70624 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

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). 

2For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

3The Plan and the Union are together referred to 

herein as ‘‘the Applicants.’’ 

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– 

11750, United Association of 

Journeymen and Apprentices of the 

Plumbers and Pipefitters Local Union 

No. 189 Pension Plan; D–11751, The 

Camco Financial & Subsidiaries Salary 

Savings Plan; D–11752, Wells Fargo 

Company; L–11775, Craftsman 

Independent Union Local #1 Health, 

Welfare & Hospitalization Trust Fund; 

D–11782, Robert W. Baird & Co. 

Incorporated; D–11826, First Security 

Group, Inc. 401(k) and Employee Stock 

Ownership Plan; and, D–11827, BNP 

Paribas, S.A. 

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. 

llll, 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. 

The United Association of Journeymen 

and Apprentices of the Plumbers and 

Pipefitters Local Union No. 189 Pension 

Plan, as Amended (the Plan) Located in 

Columbus, Ohio 

[Application No. D–11750] 

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 (76 FR 66637, 66644, 

October 27, 2011).2 If the exemption is 

granted, the restrictions of section 

406(a)(1)(A) and (D) and section 

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

sanctions resulting from the application 

of section 4975(c)(1)(A), (D) and (E) of 

the Code, shall not apply to the 

proposed sale (Sale) of certain improved 

real property (the Property) by the Plan 

to Local #189 of the United Association 

of Journeymen and Apprentices of the 

Plumbing and Pipefitting Industry of the 

United States and Canada (the Union),3

a party in interest with respect to the 

Plan, provided that the following 

conditions are satisfied: 

(a) The Sale is a one-time transaction 

for cash; 

(b) As consideration, the Plan receives 

the greater of $2,900,000 or the fair 

market value of the Property as 

determined by a qualified, independent 

appraiser (the Appraiser) in a written 

appraisal (the Appraisal) of the 

Property, which is updated on the date 

of Sale (Sale Date); 

(c) The Plan pays no commissions, 

costs or fees with respect to the Sale; 

(d) The terms and conditions of the 

Sale are at least as favorable to the Plan 

as those obtainable in an arm’s length 

transaction with an unrelated party; 

(e) The Sale has been reviewed and 

approved by a qualified, independent 

fiduciary (I/F), who, among other things: 

has reviewed and approved the 

methodology used by the Appraiser and 

has ensured that the appraisal 

methodology was properly applied in 

determining the fair market value of the 

Property; and has determined that it is 

prudent to go forward with the Sale. 

Summary of Facts and Representations 

The Parties 

1. The Plan, with offices located in 

Columbus, Ohio, is a multiemployer 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70625 

4The Department expresses no opinion herein as 

to whether the conditions of PTEs 76–1 and 77–10 

have been met. 

5According to the Applicants, the lease between 

the Union and the Plan will be consistent with 

section 408(b)(2) of the Act and the regulations 

promulgated thereunder. 

defined benefit plan created as of June 

1, 1967, to provide retirement and 

disability benefits to apprentices and 

journeymen in the plumbing and 

pipefitting industry. The Plan is 

maintained pursuant to a collective 

bargaining agreement between the 

Union and the Mechanical Contractors 

Association of Central Ohio, Inc. (the 

MCACO), an association of central Ohio 

contractors formed to promote, among 

other things, cooperation with state and 

city inspection departments and 

develop relations between designers and 

mechanical engineers. 

As of December 31, 2013, the Plan 

had 1,587 participants and beneficiaries 

who were either active, terminated with 

a vested interest, or retired and in pay 

status. As of the same date, the Plan had 

total assets of approximately 

$130,319,233. 

2. The Plan is administered by a 

Board of Trustees (the Board) consisting 

of eight members, four of whom are 

elected by the Union members and four 

of whom are designated by the MCACO. 

The Trustees are fiduciaries, as defined 

in section 3(21) of the Act, and therefore 

are parties in interest with respect to the 

Plan, pursuant to section 3(14)(A) of the 

Act. The Plan’s current Trustees elected 

by the Union are Bill Steinhausser 

(Board Chairman), Michael Kelly, 

Kenneth Davis, and James C. Green. Mr. 

Kelly also serves as the Union’s 

Business Manager and Mr. Davis also 

serves as the Union’s Financial 

Secretary. The Plan’s current Trustees 

designated by the MCACO are Michael 

Stemen (Board Secretary), Dennis 

Shuman, Neil Harfield, and Terry 

Griffith. For purposes of the proposed 

Sale, Messrs. Kelly and Davis, who 

currently serve in dual roles as Trustees 

and Union officials, have recused 

themselves from all determinations in 

connection therewith. 

The Board employs James A. Wright, 

the Plan Administrator, to oversee the 

performance of the routine 

administrative duties of the Plan. 

Because the Plan Administrator has 

discretionary control over a nominal 

level of Plan assets, he is also a 

fiduciary under section 3(14)(A) of the 

Act and a party in interest to the Plan. 

3. The Union, which is based in 

Columbus, Ohio, was chartered in 1899. 

Members of the Union, except for firstyear apprentices, are eligible to 

participate in the Plan. As an employee 

organization with members covered by 

the Plan, the Union is a party in interest 

with respect to the Plan pursuant to 

section 3(14)(D) of the Act. The Union 

represents over 1,500 individuals 

working in the plumbing and 

mechanical pipefitting industries within 

central Ohio. 

The Property 

4. On June 11, 1980, the Plan 

purchased the Property from Buckeye 

Telephone, Harold Wirtz and Bob Rice, 

who were unrelated parties, for 

$600,000 in cash. The Property consists 

of approximately 4.868 acres of 

improved real property located on the 

north side of Kinnear Road in Clinton 

Township, Franklin County, Ohio. 

Although the street address for the 

Property is 1226 through 1250 Kinnear 

Road, Columbus, Ohio, the Property is 

more commonly identified as ‘‘1250 

Kinnear Road, Columbus, Ohio.’’ The 

Plan owns no other real property 

besides the Property. 

The Property is improved with a 

building that was constructed in or 

about 1951 and remodeled in 1999. The 

building consists of approximately 

37,230 square feet of space. The south 

and east portions of the building are 

used as Union offices. The north and 

west portions of the building have 

classrooms designed to allow access to 

training. A large portion of the building 

is a meeting hall with a stage and a 

kitchen. There are also some unfinished 

storage areas. 

Leasing of the Property 

5. On October 30, 1980, the Plan 

entered into a lease of the Property with 

the Union (the 1980 Lease) for a 20-year 

period, effective January 1, 1981. Under 

the terms of the 1980 Lease, the Union 

was obligated to: (a) Pay taxes assessed 

by any governmental taxing authority 

during the term; (b) maintain insurance 

on the Property; and (c) maintain the 

buildings on the Property in good 

condition at its sole cost and expense. 

The 1980 Lease was amended several 

times over the ensuing years. Currently, 

the Union pays the Plan monthly rent of 

$10,433.99 or $125,207.89, annually. 

According to the Applicants, the Plan 

and the Union have relied on Prohibited 

Transaction Exemption (PTE) 76–1, 71 

FR 12740 (March 26, 1976, as corrected, 

41 FR 16620, April 20, 1976) and PTE 

77–10, 42 FR 33918 (July 1, 1977) with 

respect to the 1980 Lease and the 

amendments to this lease.4

Plan’s Holding Costs and Net Income 

Related to the Property 

6. For the period from January 31, 

1981, to March 31, 2014, the Plan 

incurred total unaudited expenses of 

$801,109, in connection with the 

structural maintenance of the Property, 

as well as expenses related to that 

portion of the Property that the Plan 

retained. Such expenses included 

$670,005 for repairs and maintenance, 

$84,187 for property tax and 

administrative office expenses, and 

$46,917 for utilities, insurance and 

other expenses. During this same 

period, the Plan received total rental 

income of $2,924,898. Therefore, the 

Plan’s net income for this period is 

$2,123,789. 

Sale Transaction and Rationale 

7. The Applicants request an 

individual exemption from the 

Department that would permit the Plan 

to sell the Property to the Union. The 

Applicants represent that the Sale is in 

the interest of the participants and 

beneficiaries of the Plan for the 

following reasons. First, the Sale will be 

a one-time transaction for cash, which 

will transfer a non-liquid asset from the 

Plan. Second, the Plan will receive the 

greater of $2,900,000 or the fair market 

value of the Property as determined by 

an Appraiser, and set forth in an 

Appraisal of the Property, which will be 

updated on the Sale Date. Third, the 

Plan will pay no commissions, costs or 

fees with respect to the Sale. 

Further, as described in more detail 

below, the Plan does not want to risk a 

substantial diminution in the value of 

the Property if it loses the Union as its 

tenant, so the Plan wishes to sell the 

Property, at this time, to the Union 

while the current value of the Property 

reflects the fact that it is largely 

occupied. 

Following the Sale, the Plan intends 

to enter into a lease whereby the Union 

will lease to the Plan the space currently 

occupied by the Plan.5 The Applicants 

represent that the Plan Trustees, who 

are Union officials, will recuse 

themselves from any consideration of 

the proposed sale and leasing 

arrangement described above, and they 

will not otherwise exercise any 

fiduciary authority, control or 

responsibility in connection with these 

transactions. 

Request for Exemptive Relief 

8. The Applicants are requesting 

exemptive relief from section 

406(a)(1)(A) and (D) of the Act and 

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

for the Sale of the Property by the Plan 

to the Union. In this regard, section 

406(a)(1)(A) of the Act provides, in part, 

that a fiduciary with respect to a plan 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70626 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

6The I/F represents that it agreed to provide the 

services described herein without the receipt of 

compensation in order to save the Plan the expense 

of paying for such services and because it expected 

its engagement to be narrow in scope. 

shall not cause the plan to engage in a 

transaction if he knows or should know 

that such transaction constitutes a direct 

or indirect sale of any property between 

a plan and a party in interest. In 

addition, section 406(a)(1)(D) of the Act 

provides that a fiduciary with respect to 

a plan shall not cause the plan to engage 

in a transaction if he knows or should 

know that such transaction constitutes a 

direct or indirect transfer to or use by 

or for the benefit of a party in interest 

of any assets of the plan. Further, 

section 406(b)(1) of the Act prohibits 

any fiduciary from dealing with plan 

assets in his own interest or for his own 

account. Moreover, section 406(b)(2) of 

the Act prohibits any fiduciary from 

acting, in his individual or any other 

capacity, in any transaction involving 

the plan on behalf of a party whose 

interests are adverse to the interests of 

the plan or its participants or 

beneficiaries. 

The term ‘‘party in interest’’ is 

defined under section 3(14)(A) of the 

Act to include a fiduciary with respect 

to the Plan, such as the Trustees, or an 

employee organization any of whose 

employees are covered by such plan, as 

defined under section 3(14)(D), such as 

the Union. 

Accordingly, in the absence of a 

statutory or administrative exemption, 

the Sale would violate the foregoing 

provisions of the Act. 

The Appraisal 

9. In an independent appraisal report 

dated January 31, 2014 (the 2014 

Appraisal), Thomas R. Horner, MAI, 

SRA, ASA (the Appraiser) of Ohio Real 

Estate Consultants, Inc., updated a July 

6, 2012, appraisal (the 2012 Appraisal) 

that was prepared by his firm, in which 

the fair market value of the Property in 

fee simple was placed at $2,650,000, as 

of July 6, 2012. The Appraiser is 

President of Ohio Real Estate 

Consultants, Inc., which is located in 

Dublin, Ohio. The Appraiser is an Ohio 

certified general real estate appraiser 

with approximately 30 years of 

appraisal experience. The Appraiser is 

also a member of the Appraisal Institute 

and the American Society of Appraisers 

and has served as an expert witness in 

the Ohio and Michigan judicial systems. 

10. The Appraiser represents that he 

has no present or prospective interest in 

the Property and has no personal 

interest with respect to the parties 

involved. Further, the Appraiser 

represents that he has derived less than 

1% of his annual income from any party 

in interest involved in the transaction or 

such party’s affiliates for the years 2012, 

2013 and 2014. 

11. In the 2014 Appraisal, the 

Appraiser estimated the Property’s land 

value, as if vacant, and compared the 

land value to the value of the Property, 

as improved, to determine its highest 

and best value. The Appraiser did not 

develop the Income Capitalization 

Approach to valuation because, among 

other things, the Property is currently 

occupied by entities related to the 

ownership and the rental rates are not 

considered to reflect market conditions. 

Likewise, the Appraiser did not develop 

the Cost Approach to valuation because 

he determined that the Property’s 

improvements are at or near the end of 

their useful life. 

Using the Sales Comparison 

Approach to valuation for the land 

value, if vacant, the Appraiser placed 

the fair market value of the Property in 

fee simple at $2,900,000 as of January 

27, 2014. As of the same date, using the 

Sales Comparison Approach to 

valuation for the Property, as improved, 

the Appraiser placed the fair market 

value of the improved Property at 

$2,250,000. 

12. The Appraiser considered the 

Sales Comparison Approach to value 

the Property’s land, if vacant, to be the 

best indication of the Property’s market 

value because: (a) Most of the 

comparables have been redevelopment 

sites and redevelopment continues to 

occur throughout the neighborhood; and 

(b) the Property’s existing improvements 

have reached the end of their economic 

life and no longer contribute value to 

the Property other than in an interim 

use. In this regard, the Appraiser 

represents that the Property is located in 

an area that is in transition from older 

industrial uses to high-density 

residential and high-tech business and 

research uses. The Appraiser further 

represents that Ohio State University 

(OSU) has purchased many buildings in 

the area for these uses and that The 

Commons, a multifamily development 

located just east of the Property, was 

developed in 2000. Based upon 

surrounding land uses in the Property’s 

neighborhood, as well as the Kinnear 

Road engineering and the increased 

demand for housing created by OSU, the 

Appraiser believes that a high-density 

residential use is probable. Taking into 

consideration those uses that are legally 

permissible, physically possible and 

financially feasible, the Appraiser 

believes that the highest and best use of 

the Property, if vacant, is for future 

high-density residential use. 

13. Accordingly, after reconciling the 

Sales Comparison Approach for the land 

value, if vacant, and the Sales 

Comparison Approach for the Property, 

as improved, the Appraiser represents 

that in his professional opinion the 

market value, fee simple estate, of the 

Property, as a whole, in its present 

condition, in terms of financial 

arrangements equivalent to cash, ‘‘asis’’, as of January 27, 2014, is 

$2,900,000. 

The I/F 

14. Pursuant to an engagement letter 

dated March 20, 2013 (the Engagement 

Letter), SEI Investments Management 

Corporation (SEI), was retained on 

behalf of the Plan by the Plan 

Administrator to serve as the qualified 

independent fiduciary. SEI provides 

investment management and advisory 

services and is a federally registered 

investment adviser with the Securities 

and Exchange Commission under the 

Investment Advisers Act of 1940. 

15. The I/F estimates that it will 

receive approximately $1,236,000 from 

the Plan in 2014 for its institutional 

fiduciary investment management 

services, $0 of which is specifically 

related to the services described herein.6

The I/F represents that its revenue from 

all sources related to its institutional 

fiduciary investment management 

services (excluding fixed, 

nondiscretionary retirement income) for 

2013 is estimated to be $187,000,000. 

Therefore, the I/F represents that its 

revenue from the Plan for its 

institutional fiduciary investment 

management services is expected to 

comprise approximately 0.7% of its 

estimated annual institutional fiduciary 

management gross revenue, 0% of 

which is attributable to services 

rendered in connection with the 

proposed Sale. Further, the I/F states 

that it does not receive any amount from 

a party in interest to the Plan. 

16. The I/F represents that it is 

qualified to represent the Plan’s 

interests with respect to the Sale 

because it has a demonstrated strong 

understanding of fiduciary duties under 

the Act for the following reasons. First, 

the I/F states that it already serves as an 

independent fiduciary of the Plan, 

overseeing the Plan’s investments. In 

this regard, the I/F states that it is 

generally responsible for providing 

guidance to the Plan’s Board of Trustees 

on matters pertaining to the investment 

of the Plan’s assets, including 

investment selection and monitoring the 

Plan’s performance and compliance 

with its investment guidelines. Second, 

the I/F represents that it has general 

financial management experience in 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70627 

evaluating asset allocations, financial 

transactions, projected risk and return 

expectations and certain real estate 

transactions on behalf of plans gained 

through its previous fiduciary 

investment management experience and 

from overseeing real estate investment 

trusts. 

In addition, the I/F represents that it 

has engaged Morgan, Lewis & Bockius 

LLP, a law firm that has experience in 

dealing with matters under the Act’s 

fiduciary responsibility rules, as outside 

legal counsel to advise the I/F with 

regard to the exercise of its fiduciary 

duties with respect to its engagement on 

this matter to the extent that this 

engagement is outside of the I/F’s 

typical role for its clients. 

17. Pursuant to the Engagement 

Letter, the I/F agreed to perform certain 

services on the Plan’s behalf with 

respect to the Sale. Among other things, 

the I/F agreed to: (a) Analyze the 

prudence of the proposed Sale, from an 

investment standpoint, taking into 

consideration certain things such as the 

2014 Appraisal, the Plan’s investment 

guidelines and objectives, and the 

interests of the Plan and its participants 

and beneficiaries with respect to any 

subsequent leasing of the Property; and 

(b) issue a written report to the Plan that 

would include, among other things, a 

complete analysis of the proposed Sale, 

a determination of whether the 

proposed Sale is consistent with the 

Plan’s investment guidelines and 

financial objectives, a determination as 

to the financial effects of the proposed 

Sale, and a determination as to whether 

the proposed Sale is in the interests of 

and protective of the Plan and its 

participants and beneficiaries. The I/F is 

also authorized to take all appropriate 

actions to safeguard the interests of the 

Plan in connection with the Sale and, 

during the pendency of the subject 

transaction, to: (a) Monitor the 

transaction on behalf of the Plan on a 

continuing basis; (b) ensure that the 

transaction remains in the interest of the 

Plan and, if not, to take any appropriate 

actions available under the 

circumstances; and (c) enforce 

compliance with all conditions and 

obligations imposed on any party 

dealing with the Plan with respect to the 

Sale. 

18. Based on its analysis of the 

proposed Sale, the I/F has determined 

that the Sale is in the interests of the 

Plan and its participants and 

beneficiaries, and is protective of the 

rights of such participants and 

beneficiaries. In the ‘‘Report of 

Independent Fiduciary’’ (the I/F Report) 

dated March 25, 2014 (which updated 

an I/F Report of March 20, 2013), the 

I/F sets forth the following reasons for 

its opinion. First, the I/F has analyzed 

the proposed Sale terms, as well as the 

Plan’s reasons for the proposed Sale, as 

stated above in Representation 7, which 

include the Plan’s desire to avoid the 

risk of a substantial diminution in the 

value of the Property if the Plan should 

lose the Union as tenant. The I/F notes 

that the proposed Sale will allow the 

Plan to sell the Property at a time when 

its value reflects the fact that it is largely 

occupied. 

19. In addition, the I/F represents that 

the proposed Sale is consistent with the 

Plan’s investment guidelines. As 

provided in the Plan’s Investment 

Policy Statement, the I/F states that the 

primary financial objective is to increase 

the value of the Plan’s assets and a 

secondary financial objective is to avoid 

significant downside risk. The I/F 

represents that the objectives of the Plan 

must be considered with respect to any 

investment of the Plan. In particular, the 

I/F states that consideration must be 

given to the return and risk expectations 

of the Plan and how such investment 

fits within the total portfolio, as well as 

to the liquidity needs of the Plan. The 

I/F represents that the current actuarial 

return assumption of the Plan is 7.50%. 

The I/F explains that portfolios should 

be constructed to target expected longterm return of the total portfolio of 

investments in excess of this target with 

a reasonable level of annual variation of 

return. 

Further, the I/F opines that ownership 

of the Property inhibits the Plan from 

the full ability to rebalance its portfolio 

and to avail itself of liquid assets should 

it need to do so for outflow purposes. 

The I/F states that if the Plan should 

divest itself of the Property and invest 

the proceeds across its other portfolio 

asset classes, the Plan would enhance 

the expected return of the portfolio as a 

whole while not affecting the risk level 

of the portfolio (as measured by 

standard deviation of returns). The I/F 

represents that this action would also 

provide additional liquidity to the Plan 

by exchanging the investment in a 

single property for the investment in a 

collective trust holding many properties 

or for other diversified fund asset 

classes within the portfolio. 

20. Finally, the I/F confirms that it 

has reviewed the methodology used by 

the Appraiser in the 2014 Appraisal and 

that the methodology is consistent with 

industry standards in the valuation of 

commercial properties of this type. The 

I/F therefore agrees that the Appraiser’s 

methodology has been properly applied 

to arrive at the Property’s fair market 

value. 

Summary 

21. In summary, the Applicants 

represent that the Sale will satisfy the 

statutory requirements for an exemption 

under section 408(a) of the Act because: 

(a) The Sale will be a one-time 

transaction for cash; 

(b) As consideration, the Plan will 

receive the greater of $2,900,000, or the 

fair market value of the Property as 

determined by the Appraiser in a 

written Appraisal of the Property, which 

is updated on the Sale Date; 

(c) The Plan will pay no commissions, 

costs, or fees; 

(d) The terms and conditions of the 

Sale will be at least as favorable to the 

Plan as those obtainable in an arm’s 

length transaction with an unrelated 

party; and 

(e) The Sale has been reviewed and 

approved by an I/F, who, among other 

things: Has reviewed and approved the 

methodology used by the Appraiser, and 

has ensured that such methodology was 

properly applied in determining the fair 

market value of the Property; and has 

determined that it is prudent to go 

forward with the Sale. 

Notice to Interested Parties 

Notice of the proposed exemption 

(consisting of a copy of the proposed 

exemption, as published in the Federal 

Register, and the supplemental 

statement required by 29 CFR 

2570.43(b)(2), (together, the Notice)) 

will be given to interested persons 

within 15 days of the publication of the 

Notice in the Federal Register. The 

Notice will be given to interested 

persons by posting in the Union hall for 

active Plan participants and by first 

class mail for inactive Plan participants. 

Active Plan participants are those Plan 

participants for whom a participating 

employer contributed to the Plan within 

the 60 days before the Notice is 

distributed. Inactive Plan participants 

are those participants for whom a 

participating employer is not currently 

contributing under a collectively 

bargained agreement, and includes any 

deferred vested participant (i.e, a 

participant who is not drawing 

retirement benefits and for whom no 

contributions are being made by a 

participating employer, either because 

they are not working or because they are 

working for a non-contributing 

employer) and any retiree (a participant 

who is currently drawing retirement 

benefits). Written comments are due 

within 45 days of the 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 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70628 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

7For 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. 

8The Summary of Facts and Representations is 

based on the Applicants’ representations and does 

not reflect the views of the Department, unless 

indicated otherwise. 

9The Plan’s directed trustee, Charles Schwab 

Trust Company or its affiliates, manage certain 

investment funds offered within the Plan. 

(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. 

Anna Mpras Vaughan of the Department 

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

number.) 

The Camco Financial & Subsidiaries 

Salary Savings Plan (the Plan) and 

Huntington Bancshares, Inc. 

(Huntington) Located in Cambridge, OH 

and Columbus, OH 

[Application No. D–11751] 

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, (the Act or 

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). 

Section I: Transactions 

If the proposed exemption is granted, 

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 sections 4975(c)(1)(A) and 

(E) of the Code,7 shall not apply to the 

acquisition and holding of certain 

warrants (the Warrants) by the 

individually-directed account(s) (the 

Account(s)) of certain participant(s) in 

the Plan in connection with an offering 

(the Offering) of shares of common stock 

(the Stock) of Camco Financial 

Corporation (Camco), the sponsor of the 

Plan and a party in interest with respect 

to the Plan. 

Section II: Proposed Conditions 

(a) The Accounts acquired the 

Warrants in connection with the 

exercise of subscription rights (the 

Rights) to purchase Stock by the Plan’s 

directed trustee (the Directed Trustee) 

on behalf of Plan participants; 

(b) Each stockholder, including each 

of the Accounts holding Stock on behalf 

of Plan participants, received the same 

proportionate number of Rights based 

on the number of shares of Stock held 

as of July 29, 2012 (the Record Date), 

and the same proportionate number of 

Warrants based on the number of Rights 

exercised during the Offering; 

(c) The Plan participant whose 

Account received the Warrants made, or 

will make, all decisions with respect to 

the holding or exercise of such 

Warrants; 

(d) The Plan did not pay, nor will it 

pay, any brokerage fees, commissions, 

or other fees or expenses to any related 

broker in connection with the 

acquisition, holding, and/or exercise of 

the Rights or Warrants; 

(e) The acquisition of the Rights by 

the Accounts resulted from an 

independent corporate act of Camco; 

and 

(f) The Rights and Warrants were 

acquired pursuant to and in accordance 

with, provisions under the Plan for 

individually directed investments of the 

Accounts holding Stock on behalf of 

Plan participants. 

Effective Date: This proposed 

exemption, if granted, will be effective 

from November 1, 2012, until the 

Warrants are exercised or expire. 

Summary of Facts and 

Representations 8

Background 

1. The Camco Financial & 

Subsidiaries Salary Savings Plan (the 

Plan) and Huntington Bancshares 

Incorporated (Huntington, and together 

with the Plan, the Applicants) request 

the prohibited transaction exemption 

proposed herein. At the time of the 

transaction described herein, Camco 

Financial Corporation (Camco), the 

original sponsor of the Plan, was 

engaged in the financial services 

business in Ohio, Kentucky, and West 

Virginia through its wholly-owned 

subsidiary, Advantage Bank 

(Advantage). Advantage is an Ohio 

savings bank that operates branch 

offices in Ohio, Kentucky, and West 

Virginia. The Applicants represent that 

on October 9, 2013, Camco entered into 

a definitive agreement with Huntington, 

by which Huntington acquired Camco 

and Advantage in a cash and stock 

transaction (the Acquisition) that 

allowed Camco shareholders to receive, 

in exchange for each of their Camco 

shares, either a fractional share of 

Huntington stock or $6.00 per Camco 

share. The Applicants represent that 

Camco filed proxy materials describing 

the proposed merger with the SEC and 

distributed those materials to its 

shareholders. 

2. The Plan is a 401(k) plan qualified 

under section 401(a) of the Internal 

Revenue Code of 1986, as amended (the 

Code) and intended to comply with 

ERISA section 404(c) with respect to 

accounts subject to participant 

investment direction. Camco established 

the Plan on February 1, 1987. The Plan 

was taken over by Huntington in 

connection with the Acquisition and 

has not been merged into any other 

plans sponsored by Huntington. The 

Applicants represent that the Plan, as 

amended and restated, operates in 

compliance with applicable Code 

requirements. As of December 31, 2011, 

approximately 249 participants had 

account balances in the Plan and total 

combined assets of approximately 

$9,374,142. The fair market value of the 

Plan’s shares of Camco common stock 

(the Stock) as of December 31, 2011, was 

$288,615, which represented 

approximately 3% of the Plan’s total 

assets. 

3. Prior to the Acquisition, all 

employees of Camco and Advantage 

were eligible to participate in the Plan, 

which allows each participant to choose 

the investments in his or her Account. 

Prior to 2008, Camco made profitsharing contributions to the Plan on 

behalf of participants, portions of which 

were automatically invested in shares of 

the Stock, but the Plan was amended 

effective January 1, 2009, to make all 

accounts fully participant-directed. 

Each Plan participant could choose from 

a variety of investment options, 

including any combination of mutual 

funds, Camco common stock, common/ 

collective funds, and other investment 

securities.9 Therefore, starting in 2009, 

any Plan participant who chose to 

invest in the Stock did so voluntarily. 

The Applicants represent that the Stock 

was a ‘‘qualifying employer security’’ as 

defined under section 407(d)(5) of 

ERISA and section 4975(e) of the Code. 

4. Prior to the Acquisition, the Plan 

was administered by Camco, which 

adopted an investment policy that 

provided for a Plan committee called 

the ‘‘401(k) Retirement Planning 

Committee’’ (the Committee). The 

Committee met periodically (typically at 

least twice a year) and monitored and 

selected the investment options under 

the Plan. Jim Huston, Camco’s 

Chairman, CEO, and President, was a 

member of the Committee. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70629 

10The Applicants represent that expenses related 

to the Rights Offering included: Legal fees, 

accounting fees, printing and mailing fees, 

subscription/escrow/warrant agent fees, and 

financial advisor fees. 

11The Applicants note that brokers and 

stockholders who hold shares for the benefit of 

third parties commonly utilize this process. 

The MOU, Consent Order, and Rights 

Offering 

5. Camco was regulated by the Federal 

Reserve Board (FRB), and Advantage is 

primarily regulated by the State of Ohio 

Department of Commerce, Division of 

Financial Institutions (the Ohio 

Division) and the Federal Deposit 

Insurance Corporation (FDIC). The 

Applicants state that on March 4, 2009, 

Camco entered into a Memorandum of 

Understanding (MOU) with the FRB that 

prohibits Camco from: (1) Declaring or 

paying dividends to stockholders; and 

(2) repurchasing the Stock without the 

prior written approval of the FRB. On 

August 5, 2009, Camco and the FRB 

entered into a written agreement that 

required Camco to obtain FRB approval 

prior to: (1) Declaring or paying 

dividends; (2) receiving dividends or 

any other form of payment representing 

a reduction in capital from Advantage; 

(3) making distributions of interest, 

principal, or other sums or subordinated 

debentures or trust preferred securities; 

(4) incurring, increasing, or 

guaranteeing any debt; or (5) 

repurchasing any Camco stock. The 

written agreement also required Camco 

to develop a capital plan and submit it 

to the FRB for approval. On February 9, 

2012, the FDIC and the Ohio Division 

executed a Consent Order, which 

required Advantage to, among other 

things: (1) Raise its Tier 1 Leverage 

Capital ratio to 9%; (2) raise its total 

Risk-Based Capital ratio to 12%; and (3) 

seek regulatory approval prior to 

declaring or paying any cash dividend. 

6. According to the Applicants, the 

Camco board of directors chose to raise 

equity capital through a rights offering 

(the Offering) in order to improve 

Advantage’s capital position, retain 

additional capital at Camco, and give 

stockholders the opportunity to limit 

ownership dilution by buying 

additional shares of the Stock. Camco’s 

Offering commenced on September 24, 

2012. Through the Offering, Camco 

offered up to 5,714,286 shares of the 

Stock at a subscription price of $1.75 

per share (the Subscription Price). 

7. The Applicants state that on or 

about September 26, 2012, Camco sent 

detailed information regarding the 

Rights Offering to each Plan participant. 

In this regard, the Applicants represent 

that Plan participants were provided 

with a copy of the prospectus that 

described the Offering, a Q&A entitled 

‘‘Important Information Regarding the 

Rights Offering for Plan Participants,’’ 

an election form, a return envelope 

addressed to Camco, and a statement 

indicating the number of shares of Stock 

each participant held in his or her 

Account, as of the Record Date. Camco 

informed stockholders that the proceeds 

from the Offering would be used to 

improve Advantage’s capital position 

and to retain additional capital at 

Camco. Additionally, Camco informed 

stockholders that even if the Offering 

was fully subscribed, Advantage would 

not meet the Consent Order’s capital 

requirements. 

8. Under the terms of the Offering, all 

stockholders, including the Plan 

participants whose Accounts held 

shares of the Stock, received at no 

charge, non-transferable subscription 

rights (the Rights) to purchase their 

share of $10 million worth of the Stock. 

Stockholders could execute their Rights 

through a ‘‘basic subscription privilege’’ 

and an ‘‘oversubscription privilege.’’ 

The ‘‘basic subscription privilege’’ gave 

each stockholder the opportunity to 

purchase one share of Stock, for $1.75 

per share (the Subscription Price), for 

every one share of Stock owned as of 

July 29, 2012 (the Record Date). The 

Applicants state further that, if a 

stockholder exercised all of his or her 

Rights through the basic subscription 

privilege, that stockholder was also 

entitled to an ‘‘over-subscription 

privilege,’’ which allowed the 

stockholder to purchase a proportional 

share of the Stock that was not 

subscribed for by other stockholders 

under their basic subscription 

privileges. 

9. The Applicants represent that for 

every two Rights a stockholder 

exercised, the stockholder received one 

Warrant to purchase one share of Stock 

at a future date for $2.10 per share. The 

Applicants represent that the Warrants 

are exercisable for a period of five years 

from the close of the Offering. The 

Applicants state further that the 

Warrants are not transferrable, except: 

(1) By will or the laws of descent and 

distribution upon a Warrant holder’s 

death; and (2) through a distribution of 

Warrants to a Plan participant whose 

Account holds the Warrants, assuming 

that particular participant is eligible to 

receive a distribution. Moreover, the 

Applicants state that Camco did not 

issue any fractional Warrants; instead, 

Camco rounded the number of Warrants 

down. Furthermore, the number of 

shares for which Warrants may be 

exercised and the exercise price 

applicable to the Warrants would be 

proportionately adjusted if Camco paid 

dividends on the Stock or made a 

distribution of common stock, or 

subdivided, combined, or reclassified 

outstanding shares of common stock 

such as through a stock split or a reverse 

stock split. The Applicants represent 

further that any shares of Stock 

purchased upon exercise of the 

Warrants held by a Plan participant’s 

Account would be allocated to a 

common stock investment option where 

it would remain subject to further 

investment direction from the Plan 

participant. 

10. The Offering was originally 

scheduled to close on October 31, 2012, 

at 5:00 p.m. Eastern Time. Camco 

reserved the right to extend the Offering 

one or more times, but in no event later 

than December 31, 2012. The Offering 

was extended one day due to Hurricane 

Sandy and officially closed on 

November 1, 2012, at 5:00 p.m. EST. 

The Applicants represent that the Rights 

Offering was fully subscribed so that 

Camco received gross proceeds of 

$10,000,000 and net proceeds estimated 

at $9,361,000.10

Early Exercise 

11. The Applicants explain that each 

Plan participant who desired to exercise 

Rights was required to make an election 

to exercise any or all of the Rights in his 

or her Account. According to the 

Applicants, the Directed Trustee had to 

aggregate all such elections and place a 

single order to exercise Rights on behalf 

of the Plan as a whole, through a 

process known as an ‘‘early exercise.’’ 11

The early exercise required Plan 

participants to place orders to exercise 

his or her Account’s Rights by the close 

of business on the fifth business day 

prior to the close of the Offering (i.e., 

October 24, 2012, at 5:00 p.m. EST) so 

that the Directed Trustee had enough 

time to combine all of the orders. 

Additionally, Camco informed all 

stockholders that their election to 

exercise the Rights was irrevocable. 

According to the Applicants, in order to 

protect Plan participants from a drop in 

the stock price between October 24, 

2012 (Plan participant’s early election 

date), and November 1, 2012, (the close 

of the Offering), Camco informed Plan 

participants that the Directed Trustee 

would not place the order if the closing 

price of the Stock was below the 

Subscription Price on October 31, 2012, 

the business day immediately before the 

Offering closed. 

12. The Applicants represent that on 

October 31, 2012, there was a 

discrepancy with respect to the Stock’s 

closing price, as reported on NASDAQ. 

According to the Applicants, over the 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70630 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

12The Applicants explain that The Standard uses 

only the official NASDAQ closing price when 

reporting prices for the Stock held by the Plan, and 

The Standard did not contact anyone at NASDAQ 

in connection with its interpretation. 

13The Stock was traded on 11 exchanges: (1) 

NASDAQ Stock Market, (2) NASDAQ BX, (3) 

NASDAQ PSX, (4) Archipelago, (5) National, (6) 

Bats, (7) Bats Y, (8) DirectEdge EDGA, (9) 

DirectEdge EDGX, (10) CBOE Stock Exchange, and 

(11) the Chicago Stock Exchange. Trades that occur 

off exchanges are reported to NASDAQ via two 

trade reporting facilities, the FINRA/NASDAQ TRF 

and FINRA/NYSE TRF. 

14The Department notes that the NASDAQ now 

reports $1.70 as the closing price for October 31, 

2012. 

15The Department is taking no view herein 

regarding whether Camco properly filed the Form 

5330, including properly reporting such loss 

amount. 

course of the day, the Stock traded 

between $1.65 and $1.90 per share. The 

Applicants contend that after the 

markets closed, Jim Huston and the 

Plan’s counsel checked the NASDAQ 

official Web site, which indicated an 

‘‘Official Close Price’’ of $1.85. The 

Applicants note that The Standard, the 

Plan’s recordkeeper, also used its 

internal systems to verify that the 

closing price was $1.85 and informed 

the Directed Trustee that it could submit 

the Plan’s order to exercise the Rights.12

Then, according to the Applicants, on 

November 1, 2012, Camco’s financial 

advisor for the Offering, Paracap Group 

LLC (Paracap), and Camco’s attorney 

noted that the Web sites for SNL 

Financial and Yahoo! showed the 

closing price as $1.70. Additionally, on 

November 1, 2012, Paracap was aware 

that NASDAQ’s Web site also showed 

the closing price as $1.70. However, 

according to the Applicants, the internal 

computer terminal of a Paracap analyst 

continued to show the closing price of 

the Stock as $1.85. Ultimately, the 

Directed Trustee deferred to Camco and 

The Standard’s reliance on $1.85 as the 

closing price and caused the Plan to 

participate in the Offering by exercising 

the Rights on behalf of electing 

participants. Accordingly, the Plan 

purchased and allocated 941,909 shares 

of Stock and 470,946 Warrants to the 

Accounts of 47 Plan participants. The 

Plan paid $1,648,340.75 for the Stock in 

connection with the Offering, or roughly 

16% of the $10 million available in the 

Offering. 

13. After the Offering closed, Plan 

fiduciaries contacted a NASDAQ 

employee at the NASDAQ Market 

Intelligence Desk (the Representative) 

for an explanation of the price 

discrepancy. The Applicants represent 

that the Representative explained that 

the NASDAQ Official Closing Price is 

the last trade that occurs on the 

NASDAQ platform whereas the 

‘‘Previous Close’’ is based on the last 

trade across all places where the Stock 

is traded.13 According to the Applicants, 

the Representative confirmed that the 

last trade on the NASDAQ platform on 

October 31, 2012, was for $1.85, but 

there were two later trades on another 

exchange. Notably, the last trade of the 

day on October 31, 2012, was for $1.70 

per share.14 Consequently, the Directed 

Trustee and other Plan fiduciaries 

caused the Plan to participate in the 

Offering despite the fact that the Stock’s 

closing price was below $1.75 on 

October 31, 2012. As described in 

further detail in paragraph 18, Camco 

filed a form 5330 with the IRS with 

respect to the Plan’s acquisition and 

holding of the Rights. 

Exercise of the Rights and Acquisition of 

the Warrants 

14. The Applicants explain that each 

Plan participant was instructed to 

transfer assets in his or her Account into 

a specially designated investment 

alternative, the Morley Stable Value 

Fund (the Fund), in order to purchase 

the Stock. The Applicants state that if a 

Plan participant’s Account did not hold 

sufficient assets in the Fund, the 

Directed Trustee exercised the 

participant’s request to the fullest extent 

possible based on the cash value of the 

participant’s Fund. 

15. The Applicants state that Camco’s 

subscription agent, Registrar and 

Transfer Company (Registrar), issued 

the purchased shares of Stock to each 

subscriber, along with any excess 

payment from the subscriber, and 

forwarded the payments to Camco. 

According to the Applicants, Camco 

issued the Stock and accompanying 

Warrants to stockholders, including the 

Plan, on November 7, 2012. 

16. The Applicants represent that 

Camco paid all expenses associated 

with the Offering, and the Plan paid no 

brokerage fees, commissions, 

subscription fees, or other charges with 

respect to the acquisition, holding, or 

exercise of the Rights, Warrants, or 

Stock. 

17. The Applicants also represent that 

upon completion of the Acquisition, 

Huntington assumed the Camco Warrant 

Agreement, dated November 2, 2012, 

between Camco and Registrar, and each 

outstanding Warrant was converted into 

a warrant to purchase Huntington 

common stock, as adjusted based on an 

exchange ratio of 0.7264 Huntington 

warrants for each Camco warrant. 

Requested Relief 

18. The Applicants originally 

requested retroactive exemptive relief to 

cover the Plan’s acquisition and holding 

of both the Rights and the Warrants. 

However, given the uncertainty 

regarding whether the proper closing 

price was used for purposes of the 

Plan’s acquisition and holding of the 

Rights, as discussed above, Camco filed 

a Form 5330 with the IRS disclosing a 

prohibited transaction with no related 

loss amount.15 Therefore, the 

Department is proposing relief only for 

the acquisition and holding of the 

Warrants (the Warrants Transaction). 

19. The Applicants explain that the 

Warrants Transaction constitutes the 

acquisition and holding of ‘‘employer 

securities’’ as defined under section 

407(d)(1) of the Act. However, the 

Warrants do not satisfy the definition of 

‘‘qualifying employer securities’’ as 

defined under section 407(d)(5) of the 

Act because they are not stock or 

marketable securities. Under section 

407(a)(1)(A) of the Act, a plan may not 

acquire or hold any ‘‘employer security’’ 

which is not a ‘‘qualifying employer 

security.’’ Moreover, section 406(a)(1)(E) 

of the Act prohibits the acquisition, on 

behalf of a plan, of any ‘‘employer 

security in violation of section 407(a) of 

the Act.’’ Finally, section 406(a)(2) of 

the Act prohibits a fiduciary who has 

authority or discretion to control or 

manage the assets of a plan to permit the 

plan to hold any ‘‘employer security’’ 

that violates section 407(a) of the Act. 

Therefore, the acquisition and holding 

of the Warrants constitute prohibited 

transactions in violation of sections 

406(a)(1)(E) and 406(a)(2) of the Act. 

20. Additionally, the Applicants 

explain that other provisions of the Act 

that are implicated by the Warrants 

Transaction include section 406(a)(1)(A) 

of the Act and the fiduciary self-dealing 

and conflict of interest provisions of 

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

In relevant part, section 406(a)(1)(A) of 

the Act provides that a fiduciary with 

respect to a plan shall not cause the 

plan to engage in a transaction if the 

fiduciary knows or should know that 

the transaction is a prohibited sale or 

exchange of any property between a 

plan and a party in interest. Because the 

Plan fiduciaries acquired the Warrants 

on behalf of Plan participants through 

the exercise of the Rights in the 

Offering, the Warrants Transaction also 

constituted a sale or exchange of 

property between a Plan and a party in 

interest, in violation of section 

406(a)(1)(A) of the Act. Section 406(b)(1) 

of the Act prohibits a fiduciary from 

dealing with the assets of a plan in his 

own interest or for his own account. 

Section 406(b)(2) of the Act prohibits a 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70631 

16For 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. 

fiduciary with respect to a plan from 

acting in any transaction involving the 

plan on behalf of a party, or represent 

a party, whose interests are adverse to 

the interests of the plan or its 

participants and beneficiaries. In 

causing the Plan to engage in the 

Warrants Transaction, the Plan 

fiduciaries may have violated sections 

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

Therefore, the Applicants request that 

the Department grant an exemption 

from the prohibitions 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 sections 

4975(c)(1)(A) and (E) of the Code, for the 

Warrants Transaction. 

21. The Applicants state that the 

acquisition of the Warrants has been 

completed, and although all Accounts 

that received the Warrants could have 

held the Warrants until exercised for 

Stock or until the Warrants expire, five 

years from the date that the Offering 

closed, some Plan participants may have 

already exercised some or all of their 

Accounts’ Warrants. The Applicants 

requested retroactive relief because 

Camco sought to comply with the 

Consent Order with the FDIC and the 

Ohio Division. Therefore, according to 

the Applicants, Camco determined that 

it was in the best interest of all its 

stockholders, including the Plan, to 

issue the Rights as soon as possible after 

the Securities and Exchange 

Commission approved the Offering 

documents. Moreover, because of the 

tight time frame, Camco decided not to 

wait for a granted exemption before it 

completed the Offering. 

Statutory Findings 

22. The Applicants represent that the 

proposed exemption with respect to the 

Warrants is administratively feasible 

because all shareholders of Camco, 

including the Plan, were, and will be 

treated in the same manner with respect 

to any acquisition, holding and exercise 

or other disposition of the Warrants. 

23. The Applicants represent that the 

proposed exemption for the acquisition 

and holding of the Warrants by the Plan 

is in the interest of and beneficial to the 

Plan and to the participants and 

beneficiaries of the Plan. The 

Applicants explain that to the extent 

that the Plan is a shareholder, the 

Offering and subsequent issuance of 

Warrants was designed to: (1) 

Strengthen the financial condition of 

Camco by improving its capital position; 

and (2) give shareholders the 

opportunity to limit ownership dilution 

by buying additional shares of the 

Stock. The Applicants represent that 

Camco’s ability to achieve these 

objectives had significant value to its 

shareholders, including the Plan. 

Moreover, the Applicants explain that 

participants and beneficiaries whose 

Accounts received the Warrants have 

been provided with the opportunity to 

acquire additional equity in Camco at a 

discount and either: (1) Have exercised 

the Warrants to purchase the Stock for 

less than its fair market value; or (2) 

have the potential opportunity to 

exercise the Warrants to purchase the 

Stock for less than its fair market value. 

24. The Applicants represent that the 

proposed exemption is protective of the 

rights of the participants and 

beneficiaries of the Plan because 

decisions with regard to the acquisition, 

holding and exercise or other 

disposition of the Warrants were made, 

and will be made, by each Plan 

participant in accordance with the 

provisions under the Plan for 

individually-directed accounts. 

Summary 

25. In summary, the Applicants state 

that the proposed exemption satisfies 

the statutory criteria for an exemption 

under section 408(a) of ERISA and 

section 4975(c)(2) of the Code because: 

(a) The Accounts acquired the 

Warrants in connection with the 

exercise of the Rights by the Directed 

Trustee on behalf of Plan participants; 

(b) Each stockholder, including each 

of the Accounts holding Stock on behalf 

of Plan participants, received the same 

proportionate number of Rights based 

on the number of shares of Stock held 

as of the Record Date and the same 

proportionate number of Warrants based 

on the number of Rights exercised 

during the Offering; 

(c) The Plan participant whose 

Account received the Warrants made or 

will make all decisions with respect to 

the holding or exercise of such 

Account’s Warrants; 

(d) The Plan did not pay, nor will it 

pay, any brokerage fees, commissions, 

or other fees or expenses to any related 

broker in connection with the 

acquisition, holding, and/or exercise of 

the Rights or Warrants; 

(e) The acquisition of the Rights by 

the Accounts resulted from an 

independent corporate act of Camco; 

and 

(f) The Rights and Warrants were 

acquired pursuant to and in accordance 

with, provisions under the Plan for 

individually directed investments of the 

Accounts holding Stock on behalf of 

Plan participants. 

Notice to Interested Persons 

The Applicants will provide notice of 

the proposed exemption to all Plan 

participants within fifteen (15) days of 

the date of publication of the proposed 

exemption in the Federal Register. The 

Applicants will provide the notice by 

email to all Plan participants who are 

actively employed by Huntington in 

accordance with the Department’s 

procedures for electronic disclosure to 

active employees under 29 CFR 

520.104b–1(c). The Applicants will 

provide notice to all other Plan 

participants, including individuals who 

were Plan participants at the time of the 

Offering, via first-class mail. In addition 

to the proposed exemption, as 

published in the Federal Register, the 

Applicants will provide Plan 

participants with a supplemental 

statement, as required, under 29 CFR 

2570.43(a)(2). The supplemental 

statement will inform the Plan 

participants of their right to comment 

on and to request a hearing with respect 

to this proposed exemption. The 

Department must receive all written 

comments and/or requests for a hearing 

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: Mr. 

Erin S. Hesse of the Department, 

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

a toll-free number.) 

Wells Fargo Company (WFC), Located 

in San Francisco, California 

[Application No. D–11752] 

Proposed Exemption 

The Department of Labor (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, as amended, and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, 66644, October 27, 2011).16

Section I. Covered Transactions 

If the proposed exemption is granted, 

the restrictions of section 406(a)(1)(A) 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70632 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

17SEC Rule 10f–3(a)(4), 17 CFR 270.10f–3(a)(4), 

states that the term, ‘‘Eligible Rule 144A Offering’’ 

means an offering of securities that meets the 

following conditions: 

(i) The securities are offered or sold in 

transactions exempt from registration under section 

4(2) of the 1933 Act [15 U.S.C. 77d(d)], rule 144A 

thereunder [§ 230.144A of this chapter], or rules 

501–508 thereunder [§§ 230.501–230–508 of this 

chapter]; 

(ii) The securities are sold to persons that the 

seller and any person acting on behalf of the seller 

reasonably believe to include qualified institutional 

buyers, as defined in § 230.144A(a)(1) of this 

chapter; and 

(iii) The seller and any person acting on behalf 

of the seller reasonably believe that the securities 

are eligible for resale to other qualified institutional 

buyers pursuant to § 230.144A of this chapter. 

and (D), and section 406(b) 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), 

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

to the purchase of certain securities (the 

Securities), as defined in Section V(j), 

during the existence of an underwriting 

or selling syndicate with respect to such 

Securities by an asset management 

affiliate of WFC (the Asset Manager(s)), 

as defined in Section V(f), from any 

person other than such Asset Manager, 

where the Asset Manager purchases 

such Securities, as a fiduciary: (1) On 

behalf of an employee benefit plan or 

employee benefit plans (Client Plan(s)), 

as defined in Section V(g); or (2) on 

behalf of Client Plans and/or In-House 

Plan(s), as defined in Section V(m), 

which are invested in a pooled fund or 

in pooled funds (Pooled Fund(s)), as 

defined in Section V(h), under the 

following circumstances: 

(a) Where a broker-dealer affiliated 

with WFC (an Affiliated Broker-Dealer), 

as defined in Section V(d), is a manager 

or member of such syndicate (an 

affiliated underwriter transaction 

(AUT)); or 

(b) Where an Affiliated Broker-Dealer 

is a manager or member of such 

syndicate and a servicer affiliated with 

WFC (an Affiliated Servicer), as defined 

in Section V(n), serves as servicer of a 

trust that issues commercial mortgage 

backed securities (CMBS), as defined in 

Section V(r), including servicing one or 

more of the commercial mortgage 

backed loans in such trust (an affiliated 

underwriter and affiliated servicer 

transaction (AUT and AST)); or 

(c) Where an Affiliated Servicer serves 

as servicer of a trust that issues CMBS, 

including servicing one or more of the 

commercial mortgage backed loans in 

such trust (AST); or 

(d) Where a trustee affiliated with 

WFC (an Affiliated Trustee), as defined 

in Section V(o), serves as trustee of a 

trust that issues the Securities (whether 

or not debt securities) or serves as 

indenture trustee of Securities that are 

debt securities (an affiliated trustee 

transaction (ATT)); or 

(e) Where an Affiliated Broker-Dealer 

is a manager or member of such 

syndicate and where an Affiliated 

Trustee serves as trustee of a trust that 

issues the Securities (whether or not 

debt securities) or serves as an 

indenture trustee of Securities that are 

debt Securities (an affiliated 

underwriter and affiliated trustee 

transaction (AUT and ATT). 

Section II. Conditions for Transactions 

Described in Section I(A), (B), (D) and 

(E) 

The transactions described in Section 

I(a), (b), (d), and (e) are conditioned 

upon satisfaction of the general 

conditions, as set forth in Section IV, 

and upon satisfaction of the following 

requirements: 

(a)(1) In the case of a transaction 

described in Section I(b), the Securities 

to be purchased are CMBS, as defined 

in Section V(r). In the case of 

transactions described in Section I(a), 

(d), and (e) the Securities to be 

purchased are either— 

(i) Part of an issue registered under 

the Securities Act of 1933 (the 1933 Act) 

(15 U.S.C. 77a et seq.). If the Securities 

to be purchased are part of an issue that 

is exempt from such registration 

requirement, such Securities: 

(A) Are issued or guaranteed by the 

United States or by any person 

controlled or supervised by and acting 

as an instrumentality of the United 

States pursuant to authority granted by 

the Congress of the United States; 

(B) Are issued by a bank; 

(C) Are exempt from such registration 

requirement pursuant to a federal 

statute other than the 1933 Act; or 

(D) Are the subject of a distribution 

and are of a class which is required to 

be registered under section 12 of the 

Securities Exchange Act of 1934 (the 

1934 Act) (15 U.S.C. 781), and are 

issued by an issuer that has been subject 

to the reporting requirements of section 

13 of the 1934 Act (15 U.S.C. 78m) for 

a period of at least ninety (90) days 

immediately preceding the sale of such 

Securities and that has filed all reports 

required to be filed thereunder with the 

Securities and Exchange Commission 

(SEC) during the preceding twelve (12) 

months; or 

(ii) Part of an issue that is an eligible 

Rule 144A offering (Eligible Rule 144A 

Offering), as defined in SEC Rule 10f– 

3 (17 CFR 270.10f–3(a)(4)).17 Where the 

Eligible Rule 144A Offering of the 

Securities is of equity securities, the 

offering syndicate shall obtain a legal 

opinion regarding the adequacy of the 

disclosures in the offering 

memorandum; 

(2) The Securities to be purchased are 

purchased prior to the end of the first 

day on which any sales are made, 

pursuant to that offering, at a price that 

is not more than the price paid by each 

other purchaser of the Securities in that 

offering or in any concurrent offering of 

the Securities, except that— 

(i) If such Securities are offered for 

subscription upon exercise of rights, 

they may be purchased on or before the 

fourth day preceding the day on which 

the rights offering terminates; or 

(ii) If such Securities are debt 

securities, they may be purchased at a 

price that is not more than the price 

paid by each other purchaser of the 

Securities in that offering or in any 

concurrent offering of the Securities and 

may be purchased on a day subsequent 

to the end of the first day on which any 

sales are made, pursuant to that offering, 

provided that the interest rates, as of the 

date of such purchase, on comparable 

debt securities offered to the public 

subsequent to the end of the first day on 

which any sales are made and prior to 

the purchase date are less than the 

interest rate of the debt Securities being 

purchased; and 

(3) The Securities to be purchased are 

offered pursuant to an underwriting or 

selling agreement under which the 

members of the syndicate are committed 

to purchase all of the Securities being 

offered, except if— 

(i) Such Securities are purchased by 

others pursuant to a rights offering; or 

(ii) Such Securities are offered 

pursuant to an over-allotment option. 

(b) The issuer of the Securities to be 

purchased must have been in 

continuous operation for not less than 

three (3) years, including the operation 

of any predecessors, unless the 

Securities to be purchased— 

(1) Are non-convertible debt securities 

rated in one of the four highest rating 

categories by a rating agency (a Rating 

Agency or collectively, Rating 

Agencies), as defined in Section V(q); 

provided that none of the Rating 

Agencies rates such securities in a 

category lower than the fourth highest 

rating category; or 

(2) Are debt securities issued or fully 

guaranteed by the United States or by 

any person controlled or supervised by 

and acting as an instrumentality of the 

United States pursuant to authority 

granted by the Congress of the United 

States; or 

(3) Are debt securities which are fully 

guaranteed by a person (the Guarantor) 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70633 

that has been in continuous operation 

for not less than three (3) years, 

including the operation of any 

predecessors, provided that such 

Guarantor has issued other securities 

registered under the 1933 Act; or if such 

Guarantor has issued other securities 

which are exempt from such registration 

requirement, such Guarantor has been 

in continuous operation for not less 

than three (3) years, including the 

operation of any predecessors, and such 

Guarantor: 

(i) Is a bank; or 

(ii) Is an issuer of securities which are 

exempt from such registration 

requirement, pursuant to a Federal 

statute other than the 1933 Act; or 

(iii) Is an issuer of securities that are 

the subject of a distribution and are of 

a class which is required to be registered 

under section 12 of the 1934 Act (15 

U.S.C. 781), and are issued by an issuer 

that has been subject to the reporting 

requirements of section 13 of the 1934 

Act (15 U.S.C. 78m) for a period of at 

least ninety (90) days immediately 

preceding the sale of such securities and 

that has filed all reports required to be 

filed hereunder with the SEC during the 

preceding twelve (12) months. 

(c) The aggregate amount of Securities 

of an issue purchased by the Asset 

Manager with the assets of all Client 

Plans, and the assets, calculated on a 

pro rata basis, of all Client Plans and InHouse Plans investing in Pooled Funds 

managed by the Asset Manager, and the 

assets of plans to which the Asset 

Manager renders investment advice 

within the meaning of 29 CFR 2510.3– 

21(c) does not exceed: 

(1) 10 percent (10%) of the total 

amount of the Securities being offered 

in an issue, if such Securities are equity 

securities; or 

(2) 35 percent (35%) of the total 

amount of the Securities being offered 

in an issue, if such Securities are debt 

securities rated in one of the four 

highest rating categories by at least one 

of the Rating Agencies; provided that 

none of the Rating Agencies rates such 

Securities in a category lower than the 

fourth highest rating category; and 

(3) The assets of any single Client 

Plan (and the assets of any Client Plans 

and any In-House Plans investing in 

Pooled Funds) may not be used to 

purchase any Securities being offered, if 

such Securities are debt securities rated 

lower than the fourth highest rating 

category by any of the Rating Agencies; 

and 

(4) Notwithstanding the percentage of 

Securities of an issue permitted to be 

acquired, as set forth in Section II(c)(1), 

and (2), the amount of Securities in any 

issue (whether equity or debt securities) 

purchased pursuant to transactions 

described in Section I(a), (b), (d), and (e) 

by the Asset Manager on behalf of any 

single Client Plan, either individually or 

through investment, calculated on a pro 

rata basis, in a Pooled Fund may not 

exceed three percent (3%) of the total 

amount of such Securities being offered 

in such issue, and; 

(5) If purchased in an Eligible Rule 

144A Offering, the total amount of the 

Securities being offered for purposes of 

determining the percentages described 

in Section II(c)(1),(2) and (4) is the total 

of: 

(i) The principal amount of the 

offering of such class of Securities sold 

by underwriters or members of the 

selling syndicate to ‘‘qualified 

institutional buyers’’ (QIBs), as defined 

in SEC Rule 144A (17 CFR 

230.144A(a)(1)); plus 

(ii) The principal amount of the 

offering of such class of Securities in 

any concurrent public offering. 

(d) The aggregate amount to be paid 

by any single Client Plan in purchasing 

any Securities described in Section I(a), 

(b), (d), and (e), including any amounts 

paid by any Client Plan or In-House 

Plan in purchasing such Securities 

through a Pooled Fund, calculated on a 

pro-rata basis, does not exceed three 

percent (3%) of the fair market value of 

the net assets of such Client Plan or InHouse Plan, as of the last day of the 

most recent fiscal quarter of such Client 

Plan or In-House Plan prior to such 

transaction. 

(e) If the transaction is an AUT as 

described in Section I(a), (b), and (e), the 

Affiliated Broker-Dealer does not 

receive, either directly, indirectly, or 

through designation, any selling 

concession, or other compensation or 

consideration that is based upon the 

amount of Securities purchased by any 

single Client Plan, or that is based upon 

the amount of Securities purchased by 

Client Plans or In-House Plans through 

Pooled Funds, pursuant to this 

proposed exemption. In this regard, the 

Affiliated Broker-Dealer may not 

receive, either directly or indirectly, any 

compensation or consideration that is 

attributable to the fixed designations 

generated by purchases of the Securities 

by the Asset Manager on behalf of any 

single Client Plan or on behalf of any 

Client Plan or In-House Plan in Pooled 

Funds. 

(f)(1) If the transaction is an AUT as 

described in Section I(a), (b), and (e), the 

amount the Affiliated Broker-Dealer 

receives in management, underwriting, 

or other compensation or consideration 

is not increased through an agreement, 

arrangement, or understanding for the 

purpose of compensating such Affiliated 

Broker-Dealer for foregoing any selling 

concessions for those Securities sold. 

Except as described above, nothing in 

this Section II(f)(1) shall be construed as 

precluding an Affiliated Broker-Dealer 

from receiving management fees for 

serving as manager of an underwriting 

or selling syndicate, underwriting fees 

for assuming the responsibilities of an 

underwriter in the underwriting or 

selling syndicate, or other compensation 

or consideration that is not based upon 

the amount of Securities purchased by 

the Asset Manager on behalf of any 

single Client Plan, or on behalf of any 

Client Plan or In-House Plan 

participating in Pooled Funds; and 

(2) Each Affiliated Broker-Dealer shall 

provide, on a quarterly basis, to the 

Asset Manager a written certification, 

signed and dated by an officer, as 

defined in Section V(s), of such 

Affiliated Broker-Dealer, stating that the 

amount that each such Affiliated 

Broker-Dealer received in compensation 

or consideration during the past quarter, 

in connection with any transactions 

described in Section I(a), (b), (d), and 

(e), was not adjusted in a manner 

inconsistent with Section II(e), (f), or 

Section IV(d). 

(g)(1) The transactions described in 

Section I(a), (b), (d), and (e), are 

performed under a written authorization 

executed in advance by an Independent 

Fiduciary of each single Client Plan (the 

Independent Fiduciary), as defined in 

Section V(i); and 

(2) The authorization described in 

Section II(g)(1), to engage in the 

transactions described in Section I(a), 

(b), (d), and (e), may be terminated at 

will by the Independent Fiduciary of a 

single Client Plan, without penalty to 

such single Client Plan, within five (5) 

days after receipt by the Asset Manager 

of a written notification from such 

Independent Fiduciary that the 

authorization to engage, on behalf of 

such single Client Plan, in such 

transactions is terminated. 

(h) Prior to the execution by an 

Independent Fiduciary of a single Client 

Plan of the written authorization 

described in Section II(g)(1), the 

following information and materials 

(which may be provided electronically) 

must be provided by the Asset Manager 

to such Independent Fiduciary: 

(1) A copy of the Notice of Proposed 

Exemption (the Notice) and, if granted, 

a copy of the final exemption (the Grant) 

as published in the Federal Register, 

provided that the Notice and the Grant 

are supplied simultaneously; and 

(2) Any other reasonably available 

information regarding the transactions 

described in Section I(a), (b), (d), and 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70634 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

(e), that such Independent Fiduciary 

requests the Asset Manager to provide. 

(i)(1) In the case of an existing 

employee benefit plan investor (or 

existing In-House Plan investor, as the 

case may be) in a Pooled Fund, such 

Pooled Fund may not engage in any 

transactions described in Section I(a), 

(b), (d), and (e), unless the Asset 

Manager provides the written 

information, as described below, and 

within the time period described below 

in this Section II(i)(2), to the 

Independent Fiduciary of each such 

plan participating in such Pooled Fund 

(and to the fiduciary of each such InHouse Plan participating in such Pooled 

Fund); 

(2) The following information and 

materials (which may be provided 

electronically) shall be provided by the 

Asset Manager not less than 45 days 

prior to such Asset Manager engaging in 

the transactions described in Section 

I(a), (b), (d), and (e) on behalf of a 

Pooled Fund, and provided further that 

the information described in this 

Section II(i)(2)(i) and (iii), is supplied 

simultaneously: 

(i) A notice of the intent of such 

Pooled Fund to purchase Securities, 

pursuant to this proposed exemption for 

the transactions described in Section 

I(a), (b), (d), and (e), a copy of this 

Notice, and if granted, a copy of the 

Grant, as published in the Federal 

Register; 

(ii) Any other reasonably available 

information regarding the transactions 

described in Section I(a), (b), (d), and 

(e), that the Independent Fiduciary of a 

plan (or fiduciary of an In-House Plan) 

participating in a Pooled Fund requests 

the Asset Manager to provide; and 

(iii) A termination form (the 

Termination Form), as defined in 

Section V(p); and 

(3) The Independent Fiduciary of an 

existing employee benefit plan investor 

(or fiduciary of an In-House Plan) 

participating in a Pooled Fund has an 

opportunity to withdraw the assets of 

such plan (or such In-House Plan) from 

a Pooled Fund for a period of no more 

than thirty (30) days after such plan’s 

(or such In-House Plan’s) receipt of the 

initial notice of intent described in 

Section II(i)(2)(i), and to terminate such 

plan’s (or In-House Plan’s) investment 

in such Pooled Fund without penalty to 

such plan (or In-House Plan). Failure of 

the Independent Fiduciary of an 

existing employee benefit plan investor 

(or fiduciary of such In-House Plan) to 

return the Termination Form to the 

Asset Manager in the case of such plan 

(or In-House Plan) participating in a 

Pooled Fund within the time period 

specified in Section V(p), shall be 

deemed to be an approval by such plan 

(or such In-House Plan) of its 

participation in the transactions 

described in Section I(a), (b), (d), and 

(e), as an investor in such Pooled Fund. 

(j) In the case of each plan (and in the 

case of each In-House Plan) whose 

assets are proposed to be invested in a 

Pooled Fund after such Pooled Fund has 

satisfied the conditions set forth in this 

proposed exemption to engage in the 

transactions described in Section I(a), 

(b), (d), and (e), the investment by such 

plan (or by such In-House Plan) in the 

Pooled Fund is subject to the prior 

written authorization of an Independent 

Fiduciary representing such plan (or the 

prior written authorization by the 

fiduciary of such In-House Plan, as the 

case may be), following the receipt by 

such Independent Fiduciary of such 

plan (or by the fiduciary of such InHouse Plan, as the case may be) of the 

written information described in 

Section II(i)(2)(i) and (ii), provided that 

the Notice and the Grant described in 

Section II(i)(2)(i) are provided 

simultaneously. 

(k) At least once every three months, 

and not later than 45 days following the 

period to which such information 

relates the Asset Manager shall furnish: 

(1) In the case of each single Client 

Plan that engages in the transactions 

described in Section I(a), (b), (d), and 

(e), the information described in this 

Section II(k)(3)–(7) to the Independent 

Fiduciary of each such single Client 

Plan; 

(2) In the case of each Pooled Fund in 

which a Client Plan (or in which an InHouse Plan) invests, the information 

described in this Section II(k)(3)–(6) and 

(8) to the Independent Fiduciary of each 

such Client Plan (and to the fiduciary of 

each such In-House Plan) invested in 

such Pooled Fund; 

(3) A quarterly report (the Quarterly 

Report) (which may be provided 

electronically) which discloses all the 

Securities purchased during the period 

to which such report relates, on behalf 

of the Client Plan, In-House Plan, or 

Pooled Fund to which such report 

relates, and which discloses the terms of 

each of the transactions described in 

such report, including: 

(i) The type of Securities (including 

the rating of any Securities which are 

debt securities) involved in each of the 

transactions; 

(ii) The price at which the Securities 

were purchased in each of the 

transactions; 

(iii) The first day on which any sale 

was made during the offering of the 

Securities; 

(iv) The size of the issue of the 

Securities involved in each of the 

transactions; 

(v) The number of Securities 

purchased by the Asset Manager for the 

Client Plan, In-House Plan, or Pooled 

Fund to which each of the transactions 

relates; 

(vi) The identity of the underwriter 

from whom the Securities were 

purchased for each of the transactions; 

(vii) In the case of AUTs as described 

in Section I(a), (b), and (e), the 

underwriting spread in each of the 

transactions (i.e., the difference, 

between the price at which the 

underwriter purchases the Securities 

from the issuer and the price at which 

the Securities are sold to the public); 

(viii) In the case of ATTs as described 

in Section I(d), and (e), the basis upon 

which the Affiliated Trustee is 

compensated in each of the transactions; 

(ix) The price at which any of the 

Securities purchased during the period 

to which such report relates were sold; 

(x) The market value at the end of the 

period to which such report relates of 

the Securities purchased during such 

period and not sold; and 

(xi) In the case of an AST as described 

in Section I(b), the basis upon which the 

Affiliated Servicer is compensated; 

(4) The Quarterly Report contains: 

(i) In the case of AUTs, as described 

in Section I(a), (b), and (e), a 

representation that the Asset Manager 

has received a written certification 

signed by an officer, as defined in 

Section V(s), of the Affiliated BrokerDealer as described in Section II(f)(2), 

affirming that, as to each such AUT 

during the past quarter, such Affiliated 

Broker-Dealer acted in compliance with 

Section II(e), (f), and Section IV(d); 

(ii) In the case of ATTs as described 

in Section I(d) and (e), a representation 

by the Asset Manager affirming that, as 

to each such ATT, the transaction was 

not part of an agreement, arrangement, 

or understanding designed to benefit the 

Affiliated Trustee; 

(iii) In the case of an AST as described 

in Section I(b), a representation of the 

Asset Manager affirming that, as to each 

such AST, the transaction was not part 

of an agreement, arrangement, or 

understanding designed to benefit the 

Affiliated Servicer; and 

(iv) A representation that copies of 

such certifications will be provided 

upon request; 

(5) A disclosure in the Quarterly 

Report that states that any other 

reasonably available information 

regarding the transactions described in 

Section I(a), (b), (d), and (e), that an 

Independent Fiduciary (or fiduciary of 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70635 

18The Underwriter Exemptions are a group of 

individual exemptions granted by the Department 

to provide relief for the origination and operation 

of certain asset pool investment trusts and the 

acquisition, holding, and disposition by plans of 

certain asset-backed pass-through certificates 

representing undivided interests in those 

investment trusts. The most recent amendment to 

the Underwriter Exemptions is the Amendment to 

Prohibited Transaction Exemption 2007–05, 72 FR 

13130 (March 20, 2007), Involving Prudential 

Securities Incorporated, et. al., To Amend the 

Definition of ‘‘Rating Agency’’ (Prohibited 

Transaction Exemption 2013–08, 78 FR 41090 (July 

9, 2013)). 

an In-House Plan) requests will be 

provided, including, but not limited to: 

(i) The date on which the Securities 

were purchased on behalf of the Client 

Plan (or the In-House Plan) to which the 

disclosure relates (including Securities 

purchased by Pooled Funds in which 

such Client Plan (or such In-House Plan) 

invests; 

(ii) The percentage of the offering 

purchased on behalf of all Client Plans 

(and the pro-rata percentage purchased 

on behalf of Client Plans and In-House 

Plans investing in Pooled Funds); and 

(iii) The identity of all members of the 

underwriting syndicate; 

(6) The Quarterly Report discloses any 

instance during the past quarter where 

the Asset Manager was precluded for 

any period of time from selling 

Securities purchased for the 

transactions described in Section I(a), 

(b), (d), and (e), in that quarter because 

of its status as an affiliate of an 

Affiliated Broker-Dealer and, as 

applicable, as an affiliate of an Affiliated 

Trustee, or as an affiliate of an Affiliated 

Servicer and the reason for this 

restriction; 

(7) Explicit notification, prominently 

displayed in each Quarterly Report sent 

to the Independent Fiduciary of each 

single Client Plan that engages in any of 

the transactions described in Section 

I(a), (b), (d), and (e) that the 

authorization to engage in such covered 

transactions may be terminated, without 

penalty to such single Client Plan, 

within five (5) days after the date that 

the Independent Fiduciary of such 

single Client Plan informs the person 

identified in such notification that the 

authorization to engage in such 

transactions is terminated; and 

(8) Explicit notification, prominently 

displayed in each Quarterly Report sent 

to the Independent Fiduciary of each 

Client Plan (and to the fiduciary of each 

In-House Plan) that engages in any of 

the transactions described in Section 

I(a), (b), (d), and (e) through a Pooled 

Fund, that the investment in such 

Pooled Fund may be terminated, 

without penalty to such Client Plan (or 

such In-House Plan), within such time 

as may be necessary to effect the 

withdrawal in an orderly manner that is 

equitable to all withdrawing plans and 

to the non-withdrawing plans, after the 

date that that the Independent Fiduciary 

of such Client Plan (or the fiduciary of 

such In-House Plan, as the case may be) 

informs the person identified in such 

notification that the investment in such 

Pooled Fund is terminated. 

(l) The Asset Manager, the Affiliated 

Broker-Dealer, the Affiliated Trustee, 

and the Affiliated Servicer, as 

applicable, maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of any of the transactions 

described in Section I(a), (b), (d), and 

(e), such records as are necessary to 

enable the persons described in Section 

II(m) to determine whether the 

conditions of this proposed exemption 

have been met, except that— 

(1) No party in interest with respect 

to a plan which engages in any of the 

transactions described in Section I(a), 

(b), (d), and (e), other than WFC, the 

Asset Manager, the Affiliated BrokerDealer, the Affiliated Trustee, and the 

Affiliated Servicer, 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 are not available for 

examination, as required by Section 

II(m); and 

(2) A separate prohibited transaction 

shall not be considered to have occurred 

if, due to circumstances beyond the 

control of WFC, the Asset Manager, the 

Affiliated Broker-Dealer, and the 

Affiliated Trustee, or the Affiliated 

Servicer, as applicable, such records are 

lost or destroyed prior to the end of the 

six (6) year period. 

(m)(1) Except as provided in Section 

II(m)(2), and notwithstanding any 

provisions of subsections (a)(2) and (b) 

of section 504 of the Act, the records 

referred to in Section II(l) are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(i) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the SEC; or 

(ii) Any fiduciary of any plan that 

engages in any of the transactions 

described in Section I(a), (b), (d), and 

(e), or any duly authorized employee or 

representative of such fiduciary; or 

(iii) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a plan that engages in any 

of the transactions described in Section 

I(a), (b), (d), and (e), or any authorized 

employee or representative of these 

entities; or 

(iv) Any participant or beneficiary of 

a plan that engages in any of the 

transactions described in Section I(a), 

(b), (d), and (e), or duly authorized 

employee or representative of such 

participant or beneficiary; 

(2) None of the persons described in 

Section II(m)(1)(ii)—(iv) shall be 

authorized to examine trade secrets of 

WFC, the Asset Manager, the Affiliated 

Broker-Dealer, the Affiliated Trustee, or 

the Affiliated Servicer, or commercial or 

financial information which is 

privileged or confidential; and 

(3) Should WFC, the Asset Manager, 

the Affiliated Broker-Dealer, the 

Affiliated Trustee, or the Affiliated 

Servicer refuse to disclose information 

on the basis that such information is 

exempt from disclosure, pursuant to 

Section II(m)(2), the Asset Manager 

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

day following the request, provide a 

written notice advising the person who 

requested such information of the 

reasons for the refusal and that the 

Department may request such 

information. 

(o) An indenture trustee whose 

affiliate has, within the prior 12 months, 

underwritten any Securities for an 

obligor of the indenture Securities must 

resign as indenture trustee, if a default 

occurs upon the indenture Securities, 

within a reasonable amount of time of 

such default. 

Section III. Conditions for Transactions 

Described In Section I(c) 

The transaction described in Section 

I(c) is conditioned upon satisfaction of 

the general conditions, as set forth in 

Section IV and upon satisfaction of the 

following requirements: 

(a) The Securities to be purchased are 

CMBS, as defined in Section V(r). 

(b) The purchase of the CMBS meets 

the conditions of an applicable 

underwriter exemption (the Underwriter 

Exemption(s)).18

(c)(1) The aggregate amount of CMBS 

of an issue purchased by the Asset 

Manager with: 

(i) The assets of all Client Plans; 

(ii) The assets, calculated on a pro 

rata basis, of all Client Plans and InHouse Plans investing in Pooled Funds 

managed by the Asset Manager; and 

(iii) The assets of plans to which the 

Asset Manager renders investment 

advice within the meaning of 29 CFR 

2510.3–21(c) does not exceed 35 percent 

(35%) of the total amount of the CMBS 

being offered in an issue; 

(2) Notwithstanding the percentage of 

CMBS of an issue permitted to be 

acquired, as set forth in Section III(c)(1), 

the amount of CMBS in any issue 

purchased by the Asset Manager on 

behalf of any single Client Plan, either 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70636 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

individually or through investment, 

calculated on a pro rata basis, in a 

Pooled Fund may not exceed three 

percent (3%) of the total amount of such 

CMBS being offered in such issue; and 

(3) If purchased in an Eligible Rule 

144A Offering, the total amount of the 

CMBS being offered for purposes of 

determining the percentages described 

in this Section III(c) is the total of: 

(i) The principal amount of the 

offering of such class of CMBS sold by 

underwriters or members of the selling 

syndicate to QIBs; plus 

(ii) The principal amount of the 

offering of such class of CMBS in any 

concurrent public offering. 

(d) The aggregate amount to be paid 

by any single Client Plan in purchasing 

any CMBS, including any amounts paid 

by any Client Plan or In-House Plan in 

purchasing such CMBS through a 

Pooled Fund, calculated on a pro rata 

basis, does not exceed three percent 

(3%) of the fair market value of the net 

assets of such Client Plan or In-House 

Plan, as of the last day of the most 

recent fiscal quarter of such Client Plan 

or In-House Plan prior to such 

transaction. 

(e)(1) The transaction described in 

Section I(c) is performed under a 

written authorization executed in 

advance by an Independent Fiduciary of 

each single Client Plan, as defined in 

Section V(i); and 

(2) The authorization described in 

Section III(e)(1) to engage in the 

transaction described in Section I(c) 

may be terminated at will by the 

Independent Fiduciary of a single Client 

Plan, without penalty to such single 

Client Plan within five (5) days after 

receipt by the Asset Manager of a 

written notification from such 

Independent Fiduciary that the 

authorization to engage, on behalf of 

such single Client Plan, in such 

transactions is terminated. 

(f) The following information and 

materials (which may be provided 

electronically) must be provided by the 

Asset Manager to the Independent 

Fiduciary of a single Client Plan not less 

than 45 days prior to such Asset 

Manager engaging in the transaction 

described in Section I(c), pursuant to 

this proposed exemption: 

(1) A notice of the intent of the Asset 

Manager to purchase CMBS, pursuant to 

Section I(c), a copy of the Notice, and, 

if granted, a copy of the Grant, as 

published in the Federal Register, 

provided that the Notice and the Grant 

are supplied simultaneously; 

(2) A notice describing the 

relationship of the Affiliated Servicer to 

the Asset Manager; 

(3) The basis upon which the 

Affiliated Servicer is compensated and 

a representation by the Asset Manager 

affirming that, the transaction described 

in Section I(c) was not part of an 

agreement, arrangement, or 

understanding designed to benefit the 

Affiliated Servicer; and 

(4) Any other reasonably available 

information regarding the transaction 

described in Section I(c) that the 

Independent Fiduciary of such single 

Client Plan requests the Asset Manager 

to provide. 

(g)(1) In the case of an existing 

employee benefit plan investor (or 

existing In-House Plan investor, as the 

case may be) in a Pooled Fund, such 

Pooled Fund may not engage in a 

transaction, pursuant to Section I(c), 

unless the Asset Manager provides the 

written information, as described below 

and within the time period described 

below in this Section III(g)(2), to the 

Independent Fiduciary of each such 

plan participating in such Pooled Fund 

(and to the fiduciary of each such InHouse Plan participating in such Pooled 

Fund); 

(2) The following information and 

materials, (which may be provided 

electronically) shall be provided by the 

Asset Manager not less than 45 days 

prior to such Asset Manager engaging in 

a transaction described in Section I(c) 

on behalf of a Pooled Fund, pursuant to 

this proposed exemption; and provided 

further that the information described in 

this Section III(g)(2)(i), (ii), (iii), and (v) 

is supplied simultaneously: 

(i) A notice of the intent of such 

Pooled Fund to purchase CMBS, 

pursuant to this proposed exemption for 

a transaction described in Section I(c), 

a copy of this Notice, and a copy of the 

Grant, as published in the Federal 

Register; 

(ii) A notice describing the 

relationship of the Affiliated Servicer to 

the Asset Manager; 

(iii) Information on the basis upon 

which the Affiliated Servicer is 

compensated and a representation by 

the Asset Manager affirming that, such 

transaction, as described in Section I(c), 

was not part of an agreement, 

arrangement, or understanding designed 

to benefit the Affiliated Servicer; 

(iv) Any other reasonably available 

information regarding such transaction 

described in Section I(c) that the 

Independent Fiduciary of a plan (or 

fiduciary of an In-House Plan) 

participating in a Pooled Fund requests 

the Asset Manager to provide; and 

(v) A Termination Form, as defined in 

Section V(p); and 

(3) The Independent Fiduciary of an 

existing employee benefit plan investor 

(or fiduciary of an In-House Plan) 

participating in a Pooled Fund has an 

opportunity to withdraw the assets of 

such plan (or such In-House Plan) from 

a Pooled Fund for a period of no more 

than thirty (30) days after such plan’s 

(or such In-House Plan’s) receipt of the 

initial notice of intent described in 

Section III(g)(2)(i) and to terminate such 

plan’s (or In-House Plan’s) investment 

in such Pooled Fund without penalty to 

such plan (or In-House Plan). Failure of 

the Independent Fiduciary of an 

existing employee benefit plan investor 

(or fiduciary of such In-House Plan) to 

return the Termination Form to the 

Asset Manager in the case of such plan 

(or In-House Plan) participating in a 

Pooled Fund within the time period 

specified in Section V(p), shall be 

deemed to be an approval by such plan 

(or such In-House Plan) of its 

participation in a transaction described 

in Section I(c), as an investor in such 

Pooled Fund. 

(h)(1) In the case of each plan (and in 

the case of each In-House Plan) whose 

assets are proposed to be invested in a 

Pooled Fund after such Pooled Fund has 

satisfied the conditions set forth in this 

proposed exemption for a transaction 

described in Section I(c), the investment 

by such plan (or by such In-House Plan) 

in the Pooled Fund is subject to the 

prior written authorization of an 

Independent Fiduciary representing 

such plan (or the prior written 

authorization by the fiduciary of such 

In-House Plan, as the case may be), 

following the receipt by such 

Independent Fiduciary of the plan (or 

by the fiduciary of the In-House Plan, as 

the case may be) of the written 

information described in Section 

III(g)(2); provided that the Notice and, if 

granted, the Grant described in Section 

III(g)(2)(i) are provided simultaneously. 

(i) The requirements of Section IV are 

met. 

Section IV. General Conditions for 

Transactions Described in Section I 

(a) For purposes of engaging in the 

transactions described in Section I, each 

Client Plan (and each In-House Plan) 

shall have total net assets with a value 

of at least $50 million (the $50 Million 

Net Asset Requirement). For purposes of 

engaging in the transactions described 

in Section I, involving an Eligible Rule 

144A Offering, each Client Plan (and 

each In-House Plan) shall have total net 

assets of at least $100 million in 

securities of issuers that are not 

affiliated with such Client Plan (or such 

In-House Plan, as the case may be) (the 

$100 Million Net Asset Requirement). 

For purposes of a Pooled Fund 

engaging in the transactions described 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70637 

19 49 FR 9494 (March 13, 1984), as amended at, 

75 FR 38837 (July 6, 2010). 

in Section I, each Client Plan (and each 

In-House Plan) in such Pooled Fund 

shall have total net assets with a value 

of at least $50 million. Notwithstanding 

the foregoing, if each such Client Plan 

(and each such In-House Plan) in such 

Pooled Fund does not have total net 

assets with a value of at least $50 

million, the $50 Million Net Asset 

Requirement will be met, if 50 percent 

(50%) or more of the units of beneficial 

interest in such Pooled Fund are held by 

Client Plans (and by In-House Plans) 

each of which has total net assets with 

a value of at least $50 million. 

For purposes of a Pooled Fund 

engaging in the transactions described 

in Section I involving an Eligible Rule 

144A Offering, each Client Plan (and 

each In-House Plan) in such Pooled 

Fund shall have total net assets of at 

least $100 million in securities of 

issuers that are not affiliated with such 

Client Plan (or such In-House Plan, as 

the case may be). Notwithstanding the 

foregoing, if each such Client Plan (and 

each such In-House Plan) in such 

Pooled Fund does not have total net 

assets of at least $100 million in 

securities of issuers that are not 

affiliated with such Client Plan (or InHouse Plan, as the case may be), the 

$100 Million Net Asset Requirement 

will be met if 50 percent (50%) or more 

of the units of beneficial interest in such 

Pooled Fund are held by Client Plans 

(and by In-House Plans) each of which 

have total net assets of at least $100 

million in securities of issuers that are 

not affiliated with such Client Plan (or 

such In-House Plan, as the case may be), 

and the Pooled Fund itself qualifies as 

a QIB, as determined pursuant to SEC 

Rule 144A (17 CFR 230.144A(a)(F)). 

For purposes of the net asset 

requirements described in Section IV(a), 

where a group of Client Plans is 

maintained by a single employer or 

controlled group of employers, as 

defined in section 407(d)(7) of the Act, 

the $50 Million Net Asset Requirement 

(or in the case of an Eligible Rule 144A 

Offering, the $100 Million Net Asset 

Requirement) may be met by aggregating 

the assets of such Client Plans, if the 

assets of such Client Plans are pooled 

for investment purposes in a single 

master trust. 

(b) The Asset Manager is a ‘‘qualified 

professional asset manager’’ (QPAM), as 

that term is defined under Section V(a) 

of Prohibited Transaction Exemption 

(PTE 84–14),19 as amended from time to 

time, or any successor exemption 

thereto. In addition to satisfying the 

requirements for a QPAM under Section 

V(a) of PTE 84–14, the Asset Manager 

also must have total client assets under 

its management and control in excess of 

$5 billion, as of the last day of its most 

recent fiscal year and shareholders’ or 

partners’ equity in excess of $1 million. 

(c) At the time a transaction described 

in Section I is entered into, no more 

than 20 percent of the assets of a Pooled 

Fund are comprised of assets of InHouse Plans for which WFC, the Asset 

Manager, the Affiliated Broker-Dealer, 

the Affiliated Trustee, the Affiliated 

Servicer, or any affiliate thereof 

exercises investment discretion. 

(d) The transactions described in 

Section I are not part of an agreement, 

arrangement, or understanding designed 

to benefit the Asset Manager or any 

affiliate. 

(e) For purposes of Section II(i), 

Section II(j), Section III(g) and Section 

III(h), the requirement that the fiduciary 

responsible for the decision to authorize 

the transactions described in Section I, 

as applicable, for each plan proposing to 

invest in a Pooled Fund be independent 

of WFC and its affiliates shall not apply 

in the case of an In-House Plan. 

(f) Subsequent to the initial 

authorization, pursuant to Section II(g) 

and Section III(e), by an Independent 

Fiduciary of a single Client Plan 

permitting the Asset Manager to engage 

in transactions described in Section I, as 

applicable, and subsequent to the initial 

authorization, pursuant to Section II(i), 

Section II(j), Section III(g), and Section 

III(h), by an Independent Fiduciary of a 

plan (or by a fiduciary of an In-House 

Plan) to invest in a Pooled Fund that 

engages in the transactions described in 

Section I, as applicable, the Asset 

Manager will continue to be subject to 

the requirement to provide within a 

reasonable period of time any 

reasonably available information 

regarding such transactions that the 

Independent Fiduciary of such plan, 

such Client Plan (or of such In-House 

Plan, as the case may be) requests the 

Asset Manager to provide. 

(g) The Independent Fiduciary of each 

Client Plan (and the fiduciary of each 

In-House Plan) that engages in the 

transactions described in Section I 

through a Pooled Fund may terminate 

the investment in such Pooled Fund, 

without penalty to such Client Plan (or 

such In-House Plan), within such time 

as may be necessary to effect the 

withdrawal in an orderly manner that is 

equitable to all withdrawing plans and 

to the non-withdrawing plans, after the 

date that that the Independent Fiduciary 

of such Client Plan (or the fiduciary of 

such In-House Plan, as the case may be) 

informs the Asset Manager that the 

investment in such Pooled Fund is 

terminated. 

(h) The Applicant establishes internal 

policies that restrict the contact and the 

flow of information between investment 

management personnel and noninvestment management personnel in 

the same or affiliated financial service 

firms. 

(i) The Applicant establishes business 

separation policies and procedures for 

WFC and its affiliates which are also 

structured to restrict the flow of any 

information to or from the Asset 

Manager that could limit its flexibility 

in managing client assets, and of 

information obtained or developed by 

the Asset Manager that can be used by 

other parts of the organization, to the 

detriment of the Asset Manager’s 

clients. 

Section V. Definitions 

(a) The term ‘‘the Applicant’’ means 

WFC. 

(b) The term ‘‘affiliate’’ of a person 

includes: 

(1) Any person directly or indirectly 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with such person; 

(2) Any officer, director, partner, 

employee, or relative, as defined in 

section 3(15) of the Act, of such person; 

and 

(3) Any corporation or partnership of 

which such person is an officer, 

director, partner, or employee. 

(c) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(d) The term ‘‘Affiliated BrokerDealer’’ means any broker-dealer 

affiliate, as the term ‘‘affiliate’’ is 

defined in Section V(b)(1), of the 

Applicant, as the term ‘‘Applicant’’ is 

defined in Section V(a), that meets the 

requirements of this proposed 

exemption. Such Affiliated BrokerDealer may participate in an 

underwriting or selling syndicate as a 

manager or member. 

(e) The term ‘‘manager’’ used in 

Section V(d) above and Section V(f) 

below, means any member of an 

underwriting or selling syndicate who, 

either alone or together with other 

members of the syndicate, is authorized 

to act on behalf of the members of the 

syndicate in connection with the sale 

and distribution of the Securities, as 

defined in Section V(j), being offered or 

who receives compensation from the 

members of the syndicate for its services 

as a manager of the syndicate. 

(f) The term ‘‘Asset Manager(s)’’ 

means WFC or an affiliate of WFC, as 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70638 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

the term ‘‘affiliate’’ is defined in Section 

V(b)(1), which entity acts as the 

fiduciary with respect to Client Plan(s), 

as the term ‘‘Client Plan(s)’’ is defined 

in Section V(g), or as the fiduciary with 

respect to Pooled Fund(s), as the term 

‘‘Pooled Fund(s)’’ is defined in Section 

V(h). For purposes of this proposed 

exemption, the Asset Manager must 

qualify as a QPAM, as that term is 

defined under Section V(a) of PTE 84– 

14, 49 FR 9494, (March 13, 1984), as 

amended at, 75 FR 38837, (July 6, 2010). 

In addition to satisfying the 

requirements for a QPAM under Section 

V(a) of PTE 84–14, the Asset Manager 

must also have total client assets under 

its management and control in excess of 

$5 billion, as of the last day of its most 

recent fiscal year and shareholders’ or 

partners’ equity in excess of $1 million. 

(g) The term ‘‘Client Plan(s)’’ means 

an employee benefit plan or employee 

benefit plans that are subject to the Act 

and/or the Code, and for which plan(s) 

an Asset Manager exercises 

discretionary authority or discretionary 

control respecting management or 

disposition of some or all of the assets 

of such plan(s). The term ‘‘Client 

Plan(s)’’ excludes In-House Plans, as 

defined in Section V(m). 

(h) The term ‘‘Pooled Fund(s)’’ means 

a common or collective trust fund(s) or 

a pooled investment fund(s): 

(1) In which employee benefit plan(s) 

subject to the Act and/or Code invest; 

(2) Which is maintained by an Asset 

Manager, as defined in Section V(f); and 

(3) For which such Asset Manager 

exercises discretionary authority or 

discretionary control respecting the 

management or disposition of the assets 

of such fund(s). 

(i)(1) The term ‘‘Independent 

Fiduciary’’ means a fiduciary of a plan 

who is unrelated to, and independent of 

WFC, and is unrelated to, and 

independent of any affiliate of WFC. For 

purposes of this proposed exemption, a 

fiduciary of a plan will be deemed to be 

unrelated to, and independent of WFC, 

and unrelated to, and independent of 

any affiliate of WFC, if such fiduciary 

represents in writing that neither such 

fiduciary, nor any individual 

responsible for the decision to authorize 

or terminate authorization for the 

transactions described in Section I is an 

officer, director, or highly compensated 

employee (within the meaning of 

section 4975(e)(2)(H) of the Code) of 

WFC, or of any affiliate of WFC, and 

represents that such fiduciary shall 

advise the Asset Manager within a 

reasonable period of time after any 

change in such facts occur; 

(2) Notwithstanding anything to the 

contrary in this Section V(i), a fiduciary 

of a plan is not independent: 

(i) If such fiduciary, directly or 

indirectly, through one or more 

intermediaries, controls, is controlled 

by, or is under common control with 

WFC, or any affiliate of WFC; 

(ii) If such fiduciary directly or 

indirectly receives any compensation or 

other consideration from WFC, or from 

any affiliate of WFC for his or her own 

personal account in connection with 

any transaction described in this 

proposed exemption; and 

(iii) If any officer, director, or highly 

compensated employee (within the 

meaning of section 4975(e)(2)(H) of the 

Code) of the Asset Manager responsible 

for the transactions described in Section 

I is an officer, director, or highly 

compensated employee (within the 

meaning of section 4975(e)(2)(H) of the 

Code) of the sponsor of a plan or of the 

fiduciary responsible for the decision to 

authorize or terminate authorization for 

the transactions described in Section I. 

However, if such individual is a director 

of the sponsor of a plan or of the 

responsible fiduciary, and if he or she 

abstains from participation in: (A) The 

choice of such plan’s investment 

manager/adviser; and (B) the decision to 

authorize or terminate authorization for 

the transactions described in Section I, 

then Section V(i)(2)(iii) shall not apply. 

(j) The term ‘‘Securities’’ shall have 

the same meaning as defined in section 

2(36) of the Investment Company Act of 

1940 (the 1940 Act), as amended (15 

U.S.C. 80a 2(36)(1996)). For purposes of 

this proposed exemption, mortgagebacked or other asset backed securities 

rated by one of the Rating Agencies, as 

defined in Section V(q), will be treated 

as debt securities. 

(k) The term ‘‘Eligible Rule 144A 

Offering’’ shall have the same meaning 

as defined in SEC Rule 10f–3(a)(4) (17 

CFR 270.10f-3(a)(4))under the 1940 Act. 

(l) The term ‘‘qualified institutional 

buyer’’ or the term, ‘‘QIB,’’ shall have 

the same meaning as defined in SEC 

Rule 144A (17 CFR 230.144A(a)(1)) 

under the 1933 Act. 

(m) The term ‘‘In-House Plan(s)’’ 

means an employee benefit plan or 

employee benefit plans that is/are 

subject to the Act and/or the Code, and 

that is/are sponsored by WFC or by an 

affiliate of WFC, as the term, affiliate is 

defined in Section V(b)(1), for its own 

employees. 

(n) The term ‘‘Affiliated Servicer’’ 

means any affiliate of WFC, as defined 

in Section V(b)(1), that serves as a 

servicer of a trust that issues CMBS 

(including servicing one or more of the 

commercial mortgage loans in such 

trust). 

(o) The term ‘‘Affiliated Trustee’’ 

means any affiliate of WFC, as affiliate 

is defined in Section V(b)(1), which is 

a bank or trust company that serves as 

trustee of a trust that issues Securities 

which are asset-backed securities or as 

indenture trustee of Securities which 

are either asset-backed securities or 

other debt securities that meet the 

requirements of Section II of this 

proposed exemption. For purposes of 

this proposed exemption, other than 

Section II(o), performing services as 

custodian, paying agent, registrar, or 

similar ministerial capacities is, in each 

case, also considered as serving as 

trustee or indenture trustee. 

(p) The term ‘‘Termination Form’’ is 

a form provided by the Asset Manager 

to the Independent Fiduciary of each 

such plan participating in a Pooled 

Fund (and to the fiduciary of each such 

In-House Plan participating in such 

Pooled Fund) which expressly provides 

an election for the Independent 

Fiduciary of a plan (or fiduciary of an 

In-House Plan) participating in a Pooled 

Fund to terminate such plan’s (or InHouse Plan’s) investment in such 

Pooled Fund without penalty to such 

plan (or In-House Plan). Such form shall 

include instructions specifying how to 

use the form. Specifically, the 

instructions must explain that such plan 

(or such In-House Plan) has an 

opportunity to withdraw its assets from 

a Pooled Fund for a period of no more 

than thirty (30) days after such plan’s 

(or such In-House Plan’s) receipt of the 

initial notice of intent described in 

Section II(i)(2)(i) or in Section 

III(g)(2)(i), as applicable, and that the 

failure of the Independent Fiduciary of 

such plan (or fiduciary of such In-House 

Plan) to return the Termination Form to 

the Asset Manager in the case of a plan 

(or In-House Plan) participating in a 

Pooled Fund within the time period, 

specified in Section II(i)(2)(iii) or in 

Section III(g)(2)(iii), as applicable, shall 

be deemed to be an approval by such 

plan (or such In-House Plan) of its 

participation in the transactions 

described in Section I, as applicable, as 

an investor in such Pooled Fund. 

Further, the instructions will identify 

WFC, the Asset Manager, the Affiliated 

Broker-Dealer, and as applicable, the 

Affiliated Trustee, or the Affiliated 

Servicer, and will provide the address of 

the Asset Manager. The instructions will 

state that this proposed exemption will 

not be available, unless the fiduciary of 

each plan participating in any of the 

transactions described in Section I, as 

applicable, as an investor in a Pooled 

Fund is, in fact, independent of WFC, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70639 

the Asset Manager, the Affiliated 

Broker-Dealer, and, as applicable, the 

Affiliated Trustee or the Affiliated 

Servicer. The instructions will also state 

that the fiduciary of each such plan 

must advise the Asset Manager, in 

writing, if it is not an ‘‘Independent 

Fiduciary,’’ as that term is defined in 

Section V(i). 

(q) The term ‘‘Rating Agency’’ or 

collectively, ‘‘Rating Agencies’’ means a 

credit rating agency that: 

(1) Is currently recognized by the SEC 

as a nationally recognized statistical 

ratings organization (NRSRO); 

(2) Has indicated on its most recently 

filed SEC Form NRSRO that it rates 

‘‘issuers of asset-backed securities;’’ and 

(3) Has had, within a period not 

exceeding twelve (12) months prior to 

the initial issuance of the securities, at 

least three (3) ‘‘qualified ratings 

engagements.’’ A ‘‘qualified ratings 

engagement’’ is one: 

(i) Requested by an issuer or 

underwriter of securities in connection 

with the initial offering of the securities; 

(ii) For which the credit rating agency 

is compensated for providing ratings; 

(iii) Which is made public to investors 

generally; and 

(iv) Which involves the offering of 

securities of the type that would be 

granted relief by the Underwriter 

Exemptions. 

(r) The term ‘‘CMBS’’ means passthrough certificates or trust certificates 

that represent a beneficial ownership 

interest in the assets of an issuer which 

is a trust and which entitle the holder 

to payments of principal, interest, and/ 

or other payments made with respect to 

the assets of such trust and the corpus 

or assets of which consist solely of 

obligations that bear interest or are 

purchased at a discount and which are 

secured by commercial real property 

(including obligations secured by 

leasehold interests on commercial real 

property) that are rated in one of the 

four highest rating categories by the 

Rating Agencies; provided that none of 

the Rating Agencies rates such securities 

in a category lower than the fourth 

highest rating category. 

(s) The term ‘‘officer’’ means a 

president, any vice president in charge 

of a principal business unit, division, or 

function (such as sales, administration, 

or finance), or any other officer who 

performs a policy-making function for 

WFC or any affiliate thereof. 

The availability of this proposed 

exemption is subject to the express 

condition that the material facts and 

representations contained in the 

application for exemption are true and 

complete and accurately describe all 

material terms of the transactions. In the 

case of continuing transactions, if any of 

the material facts or representations 

described in the applications change, 

the exemption will cease to apply as of 

the date of such change. In the event of 

any such change, an application for a 

new exemption must be made to the 

Department. 

Effective Date: 

If granted, this proposed exemption 

will be effective as of the date the Grant 

is published in the Federal Register. 

Summary of Facts and Representations 

1. WFC (or the Applicant) is 

headquartered in San Francisco, 

California. WFC is a diversified 

financial services company organized 

under the laws of Delaware and is 

registered as a bank holding company 

and financial holding company under 

the Bank Holding Company Act of 1956. 

WFC engages in banking and a variety 

of related financial services businesses. 

Subsidiaries of the Applicant manage 

institutional portfolios for mutual funds, 

corporations, employee benefit plans, 

endowments, foundations, health care 

organizations, public agencies, 

sovereign organizations, and insurance 

companies. These affiliates act as 

fiduciaries to employee benefit plans, 

providing trustee, recordkeeping, 

consulting services, and investment 

management services. The Applicant 

states that certain affiliates of the 

Applicant act as the fiduciary with 

respect to Client Plan(s), or as the 

fiduciary with respect to Pooled 

Fund(s), and qualify as a ‘‘QPAM,’’ as 

that term is defined under Section V(a) 

of PTE 84–14, 49 FR 9494 (March 13, 

1984), as amended at, 75 FR 38837, 

(July 6, 2010). In addition to satisfying 

the requirements for a QPAM under 

Section V(a) of PTE 84–14, such 

affiliates of the Applicant must also 

have total client assets under its 

management and control in excess of $5 

billion, as of the last day of its most 

recent fiscal year and shareholders’ or 

partners’ equity in excess of $1 million. 

As of March 31, 2013, WFC, through 

its affiliates, had approximately $463 

billion in assets under management. The 

activities of WFC and its affiliates are 

subject to oversight and regulation by 

the SEC, the Federal Reserve Board, and 

the Office of the Comptroller of the 

Currency. 

2. The proposed exemption involves 

the transactions described in Section I 

engaged in by single Client Plans (and 

by Client Plans and In-House Plans 

invested in Pooled Funds). In this 

regard, the Applicant represents that 

there is no feasible manner to identify 

specific information on all such plans. 

3. The Applicant requests an 

individual administrative exemption 

that would permit the purchase of 

certain Securities, including Rule 144A 

Securities, by an Asset Manager acting 

as a fiduciary on behalf of single Client 

Plans or acting on behalf of Client Plans 

and In-House Plans which are invested 

in Pooled Funds, from any person other 

than such Asset Manager or an affiliate, 

thereof, during the existence of an 

initial offering of such Securities in 

which an Affiliated Broker-Dealer is a 

manager or a member of the 

underwriting or selling syndicate with 

respect to such Securities. Such a 

transaction is described, herein, as an 

AUT. 

4. The Applicant also seeks an 

individual administrative exemption for 

certain transactions arising pursuant to 

an arrangement whereby an Affiliated 

Broker-Dealer is a manager or member 

of an underwriting syndicate, and an 

Affiliated Servicer serves as servicer of 

a trust that issues CMBS (including 

servicing one or more of the commercial 

mortgage backed loans in such trust) 

which are purchased by an Asset 

Manager, acting as a fiduciary on behalf 

of single Client Plans (or acting on 

behalf of Client Plans and In-House Plan 

invested in Pooled Funds, as 

applicable). Such transactions are 

described herein as an AUT and AST. 

5. Further, the Applicant requests an 

individual administrative exemption for 

certain transactions arising pursuant to 

an arrangement whereby an Affiliated 

Servicer serves as servicer of a trust that 

issues CMBS where an Affiliated 

Broker-Dealer is not a manager or 

member of the underwriting syndicate 

for such securities. Such a transaction is 

described, herein, as an AST. 

6. In addition, the Applicant seeks an 

individual administrative exemption for 

certain transactions arising from an 

arrangement whereby an Affiliated 

Trustee serves as trustee of a trust that 

issues certain Securities (whether or not 

debt securities) or serves as indenture 

trustee of such Securities that are debt 

securities. Such a transaction is 

described, herein, as an ATT. 

7. Finally, the Applicant has 

requested an individual administrative 

exemption for certain transactions 

arising from an arrangement whereby an 

Affiliated Broker-Dealer is a manager or 

member of the underwriting syndicate 

for Securities and an Affiliated Trustee 

serves as trustee of a trust that issued 

the Securities (whether or not debt 

securities) or serves as an indenture 

trustee of Securities that are debt 

Securities and where such Securities are 

purchased by an Asset Manager, acting 

as a fiduciary on behalf of single Client 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70640 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

20 72 FR 51467, September 7, 2007. 

21 40 FR 50845, October 31, 1975. 

Plans (or acting on behalf of Client Plans 

and In-House Plan which are invested 

in Pooled Funds). Such transactions are 

described, herein, as an AUT and ATT. 

The Applicant argues that absent an 

individual administrative exemption, 

Client Plans (and In-House Plans, as 

applicable) potentially could be cut off 

from primary market participation in a 

significant number of offerings of 

securities in which affiliates of WFC fill 

one or more of the roles, described 

above. 

8. When an Asset Manager affiliated 

with WFC is a fiduciary with 

investment discretion with respect to 

the assets of single Client Plans (or with 

respect to the assets of Client Plans and 

In-House Plans invested in a Pooled 

Fund, as applicable), and such Asset 

Manager decides to engage in any of the 

transactions described in Section I 

above, the fact that WFC has an 

ownership interest in the Asset 

Manager, the Affiliated Broker-Dealer, 

and, as applicable, the Affiliated 

Trustee, or the Affiliated Servicer, raises 

issues under section 406(a)(1)(A) and 

(D) and section 406(b) of the Act, 

because one or more affiliates of such 

Asset Manager may be receiving 

compensation as a result of the purchase 

of the Securities involved in such 

transactions by Client Plans (or by InHouse Plans, as applicable). 

AUTs 

9. In 2007, WFC obtained a Prohibited 

Transaction Exemption 2007–14 (PTE 

2007–14) 20 from the Department, which 

provides relief for AUTs only. In 

connection with this proposed 

exemption, the Applicant requests that 

PTE 2007–14 be restated, with any 

updates required and/or granted in the 

interim by the Department. In Section 

I(a) of this proposed exemption, the 

Department has restated the AUT 

described in PTE 2007–14 and has 

updated and amended the conditions 

under which relief for such transaction 

is provided. Further, the Applicant has 

requested, and the Department in this 

proposed exemption has expanded, the 

relief which was provided in PTE 2007– 

14. In this regard, this proposed 

exemption also provides relief for the 

transactions, described in Section I(b), 

(c), (d), and (e), provided certain 

conditions are satisfied. 

10. The Applicant represents that, in 

accordance with Prohibited Transaction 

Class Exemption 75–1 (PTE 75–1),21 an 

asset manager acting as a fiduciary on 

behalf of a plan may purchase 

underwritten securities for such plan 

when an affiliated broker-dealer is a 

member of the underwriting or selling 

syndicate. In this regard, Part III of PTE 

75–1 provides limited relief from the 

prohibited transaction provisions of the 

Act for plan fiduciaries that purchase 

certain securities from an underwriting 

or selling syndicate where the fiduciary 

or an affiliate is only a member of such 

syndicate. However, such relief is not 

available if the affiliated broker-dealer is 

a manager of the underwriting or selling 

syndicate. 

11. Further, the Applicant explains, 

PTE 75–1 does not provide relief for the 

purchase of unregistered securities. 

Unregistered securities include 

securities purchased by a broker-dealer 

for resale to a ‘‘qualified institutional 

buyer’’ (QIB), pursuant to the SEC’s 

Rule 144A under the 1933 Act. The 

Applicant explains that Rule 144A is 

commonly utilized in connection with 

sales of securities issued by foreign 

corporations to investors in the United 

States that are QIBs. Notwithstanding 

the unregistered status of such 

securities, the Applicant states that 

syndicates selling Rule 144A Securities 

are the functional equivalent of 

syndicates selling registered securities. 

12. The Applicant represents that 

Affiliated Broker-Dealers regularly serve 

as managers of underwriting or selling 

syndicates for registered securities, and 

as managers or members of 

underwriting or selling syndicates for 

Rule 144A Securities. The Applicant 

states that an Asset Manager makes its 

investment decisions on behalf of, or 

renders investment advice to single 

Client Plans (or to Client Plans and InHouse Plans invested in Pooled Funds, 

as applicable), pursuant to the 

governing document of the particular 

Client Plan or Pooled Fund and the 

investment guidelines and objectives set 

forth in the management or advisory 

agreement. Because single Client Plans 

(and In-House Plans) are covered by 

Title I of the Act, such investment 

decisions are subject to the fiduciary 

responsibility provisions of the Act. 

13. The Applicant states, therefore, 

that the decision to invest in a particular 

offering is made on the basis of price, 

value, and the investment criteria of 

Client Plans (or of In-House Plans, as 

applicable), not on whether the 

Securities are currently being sold 

through an underwriting or selling 

syndicate. The Applicant further states 

that, because an Asset Manager’s 

compensation for its services is 

generally based upon assets under 

management, such Asset Manager has 

little incentive to purchase Securities in 

an offering in which an Affiliated 

Broker-Dealer is an underwriter, unless 

such a purchase is in the interests of 

Client Plans (and in the interest of 

Client Plans and In-House Plans 

invested in Pooled Funds, as 

applicable). If the assets under 

management do not perform well, the 

Asset Manager will receive less 

compensation and could lose clients, 

costs which far outweigh any gains from 

the purchase of underwritten securities. 

The Applicant points out that under the 

terms of the proposed exemption, an 

Affiliated Broker-Dealer may not receive 

selling concessions, direct or indirect, 

that are attributable to the amount of 

Securities purchased by the Asset 

Manager on behalf of Client Plans (and 

on behalf of Client Plans and In-House 

Plans invested in Pooled Funds, as 

applicable). 

14. The Applicant states that the 

Asset Manager generally purchases 

securities in large blocks, because the 

same investments will be made across 

several accounts. If there are new 

offerings of an equity or fixed income 

Securities that an Asset Manager wishes 

to purchase, it may be able to purchase 

such Securities through the offering 

syndicate at a lower price than it would 

pay in the open market, without 

transaction costs and with reduced 

market impact, if it is buying a relatively 

large quantity. This is because a large 

purchase in the open market can cause 

an increase in the market price and, 

consequently, in the cost of the 

Securities. Purchasing from an offering 

syndicate can thus reduce the costs to 

Client Plans (and to Client Plans and InHouse Plans invested in Pooled Funds, 

as applicable). 

15. The Applicant points out that 

absent the relief requested in this 

proposed exemption, if an Affiliated 

Broker-Dealer is a manager of a 

syndicate that is underwriting an 

offering of Securities, an Asset Manager 

will be foreclosed from purchasing any 

Securities on behalf of Client Plans (or, 

on behalf of Client Plans and In-House 

Plans invested in Pooled Funds, as 

applicable) from that underwriting 

syndicate. In this regard, such Asset 

Manager would have to purchase the 

same Securities in the secondary 

market. In such a circumstance, Client 

Plans (and Client Plans and In-House 

Plans invested in Pooled Funds, as 

applicable) may incur greater costs both 

because the market price is often higher 

than the offering price, and because 

there are transaction cost and market 

impact costs. In turn, this will cause the 

Asset Manager to forego other 

investment opportunities because the 

purchase price of the underwritten 

Securities in the secondary market 

exceeds the price that the Asset 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70641 

22The Applicant represents that the amount of 

discretion possessed by an indenture trustee will 

depend on the terms of the particular indenture, 

and factual issues, such as whether a default has 

occurred. 

23 In connection with the applicability of the 

Trust Indenture Act to trust debt offerings, the 

Applicant further represents that market practice 

with respect to certain types of non-registered 

securities offerings is to structure the offering to 

include both an indenture and an indenture trustee, 

despite the fact that such offerings are not required 

to use the indenture structure mandated by the 

Trust Indenture Act. In such instances, the 

Applicant represents, it is typically the case that the 

various requirements of the Trust Indenture Act 

(including the default provision referenced in 

Representation 18) will be incorporated (either 

expressly or by reference) in the trust indenture. 

24The Applicant further represents that, in a 

limited number of situations where the offering of 

the security is ongoing or continuous, the 

underwriter will have a continuing role in selling 

the additional securities that are sold over time. 

25The Applicant represents that this theoretical 

conflict is directly addressed by the protective 

conditions in the so-called ‘‘Underwriter 

Exemptions.’’ In this regard, the Applicant states 

that the proposed exemption, if granted, will apply 

only to firm commitment underwriters, where, by 

Continued 

Manager would have paid to the selling 

syndicate. 

ATTs 

16. With respect to ATTs and the 

types of trustees that would be covered 

by the proposed exemption, the 

Applicant states that in transactions 

involving asset-backed securities, there 

is generally a trustee who is the legal 

owner of the receivables held by the 

trust. In more traditional public debt 

offerings, there is generally only an 

indenture trustee, who holds the debt 

obligation of the obligor, holds any 

assets pledged as collateral to secure 

payment of the debt obligation, makes 

required payments, keeps records, and 

in the event of a default, acts for the 

note holders. The Applicant represents 

that the functions and obligations of an 

indenture trustee are aligned with the 

interests of the note holders, because 

such a trustee is generally appointed 

only to perform ministerial functions 

(i.e., hold collateral, maintain records, 

and make payments when due). In this 

regard, the proposed exemption would 

also cover situations where the affiliate 

of the Asset Manager serves as a 

custodian, paying agent, registrar or 

other similar ministerial capacities. 

17. The Applicant states that the 

Affiliated Broker-Dealer is frequently 

involved in underwriting offerings of 

asset backed securities and other 

securities where an affiliate of the Asset 

Manager serves as a trustee for the trust 

which issues such securities. The 

inability of the Asset Manager to 

purchase asset backed securities or 

other securities for its Client Plans (and 

for Client Plans and In-House Plans 

invested in Pooled Funds) in such cases 

can be detrimental to those accounts, 

because the accounts can lose important 

fixed income investment opportunities 

that are relatively less expensive or 

qualitatively better than other available 

opportunities in such securities. 

18. The Applicant states that the 

trustee in a structured finance 

transaction for asset backed securities, 

while involved in complex calculations 

and reporting, typically does not 

perform any discretionary functions. 

Such a trustee operates as a stakeholder 

and strictly in accordance with the 

explicit terms of the governing 

agreements, so that the intent of the 

crafters of the transaction may be 

honored. These functions are essentially 

ministerial and include establishing 

accounts, receiving funds, making 

payments, and issuing reports, all in a 

predetermined manner. Unlike trustees 

for corporate or municipal debt, trustees 

in structured finance transactions for 

asset backed securities do not take on 

discretionary responsibility to protect 

the interests of debt holders in the event 

of default or bankruptcy, because 

responsibility for collections with 

respect to the underlying assets which 

serve as the source of payment on the 

debt is in the hands of the unaffiliated 

asset servicer. The Applicant represents 

that there is no ‘‘issuer’’ outside the 

structured transaction to pursue for 

repayment of the debt. The trustee’s role 

is defined by a contract-explicit 

structure that outlines the actions to be 

taken upon the happening of specified 

events. The Applicant states that there 

is no opportunity (or incentive) for the 

trustee in a structured finance 

transaction, by reason of its affiliation 

with an underwriter, asset manager, or 

otherwise, to take or not to take actions 

that might benefit the underwriter or 

asset manager to the detriment of plan 

investors. 

With respect to offerings of more 

traditional public debt securities that 

are not part of a structured finance 

transaction, the Applicant states that an 

indenture trustee may have more 

discretion when the issuer of the 

securities is not bankruptcy remote.22 In 

such instances, indenture trustees 

generally exercise meaningful discretion 

only in the context of a default, at which 

time the indenture trustee has the duty 

to act for the bondholders, in a manner 

consistent with the interests of investing 

plans (and other investors) and not with 

the interests of the issuer. In such 

situations, an indenture trustee may be 

an affiliate of an underwriter for the 

securities. In the event of a default, the 

duty of an indenture trustee in pursuing 

the bondholders’ rights against the 

issuer might conflict with the indenture 

trustee’s other business interests. 

However, the Applicant represents that 

under the Trust Indenture Act of 1939 

(the Trust Indenture Act), which applies 

to many, but not all, trust debt 

offerings,23 an indenture trustee whose 

affiliate has, within the prior twelve (12) 

months, underwritten any securities for 

an obligor of the indenture securities 

generally must resign as indenture 

trustee, if a default occurs upon the 

indenture securities. Thus, the 

Applicant maintains that this 

requirement and other provisions of the 

Trust Indenture Act are designed to 

protect bondholders from conflicts of 

interest to which an indenture trustee 

may be subject. 

19. According to the Applicant, the 

role of the underwriter in a structured 

financing for a series of asset backed 

securities involves, among other things, 

assisting the sponsor or originator of the 

applicable receivables or other assets in 

structuring the contemplated 

transaction. The trustee becomes 

involved later in the process, after the 

principal parties have agreed on the 

essential components, to review the 

proposed transaction from the limited 

standpoints of technical workability and 

potential trustee liability. After the 

issuance of securities to plan investors 

in a structured financing, while the 

trustee performs its role as trustee over 

the life of the transaction, the 

underwriter of the securities has no 

further role in the transaction (unless it 

is a continuous offering, such as for a 

commercial paper conduit).24 In 

addition, the trustee has no opportunity 

to take or not take action, or to use 

information in ways that might 

advantage the underwriter to the 

detriment of plan investors. The 

Applicant states that an underwriter, in 

order to protect its reputation, clearly 

wants the transaction to succeed as it 

was structured, which includes the 

trustee performing in a manner 

independent of the underwriter. 

20. The Applicant represents that, in 

some offerings of asset backed securities 

or other securities, the trustee’s fee is a 

fixed dollar amount that does not 

depend on the size of the offering. In 

such cases, the Asset Manager has no 

conflict of interest, because it cannot 

increase the trustee’s fee by causing 

plans to participate in the offering. 

Where the trustee’s fee is a portion of 

the principal amount of outstanding 

securities to be offered, the Asset 

Manager could conceivably cause plans 

to participate to affect the size of the 

offering and thus the trustee’s fee.25

mstockstill on DSK4VPTVN1PROD with NOTICES2

70642 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

definition, the entire issue of Securities will be 

purchased, either by the public or the underwriters. 

Thus, where the trustee’s fee would be a fixed 

percentage of the total dollar amount of the 

Securities issued in the offering, the amount of the 

trustee’s fee would be, in fact, a fixed dollar amount 

that would be known to plan investors as part of 

disclosures made relating to the offering (e.g., the 

prospectus or private placement memorandum). In 

this connection the Department notes that plan 

fiduciaries would have a duty to adequately review, 

and effectively monitor, all fees paid to service 

providers, including those paid to parties affiliated 

with an Asset Manager. 

However, in virtually all circumstances, 

the size of the offering is determined 

before any sales to plans are discussed, 

so that the risk of this situation 

occurring is very small. The Applicant 

further represents that the protective 

conditions of the requested exemption 

(e.g., the requirement of advance 

approval by an Independent Fiduciary 

and reporting of the basis for the 

trustee’s fee) render this possibility 

remote. 

In this regard, the Applicant states 

that the conditions of the proposed 

exemption, which are based on the prior 

individual exemptions granted by the 

Department for AUT, impose adequate 

safeguards as well for ATT in order to 

prevent possible abuse. First, there are 

significant limitations on the quantity of 

securities that an Asset Manager may 

acquire for Client Plans (and for Client 

Plans and In-House Plans invested in 

Pooled Funds), meaning not only that 

there will be significant limitations on 

the ability of the Asset Manager to affect 

the fees of its affiliate, but also insuring 

that significant numbers of independent 

investors also decided that the securities 

were an appropriate purchase. Second, 

the Asset Manager must obtain the 

consent of an independent fiduciary to 

engage in these transactions. Third, 

regular reporting of the subject 

transactions to an Independent 

Fiduciary will take place. Fourth, an 

Independent Fiduciary must be 

provided information on how securities 

purchased actually performed. Finally, 

the consent of the Independent 

Fiduciary may be revoked if, for 

example, it suspects that purchases by 

the Asset Manager have been motivated 

by a desire to generate fees for its 

affiliate. 

ASTs 

21. With regard to ASTs, the 

Applicant has requested relief for the 

purchase by a Client Plan (and by Client 

Plans and In-House Plans invested in 

Pooled Funds, as applicable) of CMBS 

issued by a trust where an Affiliated 

Servicer originates or services the trust, 

including servicing one or more 

commercial mortgage loans in such 

trust. Specifically, the Applicant asserts 

that the timing of events relating to the 

formation of the trust and the marketing 

of the securities is such that a purchaser 

(a Client Plan and/or Client Plans and 

In-House Plans invested in Pooled 

Funds, as applicable) could not provide 

additional income or otherwise confer 

any additional benefit on WFC or the 

Affiliated Servicer for the origination or 

servicing of the loan. The Applicant 

observes that ASTs can arise in 

situations that happen to need an AUT 

exemption (i.e., where the Asset 

Manager is related to a managing 

underwriter or member of the syndicate 

and to a servicer of the trust that issues 

the CMBS), or where the Asset Manager 

is only related to a servicer of the trust 

that issued the CMBS, including 

servicing one or more commercial 

mortgage loans in such trust. 

Registered Securities Offerings 

22. The Applicant represents that 

Affiliated Broker-Dealers currently 

manage and participate in firm 

commitment underwriting syndicates 

for registered offerings of both equity 

and debt securities. While equity and 

debt underwritings may operate 

differently with regard to the actual 

sales process, the basic structures are 

the same. In a firm commitment 

underwriting, the underwriting 

syndicate purchases the securities from 

the issuer and then resells the securities 

to investors. 

23. The Applicant represents that 

while, as a legal matter, a selling 

syndicate assumes the risk that the 

underwritten securities might not be 

fully sold, as a practical matter, this risk 

is reduced in marketed deals, through 

‘‘building a book’’ (i.e., taking 

indications of interest from potential 

purchasers) prior to pricing the 

securities. Accordingly, there is 

generally no incentive for the 

underwriters to use their discretionary 

accounts (or the discretionary accounts 

of their affiliates) to buy up the 

securities as a way to avoid 

underwriting obligations. 

24. It is represented that if more than 

one underwriter is involved in a selling 

syndicate, the lead manager and the 

underwriters enter into an ‘‘Agreement 

among Underwriters’’ in the form 

designated by one of the lead managers 

selected by the issuer. Most lead 

managers have a standing form of 

agreement. This master agreement is 

then commonly supplemented for the 

particular deal by sending an 

‘‘invitation wire’’ or ‘‘terms telex’’ that 

sets forth particular terms to the other 

underwriters. 

25. The arrangement between the 

syndicate and the issuer of the 

underwritten securities is embodied in 

an underwriting agreement, which is 

signed on behalf of the underwriters by 

one or more of the managers. In a firm 

commitment underwriting, the 

underwriting agreement provides, 

subject to certain closing conditions, 

that the underwriters are obligated to 

purchase all of the underwritten 

securities from the issuer in accordance 

with their respective commitments, if 

any securities are not purchased. This 

obligation is met by using the proceeds 

received from investors purchasing 

securities in the offering, although there 

is a risk that the underwriters will have 

to pay for a portion of the securities in 

the event that not all of the securities 

are sold or an investor defaults on its 

obligation. 

26. The Applicant represents that, 

generally, it is unlikely that in marketed 

deals that all offered securities will not 

be sold. In marketed deals, the 

underwriting agreement is not executed 

until after the underwriters have 

obtained sufficient indications of 

interest to purchase the securities from 

a sufficient number of investors to 

assure that all the securities being 

offered will be acquired by investors. 

Once the underwriting agreement is 

executed, the underwriters promptly 

begin contacting the investors to 

confirm the sales, at first by oral 

communication and then by written 

confirmation. Sales may be finalized 

within hours and sometimes minutes, 

but in any event prior to the opening of 

the market for trading the next day. In 

registered transactions, the underwriters 

have a strong interest in completing the 

sales as soon as possible because, until 

they ‘‘break syndicate,’’ they cannot 

recommence normal trading activity, 

which includes buying and selling the 

securities for their customers or own 

account. 

27. The Applicant represents that the 

process of ‘‘building a book’’ or 

soliciting indications of interest occurs 

in a registered equity offering, after a 

registration statement is filed with the 

SEC. While it is under review by the 

SEC staff, representatives of the issuer of 

the securities and the selling syndicate 

managers conduct meetings with 

potential investors, who learn about the 

company and the underwritten 

securities. Potential investors also 

receive a preliminary prospectus. The 

underwriters cannot make any firm 

sales until the registration statement is 

declared effective by the SEC. Prior to 

the effective date, while the investors 

cannot become legally obligated to make 

a purchase, such investors indicate 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70643 

26The Applicant maintains that Rule 415 permits 

an issuer to sell debt as well as equity securities 

under an effective registration statement previously 

filed with the SEC by filing a post-effective 

amendment or supplemental prospectus. 

whether they have an interest in buying, 

and the lead managers compile a ‘‘book’’ 

of investors who are willing to ‘‘circle’’ 

a particular portion of the issue. 

Although investors cannot be legally 

bound to buy the securities until the 

registration statement is effective, 

investors generally follow through on 

their indications of interest. 

28. Assuming that the marketing 

efforts have produced sufficient 

indications of interest, the Applicant 

represents that the issuer of the 

securities, after consultation with the 

lead manager, will set the price of the 

securities upon being declared effective 

by the SEC. After the registration 

statement has been declared effective by 

the SEC and the underwriting agreement 

is executed, the underwriters contact 

those investors that have indicated an 

interest in purchasing securities in the 

offering to execute the sales. The 

Applicant represents that offerings are 

often oversubscribed, and many have an 

over-allotment option that the 

underwriters can exercise to acquire 

additional shares from the issuer. Where 

an offering is oversubscribed, the 

underwriters decide how to allocate the 

securities among the potential 

purchasers. However, if the offering is 

an initial public offering of an equity 

security, then the underwriters may not 

sell the securities to (among others) any 

person that is a broker-dealer, an 

associated person of a broker-dealer, a 

portfolio manager, or an owner of a 

broker-dealer. Additionally, 

underwriters may not withhold for their 

own account any initial public offering 

of an equity security. 

29. The Applicant represents that debt 

offerings and certain equity offerings 

may be ‘‘negotiated’’ offerings, 

‘‘competitive bid’’ offerings, or ‘‘bought 

deals.’’ ‘‘Negotiated’’ offerings are 

conducted in the same manner as 

marketed equity offerings with regard to 

when the underwriting agreement is 

executed and how the securities are 

offered. ‘‘Competitive bid’’ offerings, in 

which the issuer determines the price 

for the securities through competitive 

bidding, rather than negotiating the 

price with the underwriting syndicate, 

are often performed under ‘‘shelf’’ 

registration statements pursuant to the 

SEC’s Rule 415 under the 1933 Act 

(Rule 415) (17 CFR 230.415).26

30. In a competitive bid offering, 

prospective lead underwriters will bid 

against one another to purchase debt 

securities, based upon their 

determinations of the degree of investor 

interest in the securities. Depending on 

the level of investor interest and the size 

of the offering, a bidding lead 

underwriter may bring in co-managers 

to assist in the sales process. Most of the 

securities are frequently sold within 

hours, or sometimes even less than an 

hour, after the securities are made 

available for purchase. 

31. It is represented that because of 

market forces and the requirements of 

Rule 415, the competitive bid process is 

generally, though not exclusively, 

available only to issuers who have been 

subject to the reporting requirements of 

the 1934 Act for at least one (1) year. 

32. Occasionally, underwriters ‘‘buy’’ 

the entire deal off of a ‘‘shelf 

registration’’ or in a Rule 144A offering 

before obtaining indications of interest. 

These ‘‘bought’’ deals involve issuers 

whose securities enjoy a deep and 

liquid secondary market, such that an 

underwriter has confidence without premarketing that it can identify purchasers 

for the securities. 

Information Barriers 

33. The Applicant represents that 

there are internal policies in place that 

restrict contact and the flow of 

information between investment 

management personnel and noninvestment management personnel in 

the same or affiliated financial service 

firms. These policies are designed to 

protect against ‘‘insider trading’’ (i.e., 

trading on information not available to 

the general public that may affect the 

market price of the securities.) 

Diversified financial services firms must 

be concerned about insider trading 

problems because one part of the firm 

(e.g., the mergers and acquisitions 

group) could come into possession of 

non-public information regarding an 

upcoming transaction involving a 

particular issuer, while another part of 

the firm (e.g., the investment 

management group) could be trading in 

the securities of that issuer for its 

clients. 

34. Further, the applicant represents 

business separation policies and 

procedures of WFC and its affiliates are 

also structured to restrict the flow of any 

information to or from the Asset 

Manager that could limit its flexibility 

in managing client assets, and of 

information obtained or developed by 

the Asset Manager that could be used by 

other parts of the organization, to the 

detriment of the Asset Manager’s 

clients. 

35. The Applicant represents that 

major clients of WFC and its affiliates 

include investment management firms 

that are competitors of the Asset 

Manager. Similarly, an Asset Manager 

deals on a regular basis with brokerdealers that compete with Affiliated 

Broker-Dealers. If special consideration 

was shown to an Affiliated BrokerDealer, such conduct would likely have 

an adverse effect on the relationships of 

the Affiliated Broker-Dealer and of the 

Asset Manager with firms that compete 

with such affiliate. Therefore, it is 

represented that a goal of the 

Applicant’s business separation policies 

is to avoid any possible perception of 

improper flows of information between 

the Affiliated Broker-Dealer and the 

Asset Manager in order to prevent any 

adverse impact on client and business 

relationships. 

Underwriting Compensation 

36. The Applicant represents that the 

underwriters are compensated through 

the ‘‘spread,’’ or difference, between the 

price at which the underwriters 

purchase the securities from the issuer 

and the price at which the securities are 

sold to the public. The spread is divided 

into three components. 

37. The first component includes the 

management fee, which generally 

represents an agreed upon percentage of 

the overall spread and is allocated 

among the lead manager and comanagers. Where there is more than one 

managing underwriter, the way the 

management fee will be allocated among 

the managers is generally agreed upon 

between the managers and the issuer 

prior to soliciting indications of interest. 

Thus, the allocation of the management 

fee is not reflective of the amount of 

securities that a particular manager sells 

in an offering. 

38. The second component is the 

underwriting fee, which represents 

compensation to the underwriters 

(including the non-managers, if any) for 

the risks they assume in connection 

with the offering and for the use of their 

capital. This component of the spread is 

also used to cover the expenses of the 

underwriting that are not otherwise 

reimbursed by the issuer of the 

securities. 

39. The first and second components 

of the ‘‘spread’’ are received without 

regard to how the underwritten 

securities are allocated for sales 

purposes or to whom the securities are 

sold. The third component of the spread 

is the selling concession, which 

generally constitutes 60 percent (60%) 

or more of the spread. The selling 

concession compensates the 

underwriters for their actual selling 

efforts. The allocation of selling 

concessions among the underwriters 

generally follows the allocation of the 

securities for sales purposes. However, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70644 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

a buyer of the underwritten securities 

may designate other broker-dealers (who 

may be other underwriters, as well as 

broker-dealers outside the syndicate) to 

receive the selling concessions arising 

from the securities they purchase. 

40. Securities are allocated for sales 

purposes into two categories. The first 

and larger category is the ‘‘institutional 

pot,’’ which is the pot of securities from 

which sales are made to institutional 

investors. Selling concessions for 

securities sold from the institutional pot 

are generally designated by the 

purchaser to go to particular 

underwriters or other broker-dealers. If 

securities are sold from the institutional 

pot, the selling syndicate managers 

sometimes receive a portion of the 

selling concessions, referred to as a 

‘‘fixed designation’’ or an ‘‘auto pot 

split’’ attributable to securities sold in 

this category, without regard to who 

sold the securities or to whom they were 

sold. However, for securities covered by 

this proposed exemption, an Affiliated 

Broker-Dealer may not receive, either 

directly or indirectly, any compensation 

or consideration that is attributable to 

the fixed designation generated by 

purchases of securities by an Asset 

Manager on behalf of its Client Plans (or 

on behalf of Client Plan and In-House 

Plan in Pooled Funds, if applicable). 

41. The second category of allocated 

securities is ‘‘private client’’ or ‘‘retail,’’ 

which are the securities retained by the 

underwriters for sale to their customers. 

The underwriters receive the selling 

concessions from their respective retail 

retention allocations. Securities may be 

shifted between the two categories 

based upon whether either category is 

oversold or undersold during the course 

of the offering. 

42. The Applicant represents that the 

inability of an Affiliated Broker-Dealer 

to receive any selling concessions, or 

any compensation attributable to the 

fixed designations generated by 

purchases of securities by an Asset 

Manager on behalf of Client Plans (or on 

behalf of Client Plans and In-House 

Plans invested in Pooled Funds, if 

applicable), removes the primary 

economic incentive for an Asset 

Manager to make purchases that are not 

in the interests of such Client Plans (and 

Client Plans and In-House Plans 

invested in Pooled Funds, if applicable) 

from offerings for which an Affiliated 

Broker-Dealer is an underwriter. The 

reason is that the Affiliated BrokerDealer will not receive any additional 

fees as a result of such purchases by the 

Asset Manager. 

Rule 144A Securities 

43. The Applicant represents that a 

number of the offerings of Rule 144A 

Securities in which an Affiliated BrokerDealer participates represent good 

investment opportunities for the Asset 

Manager’s Client Plans (and for Client 

Plans and In-House Plans invested in 

Pooled Funds, as applicable). 

Particularly with respect to foreign 

securities, a Rule 144A offering may 

provide the least expensive and most 

accessible means for obtaining these 

securities. However, as discussed above, 

PTE 75–1, Part III, does not cover Rule 

144A Securities. Therefore, absent an 

exemption, the Asset Manager is 

foreclosed from purchasing such 

securities for its Client Plans (and for 

Client Plans and In-House Plans 

invested in Pooled Funds, if applicable) 

in offerings in which an Affiliated 

Broker-Dealer participates. 

44. The Applicant states that Rule 

144A acts as a ‘‘safe harbor’’ exemption 

from the registration provisions of the 

1933 Act for re-sales of certain types of 

securities to QIBs. QIBs include several 

types of institutional entities, such as 

employee benefit plans and commingled 

trust funds holding assets of such plans, 

which own and invest on a 

discretionary basis at least $100 million 

in securities of unaffiliated issuers. 

45. Any securities may be sold 

pursuant to Rule 144A except for those 

of the same class or similar to a class 

that is publicly traded in the United 

States, or certain types of investment 

company securities. This limitation is 

designed to prevent side-by-side public 

and private markets developing for the 

same class of securities and is the 

reason that Rule 144A transactions are 

generally limited to debt securities. 

46. Buyers of Rule 144A Securities 

must be able to obtain, upon request, 

basic information concerning the 

business of the issuer and the issuer’s 

financial statements, much of which is 

the same information as would be 

furnished if the offering were registered. 

This condition does not apply, however, 

to an issuer filing reports with the SEC 

under the 1934 Act, for which reports 

are publicly available. The condition 

also does not apply to a ‘‘foreign private 

issuer’’ for whom reports are furnished 

to the SEC under Rule 12g3–2(b) of the 

1934 Act (17 CFR 240.12g3–2(b)), or to 

issuers who are foreign governments or 

political subdivisions thereof and are 

eligible to use Schedule B under the 

1933 Act (which describes the 

information and documents required to 

be contained in a registration statement 

filed by such issuers). 

47. Sales under Rule 144A, like sales 

in a registered offering, remain subject 

to the protections of the anti-fraud rules 

of federal and state securities laws. 

These provisions include Section 10(b) 

of the 1934 Act and Rule 10b–5 

thereunder (17 CFR 240.10b–5) and 

Section 17(a) of the 1933 Act (15 U.S.C. 

77a). Through these and other 

provisions, the SEC may use its full 

range of enforcement powers to exercise 

its regulatory authority over the market 

for Rule 144A Securities, in the event 

that it detects improper practices. 

48. The Applicant represents that this 

potential liability for fraud provides a 

considerable incentive to the issuer of 

the securities and the members of the 

selling syndicate to insure that the 

information contained in a Rule 144A 

offering memorandum is complete and 

accurate in all material respects. Among 

other things, the lead manager typically 

obtains an opinion from a law firm, 

commonly referred to as a ‘‘10b–5’’ 

opinion, stating that the law firm has no 

reason to believe that the offering 

memorandum contains any untrue 

statement of material fact or omits to 

state a material fact necessary in order 

to make sure the statements made, in 

light of the circumstances under which 

they were made, are not misleading. 

49. The Applicant represents that 

Rule 144A offerings generally are 

structured in the same manner as 

underwritten registered offerings. They 

may be ‘‘negotiated’’ offerings, 

‘‘competitive bid’’ offerings or ‘‘bought 

deals.’’ One difference is that a Rule 

144A offering uses an offering 

memorandum rather than a prospectus 

that is filed with the SEC. The 

marketing process is substantially 

similar, except that the selling efforts 

are limited to contacting QIBs and there 

are no general solicitations for buyers 

(e.g., no general advertising). In 

addition, contracts for sale may be 

entered into with investors and 

securities may be priced before a selling 

agreement is executed (and this is 

typically the case with respect to sales 

of asset backed securities). The role of 

Affiliated Broker-Dealer in these 

offerings is typically that of a lead or comanager. Further, generally, there are no 

non-manager members in a Rule 144A 

selling syndicate. The Applicant 

nonetheless requests that the relief 

offered by the proposed exemption 

extend to authorization for situations 

where an Affiliated Broker-Dealer acts 

as manager or as a member. 

50. The proposed exemption is 

administratively feasible, because the 

exemption involves easily identified 

transactions which will require limited 

ongoing monitoring by the Department. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70645 

In this regard, compliance with the 

terms and conditions of the proposed 

exemption will be verifiable and subject 

to audit. 

51. The Applicant represents that the 

proposed exemption is in the interest of 

participants and beneficiaries of Client 

Plans that engage in the covered 

transactions. In this regard, it is 

represented that the proposed 

exemption will enable the Asset 

Manager to cause Client Plans (and 

Client Plans and In-House Plans 

invested in Pooled Funds, as applicable) 

to participate in desirable investment 

opportunities by purchasing Securities 

under circumstances described in 

Section I, where such purchases are 

determined to be appropriate for and in 

the best interest of such Client Plans 

(and Client Plans and In-House Plans 

invested in Pooled Funds, as 

applicable). 

52. The Applicant represents that the 

proposed exemption is protective of the 

rights of participants and beneficiaries 

of affected Client Plans (and Client 

Plans and In-House Plans invested in 

Pooled Funds, as applicable). In this 

regard, the notification provisions and 

other requirements in the proposed 

exemption are similar to the conditions, 

including consent and the imposition of 

volume and quality restrictions, set 

forth in other exemptions published by 

the Department in similar 

circumstances. 

53. In summary, it is represented that 

the proposed transactions meet the 

statutory criteria for an exemption 

under section 408(a) of the Act because: 

(a) Client Plans (and Client Plans and 

In-House Plans invested in Pooled 

Funds, as applicable) will gain access to 

desirable investment opportunities; 

(b) In each offering, an Asset Manager 

will purchase the Securities for single 

Client Plans (and for Client Plans and 

In-House Plans invested in Pooled 

Funds, as applicable) from an 

underwriter or broker-dealer other than 

the Asset Manager or an affiliate thereof; 

(c) Conditions similar to those found 

in PTE 75–1, Part III, will restrict the 

types of Securities that may be 

purchased, the types of underwriting or 

selling syndicates and issuers involved, 

and the price and timing of the 

purchases; 

(d) The amount of Securities that an 

Asset Manager may purchase on behalf 

of single Client Plans (and on behalf of 

Client Plans and In-House Plans 

invested in Pooled Funds, as applicable) 

will be subject to percentage limitations; 

(e) An Affiliated Broker-Dealer will 

not be permitted to receive, either 

directly, indirectly or through 

designation, any selling concession with 

respect to the Securities sold to an Asset 

Manager on behalf of a single Client 

Plans (or Client Plans and In-House 

Plans invested in Pooled Funds, as 

applicable); 

(f) Prior to any purchase of Securities, 

an Asset Manager will make the 

required disclosures to an Independent 

Fiduciary of each single Client Plan 

(and the fiduciary of each Client Plan 

invested in Pooled Funds, as applicable) 

and obtain authorization to engage in 

the covered transactions in accordance 

with the procedures set forth in this 

proposed exemption; 

(g) The Asset Manager will provide 

regular reporting to the Independent 

Fiduciary of each single Client Plan 

(and the fiduciary of each Client Plan 

and In-House Plan invested in Pooled 

Funds, as applicable) with respect to all 

Securities purchased in accordance with 

the procedures set forth in this proposed 

exemption; 

(h) Each single Client Plan (and each 

Client Plan and In-House Plan invested 

in Pooled Funds) will be subject to net 

asset requirements, with certain 

exceptions for Client Plans and InHouse Plans invested in Pooled Funds; 

and 

(i) An Asset Manager must have total 

assets under management in excess of 

$5 billion and shareholders’ or partners’ 

equity in excess of $1 million, in 

addition to qualifying as a QPAM, 

pursuant to Part V(a) of PTE 84–14. 

Notice to Interested Persons 

WFC represents that the class of 

persons interested in this proposed 

exemption is comprised of the relevant 

Independent Fiduciary of each existing 

single Client Plan (and the Independent 

Fiduciary of each existing Client Plan 

and fiduciary of each existing In-House 

Plan the assets of which are invested in 

Pooled Funds) of the Asset Manager(s) 

that intend(s) to rely upon the proposed 

exemption, if granted. In this regard, it 

is represented that WFC shall provide 

notification of the publication of the 

Notice of Proposed Exemption (the 

Notice) in the Federal Register to all 

such interested persons via first class 

mail to each such interested person’s 

most recent address maintained in the 

records of the administrator of the 

relevant Client Plans and In-House 

Plans. 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 all such interested persons 

of their right to comment and to request 

a hearing. WFC will provide such 

notification to all such interested 

persons within fifteen (15) 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 such 

interested persons no later than 45 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: 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8540. (This is not 

a toll-free number.) 

Craftsman Independent Union Local #1 

Health, Welfare & Hospitalization Trust 

Fund (the Plan) Cape Girardeau, 

Missouri 

[Application No. L–11775] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and in accordance with procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, 66644, October 27, 2011). If 

the proposed exemption is granted, the 

restrictions of section 406(a)(1)(A) and 

(D) of the Act shall not apply to the sale 

by the Plan of a parcel of improved real 

property (the Property) to the Craftsman 

Independent Union Local #1 (the 

Union), a party in interest with respect 

to the Plan; provided that the following 

conditions are satisfied: 

(a) The sale is a one-time transaction 

for cash; 

(b) The sales price for the Property is 

the greater of either: (1) $250,000; or (2) 

the fair market value of the Property as 

established by qualified independent 

appraisers (the Appraisers) in an 

appraisal of the Property that is updated 

on the date of the sale; 

(c) RMI, as the qualified independent 

fiduciary (the I/F), reviews and 

approves the methodology used by the 

Appraisers to ensure that such 

methodology is properly applied in 

determining the fair market value of the 

Property, and determines that it is 

prudent to go forward with the sale; 

(d) RMI represents the interests of the 

Plan at the time the sale is 

consummated; 

(e) The Plan pays no real estate fees 

or commissions in connection with the 

sale; 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70646 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

27The Applicant represents that officers and 

members of the International Union are not eligible 

to participate in the Plan. However, it is possible 

for an individual to be a member or an officer of 

both the Union and the International Union, and 

that such individual could become eligible for 

coverage under the Plan by reason of his or her 

status with the Union. Therefore, the International 

Union would be considered a party in interest with 

respect to the Plan. 

28According to the Applicant, the leases have 

always complied with the terms and conditions of 

PTE 76–1 (41 FR 12740, March 26, 1976, as 

corrected at 41 FR 16620 (April 20, 1976)), and PTE 

77–10 (42 FR 33918, July 1, 1977). Part C of PTE 

76–1 provides exemptive relief from the prohibited 

transaction provisions of sections 406(a) and 407(a) 

of the Act for the leasing of office space, or the 

provision of administrative services, or the sale or 

leasing of goods by a multiple employer plan to a 

participating employee organization, participating 

employer or another multiple employer plan. PTE 

77–10, which complements PTE 76–1, provides 

exemptive relief from the prohibited transaction 

provisions of section 406(b)(2) of the Act with 

respect to the sharing of office space, administrative 

services or goods, or the leasing of office space, or 

the provision of administrative services or the sale 

or leasing of goods. 

Notwithstanding the Applicant’s assertion that 

the past and continued leasing arrangements of the 

Property by the Plan and the Union and the Plan 

and the International Union are covered by PTEs 

76–1 and 77–10, the Department notes that such 

leasing has resulted in violations of section 

406(b)(1) of the Act because some of the Plan 

trustees are officers of both Unions. PTEs 76–1 and 

77–10 do not cover such violations, however, 

pursuant to the Consent Judgment, described in 

Representation 6, the Department, the Plan, the 

Union, the International Union, and other parties 

expressly agreed to waive any and all claims of any 

nature that each may have against the other. 

(f) The Union reimburses the Plan for 

50% of the costs of the exemption 

application and pays all recording 

charges, attorney’s fees, title insurance 

premiums, and any transfer fees or 

taxes; and 

(g) The terms of the sale are no less 

favorable to the Plan than the terms the 

Plan would receive under similar 

circumstances in an arm’s length 

transaction with an unrelated party. 

Summary of Facts and Representations 

1. RMI (or the Applicant), which is 

located in Brentwood, Tennessee, acts 

as and provides support services to 

court-appointed independent fiduciaries 

or court-appointed receivers of: 

Federally-regulated pension plans, and 

health and welfare benefit funds; state 

regulated insurance companies; health 

maintenance organizations and workers 

compensation trusts; state regulated 

trust companies; state regulated finance 

companies; and securities companies. 

On June 20, 2011, the United States 

District Court for the Eastern District of 

Missouri (the Court) appointed RMI to 

serve as the I/F of the Plan. 

2. The Union is located in Cape 

Girardeau, Missouri. The Union 

represents certain workers in the 

construction and skilled trades 

industries, generally in Missouri, 

Illinois, Tennessee, and Arkansas. 

Bilfinger Industrial Services Inc. 

(Bilfinger), which is headquartered in 

Ballwin, Missouri, is the Union’s sole 

contributing employer. Bilfinger 

provides construction and engineering 

services to five primary markets: 

Consumer Products, Pulp and Paper, 

Chemical and Petrochemical, Food and 

Beverage, and Power, Energy and 

Utilities. 

3. Members of the Union are eligible 

to participate in the Plan. The Plan is a 

self-funded health plan that provides 

health benefits to the eligible employees 

of contributing employers pursuant to 

the employers’ collective bargaining 

agreements with the Union. The Plan 

began its operations in 1984 in Missouri 

and presently has offices in Cape 

Girardeau, Missouri. As of May 31, 

2014, the Plan covered 57 participants 

and 65 beneficiaries. Also, as of May 31, 

2014, the Plan had total net assets of 

$2,074,545.39. 

The Plan does not currently have any 

trustees. As explained in Representation 

6, the Plan trustees were removed in 

2011 by judicial order. RMI, as 

independent fiduciary of the Plan, is 

authorized to exercise full authority and 

control over the management and 

disposition of the Plan’s assets. 

4. In 1987, the Plan purchased the 

Property, located at 2709 Bloomfield 

Road in Cape Girardeau, Missouri, from 

Marshall Maxwell and Marion Maxwell, 

unrelated third parties, for a purchase 

price of $76,000. The Plan’s former 

trustees made the original decision to 

purchase the Property as a long-term 

growth investment for the Plan. The 

Property consists of a 2,000 square foot 

office building with a 2,000 square foot 

full basement, and 11,600 square feet of 

concrete and asphalt paved driveways 

and parking spaces. The Applicant 

represents that no parties in interest 

with respect to the Plan own or lease 

any property adjacent to the Property. 

5. On May 21, 1999, the Plan began 

leasing office space in the Property to 

the Union for a monthly rental charge of 

$775. Also on this date, the Craftsman 

International Union (the International 

Union) 27 began leasing office space in 

the Property from the Plan for a monthly 

rental charge of $355. The Union 

currently pays the Plan $900 per month 

under its amended lease, and the 

International Union still pays the Plan 

$355 per month under its lease. A total 

of 3,000 square feet of leased office 

space is occupied by these tenants. The 

Plan uses the remainder of the Property 

for its own office space. The Plan 

trustees, some of whom were officers of 

both Unions, approved the specific 

terms of each lease. Both leases contain 

automatic renewal provisions.28

6. In 2011, William Kitchen, Jerry 

Dewrock and Terrance Kelley were 

removed as trustees of the Plan by a 

judicial order. As stated above, on June 

20, 2011, the Court appointed RMI to 

serve as the independent fiduciary of 

the Plan. According to the Consent 

Judgment issued by the Court, RMI is 

authorized to exercise full authority and 

control with respect to the management 

or disposition of the assets of the Plan. 

Pursuant to the Consent Judgment, RMI 

also has the authority to liquidate Plan 

assets, effectuate the termination of the 

Plan, identify all legitimate claimants of 

the Plan and pay the amount of their 

claims, distribute the Plan’s assets for 

the benefit of eligible participants and to 

pay service providers. The principal 

individuals responsible for the actions 

of RMI are Ms. Jeanne Barnes Bryant 

and Mr. Robert E. Moore, Jr. 

7. Aside from paying the $76,000 

purchase price for the Property, 

excluding interest payments made 

under the loan from the Cape County 

Bank, the Plan has incurred certain 

holding costs of approximately 

$173,674.76, since it has owned the 

Property, through April 1, 2014. These 

costs include property taxes 

($25,636.47), utilities ($71,535.59), 

insurance ($25,037.27), property 

maintenance expenses ($23,020.29), 

building repairs ($16,885.84), and labor 

repairs ($11,559.30). During that same 

time period, the Applicant represents 

that the Plan has received rents totaling 

$246,350.00. 

The Applicant represents that the 

above expense amounts are gross 

expenses (i.e., the amounts attributable 

to the Plan’s usage of the Property are 

included in the above expenses). If the 

Plan’s prorated share of the expenses 

(25% or $43,418.59) is subtracted from 

the above expenses ($173,674.76), the 

Plan’s expenses are $130,256.17. Thus, 

the Plan’s estimated acquisition and 

holding costs associated with the 

Property are $206,256.17 ($76,000 + 

$130,256.17). Because the Plan earned 

rental income totaling $246,350, it has 

received a projected net profit of 

$40,093.83 ($246,350¥$206,256.17) as 

of April 2014. 

8. The Plan now seeks to sell the 

Property. In this regard, RMI believes 

that the Property’s value has plateaued, 

and that it would be prudent for the 

Plan to dispose of illiquid assets such as 

the Property. The Applicant represents 

that the most expeditious way to sell the 

Property is to offer it to the Union, given 

the slow real estate market conditions in 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70647 

29 In conjunction with the sale, the Plan proposes 

to lease office space in the Property from the Union. 

The Applicant states that the leaseback will comply 

with section 408(b)(2) of the Act, and the 

regulations that have been promulgated thereunder. 

Section 408(b)(2) of the Act provides statutory 

exemptive relief from section 406(a) of the Act for 

contracting or making reasonable arrangements 

with a party in interest for office space, or legal, 

accounting, or other services necessary for the 

establishment or operation of the plan, if no more 

than reasonable compensation is paid. The 

Department expresses no opinion herein on 

whether the requirements of section 408(b)(2) of the 

Act will be satisfied with respect to the leasing of 

the Property by the Union to the Plan. 

30Similarly, the existing lease between the Plan 

and the International Union will terminate by 

operation of law. 

Cape Girardeau, Missouri. The 

Applicant further maintains that selling 

the Property to an unrelated third party 

might result in the Plan having to 

relocate its offices, which would result 

in additional costs. Therefore, the 

Applicant requests an administrative 

exemption from the Department with 

respect to the proposed sale.29

9. The proposed sale violates section 

406(a)(1)(A) and (D) of the Act. In this 

regard, section 406(a)(1)(A) and (D) of 

the Act provides, in relevant part, that 

a fiduciary with respect to a plan shall 

not cause the plan to engage in a 

transaction, if he knows or should know 

that such transaction constitutes a direct 

or indirect sale or transfer to, or use by 

or for the benefit of a party in interest 

of any assets of the plan. The term 

‘‘party in interest’’ is defined under 

section 3(14)(D) of the Act to include, 

among other things, an employee 

organization any of whose employees or 

members are covered by such plan, such 

as the Union. 

10. In connection with the sale, the 

Union will pay the Plan the greater of 

$250,000 or the fair market value of the 

Property, as determined by the 

Appraisers (see Representations 11–13) 

in an appraisal that is updated at 

closing. The consideration will be paid 

in cash. Thus, the sales price for the 

Property will represent approximately 

12% of the Plan’s assets. The existing 

lease between the Plan and the Union 

will expire by operation of law once the 

sale is consummated.30

Both the Union and the Plan will be 

required to pay 50% of the escrow 

agent’s fees and 50% of the costs of 

preparing and obtaining an individual 

prohibited transaction exemption from 

the Department for the proposed 

transaction. However, the Union will 

reimburse the Plan for 50% of the Plan’s 

costs in preparing and obtaining an 

exemption. The Union will also be 

required to pay all recording charges, 

attorney fees, title insurance premiums, 

and any transfer fees or taxes. Finally, 

the Plan will pay all of RMI’s fees. 

11. RMI retained Mr. John M. Karnes 

and Ms. Holly L. Schneider of Dockins 

Valuation Company (DVC) to serve as 

the Appraisers and, in such capacity, to 

prepare the appraisal of the Property. 

The Appraisers are both Certified 

General Real Estate Appraisers in 

Missouri. The Appraisers’ gross 

revenues received from parties in 

interest with respect to the Plan, 

including the appraisal report, represent 

less than 1% of their 2014 gross 

revenues. 

12. In an appraisal report (the 

Appraisal Report) dated August 11, 

2014, the Appraisers describe the 

Property as an irregularly-shaped site 

having frontage of 163.24 feet along 

Bloomfield Road and containing 

approximately 0.80 acres. The 

Appraisers further explain that the site 

is improved with a 2,000 square foot 

brick office building with a full 

basement of 2,000 square feet and 

approximately 11,600 square feet of 

concrete and asphalt paved driveways 

and parking spaces. 

13. According to the Appraisers, the 

Cost Approach to valuation is a good 

indicator of value if the property being 

appraised is new or relatively new and 

the improvements represent the highest 

and best use of the land. However, in 

this appraisal, the Appraisers noted a 

sizable amount of depreciation. For this 

reason, the Cost Approach value was 

not developed for the Property. 

The Appraisers also considered the 

Income Approach in their valuation of 

the Property. The income stream, 

according to the Appraisers, is often the 

primary decision-making tool for 

investment decisions involving incomeproducing property, such as the 

Property. Thus, it is the Appraisers’ 

opinion that the Income Approach is a 

strong indicator of value of the Property. 

Using this approach, the Appraisers 

placed the fair market value of the 

Property at $240,000. 

Finally, the Appraisers considered the 

Sales Comparison Approach in their 

valuation of the Property. According to 

the Appraisers, this approach is based 

upon a comparison between the subject 

Property and similar properties, which 

have sold. The Appraisers state that 

sales of similar properties within the 

subject’s market area were available for 

comparison with a reasonable degree of 

comparability to subject. Thus, the Sales 

Comparison Approach was also 

considered a strong indicator of value in 

this appraisal to the Appraisers. Under 

this approach, the Appraisers placed the 

fair market value of the Property at 

$265,000. 

In the Appraisers’ opinion, the value 

of the subject Property lay somewhere 

between the Income Approach and the 

Sales Comparison Approach. Therefore, 

based on their analysis and conclusions 

as to the market value, the Appraisers 

placed the fair market value of the 

Property, in fee simple, at $250,000 as 

of July 7, 2014. 

14. RMI represents that it has the 

appropriate training, experience, and 

facilities to act on behalf of the Plan 

regarding the proposed transaction in 

accordance with the fiduciary duties 

and responsibilities prescribed by the 

Act. RMI further represents that it has 

not, and does not, expect to receive any 

revenues from any party in interest of 

the Plan for the current or immediately 

prior federal income tax year. RMI also 

represents that it has no relationship 

with any other party in interest with 

respect to the Plan. 

As the Plan’s independent fiduciary, 

RMI will review and approve the 

methodology used by the Appraisers, 

ensure that such methodology is 

properly applied in determining the fair 

market value of the Property, and 

determine whether it is prudent to go 

forward with the proposed transaction. 

In addition, RMI will represent the 

interests of the Plan at the time the 

proposed transaction is consummated. 

15. RMI represents that the exemption 

request is administratively feasible 

because the proposed transaction will 

be a one-time transaction that will 

alleviate the administrative burdens that 

come with the annual valuation and 

holding of an illiquid asset. RMI also 

represents that the requested exemption 

is in the interest of Plan participants 

and beneficiaries because the sale of the 

Property will enable the Plan to have 

more liquid assets and diversify its 

reserve investments. Further, RMI states 

that the exemption request is protective 

of the rights of the Plan’s participants 

and beneficiaries because the proposed 

transaction will enhance the Plan’s 

ability to continue to provide benefits to 

its members and their beneficiaries. 

Finally, RMI notes that the Union will 

reimburse the Plan for 50% of the costs 

associated with this exemption 

application and the proposed 

transaction. 

16. RMI asserts that the Plan’s need 

for liquidity is real and immediate. If 

the proposed transaction is not 

approved, the Plan will continue to 

have the burden of paying real estate 

taxes and utility and other expenses to 

maintain the Property, including 

obtaining and paying for an annual 

valuation of the Property for financial 

reporting purposes. Finally, RMI 

represents that that Plan will be forced 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70648 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

31For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

to continue to hold a relatively illiquid 

investment, with no assurance that it 

can ever be sold to an unrelated third 

party. 

17. In summary, RMI represents that 

the proposed transaction will satisfy the 

statutory requirements for an exemption 

under section 408(a) of the Act because: 

(a) The sale will be a one-time 

transaction for cash; 

(b) The sales price for the Property 

will be the greater of either: (1) 

$250,000; or (2) the fair market value of 

the Property as established by the 

Appraisers in an appraisal of the 

Property that is updated on the date of 

the sale; 

(c) RMI will review and approve the 

methodology used by the Appraisers to 

ensure that such methodology is 

properly applied in determining the fair 

market value of the Property, and will 

determine that it is prudent to go 

forward with the sale; 

(d) RMI will represent the interests of 

the Plan at the time the sale is 

consummated; 

(e) The Plan will pay no real estate 

fees or commissions in connection with 

the sale; 

(f) The Union will reimburse the Plan 

for 50% of the costs of the exemption 

application and pay all recording 

charges, attorney’s fees, title insurance 

premiums, and any transfer fees or 

taxes; and 

(g) The terms of the sale will be no 

less favorable to the Plan than the terms 

the Plan would receive under similar 

circumstances in an arm’s length 

transaction with an unrelated party. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to interested persons 

within 10 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail, with postage prepaid. 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(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 40 days of the 

publication of the notice of 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: Mrs. 

Blessed Chuksorji-Keefe of the 

Department, telephone (202) 693–8567. 

(This is not a toll-free number.) 

Robert W. Baird & Co. Incorporated 

Located in: Milwaukee, Wisconsin 

[Application No. D–11782] 

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 or the 

Act), 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).31

Section I: Transactions 

If the proposed exemption is granted, 

the restrictions of sections 406(a)(1)(D) 

and 406(b) of the Act, and the sanctions 

resulting from the application of section 

4975 of the Code, by reason of sections 

4975(c)(1)(D), (E), and (F) of the Code, 

shall not apply to: 

(a) The acquisition, sale or exchange 

by an Account of shares of an open-end 

investment company (the Fund) 

registered under the Investment 

Company Act of 1940 (the 1940 Act), 

the investment adviser for which is also 

a fiduciary with respect to the Account 

(or an affiliate of such fiduciary) 

(hereinafter, Robert W. Baird and all its 

affiliates will be referred to as 

Investment Adviser), 

(b) the in-kind redemptions of shares 

or acquisitions of shares of the Fund in 

exchange for Account assets transferred 

in-kind from an Account, 

(c) the receipt of fees for acting as an 

investment adviser for such Funds, in 

connection with the investment by the 

Accounts in shares of the Funds, and 

(d) the receipt of fees for providing 

Secondary Services to the Funds in 

connection with the investment by the 

Accounts in shares of the Funds, 

provided that the applicable conditions 

set forth in Sections II and III are met. 

Section II: General Conditions 

(a) The Account does not pay a sales 

commission or other similar fees to the 

Investment Adviser or its affiliates in 

connection with such acquisition, sale, 

or exchange; 

(b) The Account does not pay a 

purchase, redemption or similar fee to 

the Investment Adviser in connection 

with the acquisition of shares by the 

Account or the sale by the Account to 

the Fund of such shares. 

(c) The Account may pay a purchase 

or redemption fee to the Fund in 

connection with an acquisition or sale 

of shares by the Account, that is fully 

disclosed in the Fund’s prospectus in 

effect at all times. Furthermore, any 

purchase fee paid by the Account to the 

Fund (1) is intended to approximate the 

difference between ‘‘bid’’ and ‘‘asked’’ 

prices on the fixed income securities 

that the Fund will purchase using the 

proceeds from the sale of Fund shares 

to the Account; and (2) is not charged 

on any assets transferred in-kind to the 

Fund; 

(d) The Account does not pay an 

investment management, investment 

advisory or similar fee with respect to 

Account assets invested in Fund shares 

for the entire period of such investment. 

This condition does not preclude the 

payment of investment advisory fees by 

the Fund under the terms of its 

investment advisory agreement adopted 

in accordance with section 15 of the 

1940 Act. This condition also does not 

preclude payment of an investment 

advisory fee by the Account under the 

following circumstances: 

(1) For Accounts billed in arrears, an 

investment advisory fee may be paid 

based on total Account assets from 

which a credit has been subtracted 

representing the Account’s pro rata 

share of investment advisory fees paid 

by the Fund; 

(2) For Accounts billed in advance, 

the Investment Adviser must employ a 

reasonably designed method to ensure 

that the amount of the prepaid fee that 

constitutes the fee with respect to the 

Account assets invested in the Fund 

shares: 

(A) Is anticipated and subtracted from 

the prepaid fee at the time of payment 

of such fee, and 

(B) Is returned to the Account no later 

than during the immediately following 

fee period, or 

(C) Is offset against the prepaid fee for 

the immediately following fee period or 

for the fee period immediately following 

thereafter. For purposes of this 

paragraph, a fee shall be deemed to be 

prepaid for any fee period if the amount 

of such fee is calculated as of a date not 

later than the first day of such period; 

or 

(3) An investment advisory fee may be 

paid by an Account based on the total 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70649 

assets of the Account, if the Account 

will receive a cash rebate of such 

Account’s proportionate share of all fees 

charged to the Fund by the Investment 

Adviser for investment management, 

investment advisory or similar services 

no later than one business day after the 

receipt of such fees by the Investment 

Adviser; 

(e) The crediting, offsetting or rebating 

of any fees in Section II(d) is audited at 

least annually by the Investment 

Adviser through a system of internal 

controls to verify the accuracy of the fee 

mechanism adopted by the Investment 

Adviser under Section II(d). Instances of 

non-compliance must be corrected and 

identified, in writing, in a separate 

disclosure to affected Accounts within 

30 days of such audit; 

(f) The combined total of all fees 

received by the Investment Adviser for 

the provision of services to an Account, 

and for the provision of any services to 

a Fund in which an Account may 

invest, is not in excess of ‘‘reasonable 

compensation’’ within the meaning of 

section 408(b)(2) of the Act; 

(g) The Investment Adviser and its 

affiliates do not receive any fees payable 

pursuant to Rule 12b–1 under the 1940 

Act in connection with the transactions 

covered by this exemption, if granted. 

(h) In advance of any initial 

investment by a Separately Managed 

Account in a Fund or by a new Plan 

investor in a Pooled Fund, a Second 

Fiduciary with respect to that Plan, who 

is independent of and unrelated to the 

Investment Adviser or any affiliate 

thereof, receives in written or in 

electronic form, full and detailed 

written disclosure of information 

concerning such Fund(s). The 

disclosure described in this Section II(h) 

includes, but is not limited to: 

(1) A current prospectus issued by 

each of the Fund(s); 

(2) A statement describing the fees for 

investment advisory or similar services, 

any Secondary Services, and all other 

fees to be charged to or paid by the 

Account and by the Fund(s), including 

the nature and extent of any differential 

between the rates of such fees; 

(3) The reasons why the Investment 

Adviser may consider such investment 

to be appropriate for the Account; 

(4) A statement describing whether 

there are any limitations applicable to 

the Investment Adviser with respect to 

which Account assets may be invested 

in shares of the Fund(s) and, if so, the 

nature of such limitations; and 

(5) A copy of this proposed exemption 

and the final exemption, if granted, and 

any other reasonably available 

information regarding the transaction 

described herein that the Second 

Fiduciary requests, provided that the 

notice of proposed exemption and 

notice of grant of exemption may be 

given within 15 calendar days after the 

date that the final exemption is 

published in the Federal Register, in the 

event that the initial investment in a 

Fund by a Separately Managed Account 

or by a new Plan investor in a Pooled 

Fund has occurred prior to such date. 

(i) After receipt and consideration of 

the information referenced in Section 

II(h), the Second Fiduciary of the 

Separately Managed Account or the new 

Plan investing in a Pooled Fund 

approves in writing the investment of 

Plan assets in each particular Fund and 

the fees to be paid by a Fund to the 

Investment Adviser. 

(j)(1) In the case of existing Plan 

investors in a Pooled Fund, such Pooled 

Fund may not engage in any covered 

transactions pursuant to this exemption, 

if granted, unless the Second Fiduciary 

receives in written or in electronic form, 

the information described in 

subparagraph (2) of this Section II(j) not 

less than 30 days prior to the Investment 

Adviser’s engaging in the covered 

transactions on behalf of the Pooled 

Fund pursuant to this exemption, if 

granted; 

(2) The information referred to in 

subparagraph (1) of this Section II(j) 

includes: 

(A) A notice of the Pooled Fund’s 

intent to engage in the covered 

transactions described herein, and a 

copy of the notice of proposed 

exemption, and a copy of the final 

exemption, if granted, provided that the 

notice of the proposed exemption and 

notice of grant of exemption may be 

given within 15 calendar days after the 

date that the final exemption is granted 

and published in the Federal Register, 

in the event that the Investment Advisor 

engaged in the covered transactions on 

behalf of the Pooled Fund prior to such 

date. 

(B) Any other reasonably available 

information regarding the covered 

transactions that a Second Fiduciary 

requests, and 

(C) A ‘‘Termination Form,’’ within the 

meaning of Section II(k). Approval to 

engage in any covered transactions 

pursuant to this exemption may be 

presumed notwithstanding that the 

Investment Adviser does not receive any 

response from a Second Fiduciary. 

(k) All authorizations made by a 

Second Fiduciary regarding investments 

in a Fund and the fees paid to the 

Investment Adviser will be subject to an 

annual reauthorization wherein any 

such prior authorization shall be 

terminable at will by an Account, 

without penalty to the Account, upon 

receipt by the Investment Adviser of 

written notice of termination. A form 

expressly providing an election to 

terminate the authorization (the 

Termination Form) with instructions on 

the use of the form will be supplied to 

the Second Fiduciary no less than 

annually, in written or in electronic 

form. The instructions for the 

Termination Form will include the 

following information: 

(1) The authorization is terminable at 

will by the Account, without penalty to 

the Account, upon receipt by the 

Investment Adviser of written notice 

from the Second Fiduciary. Such 

termination will be effected by the 

Investment Adviser by selling the shares 

of the Fund held by the affected 

Account within one business day 

following receipt by the Investment 

Adviser of the Termination Form or any 

other written notice of termination; 

provided that if, due to circumstances 

beyond the control of the Investment 

Adviser, the sale cannot be executed 

within one business day, the Investment 

Adviser shall have one additional 

business day to complete such sale; and 

provided further that, where a Plan’s 

interest in a Pooled Fund cannot be sold 

within this timeframe, the Plan’s 

interest will be sold as soon as 

administratively practicable; 

(2) Failure of the Second Fiduciary to 

return the Termination Form or provide 

any other written notice of termination 

will result in continued authorization of 

the Investment Adviser to engage in the 

covered transactions on behalf of an 

Account; and 

(3) The identity of Baird, the asset 

management affiliate of Baird, the 

affiliated investment advisers, and the 

address of the asset management 

affiliate of Baird. The instructions will 

state that the exemption, if granted, is 

not available, unless the fiduciary of 

each Plan participating in the covered 

transactions as an investor in a Pooled 

Fund is, in fact, independent of the 

Investment Adviser. The instructions 

will also state that the fiduciary of each 

such Plan must advise the asset 

management affiliate of Baird, in 

writing, if it is not a ‘‘Second 

Fiduciary,’’ as that term is defined, 

below, in Section IV(h). 

However, if the Termination Form has 

been provided to the Second Fiduciary 

pursuant to this Section II(k) or Sections 

II(j), (l), or (m), the Termination Form 

need not be provided again for an 

annual reauthorization pursuant to this 

paragraph unless at least six months has 

elapsed since the form was previously 

provided. 

(l) In situations where the Fund-level 

fee is neither rebated nor credited 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70650 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

against the Account-level fee, the 

Second Fiduciary of each Account 

invested in a particular Fund will 

receive full disclosure, in written or in 

electronic form, in a statement, which is 

separate from the Fund prospectus, of 

any proposed increases in the rates of 

fees for investment advisory or similar 

services, and any Secondary Services, at 

least 30 days prior to the 

implementation of such increase in fees, 

accompanied by a Termination Form. In 

situations where the Fund-level fee is 

rebated or credited against the Accountlevel fee, the Second Fiduciary will 

receive full disclosure, in a Fund 

prospectus or otherwise, in the same 

time and manner set forth above, of any 

increases in the rates of fees to be 

charged by the Investment Adviser to 

the Fund for investment advisory 

services. Failure to return the 

Termination Form will be deemed an 

approval of the increase and will result 

in the continued authorization of the 

Investment Adviser to engage in the 

covered transactions on behalf of an 

Account. 

(m) In the event that the Investment 

Adviser provides an additional 

Secondary Service to a Fund for which 

a fee is charged or there is an increase 

in the rate of any fees paid by the Funds 

to the Investment Adviser for any 

Secondary Services resulting from either 

an increase in the rate of such fee or 

from a decrease in the number or kind 

of services provided by the Investment 

Adviser for such fees over an existing 

rate for such Secondary Service in 

connection with a previously authorized 

Secondary Service, the Second 

Fiduciary will receive notice, at least 30 

days in advance of the implementation 

of such additional service or fee 

increase, in written or in electronic 

form, explaining the nature and the 

amount of such services or of the 

effective increase in fees of the affected 

Fund. Such notice shall be accompanied 

by a Termination Form. Failure to 

return the Termination Form will be 

deemed an approval of the Secondary 

Service and will result in continued 

authorization of the Investment Adviser 

to engage in the covered transactions on 

behalf of the Account. 

(n) On an annual basis, the Second 

Fiduciary of an Account investing in a 

Fund, will receive, in written or in 

electronic form: 

(1) A copy of the current prospectus 

for the Fund and, upon such fiduciary’s 

request, a copy of the Statement of 

Additional Information for such Fund, 

which contains a description of all fees 

paid by the Fund to the Investment 

Adviser; 

(2) A copy of the annual financial 

disclosure report of the Fund in which 

such Account is invested, which 

includes information about the Fund 

portfolios as well as audit findings of an 

independent auditor of the Fund, within 

60 days of the preparation of the report; 

and 

(3) With respect to each of the Funds 

in which an Account invests, in the 

event such Fund places brokerage 

transactions with the Investment 

Adviser, the Investment Adviser will 

provide the Second Fiduciary of such 

Account, in the same manner described 

above, at least annually with a statement 

specifying the following (and responses 

to oral or written inquiries of the 

Second Fiduciary as they arise): 

(A) The total, expressed in dollars, 

brokerage commissions of each Fund’s 

investment portfolio that are paid to the 

Investment Adviser by such Fund, 

(B) The total, expressed in dollars, of 

brokerage commissions of each Fund’s 

investment portfolio that are paid by 

such Fund to brokerage firms unrelated 

to the Investment Adviser, 

(C) The average brokerage 

commissions per share, expressed as 

cents per share, paid to the Investment 

Adviser by each portfolio of a Fund, and 

(D) The average brokerage 

commissions per share, expressed as 

cents per share, paid by each portfolio 

of a Fund to brokerage firms unrelated 

to the Investment Adviser. 

(o) In all instances in which the 

Investment Adviser provides electronic 

distribution of information to Second 

Fiduciaries who have provided 

electronic mail addresses, such 

electronic disclosure will be provided in 

a manner similar to the procedures 

described in 29 CFR 2520.104b–1(c). 

(p) No Separately Managed Account 

holds assets of a Plan sponsored by the 

Investment Adviser or an affiliate. If a 

Pooled Fund holds assets of a Plan or 

Plans sponsored by the Investment 

Adviser or an affiliate, the total assets of 

all such Plans shall not exceed 15% of 

the total assets of such Pooled Fund. 

(q) All of the Accounts’ other dealings 

with the Funds, the Investment Adviser, 

or any person affiliated thereto, are on 

terms that are no less favorable to the 

Account than such dealings are with 

other shareholders of the Funds. 

(r) Baird 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 

Section II(s), 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 Baird, 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 Section II(s); and 

(2) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of Baird or its 

affiliate, as applicable, such records are 

lost or destroyed prior to the end of the 

six-year period. 

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

Section II(s)(2), and notwithstanding 

any provisions of subsections (a)(2) and 

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

referred to, above, in Section II(r) 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 SEC, 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; 

(2) None of the persons described, 

above, in Section II(s)(1)(B)–(D) shall be 

authorized to examine trade secrets of 

the Investment Adviser, or commercial 

or financial information which is 

privileged or confidential; and 

(3) Should the Investment Adviser 

refuse to disclose information on the 

basis that such information is exempt 

from disclosure, the Investment Adviser 

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. 

Section III: Additional Conditions for 

In-Kind Transactions 

(a) In-kind transactions with an 

Account shall only involve: (1) 

Publically-traded securities for which 

market quotations are readily available, 

as determined pursuant to procedures 

established by the Funds under Rule 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70651 

2a–4 of the 1940 Act; (2) securities that 

are deemed to be liquid and that are 

valued based upon prices obtained from 

a reliable well-established third-party 

pricing service that is independent of 

the Investment Adviser (e.g., Interactive 

Data Pricing and Reference Data, LLC) 

pursuant to then-existing procedures 

established by the Board of Directors or 

Trustees of the Funds under the 1940 

Act and applicable Securities and 

Exchange Commission (SEC) rules, 

regulations and guidance thereunder 

(SEC Guidance); and (3) cash in the 

event that the aforementioned securities 

are odd lot securities, fractional shares, 

or accruals on such securities. Securities 

for which prices cannot be obtained 

from a third-party pricing service will 

not be transferred in-kind. Furthermore, 

in-kind transfers of securities will not 

include: 

(1) Securities that, if publicly offered 

or sold, would require registration 

under the Securities Act of 1933, as 

amended (the 1933 Act), other than 

securities issued under Rule 144A of the 

1933 Act; 

(2) Securities issued by entities in 

countries that (A) restrict or prohibit the 

holding of securities by non-nationals 

other than through qualified investment 

vehicles, such as the Funds, or (B) 

permit transfers of ownership of 

securities to be effected only by 

transactions conducted on a local stock 

exchange; 

(3) Certain portfolio positions (such as 

forward foreign currency contracts, 

futures and options contracts, swap 

transactions, certificates of deposit and 

repurchase agreements), that, although 

liquid and marketable, involve the 

assumption of contractual obligations, 

require special trading facilities, or can 

be traded only with the counter-party to 

the transaction to effect a change in 

beneficial ownership; 

(4) Cash equivalents (such as 

certificates of deposit, commercial 

paper, and repurchase agreements); 

(5) Other assets that are not readily 

distributable (including receivables and 

prepaid expenses), net of all liabilities 

(including accounts payable); and 

(6) Securities subject to ‘‘stop 

transfer’’ instructions or similar 

contractual restrictions on transfer; 

provided however that the foregoing 

restrictions shall not apply to securities 

eligible for resale pursuant to Rule 144A 

under the 1933 Act, or commercial 

paper or other short-term instruments 

issued pursuant to Section 4(2) of the 

1933 Act so long as such securities are 

deemed to be liquid and are valued 

based upon prices obtained from a 

reliable, well-established third-party 

pricing service that is independent of 

the Investment Adviser pursuant to 

then-existing procedures established by 

the Board of Directors or Trustees of the 

Funds under the 1940 Act and 

applicable SEC Guidance. 

(b) Subject to the exceptions 

described in Section III(a) above, in the 

case of an in-kind exchange of assets 

(in-kind redemptions and in-kind 

transfers of Plan assets) between an 

Account and a Fund, the Account will 

receive its pro rata portion of the 

securities of the Fund equal in value to 

that of the number of shares redeemed, 

or the Fund shares having a total net 

asset value (NAV) equal to the value of 

the assets transferred on the date of the 

transfer, as determined in a single 

valuation, using sources independent of 

the Investment Adviser, performed in 

the same manner as it would for any 

other person or entity at the close of the 

same business day in accordance with 

the procedures established by the Fund 

pursuant to Rule 2a–4 under the 1940 

Act, and the then-existing valuation 

procedures established by its Board of 

Directors or Trustees, as applicable for 

the valuation of such assets, that are in 

compliance with the rules administered 

by the SEC. In connection with a 

redemption of Fund shares, the value of 

the securities and any cash received by 

the Account for each redeemed Fund 

share equals the NAV of such shares at 

the time of the transaction. In the case 

of any other in-kind exchange, the value 

of the Fund shares received by the 

Account equals the NAV of the 

transferred securities and any cash on 

the date of the transfer. 

(c) The Investment Adviser shall 

provide the Second Fiduciary with a 

written confirmation containing 

information necessary to perform a posttransaction review of any in-kind 

transaction so that the material aspects 

of such transaction, including pricing, 

can be reviewed. Such information must 

be furnished no later than thirty (30) 

business days after the completion of 

the in-kind transaction. In the case of a 

Pooled Fund, the Investment Adviser 

can satisfy the requirement with a single 

aggregate report furnished to the Second 

Fiduciary containing the required 

information for each in-kind transaction 

taking place during a month. This 

aggregate report must be furnished to 

the Second Fiduciary no later than 

thirty (30) business days after the end of 

that month. The information to be 

provided pursuant to this Section III(c) 

shall include: 

(1) With respect to securities either 

transferred or received by an Account 

in-kind in exchange for Fund shares, 

(A) the identity of each security either 

received by the Account pursuant to the 

redemption, or transferred to the Fund 

by the Account, and the related 

aggregate dollar value of all such 

securities determined in accordance 

with Rule 2a–4 under the 1940 Act and 

the then-existing procedures established 

by the Board of Directors or Trustees of 

the Fund (using sources independent of 

the Investment Adviser), and 

(B) the current market price of each 

security transferred or received in-kind 

by the Account as of the date of the inkind transfer; 

(2) With respect to Fund shares either 

transferred or received by an Account 

in-kind in exchange for securities, 

(A) the number of Fund shares held 

by the Account immediately before the 

redemption and the related per share 

net asset value and the total dollar value 

of such Fund shares, determined in 

accordance with Rule 2a–4 under the 

1940 Act, using sources independent of 

the Investment Adviser, or 

(B) the number of Fund shares held by 

the Account immediately after the inkind transfer and the related per share 

net asset value of the Fund shares 

received and the total dollar value of 

such Fund shares, determined in 

accordance with Rule 2a–4 under the 

1940 Act using sources independent of 

the Investment Adviser; and 

(3) The identity of each pricing 

service or market-maker consulted in 

determining the value of the securities. 

(d) Prior to the consummation of an 

in-kind exchange, the Investment 

Adviser must document in writing and 

determine that such transaction is fair to 

the Account and comparable to, and no 

less favorable than, terms obtainable at 

arm’s-length between unaffiliated 

parties, and that the in-kind transaction 

is in the best interests of the Account 

and the participants and beneficiaries of 

the participating Plans. 

Section IV. Definitions 

(a) The term ‘‘Account’’ means either 

a Separately Managed Account or a 

Pooled Fund in which investments are 

made by Plans. 

(b) An ‘‘affiliate’’ of a person includes 

any person directly or indirectly 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the person; any 

officer of, director of, highly 

compensated employee (within the 

meaning of section 4975(e)(2)(H) of the 

Code) of, or partner in any such person; 

and any corporation or partnership of 

which such person is an officer, 

director, partner or owner, or highly 

compensated employee (within the 

meaning of section 4975(e)(2)(H) of the 

Code). 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70652 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

(c) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(d) The term ‘‘Fund’’ means any open 

end investment company registered 

under the 1940 Act. 

(e) The term ‘‘Investment Adviser’’ 

means Robert W. Baird or any of its 

current or future affiliates. 

(f) The term ‘‘Plan’’ means a plan 

described in section 3(3) of the Act and 

a plan described in section 4975(e)(1) of 

the Code. 

(g) The term ‘‘Pooled Fund’’ means 

any commingled fund sponsored, 

maintained, advised or trusteed by the 

Investment Adviser, which fund holds 

Plan assets. 

(h) The term ‘‘Second Fiduciary’’ 

means a fiduciary of a Plan who is 

independent of and unrelated to the 

Investment Adviser. For purposes of 

this exemption, the Second Fiduciary 

will not be deemed to be independent 

of and unrelated to the Investment 

Adviser if: 

(1) Such fiduciary directly or 

indirectly controls, is controlled by, or 

is under common control with the 

Investment Adviser; 

(2) Such fiduciary, or any officer, 

director, partner, or employee of the 

fiduciary is an officer, director, partner, 

employee or affiliate of the Investment 

Adviser; or 

(3) Such fiduciary directly or 

indirectly receives any compensation or 

other consideration for his or her own 

personal account in connection with 

any transaction described in this 

exemption. If an officer, director, 

partner, affiliate or employee of the 

Investment Adviser is a director of such 

Second Fiduciary, and if he or she 

abstains from participation in (A) the 

choice of the Plan’s investment adviser, 

(B) the approval for the acquisition, sale, 

holding, and/or exchange of Fund 

shares by such Plan, and (C) the 

approval of any increase in fees charged 

to or paid by the Plan in connection 

with any of the transactions described 

herein, then subparagraph (2) above 

shall not apply. 

(i) The term ‘‘Secondary Service’’ 

means a service other than an 

investment management, investment 

advisory or similar service which is 

provided by the Investment Adviser to 

the Funds, including but not limited to 

custodial, accounting, brokerage, 

administrative or any other similar 

service. 

(j) The term ‘‘Separately Managed 

Account’’ means any Account other 

than a Pooled Fund, and includes 

single-employer Plans. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of April 1, 2014. 

Summary of Facts and Representations 

Background 

1. Robert W. Baird & Co. Incorporated 

(Baird or the Applicant) is an employeeowned wealth management, capital 

markets, asset management and private 

equity firm. Baird is headquartered in 

Milwaukee, Wisconsin, and has offices 

in the United States, Europe and Asia. 

Baird is a registered broker-dealer under 

the Securities Exchange Act of 1934 (the 

1934 Act) and a member of the 

Financial Industry Regulatory 

Authority. Baird is also a federallyregistered investment advisor. It 

provides trade execution, custody and 

other standard brokerage services, as 

well as investment advice and asset 

management services, to individual, 

trust, institutional, corporate and other 

clients, including pension, profitsharing and retirement plans and 

accounts (Plans) described in section 

3(3) of the Employee Retirement Income 

Security Act of 1974, as amended (the 

Act) and/or section 4975(e)(1) of the 

Internal Revenue Code of 1986, as 

amended (the Code). 

2. Baird represents that it provides 

investment management services to 

institutional clients including defined 

benefit Plans seeking to address the 

volatility and interest rate sensitivity 

that have made maintenance of these 

Plans problematic since the interest rate 

sensitivity and resulting volatility can 

significantly affect a Plan’s funded 

status and the sponsoring organization’s 

operating results. According to the 

Applicant, the strategy Baird utilizes to 

support these Plans, often called 

‘‘liability-driven investing’’ or ‘‘LDI,’’ 

seeks to reduce the interest rate 

sensitivity ‘‘gap’’ between a Plan’s assets 

and its pension liabilities, which in turn 

will reduce the variability of the funded 

status of the Plan and dampen the 

swings in the Plan’s minimum annual 

funding requirements. Specifically, 

Baird’s LDI strategy utilizes a separate 

account structure that invests in long 

maturity (duration) U.S. dollardenominated, investment-grade quality 

bonds that are primarily issued by the 

U.S. Government or corporate entities. 

3. The Applicant represents that all 

current Plan clients invested in Baird’s 

LDI strategy are mid to large sized Plans 

able to achieve the necessary portfolio 

diversification through a separate 

account structure. According to Baird, a 

separately managed account is not 

always the optimum vehicle for smaller 

defined benefit Plan sponsors who wish 

to maintain their Plans and implement 

the LDI strategy. In this regard, the 

Applicant states that the size of the 

long-dated corporate bond portion of a 

small to mid-sized Plan’s LDI portfolio 

does not permit it to obtain optimum 

diversification and ‘‘round lot’’ 

transaction cost efficiencies through the 

purchase of individual bonds by such a 

Plan’s separate account. Baird explains 

that corporate bonds are typically traded 

in ‘‘round lots’’ of $1 million par value 

or higher and best price execution is 

achieved at these amounts. Anything 

smaller is considered an ‘‘odd lot’’ 

which can carry additional premiums 

when buying and discounts when trying 

to sell, thus widening the ‘‘bid/ask 

spread’’ for odd lot position sizes and 

increasing transaction costs. The 

Applicant notes that a separate account 

structure is only effective if the client 

has sufficient assets to achieve proper 

diversification and advantageous 

pricing in purchasing round lot 

positions of long-dated corporate bonds 

in a separate account. To resolve this 

issue, Baird intends to establish an 

open-end mutual fund (the Fund), 

registered under the Investment 

Company Act of 1940 (the 1940 Act), 

which would hold the long-dated 

investment grade corporate bonds as 

part of the LDI strategy. 

4. The Applicant represents that these 

smaller Plans would benefit by 

investing in the Fund, because of 

efficiencies and economies of scale 

inherent in a pooled investment vehicle. 

In this regard, according to Baird, the 

Fund can readily purchase long-dated 

corporate bonds in round lots, thus 

reducing costs, and achieve greater 

issuer diversification given the larger 

pool of assets to invest. Investments in 

U.S. Government bonds and futures 

would continue to be effected in 

separate accounts for each Plan and not 

in the Fund. 

At this time, the Applicant represents 

that it desires to launch one Fund, but 

states that Baird may create additional 

Funds in the future with different bond 

exposures, but still consistent with an 

LDI strategy, to better meet the needs of 

certain defined benefit Plans. The 

Applicant notes, for example, that some 

Plans may want a higher quality long 

dated corporate bond strategy, and a 

potential additional Fund would 

address this by investing only in A-rated 

or better bonds. 

5. The Applicant notes that, even 

though LDI strategies have been the 

focus of discussion for traditional 

pension plans over the last several 

years, most small to mid-sized plans 

have not started implementing their LDI 

de-risking strategy for various reasons. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70653 

32See the SEC’s Web site at http://www.sec.gov/ 

answers/mffees.htm. 

According to Baird, one reason they 

have delayed the implementation has 

been the lack of customized solutions 

that can accommodate the smaller asset 

size of their Plans and still offer 

adequate corporate bond diversification 

and attractive pricing of the product. 

The Applicant suggests that the few 

smaller Plans that have started 

implementing LDI strategies have 

implemented a separate account 

structure that generates a less-thanadequately diversified corporate bond 

strategy, coupled with higher-thanaverage transaction costs because they 

cannot achieve the round lot 

efficiencies. Other Plans that have 

attempted to avoid these issues chose to 

use whatever pooled vehicle they could 

find that invested in long maturity 

bonds, even though the solution wasn’t 

necessarily an LDI-focused strategy. The 

Applicant contends further that, due to 

these sub-optimal choices, many Plans 

have chosen to delay implementing an 

LDI strategy, and many smaller Plans 

that have begun such a strategy have a 

less than optimum diversification of the 

bonds they hold. 

Purchase Fee 

6. The Applicant states that, in order 

to avoid adverse economic effects on 

existing Plan investors in the Fund from 

the transaction costs of investing the 

cash investments, the Fund would have 

a fully disclosed purchase fee paid to 

the Fund, rather than a redemption fee 

paid to the Fund. The Applicant 

represents that the purchase fee is not 

a commission, trailer or other type of 

sales charge, and neither the advisor nor 

its affiliates will receive this fee. Baird 

explains that, like a redemption fee, the 

purchase fee is paid directly to the Fund 

and is intended to protect the existing 

Plan shareholders in the Fund from the 

transaction costs incurred when a new 

Plan invests in the Fund and the Fund 

is required to purchase additional longdated corporate bonds. 

7. According to Baird, the SEC has 

stated that ‘‘a purchase fee differs from, 

and is not considered to be, a front-end 

sales load because a purchase fee is paid 

to the fund (not to a broker) and is 

typically imposed to defray some of the 

fund’s costs associated with the 

purchase.’’ The SEC requires mutual 

funds that have a purchase fee to 

disclose that fee in the Fees and 

Expenses section of the prospectus 

under a category that is separate from a 

sales charge or distribution (12b–1) 

fee.32

8. The Applicant represents that 

purchase fees are helpful because of the 

transaction costs associated with fixedincome investments. According to the 

Applicant, when bonds are purchased 

in a separate account or a mutual fund, 

the account pays the ask (offered) price 

to the broker/dealer which represents 

the price at which the broker/dealer is 

willing to sell and is higher than the bid 

price which represents the price at 

which the broker/dealer is willing to 

buy the bonds. Baird states further that 

this ‘‘bid/ask spread’’ is the mark-up 

paid to broker/dealers for trading bonds 

and represents the transaction costs 

incurred when bonds are traded. 

However, according to the Applicant, as 

is commonly the case with mutual 

funds, the Fund will value its portfolio 

of fixed income securities at their 

closing bid prices each day because 

those prices more accurately reflect the 

prices at which the portfolio securities 

could be sold by the Fund in the 

ordinary course of business. Therefore, 

when a Plan invests in the Fund, the 

Fund will have to use the proceeds to 

purchase bonds at or near the higher 

‘‘ask’’ price and immediately at the 

close of business that day those newly 

purchased bonds will be valued at the 

lower ‘‘bid’’ price. The Applicant states 

that this will cause an immediate 

decline in the value of those securities 

that will impact the existing Plan 

shareholders in the Fund through a 

small reduction in the Fund’s net asset 

value (NAV). Thus, the Applicant 

represents that the purchase fee is 

intended to cover the transaction costs 

incurred by this ‘‘ask price to bid price 

reversion’’ that occurs on all bond 

purchases. 

9. Baird represents that the ask price 

to bid price reversion is more 

pronounced for long-dated corporate 

bonds than for Treasury securities or 

shorter-term fixed income securities, 

and long-dated corporate bonds 

constitute the LDI investment strategy 

adopted for the Fund by Baird. The 

purchase fee represents the estimated 

costs to the current shareholders of the 

Fund of the likely difference between 

the prices paid by the Fund for 

corporate bonds using a Plan’s cash 

investment in the fund and the prices at 

which those bonds are valued for 

purposes of calculating the Fund’s net 

asset value. Baird represents that, 

effectively, by utilizing a purchase fee 

paid to the Fund, the Plan investing in 

the Fund is appropriately allocated the 

transaction costs required to purchase 

long-dated corporate bonds so that 

existing shareholders do not bear those 

costs. 

Request for Exemptive Relief 

10. Baird requests relief from section 

406(a)(1)(D) and 406(b) of the Act for its 

investment managers to cause a Plan’s 

acquisition, sale or exchange of shares 

of the Fund through a separately 

managed account or a pooled fund in 

which Plans could invest (each, an 

Account), in cash or in kind, including 

publically traded securities and 

securities sold in reliance on Rule 144A 

(Rule 144A Securities) under the 

Securities Act of 1933 (the 1933 Act), 

and to receive an advisory fee and 

certain other fees from the Fund that 

constitute fees for ‘‘secondary services.’’ 

The Applicant states that section 

406(a)(1)(D) of the Act prohibits a 

fiduciary with respect to a plan from 

causing such plan to engage in a 

transaction, if he knows or should 

know, that such transaction constitutes 

a transfer to, or use by or for the benefit 

of, a party in interest, of any assets of 

such plan. Sections 3(14)(A) and (B) of 

the Act define the term ‘‘party in 

interest’’ to include, respectively, any 

fiduciary of a plan and any person 

providing services to a plan. Under 

section 3(21)(A)(i) of the Act, a person 

is a fiduciary with respect to a plan, to 

the extent such person exercises 

authority or control with respect to the 

management or disposition of the assets 

of a plan. Additionally, under section 

3(21)(A)(ii) a person is a fiduciary with 

respect to a plan to the extent such 

person renders investment advice for a 

fee or other compensation, direct or 

indirect, with respect to any moneys or 

other property of a plan or has any 

authority or responsibility to do so. 

Furthermore, the Applicant notes that 

under 406(b) of the Act, a fiduciary with 

respect to a plan may not: (1) Deal with 

the assets of a plan in his own interest 

or for his own account, (2) in his 

individual or in any other capacity act 

in any transaction involving a plan on 

behalf of a party (or represent a party) 

whose interests are adverse to the 

interests of such plan or the interests of 

its participants or beneficiaries, or (3) 

receive any consideration for his own 

personal account from any party dealing 

with a plan in connection with a 

transaction involving the assets of such 

plan. 

The Applicant represents that Baird 

entities may currently serve, and may in 

the future serve, as investment advisors, 

investment managers, or other 

fiduciaries with respect to their client 

Plans (Client Plans). Accordingly, the 

Applicant and various other Baird 

affiliates may currently be, or may in the 

future be parties in interest with respect 

to Client Plans which engage in the 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70654 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

33See 42 FR 18732, April 8, 1977. 

34See, e.g., Barclays Global Investors, N.A. (BGI) 

and its Investment Advisory Affiliates, including 

Barclays Global Fund Advisors (BGFA, together, the 

Applicants), PTE 2008–01, 73 FR 3274, January 17, 

2008). 

35The Applicant notes that PTE 77–4 requires 

that each Plan investor provide advance written 

consent to the investment in the Fund and provide 

advance written consent to any change in fees. In 

this regard, PTE 77–4 requires that a second 

fiduciary with respect to the Plan, who is 

independent of and unrelated to the fiduciary/

investment advisor or its affiliates, receives a 

current prospectus issued by the Fund, and full and 

written detailed disclosure of the investment 

advisory and other fees charged to or paid by the 

Plan and the Fund, including the nature and extent 

of any differential between the rates of such fees, 

the reasons why the fiduciary/investment adviser 

may consider such purchases to be appropriate for 

the Plan, and whether there are limitations on the 

fiduciary/investment adviser with respect to which 

Plan assets may be invested in shares of the Fund 

and, if so, the nature of such limitations. 

Furthermore, PTE 77–4 requires that, on the basis 

of such prospectus and disclosure, a second 

fiduciary, who is independent of and unrelated to 

the fiduciary/investment adviser or affiliate, 

approves purchases and sales consistent with the 

responsibilities contained within Part 4 of Title I of 

the Act and such approval must be either: (1) set 

forth in the Plan documents or in the investment 

management agreement between the Plan and the 

fiduciary/investment adviser, (2) indicated in 

writing prior to each purchase or sale, or (3) 

indicated in writing prior to the commencement of 

a specified purchase or sale program in the shares 

of the Fund. Additionally, PTE 77–4 requires that 

the second fiduciary, or any successor thereto, is 

notified of any changes in the rates of fees and 

approves in writing the continuation of purchases 

and sales, and the continued holding of any shares 

of the Fund acquired by the Plan, and such 

approval may be limited to the investment advisory 

and other fees paid by the Fund in relation to the 

fees paid by the Plan. 

36 29 CFR 2520.104b–1(c) sets forth conditions 

under which a Plan administrator furnishing 

documents through electronic media (e.g., email) 

will be deemed to satisfy the requirements of 29 

CFR 2520.104b–1(b)(1), which provides that 

disclosures required under Title I of ERISA must be 

furnished using ‘‘measures reasonably calculated to 

ensure actual receipt of the material by [P]lan 

participants, beneficiaries and other specified 

individuals.’’ 37The Applicant explains that Rule 17a–7 under 

the 1940 Act provides a safe harbor from the general 

prohibitions contained in section 17(a) of the 

Investment Company Act against certain 

transactions between a mutual fund and affiliated 

persons, including accounts managed by the 

investment adviser to the fund. Such transactions 

include a purchase or sale of securities by a mutual 

fund from or to an affiliated person. Without Rule 

17a–7, section 17(a) would prohibit an investment 

adviser to both a mutual fund and a separate client 

account from causing the client to make an in-kind 

transfer of securities in the client’s account to the 

mutual fund. Rule 17a–7 permits such in-kind 

transfers, provided that certain conditions are met. 

Specifically, the Applicant states that Rule 17a– 

7 provides that a purchase or sale transaction 

between registered investment companies, or 

separate series of registered investment companies, 

which are affiliated persons, or affiliated persons of 

affiliated persons, of each other, between separate 

series of a registered investment company or 

between a registered investment company or a 

separate series of a registered investment company, 

and a person which is an affiliated person of such 

registered investment company (or an affiliated 

person of such person) solely by reason of having 

a common investment adviser or investment 

advisers which are affiliated persons of each other, 

common directors, and/or common officers, is 

exempt from section 17(a) of the Act, provided that: 

• The transaction is a purchase or sale, for no 

consideration other than cash payment against 

prompt delivery of a security for which market 

quotations are readily available; 

• The transaction is effected at the independent 

current market price of the security; 

• The transaction is consistent with the policy of 

each registered investment company and separate 

series of a registered investment company 

participating in the transaction, as recited in its 

registration statement and reports filed under the 

1940 Act; 

proposed transactions. In this regard, 

the investment of assets of a Client Plan 

in a Fund advised by Baird, in cash or 

in kind, including Rule 144A Securities, 

may raise issues under sections 

406(a)(1)(D), 406(b)(1), 406(b)(2), and 

406(b)(3) of the Act, and the 

corresponding provisions of the Code, 

unless an exemption is available, for the 

transactions themselves and for the 

receipt of fees from the Fund. 

Fees 

11. The Applicant represents that 

investment management fees related to 

investment in the Fund would be offset, 

credited or waived at the Account level, 

as provided for in Class Prohibited 

Transaction Exemption (PTE) 77–4 33

and other similar individual exemptions 

based on PTE 77–4 (the Similar 

Exemptions).34 The Applicant 

represents that the billing systems and 

processes at Baird have been designed 

to correctly rebate or credit the advisory 

fees from the Fund against the Plan 

level fees or credit the Plan level fees 

against the advisory fees. According to 

the Applicant, these processes and 

systems are part of the billing systems 

of Baird, and they have been tested over 

the years to ensure compliance with the 

conditions for exemptive relief in 

connection with Baird’s reliance on PTE 

77–4. 

Disclosure and Consent 

12. The Applicant states that the 

proposed exemption contains disclosure 

and consent requirements that are based 

upon PTE 77–4 and the Similar 

Exemptions.35 In this regard, the 

Applicant represents that often, where 

Plans are invested in a pooled 

investment vehicle that invests in the 

Fund, the rules in PTE 77–4 that relate 

to disclosure and consent are expensive 

to administer, impractical, time 

consuming and burdensome. In 

particular, Baird represents that it is 

difficult for many pooled investment 

vehicles to comply with the written 

consent requirements described above. 

13. Currently, the Applicant 

represents that there is no intention to 

create a pooled fund in which Plans 

could invest which would hold shares 

of the Fund, but that strategy could be 

employed in the future if small clients 

preferred to hold interests in a pooled 

fund rather than hold the shares of the 

Fund directly. Consequently, Baird 

requests that the proposed exemption 

would require the Applicant to provide 

all of the disclosures currently required 

by PTE 77–4 to the fiduciaries of a Plan, 

prior to investing in the Fund, but rather 

than require written consent, the 

proposed exemption would permit 

‘‘deemed consent’’ or negative consent 

to occur where Baird receives no 

response to such disclosures. In 

addition, the proposed exemption 

contains disclosure and consent 

procedures which would apply with 

respect to existing investors in a pooled 

fund. In addition, the proposed 

exemption contains a requirement that a 

plan fiduciary receive an Annual 

Termination Form, similar to the 

requirements contained in Similar 

Exemptions. 

14. The proposed exemption would 

also allow disclosures to be provided in 

written or in electronic form. 

Nevertheless, a Second Fiduciary may 

request a non-electronic copy of any 

required disclosure. Moreover, the 

Applicant states that in all instances in 

which Baird provides electronic 

distribution of information to Second 

Fiduciaries who have provided 

electronic mail addresses, such 

electronic disclosure will be provided in 

a manner similar to the procedures 

described in 29 CFR 2520.104b–1(c) 36

to ensure that the Baird’s system of 

providing electronic disclosures results 

in actual receipt by the intended 

recipient. 

In-Kind Exchanges 

15. The Applicant represents that if a 

Plan currently holds securities which 

are appropriate for the Fund, and an 

investment in the Fund is consistent 

with the investment guidelines of the 

Plan, acquisition of Fund shares may be 

made in cash or in kind. According to 

the Applicant, an asset manager’s ability 

to hold and transfer in-kind securities 

for its client Plans can be helpful to 

those accounts because the accounts 

will gain important investment 

opportunities and avoid significant 

transaction costs. When a Plan invests 

in the Fund in-kind, no purchase fee 

would be charged. 

According to the Applicant, the 

transfers in-kind would comply with 

Rule 17a–7 under the 1940 Act, 

including with respect to Rule 144A 

Securities.37 The Applicant represents 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70655 

• No brokerage commission, fee (except for 

customary transfer fees) or other remuneration is 

paid in connection with the transaction; 

• The board of directors of the investment 

company, including a majority of the directors who 

are not interested persons of the investment 

company, adopts procedures pursuant to which 

such purchase or sale transactions may be effected 

for the investment company and determines no less 

frequently than quarterly that all such purchases or 

sales made during the preceding quarter were 

effected in compliance with such procedures; 

• The board of directors of the investment 

company satisfies the fund governance standards 

defined in 14 CFR 270.0–1(a)(7); and 

• The investment company maintains and 

preserves a written copy of the procedures and a 

record of each such purchase and sale transaction 

for the period of six years, the first two years in an 

easily accessible place. 

38According to the Applicant, while Rule 17a–7 

on its face only appears to permit mutual funds to 

buy or sell securities from or to affiliated persons 

for no consideration other than cash, the SEC noaction letters allow for in-kind transfers of 

securities. The Applicant represents that, in these 

no-action letters, the SEC staff stated that in-kind 

transfers of securities by affiliated persons to a 

mutual fund in exchange for mutual fund shares 

instead of cash would be permitted so long as the 

securities being transferred are valued in 

accordance with the mutual fund’s valuation 

methods used to calculate net asset value and are 

consistent with how securities need to be valued 

under Rule 17a–7; the mutual fund shares being 

issued in exchange for the securities transferred inkind are valued at their net asset value; the 

securities being transferred in-kind are consistent 

with the fund’s investment objectives and principal 

strategies; the transfer does not involve payment of 

any brokerage commission, fee or other 

remuneration; the investment adviser and its 

affiliates do not have a beneficial interest in the 

account that is transferring the securities in-kind; 

and the mutual fund complies with Rule 17a–7(e) 

and (f) in that the fund’s board of directors has 

adopted procedures related to the transactions and 

satisfies applicable corporate governance standards. 

See DFA Investment Trust SEC No-Action Letter 

(March 21, 1996); Federated Investors SEC NoAction Letter (April 21, 1994); First National Bank 

of Chicago SEC No-Action Letter (September 22, 

1992); and American Medical Association SEC NoAction Letter (January 15, 1987). 

39The Applicant notes that this condition does 

not apply, however, to an issuer filing reports with 

the SEC under the 1934 Act, for which reports are 

publicly available, to a ‘‘foreign private issuer’’ for 

whom reports are furnished to the SEC under Rule 

12g3–2(b) of the 1934 Act (17 CFR 240.12g3–2(b)), 

or to issuers who are foreign governments or 

political subdivisions thereof. 

40The Applicant states that these rules include 

Section 10(b) of the 1934 Act and Rule 10b–5 

thereunder (17 CFR 240.10b–5) and Section 17(a) of 

the 1933 Act (15 U.S.C. 77a). 

41The Applicant notes that the Rule 144A debt 

market has significant economic importance to 

firms raising capital and investors looking to 

participate in the market. According to the 

Applicant, in 2010 alone, firms issued over 

$1 trillion in registered and Rule 144A bonds with 

over half of that debt, $582 billion, issued through 

the 144A market. The Applicant states further that 

this represents approximately three times the $201 

billion raised by initial public offerings and 

secondary offerings in the same year. Accordingly, 

the Applicant contends that the 144A market is a 

viable and primary means for firms to raise capital 

and research on Rule 144A bonds can further the 

understanding of a market responsible for a 

significant source of capital and avenue of 

investment. 

that Rule 17a–7 is relevant to the 

proposed transactions for which relief 

has been requested because securities, 

including Rule 144A Securities, may be 

contributed in kind from client Plans in 

exchange for shares of the Fund. The 

Applicant states that the SEC, through a 

series of no-action letters, permits 

mutual funds to effect purchase and sale 

transactions with affiliated persons on 

an ‘‘in-kind’’ basis rather than for cash 

in reliance on Rule 17a–7.38 In addition, 

the Applicant states that in many other 

instances, e.g. PTE 97–41, the 

Department has relied on the protective 

conditions of the Rule to make a finding 

that the exemption is protective of 

participants. 

The Applicant represents that many 

fixed income offerings of Rule 144A 

Securities represent good investment 

opportunities for the asset manager’s 

client Plans. Particularly with respect to 

long-dated corporate bonds, an offering 

of Rule 144A Securities may provide the 

least expensive and efficient way for 

issuers to sell such securities, and as 

QIBs, the Applicant’s clients are able to 

participate in this market. 

16. According to Baird, reliance on 

Rule 144A has become a common way 

in which corporate bonds are issued and 

traded. The Applicant states that Rule 

144A, which was adopted in 1990, acts 

as a ‘‘safe harbor’’ exemption from the 

registration provisions of the 1933 Act 

for sales of certain types of securities to 

Qualified Institutional Buyers (QIBs). 

QIBs include several types of 

institutional entities, such as Plans and 

commingled trust funds holding assets 

of such Plans, which own and invest on 

a discretionary basis at least $100 

million in securities of unaffiliated 

issuers. Any securities may be sold 

pursuant to Rule 144A except for those 

of the same class or similar to a class 

that is publicly traded in the United 

States, or certain types of investment 

company securities. The Applicant 

explains that this limitation is designed 

to prevent side-by-side public and 

private markets developing for the same 

class of securities. Furthermore, the 

Applicant represents that buyers of Rule 

144A securities must be able to obtain, 

upon request, basic information 

concerning the business of the issuer 

and the issuer’s financial statements, 

much of the same information as would 

be furnished if the offering were 

registered.39

17. The Applicant represents further 

that sales under Rule 144A, like sales in 

a registered offering, remain subject to 

the protections of the anti-fraud rules of 

federal and state securities laws.40

Through these and other provisions, the 

Applicant explains, the SEC may use its 

full range of enforcement powers to 

exercise its regulatory authority over the 

market for Rule 144A Securities, in the 

event that it detects improper practices. 

According to Baird, this potential 

liability for fraud provides a 

considerable incentive to the issuer and 

offering syndicate to ensure that the 

information contained in a Rule 144A 

offering memorandum is complete and 

accurate in all material respects. 

18. The Applicant represents further 

that Rule 144A offerings generally are 

structured in the same manner as 

underwritten registered offerings. 

According to Baird, the major difference 

is that a Rule 144A offering uses an 

offering memorandum rather than a 

prospectus that is filed with the SEC. 

Furthermore, the marketing process is 

the same in most respects, except that 

the selling efforts are generally limited 

to QIBs and no general advertisements 

or general solicitations are used. 

19. The Applicant represents that 

although Rule 144A corporate bonds are 

traded by QIBs, the market for Rule 

144A corporate bonds is liquid and 

mutual funds are able to treat Rule 144A 

Securities as liquid securities under the 

1940 Act. As such, the Applicant states 

that syndicates selling Rule 144A 

Securities are functionally equivalent to 

syndicates selling securities in 

registered offerings.41

Valuation 

20. The proposed exemption also 

contains valuation requirements which 

apply to any in-kind exchange between 

a Plan and a Fund. In general, according 

to the Applicant, the condition requires 

that the value of Fund shares received 

by a Plan with respect to an in-kind 

exchange with a Fund will be 

determined based on the same valuation 

principles which govern valuation of 

the underlying securities held by the 

Fund, and will use the same pricing 

sources used by the Fund with respect 

to its assets. In this regard, the 

Applicant states that the Fund’s 

valuation policies are consistent with 

the requirements of the 1940 Act, and 

transfers in-kind will be effected in 

accordance with Rule 17a–7 under the 

1940 Act, described above. Specifically, 

the Applicant represents that the Fund 

will value Rule 144A Securities at their 

evaluated bid prices obtained through a 

well-established third party pricing 

service (Interactive Data Pricing and 

Reference Data, LLC). Any securities for 

which prices cannot be obtained from a 

third party pricing service will not be 

transferred in-kind. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70656 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

21. The Applicant states that the Fund 

must also value its assets pursuant to 

procedures established by the Fund’s 

Board of Directors or Trustees, as 

applicable, and as required by the 1940 

Act. The Applicant represents that Fund 

investors, including the Plans, will 

receive notice of any material changes to 

the Fund’s valuation policies. 

According to Baird, the Plan fiduciary 

could, if it disagreed with the change, 

instruct the investment manager to sell 

the shares, which are freely redeemable 

on any day in which the markets are 

open. 

Secondary Services 

22. The Applicant states that they will 

receive from the Fund various fees and 

expenses for providing or arranging for 

the provision of administrative, 

recordkeeping, accounting, custody, 

transfer agency, shareholder and similar 

services. The Applicant represents that 

all such services are ‘‘Secondary 

Services’’ under the 1940 Act and under 

the exemptions that the Department has 

granted seeking similar relief to that 

requested here. According to the 

Applicant, under Similar Exemptions 

granted by the Department, ‘‘Secondary 

Services’’ has been defined to mean a 

service other than an investment 

management service, an investment 

advisory service, and any similar 

service, which is provided to a Fund by 

the investment adviser to that Fund, 

including but not limited to custodial, 

accounting, administrative, 

recordkeeping, transfer agency, 

shareholder, and other services. All fees 

for Secondary Services received by 

Baird are paid to Baird directly by the 

Fund. The Applicant requests relief 

from the prohibitions of section 

406(b)(1)–(3) for those payments. 

According to the Applicant, no relief is 

required from section 406(a) because the 

services are provided by Baird to the 

Fund, which does not hold plan assets. 

Statutory Findings 

23. Baird represents that the proposed 

exemption is administratively feasible 

because it does not require review by 

the Department. Furthermore, the 

Applicant states that compliance with 

its terms can be measured against 

market quotations and can be readily 

audited, because the Plan fiduciary will 

have received substantial disclosure and 

a copy of the mutual Fund prospectus 

to guide its decision making. Finally, 

Baird represents that the fee offset 

provisions are easily administered. 

24. The Applicant represents that the 

proposed exemption is in the interest of 

Plans and their participants and 

beneficiaries, because the LDI strategy 

and economies of scale offered by an 

investment in the Fund serve as a hedge 

against interest rate fluctuations that 

could make Plans significantly 

underfunded and endanger the pension 

benefits of participants and 

beneficiaries. Moreover, an investment 

in the Fund will allow smaller Plans to 

hold a more diversified array of bonds, 

including long-dated corporate bonds, 

and the in-kind exchange provisions 

will avoid the transaction and execution 

costs inherent in requiring a cash 

investment in the Funds. In addition, 

according to the Applicant, no sales 

commissions or similar fees will be paid 

by the Plans to Baird or its affiliates in 

connection with a purchase, sale or 

exchange of Fund shares, with the 

exception of the purchase fee, which 

will be paid to the Fund (not Baird), in 

order to protect Plans that are invested 

in the Fund from paying the transaction 

costs of other investors in the Fund. 

Moreover, the Applicant represents 

that that it is important to be able to 

transfer Rule 144A Securities in kind 

because Plans being managed in 

separate accounts will have purchased 

such bonds as an important component 

of an LDI strategy for their accounts. 

Baird represents that, if a Plan had to 

sell its Rule 144A Securities before 

investing in the Fund, rather than 

transferring them in kind, it would 

incur transaction costs and execution 

costs in selling the Rule 144A 

Securities. In addition, according to 

Baird, the Fund would incur similar 

transaction costs and execution costs in 

using the cash transferred from the 

investing plan to reinvest in these same 

securities, causing unnecessary costs for 

all Plan investors in the Fund. 

25. The Applicant represents that the 

proposed exemption is protective of the 

rights of participants and beneficiaries 

of the Plans because it is conditioned on 

several requirements that ensure that 

Plans are being treated fairly and at 

arm’s length, using conditions that have 

been found to be protective in class 

exemptions and in the Similar 

Exemptions. In this regard, among other 

conditions, Baird states that prior to the 

initial investment of Plan assets in the 

Fund, the Second Fiduciary of each 

Plan will receive full disclosure 

regarding the proposed investment and 

the fees to be received by the Applicant, 

and has the opportunity to approve or 

disapprove the investment. 

Additionally, Baird represents that no 

plan sponsored by the Investment 

Adviser will engage in the proposed 

transactions. 

The Applicant represents that neither 

Baird and nor its affiliates will receive 

any fees payable pursuant to Rule 12b– 

1 under the 1940 Act in connection with 

the transactions described herein, and 

there will be no double payment of 

investment management, investment 

advisory and similar fees to the 

Applicant by the Plan. 

According to the Applicant, the Plan 

will pay no redemption or similar fees 

to the Applicant in connection with the 

sales by the Plan of Fund shares. In 

addition, the Applicant represents that 

the Plans will not be paying a purchase 

fee on assets transferred in kind. 

Furthermore, Baird states that the 

combined total of all fees received by 

the Applicant for the provision of 

services to a Plan, and in connection 

with the provision of any services to the 

Fund in which a Plan may invest, will 

not be in excess of ‘‘reasonable 

compensation’’ within the meaning of 

section 408(b)(2) of the Act. 

26. The Applicant states that in-kind 

transactions with a plan will only 

involve securities which are publiclytraded and for which market quotations 

are readily available or Rule 144A 

Securities that are valued based on 

prices obtained from a reliable thirdparty pricing service. Additionally, the 

Applicant represents that the Fund will 

only allow in-kind transfers of securities 

in compliance with the 1940 Act that 

meet the Fund’s stated investment 

objective and principal investment 

strategies disclosed in the Fund’s 

prospectus. 

As represented by the Applicant, the 

Baird portfolio management team will 

review the securities proposed to be 

exchanged in-kind to ensure they are in 

compliance with the Fund’s stated 

investment objective and principal 

investment strategies as defined in the 

Fund’s prospectus filed with the SEC. In 

addition, the Applicant states that the 

Fund’s Board of Directors must review 

and approve all in-kind transfers into 

and out of the Fund. A component of 

this review is to ensure securities 

coming into the Fund via an in-kind 

transfer are appropriate Fund 

investments and comply with the 

Fund’s stated investment objective and 

principal investment strategies, as 

detailed in the Fund’s prospectus. 

27. Finally, the Applicant notes that 

the market for Rule 144A Securities is 

active and liquid, and trades for Rule 

144A Securities are reported through 

the Trade Reporting and Compliance 

Engine (TRACE) system administered by 

the Financial Industry Regulatory 

Authority (FINRA), thus enabling a 

third party pricing service to value the 

securities using objective trade data. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70657 

Summary 

In summary, the Applicant represents 

that the criteria of section 408(a) of the 

Act are satisfied for the following 

reasons: 

(a) The Account does not pay a sales 

commission or other similar fees to the 

Investment Adviser or its affiliates in 

connection with the acquisition, sale, or 

exchange of shares of the Fund. 

(b) The Account does not pay a 

purchase, redemption or similar fee to 

the Investment Adviser in connection 

with the acquisition of shares by the 

Account or the sale by the Account to 

the Fund of such shares. 

(c) The Account may pay a purchase 

or redemption fee to the Fund in 

connection with an acquisition or sale 

of shares by the Account, that is fully 

disclosed in the Fund’s prospectus in 

effect at all times. Furthermore, any 

purchase fee paid by the Account to the 

Fund (1) is intended to approximate the 

difference between ‘‘bid’’ and ‘‘asked’’ 

prices on the fixed income securities 

that the Fund will purchase using the 

proceeds from the sale of Fund shares 

to the Account; and (2) is not charged 

on any assets transferred in-kind to the 

Fund. 

(d) The Account does not pay an 

investment management, investment 

advisory or similar fee with respect to 

Account assets invested in Fund shares 

for the entire period of such investment 

provided the investment advisory fees 

may be paid if the payment of such fees 

complies with the rebating, crediting, or 

offsetting requirements of Section II(d) 

of the exemption. 

(e) The crediting, offsetting or rebating 

of any fees in Section II(d) of the 

exemption is audited at least annually 

by the Investment Adviser through a 

system of internal controls to verify the 

accuracy of the fee mechanism adopted 

by the Investment Adviser. 

(f) The combined total of all fees 

received by the Investment Adviser for 

the provision of services to an Account, 

and for the provision of any services to 

a Fund in which an Account may 

invest, is not in excess of ‘‘reasonable 

compensation’’ within the meaning of 

section 408(b)(2) of the Act. 

(g) The Investment Adviser and its 

affiliates do not receive any fees payable 

pursuant to Rule 12b–1 under the 1940 

Act in connection with the transactions 

covered by this exemption. 

(h) Baird will comply with the 

disclosure and authorization 

requirements set forth in Section II(h)– 

(o) of the exemption. 

(i) No separately managed account 

investing in the Fund holds assets of a 

Plan sponsored by Baird or its affiliate. 

If a pooled fund holds assets of a Plan 

or Plans sponsored by Baird or its 

affiliate, the total assets of all such Plans 

shall not exceed 15% of the total assets 

of such pooled fund. 

(j) In-kind transactions with an 

Account shall only involve publicallytraded securities for which market 

quotations are readily available, 

securities that are deemed to be liquid 

and that are valued based upon prices 

obtained from a reliable wellestablished third-party pricing service 

that is independent of Baird pursuant to 

then-existing procedures established by 

the Board of Directors or Trustees of the 

Funds under the 1940 Act and 

applicable SEC rules, regulations and 

guidance, and cash in the event that the 

aforementioned securities are odd lot 

securities, fractional shares, or accruals 

on such securities. Securities for which 

prices cannot be obtained from a thirdparty pricing service will not be 

transferred in-kind, nor will any 

securities specified in Section III(a)(1)– 

(6) of the exemption. 

(k) Subject to the exceptions 

described in Section III(a) of the 

exemption, in the case of an in-kind 

exchange of assets between an Account 

and the Fund, the Account will receive 

its pro rata portion of the securities of 

the Fund equal in value to that of the 

number of shares redeemed, or the Fund 

shares having a total net asset value 

(NAV) equal to the value of the assets 

transferred on the date of the transfer, as 

determined in a single valuation, using 

sources independent of the Investment 

Adviser, performed in the same manner 

as it would for any other person or 

entity at the close of the same business 

day in accordance with the procedures 

established by the Fund pursuant to 

Rule 2a–4 under the 1940 Act, and the 

then-existing valuation procedures 

established by its Board of Directors or 

Trustees, as applicable for the valuation 

of such assets, that are in compliance 

with the rules administered by the SEC. 

In connection with a redemption of 

Fund shares, the value of the securities 

and any cash received by the Account 

for each redeemed Fund share equals 

the NAV of such shares at the time of 

the transaction. In the case of any other 

in-kind exchange, the value of the Fund 

shares received by the Account equals 

the NAV of the transferred securities 

and any cash on the date of the transfer. 

(l) Baird will comply with the 

disclosure requirements of Section III(c) 

in order to facilitate a post-transaction 

review of any in-kind transaction so that 

the material aspects of such transaction, 

including pricing, can be reviewed. 

(m) Prior to the consummation of an 

in-kind exchange, Baird must document 

in writing and determine that such 

transaction is fair to the Account and 

comparable to, and no less favorable 

than, terms obtainable at arm’s-length 

between unaffiliated parties, and that 

the in-kind transaction is in the best 

interests of the Account and the 

participants and beneficiaries of the 

participating Plans. 

(n) All of the Accounts’ other dealings 

with the Funds, Baird, or any person 

affiliated thereto, are on terms that are 

no less favorable to the Account than 

such dealings are with other 

shareholders of the Funds. 

(o) Baird and its affiliates, as 

applicable, will comply with the recordkeeping and retention requirements 

specified in the exemption. 

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 separate account 

investment management client Plans 

that may be interested in investing in 

the Fund. 

It is represented that all such 

interested persons will be notified of the 

publication of the Notice by electronic 

delivery within fifteen (15) days of 

publication of the Notice in the Federal 

Register. The 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 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. 

Jennifer Erin Brown of the Department 

at (202) 693–8352. (This is not a toll-free 

number.) 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70658 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

42For 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. 

First Security Group, Inc. 401(k) and 

Employee Stock Ownership Plan (the 

Plan) Located in Chattanooga, TN 

[Application No. D–11826] 

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 

August 21, 2013, and ending on 

September 20, 2013, the restrictions of 

sections 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)(E) 

of the Code,42 shall not apply: 

(a) To the acquisition of certain 

subscription right(s) (the Right or 

Rights) by the individually-directed 

account(s) (the Account or Accounts) of 

certain participant(s) in the Plan (the 

Invested Participant(s)) in connection 

with an offering (the Offering) by First 

Security Group, Inc. (FSG), of shares of 

common stock (the Common Stock) of 

FSG, the sponsor of the Plan and a party 

in interest with respect to the Plan; and 

(b) To the holding of the Rights 

received by the Accounts of Invested 

Participants during the subscription 

period (the Subscription Period) of the 

Offering; provided that the conditions 

set forth in Section II of this proposed 

exemption were satisfied for the 

duration of the acquisition and holding. 

Section II: Conditions 

(a) The receipt of the Rights by the 

Accounts of Invested Participants 

occurred in connection with the 

Offering, and the Rights were made 

available by FSG on the same material 

terms to all shareholders of record of the 

Common Stock of FSG, including the 

Accounts of Invested Participants; 

(b) The acquisition of the Rights by 

the Accounts of Invested Participants 

resulted from an independent corporate 

act of FSG; 

(c) Each shareholder of the Common 

Stock, including each of the Accounts of 

Invested Participants, received the same 

proportionate number of Rights, and 

this proportionate number of Rights was 

based on the number of shares of 

Common Stock held by each such 

shareholder; 

(d) The Rights were acquired pursuant 

to, and in accordance with, provisions 

under the Plan for individually-directed 

investment of the Accounts by the 

Invested Participants, all or a portion of 

whose Accounts in the Plan held the 

Common Stock; 

(e) The decision with regard to the 

holding and the exercise of the Rights 

by an Account was made by the 

Invested Participant whose Account 

received the Rights; 

(f) No commissions, no fees and no 

expenses were paid by the Plan or by 

the Accounts of Invested Participants to 

any related broker in connection with 

the exercise of any of the Rights or with 

regard to the acquisition of the Common 

Stock through the exercise of such 

Rights, and no brokerage fees, no 

commissions, no subscription fees, and 

no other charges were paid by the Plan 

or by the Accounts of Invested 

Participants with respect to the 

acquisition and holding of the Rights; 

(g) FSG did not influence any 

Invested Participant’s decision to 

exercise the Rights or influence an 

Invested Participant’s decision to allow 

such Rights to expire; and 

(h) The terms of the Offering were 

described to the Invested Participants in 

clearly written communications, 

including but not limited to the 

prospectus for the Rights Offering. 

Effective Date: This proposed 

exemption, if granted, will be effective 

for the period beginning on August 21, 

2013, the commencement date of the 

Offering, and ending on September 20, 

2013, the closing date of the Offering. 

Summary of Facts and Representations 

Background 

1. The Plan, established on August 1, 

1999, is tax-qualified under section 

401(a) of the Code. The Plan contains a 

cash or deferred arrangement under 

section 401(k) of the Code, and is 

designed to qualify as a leveraged 

employee stock ownership plan (ESOP), 

pursuant to section 4975(e)(7) of the 

Code. FSGBank, National Association 

(FSGBank) serves as the trustee of the 

Plan. 

The Plan provides for participants to 

self-direct the investment of their 

Accounts and is intended to operate in 

accordance with section 404(c) of the 

Act. The participants in the Plan are the 

only persons who have investment 

discretion over the assets in the 

Accounts involved in the subject 

transactions. 

In addition to investment in certain 

mutual funds and a collective trust 

fund, Plan participants may invest 

amounts held in their Accounts in the 

common stock of FSG (Common Stock) 

through the ESOP portion of the Plan. 

Investment in Common Stock by Plan 

participants is voluntary. The Common 

Stock held in Plan Accounts is no 

different from the Common Stock held 

by other FSG shareholders. 

Of the shares of Common Stock 

issued, as of April 10, 2013 (the Record 

Date), the Accounts in the Plan held 

102,501.746735 shares. As of August 21, 

2013, the commencement of the 

Offering, there were 237 participants in 

the Plan of which 152 were active 

participants and 85 were terminated 

participants. Of these 237 participants, 

the Accounts of 56 participants in the 

Plan, four (4) of which were terminated 

participants, held approximately 46,039 

shares of Common Stock (approximately 

0.073% of the outstanding shares) with 

a value of $111,875, based on the 

closing price of such Common Stock on 

NASDAQ of $2.43 per share, as of the 

commencement date of the Offering. As 

of the same date, the Plan’s assets 

totaled approximately $11,187,500 of 

which the value of the Common Stock 

($111,875) constituted approximately 

1.0%. 

2. As stated above, FSG (or the 

Applicant) sponsors the Plan for the 

benefit of the current and former 

employees of FSG and its subsidiaries, 

and for the beneficiaries of such 

employees or alternative payees. 

Incorporated in 1999 as a Tennessee 

corporation, FSG is a bank holding 

company headquartered in Chattanooga, 

Tennessee. FSG is regulated and 

supervised by the Board of Governors of 

the Federal Reserve System. As of 

December 31, 2013, FSG had total assets 

of approximately $977.6 million, total 

deposits of approximately $857 million, 

and stockholders’ equity of 

approximately $83.6 million. 

FSG operates thirty (30) full-service 

banking offices through its whollyowned bank subsidiary, FSGBank. FSG 

and FSGBank serve the banking and 

financial needs of various communities 

in eastern and middle Tennessee, as 

well as northern Georgia. 

The Common Stock 

3. As of August 20, 2013, 63,270,867 

shares of Common Stock were issued 

and outstanding, 2,276,890 shares of 

Common Stock were issuable upon 

exercise of outstanding stock options, 

and approximately 3,226,775 shares of 

Common Stock were reserved for future 

issuance under FSG’s stock option plan. 

As of June 27, 2014, the authorized 

capital stock of FSG consisted of 

150,000,000 shares of Common Stock, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70659 

43 It is represented that FSG did not request an 

administrative exemption from the prohibited 

transaction provisions of the Act or Code for the 

exercise of the Rights by the Accounts of the 

Invested Participants. Instead, FSG relied on the 

relief provided by the statutory exemption, 

pursuant to section 408(e) of the Act for the exercise 

of the Rights. Accordingly, the Department is not 

providing any relief herein from such prohibited 

transaction provisions with respect to such exercise 

of the Rights. In addition, the Department is offering 

no view on whether the statutory exemption 

provided in section 408(e) of the Act and the 

Department’s regulations, pursuant to 29 CFR 

§ 2550.408(e), are applicable to the exercise of the 

Rights. Further, the Department is not offering a 

view on whether FSG satisfied the conditions of 

such statutory exemption. 

and 10,000,000 shares of preferred stock 

(the Preferred Stock). As of the same 

date, no shares of Preferred Stock were 

issued or outstanding. The Common 

Stock is traded on the NASDAQ Capital 

Market under the symbol ‘‘FSGI.’’ The 

Common Stock is a ‘‘qualifying 

employer security,’’ as defined under 

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

The Recapitalization 

4. On February 25, 2013, FSG entered 

into an exchange agreement (the 

Exchange Agreement) with the United 

States Department of the Treasury 

(Treasury). On the same date, FSG 

entered into a stock purchase agreement 

(the Stock Purchase Agreement) with 

certain institutional investors, including 

affiliates of EJF Capital, GF Financial II, 

LLC, MFP Partners, L.F., and Ulysses 

Partners, L.P. (collectively and 

individually, the Investor(s)). Both the 

Exchange Agreement and the Stock 

Purchase Agreement (together, the 

Agreements) were entered in connection 

with a $91,100,000 recapitalization of 

FSG (the Recapitalization). Pursuant to 

these Agreements, FSG was required to 

issue and sell in a private placement 

(the Private Placement), approximately 

60,735,000 shares of Common Stock at 

a price per share of $1.50. The closing 

of the Private Placement took place over 

two days. In this regard, on April 11, 

2013, pursuant to the Exchange 

Agreement with Treasury, FSG issued 

9,941,908 shares of Common Stock to 

Treasury in exchange for 33,000 shares 

of FSG’s Fixed Rate Cumulative 

Perpetual Preferred Stock (the TARP 

Preferred Stock), and all accrued but 

unpaid dividends on the TARP 

Preferred Stock, and a warrant to 

purchase 82,363 shares of the Common 

Stock. 

Immediately following such 

exchange, on April 11, 2013, Treasury 

sold the 9,941,908 shares of Common 

Stock to the Investors. Pursuant to the 

Stock Purchase Agreement, FSG could 

direct each of the Investors to purchase 

all or a part of each such Investor’s 

committed investment from Treasury. 

On April 12, 2013, the Investors 

purchased 50,793,092 shares of 

Common Stock that remained from their 

committed investment directly from 

FSG. In the aggregate, the Investors 

agreed to purchase approximately $91.1 

million of the Common Stock at $1.50 

per share. 

The Offering 

5. Under the Stock Purchase 

Agreement, FSG was required to enter 

into the offering (the Offering) to 

provide to shareholders of Common 

Stock as of the Record Date, the rights 

(the Rights) to purchase up to $5 million 

worth of Common Stock at a purchase 

price per share equal to the 

Recapitalization purchase price ($1.50 

per share.) The Offering permitted FSG 

to issue up to 3,329,234 shares of 

Common Stock with a par value of 

$0.01. 

The Plan participants whose 

Accounts held Common Stock (the 

Invested Participants) received a special 

notice that described the Offering in 

non-technical language, a prospectus, 

documentation of the number of Rights 

allocated to their respective Plan 

Accounts, instructions on how to 

exercise such Rights, and an ESOP NonTransferable Subscription Rights 

Elections Form. The prospectus 

contained more detailed information 

regarding the Offering, including the 

reasons for the Offering, the terms of the 

Offering, and the investment risks 

associated with exercise of the Rights 

and the purchase of Common Stock. 

FSG distributed the Rights, at no 

charge, to the shareholders of Common 

Stock in FSG, including the Accounts of 

the Invested Participants, as of 5:00 p.m. 

EST on the Record Date, April 10, 2013. 

Each shareholder of record received one 

Right for each share of Common Stock 

held by such shareholder. Each Right 

entitled the recipient to purchase two 

(2) shares of Common Stock at a 

subscription price (the Subscription 

Price) of $1.50 per share (the Basic 

Subscription Privilege). The 

Subscription Price was the same price at 

which Investors purchased Common 

Stock as part of the Recapitalization. 

The Rights could not be sold, 

transferred, or assigned. The Rights 

were not listed for trading on the 

NASDAQ or any other exchange or overthe-counter market. Further, the Rights 

were non-transferrable in order to 

permit only those shareholders who 

owned Stock, as of the Record Date, the 

opportunity to purchase additional 

shares of Common Stock to help offset 

the dilution of such shareholders 

interest in FSG that occurred as part of 

the Recapitalization. 

6. If a shareholder purchased all of the 

Common Stock available to the 

shareholder through the Basic 

Subscription Privilege, such shareholder 

could also choose to purchase a portion 

of Common Stock in the Offering that 

was not purchased by the other 

shareholders through the exercise of 

their Rights (the Over-Subscription 

Privilege). FSG honored the requests 

received pursuant to the OverSubscription Privilege by multiplying 

the number of shares of Common Stock 

requested by each shareholder through 

the exercise of their Over-Subscription 

Privilege by a fraction that equaled (x) 

the number of shares of Common Stock 

available to be issued through the OverSubscription Privilege divided by (y) the 

total number of Common Stock 

requested by all subscribers through the 

exercise of their Over-Subscription 

Privilege. 

Shareholders sought to exercise their 

Over-Subscription Privilege for 

3,590,434 shares of Stock, which 

exceeded the number of shares available 

for the Over-Subscription Privilege. 

Approximately 1,607,608 shares of 

Common Stock were issued as part of 

the exercise of the Basic Subscription 

Privilege and approximately 1,721,626 

shares of Common Stock were issued as 

part of the exercise of the OverSubscription Privilege. 

Exercise of the Rights 

7. The Invested Participants chose 

whether to exercise their Rights in order 

to purchase shares of Common Stock or 

to allow the Rights to expire.43 Any 

election to exercise the Rights could not 

be revoked, once made. Any 

unexercised Rights expired upon the 

conclusion of the Subscription Period. 

In order to exercise their Rights, the 

Invested Participants were required to 

submit their election forms to Registrar 

and Transfer Company (the Tabulator) 

by September 13, 2013, seven (7) 

business days earlier than the 

subscription date (September 20, 2013) 

set for the elections of other 

shareholders. It is represented that the 

earlier deadline for the Plan Accounts 

was appropriate to help facilitate the 

tabulation of the elections of all the 

Invested Participants by the Tabulator 

and to allow time to provide such 

information to FSGBank. A total of 41 

Invested Participants exercised their 

Rights to purchase shares of the 

Common Stock. The Plan was issued 

138,260 shares of Common Stock under 

the Basic Subscription Privilege and 

205,008 shares of Common Stock under 

the Over-Subscription Privilege, for a 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70660 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

total of 343,268 shares of Common 

Stock. 

To facilitate the exercise of the Rights, 

Invested Participants transferred money 

into their Plan money market accounts 

from other investment funds in the Plan. 

The applicable money market funds 

were frozen effective as of the close of 

the NASDAQ Capital Market one (1) 

business day prior to the Subscription 

Date (i.e., September 19, 2013) through 

September 26, 2013, and no additional 

transfers were permitted into or out of 

such money market funds during that 

time. If two (2) business days prior to 

the Subscription Date, an Invested 

Participant had insufficient funds in his 

money market account to cover the 

aggregate cost of acquiring Common 

Stock upon the exercise of the Rights, 

then FSGBank did not process such 

Invested Participant’s election. It is 

represented that this procedure varied 

from that employed for other 

shareholders under similar 

circumstances, in that other 

shareholders were issued Common 

Stock in the amount of the payment 

made, rather than having the election to 

exercise their Rights rejected. It is 

represented that this discrepancy is due 

to the fact that the record-keeper for the 

Plan could not implement a partial 

acceptance procedure for the Invested 

Participants. It is represented that none 

of the shareholders, including the 

Accounts of Invested Participants, were 

issued shares of Common Stock in an 

amount less than the amount exercised 

under the Basic Subscription Privilege, 

as all Rights exercised by such 

shareholders were fully paid under that 

privilege. 

The Invested Participants submitted 

their elections to the Tabulator who 

then provided such information to 

FSGBank. FSGBank exercised the Rights 

based on the information provided by 

the Tabulator and did not have any 

discretion as to the number of shares 

that an Invested Participant elected to 

be acquired through the exercise of the 

Rights. However, if the Common Stock 

traded at a price less than $1.50 per 

share, FSGBank was not permitted to 

process the Invested Participants’ 

elections to exercise the Rights. The 

actual market price per share on the 

date of placing the offers (i.e., 

September 20, 2013) was $2.25 per 

share, and therefore no Invested 

Participant elections were denied based 

on the share price. 

A portion of the Accounts of Invested 

Participants which was already invested 

in Common Stock was frozen from noon 

EST on the Subscription Date until 

September 28, 2013 (i.e., the date which 

was one business day following the date 

on which FSG Bank received the newlyoffered shares of Common Stock on 

behalf of such Invested Participants). 

This restriction was applied to ensure 

that no Invested Participant was able to 

sell such shares until the Common 

Stock had been received by FSGBank 

and allocated to the Accounts of such 

Invested Participants. 

Request for Exemptive Relief 

8. The transactions for which the FSG 

has requested retroactive exemptive 

relief include: (a) The acquisition of the 

Rights by the Accounts of Invested 

Participants in connection with the 

Offering of Rights by FSG; and (b) the 

holding of the Rights by the Accounts of 

Invested Participants during the 

Subscription Period of the Offering. 

Section 406(a)(1)(E) of the Act 

prohibits the acquisition on behalf of 

the plan of any ‘‘employer security’’ in 

violation of section 407(a). Section 

406(a)(2) of the Act prohibits a fiduciary 

who has authority or discretion to 

control or manage the assets of the plan 

to permit such plan to hold any 

‘‘employer security’’ if he knows or 

should know that the holding of such 

security violates section 407(a) of the 

Act. Section 407(a) of the Act prohibits 

a plan from acquiring or holding 

employer securities that are not 

‘‘qualifying employer securities.’’ 

It is represented that the Rights 

acquired by the Accounts of Invested 

Participants satisfy the definition of 

‘‘employer securities,’’ pursuant to 

section 407(d)(1) of the Act. However, as 

the Rights were not stock or marketable 

obligations, 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 on behalf of the 

Accounts of Invested Participants, of 

employer securities which are not 

qualifying employer securities, in 

violation of sections 406(a)(1)(E), 

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

FSG has also requested relief from the 

prohibitions of section 406(b)(1) and 

406(b)(2) of the Act for self-dealing and 

conflicts of interest, respectively, which 

arose as a result of the acquisition and 

holding of the Rights by the Accounts of 

Invested Participants in the Plan. 

Section 406(b)(1) of the Act prohibits 

a fiduciary from dealing with the assets 

of a plan in his own interest or for his 

own account. Section 406(b)(2) of the 

Act prohibits a fiduciary from engaging 

in his individual or any other capacity 

to act in any transaction involving the 

plan on behalf of a party (or represent 

a party) whose interest are adverse to 

the interest of the plan or the interests 

of its participants or beneficiaries. 

As employers any of whose 

employees are covered by the Plan, FSG 

and its subsidiaries are parties in 

interest with respect to the Plan 

pursuant to section 3(14)(C) of the Act. 

As Plan trustee, FSGBank is a party in 

interest with respect to the Plan, as a 

fiduciary service provider, pursuant to 

section 3(14)(A) and (B) of the Act. 

FSGBank, as a wholly-owned subsidiary 

of FSG, the Plan sponsor, is also a party 

in interest with respect to the Plan, 

pursuant to section 3(14)(G) of the Act. 

Accordingly, the acquisition and 

holding by the Accounts of Invested 

Participants of the Rights issued by FSG, 

a party in interest with respect to the 

Plan would involve self-dealing and 

conflicts of interest for which relief is 

needed and has been requested by FSG. 

9. It is represented that the subject 

transactions have already been 

consummated. In this regard, the 

Subscription Period began on August 

21, 2013, and ended on September 20, 

2013. The Accounts of Invested 

Participants in the Plan acquired the 

Rights pursuant to the Offering on 

August 21, 2013, and held such Rights 

pending the closing of the Offering 

when such Rights either were exercised 

or expired. The Applicant represents 

that there was insufficient time to apply 

for and be granted an exemption 

between the dates when the Accounts of 

Invested Participants acquired the 

Rights and when such Rights were 

exercised or expired. Therefore, FSG is 

seeking a retroactive administrative 

exemption to be granted, effective from 

August 21, 2013, the date that such 

Accounts acquired the Rights, and 

September 20, 2013, the closing date of 

the Offering. 

10. The Applicant represents that the 

proposed exemption is administratively 

feasible. In this regard, the acquisition 

and holding of the Rights by the 

Accounts of Invested Participants were 

one-time transactions that involved an 

automatic distribution of the Rights to 

all shareholders. All shareholders of the 

Common Stock, including the Accounts 

of Invested Participants were treated in 

the same manner in all material terms 

with respect to the acquisition and 

holding of the Rights. 

11. The Applicant represents that the 

transactions which are the subject of 

this proposed exemption are in the 

interest of the Accounts of Invested 

Participants, because such Accounts 

received, at no cost, Rights with a 

potential for an immediate financial 

gain. In this regard, for the Accounts of 

those Invested Participants who elected 

to exercise their Rights, such Accounts 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70661 

acquired a valuable opportunity to 

purchase the Stock at a price of $1.50 

per share which price was at or below 

the then market price ($2.25 per share) 

for such Stock. Further, it is represented 

that the Accounts of Invested 

Participants who exercised the Rights 

avoided the dilution of their interests in 

FSG that resulted from the Offering and 

the Recapitalization. 

Safeguards of Exemption 

12. The Applicant believes that the 

proposed exemption provides sufficient 

safeguards for the protection of the 

Accounts of Invested Participants and 

the beneficiaries of such Accounts, in 

that the acquisition of the Rights by the 

Accounts of Invested Participants 

resulted from an independent corporate 

act of FSG. FSG made the Rights 

available on the same material terms to 

all shareholders of the Common Stock, 

including the Accounts. Each 

shareholder of the Common Stock, 

including each of the Accounts, 

received the same proportionate number 

of Rights, and this proportionate 

number of Rights was based on the 

number of shares of Common Stock held 

by each such shareholder. 

The Applicant represents that the 

Accounts of Invested Participants were 

adequately protected, in that 

participation in the Offering by such 

Accounts was voluntary. The Applicant 

represents that FSG did not influence 

any Invested Participant’s decision to 

exercise the Rights or influence an 

Invested Participant’s decision to allow 

such Rights to expire. In this regard, the 

Invested Participants were under no 

obligation to exercise the Rights. 

The Applicant represents that 

Invested Participants received sufficient 

disclosures with respect to the Offering. 

It is represented that the terms of the 

Offering were described to the Invested 

Participants in clearly written 

communications, including but not 

limited to the prospectus for the Rights 

Offering. 

The Applicant represents that the 

Accounts of Invested Participants were 

protected against economic loss by 

exercising the Rights. FSGBank, as 

trustee, was instructed to not execute an 

Invested Participant’s election to 

exercise the Rights, if the fair market 

value of the Common Stock was less 

than the strike price or if the Account 

of such Invested Participant did not 

have sufficient funds to cover the 

aggregate subscription price. In this 

regard, it is represented that the price of 

the Common Stock on September 20, 

2013, the date of placing the offers was 

$2.25 per share, which price was in 

excess of the strike price of $1.50 per 

share. 

It is represented that neither the Plan 

nor the Accounts of Invested 

Participants paid any commissions, fees, 

or expenses to any related broker in 

connection with the exercise of any of 

the Rights or with regard to the 

acquisition of the Common Stock 

through the exercise of such Rights. It is 

further represented that no brokerage 

fees, no commissions, no subscription 

fees, and no other charges were paid by 

the Plan or by the Accounts of Invested 

Participants with respect to the 

acquisition and holding of the Rights. 

Summary 

13. In summary, FSG represents that 

the subject transactions satisfy the 

statutory criteria of section 408(a) of the 

Act because: 

(a) The receipt of the Rights by the 

Invested Participants’ Accounts 

occurred in connection with the 

Offering, and the Rights were made 

available by FSG to all shareholders of 

the Common Stock of FSG, including 

the Invested Participants’ Accounts; 

(b) The acquisition of the Rights by 

the Accounts of Invested Participants 

resulted from an independent corporate 

act of FSG; 

(c) Each shareholder of the Common 

Stock, including each of the Accounts, 

received the same proportionate number 

of Rights, and this proportionate 

number of Rights was based on the 

number of shares of Common Stock held 

by such shareholder; 

(d) The Rights were acquired pursuant 

to, and in accordance with, provisions 

under the Plan for individually-directed 

investment of the Accounts by the 

Invested Participants, all or a portion of 

whose Accounts in the Plan held the 

Common Stock; 

(e) The decision with regard to the 

holding and the exercise of the Rights 

by an Account was made by the 

Invested Participant whose Account 

received the Rights; 

(f) No commissions, no fees, and no 

expenses were paid by the Plan or by 

the Accounts of Invested Participants to 

any related broker in connection with 

the exercise of any of the Rights or with 

regard to the acquisition of the Common 

Stock through the exercise of such 

Rights, and no brokerage fees, no 

commissions, no subscription fees, and 

no other charges were paid by the Plan 

or by the Accounts with respect to the 

acquisition and holding of the Rights; 

(g) FSG did not influence any 

Invested Participant’s decision to 

exercise the Rights or influence an 

Invested Participant’s decision to allow 

such Rights to expire; and 

(h) The terms of the Offering were 

described to the Invested Participants in 

clearly written communications, 

including but not limited to the 

prospectus for the Rights Offering. 

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 Invested 

Participants whose Accounts in the Plan 

were invested in the Common Stock at 

the time of the Offering. 

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 following the 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 forty-five (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) 693–8540. (This is not 

a toll-free number. 

BNP Paribas, S.A. (BNP or the 

Applicant) Located in Paris, France 

[Application No. D–11827] 

Proposed Exemption 

Based on the foregoing facts and 

representations submitted by the 

Applicant, 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 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70662 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

44For 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. 

45 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). 

46Section I(g) generally provides that ‘‘[n]either 

the QPAM nor any affiliate thereof . . . nor any 

owner . . . of a 5 percent or more interest in the 

QPAM is a person who within the 10 years 

immediately preceding the transaction has been 

either convicted or released from imprisonment, 

whichever is later, as a result of’’ certain felonies 

including income tax evasion and conspiracy or 

attempt to commit income tax evasion. 

part 2570, subpart B (76 FR 66637, 

66644, October 27, 2011).44

Section I: Covered Transactions 

If the proposed exemption is granted, 

the BNP Affiliated QPAMs and the BNP 

Related QPAMs shall not be precluded 

from relying on the relief provided by 

Prohibited Transaction Class Exemption 

(PTE) 84–14 45 notwithstanding the 

Convictions (as defined in Section 

II(c)),46 provided the following 

conditions are satisfied: 

(a) Any failure of the BNP Affiliated 

QPAMs or the BNP Related QPAMs to 

satisfy Section I(g) of PTE 84–14 arose 

solely from the Convictions; 

(b) The BNP Affiliated QPAMs and 

the BNP Related QPAMs (including 

officers, directors, agents other than 

BNP, and employees of such QPAMs) 

did not participate in the criminal 

conduct of BNP that is the subject of the 

Convictions; 

(c) The BNP Affiliated QPAMs and 

the BNP Related QPAMs did not 

directly receive compensation in 

connection with the criminal conduct of 

BNP that is the subject of the 

Convictions; 

(d) The criminal conduct of BNP that 

is the subject of the Convictions did not 

directly or indirectly involve the assets 

of any plan subject to Part 4 of Title I 

of ERISA (an ERISA-covered plan) or 

section 4975 of the Code (an IRA); 

(e) A BNP Affiliated QPAM will not 

use its authority or influence to direct 

an ‘‘investment fund’’ (as defined in 

Section VI(b) of PTE 84–14) that is 

subject to ERISA and managed by such 

BNP Affiliated QPAM to enter into any 

transaction with BNP or engage BNP to 

provide additional services to such 

investment fund, for a direct or indirect 

fee borne by such investment fund 

regardless of whether such transactions 

or services may otherwise be within the 

scope of relief provided by an 

administrative or statutory exemption; 

(f) Each BNP Affiliated QPAM will 

ensure that none of its employees or 

agents, if any, that were involved in the 

criminal conduct that underlies the 

Convictions will engage in transactions 

on behalf of any ‘‘investment fund’’ (as 

defined in Section VI(b) of PTE 84–14) 

subject to ERISA and managed by such 

BNP Affiliated QPAM; 

(g)(1) Each BNP Affiliated QPAM 

immediately develops, implements, 

maintains, and follows written policies 

(the Policies) requiring and reasonably 

designed to ensure that: (i) The asset 

management decisions of the BNP 

Affiliated QPAM are conducted 

independently of BNP’s management 

and business activities; (ii) the BNP 

Affiliated QPAM fully complies with 

ERISA’s fiduciary duties and ERISA and 

the Code’s prohibited transaction 

provisions and does not knowingly 

participate in any violations of these 

duties and provisions with respect to 

ERISA-covered plans and IRAs; (iii) the 

BNP Affiliated QPAM does not 

knowingly participate in any other 

person’s violation of ERISA or the Code 

with respect to ERISA-covered plans 

and IRAs; (iv) any filings or statements 

made by the BNP Affiliated QPAM to 

regulators, including but not limited to, 

the Department of Labor, the 

Department of the Treasury, the 

Department of Justice, and the Pension 

Benefit Guaranty Corporation, on behalf 

of ERISA-covered plans or IRAs are 

materially accurate and complete, to the 

best of such QPAM’s knowledge at that 

time; (v) the BNP Affiliated QPAM does 

not make material misrepresentations or 

omit material information in its 

communications with such regulators 

with respect to ERISA-covered plans or 

IRAs, or make material 

misrepresentations or omit material 

information in its communications with 

ERISA-covered plan and IRA clients; 

(vi) the BNP Affiliated QPAM complies 

with the terms of this exemption, if 

granted; and (vii) any violations of or 

failure to comply with items (ii) through 

(vi) are corrected promptly upon 

discovery and any such violations or 

compliance failures not promptly 

corrected are reported, upon discovering 

the failure to promptly correct, in 

writing to appropriate corporate officers, 

the head of Compliance and the General 

Counsel of the relevant BNP Affiliated 

QPAM, the independent auditor 

responsible for reviewing compliance 

with the Policies, and a fiduciary of any 

affected ERISA-covered plan or IRA 

where such fiduciary is independent of 

BNP; however, with respect to any 

ERISA-covered plan or IRA sponsored 

by an ‘‘affiliate’’ (as defined in Section 

VI(d) of PTE 84–14) of BNP or 

beneficially owned by an employee of 

BNP or its affiliates, such fiduciary does 

not need to be independent of BNP; 

BNP Affiliated QPAMs will not be 

treated as having failed to develop, 

implement, maintain, or follow the 

Policies, provided that they correct any 

instances of noncompliance promptly 

when discovered or when they 

reasonably should have known of the 

noncompliance (whichever is earlier), 

and provided that they adhere to the 

reporting requirements set forth in this 

item (vii); 

(2) Each Affiliated QPAM 

immediately develops and implements a 

program of training (the Training), 

conducted at least annually for relevant 

BNP Affiliated QPAM asset 

management, legal, compliance, and 

internal audit personnel; the Training 

shall be set forth in the Policies and, at 

a minimum, covers the Policies, ERISA 

and Code compliance (including 

applicable fiduciary duties and the 

prohibited transaction provisions) and 

ethical conduct, the consequences for 

not complying with the conditions of 

this proposed exemption, if granted, 

(including the loss of the exemptive 

relief provided herein), and prompt 

reporting of wrongdoing; 

(h)(1) Each BNP Affiliated QPAM 

submits to an audit conducted annually 

by an independent auditor, who has 

been prudently selected and who has 

appropriate technical training and 

proficiency with ERISA to evaluate the 

adequacy of, and compliance with, the 

Policies and Training described herein; 

the audit requirement must be 

incorporated in the Policies and the first 

of the audits must be completed no later 

than twelve (12) months after the earlier 

of the Convictions and must cover the 

first six-month period that begins on the 

date of the earlier of the Convictions; all 

subsequent audits must cover the 

following corresponding twelve-month 

periods and be completed no later than 

six (6) months after the period to which 

the audit applies; 

(2) The auditor’s engagement shall 

specifically require the auditor to 

determine whether each BNP Affiliated 

QPAM has developed, implemented, 

maintained, and followed Policies in 

accordance with the conditions of this 

proposed exemption and developed and 

implemented the Training, as required 

herein; 

(3) The auditor’s engagement shall 

specifically require the auditor to test 

each BNP Affiliated QPAM’s 

operational compliance with the 

Policies and Training; 

(4) For each audit, the auditor shall 

issue a written report (the Audit Report) 

to BNP and the BNP Affiliated QPAM to 

which the audit applies that describes 

the steps performed by the auditor 

during the course of its examination. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70663 

47 In general terms, a QPAM is an independent 

fiduciary that is a bank, savings and loan 

association, insurance company, or investment 

adviser that meets certain equity or net worth 

requirements and other licensure requirements and 

that has acknowledged in a written management 

agreement that it is a fiduciary with respect to each 

plan that has retained the QPAM. 

The Audit Report shall include the 

auditor’s specific determinations 

regarding the adequacy of the Policies 

and Training; the auditor’s 

recommendations (if any) with respect 

to strengthening such Policies and 

Training; and any instances of the 

respective BNP Affiliated QPAM’s 

noncompliance with the written 

Policies and Training described in 

paragraph (g) above. Any 

determinations made by the auditor 

regarding the adequacy of the Policies 

and Training and the auditor’s 

recommendations (if any) with respect 

to strengthening the Policies and 

Training of the respective BNP 

Affiliated QPAM shall be promptly 

addressed by such BNP Affiliated 

QPAM, and any actions taken by such 

BNP Affiliated QPAM to address such 

recommendations shall be included in 

an addendum to the Audit Report. Any 

determinations by the auditor that the 

respective BNP Affiliated QPAM has 

implemented, maintained, and followed 

sufficient Policies and Training shall 

not be based solely or in substantial part 

on an absence of evidence indicating 

noncompliance; 

(5) The auditor shall notify the 

respective BNP Affiliated QPAM of any 

instances of noncompliance identified 

by the auditor within five (5) business 

days after such noncompliance is 

identified 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 any 

instances of noncompliance. The 

workpapers shall include an 

explanation of any corrective or 

remedial actions taken by the respective 

BNP Affiliated QPAM; 

(6) With respect to each Audit Report, 

an executive officer of the BNP 

Affiliated QPAM to which the Audit 

Report applies certifies in writing, 

under penalty of perjury, that the officer 

has reviewed the Audit Report and this 

exemption, if granted; addressed, 

corrected, or remediated any 

inadequacies identified in the Audit 

Report; and determined that the Policies 

and Training in effect at the time of 

signing are adequate to ensure 

compliance with the conditions of this 

exemption and with the applicable 

provisions of ERISA and the Code; 

(7) An executive officer of BNP 

reviews the Audit Report for each BNP 

Affiliated QPAM and certifies in 

writing, under penalty of perjury, that 

such officer has reviewed each Audit 

Report; 

(8) Each BNP Affiliated QPAM 

provides its certified Audit Report to the 

Department’s Office of Exemption 

Determinations (OED), Room N–5700, 

200 Constitution Avenue NW., 

Washington, DC 20210, no later than 30 

days following its completion, and each 

BNP Affiliated QPAM makes its Audit 

Report unconditionally available for 

examination by any duly authorized 

employee or representative of the 

Department, other relevant regulators, 

and any fiduciary of an ERISA-covered 

plan or IRA, the assets of which are 

managed by such BNP Affiliated QPAM; 

(i) The BNP Affiliated QPAMs comply 

with each condition of PTE 84–14, as 

amended, with the only exceptions 

being the violations of Section I(g) that 

are attributable to the Convictions; 

(j) Effective from the date of 

publication of any granted exemption in 

the Federal Register, with respect to 

each ERISA-covered plan or IRA for 

which a BNP Affiliated QPAM provides 

asset management or other discretionary 

fiduciary services, each BNP Affiliated 

QPAM agrees: (1) To comply with 

ERISA and the Code, as applicable to 

the particular ERISA-covered plan or 

IRA, and refrain from engaging in 

prohibited transactions; (2) not to waive, 

limit, or qualify the liability of the BNP 

Affiliated QPAM for violating ERISA or 

the Code or engaging in prohibited 

transactions; (3) not to require the 

ERISA-covered plan or IRA (or sponsor 

of such ERISA-covered plan or 

beneficial owner of such IRA) to 

indemnify the BNP Affiliated QPAM for 

violating ERISA or engaging in 

prohibited transactions, except for 

violations or prohibited transactions 

caused by an error, misrepresentation, 

or misconduct of a plan fiduciary or 

other party hired by the plan fiduciary 

who is independent of BNP; (4) not to 

restrict the ability of such ERISAcovered plan or IRA to terminate or 

withdraw from its arrangement with the 

BNP Affiliated QPAM; and (5) not to 

impose any fees, penalties, or charges 

for such termination or withdrawal with 

the exception of reasonable fees, 

appropriately disclosed in advance, that 

are specifically designed to prevent 

generally recognized abusive investment 

practices or specifically designed to 

ensure equitable treatment of all 

investors in a pooled fund in the event 

such withdrawal or termination may 

have adverse consequences for all other 

investors, provided that such fees are 

applied consistently and in like manner 

to all such investors. Within six (6) 

months of the date of publication of a 

granted exemption in the Federal 

Register, each BNP Affiliated QPAM 

will provide a notice to such effect to 

each ERISA-covered plan or IRA for 

which a BNP Affiliated QPAM provides 

asset management or other discretionary 

fiduciary services; 

(k) If a final exemption is granted in 

the Federal Register, each BNP 

Affiliated QPAM will maintain records 

necessary to demonstrate that the 

conditions of this exemption have been 

met for six (6) years following the date 

of any transaction for which such BNP 

Affiliated QPAM relies upon the relief 

in the exemption; 

(l) The BNP Affiliated QPAMs will 

provide to: (1) Each sponsor of an 

ERISA-covered plan and each beneficial 

owner of an IRA invested in an 

investment fund managed by a BNP 

Affiliated QPAM, or the sponsor of an 

investment fund in any case where a 

BNP Affiliated QPAM acts only as a 

sub-advisor to the investment fund; (2) 

each entity that may be a BNP Related 

QPAM; and (3) with respect to ERISAcovered plan and IRA investors in the 

Income Plus Fund, the identity of which 

is unknown, each distribution agent of 

the fund with a request that such 

distribution agent forward to its clients, 

a notice of the proposed exemption 

along with a separate summary 

describing the facts that led to the 

Convictions, which has been submitted 

to the Department, and a prominently 

displayed statement that the 

Convictions result in a failure to meet a 

condition in PTE 84–14; 

(m) A BNP Affiliated QPAM will not 

fail to meet the terms of this proposed 

exemption, if granted, solely because a 

BNP Related QPAM or a different BNP 

Affiliated QPAM fails to satisfy a 

condition for relief under this 

exemption. A BNP Related QPAM will 

not fail to meet the terms of this 

proposed exemption, if granted, solely 

because BNP, a BNP Affiliated QPAM, 

or a different BNP Related QPAM fails 

to satisfy a condition for relief under 

this exemption. 

Section II: Definitions 

(a) The term ‘‘BNP Affiliated QPAM’’ 

means a ‘‘qualified professional asset 

manager’’ (as defined in Section VI(a) 47

of PTE 84–14) that relies on the relief 

provided by PTE 84–14 and with 

respect to which BNP is a current or 

future ‘‘affiliate’’ (as defined in Section 

VI(d) of PTE 84–14). The term ‘‘BNP 

Affiliated QPAM’’ excludes the parent 

entity, BNP. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70664 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

48The Summary of Facts and Representations is 

based on the Applicant’s representations and does 

not reflect the views of the Department, unless 

indicated otherwise. 

49For purposes of the Summary of Facts and 

Representations, references to specific provisions of 

Title I of ERISA, unless otherwise specified, refer 

also to the corresponding provisions of the Code. 

50The prohibited transaction provisions also 

include certain fiduciary prohibited transactions 

under section 406(b) of ERISA, which do not 

necessitate a transaction between a plan and a party 

in interest. These include transactions involving 

fiduciary self-dealing; fiduciary conflicts of interest, 

and kickbacks to fiduciaries. 

51 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). 

52An ‘‘investment fund’’ includes single 

customer and pooled separate accounts maintained 

by an insurance company, individual trusts and 

common, collective or group trusts maintained by 

a bank, and any other account or fund to the extent 

that the disposition of its assets (whether or not in 

the custody of the QPAM) is subject to the 

discretionary authority of the QPAM. 

53See 75 FR 38837, 38839 (July 6, 2010). 

54See 47 FR 56945, 56946 (December 21, 1982). 

55See 47 FR 56945, 56947 (December 21, 1982). 

(b) The term ‘‘BNP Related QPAM’’ 

means any current or future ‘‘qualified 

professional asset manager’’ (as defined 

in Section VI(a) of PTE 84–14) that 

relies on the relief provided by PTE 84– 

14, and with respect to which BNP 

owns a direct or indirect five percent or 

more interest, but with respect to which 

BNP is not an ‘‘affiliate’’ (as defined in 

Section VI(d) of PTE 84–14). 

(c) The term ‘‘Convictions’’ means the 

judgments of conviction against BNP in: 

(1) Case Number 14-cr-00460 (LGS) in 

the District Court for the Southern 

District of New York for conspiracy to 

commit an offense against the United 

States in violation of Title 18, United 

States Code, Section 371, by conspiring 

to violate the International Emergency 

Economic Powers Act, codified at Title 

50, United States Code, Section 1701 et 

seq., and regulations issued thereunder, 

and the Trading with the Enemy Act, 

codified at Title 50, United States Code 

Appendix, Section 1 et seq., and 

regulations issued thereunder; and (2) 

Case Number 2014 NY 051231 in the 

Supreme Court of the State of New 

York, County of New York for falsifying 

business records in the first degree, in 

violation of Penal Law § 175.10, and 

conspiracy in the fifth degree, in 

violation of Penal Law § 105.05(1). 

Effective Date: If granted, this 

proposed exemption will be effective as 

of the earliest date a judgment of 

conviction against BNP is entered in 

either: (1) Case Number 14-cr-00460 

(LGS) in the District Court for the 

Southern District of New York; or (2) 

Case Number 2014 NY 051231 in the 

Supreme Court of the State of New 

York, County of New York. 

Summary of Facts and 

Representations 48

Background 

1. BNP Paribas, S.A. (BNP) is a 

publicly-held French bank. BNP 

maintains its principal offices in Paris, 

France. BNP operates in major banking 

and securities markets worldwide. As of 

December 31, 2013, BNP had 

consolidated assets of $2.4 trillion, 

stockholders equity of $120.4 billion, 

and a market capitalization of over $97 

billion. 

2. The rules set forth in section 406 

of the Employee Retirement Income 

Security Act of 1974, as amended 

(ERISA) and section 4975(c) of the 

Internal Revenue Code of 1986, as 

amended (the Code) proscribe certain 

‘‘prohibited transactions’’ between plans 

and related parties with respect to those 

plans, known as ‘‘parties in interest.’’ 49

Under section 3(14) of ERISA, parties in 

interest with respect to a plan include, 

among others, the plan fiduciary, a 

sponsoring employer of the plan, a 

union whose members are covered by 

the plan, service providers with respect 

to the plan, and certain of their 

affiliates. The prohibited transaction 

provisions under section 406(a) of 

ERISA prohibit, in relevant part, sales, 

leases, loans or the provision of services 

between a party in interest and a plan 

(or an entity whose assets are deemed to 

constitute the assets of a plan), as well 

as the use of plan assets by or for the 

benefit of, or a transfer of plan assets to, 

a party in interest.50

3. The broad reach of the prohibited 

transaction rules was intended to 

capture all transactions falling under the 

definition of a ‘‘prohibited transaction,’’ 

regardless of whether such transaction 

was actually necessary for the operation 

of a plan or beneficial to a plan. Thus, 

certain transactions that are actually in 

the interest of a plan and its participants 

and beneficiaries may be unavailable to 

plans. In recognition of this problem, 

ERISA authorizes certain statutory and 

administrative exemptions that may 

allow certain transactions to take place 

if there is an applicable exemption and 

the conditions for such exemption are 

met. 

4. One of these exemptions, Class 

Prohibited Transaction Exemption 84– 

14 (PTE 84–14) 51 exempts certain 

prohibited transactions between a party 

in interest and an ‘‘investment fund’’ (as 

defined in Section VI(b)) 52 in which a 

plan has an interest, if the investment 

manager satisfies the definition of 

‘‘qualified professional asset manager’’ 

(QPAM) and satisfies additional 

conditions for the exemption. In this 

regard, PTE 84–14 was developed and 

granted based on the essential premise 

that broad relief could be afforded for all 

types of transactions in which a plan 

engages only if the commitments and 

the investments of plan assets and the 

negotiations leading thereto are the sole 

responsibility of an independent, 

discretionary, manager.53 Section I(a) of 

PTE 84–14 provides that, in order for a 

transaction to be exempt under PTE 84– 

14, at the time of the transaction (as 

defined in Section VI(i)) the party in 

interest, or its ‘‘affiliate’’ (as defined in 

Section VI(c)), cannot have the authority 

to appoint or terminate the QPAM as a 

manager of the plan assets involved in 

the transaction or negotiate, on behalf of 

the plan, the terms of the management 

agreement with the QPAM (including 

renewals or modifications thereof) with 

respect to the plan assets involved in 

the transaction. Based on its experience 

in considering applications for 

individual and class exemptions, and in 

dealing with instances of abusive 

violations of the fiduciary responsibility 

rules of ERISA, the Department believes 

that, as a general matter, transactions 

entered into on behalf of plans with 

parties in interest are most likely to 

conform to ERISA’s general fiduciary 

standards where the decision to enter 

into the transaction is made by an 

independent fiduciary.54

5. PTE 84–14 contains an anticriminal provision. In this regard, 

Section I(g) of PTE 84–14 prevents an 

entity that may otherwise meet the 

definition of QPAM from utilizing the 

exemptive relief provided by PTE 84– 

14, for itself and its client plans, if that 

entity or an affiliate thereof or any 

owner, direct or indirect, of a 5 percent 

or more interest in the QPAM 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 in that 

section. Section I(g) was included in 

PTE 84–14, in part, based on the 

expectation that a QPAM, and those 

who may be in a position to influence 

its policies, maintain a high standard of 

integrity.55

6. The Applicant represents that BNP 

has corporate relationships with a wide 

range of entities that utilize the 

exemptive relief provided in PTE 84–14. 

In this regard, the Applicant represents 

that BNP is an ‘‘affiliate’’ (as defined in 

Section VI(d) of PTE 84–14) of 20 

specialist investment managers and 

other asset management subsidiaries 

which are under the ‘‘control’’ of BNP 

(as that term is defined in Section VI(e) 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70665 

56Section VI(d) of PTE 84–14 defines an 

‘‘affiliate’’ of a person, for purposes of Section I(g), 

as: (1) Any person directly or indirectly through one 

or more intermediaries, controlling, controlled by, 

or under common control with the person, (2) Any 

director of, relative of, or partner in, any such 

person, (3) Any corporation, partnership, trust or 

unincorporated enterprise of which such person is 

an officer, director, or a 5 percent or more partner 

or owner, and (4) Any employee or officer of the 

person who—(A) Is a highly compensated employee 

(as defined in section 4975(e)(2)(H) of the Code) or 

officer (earning 10 percent or more of the yearly 

wages of such person), or (B) Has direct or indirect 

authority, responsibility or control regarding the 

custody, management or disposition of plan assets. 

Section VI(e) of PTE 84–14 defines the term 

‘‘control’’ as the power to exercise a controlling 

influence over the management or policies of a 

person other than an individual. 

57The Applicant notes that the Statement of Facts 

is essentially identical to the Factual Statement. 

58An SDN appears on a list of individuals, 

groups, and entities subject to economic sanctions 

by OFAC. SDNs are individuals and companies 

specifically designated as having their assets 

blocked from the U.S. financial system by virtue of 

being owned or controlled by, or acting for or on 

behalf of, targeted countries, as well as individuals, 

groups, and entities, such as terrorists and narcotics 

traffickers, designated under sanctions programs 

that are not country-specific. 

59U.S. persons include U.S. citizens, permanent 

resident aliens (i.e., ‘‘green card’’ holders), entities 

organized under the laws of the United States and 

persons and entities physically present in the 

United States (regardless of nationality or 

jurisdiction under which the entity was organized). 

Financial institutions that are U.S. persons, 

including any financial institution organized under 

the laws of the United States or any branch of a 

foreign financial institution located in the United 

States, are generally prohibited from engaging in 

transactions with Sanctioned Entities and SDNs, 

regardless of the currency in which such a 

transaction is denominated. For example, a London 

branch of a U.S. financial institution is prohibited 

from transacting with an SDN in any currency. 

of PTE 84–14) and that may act as 

QPAMs (collectively, the BNP Affiliated 

QPAMs).56 According to the Applicant, 

the BNP Affiliated QPAMs include 

Fisher Francis Trees and Watt, Inc., BNP 

Paribas Investment Partners Trust 

Company, BNP Paribas Asset 

Management, Inc., BancWest Investment 

Services, and Bishop Street Capital 

Management which are subsidiaries of 

Bank of the West and First Hawaiian 

Bank, respectively, which themselves 

provide fiduciary services to ERISAcovered plans and IRAs. The Applicant 

represents that each of the above-named 

entities are third tier affiliates of BNP, 

and BNP owns all or substantially all 

interests, directly or indirectly, in such 

entities. In total, the BNP Affiliated 

QPAMs manage about $3 billion of 

assets owned by ERISA-covered plans 

and IRAs. According to the Applicant, 

BNP Affiliated QPAMs do not provide 

non-fiduciary services to ERISA-covered 

plans and IRAs, except in the case of 

First Hawaiian Bank (which provides 

custody services to ERISA-covered 

plans and IRAs) and Banc West 

Investment Services (which is a U.S. 

registered broker-dealer). 

7. The Applicant represents that BNP 

also owns a five percent or more interest 

in over 20 other entities (the BNP 

Related QPAMs) that may act as 

QPAMS but that are not ‘‘affiliates’’ (as 

defined in Section VI(d) of PTE 84–14) 

of BNP because BNP does not have 

‘‘control’’ (as defined in Section VI(e) of 

PTE 84–14) over such entities. The 

Applicant represents that BNP’s 

relationships to many of the entities that 

may be considered BNP Related QPAMs 

is so minimal that BNP does not know, 

nor is it legally responsible for knowing, 

if such entities are acting as QPAMs in 

reliance on the relief in PTE 84–14. 

Furthermore, the Applicant represents 

that any such BNP Related QPAMs 

maintain their own information and 

technology infrastructure and do not 

share office space or employees with 

BNP. According to the Applicant, such 

BNP Related QPAMs are entirely 

separate and distinct from BNP. 

Furthermore, the Applicant states that 

no employee of BNP sits on the board 

of directors of any BNP Related QPAM. 

8. The Applicant notes that BNP is 

expected to be convicted of certain 

crimes in the near future (the 

Convictions). In this regard, on June 30, 

2014, the U.S. Department of Justice and 

the Office of the U.S. Attorney for the 

Southern District of New York 

(collectively, the DOJ) filed a notice of 

intent to file a one-count criminal 

information (the DOJ Information) in the 

District Court for the Southern District 

of New York (the District Court), and the 

New York County District Attorney’s 

Office (the DANY) filed a two-count 

criminal information (the DANY 

Information) in the Supreme Court of 

the State of New York, County of New 

York (the New York Supreme Court), 

respectively, against BNP. The DOJ 

Information charged BNP with 

conspiracy to commit an offense against 

the United States in violation of Title 

18, United States Code, Section 371, by 

conspiring to violate the International 

Emergency Economic Powers Act 

(IEEPA), codified at Title 50, United 

States Code, Section 1701 et seq., and 

regulations issued thereunder, and the 

Trading with the Enemy Act (TWEA), 

codified at Title 50, United States Code 

Appendix, Section 1 et seq., and 

regulations issued thereunder. The 

DANY Information charged BNP with 

the crime of falsifying business records 

in the first degree, in violation of Penal 

Law § 175.10, and conspiracy in the 

fifth degree, in violation of Penal Law 

§ 105.05(1). In connection with the DOJ 

Information and DANY Information, the 

DOJ filed a Statement of Facts and the 

DANY filed a Factual Statement 

(collectively, the Factual Statements) 57

that details the underlying conduct that 

serves as the basis for the criminal 

charges and impending Convictions. 

The Factual Statements explain that 

from at least 2004 up through 2012, 

BNP, the defendant, conspired with 

banks and other entities located in or 

controlled by countries subject to U.S. 

sanctions, including Sudan, Iran, and 

Cuba (Sanctioned Entities), other 

financial institutions located in 

countries not subject to U.S. sanctions, 

and others known and unknown, to 

knowingly, intentionally and willfully 

move at least $8,833,600,000 through 

the U.S. financial system on behalf of 

Sanctioned Entities in violation of U.S. 

sanctions laws, including transactions 

totaling at least $4.3 billion that 

involved Specially Designated Nationals 

(SDNs).58 In carrying out these illicit 

transactions, BNP’s agents and 

employees were acting, at least in part, 

to benefit BNP. 

9. Pursuant to U.S. law, financial 

institutions, including BNP, are 

prohibited from participating in certain 

financial transactions involving persons, 

entities, and countries subject to U.S. 

economic sanctions. The United States 

Department of the Treasury’s Office of 

Foreign Assets Control (OFAC) 

promulgates regulations to administer 

and enforce U.S. laws governing 

economic sanctions, including 

regulations for sanctions related to 

specific countries, as well as sanctions 

related to SDNs. 

10. The Applicant notes that although 

the applicable prohibitions vary among 

sanction programs, the prohibitions 

described above generally apply to 

‘‘U.S. persons.’’ 59 To the extent a 

payment is not subject to the 

jurisdiction of the United States, such as 

a payment in Euro that is settled totally 

outside of the United States with no 

involvement of a U.S. person, non-U.S. 

persons would not be liable under 

OFAC-administered sanctions if such a 

payment involved an SDN or 

Sanctioned Entity. Therefore, non-U.S. 

persons, including non-U.S. financial 

institutions, are generally not subject to 

the prohibitions of the OFACadministered sanctions when they are 

doing business outside of the United 

States, but there are a number of 

important exceptions. Relevant here, 

non-U.S. financial institutions may also 

be required to comply with the OFACadministered sanctions if a transaction 

in which they are engaged is subject to 

the jurisdiction of the United States. For 

example, if a transaction that takes place 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70666 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

60 In May 2007, senior officials at OFAC met with 

executives at BNP New York and expressed concern 

that BNP Geneva was conducting U.S. dollar 

business with Sudan in violation of U.S. sanctions. 

Shortly after this meeting, OFAC requested that 

BNP conduct an internal investigation into 

transactions with Sudan initiated by BNP Geneva 

that may have violated U.S. sanctions, and asked 

that BNP report its findings to OFAC. It was not 

until this intervention by OFAC that BNP made the 

decision, in June 2007, to stop its U.S. dollar 

business with Sudan. 

outside the United States between nonU.S. persons calls for payment in U.S. 

dollars, those payments typically will be 

cleared through the U.S. dollar 

settlement system in the United States, 

which in turn typically would involve 

a U.S. financial institution inside the 

United States debiting and crediting 

accounts held on the books of a U.S. 

bank or a branch of a non-U.S. bank 

located in the United States. In this way, 

the transaction and the participants 

involved can become subject to the 

jurisdiction of the United States and 

subject to compliance with the OFACadministered sanctions with respect to 

that transaction. Accordingly, if a 

payment that has a link to a sanctioned 

jurisdiction or other target is made in 

U.S. dollars and cleared through the 

United States as described above, then 

the non-U.S. bank presenting the 

payment for clearing through its 

correspondent account could be at risk 

of violating the OFAC-administered 

sanctions, as well as causing a violation 

by the U.S. clearing bank. 

11. According to the Factual 

Statements, BNP and its co-conspirators 

carried out the misconduct in the 

following ways: (a) BNP intentionally 

used a non-transparent method of 

payment messages, known as cover 

payments, to conceal the involvement of 

Sanctioned Entities in U.S. dollar 

transactions processed through BNP 

New York and other financial 

institutions in the United States; (b) 

BNP worked with other financial 

institutions to structure payments in 

highly complicated ways, with no 

legitimate business purpose, to conceal 

the involvement of Sanctioned Entities 

in order to prevent the illicit 

transactions from being blocked when 

transmitted through the United States; 

(c) BNP instructed other co-conspirator 

financial institutions not to mention the 

names of Sanctioned Entities in U.S. 

dollar payment messages sent to BNP 

New York and other financial 

institutions in the United States; (d) 

BNP followed instructions from coconspirator Sanctioned Entities not to 

mention their names in U.S. dollar 

payment messages sent to BNP New 

York and other financial institutions in 

the United States; and (e) BNP removed 

information identifying Sanctioned 

Entities from U.S. dollar payment 

messages in order to conceal the 

involvement of Sanctioned Entities from 

BNP New York and other financial 

institutions in the United States. 

12. The Factual Statements further 

explain that BNP was on notice of law 

enforcement concerns regarding its 

conduct as early as December 2009,60

when it was contacted by the DANY. In 

a subsequent meeting, in early 2010 

between BNP, the DOJ, and the DANY, 

BNP agreed to conduct an internal 

investigation into business conducted at 

a number of its subsidiaries and 

branches (including in Paris, London, 

Milan, Rome and Geneva), from January 

1, 2002, through December 31, 2009, 

with countries subject to U.S. sanctions 

and covering the time period. The 

review was expanded after BNP 

discovered instances in which its illicit 

conduct continued past the original 

agreed-upon review period. Despite 

receiving legal opinions in 2006 that 

identified potential sanctions-violative 

conduct, receiving notice of the same 

from law enforcement in late 2009, and 

beginning its internal investigation in 

early 2010, BNP failed to provide the 

DOJ and DANY with meaningful 

materials from BNP Geneva until May 

2013, and the materials were heavily 

redacted due to bank secrecy laws in 

Switzerland. BNP’s delay in producing 

these materials significantly impacted 

the DOJ’s and the DANY’s ability to 

bring charges against responsible 

individuals, Sudanese Sanctioned 

Entities, and the satellite banks. 

13. Nevertheless, the Statement of 

Facts indicates that in other respects, 

BNP has provided substantial 

cooperation to the DOJ and the DANY 

by conducting an extensive transaction 

review; identifying potentially violative 

transactions; responding to numerous 

inquiries and multiple requests for 

information; providing voluminous 

relevant records from foreign 

jurisdictions; signing tolling agreements 

with the DOJ and/or DANY and agreeing 

to extend such tolling agreements on 

multiple occasions; conducting 

interviews with dozens of current and 

former employees in Paris, London, 

New York, Geneva, Rome and Milan; 

and working with the DOJ and the 

DANY to obtain assistance via a mutual 

legal assistance treaty with France, 

among other things. BNP also has taken 

several corrective measures to enhance 

its sanctions compliance. 

14. As noted above, BNP has agreed 

to resolve the actions brought by the 

DANY and the DOJ through the Plea 

Agreements, under which BNP will 

plead guilty to the charges set out in the 

DOJ Information and the DANY 

Information. The Applicants expect that 

the District Court and the New York 

State Supreme Court will enter the 

Convictions against BNP that will 

require remedies that are materially the 

same as set forth in the Plea 

Agreements. In particular, the Applicant 

notes that BNP has agreed to lawfully 

undertake the following pursuant to the 

Plea Agreements: (a) Pay a monetary 

penalty in the amount of 

$8,833,600,000; (b) submit every report 

produced by any compliance consultant 

or monitor imposed by the Federal 

Reserve or the New York State 

Department of Financial Services (DFS) 

to each of the Federal Reserve, the DFS, 

and DANY; (c) enhance its compliance 

policies and procedures with regard to 

U.S. sanctions laws and regulations; (d) 

abide by additional orders with the 

Federal Reserve, the French Autorite ́ de 

Controˆle Prudentiel et de Re ́solution, 

and the DFS; and (e) truthfully and 

completely disclose any information 

requested and completely and fully 

cooperate with the DANY, the Federal 

Bureau of Investigation, the Internal 

Revenue Service Criminal Investigation, 

and any other governmental agency 

designated by the DOJ or the DANY. 

15. Once either of the Convictions is 

entered, the BNP Affiliated QPAMs and 

the BNP Related QPAMs, as well as 

their client plans that are subject to Part 

4 of Title I of ERISA (ERISA-covered 

plans) or section 4975 of the Code 

(IRAs), will no longer be able to rely on 

PTE 84–14, pursuant to the anticriminal rule set forth in section I(g) of 

the class exemption, absent an 

individual exemption. The Applicant is 

seeking an individual exemption that 

would permit the BNP Affiliated 

QPAMs, the BNP Related QPAMs, and 

their ERISA-covered plan and IRA 

clients to continue to utilize the relief in 

PTE 84–14, notwithstanding the 

anticipated Convictions, provided that 

such QPAMs satisfy the additional 

conditions imposed by the Department 

in the proposed exemption herein. 

Past Compliance 

16. Before the Department will 

consider proposing such exemptive 

relief, the Applicant must demonstrate 

past legal compliance with respect to 

those entities that have acted as QPAMs 

and independence of operations 

between those entities acting as QPAMs 

and the convicted entity. The Applicant 

explains that each of the BNP Affiliated 

QPAMs have, at the business level, 

separate systems, separate 

infrastructure, separate management, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70667 

61The Applicant represents that the cost of 

liquidating an investment is generally the difference 

between the bid price and the ask price for any 

particular investment. Furthermore, some 

investments are more liquid than others (e.g., 

Treasury bonds are more liquid than foreign 

sovereign bonds and equities are more liquid than 

swaps). Some of the strategies followed by the 

Applicant tend to be less liquid than others and 

thus, the costs of a transition would be higher than 

liquidating, for example, a large equity portfolio. 

62The Applicant notes that many public pension 

plans hold their investment managers to ERISA-like 

standards by the terms of their contract. 

separate financial statements, separate 

payrolls, dedicated risk and compliance 

officers, and separate legal coverage 

from BNP. These managers maintain 

policies and procedures and engage in 

training designed to ensure that the 

QPAMs and the assets of the ERISAcovered plans and IRAs they manage are 

not affected by: (a) The business 

activities of BNP and/or (b) the conduct 

that is the subject of the Plea 

Agreements. Generally, such policies 

and procedures create information 

barriers between affiliates that prevent 

employees of the BNP Affiliated QPAMs 

from gaining access to insider 

information that an affiliate may have 

acquired or developed in connection 

with CIB activities. These policies and 

procedures, and corresponding 

information barriers, apply to 

employees, officers, and directors at the 

BNP Affiliated QPAMs and were in 

effect during the time frame covered by 

the facts that form the basis of the Plea 

Agreements. Additionally, the 

Applicant represents that BNP 

employees are not involved in the 

trading decisions and investment 

strategy of BNP Affiliated QPAMs for 

their ERISA-covered or IRA clients, nor 

do the BNP Affiliated QPAMs consult 

with BNP employees prior to making 

investment decisions on behalf of their 

ERISA-covered or IRA clients. 

According to the Applicant, BNP does 

not control the asset management 

decisions of the BNP Affiliated QPAMs 

or the BNP Related QPAMs, as such 

decisions are independent of BNP. 

Furthermore, the Applicant stresses that 

BNP Affiliated QPAMs and BNP Related 

QPAMs do not need the consent of BNP 

to make investment decisions for their 

clients, for making corrections if errors 

are made, or for adopting policies, 

procedures, or training for their staffs. 

Statutory Findings—In the Interest of 

Affected Plans and IRAs 

17. The Applicant submits that the 

requested exemption would be in the 

interest of affected ERISA-covered plans 

and IRAs. In this regard, the Applicant 

states that the exemption would allow 

ERISA-covered plans and IRAs managed 

by the BNP Affiliated QPAMs and BNP 

Related QPAMs to avoid the costs or 

losses that would arise if these QPAMs 

were immediately unable to rely on the 

relief afforded by PTE 84–14 as of the 

date of the earliest of the Convictions. 

Moreover, the Applicant notes that the 

transaction costs of changing managers 

would be significant, especially in some 

of the strategies employed by the BNP 

investment managers. In support of this, 

the Applicant points out that the cost of 

liquidation, identifying and selecting 

new managers, and reinvesting the 

assets would be borne by the ERISAcovered plans and IRAs, with a cost that 

could exceed several basis points, 

depending on the strategy.61

18. BNP additionally suggests that any 

ERISA-covered plans or IRAs that 

remain with BNP’s asset management 

affiliates might be prohibited from 

engaging in certain transactions that are 

beneficial to such plans, such as the 

purchase and sale from a party in 

interest of a derivative without a readily 

ascertainable fair market value, because 

counterparties are far more comfortable 

with PTE 84–14 than any other 

exemption, and if other exemptions 

were required to be utilized, the cost of 

the transaction might increase to reflect 

that lack of comfort. Finally, according 

to the Applicant, BNP has entered into 

contracts on behalf of ERISA-covered 

plans for certain outstanding 

transactions, including swaps, which 

require BNP to maintain its eligibility 

for the relief in PTE 84–14. The 

Applicant asserts that counterparties to 

those transactions could seek to 

terminate their contracts, resulting in 

significant losses to their ERISA-covered 

plan clients. Moreover, certain 

derivatives transactions will 

automatically and immediately be 

terminated without notice or action if 

BNP no longer qualifies for the relief in 

PTE 84–14. 

19. The Applicant explains, for 

example, that Fisher Francis Trees and 

Watt, Inc. (FFTW), a BNP Affiliated 

QPAM, manages fixed income and 

currency strategies utilizing the 

following derivative instruments, among 

others: Foreign exchange forwards, 

credit linked notes, structured notes, 

and swaps. The Applicant adds that 

many of FFTW’s pension plan accounts, 

especially those that are governed by 

ERISA, are dependent upon PTE 84–14 

for such instruments. Without such 

instruments, the Applicant represents 

that FFTW would be unable to fulfill its 

mandate to such plans, which could 

affect approximately $1.67 billion in 

assets ($1.58 billion in ERISA assets 

plus $90 million in assets subject to 

ERISA by contract).62 The Applicant 

believes that the cost of the related 

liquidation would be approximately 

$2.1 million. 

20. The Applicant goes on to explain 

that another BNP Affiliated QPAM, BNP 

Paribas Investment Partners Trust 

Company, is the trustee for a $1.3 

billion stable value fund that holds the 

assets of more than 2,000 plans. The 

Applicant represents that FFTW acts as 

the asset manager for the fund under an 

investment management agreement 

requiring FFTW to qualify for the relief 

in PTE 84–14. Furthermore, the 

Applicant explains that as of June 30, 

2014, the fund is wrapped in part by 

one or more contracts requiring the 

application of PTE 84–14. The 

Applicant submits that a default would 

trigger termination of such contracts and 

cause the plans to forfeit payment by the 

issuer of any difference between book 

and market value, which could be 

substantial. Additionally, the Applicant 

adds that the cost of replacing an older 

legacy wrap contract with a new one 

would be significant (e.g., wrap fees 

have increased 100–200 percent since 

the recent global financial crisis) and 

entirely borne by the plans, assuming 

replacement could be found at all in the 

current market. 

21. The Applicant explains that 

additional losses could be experienced 

in connection with other BNP Affiliated 

QPAMs, such as BNP Paribas Asset 

Management, Inc. (BNP AM), the 

BancWest group’s Hawaiian affiliates 

(principally First Hawaiian Bank (FHB) 

and Bishop Street Capital Management 

(Bishop), and Bank of the West and its 

subsidiary BancWest Investment 

Services (BWIS). The Applicant 

represents that BNP AM currently 

advises two accounts with 

approximately $7.9 billion, as of June 

30, 2014, in both advisory and managed 

plan assets. The Applicant notes, to the 

extent that the loss of the relief under 

PTE 84–14 would cause the managed 

accounts to lose confidence in BNP AM, 

there would be additional liquidation 

costs. The Applicant adds that FHB, 

Bishop, and other BankWest affiliates 

manage 205 ERISA-covered plans and 

IRAs with about $1.1 billion in assets, 

and the loss of the relief under PTE 84– 

14 would cause estimated transaction 

and liquidation costs, assuming a loss of 

5.5 basis points from the market value 

of the affected plans, of approximately 

$550,000. Finally, the Applicant notes 

that Bank of the West and BWIS manage 

approximately 2,117 ERISA-covered 

plans and IRAs with approximately 

$800 million in assets. The Applicant 

explains that if these ERISA-covered 

plan and IRA clients chose to leave due 

to the loss of relief under PTE 84–14, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70668 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

estimated liquidation costs, again 

assuming a loss of 5.5 basis points from 

the market value of the affected plans, 

would be approximately $400,000, not 

including the additional costs to 

reinvest such assets. 

22. The Applicant further emphasizes 

that the proposed exemption would 

enable ERISA-covered plans and IRAs 

managed by the BNP Affiliated QPAMs 

and BNP Related QPAMs to continue 

with the current investment strategies of 

their chosen QPAM. The Applicant 

suggests that any ERISA-covered plan or 

IRA that is forced to move to a new 

investment manager could incur 

transition costs, in addition to the direct 

costs, as described above, such as the 

cost of issuing RFPs, finding other 

managers, and other costs associated 

with reinvesting the assets. 

Statutory Findings—Protective of 

Affected Plans and IRAs 

23. The Applicant submits that the 

proposed exemption, if granted, would 

be protective of affected ERISA-covered 

plans and IRAs. The Applicant 

represents that if this proposed 

exemption is granted, BNP Affiliated 

QPAMs will not use their authority or 

influence to direct an investment fund 

that is subject to ERISA and managed by 

a BNP Affiliated QPAM to enter into 

any transaction with BNP or engage 

BNP to provide additional services, for 

a fee borne by such investment fund 

regardless of whether such transactions 

or services may otherwise be within the 

scope of relief provided by an 

administrative or statutory exemption. 

Furthermore, each BNP Affiliated 

QPAM will ensure that no employee 

involved in the criminal conduct that 

underlies the Convictions will engage in 

transactions on behalf of any 

‘‘investment fund’’ (as defined in 

Section VI(b) of PTE 84–14) subject to 

ERISA and managed by such BNP 

Affiliated QPAM. 

24. The Department notes that the 

proposed exemption, if granted, 

provides additional protection to 

affected ERISA-covered plans and IRAs 

because it requires a prudently selected, 

independent auditor, who has 

appropriate technical training and 

proficiency with Title I of ERISA, to 

evaluate the adequacy of and 

compliance with the Policies and 

Training by conducting an annual audit. 

The first of the audits must be 

completed no later than twelve (12) 

months after a final exemption for the 

covered transactions is granted in the 

Federal Register and must cover the 

first six-month period that begins on the 

date a final exemption is granted in the 

Federal Register; all subsequent audits 

must cover the following corresponding 

twelve-month periods and be completed 

no later than six (6) months after the 

period to which it applies. Specifically, 

the auditor shall determine whether 

each BNP Affiliated QPAM has 

developed, implemented, and 

maintained written policies (the 

Policies) requiring and designed to 

ensure that: (a) The asset management 

decisions of the BNP Affiliated QPAM 

is conducted independently of BNP’s 

management and business activities; (b) 

the BNP Affiliated QPAM fully 

complies with ERISA’s fiduciary duties 

and ERISA and the Code’s prohibited 

transaction provisions (including any 

appropriate corrective or remedial 

measures) and does not knowingly 

participate in any violations of these 

duties and provisions with respect to 

ERISA-covered plans and IRAs; (c) the 

BNP Affiliated QPAM does not 

knowingly participate in any other 

person’s violation of ERISA or the Code 

with respect to ERISA-covered plans 

and IRAs; (d) any filings or statements 

made by the BNP Affiliated QPAM to 

relevant regulators, including but not 

limited to, the Department of Labor, the 

Department of the Treasury, the 

Department of Justice, and the Pension 

Benefit Guaranty Corporation on behalf 

of ERISA-covered plans or IRAs are 

materially accurate and complete, to the 

best of such QPAM’s knowledge at that 

time; (e) the BNP Affiliated QPAM does 

not make material misrepresentations or 

omit material information in its 

communications with such regulators 

with respect to ERISA-covered plans or 

IRAs, or make material 

misrepresentations or omit material 

information in its communications with 

its ERISA-covered plan and IRA clients; 

(f) the BNP Affiliated QPAM complies 

with the terms of this exemption, if 

granted; and (g) any violations of, or 

failure to comply with, items (b) 

through (f) are corrected pursuant to 

appropriate corrective or remedial 

measures outlined in the Policies and 

any such violations or compliance 

failures not corrected in accordance 

with the Policies are promptly reported, 

upon discovery, in writing to 

appropriate corporate officers, the head 

of Compliance and the General Counsel 

of the relevant BNP Affiliated QPAM, 

the independent auditor responsible for 

reviewing compliance with the Policies, 

and a fiduciary of any affected ERISAcovered plan or IRA where such 

fiduciary is independent of BNP; 

however, with respect to any ERISAcovered plans or IRAs sponsored by an 

‘‘affiliate’’ (as defined in Section VI(d) of 

PTE 84–14) of BNP or beneficially 

owned by an employee of BNP or its 

affiliates, such fiduciary does not need 

to be independent of BNP. 

25. The independent auditor shall 

also determine whether each BNP 

Affiliated QPAM has developed a 

training program (the Training) for such 

BNP Affiliated QPAM’s personnel 

covering, at a minimum, the Policies, 

ERISA and Code compliance (including 

applicable fiduciary duties and the 

prohibited transaction provisions) and 

ethical conduct, the consequences for 

not complying with the conditions of 

this proposed exemption, if granted, 

(including the loss of the exemptive 

relief provided herein), and prompt 

reporting of wrongdoing. The auditor 

shall also determine whether each BNP 

Affiliated QPAM is operationally 

compliant with the Policies and 

Training. 

26. The auditor shall provide a 

written report (the Audit Report), upon 

completion of each audit that it 

conducts, to BNP and the BNP Affiliated 

QPAM to which such Audit Report 

applies that describes the auditor’s 

determinations as required under this 

proposed exemption, if granted, and the 

steps performed by the auditor during 

the course of the auditor’s examinations. 

The Audit Report will also include the 

auditor’s determinations with regards to 

the adequacy of the Policies and the 

Training and any recommendations 

with respect to strengthening the 

Policies and Training, and any instances 

of a BNP Affiliated QPAM’s 

noncompliance with developing, 

implementing, and maintaining the 

Policies and Training. Any 

determinations made by the auditor 

regarding the adequacy of the Policies 

and Training and the auditor’s 

recommendations (if any) with respect 

to strengthening the Policies and 

Training shall be promptly addressed by 

the respective BNP Affiliated QPAM to 

which the Audit Report applies, and 

any actions taken by such BNP 

Affiliated QPAM to address such 

recommendations shall be included in 

an addendum to the Audit Report. 

27. The auditor shall notify the 

respective BNP Affiliated QPAM of any 

instances of noncompliance identified 

by the auditor within five (5) business 

days after such noncompliance is 

identified 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 any 

instances of noncompliance. The 

workpapers shall include an 

explanation of any corrective or 

remedial actions taken by the respective 

BNP Affiliated QPAM. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70669 

28. With respect to each Audit Report, 

an executive officer of the BNP 

Affiliated QPAM to which the audit 

applies will certify in writing, under 

penalty of perjury, that such officer has 

reviewed the Audit Report and this 

exemption, if granted; addressed, 

corrected, or remediated any 

inadequacies identified in the Audit 

Report; and determined that the Policies 

and Training in effect at the time of 

signing are adequate to ensure 

compliance with the conditions of this 

exemption and with the applicable 

provisions of ERISA and the Code. 

Additionally, an executive officer of 

BNP will review and certify in writing, 

under penalty of perjury, that such 

officer has reviewed each Audit Report. 

Finally, each BNP Affiliated QPAM will 

provide its Audit Report to OED no later 

than 30 days following its completion 

and each BNP Affiliated QPAM must 

make its Audit Report unconditionally 

available for examination by any duly 

authorized employee or representative 

of the Department, other relevant 

regulators, and any fiduciary of an 

ERISA-covered plan or IRA, the assets of 

which are managed by such BNP 

Affiliated QPAM. 

29. The Department notes that the 

proposed exemption will be protective 

of plans because each ERISA-covered 

plan and IRA will have the discretion to 

retain a BNP Affiliated QPAM as its 

asset manager or move to a new asset 

manager without being exposed to 

unnecessary fees and charges. In this 

regard, and in order to further protect 

ERISA-covered plans and IRAs, the 

proposed exemption requires that each 

BNP Affiliated QPAM agrees: (a) To 

comply with ERISA and the Code, as 

applicable to the particular ERISAcovered plan or IRA, and refrain from 

engaging in prohibited transactions; (b) 

not to waive, limit, or qualify the 

liability of the BNP Affiliated QPAM for 

knowingly violating ERISA or the Code 

or engaging in prohibited transactions; 

(c) not to require an ERISA-covered plan 

or IRA (or sponsor of such ERISAcovered plan or beneficial owner of 

such IRA) to indemnify the BNP 

Affiliated QPAM for violating ERISA or 

engaging in prohibited transactions, 

except for violations or prohibited 

transactions caused by an error, 

misrepresentation, or misconduct of a 

plan fiduciary or other party hired by 

the plan fiduciary who is independent 

of BNP; (d) not to restrict the ability of 

such ERISA-covered plan or IRA to 

terminate or withdraw from their 

arrangement with the BNP Affiliated 

QPAM; and (e) not to impose any fees, 

penalties, or charges for such 

termination or withdrawal with the 

exception of reasonable fees, 

appropriately disclosed in advance, that 

are specifically designed to prevent 

generally recognized abusive investment 

practices or specifically designed to 

ensure equitable treatment of all 

investors in a pooled fund in the event 

such withdrawal or termination may 

have adverse consequences for all other 

investors, provided that such fees are 

applied consistently and in like manner 

to all such investors. This requirement 

will become effective immediately upon 

the granting of an exemption and each 

BNP Affiliated QPAM must provide 

notice of this requirement to its ERISAcovered plan and IRA clients within six 

(6) months of publication of a final 

granted exemption in the Federal 

Register. 

30. The Department notes that a BNP 

Affiliated QPAM will not fail to meet 

the terms of this proposed exemption, if 

granted, solely because a BNP Related 

QPAM or a different BNP Affiliated 

QPAM fails to satisfy a condition for 

relief under this exemption. 

Additionally, a BNP Related QPAM will 

not fail to meet the terms of this 

proposed exemption solely because 

BNP, a BNP Affiliated QPAM, or a 

different BNP Related QPAM fails to 

satisfy a condition for relief under this 

proposed exemption. 

31. The Applicant represents that if a 

final granted exemption is published in 

the Federal Register, each BNP 

Affiliated QPAM will maintain records 

necessary to demonstrate that the 

conditions of this exemption have been 

met for six (6) years following the date 

of any transactions for which such BNP 

Affiliated QPAM relies upon the relief 

in the exemption. 

32. The Applicant represents further 

that BNP will provide to: (a) Each 

sponsor of an ERISA-covered plan and 

each beneficial owner of an IRA 

invested in an investment fund 

managed by a BNP Affiliated QPAM, or 

the sponsor of an investment fund in 

any case where a BNP Affiliated QPAM 

acts only as a sub-advisor to the 

investment fund; (b) each entity that 

may be a BNP Related QPAM; and (c) 

with respect to ERISA-covered plan and 

IRA investors in the Income Plus Fund, 

the identity of which is unknown, each 

distribution agent of such fund with a 

request that such distribution agent 

forward to its clients, a notice of the 

proposed exemption, along with a 

separate summary of the facts that led 

to the Convictions, which has been 

submitted to the Department, and a 

prominently displayed statement that 

the Convictions result in a failure to 

meet a condition in PTE 84–14. For 

avoidance of doubt, in the event that 

BNP has knowledge of the identity of an 

ERISA-covered plan or IRA investor in 

the Income Plus Fund, BNP will ensure 

that such investor receives the notice(s) 

contemplated under this paragraph. 

33. Finally, the Applicant represents 

that the proposed exemption will 

protect the interests of affected ERISAcovered Plans and IRAs because it 

would allow the BNP Affiliated QPAMs 

to engage in transactions described in 

PTE 84–14 only to the extent that all of 

the longstanding conditions set forth in 

PTE 84–14 (except for Section I(g), as a 

result of the Convictions) are fully met 

for the particular transaction at issue. 

Furthermore, the exemptive relief 

available under this proposed 

exemption, if granted, will not be 

available to the parent entity that is the 

subject of the Convictions, BNP. 

Statutory Findings—Administratively 

Feasible 

34. The Applicant represents that the 

requested exemption is administratively 

feasible because it does not require any 

monitoring by the Department but relies 

on an independent auditor to determine 

that the BNP Affiliated QPAMs’ 

compliance policies, and the conditions 

for the exemption, are being followed. 

Furthermore, compliance with other 

sections of PTE 84–14 has been 

determined to be administratively 

feasible by the Department in many 

other similar cases. 

Summary 

35. In summary, the covered 

transactions satisfy the statutory 

requirements for an exemption under 

section 408(a) of ERISA because: 

(a) Any failure of the BNP Affiliated 

QPAMs or the BNP Related QPAMs to 

satisfy Section I(g) of PTE 84–14 arose 

solely from the Convictions; 

(b) The BNP Affiliated QPAMs and 

the BNP Related QPAMs (including 

officers, directors, agents other than 

BNP, and employees of such QPAMs) 

did not participate in the criminal 

conduct of BNP that is the subject of the 

Convictions; 

(c) The BNP Affiliated QPAMs and 

the BNP Related QPAMs did not 

directly receive compensation in 

connection with the criminal conduct of 

BNP that is the subject of the 

Convictions; 

(d) The criminal conduct of BNP that 

is the subject of the Convictions did not 

directly or indirectly involve the assets 

of any ERISA-covered plan or IRA; 

(e) A BNP Affiliated QPAM may not 

use its authority or influence to direct 

an ‘‘investment fund’’ (as defined in 

Section VI(b) of PTE 84–14) that is 

mstockstill on DSK4VPTVN1PROD with NOTICES2

70670 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

subject to ERISA and managed by such 

BNP Affiliated QPAM to enter into any 

transaction with BNP or engage BNP to 

provide additional services to such 

investment fund, for a direct or indirect 

fee borne by such investment fund 

regardless of whether such transactions 

or services may otherwise be within the 

scope of relief provided by an 

administrative or statutory exemption; 

(f) Each BNP Affiliated QPAM will 

ensure that none of its employees or 

agents, if any, that were involved in the 

criminal conduct that underlies the 

Convictions will engage in transactions 

on behalf of any ‘‘investment fund’’ (as 

defined in Section VI(b) of PTE 84–14) 

subject to ERISA and managed by such 

BNP Affiliated QPAM; 

(g)(1) Each BNP Affiliated QPAM 

immediately develops, implements, 

maintains, and follows written Policies 

requiring and reasonably designed to 

ensure that: (i) The asset management 

decisions of the BNP Affiliated QPAM 

are conducted independently of BNP’s 

management and business activities; (ii) 

the BNP Affiliated QPAM fully 

complies with ERISA’s fiduciary duties 

and ERISA and the Code’s prohibited 

transaction provisions and does not 

knowingly participate in any violations 

of these duties and provisions with 

respect to ERISA-covered plans and 

IRAs; (iii) the BNP Affiliated QPAM 

does not knowingly participate in any 

other person’s violation of ERISA or the 

Code with respect to ERISA-covered 

plans and IRAs; (iv) any filings or 

statements made by the BNP Affiliated 

QPAM to relevant regulators, on behalf 

of ERISA-covered plans or IRAs, are 

materially accurate and complete, to the 

best of such QPAM’s knowledge at that 

time; (v) the BNP Affiliated QPAM does 

not make material misrepresentations or 

omit material information in its 

communications with such regulators 

with respect to ERISA-covered plans or 

IRAs, or make material 

misrepresentations or omit material 

information in its communications with 

ERISA-covered plan and IRA clients; 

(vi) the BNP Affiliated QPAM complies 

with the terms of this exemption, if 

granted; and (vii) any violations of or 

failure to comply with items (ii) through 

(vi) are corrected promptly upon 

discovery and any such violations or 

compliance failures not promptly 

corrected are reported, upon discovering 

the failure to promptly correct, in 

writing to appropriate corporate officers, 

the head of Compliance and the General 

Counsel of the relevant BNP Affiliated 

QPAM, the independent auditor 

responsible for reviewing compliance 

with the Policies, and a fiduciary of any 

affected ERISA-covered plan or IRA 

where such fiduciary is independent of 

BNP; although, with respect to any 

ERISA-covered plan or IRA sponsored 

by an ‘‘affiliate’’ (as defined in Section 

VI(d) of PTE 84–14) of BNP or 

beneficially owned by an employee of 

BNP or its affiliates, such fiduciary does 

not need to be independent of BNP; 

(2) Each Affiliated QPAM 

immediately develops and implements 

Training, conducted at least annually 

for relevant BNP Affiliated QPAM asset 

management, legal, compliance, and 

internal audit personnel; the Training 

shall be set forth in the Policies and, at 

a minimum, covers the Policies, ERISA 

and Code compliance (including 

applicable fiduciary duties and the 

prohibited transaction provisions) and 

ethical conduct, the consequences for 

not complying with the conditions of 

this proposed exemption, if granted, 

(including the loss of the exemptive 

relief provided herein), and prompt 

reporting of wrongdoing; 

(h)(1) Each BNP Affiliated QPAM 

submits to an audit conducted annually 

by an independent auditor, who has 

been prudently selected and who has 

appropriate technical training and 

proficiency with ERISA to evaluate the 

adequacy of, and compliance with, the 

Policies and Training; 

(2) For each audit, the auditor shall 

issue an Audit Report to BNP and the 

BNP Affiliated QPAM to which the 

audit applies that describes the steps 

performed by the auditor during the 

course of its examination; 

(3) An executive officer of the BNP 

Affiliated QPAM to which the Audit 

Report applies must certify in writing, 

under penalty of perjury, that the officer 

has reviewed the Audit Report and this 

exemption, if granted; addressed, 

corrected, or remediated any 

inadequacies identified in the Audit 

Report; and determined that the Policies 

and Training in effect at the time of 

signing are adequate to ensure 

compliance with the conditions of this 

exemption and with the applicable 

provisions of ERISA and the Code; 

(7) An executive officer of BNP must 

review the Audit Report for each BNP 

Affiliated QPAM and certify in writing, 

under penalty of perjury, that such 

officer has reviewed each Audit Report; 

(8) Each BNP Affiliated QPAM must 

provide its certified Audit Report to the 

Department’s Office of Exemption 

Determinations no later than 30 days 

following its completion, and each BNP 

Affiliated QPAM must make its Audit 

Report unconditionally available for 

examination by any duly authorized 

employee or representative of the 

Department, other relevant regulators, 

and any fiduciary of an ERISA-covered 

plan or IRA, the assets of which are 

managed by such BNP Affiliated QPAM; 

(i) The BNP Affiliated QPAMs must 

comply with each condition of PTE 84– 

14, as amended, with the only 

exceptions being the violations of 

Section I(g) that are attributable to the 

Convictions; 

(j) Effective from the date of 

publication of any granted exemption in 

the Federal Register, with respect to 

each ERISA-covered plan or IRA for 

which a BNP Affiliated QPAM provides 

asset management or other discretionary 

fiduciary services, each BNP Affiliated 

QPAM agrees: (1) To comply with 

ERISA and the Code, as applicable to 

the particular ERISA-covered plan or 

IRA, and refrain from engaging in 

prohibited transactions; (2) not to waive, 

limit, or qualify the liability of the BNP 

Affiliated QPAM for violating ERISA or 

the Code or engaging in prohibited 

transactions; (3) not to require the 

ERISA-covered plan or IRA (or sponsor 

of such ERISA-covered plan or 

beneficial owner of such IRA) to 

indemnify the BNP Affiliated QPAM for 

violating ERISA or engaging in 

prohibited transactions, except for 

violations or prohibited transactions 

caused by an error, misrepresentation, 

or misconduct of a plan fiduciary or 

other party hired by the plan fiduciary 

who is independent of BNP; (4) not to 

restrict the ability of such ERISAcovered plan or IRA to terminate or 

withdraw from its arrangement with the 

BNP Affiliated QPAM; and (5) not to 

impose any fees, penalties, or charges 

for such termination or withdrawal with 

the exception of reasonable fees, 

appropriately disclosed in advance, that 

are specifically designed to prevent 

generally recognized abusive investment 

practices or specifically designed to 

ensure equitable treatment of all 

investors in a pooled fund in the event 

such withdrawal or termination may 

have adverse consequences for all other 

investors, provided that such fees are 

applied consistently and in like manner 

to all such investors. Within six (6) 

months of the date of publication of a 

granted exemption in the Federal 

Register, each BNP Affiliated QPAM 

must provide a notice to such effect to 

each ERISA-covered plan or IRA for 

which a BNP Affiliated QPAM provides 

asset management or other discretionary 

fiduciary services; 

(k) If a final exemption is granted in 

the Federal Register, each BNP 

Affiliated QPAM must maintain records 

necessary to demonstrate that the 

conditions of this exemption have been 

met for six (6) years following the date 

of any transaction for which such BNP 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70671 

Affiliated QPAM relies upon the relief 

in the exemption; 

(l) The BNP Affiliated QPAMs must 

provide to: (1) Each sponsor of an 

ERISA-covered plan and each beneficial 

owner of an IRA invested in an 

investment fund managed by a BNP 

Affiliated QPAM, or the sponsor of an 

investment fund in any case where a 

BNP Affiliated QPAM acts only as a 

sub-advisor to the investment fund; (2) 

each entity that may be a BNP Related 

QPAM; and (3) with respect to ERISAcovered plan and IRA investors in the 

Income Plus Fund, the identity of which 

is unknown, each distribution agent of 

the fund with a request that such 

distribution agent forward to its clients, 

a notice of the proposed exemption 

along with a separate summary 

describing the facts that led to the 

Convictions, which has been submitted 

to the Department, and a prominently 

displayed statement that the 

Convictions result in a failure to meet a 

condition in PTE 84–14; 

(m) A BNP Affiliated QPAM will not 

fail to meet the terms of this proposed 

exemption, if granted, solely because a 

BNP Related QPAM or a different BNP 

Affiliated QPAM fails to satisfy a 

condition for relief under this 

exemption. A BNP Related QPAM will 

not fail to meet the terms of this 

proposed exemption, if granted, solely 

because BNP, a BNP Affiliated QPAM, 

or a different BNP Related QPAM fails 

to satisfy a condition for relief under 

this exemption. 

Notice to Interested Persons 

Notice of the proposed exemption (the 

Notice) will be provided to all interested 

persons within fifteen (15) days of 

publication of the Notice in the Federal 

Register. Notice will be provided to all 

interested persons in the manner agreed 

upon by the Applicant and the 

Department. Such notification will 

contain a copy of the Notice, 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 all 

interested persons of their right to 

comment on and to request a hearing 

with respect to the pending exemption. 

All written comments and/or requests 

for a hearing must be received by the 

Department within forty-five (45) days 

of the publication of the Notice in the 

Federal Register. 

All comments will be made available 

to the public. 

Warning: If you submit a comment, 

EBSA recommends that you include 

your name and other contact 

information in the body of your 

comment, but do not submit 

information that you consider to be 

confidential, or otherwise protected 

(such as Social Security number or an 

unlisted phone number) 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: Erin 

S. Hesse, telephone (202) 693–8546, or 

Scott Ness, telephone (202) 693–8561, 

Office of Exemption Determinations, 

Employee Benefits Security 

Administration, U.S. Department of 

Labor (these are not toll-free numbers). 

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 20th day of 

November, 2014. 

Lyssa E. Hall, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2014–27935 Filed 11–25–14; 8:45 am] 

BILLING CODE 4510–29–P 

mstockstill on DSK4VPTVN1PROD with NOTICES2