[Federal Register Volume 81, Number 116 (Thursday, June 16, 2016)]
[Notices]
[Pages 39292-39294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14211]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-4418/803-00227]
Angelo, Gordon & Co., L.P.; Notice of Application
June 10, 2016.
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).
-----------------------------------------------------------------------
Applicant: Angelo, Gordon & Co., L.P. (``Applicant'' or ``Adviser'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act and rule 206(4)-5(e) 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)
exempting it from rule 206(4)-5(a)(1) under the Advisers Act to permit
Applicant to receive compensation from a government entity for
investment advisory services provided to the government entity within
the two-year period following a contribution by an individual who
subsequently became a covered associate of the Applicant to an official
of the government entity.
Filing Dates: The application was filed on December 19, 2014, and
amended and restated applications were filed on May 26, 2015 and May 2,
2016.
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 July 5, 2016, and should be accompanied by proof of service on
Applicant, in the form of an affidavit or, for lawyers, a certificate
of service. Pursuant to rule 0-5 under the Advisers 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 may request
notification of a hearing by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090. Applicant: Angelo, Gordon & Co., L.P.,
c/o D. Forest Wolfe, Esq., 245 Park Avenue, New York, NY 10167.
FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Senior Counsel, or
Melissa R. Harke, Branch Chief, at (202) 551-6825 (Division of
Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site at http://www.sec.gov/rules/iareleases.shtml or
by calling (202) 551-8090.
Applicant's Representations
1. Applicant is a Delaware limited partnership registered with the
Commission as an investment adviser under the Advisers Act. Applicant
provides discretionary investment advisory services to private funds
(the ``Funds''). Each of these Funds is a covered investment pool as
defined in Rule 206(4)-5(f)(3)(ii). One of the private funds for which
the Applicant acts as investment adviser is AG Core Plus Realty Fund
IV, L.P. (''Core Plus IV''), a fund excluded from the definition of
investment company by Section 3(c)(7) of the Investment Company Act of
1940.
2. The individual who made the campaign contribution that triggered
the two-year compensation ban (the
[[Page 39293]]
``Contribution'') is Christopher Williams (the ``Contributor''). The
Contributor was hired by the Adviser on September 29, 2014 to serve as
a senior investment professional at the Adviser and co-manager of a new
investment strategy for the Adviser. The Contributor made the
Contribution at a time when he was not working for an investment
adviser and almost a year before he would begin working for the Adviser
(indeed, months before he entered into employment discussions with the
Adviser).
3. An investor in the Funds is a public pension plan identified as
a government entity, as defined in Rule 206(4)-5(f)(5)(ii), with
respect to the State of Illinois (the ``Client'').
4. The recipient of the Contribution was Bruce Rauner (the
``Recipient''), who was a private citizen then running for Governor of
Illinois. The investment decisions for the Client, including the hiring
of an investment adviser, are overseen by a nine-member board of
trustees, with five gubernatorial appointments, two other state elected
officials sitting ex officio, and the chairs of two retirement boards
sitting ex officio. Due to the Governor's power of appointment, a
candidate for Governor such as the Recipient is an ``official'' of the
Client. The Recipient was elected governor of Illinois on November 4,
2014 and took office on January 12, 2015. The Recipient appointed five
members between January 30, 2015 and June 5, 2015.
5. The Contribution that triggered rule 206(4)-5's prohibition on
compensation under rule 206(4)-5(a)(1) was given on November 7, 2013
for the amount of $892.17 as an in-kind contribution to Citizens for
Rauner. The Contribution consisted of payments to two vendors to defray
expenses of a small meet-and-greet reception (the ``Reception'') for
the Rauner campaign. The Contributor's first and only meeting with
Bruce Rauner consisted of a 5 to 10 minute conversation at the
Reception on November 7, 2013. The Contributor did not seek out or
initiate contact with the Recipient. At the time of the Contribution,
the Contributor had no intention of soliciting investment advisory
business from the Client or any other government entity of which Rauner
was an official. At no time did any employees of the Adviser other than
the Contributor have any knowledge that the Contribution had been made
prior to its discovery by the Adviser in October 2014 as a result of
its routine new employee onboarding procedures.
6. The Client's contacts with the Adviser date back to at least
2001, before the Contributor was employed by the Adviser. On September
25, 2014, the Client committed to a substantial investment in one of
the Funds, Core Plus IV, a Fund that does not participate in the
strategy for which the Contributor is a co-manager. A procedure has
been established to segregate any compensation (including carried
interest and management fees) attributable to the Client's investment
in Core Plus IV and withhold them from the Adviser. The Contributor has
no role with respect to the Client. The Client is not considered a
prospective investor for the investment strategy for which he is a co-
manager. The Contributor has had no contact with any representative of
the Client, and no contact with any member of the Client's board.
7. The Contribution was discovered by the Adviser's compliance
department in the course of new employee onboarding that included
review of a political contribution questionnaire on which the
Contributor disclosed the Contribution. Within one week of discovering
the Contribution on October 3, 2014, the Adviser and Contributor
obtained the Recipient's agreement to return the full Contribution. A
check refunding the full amount of the Contribution was received on
October 24, 2014. The Adviser promptly notified the Client of the
Contribution and resulting two-year prohibition on compensation absent
exemptive relief from the Commission. The Adviser told the Client that
fees charged to the Client's capital account in the Core Plus IV would
be placed in escrow and that, absent exemptive relief from the
Commission, those fees would be refunded and no additional fees would
be charged to the Client for the duration of the two-year period.
8. The Adviser's Pay-to-Play Policies and Procedures (``Policy'')
were adopted and implemented before the Contribution was made. The
Policy was initially adopted in May 2009, more than a year before rule
206(4)-5 (the ``Rule'') was adopted. All contributions to federal,
state and local office incumbents and candidates are subject to pre-
clearance, not post-contribution reporting, by employees under the
Policy. There is no de minimis exception from pre-clearance for small
contributions to these state and local officials. All employees of the
Adviser are subject to the Policy. In June 2010--before the Rule was
adopted--the Adviser instituted a Political Contribution Questionnaire
that all new employees of the Adviser are required to complete
regarding all political contributions of any size at any level for the
three year period before beginning employment.
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.
The 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 Recipient 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 Funds are ``covered investment
pools,'' 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
[[Page 39294]]
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), 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 Client 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 Advisers 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 contends that given the nature of the Rule violation
and the lack of any evidence that the Adviser or the Contributor
intended to, or actually did, interfere with the Client's merit-based
process for the selection or retention of advisory services, the
interests of the Client are best served by allowing the Adviser and the
Client to continue their relationship uninterrupted. Applicant states
that causing the Adviser to serve without compensation for the
remainder of the two year period could result in a financial loss that
is more than 300 times the amount of the Contribution. Applicant
suggests that the policy underlying the Rule is served by ensuring that
no improper influence is exercised over investment decisions by
governmental entities as a result of campaign contributions and not by
withholding compensation as a result of unintentional violations.
7. Applicant represents that it had adopted and implemented the
Policy which is fully compliant with, and more rigorous than, the
Rule's requirements and that it had also implemented a political
contribution questionnaire for all new employees, and performed
compliance testing that included random searches of campaign
contribution databases for the names of employees. Applicant notes that
it was this questionnaire that was effective in identifying the
Contribution.
8. Applicant asserts that actual knowledge of the Contribution at
the time of its making cannot be imputed to the Adviser, given that the
Contributor was not an employee of the Adviser and had not yet
participated in any of the discussions that would ultimately lead to
his employment with the Adviser. Applicant represents that at no time
did any employees of the Adviser other than the Contributor have any
knowledge that the Contribution had been made prior to its discovery by
the Adviser in October 2014 as part of its standard employee onboarding
process.
9. Applicant asserts that after learning of the Contribution, the
Adviser and the Contributor took all available steps to obtain a return
of the Contribution and implement additional measures to prevent a
future error, including modification of the new employee onboarding
process to require the completion of the political contribution
questionnaire before the Adviser's final decision to hire a new
employee.
10. Applicant states that it informed the Contributor that he could
have no contact with any representative of the Client other than
potentially making substantive presentations to the Client's
representatives and consultants about the investment strategy the
Contributor manages in the event the Client requested a presentation of
that strategy. The Contributor was directed to maintain a log of such
interactions in accordance with the retention requirements set forth in
Rule 204-2(e). Applicant further states that the Contributor ultimately
had no contact with any representative of the Client and no contact
with any member of the Client's board.
11. Applicant notes that it has had ongoing contacts with the
Client that predate the Contributor's employment with the Adviser, and
that the Contribution was consistent with the political affiliation of
the Contributor and his wife. Applicant asserts that the Contributor
also had a legitimate interest in the outcome of the campaign given
that he and his family live in Illinois. Applicant also asserts that
the Contributor's action in making a contribution that would later
trigger a ban resulted from his lack of knowledge about the Rule's
look-back provisions and, thus, his failure to appreciate the fact that
the Contribution might impact potential future activities for an
investment advisory firm.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14211 Filed 6-15-16; 8:45 am]
BILLING CODE 8011-01-P