Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41101 

1The Department has considered exemption 

applications received prior to December 27, 2011 

under the exemption procedures set forth in 29 CFR 

Part 2570, Subpart B (55 FR 32836, 32847, August 

10, 1990). 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Proposed Exemptions From Certain 

Prohibited Transaction Restrictions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of Proposed Exemptions. 

SUMMARY: This document contains 

notices of pendency before the 

Department of Labor (the Department) of 

proposed exemptions from certain of the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act) and/or 

the Internal Revenue Code of 1986 (the 

Code). This notice includes the 

following proposed exemptions: D– 

11640, Wells Fargo Bank, N.A. (the 

Applicant or the Bank); D–11772, UBS 

AG (UBS or the Applicant); and D– 

11739, D–11740, & D–11741, Sears 

Holdings Savings Plan (the Savings 

Plan), Sears Holdings Puerto Rico 

Savings Plan (the PR Plan) and The 

Lands’ End, Inc. Retirement Plan (the 

Lands’ End Plan). 

DATES: All interested persons are invited 

to submit written comments or requests 

for a hearing on the pending 

exemptions, unless otherwise stated in 

the Notice of Proposed Exemption, 

within 45 days from the date of 

publication of this Federal Register 

Notice. 

ADDRESSES: Comments and requests for 

a hearing should state: (1) The name, 

address, and telephone number of the 

person making the comment or request, 

and (2) the nature of the person’s 

interest in the exemption and the 

manner in which the person would be 

adversely affected by the exemption. A 

request for a hearing must also state the 

issues to be addressed and include a 

general description of the evidence to be 

presented at the hearing. All written 

comments and requests for a hearing (at 

least three copies) should be sent to the 

Employee Benefits Security 

Administration (EBSA), Office of 

Exemption Determinations, Room 

N–5700, U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210. Attention: Application No. 

lll, stated in each Notice of 

Proposed Exemption. Interested persons 

are also invited to submit comments 

and/or hearing requests to EBSA via 

email or FAX. Any such comments or 

requests should be sent either by email 

to: moffitt.betty@dol.gov, or by FAX to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue NW., 

Washington, DC 20210. 

Warning: All comments will be made 

available to the public. Do not include 

any personally identifiable information 

(such as Social Security number, name, 

address, or other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. 

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

The proposed exemptions were 

requested in applications filed pursuant 

to section 408(a) of the Act and/or 

section 4975(c)(2) of the Code, and in 

accordance with procedures set forth in 

29 CFR Part 2570, Subpart B (76 FR 

66637, 66644, October 27, 2011).1

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 1 (1996), transferred 

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 

Wells Fargo Bank, N.A. (the Applicant 

or the Bank) Located in Sioux Falls, 

South Dakota 

[Application No. D–11640] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act (or 

ERISA) and section 4975(c)(2) of the 

Code, and in accordance with the 

procedures set forth in 29 CFR Part 

2570, Subpart B (55 FR 32836, 32847, 

August 10, 1990). If the proposed 

exemption is granted, the restrictions of 

sections 406(a)(1)(A), 406(a)(1)(D), 

406(b)(1), and 406(b)(2) of the Act and 

the sanctions resulting from the 

application of section 4975 of the Code, 

by reason of section 4975(c)(1)(A), (D), 

and (E) of the Code, shall not apply, 

effective September 8, 2009, to the cash 

sale by four employee benefit plans (the 

Plans), whose assets were invested in 

the Bank’s collateral pools (the 

Collateral Pools), of certain interests (the 

Interests) in two medium-term notes 

(the Notes), for the aggregate purchase 

price (the Purchase Price) of $375,182, 

to the Bank, a party in interest with 

respect to the Plans, provided that the 

following conditions were met: 

(a) The sale was a one-time 

transaction for cash; 

(b) Each Plan received an amount 

which was equal to the greater of either: 

(1) The current cost of its Interests in the 

Notes (i.e., the original purchase price 

less distributions received by the Plan 

through the purchase date (the Purchase 

Date)); or (2) the fair market value of its 

Interests in the Notes, as determined by 

a valuation of the underlying assets 

performed by Stone Tower Debt 

Advisors LLC (the Enforcement 

Manager), an unrelated party, there 

being no market for the Notes at the 

time of sale; 

(c) The Plans did not pay any 

commissions or other expenses in 

connection with the sale; 

(d) The Bank, in its capacity as 

securities lending agent and manager of 

the Collateral Pools, determined that the 

sale of the Plans’ Interests in the Notes 

was appropriate for and in the interests 

of the Plans at the time of the 

transaction; 

(e) The Bank took all appropriate 

actions necessary to safeguard the 

interests of the Plans in connection with 

the transaction, given that the Plans 

were not eligible to participate in an 

exchange offer (the Exchange Offer) and 

the Purchase Price was substantially 

higher than the fair market value of the 

Plans’ Interests in the Notes; 

(f) If the exercise of any of the Bank’s 

rights, claims or causes of action in 

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41102 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

2Prior to September 22, 2008, the Bank invested 

securities lending collateral it received on behalf of 

its clients in a commingled fund. At that time, each 

client received a pro rata interest in the assets held 

by the commingled fund, including the Notes. On 

and after September 22, 2008, a Collateral Pool was 

established by the Bank for each securities lending 

client to hold a direct, pro rata interest in the Notes 

and other securities maintained by the Bank. The 

percentage of all of the Collateral Pools attributable 

to the Plans was approximately 11.1964%, as of 

September 22, 2008. 

connection with its ownership of the 

Notes (including the notes received in 

the Exchange Offer) results in the Bank 

recovering from Stanfield Victoria 

Finance Ltd., the issuer of the Notes 

(Stanfield Victoria), or any third party, 

an aggregate amount that is more than 

the sum of: 

(1) The Purchase Price paid by the 

Bank to the Plans for the Interests in the 

Notes; and 

(2) The interest that would have been 

payable on the Notes from and after the 

date the Bank purchased the Plans’ 

Interests in the Notes, at the rate 

specified in the Notes, the Bank will 

refund such excess amounts promptly to 

the Plans (after deducting all reasonable 

expenses incurred in connection with 

the recovery); 

(g) The Bank and its affiliates, as 

applicable, maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of any covered transaction 

such records as are necessary to enable 

the persons described below in 

paragraph (h)(i), to determine whether 

the conditions of this exemption have 

been met, except that— 

(1) No party in interest with respect 

to a Plan which engages in the covered 

transactions, other than the Bank and its 

affiliates, as applicable, shall be subject 

to a civil penalty under section 502(i) of 

the Act or the taxes imposed by section 

4975(a) and (b) of the Code, if such 

records are not maintained, or not 

available for examination, as required, 

below, by paragraph (h)(i); and 

(2) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of the Bank or its 

affiliate, as applicable, such records are 

lost or destroyed prior to the end of the 

six-year period. 

(h)(1) Except as provided, below, in 

paragraph (h)(2), and notwithstanding 

any provisions of subsections (a)(2) and 

(b) of section 504 of the Act, the records 

referred to, above, in paragraph (g) are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(A) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the 

Securities Exchange Commission; or 

(B) Any fiduciary of any plan that 

engages in the covered transactions, or 

any duly authorized employee or 

representative of such fiduciary; or 

(C) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a plan that engages in the 

covered transactions, or any authorized 

employee or representative of these 

entities; or 

(D) Any participant or beneficiary of 

a plan that engages in the covered 

transactions, or duly authorized 

employee or representative of such 

participant or beneficiary; 

(ii) None of the persons described 

above, in paragraph (h)(1)(B)–(D) shall 

be authorized to examine trade secrets 

of the Bank and its affiliates, as 

applicable, or commercial or financial 

information which is privileged or 

confidential; and 

(E) Should the Bank and its affiliates, 

as applicable, refuse to disclose 

information on the basis that such 

information is exempt from disclosure, 

the Bank and its affiliates, as applicable, 

shall, by the close of the thirtieth (30th) 

day following the request, provide a 

written notice advising that person of 

the reasons for the refusal and that the 

Department may request such 

information. 

Effective Date: If granted, this 

exemption will be effective as of 

September 8, 2009. 

Summary of Facts and Representations 

1. The Bank is a national bank 

subsidiary of Wells Fargo & Company, a 

diversified financial services company. 

Headquartered in Sioux Falls, South 

Dakota, the Bank is subject to regulation 

by the Comptroller of Currency. As of 

December 31, 2012, the Bank served as 

securities lending agent, custodian or 

directed trustee to approximately 35 

clients, including certain ERISAcovered plans. Also as of December 31, 

2012, the Bank’s total fiduciary assets 

under management were 

$159,716,000,000. Of that total, 

$23,223,000,000 represented employee 

benefit and retirement-related trust and 

agency accounts. 

2. The Bank’s securities lending 

program involves the lending of 

securities held by certain of its clients, 

including the Plans referred to herein, 

and the investment of collateral 

received from the borrowers in 

Collateral Pools maintained on behalf of 

each client pursuant to securities 

lending agreements with such clients.2

The Bank has discretionary investment 

management responsibility over the 

Collateral Pools. The Collateral Pools 

are generally invested in a diversified 

portfolio of investment grade short-term 

debt instruments, including, without 

limitation, commercial paper (including 

paper issued under Section 3(a)(3), 

Section 4(2) and Rule 144A of the 

Securities Act of 1933), notes, 

repurchase agreements and other 

evidences of indebtedness which are 

payable on demand or which have a 

maturity date not exceeding 36 months 

from the date of purchase. 

Neither the Bank nor its affiliates 

served as fiduciaries with respect to 

each affected Plan’s decision to 

participate in the Bank’s securities 

lending program. Instead, unrelated 

Plan fiduciaries were responsible for 

making such decisions. The disclosures 

provided by the Bank to its securities 

lending customers, including the Plans, 

explained the risks associated with the 

securities lending program, including 

the risk of loss relating to the 

investment of collateral received from 

borrowers under the program, and the 

Bank’s obligation to return the collateral 

to such borrowers upon the termination 

of the loan of securities. 

3. The Notes comprising the Collateral 

Pools were corporate bonds that were 

issued by Stanfield Victoria, an 

unrelated party. The Notes were 

purchased by the Bank on behalf of the 

Collateral Pools for a total purchase 

price of $848,859. The Notes included 

two CUSIP numbers: 85431AGX9 

(CUSIP 1) purchased on September 6, 

2006, with a maturity date of March 6, 

2008, and 85431AHY6 (CUSIP 2) 

purchased on November 3, 2006, with a 

maturity date of November 3, 2008. A 

total of 67 investors invested in the 

Notes. Among the investors were the 

Plans, none of which were sponsored by 

the Bank or its affiliates. The Plans’ 

Collateral Pools acquired the Interests in 

CUSIP 1 for $303,449 and in CUSIP 2 

for $202,359, for a total amount of 

$505,808. Interest on the Notes was 

payable quarterly at a variable rate 

which was reset each quarter based 

upon the three-month London Interbank 

Offered Rate. 

4. Stanfield Victoria, a structured 

investment vehicle, raised capital 

primarily by issuing various types and 

classes of notes, including the Notes and 

commercial paper. The capital raised 

was then utilized by Stanfield Victoria 

to purchase various financial assets, 

including other asset-backed securities 

and mortgage-backed securities. The 

assets acquired by Stanfield Victoria 

were pledged to secure payment of 

certain of the debt instruments issued 

by Stanfield Victoria, including the 

Notes, pursuant to a security agreement 

with an independent bank, Deutsche 

Bank Trust Company Americas, serving 

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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41103 

3The Department is expressing no opinion in this 

proposed exemption regarding whether the 

acquisition and holding by the Plans of Interests in 

the Notes through the Collateral Pools violated any 

of the fiduciary responsibility provisions of Part 4 

of Title I of the Act. In this regard, the Department 

notes that section 404(a) of the Act requires, among 

other things, that a fiduciary of a plan act 

prudently, solely in the interest of the plan’s 

participants and beneficiaries, and for the exclusive 

purpose of providing benefits to participants and 

beneficiaries when making investment decisions on 

behalf of a plan. Section 404(a) of the Act also states 

that a plan fiduciary should diversify the 

investments of a plan so as to minimize the risk of 

large losses, unless under the circumstances it is 

clearly prudent not to do so. 

Moreover, the Department is not providing any 

opinion as to whether a particular category of 

investments or investment strategy would be 

considered prudent or in the best interests of a plan 

as required by section 404 of the Act. The 

determination of the prudence of a particular 

investment or investment course of action must be 

made by a plan fiduciary after appropriate 

consideration of those facts and circumstances that, 

given the scope of such fiduciary’s investment 

duties, the fiduciary knows or should know are 

relevant to the particular investment or investment 

course of action involved, including a plan’s 

potential exposure to losses and the role the 

investment or investment course of action plays in 

that portion of the plan’s portfolio with respect to 

which the fiduciary has investment duties (see 29 

CFR 2550.404a–l). The Department also notes that 

in order to act prudently in making investment 

decisions, a plan fiduciary must consider, among 

other factors, the availability, risks and potential 

return of alternative investments for the plan. Thus, 

a particular investment by a plan, which is selected 

in preference to other alternative investments, 

would generally not be prudent if such investment 

involves a greater risk to the security of a plan’s 

assets than other comparable investments offering 

a similar return or result. 

4The Bank states that the Exchange Offer expired 

on September 11, 2009. However, to ensure that its 

election to accept the offer would clear the election 

process established by NewCo in a timely way, the 

Bank established its own deadline of September 8, 

2009 to submit any acceptance of the Exchange 

Offer. 

as collateral agent (the Collateral Agent). 

This security agreement provided that, 

as a general rule, upon the occurrence 

of an ‘‘Enforcement Event,’’ as defined 

in the agreement (the Enforcement 

Event), the Collateral Agent was 

required to sell all of Stanfield Victoria’s 

assets and distribute the proceeds 

thereof. 

5. The decision to invest Collateral 

Pool assets in the Notes was made by 

the Bank in its capacity as securities 

lending agent. Prior to the investment, 

the Bank conducted an investigation of 

the potential investment, examining and 

considering the economic and other 

terms of the Notes. The Bank represents 

that the Plans’ investments in the Notes 

were consistent with the investment 

policies and objectives of the Collateral 

Pools when made. At the time the Plans 

acquired their Interests in the Notes, the 

Notes were rated ‘‘AAA’’ by Standard & 

Poor’s Corporation (S&P) and ‘‘Aaa’’ by 

Moody’s Investor Services, Inc. 

(Moody’s). 

Based on its consideration of the 

relevant facts and circumstances, the 

Bank states that it was prudent and 

appropriate for the Plans to acquire their 

Interests in the Notes.3

6. On November 7, 2007, S&P placed 

a ‘‘negative watch’’ on the Notes. On 

December 21, 2007, Moody’s 

downgraded the rating of the Notes to 

‘‘Baa3.’’ On January 7, 2008, S&P 

downgraded the rating of the Notes to 

‘‘B¥.’’ Responding to these events, the 

Bank, on behalf of the Plans, (together 

with the majority of other investors in 

the Notes) consented to the execution of 

an amendment to the security agreement 

governing the Notes on January 7, 2008. 

Pursuant to this amendment, by 

providing notice (Election Notice) on or 

before January 17, 2008, the Bank could 

elect to have the pro rata share of the 

collateral assets (i.e., the assets then 

held by Stanfield Victoria as collateral 

supporting the Notes) allocable to 

Interests in the Notes held by the 

Collateral Pools maintained on behalf of 

the Plans excluded from any asset sale 

by the Collateral Agent that would 

otherwise occur immediately upon the 

occurrence of an Enforcement Event. 

7. On January 8, 2008, as a result of 

the foregoing ratings downgrades, an 

Enforcement Event occurred. On 

January 10, 2008, Stanfield Victoria did 

not repay certain notes maturing on that 

date. On January 14, 2008, the Bank 

submitted an Election Notice to the 

Collateral Agent instructing the 

Collateral Agent to exclude its securities 

lending clients’ pro rata share of 

Stanfield Victoria’s assets from the asset 

sale triggered by the occurrence of the 

Enforcement Event on January 8, 2008. 

The Bank’s election was based on its 

determination that the market for the 

collateral assets securing the Notes was 

severely distressed and that the intrinsic 

value of such assets was substantially 

greater than the price that could have 

been obtained if such assets were then 

sold by the Collateral Agent. 

Accordingly, the Bank determined that 

it was in the best interest of its 

securities lending clients, including the 

Plans, to exclude such assets from a 

current sale. On January 15, 2008, 

Moody’s further downgraded its rating 

of the Notes to ‘‘B2.’’ On January 17, 

2008, S&P further downgraded its rating 

of the Notes to ‘‘D.’’ 

8. Stanfield Victoria was placed under 

the control of the Enforcement Manager 

on January 8, 2008. At that time, all 

payments of principal and interest to 

holders of its Notes and commercial 

paper were immediately suspended. 

However, income and principal 

payments on many of Stanfield 

Victoria’s underlying securities 

continued to accrue through December 

2008, at which point the Collateral 

Agent determined to pay the 

accumulated cash solely to the senior 

creditors of Stanfield Victoria, which 

included the Plans. The first such 

payment was made on December 23, 

2008. In March 2009, the Collateral 

Agent began making monthly payments 

to the senior creditors. Through 

September 1, 2009, these payments on 

the Notes totaled approximately 26% of 

the initial purchase price paid by the 

Bank’s securities lending customers. In 

the case of the Plans, the total payments 

received with respect to the Notes was 

$130,626 ($79,204 for CUSIP 1 and 

$51,422 for CUSIP 2). 

9. During this period, an unrelated 

group created ‘‘NewCo,’’ a private entity 

formed to acquire the Notes of Stanfield 

Victoria in exchange for notes issued by 

NewCo. NewCo intended to use all 

Notes that it acquired in the Exchange 

Offer as the basis for a credit bid in the 

anticipated foreclosure auction of 

Stanfield Victoria’s assets to be 

conducted by the Enforcement Manager. 

Through the credit bid process, 

NewCo received a pro rata share of the 

underlying assets of Stanfield Victoria 

based on the Notes it acquired through 

the Exchange Offer. Stanfield Victoria’s 

senior creditor committee, an informal 

committee comprised of holders of 

Stanfield Victoria’s senior securities, 

determined that it would be in the 

senior creditors’ best interests to accept 

the Exchange Offer. The NewCo 

exchange period commenced on August 

13, 2009 and closed on September 11, 

2009 (the Exchange Period). The Bank 

was required by September 8, 2009 to 

elect, on behalf of each of its securities 

lending clients, whether to accept the 

Exchange Offer for the Notes.4

Shortly before the beginning of the 

Exchange Period, however, NewCo’s 

organizers concluded that it would not 

register interests in NewCo under either 

the Securities Act of 1933 (the 1933 Act) 

or the Investment Company Act of 1940 

(the 1940 Act). As a result, participation 

in NewCo was limited to those 

institutional investors who were both 

‘‘accredited investors,’’ as that term is 

defined in Rule 501 of Regulation D (see 

17 CFR 230.501(a)) promulgated under 

the 1933 Act and ‘‘qualified 

purchasers,’’ as defined in Section 

2(a)(51) of the 1940 Act. 

Participation in the exchange with 

NewCo was further restricted by 

establishment of a minimum 

denomination size of $100,000. NewCo 

would not issue notes in an amount 

below that minimum size to any 

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41104 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

5Unless the context suggests otherwise, the term 

‘‘the Interests’’ is meant to include the interests in 

the Notes that were held by the Ineligible Clients 

that were not plans. 

6The Applicant states that the percentage 

provided by the Enforcement Manager to the 

investors was an estimate applied to each of the 

Notes, separately. In addition, the Applicant states 

that the Bank’s Capital Markets Group performed its 

own intrinsic value analysis and estimated the 

intrinsic value of the Notes as of July 31, 2009 at 

47% of their remaining principal balance. 

Furthermore, the Applicant notes that Wells Capital 

Management, an affiliated investment advisor, 

stated that the trading price for the Notes was 

substantially below their assessment of the intrinsic 

value of the underlying assets. 

7The Applicant represents that the Proposal 

Letter generally confirmed information 

communicated via telephone with the 

representative of each Ineligible Client prior to the 

time the Bank acted on the negative consent. 

8To address the possibility that the election made 

on September 8, 2009 by the Bank (to participate 

in the Exchange Offer on behalf of eligible clients 

and to make a corresponding election to participate 

in the Exchange Offer with respect to Notes held by 

Ineligible Clients who accepted the Bank’s 

purchase) may be deemed to raise prohibited 

transaction issues, the Bank has requested an 

effective date for the exemption of September 8, 

2009. 

investors. Those holders of the Notes 

who did not accept the NewCo 

Exchange Offer were to receive directly 

a pro rata distribution of each of 

Stanfield Victoria’s underlying assets, 

which comprised more than 370 

separate securities. The small pro rata 

interests in the underlying securities 

generally would be below the minimum 

denomination size necessary to permit 

sales to other purchasers or transfers of 

any kind. Thus, any such investors 

would be required to hold each of the 

underlying securities until their 

maturity or redemption. 

In addition, investors who took 

distributions of these nontransferable 

assets would be subject to substantial 

administrative charges imposed by the 

custodian (unrelated to the Bank) so 

long as any nontransferable asset 

remained outstanding. Accordingly, the 

Bank elected on behalf of each eligible 

securities lending client (that is, each 

securities lending client that was a 

‘‘qualified purchaser’’ holding at least 

$100,000 in Stanfield Victoria) to accept 

the NewCo Exchange Offer. 

10. Some of the Bank’s securities 

lending customers were ineligible to 

hold interests in NewCo (the Ineligible 

Clients) because they were not 

‘‘qualified purchasers’’ or they held 

Interests 5 of less than $100,000 in 

Stanfield Victoria, or both. These 

investors included the four Plans and 

five other investors, which were 

institutional investors, such as nonERISA employee benefit plans and 

private foundations. Therefore, the Bank 

determined that it would be appropriate 

and in the best interests of the Plans to 

purchase the Interests in the Notes for 

their current cost (calculated as the 

original purchase price less 

distributions that were treated as 

distributions of principal through the 

date of sale). However, to avoid a pro 

rata distribution of more than 370 

illiquid securities, any such sale would 

be required to be made prior to the 

expiration of the Exchange Period. 

The Bank decided to purchase the 

Interests in the Notes that were held by 

the Ineligible Clients for cash in order 

to participate in the Exchange Offer 

with respect to any Interests in the 

Notes that the Ineligible Clients chose to 

sell to the Bank. Moreover, the Bank 

determined that its purchase of the 

Interests held by the Ineligible Clients 

would be permissible under applicable 

banking law. 

11. The current cost of the Notes was 

substantially higher than the fair market 

value of the Notes. Because there was 

essentially no market for the Notes, they 

could be valued only by valuing the 

underlying assets of Stanfield Victoria. 

The Enforcement Manager was required 

to provide monthly mark-to-market 

valuations of those assets, which, due to 

the complexity of the valuation process 

for the underlying assets at a time of 

substantial market disruption, was 

generally provided approximately one 

month in arrears. The Bank states that, 

as of the close of the Exchange Period, 

the most recent valuation provided by 

the Enforcement Manager to investors, 

which was made as of July 31, 2009, 

reported that Stanfield Victoria’s assets 

were believed to have an aggregate value 

equal to 46% of Stanfield Victoria’s 

outstanding senior debt (i.e., 46 percent 

of the outstanding principal balance).6

12. On September 3, 2009, the Bank 

notified a representative of each of the 

Ineligible Clients of its proposal to 

purchase their Interests in the Notes. In 

addition, the Bank provided a written 

description of its proposal to each 

Ineligible Client by letter (the Proposal 

Letter) dated September 8, 2009. In its 

Proposal Letter, the Bank informed each 

Ineligible Client that, unless directed 

differently by 12 Noon on Wednesday, 

September 9, 2009, the Bank would be 

transferring the payment for the 

purchase of the Ineligible Clients’ 

Interests in the Notes to such Ineligible 

Clients’ segregated Collateral Pool on 

Thursday, September 10, 2009. The 

Bank obtained confirmation from each 

Ineligible Client, via negative consent by 

the close of business on September 9, 

2009, that it wished to participate in the 

Bank’s proposed purchase.7

Accordingly, the Bank purchased each 

Ineligible Client’s Interest in the Notes 

for a total cash payment of $628,952 on 

September 10, 2009 (the Purchase 

Date).8 This sum represented the current 

cost of the Notes (i.e., the purchase price 

of the Notes less distributions treated as 

distributions of principal received by 

the Plans as of the Purchase Date). The 

price was determined on the same basis 

for each Plan as it was for the other 

Ineligible Clients. On the basis of the 

information it had obtained regarding 

the market for the Notes and the 

intrinsic value of Stanfield Victoria’s 

underlying assets, the Bank determined 

that the purchase price paid by the Bank 

to the Ineligible Clients substantially 

exceeded (by approximately $392,300) 

the aggregate fair market value of the 

Ineligible Clients’ Interests in the Notes 

as of the Purchase Date. 

13. As for the Plans, the current price 

for CUSIP 1 was $224,245 ($303,449 

purchase price minus $79,204 

repayment of principal), and its 

estimated fair market value as of 

September 10, 2009 was $105,396. With 

respect to CUSIP 2, the current price 

was $150,937 ($202,359 purchase price 

minus $51,422 repayment of principal) 

and its fair market value was $70,940 as 

of September 10, 2009. 

Accordingly, the total Purchase Price 

paid by the Bank for the Plans’ Interests 

in the Notes was $375,182. The 

Purchase Price was allocated among the 

Plans pro rata based on their respective 

percentage Interests in the Notes. 

14. The Bank, in its capacity as 

securities lending agent, believes that 

the sale of the Plans’ Interests in the 

Notes was in the interests and protective 

of the Plans at the time of the 

transaction because the sale protected 

the Plans from holding illiquid 

securities and incurring burdensome 

holding costs, and, secondarily, from 

potential investment losses. The Bank 

also represents that any sale of the 

Plans’ Interests in the Notes or pro rata 

interests in Stanfield Victoria’s 

underlying assets on the open market, if 

possible at all, would have produced 

significant losses for the Plans. 

However, the Purchase Price paid by the 

Bank substantially exceeded the 

aggregate fair market value of the Plans’ 

Interests in the Notes. Furthermore, the 

transaction was a one-time sale for cash 

and the Plans did not bear any 

brokerage commissions, fees, or other 

expenses in connection with the 

transaction. Finally, the Bank represents 

that it took all appropriate actions 

necessary to safeguard the interests of 

the Plans in connection with the sale of 

their Interests in the Notes. 

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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41105 

9For purposes of this proposed exemption, 

references to section 406 of ERISA should be read 

to refer as well to the corresponding provisions of 

section 4975 of the Code. 

10 49 FR 9494 (March 13, 1984), as corrected at 

50 FR 41430 (October 10, 1985), as amended at 70 

FR 49305 (August 23, 2005), and as amended at 75 

FR 38837 (July 6, 2010). 

15. The Bank represents that its 

purchase of the Plans’ Interests in the 

Notes resulted in an assignment of all of 

the Plans’ rights, claims, and causes of 

action against Stanfield Victoria or any 

third party arising in connection with or 

out of the issuance of the Notes. The 

Bank states that, if the exercise of any 

of the foregoing rights, claims or causes 

of action results in the Bank recovering 

from Stanfield Victoria or any third 

party an aggregate amount that is more 

than the sum of (a) the Purchase Price 

paid for the Plans’ Interests in the Notes 

by the Bank and (b) the interest that 

would have been due on the Notes (in 

the absence of the exchange) from and 

after the Purchase Date at the rate 

specified in the Notes, the Bank will 

refund such excess amounts promptly to 

the Plans (after deducting all reasonable 

expenses incurred in connection with 

the recovery). 

16. In summary, the Bank represents 

that the transaction satisfied the 

statutory criteria for an exemption 

under section 408(a) of the Act because: 

(a) The sale of the Plans’ Interests in the 

Notes was a one-time transaction for 

cash; (b) the Plans received an amount 

equal to the current cost of their 

Interests in the Notes at the time of sale, 

which was greater than the aggregate 

fair market value of their Interests in the 

Notes as determined by a valuation 

provided by the Enforcement Manager; 

(c) the Plans did not pay any 

commissions or other expenses with 

respect to the sale; (d) the Bank, as 

securities lending agent, determined 

that the sale of the Plans’ Interests in the 

Notes was in the interests of the Plans; 

(e) the Bank took all appropriate actions 

necessary to safeguard the interests of 

the Plans in connection with the 

transaction; and (f) the Bank will 

promptly refund to the Plans any 

amounts recovered from Stanfield 

Victoria or any third party in connection 

with its exercise of any rights, claims or 

causes of action as a result of its 

ownership of the Notes (including the 

notes received in the NewCo Exchange 

Offer), if such amounts are in excess of 

the sum of (1) the Purchase Price paid 

for the Plans’ Interests in the Notes by 

the Bank, and (2) the interest that would 

have been due on the Plans’ Interests in 

the Notes from and after the Purchase 

Date at the rate specified in the Notes. 

Notice to Interested Persons 

It is represented that the Bank shall 

provide notification of the publication 

of the Notice of Proposed Exemption 

(the Notice) in the Federal Register to 

a representative (the Representative) of 

each of the four Plans by personal or 

express delivery to each such 

Representative. Such notification will 

contain a copy of the Notice, as it 

appears in the Federal Register on the 

date of publication, plus a copy of the 

Supplemental Statement, as required 

pursuant to 29 CFR 2570.43(a)(2), which 

will advise the Representatives of their 

right to comment and/or to request a 

hearing. The Bank will provide such 

notification to the Representatives 

within five (5) days of the date of 

publication of the Notice in the Federal 

Register. All written comments and/or 

requests for a hearing must be received 

by the Department from the 

Representatives no later than 35 days 

after publication of the Notice in the 

Federal Register. 

All comments will be made available 

to the public. Warning: Do not include 

any personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the Internet and can be 

retrieved by most Internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: 

Anna Mpras Vaughan of the Department 

at (202) 693–8565. (This is not a toll-free 

number). 

UBS AG (UBS or the Applicant), 

Located in Zurich, Switzerland, 

Exemption Application No. D–11772 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the 

Employee Retirement Income Security 

Act of 1974, as amended, (ERISA) and 

section 4975(c)(2) of the Internal 

Revenue Code of 1986, as amended (the 

Code), and in accordance with the 

procedures set forth in 29 CFR Part 

2570, Subpart B (76 FR 66637, 66644, 

October 27, 2011).9

If the proposed exemption is granted, 

entities within UBS’s Global Asset 

Management and Wealth Management 

Americas divisions that function as 

‘‘qualified professional asset managers’’ 

(QPAMs), shall not be precluded from 

relying on the relief provided by 

Prohibited Transaction Exemption 84– 

14 (PTE 84–14),10 solely due to the 

failure to satisfy the condition in section 

I(g) of PTE 84–14 as a result of their 

affiliation with UBS Securities Japan Co. 

Ltd. (UBS Securities Japan), against 

whom a judgment of conviction for one 

count of wire fraud (the Conviction) is 

scheduled to be entered in the District 

Court of Connecticut in Case Number 

3:12–cr–00268–RNC, provided the 

following conditions are satisfied: 

(a) No ERISA-covered assets were 

involved in, or directly affected by, the 

conduct of UBS Securities Japan that is 

the subject of the Conviction. For 

purposes of this paragraph, ERISAcovered assets are not considered 

directly affected solely because an 

ERISA plan held an economic interest 

in a security or investment product, the 

value of which was tied to one of the 

benchmark interest rates manipulated in 

connection with conduct by certain UBS 

personnel; 

(b) The entities acting as QPAMs 

within UBS’s Global Asset Management 

and Wealth Management Americas 

divisions (UBS QPAMs) did not know 

of, have reason to know of, participate 

in, or directly receive compensation in 

connection with, the conduct by certain 

UBS personnel that gave rise to the 

manipulation of certain benchmark 

interest rates; 

(c) UBS Securities Japan did not 

provide any fiduciary services to, or act 

as a QPAM for, ERISA plans or 

otherwise exercise any discretionary 

control over ERISA-covered assets; 

(d) UBS Securities Japan will not 

enter into any transactions with funds 

managed by UBS QPAMs or provide any 

services to UBS QPAMs; 

(e) UBS QPAMs were insulated from 

UBS Securities Japan due to: (1) The 

independent business operations of the 

Wealth Management Americas and 

Global Asset Management divisions 

from UBS’s other divisions, and (2) 

written policies and procedures which 

created information barriers that were in 

place to ensure that the UBS QPAMs, 

and the ERISA-covered assets they 

manage, were not affected by the 

business activities of UBS affiliates 

within the Investment Bank division, 

such as UBS Securities Japan; 

(f) UBS maintains and follows written 

policies and procedures that create 

information barriers designed to ensure 

UBS QPAMs, and the ERISA-covered 

assets they manage, are not affected by 

the business activities of UBS affiliates 

within the Investment Bank division, 

such as UBS Securities Japan. UBS also 

develops and implements a program of 

training for UBS personnel regarding 

such written policies and procedures; 

(g) UBS submits to an annual audit 

which meets the following 

requirements: 

(1) An independent auditor, who has 

appropriate technical training and 

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41106 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

11This includes the purchase and sale of equity 

and fixed income securities, derivative contracts 

involving exposure to such securities, financial 

indices, commodity interests and currencies, 

mutual funds, hedge funds, real estate, 

infrastructure and private equity funds, fund of 

funds and manager of managers programs. 

12United States of America v. UBS Securities 

Japan Co., Ltd., Case Number 3:12–cr–00268–RNC. 

13Section 1343 generally imposes criminal 

liability for fraud, including fines and/or 

imprisonment, when a person utilizes wire, radio, 

or television communication in interstate or foreign 

commerce. Section 2 generally imposes criminal 

liability on a person as a principal if that person 

aids, abets, counsels, commands, induces, or 

willfully causes another person to engage in 

criminal activity. 

proficiency with Title I of ERISA, shall 

conduct an annual written audit; 

(2) The audit shall specifically require 

the auditor to determine whether UBS 

has continued to maintain and follow, 

and developed and implemented a 

training program with respect to, 

written policies and procedures that 

create information barriers designed to 

ensure that the UBS QPAMs, and the 

ERISA-covered assets they manage, are 

not improperly influenced or affected by 

the business activities of UBS affiliates 

within the Investment Bank division, 

such as UBS Securities Japan; 

(3) The audit shall test operational 

compliance with the training 

requirements and written policies and 

procedures requirements described in 

paragraph (f); 

(4) The auditor shall issue a written 

report (the Audit Report) describing the 

steps performed by the auditor during 

the course of its examination. The Audit 

Report shall include the auditor’s 

specific determinations regarding the 

adequacy of the training requirements 

and written policies and procedures 

requirements described in paragraph (f), 

the auditor’s recommendations (if any) 

with respect to strengthening such 

training requirements and policies and 

procedures, and any instances of UBS’s 

noncompliance with developing and 

implementing such training 

requirements and policies and 

procedures. Any determinations made 

by the auditor as a result of the audit 

regarding the adequacy of the training 

requirements and written policies and 

procedures requirements described in 

paragraph (f) and the auditor’s 

recommendations (if any) with respect 

to strengthening such training 

requirements and policies and 

procedures shall be promptly addressed 

by UBS, and any actions taken by UBS 

to address such recommendations 

should be included in an addendum to 

the Audit Report. Any determinations 

by the auditor that UBS has developed 

and maintained sufficient written 

policies and procedures, and developed 

and maintained a training program 

regarding such policies and procedures, 

shall not be based solely or in 

substantial part on an absence of 

evidence indicating noncompliance; 

(5) UBS shall provide notice to the 

Department’s Office of Exemption 

Determinations (OED) of any instances 

of UBS’s noncompliance reviewed by 

the auditor within ten (10) business 

days after such noncompliance is 

determined by the auditor, regardless of 

whether the audit has been completed 

as of that date. Upon request, the 

auditor shall provide OED with all of 

the relevant workpapers reflecting the 

instances of noncompliance. The 

workpapers should identity whether 

and to what extent the assets of ERISA 

plans were involved in the instance(s) of 

noncompliance and an explanation of 

any corrective actions taken by UBS; 

(6) The yearly Audit Report will be 

provided to OED no later than 90 days 

following the 12-month period to which 

it relates and will be unconditionally 

available for examination by any duly 

authorized employee or representative 

of the Department, Internal Revenue 

Service, U.S. Commodity Futures 

Trading Commission, U.S. Department 

of Justice, Japanese Financial Services 

Authority, other relevant regulators, and 

any fiduciary of an ERISA plan the 

assets of which plan are managed by a 

UBS QPAM; 

(7) This audit requirement in 

paragraph (g) herein shall continue to be 

applicable for five (5) years from the 

date of Conviction; 

(h) Notwithstanding the Conviction, 

UBS complies with each condition of 

PTE 84–14, as amended; 

(i) UBS imposes its internal 

procedures, controls, and protocols on 

UBS Securities Japan to: (1) Reduce the 

likelihood of any recurrence of conduct 

that is the subject of the Conviction, and 

(2) comply in all material respects with 

the Business Improvement Order, dated 

December 16, 2011, issued by the 

Japanese Financial Services Authority; 

(j) UBS complies in all material 

respects with the audit and monitoring 

procedures imposed on UBS by the 

United States Commodity Futures 

Trading Commission Order, dated 

December 19, 2012; 

(k) UBS maintains records necessary 

to demonstrate that the conditions of 

this exemption have been met for six (6) 

years following the completion date of 

the last audit conducted in accordance 

with paragraph (g); and 

(l) Each sponsor of an ERISA plan the 

assets of which plan are managed by a 

UBS QPAM receives: Notice of the 

proposed exemption with a copy of the 

summary of facts that led to the 

Conviction, which was submitted to the 

Department; and a prominently 

displayed statement that the Conviction 

results in a failure to meet a condition 

in PTE 84–14. 

Effective Date: This proposed 

exemption, if granted, will be effective 

as of the date a judgment of conviction 

against UBS Securities Japan for wire 

fraud is entered in the District Court of 

Connecticut in Case Number 3:12–cr– 

00268–RNC. 

Summary of Facts and Representations 

Background 

1. UBS AG (UBS or the Applicant) is 

a financial services corporation with 

headquarters located in Zurich, 

Switzerland. UBS has banking divisions 

and subsidiaries around the world, 

including in the United States, with its 

United States headquarters located in 

New York, New York and Stamford, 

Connecticut. The operational structure 

of UBS consists of the Corporate Center 

and four business divisions: Wealth 

Management, Wealth Management 

Americas, Global Asset Management 

and the Investment Bank. Discretionary 

investment management services and 

investment consulting services utilized 

by ERISA plan clients are provided 

primarily through UBS’s Global Asset 

Management and Wealth Management 

Americas divisions. According to UBS, 

Global Asset Management and Wealth 

Management Americas provide 

investment management services to 

ERISA plan clients through separately 

managed accounts and pooled funds 

that invest in most of the investable 

markets worldwide.11 UBS notes that as 

of September 30, 2012, Global Asset 

Management’s invested assets totaled 

approximately $671 billion worldwide, 

and Wealth Management Americas’ 

invested assets totaled approximately 

$841 billion. 

2. On December 19, 2012, the Fraud 

section of the Criminal Division of the 

United States Department of Justice 

filed a one-count criminal information 

(the Information) in the District Court of 

Connecticut (the District Court) 12

charging UBS Securities Japan Co. Ltd. 

(UBS Securities Japan), a wholly-owned 

subsidiary of UBS incorporated under 

the laws of Japan, with wire fraud in 

violation of Title 18, United States 

Code, sections 1343 and 2.13 The 

Information accuses UBS Securities 

Japan, between approximately 2006 and 

at least 2009, of engaging in a scheme 

to defraud counterparties to interest rate 

derivatives trades executed on its behalf 

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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41107 

14Specifically, the Information charges that on or 

about February 25, 2009, in furtherance of such 

scheme, UBS Securities Japan caused the 

transmission of: (i) An electronic chat between a 

derivatives trader employed by UBS Securities 

Japan and a broker employed at an interdealer 

brokerage firm, (ii) a subsequent submission for the 

Yen LIBOR to Thomson Reuters, and (iii) a 

subsequent publication of a Yen LIBOR rate through 

international and interstate wires, at least one of 

which passed through servers located in Stamford, 

Connecticut. 

15As of the date of this proposal, thirteen banks 

sat on the Yen LIBOR Contributor panel and 

seventeen banks sat on the Euroyen TIBOR 

Contributor panel. 

16 49 FR 9494 (March 13, 1984), as corrected at 

50 FR 41430 (October 10, 1985), as amended at 70 

FR 49305 (August 23, 2005), and as amended at 75 

FR 38837 (July 6, 2010). 

17Relief under the exemption is based, in part, on 

the expectation that a QPAM, and those who may 

be in a position to influence its policies, maintain 

a high standard of integrity. 47 FR 56945, 56947 

(December 21, 1982). 

18The Department notes that the Applicant has 

requested relief for UBS and its current and future 

affiliates. However, based on the record provided by 

the Applicant, the Department has been able to 

make its findings only with regards to the Global 

Asset Management and Wealth Management 

Americas divisions. Therefore, this proposed 

exemption, if granted, extends relief only to entities 

within those two divisions. 

19These regulatory agencies include the U.S. 

Commodity Futures Trading Commission (CFTC), 

the United Kingdom Financial Services Authority 

Continued 

by secretly manipulating certain 

benchmark interest rates (Yen LIBOR 

and Euroyen TIBOR), to which the 

profitability of those trades was tied.14

Pursuant to a plea agreement (together 

with its attachments, the Plea 

Agreement), UBS Securities Japan 

entered a plea of guilty to the 

Information on December 19, 2012. UBS 

represents that it expects the District 

Court to enter a judgment of conviction 

(the Conviction) against UBS Securities 

Japan that will require remedies that are 

materially the same as set forth in the 

Plea Agreement. The Conviction is 

scheduled to be entered on or after June 

27, 2013. 

3. According to the Information, UBS 

Securities Japan’s fraudulent conduct 

was made possible by the manner in 

which the benchmark interest rates were 

calculated. Each business day, an 

average benchmark interest rate (the 

Fix) is calculated for various maturities, 

ranging from one day to 12 months. 

Each Fix is based on submissions from 

banks that sit on a Contributor Panel 

(omitting the top and bottom 25% of 

submissions for Yen LIBOR and the two 

highest and two lowest submissions for 

Euroyen TIBOR).15 The submissions for 

the benchmark interest rates generally 

represent the rate at which an 

individual Contributor Panel bank could 

borrow funds, were it to do so by asking 

for and then accepting inter-bank offers 

in a reasonable market size. UBS sits on 

the Contributor Panel for the Yen LIBOR 

and Euroyen TIBOR. Submissions from 

Contributor Panel members are ranked 

and averaged to determine each Fix. 

Each Fix is then published by 

information providers, such as Thomson 

Reuters. 

4. According to the Plea Agreement, 

UBS Securities Japan employed 

derivatives traders who submitted rates 

which did not reflect UBS’s honest 

assessment of what its submissions 

should have been and who influenced 

the submissions of other Contributor 

Panel banks. The UBS derivatives 

traders were able to accomplish this by 

applying pressure or bribing individuals 

in charge of UBS’s submissions to make 

submissions favorable to the traders’ 

outstanding transactions. The 

derivatives traders would also persuade 

outside brokers to spread false 

information to other banks in order to 

influence those banks’ submissions, 

causing a more dramatic shift in a 

particular Fix. The derivative traders 

engaged in this conduct in order to 

benefit their trading positions by 

maximizing profits and minimizing 

their losses. These derivative traders 

understood that they could only achieve 

those goals at the expense of their 

counterparties, whose trading positions 

would be affected to the same extent but 

in the opposite direction. Because of the 

large monetary value of the derivatives 

trades, even a small shift in a given Fix 

could result in a substantial profit to 

UBS, which would harm the 

counterparties. The Applicant 

represents that none of the 

counterparties were ERISA plans or 

funds containing ERISA-covered assets. 

Failure To Comply With Section I(g) of 

PTE 84–14 and Proposed Relief 

5. PTE 84–14 16 is a class exemption 

that permits certain transactions 

between a party in interest with respect 

to an employee benefit plan and an 

investment fund in which the plan has 

an interest and which is managed by a 

‘‘qualified professional asset manager’’ 

(QPAM), if the conditions of the 

exemption are satisfied.17 The 

Applicant represents that certain 

entities within its Global Asset 

Management and Wealth Management 

Americas divisions satisfy the definition 

of QPAM in PTE 84–14 (UBS QPAMs) 

and may rely on the relief provided 

therein. However, PTE 84–14 precludes 

a person who may otherwise meet the 

definition of QPAM from relying on the 

relief provided therein if that person or 

its affiliate has, within 10 years 

immediately preceding the transaction, 

been either convicted or released from 

imprisonment, whichever is later, as a 

result of certain specified criminal 

activity described under section I(g) of 

PTE 84–14. 

6. UBS represents that the Conviction 

falls within the scope of section I(g) of 

PTE 84–14 and, therefore, following the 

Conviction, UBS QPAMs will no longer 

qualify for the relief provided by PTE 

84–14. This exemption, if granted, will 

enable entities within UBS’s Global 

Asset Management and Wealth 

Management Americas divisions to 

qualify for the relief in PTE 84–14 

despite the failure to satisfy section I(g) 

of PTE 84–14 as a result of the 

Conviction, set to occur on or after June 

27, 2013.18 This proposed exemption, if 

granted, will not apply to any other 

convictions of UBS or its affiliates for 

crimes described in section I(g) of PTE 

84–14. 

Merits of the Proposed Exemption 

7. The Applicant states that in 

exchange for its cooperation with the 

investigation, the Department of Justice 

(the DOJ) entered into a non-prosecution 

agreement (NPA) with UBS, dated 

December 18, 2012, relating to UBS’s 

submissions for the Yen LIBOR and 

other benchmark interest rates. 

Incorporated into the NPA is a 

Statement of Facts (SOF) which 

describes in more detail the efforts by 

certain UBS personnel to manipulate 

submissions for various interest rate 

benchmarks and to collude with 

employees at other banks and cash 

brokers to influence certain benchmark 

rates, including Yen LIBOR, to benefit 

their trading positions. The SOF also 

explains that certain UBS managers and 

senior managers gave directions to 

influence UBS’s submissions to avoid 

negative media attention and, relatedly, 

to avoid creating an impression that it 

was having difficulty obtaining funds. 

UBS acknowledged that the SOF was 

true and correct and that the wrongful 

acts taken by the participating 

employees in furtherance of the 

misconduct set forth above were within 

the scope of their employment at UBS. 

Furthermore, UBS acknowledged that 

the participating employees intended, at 

least in part, to benefit UBS through the 

actions described above. 

8. Pursuant to the NPA, UBS agreed 

to certain undertakings, including 

payment of a monetary penalty of 

$500,000,000 and strengthening its 

internal controls, as required by certain 

other U.S. and non-U.S. regulatory 

agencies with direct supervisory 

authority to regulate the conduct that 

gave rise to the Conviction.19 A 

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41108 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

(UKFSA), the Swiss Financial Market Supervisory 

Authority (FINMA), and the Japanese Financial 

Services Authority (JFSA). 

20 51 FR 41686 (November 18, 1986) as amended 

at 67 FR 64137 (October 17, 2002). 

21UBS affirms that commissions generated from 

the equity trades do not directly impact the 

compensation of employees of UBS QPAMs, but 

instead compensate the UBS Securities Japan 

brokers for the execution and settlement of the 

trades, in accordance with PTE 86–128. The 

Department is expressing no view as to whether 

UBS has complied with the conditions for relief 

under PTE 86–128. 

summary of the compliance conditions 

imposed by these regulators (of which 

several have already been implemented) 

are set forth as follows: 

The United States Commodity Futures 

Trading Commission Order, dated 

December 19, 2012, (the CFTC Order) 

requires UBS to comply with significant 

audit and monitoring conditions that set 

standards for submissions related to 

interest rate benchmarks such as LIBOR, 

qualifications of submitters and 

supervisors, documentation, training, 

and firewalls. Under the CFTC Order, 

UBS must maintain monitoring systems 

or electronic exception reporting 

systems that identify possible improper 

or unsubstantiated submissions. The 

CFTC Order requires UBS to conduct 

internal audits of reasonable and 

random samples of its submissions 

every six months. Additionally, UBS 

must retain an independent, third-party 

auditor to conduct a yearly audit of the 

submission process for five years and a 

copy of the report must be provided to 

the CFTC. UBS states that FINMA also 

adopted the compliance undertakings in 

the CFTC Order as their own; 

The Business Improvement Order, 

dated December 16, 2011, issued by the 

JFSA requires UBS Securities Japan to: 

(i) Develop a plan to ensure compliance 

with its legal and regulatory obligations 

and to establish a control framework 

that is designed to prevent recurrences 

of the fraudulent submissions for 

benchmark interest rates; and (ii) 

provide periodic written reports to the 

JFSA regarding UBS Securities Japan’s 

implementation of the measures 

required by the order. 

9. According to the NPA, under UBS’s 

new senior management, UBS has made 

substantial and positive changes in its 

compliance, training, and overall 

approach to ensuring its adherence to 

the law. The NPA provides further that 

UBS has implemented a modified and 

significantly enhanced control 

framework for its LIBOR submission 

process and has expanded that program 

to encompass all other benchmark 

interest rate submissions. UBS states 

that it has also implemented significant 

remedial measures against manipulation 

of benchmark interest rates. UBS 

represents that the DOJ has received 

favorable reports from FINMA and the 

JFSA describing, respectively, (1) the 

positive progress that UBS has made in 

its approach to compliance and 

enforcement, and (2) UBS Securities 

Japan’s effective implementation of the 

remedial measures previously imposed 

by the JFSA. 

10. Finally, UBS notes that, in light of 

the active investigations by the various 

regulators of the conduct identified in 

the NPA, and the role that such 

regulators will continue to play in 

reviewing UBS’s compliance standards, 

the DOJ determined that adequate 

compliance measures regarding 

submissions for benchmark interest 

rates have been and will be established. 

For that reason, the DOJ did not include 

any additional compliance conditions in 

the NPA. 

11. The Applicant maintains that no 

ERISA plans managed by UBS QPAMs 

were directly affected by the acts that 

form the basis for the Conviction. 

Furthermore, UBS states that no ERISA 

plan or any fund the assets of which 

constitute ERISA-covered assets was a 

party to a transaction that was the 

subject of the Conviction. 

Notwithstanding this, UBS 

acknowledges that ERISA plans may 

have held economic interests tied to one 

of the benchmark interest rates affected 

by UBS Securities Japan’s criminal 

conduct. 

12. According to the Applicant, as an 

affiliate of UBS, UBS Securities Japan 

engages in the purchase and sale of 

securities, acts as an intermediary in the 

purchase and sale of securities and 

underwrites securities in Japan, advises 

on mergers and acquisitions, and 

advises on private placements of debt 

and equity capital. However, the 

Applicant states that UBS Securities 

Japan does not provide investment 

management services to ERISA plans or 

otherwise exercise discretionary control 

over ERISA-covered assets. In this 

regard, the Applicant states that UBS 

Securities Japan has occasionally 

provided non-discretionary cash equity 

services (i.e., short-term stock trading 

designed to generate profits from 

changing stock market prices) to ERISA 

plans managed by UBS QPAMs, in 

reliance on PTE 86–128.20 The 

Applicant explains that UBS QPAMs, 

on behalf of their ERISA plan clients, 

may on occasion purchase Japanese 

securities through UBS Securities Japan, 

but the conduct that forms the basis for 

the Plea Agreement and the facts that 

form the basis of the NPA did not relate 

to the cash equity services provided by 

UBS Securities Japan.21 Furthermore, 

the Applicant states that none of the 

individuals involved in the misconduct 

assisted in providing cash equity 

services to UBS QPAMs. Finally, 

according to the Applicant, UBS 

Securities Japan provided no other 

services to ERISA plans managed by 

UBS or its affiliates during the time 

period covered by the NPA, 

Information, and Plea Agreement. 

13. The Applicant represents that 

UBS QPAMs were not involved in, and 

did not have knowledge of, the facts that 

form the basis of the NPA, Information, 

and Plea Agreement. UBS states that 

this is a result of policies and 

procedures that create information 

barriers that are, and have been, in place 

between UBS’s four business groups to 

ensure compliance with applicable legal 

requirements and to minimize potential 

conflicts of interest. The Applicant 

explains that, for example, UBS QPAMs 

are part of the Global Asset Management 

and Wealth Management Americas 

divisions whereas UBS Securities Japan 

acts for the Investment Bank division. 

Furthermore, UBS notes that members 

of the Global Asset Management and 

Wealth Management Americas divisions 

maintain separate registrations, books 

and records, and accounts from the 

Investment Bank affiliates. Therefore, 

according to UBS, the Global Asset 

Management and Wealth Management 

Americas divisions operate 

independently of the Investment Bank 

division. The Applicant explains further 

that, generally, the policies and 

procedures that create information 

barriers prevent employees of UBS 

QPAMs from gaining access to insider 

information that an affiliate may have 

acquired or developed in connection 

with investment banking activities of 

the Investment Bank division. 

According to UBS, the policies and 

procedures that create information 

barriers apply to all employees, officers, 

and directors at the UBS QPAMs and 

were in effect during the time frame 

covered by the facts that form the basis 

of the Plea Agreement. Finally, UBS 

represents that business contacts 

between Global Asset Management and 

Wealth Management Americas 

personnel and anyone engaged in 

investment banking or related activities 

for an affiliate are prohibited, except 

with the prior approval of UBS’s Legal 

and Compliance Department. 

14. The proposed exemption, if 

granted, will require an independent 

auditor, who has appropriate technical 

training and proficiency with Title I of 

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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41109 

ERISA, to conduct an annual audit. The 

auditor shall determine whether UBS 

has developed and implemented 

training for, and continued to maintain 

and follow, written policies and 

procedures that create information 

barriers designed to ensure that the UBS 

QPAMs, and the ERISA assets they 

manage, are not improperly influenced 

or affected by the business activities of 

other UBS affiliates, such as those 

within the Investment Bank division. 

The auditor shall also determine 

whether UBS is operationally compliant 

with such training and policies and 

procedures and whether such measures 

are adequate to maintain information 

barriers and deter improper influences. 

The auditor shall issue a written report 

(the Audit Report) describing the steps 

performed by the auditor during the 

course of the auditor’s examination. The 

Audit Report will be provided to the 

Department no later than 90 days 

following the 12-month period to which 

it relates and will be unconditionally 

available for examination by any duly 

authorized employee or representative 

of the Department, Internal Revenue 

Service, CFTC, DOJ, JFSA, other 

relevant regulators, and any fiduciary of 

an ERISA plan, the assets of which plan 

are managed in whole or part by UBS 

QPAMs. The audit requirement shall 

continue to be applicable for five years 

from the date of Conviction. 

Statutory Findings 

15. The proposed exemption, if 

granted, is expected to be 

administratively feasible because the 

Department will have minimal 

involvement in ensuring UBS complies 

with this exemption. In this regard, the 

proposed exemption, if granted, will 

require an auditor to perform an audit 

of UBS’s training and policies and 

procedures that create information 

barriers. 

16. UBS represents that the requested 

exemption is in the interest of affected 

plans and their participants and 

beneficiaries because it will enable the 

plans to continue their current 

investment strategy with their current 

manager. Moreover, UBS notes that if 

the Department denies the requested 

exemption, UBS will be effectively 

eliminated as a viable investment 

manager. UBS suggests that any ERISA 

plan that decides to move to a new 

manager could incur transition costs 

including costs associated with 

identifying an appropriate manager. 

Additionally, according to the 

Applicant, ERISA plans that remain 

with UBS would be prohibited from 

engaging in certain transactions 

beneficial to such plans, such as the 

purchase and sale from a party in 

interest of a security without a readily 

ascertainable fair market value. Finally, 

according to the Applicant, UBS has 

entered into contracts on behalf of 

ERISA plans for certain outstanding 

transactions, including swaps, which 

require UBS to maintain its eligibility 

for the relief in PTE 84–14. UBS asserts 

that counterparties to those transactions 

could seek to terminate their contracts, 

resulting in significant losses to their 

ERISA plan clients. Moreover, certain 

derivatives transactions will 

automatically and immediately be 

terminated without notice or action in 

the event UBS no longer qualifies for the 

relief in PTE 84–14. 

17. UBS maintains that the requested 

exemption is protective of the rights of 

participants and beneficiaries of affected 

ERISA plans because: (i) UBS Securities 

Japan has not been, and for the duration 

of this exemption, will not be involved 

in the provision of discretionary 

investment management services to 

ERISA plans, and (ii) there have been, 

and will be, in place policies and 

procedures that create information 

barriers between UBS’s business groups 

to ensure compliance with applicable 

legal requirements and to minimize 

potential conflicts of interest. UBS will 

also be subject to the audit requirement, 

described above, to ensure that the 

policies and procedures effectively 

insulate UBS QPAMs from improper 

influence of other UBS affiliates. 

18. In addition, UBS stresses that it 

has implemented and will maintain 

internal control procedures to prevent 

further improper activities regarding the 

setting of benchmark interest rates, and 

has complied (and will continue to 

comply) with all applicable 

requirements specified in the NPA, the 

CFTC Order, the Business Improvement 

Order issued by the JFSA, and any other 

agreements entered into by UBS with 

other domestic and foreign regulatory 

agencies in connection with the 

criminal conduct described above. 

Finally, UBS notes that all of the 

conditions that make PTE 84–14 

protective of the rights of participants 

and beneficiaries of ERISA plans will be 

incorporated into this exemption, if 

granted. 

Summary 

19. In summary, UBS represents that 

the covered transactions satisfy the 

statutory requirements for an exemption 

under section 408(a) of ERISA because: 

(a) No ERISA-covered assets were 

involved in, or directly affected by, the 

conduct of UBS Securities Japan that is 

the subject of the Conviction; 

(b) The UBS QPAMs did not know of, 

have reason to know of, participate in, 

or directly receive compensation in 

connection with, the conduct that gave 

rise to the manipulation of certain 

benchmark interest rates; 

(c) UBS Securities Japan did not 

provide any fiduciary services to, or act 

as a QPAM for, ERISA plans or 

otherwise exercise any discretionary 

control over ERISA-covered assets; 

(d) UBS Securities Japan will not 

enter into any transactions with funds 

managed by UBS QPAMs or provide any 

services to UBS QPAMs; 

(e) UBS QPAMs were insulated from 

UBS Securities Japan due to: (1) The 

independent business operations of the 

Wealth Management Americas and 

Global Asset Management divisions 

from UBS’s other divisions, and (2) 

written policies and procedures which 

created information barriers that were in 

place to ensure that the UBS QPAMs, 

and the ERISA-covered assets they 

manage, were not affected by the 

business activities of UBS affiliates 

within the Investment Bank division, 

such as UBS Securities Japan; 

(f) UBS will maintain written policies 

and procedures that create information 

barriers designed to ensure UBS 

QPAMs, and the ERISA-covered assets 

they manage, are not affected by the 

business activities of UBS affiliates 

within the Investment Bank division, 

such as UBS Securities Japan. UBS will 

also develop and maintain a program of 

training for UBS personnel regarding 

such written policies and procedures; 

(g) UBS will submit to an annual 

audit in accordance with paragraph (g) 

of the proposed exemption; 

(h) Notwithstanding the Conviction, 

UBS will comply with each condition of 

PTE 84–14, as amended; 

(i) UBS will impose its internal 

procedures, controls, and protocols on 

UBS Securities Japan to: (1) Reduce the 

likelihood of any recurrence of conduct 

that is the subject of the Conviction, and 

(2) comply in all material respects with 

the Business Improvement Order issued 

by the JFSA; 

(j) UBS will comply with the audit 

and monitoring procedures imposed on 

UBS by the CFTC Order; 

(k) UBS will maintain records 

necessary to demonstrate that the 

conditions of the exemption have been 

met for six years following the 

completion date of the last audit 

conducted in accordance with 

paragraph (g) of the proposed 

exemption; and 

(l) Each sponsor of an ERISA plan the 

assets of which plan are managed by a 

UBS QPAM will receive, along with the 

notice of the proposed exemption, a 

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41110 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

22For purposes of this proposed exemption, 

references to specific provisions of Title I of the 

Act, unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

23 It is represented that the fiduciaries of the PR 

Plan have not made an election under section 

1022(i)(2) of the Act, whereby such plan would be 

treated as a trust created and organized in the 

United States for purposes of tax qualification 

under section 401(a) of the Code. Further, it is 

represented that jurisdiction under Title II of the 

Act does not apply to the PR Plan. Accordingly, the 

Department, herein, is not providing any relief for 

the prohibitions, as set forth in Title II of the Act, 

for the acquisition and holding of the Rights by the 

PR Plan. 

24As of December 31, 2011, the Master Trust had 

$3 billion in total assets. State Street Bank and 

Trust Company serves as the master trustee and 

custodian for the Master Trust. As of September 12, 

2012, (the Ex-Dividend Date), the Stock Fund 

within the Master Trust held 1,512,678 shares of 

Holdings Stock with a fair market value of 

$92,122,090.20. 

25The Stock Fund and the Lands’ End Trust 

Stock Fund are, herein, collectively, referred to as 

the ‘‘Stock Funds.’’ 

copy of the summary of facts that led to 

the Conviction, which was submitted to 

the Department; and a prominently 

displayed statement that the Conviction 

results in a failure to meet a condition 

in PTE 84–14. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be provided to all interested 

persons in the manner agreed upon by 

the Applicant and the Department 

within 3 days of the date of publication 

in the Federal Register. Such notice will 

contain a copy of the notice of proposed 

exemption, as published in the Federal 

Register, and a supplemental statement, 

as required pursuant to 29 CFR 

2570.43(a)(2). The supplemental 

statement will inform interested persons 

of their right to comment on and to 

request a hearing with respect to the 

pending exemption. Written comments 

and hearing requests are due within 33 

days of the publication of the notice of 

proposed exemption in the Federal 

Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Erin S. Hesse of the Department, 

telephone (202) 693–8546. (This is not 

a toll-free number.) 

Sears Holdings Savings Plan (the 

Savings Plan), Sears Holdings Puerto 

Rico Savings Plan (the PR Plan), and 

The Lands’ End, Inc. Retirement Plan 

(the Lands’ End Plan) (Collectively, the 

Plans), Located in Hoffman Estates, IL 

and Dodgeville, WI 

[Application Nos. D–11739, D–11740, D– 

11741] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and section 4975(c)(2) of the Code and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, 66644, October 27, 2011). 

Section I Transactions 

If the proposed exemption is granted, 

effective for the period beginning 

September 7, 2012 and ending October 

8, 2012: 

(a) The restrictions of sections 

406(a)(1)(A), 406(a)(1)(E), 406(a)(2), 

406(b)(1), 406(b)(2), and 407(a)(1)(A) of 

the Act and the sanctions resulting from 

the application of section 4975 of the 

Code, by reason of section 4975(c)(1)(A) 

and 4975(c)(1)(E) of the Code,22 shall 

not apply: 

(1) To the acquisition of certain 

subscription right(s) (the Right or 

Rights) by the Savings Plan and the 

Lands’ End Plan from Sears Holdings 

Corporation (Holdings) in connection 

with an offering (the Offering) by 

Holdings of shares of common stock 

(SHO Stock) in Sears Hometown and 

Outlet Stores, Inc. (SHO); and 

(2) To the holding of the Rights by the 

Savings Plan and the Lands’ End Plan 

during the subscription period of the 

Offering; provided that the conditions as 

set forth, below, in Section II of this 

proposed exemption were satisfied for 

the duration of the acquisition and 

holding. 

(b) The restrictions of sections 

406(a)(1)(A), 406(a)(1)(E), 406(a)(2), 

406(b)(1), 406(b)(2), and 407(a)(1)(A) of 

the Act 23 shall not apply: 

(1) To the acquisition of the Rights by 

the PR Plan from Holdings in 

connection with the Offering by 

Holdings of the SHO Stock; and 

(2) To the holding of the Rights by the 

PR Plan during the subscription period 

of the Offering; provided that the 

conditions as set forth, below, in 

Section II of this proposed exemption 

were satisfied for the duration of the 

acquisition and holding. 

Section II Conditions 

The relief provided in this proposed 

exemption is conditioned upon 

adherence to the material facts and 

representations set forth in the 

application file, and upon compliance 

with the conditions set forth herein. 

(a) The receipt of the Rights by the 

Plans occurred in connection with the 

Offering in which all shareholders of the 

common stock of Holdings (Holdings 

Stock), including the Plans, were treated 

in the same manner; 

(b) The acquisition of the Rights by 

the Plans resulted solely from an 

independent act of Holdings, as a 

corporate entity; 

(c) Each shareholder of Holdings 

Stock, including each of the Plans, 

received the same proportionate number 

of Rights based on the number of shares 

of Holdings Stock held by each such 

shareholder; 

(d) All decisions with regard to the 

holding and disposition of the Rights by 

the Plans were made by an independent 

qualified fiduciary (the I/F); 

(e) The I/F determined that it would 

be in the interest of the Plans to sell all 

of the Rights received in the Offering by 

the Plans in blind transactions on the 

NASDAQ Capital Market; and 

(f) No brokerage fees, commissions, 

subscription fees, or other charges: Were 

paid by the Plans with respect to the 

acquisition and holding of the Rights; or 

were paid to any broker affiliated with 

the I/F, Holdings, or SHO in connection 

with the sale of the Rights. 

Effective Date: This proposed 

exemption, if granted, will be effective 

for the Offering period, beginning 

September 7, 2012 and ending October 

8, 2012. 

Summary of Facts and Representations 

Plan Structure 

1. Employees of Holdings and its 

affiliates participate in the Plans. The 

Plans consist of the Savings Plan, the PR 

Plan and the Lands’ End Plan. The Plans 

are defined contribution, eligible 

individual account plans that are 

designed and operated to comply with 

the requirements of section 404(c) of the 

Act. The Plans allow participants to 

purchase units in certain stock funds 

which invest in Holdings Stock. In this 

regard, the Savings Plan and the PR Plan 

share a single stock fund (the Stock 

Fund) within the Sears Holdings 401(k) 

Savings Plan Master Trust (the Master 

Trust) 24 to hold shares of Holdings 

Stock. Similarly, the Lands’ End Plan 

utilizes a separate stock fund (the 

Lands’ End Trust Stock Fund) within 

the Lands’ End Inc. Retirement Trust 

(the Lands’ End Trust) to hold shares of 

Holding Stock.25

2. Sears, Roebuck and Co. (Sears 

Roebuck) and all of its wholly-owned 

(direct and indirect) subsidiaries (except 

Lands’ End Inc. (Lands’ End)) and Sears 

Holdings Management Corporation, 

with respect to certain employees, have 

adopted the Savings Plan and are 

employers under such plan. 

As of September 7, 2012, (the Record 

Date), there were 25,015 participants in 

the Savings Plan, and the Savings Plan’s 

share of the total assets of the Master 

Trust was $3,030,105,605. Also, as of 

the Record Date, the Savings Plan’s 

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allocable portion of Holdings Stock held 

in the Stock Fund under the Master 

Trust was 1,485,107 shares, and the 

approximate percentage of the fair 

market value of the total assets of the 

Savings Plan invested in Holdings Stock 

was 2.85 percent (2.85%), which 

amount constituted approximately 1.4 

percent (1.4%) of the 106 million shares 

of Holdings Stock issued and 

outstanding. 

The Savings Plan is administered by 

the Sears Holding Corporation 

Administrative Committee (the 

Administrative Committee), whose 

members are employees of Holdings. 

The Sears Holdings Corporation 

Investment Committee (the Investment 

Committee), whose members are officers 

and/or employees of Holdings and/or its 

subsidiaries, has authority over 

decisions relating to the investment of 

the Savings Plan’s assets. 

3. The PR Plan was established by 

Holdings for employees of Sears 

Roebuck de Puerto Rico Inc. (Sears 

Roebuck de Puerto Rico) who reside in 

the Commonwealth of Puerto Rico. 

According to Holdings, the PR Plan has 

not made an election under section 

1022(i)(2)of the Act and is not covered 

by Title II of the Act. (See footnote 

reference regarding jurisdiction in the 

operative language of this proposed 

exemption.) 

As of the Record Date, there were 935 

participants in the PR Plan, and the PR 

Plan’s share of the total assets of the 

Master Trust was $17,417,486. Also, as 

of the Record Date, the PR Plan’s 

allocable portion of Holdings Stock held 

in the Stock Fund under the Master 

Trust was 35,584 shares, and the 

approximate percentage of the fair 

market value of the total assets of the PR 

Plan invested in Holdings Stock was 

11.89 percent (11.89%), which amount 

constituted approximately 1.4 percent 

(1.4%) of the 106 million shares of 

Holdings Stock issued and outstanding. 

The PR Plan is administered by the 

Administrative Committee, and the 

Investment Committee makes 

investment decisions for such plan. 

Banco Popular de Puerto Rico serves as 

the PR Plan trustee. 

4. The Lands’ End Plan is maintained 

by Lands’ End, a retailer and a wholly 

owned subsidiary of Holdings. As of the 

Record Date, there were 242 participants 

in the Lands’ End Plan, and the plan 

had total assets of $253,821,233. Also, 

as of the Record Date, the Lands’ End 

Plan held through the Lands’ End Trust 

Stock Fund 5,869 shares of Holdings 

Stock, representing approximately 

0.1383 percent (0.1383%) of such plan, 

which amount constituted 

approximately 0.0055 percent 

(0.0055%) of the 106 million shares of 

Holdings Stock issued and outstanding. 

The Lands’ End Plan is administered by 

the Lands’ End, Inc. Retirement Plan 

Committee. Wells Fargo Bank, N.A. 

(Wells Fargo) is the trustee of the plan. 

Holdings 

5. Holdings, the sponsor of each of the 

Plans, is a retail merchant with full-line 

and specialty retail stores in the United 

States, Guam, Puerto Rico, the U.S. 

Virgin Islands, and Canada. Holdings 

was incorporated in the State of 

Delaware in 2005 in connection with 

the merger of Kmart Holding Company 

and Sears Roebuck. Holdings is the 

parent company of Kmart Holding 

Company and Sears Roebuck. The 

principal executive office of Holdings is 

located in Hoffman Estates, Illinois. 

According to the Form 10-(K), as of 2012 

and 2011, respectively, Holdings and its 

subsidiaries had total assets of 

$21,381,000,000 and $24,360,000,000. 

As of January 28, 2012, subsidiaries of 

Holdings had approximately 264,000 

employees in the United States and U.S. 

territories, and approximately 29,000 

employees in Canada, including parttime employees. 

Holdings Stock 

6. Holdings Stock, par value $0.01 per 

share, is publicly-traded on the 

NASDAQ Global Select Market under 

the symbol, ‘‘SHLD.’’ There were 15,492 

shareholders of record, as of February 

29, 2012. As of the Record Date, there 

were 106,444,571 shares of Holdings 

Stock issued and outstanding. 

ESL Investments, Inc. and its 

affiliates, (ESL), including Edward S. 

Lampert (Mr. Lampert) owned 

approximately 62 percent (62%) of 

Holdings Stock, issued and outstanding, 

as of September 10, 2012. Mr. Lampert 

is the Chairman of the Board of 

Directors of Holdings and of its Finance 

Committee. He is also the Chairman and 

CEO of ESL. 

SHO 

7. SHO, with corporate offices located 

in Hoffmann Estates, Illinois, is a 

national retail merchant with 11,238 

stores located in all 50 states, Puerto 

Rico, Guam, and Bermuda. SHO 

operates the Sears Hometown Stores 

and the Sears Hardware Stores. SHO 

also operates the Sears Home Appliance 

Show Rooms and the Sears Outlet 

Stores. 

SHO was incorporated in Delaware on 

April 23, 2012, as a wholly-owned 

subsidiary of Holdings. In such 

capacity, SHO did not conduct business 

as a separate company and had no 

material assets or liabilities, prior to the 

Offering. Holdings owned 100 percent 

(100%) of SHO Stock at the 

commencement of the Offering and 

continued to own 100 percent (100%) of 

such stock until the closing of the 

Offering on October 8, 2012. No public 

market for SHO Stock existed prior to 

the Offering. 

The Offering 

8. On February 23, 2012, Holdings 

announced its intention to separate from 

SHO. On August 31, 2012, Holdings 

contributed certain assets, liabilities, 

business, and employees to SHO. On 

September 6, 2012, Holdings issued the 

final prospectus whereby shareholders 

of record, including the Plans, as of the 

Record Date received the Rights. 

Holdings communicated generally 

with employees regarding the separation 

of Holdings from SHO upon the 

effective date of the spin-off. Holdings 

also communicated through public 

releases at www.searsholdings.com. 

Participants in the Plans, who invested 

in Holdings Stock as of the Record Date, 

received a notification regarding the 

Offering, the engagement of the I/F, the 

fact that the Rights would be held in the 

Stock Funds, that the I/F would 

determine whether the Rights should be 

exercised or sold, and the means a 

participant could use to obtain more 

information. 

Under the terms of the Offering, all 

shareholders of Holdings Stock 

automatically received the Rights, at no 

charge. The Rights entitled shareholders 

of Holdings Stock to purchase, through 

the exercise of such Rights, SHO Stock 

from Holdings in connection with the 

Offering. Under the terms of the 

Offering, one (1) Right was issued for 

each whole share of Holdings Stock 

held by each shareholder, including the 

Plans, on the Record Date. 

9. Each Right permitted the holder 

thereof to purchase 0.218091 shares of 

SHO Stock at a subscription price of 

$15.00 per whole share. Each right also 

contained an over-subscription privilege 

to subscribe for additional shares of 

SHO Stock, up to the number of shares 

of SHO Stock that were not subscribed 

for by the other holders of the Rights, 

pursuant to such holder’s basic Rights. 

The Plans were not eligible to 

participate in the over-subscription 

privilege because the I/F sold the Rights 

received by the Plans, as discussed more 

fully below. 

10. All shareholders of Holdings 

Stock held the Rights until such Rights 

expired, were exercised, or were sold. 

With regard to the exercise of the Rights, 

it is represented that the Rights could 

only be exercised in whole numbers. 

Each shareholder of Holdings Stock 

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41112 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

needed to have at least five (5) Rights to 

purchase a share of SHO Stock, because 

only whole shares could be purchased 

by the exercise of the Rights. Fractional 

shares or cash in lieu of fractional 

shares were not issued in connection 

with the Offering. Fractional shares of 

SHO Stock resulting from the exercise of 

basic Rights, as to any holder of such 

Rights were rounded down to the 

nearest whole number. 

A shareholder had the right to 

exercise some, all, or none of its Rights. 

However, the election had to be 

received by October 8, 2012, by the 

subscription agent, Computershare Inc. 

The election to exercise any of the 

Rights was irrevocable. 

11. With regard to the sale of the 

Rights, it is represented that the Rights 

were transferable. Further, it is 

represented that the Rights were traded 

on the NASDAQ Capital Market under 

the symbol, ‘‘SHOSR.’’ The allocation of 

the Rights to shareholders was handled 

by Depository Trust Company (DTC). 

DTC established an interim tracing 

period for the Rights from September 

12, 2012 to September 16, 2012 and 

allocated the Rights on September 18, 

2012. It is represented that the Rights 

began to trade on the first business day 

following the distribution of the Rights, 

and continued to trade until 4 p.m. New 

York City time on October 2, 2012, the 

fourth business day prior to the close of 

the Offering. It is represented that this 

deadline applied uniformly to all 

holders of the Rights. 

12. The Offering closed at 5 p.m. New 

York City time on October 8, 2012. It is 

represented that 23,100,000 shares of 

SHO Stock were subscribed for by 

shareholders at a price of $15 per whole 

share of SHO Stock. It is further 

represented that holders of the Rights 

exercised 101,603,307 of the 

105,919,060 Rights issued while the 

remaining 4,315,753 Rights were 

allowed to expire. The SHO Stock began 

trading in the NASDAQ Capital Market 

on a ‘‘right to receive basis’’ under the 

symbol, ‘‘SHOS’’ on Friday, October 12, 

2012, and on that date opened at $30.00 

and closed at $30.68 per share. 

Pursuant to the Offering, Holdings 

disposed of all of its shares of SHO 

Stock through the exercise of the Rights. 

Accordingly, following the closing of 

the Offering: (a) SHO became a publicly 

traded company independent of 

Holdings; and (b) Holdings did not 

retain any ownership interest in SHO. 

13. It is represented that Holdings 

conducted the Offering to obtain 

additional liquidity and to enhance the 

ability of Holdings to focus on its core 

business. In this regard, all of the gross 

proceeds (approximately $346.5 

million) from the sale of the SHO Stock 

through the exercise of the Rights, net 

of any selling expenses was payable to 

and received by Holdings. In the 

opinion of Holdings, the Offering gave 

shareholders of Holdings Stock the 

ability to avoid dilution by retaining 

each such shareholder’s ownership 

percentage in Holdings and in SHO. 

14. It is represented that based on the 

ratio of one (1) Right for each share of 

Holdings Stock held, the Master Trust 

and the Land’s End Trust (collectively, 

the Trusts) acquired, respectively, 

1,512,678 and 5,874 Rights, as a result 

of the Offering. It is represented that the 

number of Rights received by the Trusts 

was slightly lower than the number of 

shares of Holdings Stock held by the 

Trusts on the Record Date, even though 

one (1) Right was issued for each share 

of Holdings Stock. This small difference 

is explained by the relationship between 

the Record Date and the Ex-Dividend 

Date. If a share of Holdings Stock was 

sold between the Record Date and the 

Ex-Dividend Date, the right to the 

dividend (in this case the Rights) 

transferred with the Holdings Stock. 

Here, the Trusts sold a small number of 

Holdings Stock between the Record Date 

and the Ex-Dividend Date for the Rights. 

As a result, the associated Right 

transferred with the sold Holdings 

Stock. 

Role of the I/F 

15. Evercore Trust Company 

(Evercore) was retained by Holdings, the 

Investment Committee, and by the 

Lands’ End Committee, pursuant to an 

agreement (the Agreement), dated July 

26, 2012, to act as the I/F on behalf of 

the Plans, in connection with the 

Offering and with the application for 

exemption submitted to the Department. 

Pursuant to the terms of the Agreement, 

Evercore’s responsibilities were to 

determine when to exercise or sell each 

of the Plans’ Rights received in the 

Rights Offering. 

It is represented that Evercore is 

qualified to serve as the I/F for the Plans 

in connection with the Offering in that 

Evercore is a nationally chartered trust 

bank and subsidiary of Evercore 

Partners, Inc. Since 1987, Evercore or its 

successor has provided specialized 

investment management, independent 

fiduciary, and trustee services to 

employee benefit plans. 

Evercore represents and warrants that 

it is independent and unrelated to 

Holdings. It is further represented that 

Evercore did not directly or indirectly 

receive any compensation or other 

consideration for its own account in 

connection with the Offering, except 

compensation from Holdings for 

performing services described in the 

Agreement. The percentage of 

Evercore’s current revenue that is 

derived from any party in interest 

involved in the subject transaction or its 

affiliates is less than one percent (1%). 

Evercore has represented that it 

understands and acknowledges its 

duties and responsibilities under the 

Act in acting as a fiduciary on behalf of 

the Plans in connection with the 

Offering. 

It is represented that Evercore 

conducted a due diligence process in 

evaluating the Offering on behalf of the 

Plans. In addition to numerous 

discussions with representatives of 

Holdings, the Investment Committee, 

and the Lands’ End Committee, 

Holdings’ and representatives of the 

Plans’ trustees, Evercore reviewed 

information provided by Holdings, the 

exemption application, various press 

releases, various financial and market 

data related to the Plans, Holdings, the 

Rights, and the Holdings Stock, as well 

as other publicly available information. 

With regard to the Offering, Evercore 

considered four (4) options on behalf of 

the Plans: (a) Continue holding the 

Rights within the Stock Funds; (b) 

exercising all of the Rights and 

acquiring SHO Stock; (c) selling a 

portion of the Rights and using the 

proceeds to exercise the remaining 

Rights to acquire SHO Stock; or (d) 

selling all of the Rights on the NASDAQ 

Capital Market at the prevailing market 

price. Evercore, acting as the I/F on 

behalf of the Plans, selected option (d). 

In determining to sell all of the Plans’ 

Rights, Evercore represented that the 

proceeds from the sale would be 

invested in Holdings Stock, as per the 

governing documents of the Stock 

Funds. Evercore noted that the key risk 

inherent in such prompt sale was 

insufficient market volume to dispose of 

the Rights in a timely manner. However, 

Evercore did not view this risk as 

excessive, given that the Plans only 

received 1.4% of all Rights issued. 

According to Evercore, prompt sale of 

the Rights would allow the Stock Funds 

to quickly invest the proceeds in 

Holdings Stock and provide an 

opportunity to lock in a certain price for 

the Rights in the event the market price 

of the Rights fell over the course of the 

Offering period. Although the Plans 

would incur some transaction costs by 

selling the Rights (estimated to run from 

$0.0125 to $0.02 per Right traded, plus 

a similar expense in connection with 

the reinvestment of the proceeds from 

the sale of the Rights in shares of 

Holdings Stock), the Plans also realized 

the benefits of the Rights in a timely 

manner. 

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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 41113 

26 It is represented that these services and receipt 

of fees are exempt under section 408(b)(2) of the 

Act. The Department, herein, is not providing any 

relief for the receipt of any commissions, fees, or 

expenses in connection with the sale of the Rights 

in blind transactions to unrelated third parties on 

the NASDAQ Capital Market, beyond that provided 

pursuant to section 408(b)(2) of the Act. In this 

regard, the Department is not opining as to whether 

the conditions as set forth in section 408(b)(2) of the 

Act and the Department’s regulations, pursuant to 

29 CFR 2550.408(b)(2) have been satisfied. 27See, footnote above. 

16. As a result of the Rights sale, the 

total net proceeds generated for the 

Savings Plan and the PR Plan was 

$3,490,606.15. The total net proceeds 

generated for the Lands’ End Plan was 

$14,919.62. The proceeds from the sale 

of the Rights were credited to each of 

the Stock Funds and the unit value of 

each participant’s account balance 

reflected the addition of assets credited 

to such funds. 

The trading period for the sale of the 

Rights ended on October 2, 2012. Over 

the fifteen-day period that the Rights 

were traded on the NASDAQ Capital 

Market, the volume-weighted average 

price for the 56,461,050 Rights traded 

was $2.17 according to FactSet. 

Evercore noted that the disposition of 

the Plans’ 1,518,552 Rights in blind 

transactions on the NASDAQ Capital 

Market resulted in the Plans realizing an 

average selling price of $2.32 per Right. 

In the opinion of Evercore the actions 

outlined above engaged in by Evercore 

on behalf of the Plans were in the 

interest of the Plans and the Plans’ 

participants and beneficiaries and were 

protective of such participants and 

beneficiaries of the Plans. 

17. No brokerage fees, commissions, 

subscription fees, or other charges were 

paid by the Plans with respect to the 

acquisition and holding of the Rights, or 

were paid to any broker affiliated with 

Evercore, Holdings, or SHO in 

connection with the sale of the Rights. 

In this regard, it is represented that 

Evercore selected ConvergEx Group as 

the broker for the sale of the Rights 

issued to the Master Trust, based on 

Evercore’s confidence in that broker’s 

execution ability and an attractive fee 

schedule of 1.25 cents per Right traded. 

In connection with the sale of the 

Rights, the Master Trust paid $18,908.48 

in commissions and $778.63 in SEC 

fees.26

Wells Fargo, trustee for the Lands’ 

End Plan, informed Evercore that it 

could not accommodate an outside 

broker and would, at the direction of 

Evercore, handle trading of the Rights 

internally as per its standard 

arrangement with Holdings for the 

management and trading of the Lands’ 

End Trust Stock Fund held at Wells 

Fargo. At 2 cents per Right traded, this 

fee was higher than ConvergEx Group’s 

fee, but was reasonable in the opinion 

of Evercore, given the assessment of 

Wells Fargo’s trading capabilities. In 

connection with the sale of the Rights, 

the Lands’ End Trust paid $117.48 in 

commissions and $0.34 for SEC fees.27

Requested Relief 

18. The application was filed by 

Holdings on behalf of itself and its 

affiliates including Lands’ End. In this 

regard, Holdings has requested an 

exemption: (a) For the acquisition of the 

Rights by the Plans from Holdings in 

connection with the Offering of Rights 

by Holdings of SHO Stock in SHO; and 

(b) for the holding of the Rights by the 

Plans during the subscription period of 

the Offering. 

It is represented that the Rights 

acquired by the Plans satisfy the 

definition of ‘‘employer securities,’’ 

pursuant to section 407(d)(1) of the Act. 

However, as the Rights were not stock 

or a marketable obligation, such Rights 

do not meet the definition of ‘‘qualifying 

employer securities,’’ as set forth in 

section 407(d)(5) of the Act. 

Accordingly, the subject transactions 

constitute an acquisition and holding by 

the Plans, of employer securities which 

are not qualifying employer securities, 

in violation of section 407(a) of the Act, 

for which Holdings has requested relief 

from sections 406(a)(1)(A), 406(a)(1)(E), 

406(a)(2), and 407(a)(1)(A) of the Act. 

The subject transactions also raise 

conflict of interest issues by fiduciaries 

of the Plans. Accordingly, Holdings has 

requested relief from the prohibitions of 

section 406(b)(1) and 406(b)(2) of the 

Act. 

19. It is represented that the subject 

transactions have already been 

consummated. In this regard, the Plans 

acquired the Rights pursuant to the 

Offering, and held such Rights until 

such Rights were sold. As there was 

insufficient time between the dates 

when the Plans acquired the Rights and 

when such Rights were sold, to apply 

for and be granted an exemption, 

Holdings is seeking a retroactive 

exemption to be granted, effective as of 

September 7, 2012, the Record Date. 

Merits of the Transactions 

20. Holdings represents that the 

proposed exemption is administratively 

feasible. In this regard, Holdings 

explained that the acquisition and 

holding of the Rights by the Plans were 

one-time transactions that involved an 

automatic distribution of the Rights to 

all shareholders. In addition, Holdings 

states that it is customary for many 

corporations to make a rights offering 

available to all shareholders. 

Holdings also represents that the 

subject transactions were in the interest 

of the Plans, because such transactions 

represented a valuable opportunity for 

such Plans to sell the Rights on the 

market. Holdings further represents that 

the proposed exemption provides 

sufficient safeguards for the protection 

of the participants and beneficiaries of 

the Plans. According to Holdings, 

participation in the Offering protected 

the Plans from having each such 

participant’s interest in Holdings and in 

SHO diluted as a result of the Offering. 

It is also represented that the interests 

of the Plans were adequately protected 

in that such Plans acquired and held the 

Rights automatically as a result of the 

Offering. In this regard, Holdings made 

the Rights available on the same terms 

to all shareholders of Holdings Stock, 

including the Plans. Holdings states that 

each shareholder of Holdings Stock, 

including the Plans, received the same 

proportionate number of Rights based 

on the number of shares of Holdings 

Stock held by each such shareholder. 

Finally, Holdings notes that the Plans 

were protected in that Evercore, acting 

as the I/F on behalf of the Plans, 

determined to sell the Rights in blind 

transactions on the NASDAQ Capital 

Market. 

Summary 

21. In summary, Holdings represents 

that the subject transactions satisfy the 

statutory criteria for an exemption 

under of section 408(a) of the Act 

because: 

(a) The receipt of the Rights by the 

Plans occurred in connection with the 

Offering in which all shareholders of the 

Holdings Stock, including the Plans, 

were treated in the same manner; 

(b) The acquisition of the Rights by 

the Plans resulted solely from an 

independent act of Holdings, as a 

corporate entity; 

(c) Each shareholder of Holdings 

Stock, including each of the Plans, 

received the same proportionate number 

of Rights based on the number of shares 

of Holdings Stock held by each such 

shareholder; 

(d) All decisions with regard to the 

holding and disposition of the Rights by 

the Plans were made by Evercore, acting 

as the independent, qualified fiduciary 

on behalf of the Plans; 

(e) Evercore determined that it would 

be in the interest of the Plans to sell all 

of the Rights received in the Offering by 

the Plans in blind transactions on the 

NASDAQ Capital Market; 

(f) No brokerage fees, commissions, 

subscription fees, or other charges: Were 

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41114 Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices 

paid by the Plans with respect to the 

acquisition and holding of the Rights; or 

were paid to any broker affiliated with 

Evercore, Holdings, or SHO in 

connection with the sale of the Rights; 

and 

(g) The acquisition of the Rights by 

the Plans occurred on the same terms 

made available to other shareholders of 

Holdings Stock. 

Notice to Interested Persons 

The persons who may be interested in 

the publication in the Federal Register 

of the Notice of Proposed Exemption 

(the Notice) include all participants 

whose accounts in the Plans were 

invested on the Record Date through the 

Trusts in the Stock Funds which held 

the Holdings Stock. 

It is represented that all such 

interested persons will be notified of the 

publication of the Notice by first class 

mail, to each such interested person’s 

last known address within fifteen (15) 

days of publication of the Notice in the 

Federal Register. Such mailing will 

contain a copy of the Notice, as it 

appears in the Federal Register on the 

date of publication, plus a copy of the 

Supplemental Statement, as required, 

pursuant to 29 CFR 2570.43(a)(2), which 

will advise all interested persons of 

their right to comment and to request a 

hearing. All written comments and/or 

requests for a hearing must be received 

by the Department from interested 

persons within 45 days of the 

publication of this proposed exemption 

in the Federal Register. 

All comments will be made available 

to the public. 

Warning: Do not include any 

personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the Internet and can be 

retrieved by most Internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8551. (This is not 

a toll-free number.) 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under section 

408(a) of the Act and/or section 

4975(c)(2) of the Code does not relieve 

a fiduciary or other party in interest or 

disqualified person from certain other 

provisions of the Act and/or the Code, 

including any prohibited transaction 

provisions to which the exemption does 

not apply and the general fiduciary 

responsibility provisions of section 404 

of the Act, which, among other things, 

require a fiduciary to discharge his 

duties respecting the plan solely in the 

interest of the participants and 

beneficiaries of the plan and in a 

prudent fashion in accordance with 

section 404(a)(1)(b) of the Act; nor does 

it affect the requirement of section 

401(a) of the Code that the plan must 

operate for the exclusive benefit of the 

employees of the employer maintaining 

the plan and their beneficiaries; 

(2) Before an exemption may be 

granted under section 408(a) of the Act 

and/or section 4975(c)(2) of the Code, 

the Department must find that the 

exemption is administratively feasible, 

in the interests of the plan and of its 

participants and beneficiaries, and 

protective of the rights of participants 

and beneficiaries of the plan; 

(3) The proposed exemptions, if 

granted, will be supplemental to, and 

not in derogation of, any other 

provisions of the Act and/or the Code, 

including statutory or administrative 

exemptions and transitional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction; and 

(4) The proposed exemptions, if 

granted, will be subject to the express 

condition that the material facts and 

representations contained in each 

application are true and complete, and 

that each application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption. 

Signed at Washington, DC, this 2nd day of 

July, 2013. 

Lyssa E. Hall, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2013–16385 Filed 7–8–13; 8:45 am] 

BILLING CODE 4510–29–P 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

[Notice 13–075] 

NASA Advisory Council; Aeronautics 

Committee; Meeting 

AGENCY: National Aeronautics and 

Space Administration. 

ACTION: Notice of Meeting. 

SUMMARY: In accordance with the 

Federal Advisory Committee Act, Public 

Law 92–463, as amended, the National 

Aeronautics and Space Administration 

announces a meeting of the Aeronautics 

Committee of the NASA Advisory 

Council. This Committee reports to the 

NAC. The meeting will be held for the 

purpose of soliciting, from the 

aeronautics community and other 

persons, research and technical 

information relevant to program 

planning. 

DATES: Tuesday, July 30, 2013, 9:00 a.m. 

to 5:00 p.m.; Local Time. 

ADDRESSES: NASA Headquarters, Room 

6E40, 300 E Street SW., Washington, DC 

20546. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Susan L. Minor, Executive Secretary for 

the Aeronautics Committee, NASA 

Headquarters, Washington, DC 20546, 

(202) 358–0566, or 

susan.l.minor@nasa.gov. 

SUPPLEMENTARY INFORMATION: The 

meeting will be open to the public up 

to the capacity of the room. Any person 

interested in participating in the 

meeting by WebEx and telephone 

should contact Ms. Susan L. Minor at 

(202) 358–0566 for the web link, tollfree number and passcode. The agenda 

for the meeting includes the following 

topics: 

• Aeronautics Research Mission 

Directorate (ARMD) FY 2014 President’s 

Budget and Future Planning 

• NASA Flight Research Planning 

• National Research Council 

Autonomy Study Discussion 

• Unmanned Aircraft Systems 

Subcommittee Outbrief 

• Advanced Composites Project 

Planning 

It is imperative that these meetings be 

held on this date to accommodate the 

scheduling priorities of the key 

participants. Attendees will be 

requested to sign a register and to 

comply with NASA security 

requirements, including the 

presentation of a valid picture ID to 

Security before access to NASA 

Headquarters. Foreign nationals 

attending this meeting will be required 

to provide a copy of their passport and 

visa in addition to providing the 

following information no less than 10 

working days prior to the meeting: full 

name; gender; date/place of birth; 

citizenship; visa information (number, 

type, expiration date); passport 

information (number, country, 

expiration date); employer/affiliation 

information (name of institution, 

address, country, telephone); title/ 

position of attendee; and home address 

to Susan Minor, NASA Advisory 

Council Aeronautics Committee 

Executive Secretary, fax (202) 358–4060. 

U.S. citizens and Permanent Residents 

(green card holders) are requested to 

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