
of this scheme, on or about July 20, 2006, the Settling Firm
transmitted, or caused the transmission of (i) an electronic chat
between a submitter for the London Interbank Offered Rate for U.S.
Dollar (``USD LIBOR'') employed by the Settling Firm and a derivatives
trader employed by Deutsche Bank AG who was located in the United
States at the time of the chat, (ii) a subsequent USD LIBOR submission
from the Settling Firm to Thomson Reuters and (iii) a subsequent
publication of a USD LIBOR rate through international and interstate
wires.
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\1\ Information, United States v. DB Group (UK) Ltd., No. 3:15-
cr-62 (D. Conn.).
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5. Pursuant to a plea agreement (the ``Plea Agreement''), the
Settling Firm entered a plea of guilty in the District Court. In the
Plea Agreement, the Settling Firm agreed to, among other things, a
monetary fine and to full cooperation with law enforcement. On April
23, 2015, the District Court entered a judgment against the Settling
Firm (the ``Judgment'').
6. In addition to the Plea Agreement, DOJ also filed a two-count
criminal information (the ``DB AG Information'') in the District Court
charging DB AG with one count of wire fraud and one count of price-
fixing. The DB AG Information charges that, between 2003 and 2010, DB
AG engaged in a scheme to defraud counterparties to interest rate
derivatives trades executed on its behalf by manipulating certain
benchmark interest rates to which the profitability of those trades was
tied. In connection with the DB AG Information, DB AG entered into a
deferred prosecution agreement with DOJ on April 23, 2015 (the
``Deferred Prosecution Agreement''). In the Deferred Prosecution
Agreement, DB AG agrees, among other things, to (i) full cooperation
with law enforcement, (ii) installation of an independent compliance
monitor, (iii) strengthening its internal controls as recommended by
the monitor and as required by certain other U.S. and non-U.S.
regulatory agencies that have addressed the relevant misconduct, and
(iv) payment of a monetary fine.
7. In connection with the same misconduct described above, on April
23, 2015 the U.S. Commodity Futures Trading Commission entered an order
(the ``CFTC Order'') on consent, finding that DB AG made false reports
regarding, attempted to manipulate, and in some cases successfully
manipulated, certain benchmark interest rates. The CFTC Order requires
DB AG to cease and desist from certain violations of the Commodity
Exchange Act, to pay a monetary fine, and to agree to certain remedial
undertakings.
8. In connection with the same misconduct described above, on April
23, 2015, the U.K. Financial Conduct Authority entered a final notice
(the ``FCA Final Notice'') finding that DB AG violated Principles 3, 5
and 11 of the FCA's Principles for Business and imposing a monetary
fine.
9. On April 23, 2015, the New York State Department of Financial
Services entered a consent order against DB AG (the ``DFS Order'')
relating to the same misconduct described above and imposing a civil
monetary fine and certain undertakings, including engaging an
independent compliance monitor.
10. In response to the misconduct described above, Applicants
represent that they have engaged in various remedial measures.
Applicants state that this has included implementing a ``three lines of
defense'' model for benchmark submissions. According to Applicants,
this restructuring involved segregating benchmark submission activities
from other bank activities to reduce conflicts, creating an independent
control group that monitors benchmark submissions and engaging in
regular internal and external audits. Applicants state that DB AG has
also formed a governance body to oversee these lines of defense and
resolve material issues. Applicants further state that they have
adopted specific standards, guidelines, policies and training for
benchmark submissions, which did not exist during the period of
misconduct. Applicants assert that they have been careful to ensure
that the new control framework meets the requirements of regulatory
undertakings required in previously announced settlements concerning
similar misconduct.
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, an investment adviser, a broker or dealer, or a bank. 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, upon entry of the Judgment, 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
section 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 other
Covered Persons from the disqualification provisions of section 9(a) of
the Act. The Fund Servicing Applicants and other Covered Persons (but
not the Settling Firm) 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.
3. Applicants believe they meet the standard for exemption
specified in section 9(c) of the Act. 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 Fund Servicing
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 underlying the Plea Agreement
(the ``Conduct'') did not involve any of Applicants acting as an
investment adviser or depositor of any Fund, ESC or business
development company or principal underwriter for any Open-End Fund,
unit investment trust registered under the Act, or face amount
certificate company registered under the Act. Applicants state that the
Conduct similarly did not involve any Fund, ESC or business development
company with respect to which Applicants engaged in Fund Servicing
Activities.
5. Applicants further represent that (a) none of the current or
former directors, officers or employees of the Fund Servicing
Applicants had any knowledge of, or had any involvement in, the
Conduct; (b) except as discussed
[[Page 23829]]
below, no current or former employee of the Settling Firm or of any
Covered Person who previously has been or who subsequently may be
identified by the Settling Firm, DB AG 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
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 Fund Serving Applicants did not have any involvement
in the Conduct, shareholders of the Funds were not affected any
differently than if the Funds had received services from any other non-
affiliated investment adviser or principal underwriter.
6. Applicants represent that they have taken all possible steps,
consistent with German and other relevant foreign employment law, to
terminate the employment of all individuals responsible for the
Conduct. However, as a consequence of proceedings under German labor
law, four individuals who were identified as being responsible for the
Conduct and were terminated are currently employed in non-risk-taking
positions. Applicants state that DB AG has entered into court-mediated
settlements with these individuals. Pursuant to the settlements, the
two more senior employees will remain on paid leave through the end of
2015 and then will have no association with DB AG. Applicants represent
that, although the two more junior employees have returned to DB AG,
these employees (a) will not serve in risk-taking roles or the roles in
which they served during the Conduct; (b) will not be employed by the
Covered Persons relying on the relief or otherwise involved in the Fund
Servicing Activities; and (c) will not be in a compliance monitoring
role or have any influence over policy-making concerning the Fund
Servicing Activities. DB AG states that it will take action to
terminate any additional employee who is determined to have been
responsible for the Conduct.
7. Except as discussed above, Applicants have agreed that neither
they nor any of the other Covered Persons will employ any of the
current or former employees of the Settling Firm or any Covered Person
who previously have been or who subsequently may be identified by the
Settling Firm, DB AG or any U.S. or non-U.S. regulatory or enforcement
agencies as having been responsible for the Conduct in any capacity
without first making a further application to the Commission pursuant
to section 9(c). Applicants also have agreed that each Applicant (and
any Covered Person that acts in any capacity described in section 9(a)
of the Act) will adopt and implement policies and procedures reasonably
designed to ensure compliance with the terms and conditions of the
order granted under section 9(c). In addition, the Settling Firm has
agreed to comply in all material respects with the material terms and
conditions of the Plea Agreement, and DB AG has agreed to comply in all
material respects with the material terms and conditions of the
Deferred Prosecution Agreement, CFTC Order, FCA Final Notice and DFS
Order.
8. Applicants state that (a) inability of the Fund Servicing
Applicants to continue providing investment advisory services to Funds
would result in the Funds and their shareholders facing potential
hardship and (b) the inability of DDI to continue to serve as principal
underwriters to the Open-End Funds would similarly result in potential
hardship to the Open-End Funds and their shareholders. Applicants
represent that they will distribute to the board of trustees/directors
of the Funds (the ``Boards'') written materials describing the
circumstances that led to the Plea Agreement, any impact on the Funds,
and the application. The written materials will include an offer to
discuss the materials at an in-person meeting with each Board for which
Applicants provide Fund Servicing Activities, 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 Boards with the information concerning the Plea Agreement and the
application that is necessary for those Funds to fulfill their
disclosure and other obligations under the federal securities laws and
will provide them a copy of the Judgment as entered by the District
Court.
9. Applicants state that if the Fund Servicing Applicants were
barred under section 9(a) of the Act from engaging in Fund Servicing
Activities and were unable to obtain the requested exemption, the
effect on their businesses and employees would be severe because they
have committed substantial resources to establishing an expertise in
the provision of Fund Servicing Activities. Applicants further state
that prohibiting them from providing Fund Servicing Activities would
not only adversely affect their business, but would also adversely
affect their employees who are involved in those activities.
10. Applicants argue that section 9(a) should not operate to bar
them from serving the Funds and their shareholders in the absence of
improper activities relating to their Fund Servicing Activities.
Applicants state that the section 9(a) disqualification would disrupt
the operations of the Funds as they sought to engage new advisers and
distributors. Applicants assert that these effects would be unduly
severe and disproportionately harsh given the Fund Servicing
Applicants' lack of involvement in the Conduct. Moreover, Applicants
state that the Settling Firm and DB AG have taken remedial actions to
address the Conduct, as outlined in the application. Applicants also
assert that the Conduct did not constitute conduct that would make it
against the public interest or protection of investors to issue the
Orders.
11. Applicants state that certain of the Applicants and their
affiliates have received exemptive orders under section 9(c), as
described in greater detail in the application.
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. Except as set out in Section IV.E of the application, neither
the Applicants nor any of the other Covered Persons will employ any of
the current or former employees of the Settling Firm or any Covered
Person who previously has been or who subsequently may be identified by
the Settling Firm, DB AG, or any U.S. or non-U.S. regulatory or
enforcement agency as having been responsible for the Conduct, without
first making a further application to the Commission pursuant to
section 9(c).
3. Each Applicant and Covered Person will adopt and implement
policies and procedures reasonably designed to ensure that it will
comply with the terms and conditions of the Orders
[[Page 23830]]
within 60 days of the date of the Permanent Order or, with respect to
condition 4, such later date as may be contemplated by the Plea
Agreement, the Deferred Prosecution Agreement, the CFTC Order, the FCA
Final Notice, and the DFS Order.
4. The Settling Firm will comply in all material respects with the
material terms and conditions of the Plea Agreement, and DB AG will
comply in all material respects with the material terms and
undertakings of the Deferred Prosecution Agreement, the CFTC Order, the
FCA Final Notice, and the DFS Order.
5. Applicants will provide written notification to the Chief
Counsel of the Commission's Division of Investment Management with a
copy to the Chief Counsel of the Commission's Division of Enforcement
of a material violation of the terms and conditions of the Orders
within 30 days of discovery of the material violation.
Temporary Order
The Commission has considered the matter and finds that 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 Judgment, subject to the representations and conditions in the
application, from April 23, 2015, until the date the Commission takes
final action on their application for a permanent order.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-09965 Filed 4-28-15; 8:45 am]
BILLING CODE 8011-01-P