[Federal Register Volume 77, Number 61 (Thursday, March 29, 2012)]
[Notices]
[Pages 19039-19041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-7519]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30007; 813-228]


Jefferies Employees Special Opportunities Partners, LLC, et al.; 
Notice of Application

March 23, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(b) and 
6(e) of the Investment Company Act of 1940 (the ``Act'') granting an 
exemption from all provisions of the Act, except sections 9, 17, 30 and 
36 through 53, and the rules and regulations under the Act (the ``Rules 
and Regulations''). With respect to sections 17(a), (d), (f), (g), and 
(j) of the Act, sections 30(a), (b), (e), and (h) of the Act and the 
Rules and Regulations and rule 38a-1 under the Act, applicants request 
a limited exemption as set forth in the application.

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SUMMARY: Summary of the Application: Applicants request an order to 
exempt a limited liability company formed for the benefit of eligible 
employees of Jefferies Group, Inc. and its affiliates from certain 
provisions of the Act. The limited liability company is an ``employees' 
securities company'' within the meaning of section 2(a)(13) of the Act.

Applicants: Jefferies Employees Special Opportunities Partners, LLC 
(``JESOP''), Jefferies Special Opportunities Advisers, LLC (the 
``Investment Manager'') and Jefferies & Company, Inc. (the ``Managing 
Member'').

DATES: Filing Dates: The application was filed on January 20, 2000 and 
amended on January 6, 2004, October 17, 2008, January 9, 2012, January 
11, 2012 and March 16, 2012.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on April 17, 2012 and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants, 520 Madison Avenue, 
12th Floor, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, at 
(202) 551-6813 or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/seach.htm or by calling (202) 551-8090.

Applicants' Representations

    1. JESOP is a Delaware limited liability company and is an 
employees' securities company within the meaning of section 2(a)(13) of 
the Act. Interests in JESOP (``Interests'') were offered to (i) current 
and former employees, officers, directors, and consultants of the 
Jefferies Group, (ii) spouses, parents, children, spouses of children, 
siblings, and grandchildren of such persons, (iii) trusts and other 
investment vehicles used or created by such persons, and (iv) the 
Managing Member and certain other Jefferies Entities. Jefferies Group, 
Inc. and its ``affiliates,'' as defined in rule 12b-2 under the 
Securities Exchange Act of 1934 (the ``Exchange Act''), are referred to 
collectively as ``Jefferies Group'' and individually as a ``Jefferies 
Entity.'' Interests were not registered under the Securities Act of 
1933 (``Securities Act'') in reliance on section 4(2) of the Securities 
Act or Regulation D under the Securities Act and were sold only to 
``accredited investors'' within the meaning of rule 501(a) of 
Regulation D. JESOP is not currently offering Interests and will not do 
so in the future, nor will it make capital calls on existing Interest 
holders (``Members'').
    2. JESOP will terminate on March 29, 2013 (the ``Termination'') and 
its term will not be extended unless at that time it is able to rely on 
section 3(c)(1) of the Act. The chief compliance officer of JESOP or 
the Investment Manager will certify to the Office of Investment Company 
Regulation of the Division of Investment Management every six months 
beginning from the date six months following the date of the requested 
order until March 29, 2013 that JESOP is in compliance with the terms 
and conditions of the requested order, as reflected in the application 
and this notice.
    3. JESOP is controlled by the Managing Member, within the meaning 
of section 2(a)(9) of the Act. The Investment Manager serves as 
investment adviser to JESOP. JESOP currently owns only (i) Series E 
Interests of Jefferies High Yield Holdings, LLC (``Holdings''), the 
sole member of Jefferies High Yield Trading, LLC, a registered broker-
dealer, (ii) ``eligible securities,'' as defined in rule 2a-7 under the 
Act (``Eligible Securities''), (iii) shares of money market funds 
registered under the Act, and (iv) cash (collectively, ``Permitted 
Instruments''). JESOP will not hold any assets other than Permitted 
Instruments.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employees' securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the protection 
of investors. Section 2(a)(13) defines an employees' securities company 
as any investment company all of whose securities (other than short-
term paper) are beneficially owned (a) by current or former employees, 
or persons on retainer, of one or more affiliated employers, (b) by 
immediate family members of such persons, or (c) by such employer or 
employers together with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that, in 
connection with any order exempting an investment company from any 
provision of section 7, certain provisions of the Act, as specified by 
the Commission, will be applicable to the company and other persons 
dealing with the company as though the company were registered under 
the Act. Applicants request an order under sections 6(b) and 6(e) of 
the Act exempting applicants from all provisions of the Act, except 
sections 9, 17, 30, 36 through 53, and the Rules and Regulations. With 
respect to sections 17(a), (d), (f), (g) and (j) and 30(a), (b), (e) 
and (h) of the Act and the Rules and Regulations, and rule 38a-1 under 
the Act, applicants request a limited exemption as set forth in the 
application.
    3. Section 17(a) of the Act generally prohibits any affiliated 
person of a registered investment company, or any affiliated person of 
an affiliated person, acting as principal, from knowingly selling or 
purchasing any security or

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other property to or from the company. Applicants request an exemption 
from section 17(a) to permit Holdings, in connection with the 
Termination, to engage in any principal transaction directly or 
indirectly with JESOP.
    4. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, from 
participating in any joint arrangement with the registered investment 
company unless authorized by the Commission. Applicants request an 
exemption from section 17(d) and rule 17d-1 to the extent necessary to 
permit JESOP to engage in any transactions in which an Affiliated Co-
Investor, or an affiliated person of such person, is a participant, 
solely in connection with the Termination. The requested exemption 
would permit JESOP to redeem its Series E Interests in Holdings at or 
about the same time that another Jefferies Entity is redeeming another 
series of interests in Holdings. The term ``Affiliated Co-Investor'' 
with respect to JESOP means any person who is (a) an ``affiliated 
person'' (as defined in section 2(a)(3) of the Act) of JESOP; (b) a 
Jefferies Entity; (c) an officer, director, or employee of a Jefferies 
Entity or the Jefferies Group; or (d) an entity in which a Jefferies 
Entity acts as general partner, or has a similar capacity to control 
the sale or disposition of the entity's securities.
    5. Section 17(f) of the Act designates the entities that may act as 
investment company custodians, and rule 17f-2 under the Act allows an 
investment company to act as self-custodian. Applicants request an 
exemption to permit the following exceptions from the requirements of 
rule 17f-2: (i) Compliance with paragraph (b) of the rule may be 
achieved through safekeeping in the locked files or secure server of a 
Jefferies Entity; (ii) for the purposes of paragraph (d) of the rule, 
(A) employees of the Managing Member or a designated affiliate of the 
Managing Member will be deemed to be employees of JESOP, (B) officers 
of the Managing Member or a designated affiliate of the Managing Member 
will be deemed to be officers of JESOP, and (C) the Managing Member or 
a designated affiliate of the Managing Member will be deemed to be the 
board of directors of JESOP; and (iii) instead of the verification 
procedure under paragraph (f) of the rule, verification will be 
effected quarterly by two employees of the Managing Member or a 
designated affiliate of the Managing Member.
    6. Section 17(g) and rule 17g-1 generally require the bonding of 
officers and employees of a registered investment company who have 
access to its securities or funds. Rule 17g-1 requires that a majority 
of directors who are not interested persons of a registered investment 
company (``disinterested directors'') take certain actions and give 
certain approvals relating to fidelity bonding. Paragraph (g) of rule 
17g-1 sets forth certain materials relating to the fidelity bond that 
must be filed with the Commission and certain notices relating to the 
fidelity bond that must be given to each member of the investment 
company's board of directors. Paragraph (h) of rule 17g-1 provides that 
an investment company must designate one of its officers to make the 
filings and give the notices required by paragraph (g). Paragraph (j) 
of rule 17g-1 exempts a joint insured bond provided and maintained by 
an investment company and one or more other parties from section 17(d) 
of the Act and the rules thereunder. Rule 17g-1(j)(3) requires that the 
board of directors of an investment company satisfy the fund governance 
standards defined in rule 0-l(a)(7).
    7. Applicants request an exemption from rule 17g-1(d), (e) and (g) 
to the extent necessary to permit the Managing Member or its affiliates 
to act and approve as required by the rule, rather than a majority of 
the disinterested directors of JESOP or of the Managing Member. JESOP 
will comply with all other requirements of rule 17g-1, except that 
JESOP requests an exemption from the requirements of rule 17g-1(g) and 
(h) relating to the filing of copies of fidelity bonds and related 
information with the Commission and relating to the provisions of 
notices to the board of directors, and an exemption from the 
requirements of rule 17g-1(j)(3) that JESOP comply with the fund 
governance standards defined in rule 0-1(a)(7). The Managing Member or 
an affiliate of the Managing Member will maintain the materials 
otherwise required to be filed with the Commission by rule 17g-1(g) and 
agrees that all such material will be subject to examination by the 
Commission and its staff. The Managing Member will designate a person 
to maintain the records otherwise required to be filed with the 
Commission under paragraph (g) of the rule.
    8. Applicants request an exemption from the requirements, contained 
in section 17(j) of the Act and rule 17j-1 under the Act, that every 
registered investment company adopt a written code of ethics and every 
``access person'' of such registered investment company report to the 
investment company with respect to transactions in any security in 
which such access person has, or by reason of the transaction acquires, 
any direct or indirect beneficial ownership in the security. Applicants 
request an exemption from the requirements in rule 17j-1, with the 
exception of the antifraud provisions of rule 17j-1(b), because they 
are burdensome and unnecessary and would serve little purpose in light 
of the community of interest among Members by virtue of their common 
association with the Jefferies Group.
    9. Applicants request an exemption from the requirements in 
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those 
sections, that registered investment companies prepare and file with 
the Commission and mail to their shareholders certain periodic reports 
and financial statements. Applicants request exemptive relief to the 
extent necessary to permit JESOP to report annually to its Members. 
Applicants also request an exemption from section 30(h) of the Act to 
the extent necessary to exempt the Managing Member, the Investment 
Manager, and any other persons who are subject to section 30(h), from 
filing Forms 3, 4 and 5 under section 16 of the Exchange Act with 
respect to their ownership of Interests.
    10. Rule 38a-1 requires investment companies to adopt, implement 
and periodically review written policies and procedures reasonably 
designed to prevent violation of the federal securities laws and to 
appoint a chief compliance officer. JESOP will comply with rule 38a-
1(a), (c) and (d), except that (i) because JESOP does not have a board 
of directors, the board of directors of the Managing Member will 
fulfill the responsibilities assigned to JESOP's board of directors 
under the rule, and (ii) because the board of directors of the Managing 
Member does not have any disinterested members, approval by a majority 
of the disinterested board members required by rule 38a-1 will not be 
obtained and (iii) since the board of directors of the Managing Member 
does not have any disinterested members, JESOP will comply with the 
requirement in rule 38a-1(a)(4)(iv) that the chief compliance officer 
meet with the disinterested directors by having the chief compliance 
officer meet with the board of directors of the Managing Member as 
constituted.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 to which

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JESOP is a party (each a ``Section 17 Transaction'') will be effected 
only if the Investment Manager determines that:
    (a) The terms of the Section 17 Transaction, including the 
consideration to be paid or received, are fair and reasonable to the 
Members of JESOP and do not involve overreaching of JESOP or its 
Members on the part of any person concerned;
    (b) the Section 17 Transaction is consistent with the interests of 
the Members of JESOP, JESOP's constitutive documents, and JESOP's 
reports to its Members; and
    (c) the Section 17 Transaction is undertaken only in connection 
with the Termination.

The Investment Manager will record and preserve a description of all 
Section 17 Transactions, its findings, the information or materials 
upon which its findings are based, and the basis therefor. All such 
records will be maintained for the life of JESOP, and at least six 
years thereafter, and will be subject to examination by the Commission 
and its staff. All such records will be maintained in an easily 
accessible place for at least the first two years after such a 
transaction.
    2. If JESOP makes purchases or sales from or to an entity 
affiliated with JESOP because an officer, director or employee of the 
Jefferies Group either: (a) Serves as an officer, director, general 
partner or investment adviser of the entity, or (b) has a 5% or more 
investment in the entity, such individual will not participate in 
JESOP's determination of whether or not to effect the purchase or sale. 
Any such purchase or sale will be made only in connection with the 
Termination.
    3. The Investment Manager will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
prior to the consummation of any Section 17 Transaction, that (a) the 
Section 17 Transaction is only effected to facilitate the Termination, 
and (b) the possible involvement in the Section 17 Transaction of any 
affiliated person or promoter of or principal underwriter for JESOP or 
any affiliated person of such person, promoter or principal 
underwriter, is made in accordance with these conditions.
    4. The Investment Manager will not invest the funds of JESOP in any 
securities other than Series E Interests of Holdings, shares of money 
market funds registered under the Act, and ``eligible securities,'' as 
that term is defined in rule 2a-7 under the Act.
    5. The Managing Member will send, or cause to be sent, to each 
person who was a Member in JESOP at any time during the fiscal year 
then ended, JESOP's financial statements audited by independent 
accountants. At the end of each fiscal year, as of that year end, the 
Managing Member will make or have a valuation made of all the assets of 
JESOP. In addition, within 90 days after the end of each fiscal year of 
JESOP, or as soon as practicable thereafter, the Managing Member of 
JESOP shall send, or cause to be sent, a report to each person who was 
a Member at any time during the fiscal year then ended, setting forth 
such tax information as shall be necessary for the preparation by the 
Member of his or her federal and state income tax returns, and a report 
of the investment activities of JESOP during such fiscal year.
    6. JESOP, the Managing Member and the Investment Manager will 
maintain and preserve, for the life of JESOP and at least six years 
thereafter, such accounts, books, and other documents as constitute the 
record forming the basis for the audited financial statements and 
annual reports of JESOP to be sent to the Members, and agree that all 
such records will be subject to examination by the Commission and its 
staff. All such records will be maintained in an easily accessible 
place for at least the first two years.
    7. The requested relief will terminate on March 29, 2013 and after 
that date JESOP will not rely on any Commission rule under the Act that 
provides relief permitting the operation of employees' securities 
companies as such term is defined in section 2(a)(13) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7519 Filed 3-28-12; 8:45 am]
BILLING CODE 8011-01-P