Document ID: SEC-2015-0899-0001
Agency: sec
Document Type: Notice
Title: Applications and Temporary Orders: Citicorp, et al.
Posted Date: 2015-05-27T04:00Z

[Federal Register Volume 80, Number 101 (Wednesday, May 27, 2015)]
[Notices]
[Pages 30293-30297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12756]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31615; File No. 812-14468]

Citicorp, et al.; Notice of Application and Temporary Order

May 20, 2015.
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 
(``Temporary Order'') exempting them from section 9(a) of the Act, with 
respect to a guilty plea entered on May

[[Page 30294]]

20, 2015, by the Settling Firm (as defined below) in the United States 
District Court for the District of Connecticut (the ``District Court'') 
in connection with a plea agreement (``Plea Agreement'') between the 
Settling Firm and the United States Department of Justice (``DOJ''), 
until the Commission takes final action on an application for a 
permanent order (the ``Permanent Order,'' and with the Temporary Order, 
the ``Orders''). Applicants also have applied for a Permanent Order.

Applicants: Citicorp, a Delaware corporation, (the ``Settling Firm''), 
Citigroup Global Markets Inc. (``CGMI''), CEFOF GP I Corp. (``CEFOF''), 
CELFOF GP Corp. (``CELFOF''), Citibank, N.A. (``Citibank''), Citigroup 
Alternative Investments LLC (``Citigroup Alternative''), Citigroup 
Capital Partners I GP I Corp. (``CCP I''), Citigroup Capital Partners I 
GP II Corp. (``CCP II''), Citigroup Private Equity (Offshore) LLC 
(``CPE (Offshore)''), and Citigroup First Investment Management 
Americas LLC (``CFIMA'', and along, together with CGMI, CEFOF, CELFOF, 
Citibank, Citigroup Alternative, CCP I, CCP II, and CPE (Offshore), the 
``Adviser Applicants'' and the Settling Firm together with the Adviser 
Applicants, the ``Applicants'').

Filing Date: The application was filed on May 20, 2015.

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 June 15, 2015, and should be accompanied by proof of service on 
Applicants, in the form of an affidavit, or for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, the reason for the request, 
and the issues contested. Persons who wish to be notified of a hearing 
may request notification by writing to the Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: The Settling Firm 
and Citibank: 399 Park Avenue, New York, NY 10043 CGMI, CEFOF, CELFOF, 
Citigroup Alternative, CCP I, CCP II, CPE (Offshore), and CFIMA: 388 
Greenwich Street, New York, NY 10013.

FOR FURTHER INFORMATION CONTACT:  Kyle R. Ahlgren, Senior Counsel, 
Vanessa M. Meeks, Senior Counsel, or Holly Hunter-Ceci, Branch Chief, 
at (202) 551-6825 (Division of Investment Management, Chief Counsel's 
Office).

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. Citigroup Inc. (``Citigroup'' or ``Citi''), the parent company 
of the Settling Firm, CGMI and the other Adviser Applicants, is a 
global financial holding company whose businesses provide a broad range 
of financial services. The Settling Firm is a financial services 
holding company and the direct parent company of Citibank. CGMI, a New 
York corporation and an Affiliated Person of the Settling Firm, is a 
full service investment banking firm. CGMI engages in securities 
underwriting, sales and trading, investment banking, financial advisory 
and investment research services. CGMI is registered as a broker-dealer 
under the Securities Exchange Act of 1934 (``Exchange Act'') and as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). CGMI currently does not perform Fund Service 
Activities (as defined below) for any Fund\1\, but it may seek to do so 
in the future. CFIMA, a Delaware limited liability company and an 
Affiliated Person of the Settling Firm, is registered as an investment 
adviser under the Advisers Act and serves as investment adviser to one 
Fund. CFIMA currently does not serve as depositor or principal 
underwriter for any Fund, but it may seek to do so in the future. Each 
of CEFOF, CELFOF, Citibank, Citigroup Alternative, CCP I, CCP II and 
CPE (Offshore) (collectively, the ``ESC Advisers'') is an Affiliated 
Person of the Settling Firm and serves as investment adviser to certain 
ESCs (ESCs are included in the term ``Funds'') sponsored by Citigroup 
and its subsidiaries. None of the ESC Advisers perform any Fund Service 
Activities for any Funds other than the ESCs. The ESCs have been 
exempted from all provisions of the Act and the rules and regulations 
thereunder, except for certain sections, including section 9, pursuant 
to a Commission order.\2\
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    \1\ For purposes of the application ``Funds'' refers to any 
registered investment company, business development company, or 
employees' securities company (as defined in section 2(a)(13) of the 
Act) for which a Covered Person serves or may in the future serve as 
an investment adviser (as defined in section 2(a)(20) of the Act), 
sub-adviser, general partner or depositor, or any registered open-
end investment company, registered unit investment trust or 
registered face amount certificate company for which a Covered 
Person (as defined above) serves or may in the future serve as 
principal underwriter (as defined in section 2(a)(29) of the Act).
    \2\ Greenwich Street Employees Fund, L.P., et al., Investment 
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367 
(Jan. 16, 2002) (order).
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    2. While no existing company of which the Settling Firm is an 
affiliated person within the meaning of section 2(a)(3) of the Act 
(``Affiliated Person''), other than the Adviser Applicants, currently 
serves or acts as an investment adviser or depositor of any Fund, 
employees' securities company or investment company that has elected to 
be treated as a business development company under the Act, or 
principal underwriter (as defined in section 2(a)(29) of the Act) for 
any open-end management investment company registered under the Act 
(``Open-End Fund''), unit investment trust registered under the Act 
(``UIT''), or face-amount certificate company registered under the Act 
(such activities, ``Fund Service Activities''), Applicants request that 
any relief granted also apply to any existing company of which the 
Settling Firm is an Affiliated Person, and to any other company of 
which the Settling Firm may become an Affiliated Person in the future 
(together with the Applicants, the ``Covered Persons'') with respect to 
any activity contemplated by section 9(a) of the Act.
    3. The DOJ has conducted an investigation of certain conduct and 
practices of Citi and others in the foreign currency exchange (``FX'') 
spot market. To resolve the DOJ's investigation, the Settling Firm 
entered into the Plea Agreement, pursuant to which the Settling Firm 
has pleaded guilty to one count of an antitrust violation of 15 U.S.C. 
1. As set forth in the Plea Agreement, from at least December 2007 and 
continuing to at least January 2013 (the ``Relevant Period''), the 
Settling Firm, through one London-based euro/U.S. dollar (``EUR/USD'') 
trader employed by Citibank, a subsidiary of the Settling Firm and an 
Applicant hereto, and other traders at unrelated financial services 
firms acting as dealers in the FX spot market entered into and engaged 
in a conspiracy to fix, stabilize, maintain, increase or decrease the 
price of, and rig bids and offers for, the EUR/USD currency pair 
exchanged in the FX spot market by agreeing to eliminate competition in 
the purchase and sale of the EUR/USD currency pair in the United States 
and elsewhere (the

[[Page 30295]]

``Conduct''). The Conduct included near daily conversations, some of 
which were in code, in an exclusive electronic chat room used by 
certain EUR/USD traders, including the EUR/USD trader employed by 
Citibank. The Conduct forms the basis for the DOJ's antitrust charge 
that the Settling Firm violated 15 U.S.C. 1.
    4. Under the terms of the Plea Agreement, the DOJ and the Settling 
Firm have agreed that the District Court should impose a sentence 
requiring the Settling Firm to pay a criminal fine of $925 million. The 
Plea Agreement also provides for a three-year term of probation, with 
conditions to include, among other things, Citi's continued 
implementation of a compliance program designed to prevent and detect 
the Conduct throughout its operations, and Citi's further strengthening 
of its compliance and internal controls as required by other regulatory 
or enforcement agencies that have addressed the Conduct, including the 
U.S. Commodity Futures Trading Commission (``CFTC''), pursuant to its 
settlement with Citibank on November 11, 2014, requiring remedial 
measures to strengthen the control framework governing Citi's FX 
trading business (the ``CFTC Order''); the U.S. Treasury Department's 
Office of the Comptroller of the Currency (``OCC''), pursuant to its 
settlement with Citibank on November 11, 2014, requiring remedial 
measures to improve the control framework governing Citi's wholesale 
trading and benchmark activities (the ``OCC Order''); the U.K. 
Financial Conduct Authority (``FCA''), pursuant to its settlement with 
Citibank on November 11, 2014 (the ``FCA Order''); and the U.S. Board 
of Governors of the Federal Reserve System (``FRB''), pursuant to its 
settlement with Citigroup entered into concurrently with the DOJ 
resolution, requiring remedial measures to improve controls for FX 
trading and activities involving commodities and interest rate products 
where Citi acts as principal (the ``FRB Order'').

Applicants' Legal Analysis

    1. Section 9(a)(1) of the Act provides, in pertinent part, that a 
person may not serve or act as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered unit investment 
trust, or registered face-amount certificate company, if such person 
within ten years has been convicted of any felony or misdemeanor, 
including those arising out of such person's conduct as a bank or an 
Affiliated Person of a bank. Section 2(a)(10) of the Act defines the 
term ``convicted'' to include a plea of guilty. Section 9(a)(3) of the 
Act extends the prohibitions of section 9(a)(1) to a company any 
Affiliated Person of which has been disqualified under the provisions 
of section 9(a)(1). Section 2(a)(3) of the Act defines ``affiliated 
person'' to include, among others, any person directly or indirectly 
controlling, controlled by, or under common control with, the other 
person. Applicants state that the Settling Firm is an Affiliated Person 
of each of the other Applicants within the meaning of section 2(a)(3). 
Applicants state that the guilty plea would result in a 
disqualification of each Adviser Applicant for ten years under section 
9(a) of the Act because the Settling Firm would become the subject of a 
conviction described in 9(a)(1).
    2. Section 9(c) of the Act provides that, upon application, the 
Commission shall by order grant an exemption from the disqualification 
provisions of section 9(a) of the Act, either unconditionally or on an 
appropriate temporary or other conditional basis, to any person if that 
person establishes that: (a) the prohibitions of section 9(a), as 
applied to the person, are unduly or disproportionately severe or (b) 
the conduct of the person has been such as not to make it against the 
public interest or the protection of investors to grant the exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
Temporary Order and a Permanent Order exempting the Applicants and 
other Covered Persons from the disqualification provisions of section 
9(a) of the Act. The Applicants and other Covered Persons may, if the 
relief is granted, in the future act in any of the capacities 
contemplated by section 9(a) of the Act subject to the applicable terms 
and conditions of the Orders.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants assert that the (i) scope of the 
Conduct was limited and did not involve the Settling Firm or its 
Affiliated Persons performing Fund Service Activities, (ii) application 
of the statutory bar would impose potentially severe hardship on the 
Fund and its shareholders, (iii) prohibitions of section 9(a), if 
applied to the Applicants, would be unduly or disproportionately 
severe, and (iv) that the Conduct did not constitute conduct that would 
make it against the public interest or the protection of investors to 
grant the exemption from section 9(a).
    4. Applicants assert that the Conduct did not involve any of the 
Applicants acting as an investment adviser or depositor of any Fund, 
ESC, or business development company or principal underwriter for any 
Open-End Fund, UIT, or face amount certificate company registered under 
the Act. Applicants state that the Conduct similarly did not involve 
any Fund, ESC, or business development company with respect to which 
Applicants engaged in Fund Service Activities. Applicants also 
represent that the employment of the one trader who engaged in the 
Conduct was terminated, and that the trader will not be rehired. 
Moreover, the Applicant represents that no Adviser Applicant (other 
than Citibank, as employer of the one relevant FX trader) was involved 
in the Conduct.
    5. Applicants further represent that: (i) None of the current or 
former directors, officers or employees of any Applicant involved in 
performing Fund Service Activities during the Relevant Period had any 
knowledge of, or had any involvement in, the Conduct; (ii) no current 
or former employee of any Applicant or of any other Covered Person who 
previously has been or who subsequently may be identified by an 
Applicant or any U.S. or non-U.S. regulatory or enforcement agency as 
having been responsible for the Conduct will have any involvement in 
performing Fund Service Activities or will be an officer, director, or 
employee of any Applicant or of any other Covered Person; (iii) no 
employee of any Applicant or of any other Covered Person who was 
involved in the Conduct had any, or will have any future, involvement 
in the Covered Persons' activities in any capacity described in section 
9(a) of the Act; and (iv) because no personnel of any Applicant 
providing Fund Service Activities had any involvement in the Conduct, 
shareholders of the Funds were not affected any differently than if the 
Funds had received services from any other non-affiliated investment 
adviser or principal underwriter.
    6. Applicants state that if the Adviser Applicants were 
disqualified under section 9(a) of the Act from performing Fund Service 
Activities and were unable to obtain the requested exemption, the 
effect on the Funds' shareholders, the Adviser Applicants' employees, 
and on the Adviser Applicants' future businesses could be severe. 
Applicants assert that, with respect to the ESC Advisers in particular, 
their disqualification from providing advisory or sub-advisory services 
to the ESCs would not be in the public interest or in furtherance of 
the protection of investors, and indeed such disqualification would 
frustrate the expectations of the eligible employees who invested in 
the ESCs. In addition,

[[Page 30296]]

the Applicants state that Adviser Applicants have committed substantial 
resources to establishing an expertise in providing services covered by 
section 9(a) and that prohibiting the Adviser Applicants from providing 
Fund Service Activities to the Funds not only would affect Adviser 
Applicants' current and future businesses adversely, but also the 
employees of the Adviser Applicants. Applicants also assert that the 
Conduct did not constitute conduct that would make it against the 
public interest or protection of investors to issue the Orders.
    7. Applicants assert that the Adviser Applicants' inability to 
continue to serve as investment adviser or sub-adviser of the Funds 
(including as general partner providing investment advisory services to 
ESCs) would result in the Funds and their shareholders facing 
potentially severe hardship. Applicants argue that neither the 
protection of investors nor the public interest would be served by 
permitting the section 9(a) disqualifications to apply to the Adviser 
Applicants because those disqualifications would deprive the 
shareholders of the Funds of the investment advisory or sub-advisory 
services provided by the Adviser Applicants (including as general 
partner providing investment advisory services to ESCs) that 
shareholders expected the Funds would receive when they decided to 
invest in the Funds. Applicants also outline a number of other 
uncertainties, inefficiencies, and expenses that they submit would 
result from the prohibitions of section 9(a) and operate to the 
detriment of the financial interests of the Funds and their 
shareholders.
    8. Applicants have agreed that neither they nor any of the other 
Covered Persons will employ any of the current or former employees of 
Citi or any Covered Person who previously have been or who subsequently 
may be identified by the Settling Firm or any U.S. or non-U.S. 
regulatory or enforcement agency as having been responsible for the 
Conduct without first making a further application to the Commission 
pursuant to section 9(c). Applicants have also agreed that each 
Applicant (and any Covered Person) will adopt and implement policies 
and procedures reasonably designed to ensure compliance with the terms 
and conditions of the Orders. In addition, the Settling Firm, Citibank 
and Citigroup has agreed to comply in all material respects with the 
material terms and conditions of the Plea Agreement, the CFTC Order, 
the OCC Order, the FRB Order, the FCA Order, or any other orders issued 
by regulatory or enforcement agencies addressing the Conduct.
    9. Applicants further state that Citi has implemented remedial 
measures to protect against conduct similar to the Conduct, as 
described in greater detail in the application. These include certain 
remedial measures as required by the Plea Agreement, the CFTC Order, 
the OCC Order, the FRB Order, and the FCA Order, including improvements 
to the oversight, internal controls, compliance, risk management and 
audit programs for FX trading and related sales activities. 
Specifically, Citi represents that it has strengthened its governance 
structure and enhanced the overall control environment in FX trading, 
as well as other wholesale trading and benchmark activities. These 
efforts include (i) the establishment of a new Supervision and Controls 
Team within the Foreign Exchange and Local Markets business; (ii) the 
appointment of a Global Head of Markets Compliance to provide direction 
and oversight over the regional compliance personnel within Markets, 
and to coordinate global initiatives, best practices, policies and 
procedures and emerging issues in Markets; (iii) the establishment of a 
senior working group comprised of members of Markets, Compliance and 
Information Technology to coordinate initiatives that will focus on the 
development of enhanced tools designed to improve detection of market 
misconduct through transaction monitoring and communications 
surveillance; (iv) the establishment of and enhancements to transaction 
monitoring and communications surveillance processes in the 
jurisdictions in which Citibank engages in FX trading; and (v) 
enhancements to Citibank's compliance risk assessment and compliance 
testing procedures around controls for the detection and prevention of 
employee misconduct in FX trading.
    10. To provide further assurance that the exemptive relief being 
requested would be consistent with the public interest and the 
protection of investors, the Applicants have undertaken to distribute, 
as soon as reasonably practicable, written materials describing the 
circumstances that led to the Plea Agreement and the application to, 
and to offer to meet in person to discuss the materials with, the 
boards of directors or trustees of each Fund (excluding, for this 
purpose, the ESCs) for which the Adviser Applicants serve as investment 
adviser or sub-adviser, including the directors or trustees who are not 
``interested persons'' as defined in section 2(a)(19) of the Act, and 
their independent legal counsel, if any. Further, the Applicants will 
provide each Fund (excluding, for this purpose, the ESCs) with the 
information concerning the Plea Agreement and the application necessary 
for the Fund to fulfill its disclosure and other obligations under the 
federal securities laws and will provide it a copy of the Plea 
Agreement.
    11. Applicants state that certain of the Applicants and their 
affiliates have previously received orders under section 9(c) of the 
Act, as the result of conduct that triggered section 9(a), as described 
in greater detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. 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, 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.
    2. Neither the Applicants nor any of the other Covered Persons will 
employ any of the current or former employees of the Settling Firm or 
any Covered Person who previously has been or who subsequently may be 
identified by the Settling Firm or any U.S. or non-U.S. regulatory or 
enforcement agency as having been responsible for the Conduct, without 
first making a further application to the Commission pursuant to 
section 9(c).
    3. Each Adviser Applicant and Covered Person will adopt and 
implement policies and procedures reasonably designed to ensure that it 
will comply with the terms and conditions of the Orders within 60 days 
of the date of the Permanent Order or, with respect to condition 4, 
such date as may be contemplated by the Plea Agreement, or the CFTC 
Order, the OCC Order, the FRB Order, the FCA Order, or any other orders 
issued by regulatory or enforcement agencies addressing the Conduct.
    4. The Settling Firm, Citibank and Citigroup will comply in all 
material respects with the material terms and conditions of the Plea 
Agreement, the CFTC Order, the OCC Order, the FRB Order, the FCA Order, 
or any other orders issued by regulatory or

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enforcement agencies addressing the Conduct.
    5. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of any of the 
Orders within 30 days of discovery of the material violation.

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 the 
Applicants and any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the guilty plea entered into pursuant to the Plea Agreement, subject to 
the representations and conditions in the application, from June 15, 
2015 until the Commission takes final action on their application for a 
permanent order.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-12756 Filed 5-26-15; 8:45 am]
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