[Federal Register Volume 61, Number 134 (Thursday, July 11, 1996)]
[Notices]
[Pages 36590-36592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17629]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22053; 812-8418]
Samuel Evans Wyly, et al.; Notice of Application
July 5, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for temporary and permanent orders under
the Investment Company Act of 1940 (``Act'').
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APPLICANTS: Samuel Evans Wyly (``Wyly''); Maverick Capital, Ltd.
(``Maverick'').
RELEVANT ACT SECTIONS: Temporary and Permanent orders requested under
section 9(c) for an exemption from the provisions of section 9(a).
SUMMARY OF APPLICATION: Applicants have requested temporary and
permanent orders under section 9(c) exempting Wyly and Maverick from
the disqualification provisions of section 9(a) with respect to a
securities-related injunction entered against Wyly. The orders would
permit Maverick to serve as investment subadviser to one portfolio of
The Palladian Trust (the ``Trust'')
FILING DATES: The application was filed on May 28, 1993, and amended on
October 1, 1993, December 6, 1994, November 15, 1995, March 1, 1996,
and May 15, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a
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hearing by writing to the SEC's Secretary and serving applicants with a
copy of the request, personally or by mail. Hearing requests should be
received by the SEC by 5:30 p.m. on July 30, 1996, 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 such notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 8080 N. Central Expressway, Suite 1300, Dallas,
Texas 75206.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or Alison E.
Baur, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. Maverick, a Texas limited partnership, is registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). All of the partners of Maverick are members of the
Wyly family or trusts established for the benefit of family members.
Maverick provides investment advice to clients, including a number of
private investment companies.
2. Wyly is a general partner and president of Maverick. As
president, he oversees the operations of the firm. Wyly's involvement
in Maverick's investment advisory business is limited to assisting in
formulating its overall investment philosophy and investment
objectives. He does not oversee the execution of trades or participate
in daily investment management decisions, nor does he perform any
financial analysis used to make investment decisions affecting client
assets managed by Maverick.
3. In 1979, Wyly was named as a defendant in an injunctive action
filed by the Commission (the ``Complaint'').\1\ The Complaint alleged
that Wyly had violated section 17(a) of the Securities Act of 1933 and
various provisions of the Securities Exchange Act of 1934 in connection
with an exchange offer accompanying a plan of recapitalization of Wyly
Corporation. Specifically, the Complaint alleged that, as chairman of
the board of directors of the corporation, Wyly had arranged for
certain individuals to be compensated beyond the terms of the exchange
offer as an inducement to participate in the offer. On December 6,
1979, without admitting or denying any wrongdoing, Wyly consented to
the entry of a permanent injunction enjoining him from further conduct
in violation of those provisions.
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\1\ SEC v. Samuel E. Wyly, Civil Action No. 79-3275 (D.D.C.
1979).
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4. The Trust is a registered open-end management investment
company. Palladian Advisors, Inc. (``PAI'') acts as overall manager of
the Trust. In this capacity, PAI evaluates and recommends to the Trust
registered investment advisers to be retained as portfolio managers by
the Trust, monitors their performance, and makes periodic reports to
the Trust. Tremont Partners (``Tremont''), an investment adviser
registered under the Investment Advisers Act of 1940 (``Advisers
Act''), will assist PAI in the management of the Trust, and will
provide investment consulting services relating to the development,
implementation, and management of the Trust's multiple portfolio
manager program. Tremont also will assist PAI with the periodic
reevaluation of these portfolio managers.
5. Maverick has been asked by PAI to act as subadviser for one of
the protfolios of the Trust. If the requested relief is granted, Wyly
will not have any role in the management of the assets of the Trust
portfolio. Lee A. Ainslie, III (``Ainslie''), a managing director of
Maverick, will be responsible for the investment decisions made on
behalf of the Trust portfolio and will have final decision-making
responsibility. Ainslie will work with Maverick's chief compliance
officer, Michael French, whose decisions on compliance matters are
final and are not subject to review by Wyly or any other partner,
officer, or employee of Maverick.
Applicants' Legal Analysis
1. Section 9(a)(2), in relevant part, prohibits any person who has
been enjoined from engaging in or continuing any conduct or practice in
connection with the purchase or sale of a security from acting as an
employee, officer, director, member of an advisory board, investment
adviser, or depositor of any registered investment company. In
addition, a company whose employee or other affiliated person is
ineligible to serve in any such capacity under section 9(a)(2) is
similarly disqualified under section 9(a)(3). Accordingly, Wyly is
subject to the disqualification provisions of section 9(a)(2) because
of the injunction, and Maverick is disqualified under section 9(a)(3)
because Wyly is an affiliated person of Maverick.\2\
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\2\ Section 2(a)(3)(D) defines an ``affiliated person'' of
another as any officer, director, partner, copartner, or employee of
such other person.
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2. Section 9(c) provides that the Commission shall grant an
application for an exemption from the disqualification provisions of
section 9(a), either unconditionally or on an appropriate temporary or
other conditional basis, if it is established that these provisions, as
applied to the applicant, are unduly or disproportionately severe, or
that the conduct of the applicant has been such as not to make it
against the public interest or protection of investors to grant such
application.
3. Applicants state that the injunction was entered over sixteen
years ago, and note that Wyly has complied fully with the terms of the
injunction since then. In addition, applicants assert that neither Wyly
nor Maverick has been subject to any other enforcement or disciplinary
proceeding brought by the Commission, any other federal or state law
enforcement or regulatory agency, or any self-regulatory organization.
Moreover, the actions that gave rise to the injunction did not relate
to any investment advisory or investment company activity.
4. Applicants state that they have retained two independent
consultants to perform on-site inspections of Maverick's existing
advisory business and preparedness to take on investment company
management. The consultant on Advisers Act issues certified that, to
the best of its knowledge, Maverick (1) is currently in compliance with
the Advisers Act and state adviser laws, (2) has developed new written
procedures relating to its investment advisory activities, and (3) has
adequate procedures in place to provide reasonable assurance that it
will remain in compliance with those laws. Another consultant reviewed
Maverick's existing capabilities and procedures to determine if
Maverick was in a position to take on the responsibility of managing an
entity subject to the Act. Although this consultant has recommended
general procedures for Maverick to follow in connection with its
proposed investment company activities, it has been unable to recommend
precise procedures for Maverick to follow because Maverick
[[Page 36592]]
has not yet been told which portfolio of the Trust it will be asked to
manage. Once this has been decided, PAI will provide Maverick with a
compliance manual, which the consultant or outside counsel will review
to ensure that it meets applicable requirements under the Act.
Maverick's compliance procedures then will be updated to reflect this
review of the compliance manual provided by PAI.
5. Maverick will continue to utilize the services of both
consultants if temporary and permanent relief is granted. Before the
expiration of the one year temporary order, applicants will have each
consultant perform another thorough inspection of Maverick's operations
and certify to the Commission that applicants are in compliance with
the securities laws before the Division acts on the request for
permanent relief. Further, as a condition to the permanent exemption,
applicants will agree to have the consultants perform on-site periodic
audits of Maverick to make sure that Maverick is following the
compliance procedures. Neither Wyly nor Maverick will be able to
dismiss either of the consultants without appointing another consultant
that is not unacceptable to the Commission.
6. Applicants argue that, in light of the foregoing procedures,
barring Maverick from serving as a subadviser to one portfolio of a
registered investment company because of events that occurred more than
16 years ago would be unduly and disproportionately severe. Applicants
also state that Wyly will not be involved in advisory activities for
the Trust and assert that his conduct during the 16 years since the
entry of the injunction has been such as not to make it against the
public interest or protection of investors to grant the relief
requested.
Applicants' Conditions
1. Applicants agree that any temporary order granted pursuant to
the application will be subject to the following conditions:
a. With respect to registered investment companies, Maverick will
provide investment advice only as subadviser to one portfolio of the
Trust.
b. Wyly will not have a direct, personal role in providing
investment advice to the Trust.
c. Wyly will not attend any partnership meeting at which the
operations of, or provision of investment advice to, the Trust
portfolio are proposed to be discussed, and will excuse himself from
any meeting at which such subjects arise. Further, Wyly will not
discuss the provision of investment advice to such portfolio with any
person responsible for providing such advice.
d. When Maverick is appointed subadviser to a specific portfolio of
the Trust, applicants will provide Maverick's updated compliance manual
and the updated consultant's report on Maverick's compliance procedures
to the Division.
2. Applicants agree that any permanent relief granted pursuant to
the application will be subject to the conditions to the temporary
relief and the following additional conditions:
a. Prior to the expiration of the temporary order, an independent
consultant(s) not unacceptable to the SEC will confirm in writing to
the SEC that Maverick is operating in compliance with the Act and the
Advisers Act.
b. Maverick's chief compliance officer will certify annually that
Maverick has complied with the procedures and practices referred to in
the consultants' reports, and that those procedures and practices
continue to be sufficient to ensure Maverick's compliance with the
state and federal securities laws. One copy of that certification will
be maintained as part of the permanent records of Maverick, and one
copy will be delivered to the board of directors of the Trust.
c. An independent consultant(s) not unacceptable to the SEC will
conduct periodic on-site inspections of Maverick to ensure that
Maverick is following all compliance procedures.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-17629 Filed 7-10-96; 8:45 am]
BILLING CODE 8010-01-M