Document ID: SEC-2010-1136-0001
Agency: sec
Document Type: Notice
Title: Applications: Goldman, Sachs and Co., et al.
Posted Date: 2010-07-27T04:00Z

[Federal Register: July 27, 2010 (Volume 75, Number 143)]
[Notices]               
[Page 44031-44033]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy10-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29366; 812-13796]

 
Goldman, Sachs & Co., et al.; Notice of Application and Temporary 
Order

July 21, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for a permanent order 
under section 9(c) of the Investment Company Act of 1940 (``Act'').

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Summary of Application: Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Goldman, Sachs & Co. (``Goldman Sachs'') on 
July 20, 2010 by the United States District Court for the Southern 
District of New York (the ``Injunction''), until the Commission takes 
final action on an application for a permanent order. Applicants also 
have applied for a permanent order.

Applicants: Goldman Sachs, Goldman Sachs Asset Management, L.P. 
(``GSAM, L.P.''), Goldman Sachs Asset Management International 
(``GSAMI''), Goldman Sachs Hedge Fund Strategies LLC (``GSHFS''), 
Commonwealth Annuity and Life Insurance Company (``Commonwealth''), 
First Allmerica Financial Life Insurance Company (``FAFLIC'') and Epoch 
Securities, Inc. (``Epoch,'' together, the ``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any existing company of which Goldman 
Sachs is an affiliated person and to any other company of which 
Goldman Sachs may become an affiliated person in the future 
(together with Applicants, ``Covered Persons'').

Filing Dates: The application was filed on July 16, 2010, and amended 
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on July 21, 2010.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 16, 2010, and should be accompanied by proof of service 
on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities & Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: Goldman Sachs, 
GSAM, L.P. and GSHFS, 200 West Street, New York, NY 10282; GSAMI, 
Christchurch Court, 10-15 Newgate Street, London, England EC1A7HD; and 
Commonwealth, FAFLIC and Epoch, 132 Turnpike Road, Southborough, MA 
01772.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870 or Janet M. Grossnickle, Assistant Director, at 202-551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

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

Applicants' Representations

    1. Goldman Sachs, a New York limited partnership, is a global 
investment banking and securities firm. Goldman Sachs is registered as 
an investment adviser with the Commission pursuant to section 203 of 
the Investment Advisers Act of 1940 (``Advisers Act''). Goldman Sachs 
is also registered as a broker-dealer under the Securities Exchange Act 
of 1934 (the ``Exchange Act'') and acts as a principal underwriter of 
certain registered investment companies. GSAM, L.P., GSAMI and GSHFS 
are each registered under the Advisers Act as investment advisors and 
provide investment advisory or subadvisory services to Funds.\2\ 
Commonwealth and FAFLIC are insurance companies domiciled in 
Massachusetts and each acts as depositor for certain separate accounts 
that are registered as UITs under the Act. Epoch is a registered 
broker-dealer that acts as principal underwriter for the UITs of 
Commonwealth and FAFLIC. Each of Goldman Sachs, GSAM, L.P., GSAMI and 
GSHFS provide investment advisory services to ESCs, as defined in 
section 2(a)(13) of the Act, which provide investment opportunities for 
partners of Goldman Sachs (prior to its initial public offering) and 
certain employees and consultants of Goldman Sachs and its affiliates. 
GSHFS does not currently provide investment advisory services to 
registered investment companies.
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    \2\ ``Funds'' refer to any registered investment company or 
employees' securities company (``ESC'') for which a Covered Person 
serves as an investment adviser, subadviser or depositor, or any 
registered open-end investment company, registered unit investment 
trust (``UIT'') or registered face amount certificate company for 
which a Covered Person serves as principal underwriter (such 
activities, collectively, ``Fund Servicing Activities'').
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    2. On July 20, 2010, the United States District Court for the 
Southern District of New York entered a final judgment, which included 
the Injunction against Goldman Sachs in a matter brought by the 
Commission (``Final Judgment'').\3\ The Commission alleged in the 
complaint (``Complaint'') that offering materials related to a 
transaction in

[[Page 44032]]

which Goldman Sachs or its affiliates sold synthetic collateralized 
debt obligations, which referenced a portfolio of synthetic mortgage-
backed securities, to two institutional investors in early 2007 
(``Transaction''), should have disclosed that the hedge fund assuming 
the short side of the Transaction had played a role in the selection 
process. As part of an agreement to settle the action, Goldman Sachs 
entered into a consent in which it acknowledged that it was a mistake 
not to disclose the role of the hedge fund in the Transaction and 
consented to the entry of the Final Judgment, including the Injunction. 
The Final Judgment will also decree that Goldman Sachs is liable for 
disgorgement of $15 million and a civil penalty of $535 million.\4\
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    \3\ Securities and Exchange Commission v. Goldman, Sachs & Co. 
and Fabrice Tourre, 10-CV-03229 (S.D.N.Y. July 20, 2010).
    \4\ The Final Judgment will also require Goldman Sachs to comply 
with certain undertakings relating to (i) the vetting and approval 
process for offerings of residential mortgage-related securities 
products by its firmwide Capital Committee, (ii) review of marketing 
materials used in connection with residential mortgage-related 
securities offerings by Goldman Sachs' Legal Department and 
Compliance Department, (iii) annual internal audits of the review of 
such marketing materials, (iv) where Goldman Sachs is the lead 
underwriter of an offering of residential mortgage-related 
securities and retains outside counsel to advise on the offering, 
review of the related offering materials by outside counsel and (v) 
education and training of persons involved in the structuring or 
marketing of residential mortgage-related securities offerings.
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Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security from 
acting, among other things, as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered UITs or registered 
face-amount certificate company. Section 9(a)(3) of the Act makes the 
prohibition in section 9(a)(2) applicable to a company any affiliated 
person of which has been disqualified under the provisions of section 
9(a)(2). Section 2(a)(3) of the Act defines ``affiliated person'' to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person. Applicants state that 
Goldman Sachs is an affiliated person of each of the other Applicants 
within the meaning of section 2(a)(3) of the Act because they are under 
common control. Applicants state that entry of the Final Judgment would 
result in the disqualification of Goldman Sachs under section 9(a)(2) 
and the other Applicants under section 9(a)(3) of the Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
Applicants, are unduly or disproportionately severe or that Applicants' 
conduct has been such as not to make it against the public interest or 
the protection of investors to grant the application. Applicants have 
filed an application pursuant to section 9(c) seeking a temporary and 
permanent order exempting them from the disqualification provisions of 
section 9(a) of the Act.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them would be unduly and disproportionately 
severe and that the conduct of Applicants has been such as not to make 
it against the public interest or the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state that the violations alleged in the Complaint 
did not involve Fund Servicing Activities or the current or former 
Goldman Sachs employees who are or were involved in Fund Servicing 
Activities. Applicants also state that no current or former director, 
officer, or employee of Goldman Sachs or the other Applicants--who is 
involved in providing Fund Servicing Activities to Funds--had any 
knowledge of, or was involved in, the conduct that forms the basis of 
the Complaint. Applicants further state that the individual defendant 
named in the Complaint and the other personnel at Goldman Sachs who 
were involved in the violations alleged in the Complaint have had no 
and will not have any future involvement in providing Fund Servicing 
Activities to Funds. Applicants represent that the alleged conduct 
giving rise to the Final Judgment did not involve any Fund or the 
assets of any Fund for which an Applicant provided Fund Servicing 
Activities.
    5. Applicants state that the inability of the Applicants to engage 
in Fund Servicing Activities would result in potentially severe 
hardships for the Funds (including the UITs) and their shareholders or 
contract holders. Applicants state that they will distribute, as soon 
as reasonably practicable, written materials, including an offer to 
meet in person to discuss the materials, to the boards of directors or 
trustees of the Funds (excluding for this purpose, the ESCs) (the 
``Boards''), including the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of such Funds and 
their independent legal counsel, as defined in rule 0-1(a)(6) under the 
Act, if any, regarding the Injunction, any impact on the Funds, and the 
application. Applicants have provided and will continue to provide the 
Funds with all information concerning the Final Judgment and the 
application that is necessary for the Funds to fulfill their disclosure 
and other obligations under the Federal securities laws.
    6. Applicants also assert that, if they were barred from providing 
Fund Servicing Activities to the Funds and ESCs, the effect on their 
businesses and employees would be severe. Applicants state that they 
have committed substantial resources to establish an expertise in Fund 
Servicing Activities. Applicants further state that prohibiting them 
from Fund Servicing Activities would not only adversely affect their 
businesses, but would also adversely affect over 600 employees at GSAM, 
L.P. alone that are involved in those activities. Applicants also state 
that disqualifying Goldman Sachs, GSAM, L.P., GSAMI and GSHFS from 
continuing to provide investment advisory services to ESCs is not in 
the public interest or in furtherance of the protection of investors. 
Applicants assert that it would not be consistent with the purposes of 
the ESC provisions of the Act or the representations made in the 
application for the ESC order to require another entity not affiliated 
with Goldman Sachs to manage the ESCs. In addition, participants in the 
ESCs have subscribed for interests in the ESCs with the expectation 
that the ESCs would be managed by Goldman Sachs or one of its 
affiliates.
    7. Applicants state that Goldman Sachs has previously sought and 
received exemptions under section 9(c) of the Act on four occasions, as 
described in the application.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Any temporary exemption granted pursuant to the application shall 
be without prejudice to, and shall not limit the Commission's rights in 
any manner with respect to, any Commission investigation of, or 
administrative proceedings involving or against, the Covered Persons, 
including without limitation, the consideration by the Commission of a 
permanent exemption from section 9(a) of the Act requested pursuant to 
the application or the revocation or removal of any temporary 
exemptions granted under the Act in connection with the application.

[[Page 44033]]

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that 
Covered Persons are granted a temporary exemption from the provisions 
of section 9(a), effective as of the date of the Injunction, solely 
with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on an 
application for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-18313 Filed 7-26-10; 8:45 am]
BILLING CODE 8010-01-P