[Federal Register Volume 62, Number 9 (Tuesday, January 14, 1997)]
[Notices]
[Pages 1933-1935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-804]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22443; 812-10452]


United Financial Group, Inc.; Notice of Application

January 7, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

APPLICANT: United Financial Group, Inc. (the ``Company'').

RELEVANT ACT SECTION: Order requested under sections 6(c) and 6(e) of 
the Act granting an exemption from all provisions of the Act.

SUMMARY OF APPLICATION: Applicant requests an order that would exempt 
it from all provisions of the Act until December 30, 1997. The 
requested relief would extend an exemption originally granted until 
December 30, 1990, and extended by subsequent orders until December 30, 
1991, December 30, 1992, December 30, 1993, December 30, 1994, December 
30, 1995, and December 30, 1996.

FILING DATE: The application was filed on December 5, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on February 3, 
1997, and should be accompanied by proof of service on the applicant, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicant, 5847 San Felipe, Suite 2600, Houston, Texas 77057.

FOR FURTHER INFORMATION CONTACT:
Diane L. Titus, Paralegal Specialist, at (202) 942-0584, or Mary Kay 
Frech, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicant's Representations

    1. The Company was a savings and loan holding company whose primary 
asset and source of income was the United Savings Association of Texas 
(``USAT''). As a result of the recession in Texas beginning in 1986, 
USAT's financial condition deteriorated, and on December 30, 1988 it 
was placed into receivership. The assets of USAT were sold to an 
unaffiliated third party and the Company received no consideration for 
the loss of its primary subsidiary, thereby generating a substantial 
tax loss. In light of this tax loss, the Company determined not to 
liquidate, but instead to acquire an operating business.
    2. The Company's efforts to acquire an operating business have been 
substantially hindered due to claims asserted against it by the Federal 
Deposit Insurance Corporation (the ``FDIC'') and the Office of Thrift 
Supervision (the ``OTS''). The FDIC asserted an approximately $534 
million claim against the Company in January 1989 for failure to 
maintain the net worth of USAT (the ``Net Worth Claim'') and an 
approximately $14 million claim concerning certain tax refunds alleged 
to have been received by the Company (together with the Net Worth 
Claim, the ``FDIC Claims''). In addition, the FDIC has asserted the 
existence of possible other claims (the ``Indemnified Claims'') against 
the Company and certain former officers and directors of the Company 
and USAT. The Company may have indemnification obligations to these 
former officers and directors.\1\ The FDIC

[[Page 1934]]

has not alleged a dollar amount for any Indemnified Claims. Although 
the Company disputes the FDIC Claims and the Indemnified Claims, their 
existence constitutes a large contingent liability against the 
Company's assets, thus making it difficult for the Company to acquire 
an operating business.
---------------------------------------------------------------------------

    \1\ Prior to 1996, the Company advanced certain expenses 
incurred by the former officers and directors, subject to a refund 
obligation if it was determined they were not entitled to such 
advances. In 1996, at the insistence of the FDIC and OTS, the 
Company ceased making these advances.
---------------------------------------------------------------------------

    3. The OTS has asserted certain claims not included within the 
scope of the FDIC's jurisdiction. The OTS is investigating the 
possibility of certain regulatory violations (the ``OTS Claims'') by 
the Company and its current and former officers and directors. The 
Company has been in negotiations with the OTS since September, 1994 
concerning possible settlement of the OTS Claims. These claims 
constitute a substantial contingent liability against the Company's 
assets.
    4. During 1989 and 1990, the Company was in continuous negotiations 
with the FDIC in an attempt to reach a resolution of the FDIC Claims 
and in early 1990 the Company reached a tentative agreement. In 
December 1990, however, the FDIC rejected the Company's settlement 
offer and informed the Company that no counter proposal would be 
offered. In mid-1991, the Company again contacted the FDIC to determine 
whether a settlement could be reached. Beginning in July 1991, the 
Company and the FDIC's representatives met to determine if a possible 
solution could be reached. In December 1991, the FDIC requested, and 
the Company provided, an agreement to toll the statute of limitations. 
This tolling agreement was subsequently extended numerous times, and, 
as described below, the statute of limitations has been tolled until 
the terms of an Agreement and Release entered into among the Company, 
the FDIC, and others are effected or the Agreement and Release is 
terminated.
    5. The Company and certain of its officers and directors also 
entered into tolling agreements with the OTS pursuant to which the OTS 
would have until the end of the tolling period to allege certain 
regulatory violations and seek regulatory enforcement. In connection 
with a Stipulation and Consent entered into among the Company, the OTS, 
and others, the statute of limitations has been tolled until the terms 
of the Stipulation are effected or the Consent cancelled. However, in 
1996, the OTS brought enforcement action against certain officers and 
directors of the Company. Such action is still in its preliminary 
stage.
    6. Effective December 1995, the Company entered into a Stipulation 
and Consent to Issuance of Consent Cease and Desist Order for 
Affirmative Relief with the OTS and a Settlement Agreement and Release 
with the FDIC, First Trust of California, National Association, and Nu-
West Florida, Inc. (``Nu-West''). Under these agreements, the Company 
neither admits nor denies liability under claims by the OTS. The FDIC 
settlement is conditioned upon the Company obtaining a final order of 
the Delaware Bankruptcy Court, and requires a minimum payment of 
$9,450,000 to the FDIC, a minimum payment of $1,360,000 to the trustee 
for the 9% Secured Sinking Debentures (the ``Debenture Trustee''), and 
a minimum payment of $190,000 to Nu-West be made from the Company's 
assets. The Company is required to proceed with a plan of 
reorganization or liquidation in the Delaware Bankruptcy Court, and 
payments would be made after the Delaware Bankruptcy Court confirms a 
final plan. Any assets of the Company remaining after the payments and 
expenditures described above, and pursuant to the confirmed final plan 
of bankruptcy, must be paid to the FDIC, the Debenture Trustee, and Nu-
West in proportion to the minimum settlement payments. The FDIC 
settlement also provides that the Company may not, except in limited 
circumstances, utilize the benefits of tax losses carried forward from 
1988 and the prior years.
    7. On June 30, 1996, the Company held assets of approximately 
$11.859 million, comprised of approximately $1.840 million in cash and 
cash equivalents, $9.788 million in short-term investments, $.083 
million in other investments, and $.148 million in other assets. The 
Company's common stock currently is traded sporadically in the over-
the-counter market. The Company does not employ any full-time 
employees. The Company's administrative operations are handled by 
contract bookkeepers, accountants, and attorneys.
    8. Rule 3a-2 under the Act provides a one-year safe harbor to 
issuers that meet the definition of an investment company but intend to 
maintain that status only transiently. The Company relied on the safe 
harbor provided by this rule from December 30, 1988 until December 30, 
1989. The expiration of the safe harbor period necessitated the filing 
of an application for exemption. In 1990, the Company was granted 
conditional relief from all provisions of the Act until December 30, 
1990. The SEC extended this exemptive relief by six subsequent orders, 
most recently until December 30, 1996.\2\
---------------------------------------------------------------------------

    \2\ Investment Company Act Release Nos. 17941 (Jan. 9, 1991) 
(notice) and 17989 (Feb. 7, 1991) (order); Investment Company Act 
Release Nos. 18430 (Dec. 5, 1991) (notice) and 18466 (Dec. 31, 1991) 
(order); Investment Company Act Release Nos. 19128 (Nov. 25, 1992) 
(notice) and 19175 (Dec. 22, 1992) (order); Investment Company Act 
Release Nos. 19839 (Nov. 5, 1993) (notice) and 19916 (Dec. 1, 1993) 
(order); Investment Company Act Release Nos. 20545 (Sept. 12, 1994) 
(notice) and 20608 (Oct. 7, 1994) (order); and Investment Company 
Act Release Nos. 21416 (Oct. 12, 1995) (notice) and 21480 (Nov. 7, 
1995) (order) (the ``Prior Orders'').
---------------------------------------------------------------------------

    9. As described in detail in the applications for the Prior Orders, 
during a portion of the period in which the requested exemption will be 
effective, it is possible that the Company will be subject to the 
jurisdiction of the federal bankruptcy courts. In this regard, the 
Company has formulated a plan of reorganization (the ``Reorganization 
Plan'') to be implemented under Chapter 11 of the Bankruptcy Code. The 
Reorganization Plan would settle the outstanding claims against the 
Company and provide a structure for the possible acquisition of a new 
operating business or businesses. Because the bankruptcy court is 
charged with protecting the interests of the Company's creditors and 
equity interest holders, the Company believes that it is not necessary 
for it to comply with section 17(a) or 17(d) with respect to 
transactions approved by the bankruptcy court.

Applicant's Legal Analysis

    1. Section 3(a)(3) of the Act defines an investment company as an 
issuer engaged in the business of investing, reinvesting, owning, 
holding, or trading in securities, and owning investment securities 
having a value exceeding 40% of the value of such issuer's total assets 
(exclusive of government securities and cash items). The Company 
acknowledges that, based on its current mix of assets, it may be deemed 
to be an investment company under section 3(a)(3).
    2. The Company requests, pursuant to sections 6(c) and 6(e) of the 
Act, that the SEC issue an order exempting the Company from all 
provisions of the Act, subject to certain exceptions, until December 
30, 1997. The requested order would extend the exemption granted by the 
Prior Orders.
    3. In determining whether to grant exemptive relief for a transient 
investment company, the SEC considers such factors as: (a) Whether the 
failure of the company to become primarily engaged in a non-investment 
business or excepted business or liquidate within one year was due to 
factors beyond its

[[Page 1935]]

control; (b) whether the company's officers and employees during that 
period tried, in good faith, to effect the company's investment of its 
assets in a non-investment business or excepted business or to cause 
the liquidation of the company; and (c) whether the company invested in 
securities solely to preserve the value of its assets. The Company 
believes that it meets these criteria.
    4. The Company believes that its failure to become primarily 
engaged in a non-investment business by December 30, 1996 is a result 
of factors beyond its control. The existence of the FDIC Claims and the 
OTS Claims has precluded the Company from investing its assets in a 
non-investment company business. The magnitude of the FDIC Claims and 
OTS Claims and the potential threat that the FDIC and the OTS would 
seek to enjoin any utilization of the Company's assets have prevented 
the Company from investing its assets in a non-investment company 
business.
    5. Pending the settlement of the FDIC Claims and the OTS Claims, 
the Company has limited its investments to high quality marketable 
securities, cash or cash equivalents. Thus, the Company believes that 
it primarily invests in securities solely to preserve the value of its 
assets.
    6. The Company believes that the issuance of an order exempting it 
from all provisions of the Act, subject to certain exceptions, until 
December 10, 1997 would be in the public interest and consistent with 
the protection of investors and the purposes of the Act. The Company 
believes that it would be unfair to its stockholders to require it to 
register as an investment company and that such registration is not 
necessary for the protection of its stockholders.

Applicant's Conditions

    The Company agrees that the requested exemption will be subject to 
the following conditions, each of which will apply to the Company until 
it acquires an operating business or otherwise falls outside the 
definition of an investment company:
    1. During the period of time the Company is exempted from 
registration under the Act, it will not purchase or otherwise acquire 
any securities other than securities with a remaining maturity of 397 
days or less and that are rated in one of the two highest rating 
categories by a nationally recognized statistical rating organization, 
as that term is defined in rule 2a-7(a)(10) under the Act.
    2. The Company will continue to comply with sections 9, 17(e), and 
36 of the Act.
    3. The Company will continue to comply with sections 17(a) and 
17(d), subject to the following exceptions:
    (a) If the Company becomes subject to the jurisdiction of the 
bankruptcy court, the Company need not comply with sections 17(a) or 
17(d) with respect to any transaction, including without limitation the 
Reorganization Plan, that is approved by the bankruptcy court; and
    (b) The Company would not be required to comply with sections 17(a) 
or 17(d) with respect to any transaction or series of transactions that 
result in its ceasing to fall within the definition of an ``investment 
company'' provided that (i) no cash payments are made to an 
``affiliated person'' (as defined in the Act) of the Company as part of 
such transaction or series of transactions, and (ii) no debt securities 
are issued to an affiliated person of the Company as part of such 
transaction or series of transactions unless such debt securities are 
expressly subordinated upon liquidation to claims of the holders of the 
Company's debentures.
    4. The Company will continue to comply with sections 17(f) of the 
Act as provided in rule 17f-2.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-804 Filed 1-13-97; 8:45 am]
BILLING CODE 8010-01-M