Document ID: SEC-2012-1921-0001
Agency: sec
Document Type: Notice
Title: Applications and Temporary Orders: Wells Fargo Bank, N.A., et al.
Posted Date: 2012-11-23T05:00Z

[Federal Register Volume 77, Number 226 (Friday, November 23, 2012)]
[Notices]
[Pages 70193-70195]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28385]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30266; 812-14074]

Wells Fargo Bank, N.A., et al.; Notice of Application and 
Temporary Order

November 16, 2012.
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 Wells Fargo Bank, N.A. (``Wells Fargo 
Bank'') on September 20, 2012, by the United States District Court for 
the District of Columbia, until the Commission takes final action on an 
application for a permanent order. Applicants have requested a 
permanent order.

APPLICANTS: Wells Fargo Bank, First International Advisors, LLC 
(``First International''), Metropolitan West Capital Management, LLC 
(``Metropolitan West''), Golden Capital Management, LLC (``Golden 
Capital''), Alternative Strategies Brokerage Services, Inc. 
(``Alternative Strategies Brokerage''), Alternative Strategies Group, 
Inc. (``Alternative Strategies''), Wells Fargo Funds Management, LLC 
(``WF Funds Management''), Wells Capital Management Incorporated 
(``Wells Capital Management''), Peregrine Capital Management, Inc. 
(``Peregrine''), Galliard Capital Management, Inc. (``Galliard''), and 
Wells Fargo Funds Distributor, LLC (``WF Funds Distributor'') (each an 
``Applicant'' and collectively, 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 Wells Fargo 
Bank is or may become an affiliated person within the meaning of 
section 2(a)(3) of the Act (together with the Applicants, the 
``Covered Persons'').

FILING DATE: The application was filed on August 31, 2012, and amended 
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on September 21, 2012.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on December 11, 2012, and should be accompanied by proof of 
service on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 
Wells Fargo Bank, 101 North Phillips Avenue, Sioux Falls, SD 57104; 
First International, 30 Fenchurch Street, London, England, UK EC3M 3BD; 
Metropolitan West, 610 Newport Center Drive, Suite 1000, Newport Beach, 
CA 92660; Golden Capital, 5 Resource Square, Suite 400, 10715 David 
Taylor Drive, Charlotte, NC 28262; Alternative Strategies Brokerage, 
401 South Tryon Street, Charlotte, NC 28202; Alternative Strategies, 
401 South Tryon Street, TH 3, Charlotte, NC 28202; WF Funds Management 
and WF Funds Distributor, 525 Market Street, 12th Floor, San Francisco, 
CA 94105; Wells Capital Management, 525 Market Street, 10th Floor, San 
Francisco, CA 94105; Peregrine, 800 LaSalle Avenue, Suite 1850, 
Minneapolis, MN 55402; and Galliard, 800 LaSalle Avenue, Suite 1100, 
Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826 or Daniele Marchesani, Branch Chief, 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. Wells Fargo Bank is a national banking association wholly-owned, 
directly and indirectly, by Wells Fargo & Company (``Wells Fargo''). 
Through its direct and indirect subsidiaries, Wells Fargo, a registered 
financial holding company and bank holding company under the Bank 
Holding Company Act of 1956, as amended, offers banking, brokerage, 
advisory and other financial services to institutional and individual 
customers worldwide. Wells Fargo also is the ultimate parent of the 
other Applicants, who, as direct or indirect, majority-owned or wholly-
owned, subsidiaries of the same ultimate parent, are, or may be 
considered to be, under common control with Wells Fargo Bank.
    2. Effective December 1, 2011, and August 24, 2012, respectively, 
two separately identifiable departments within Wells Fargo Bank, Abbot 
Downing Investment Advisors and Wells Capital Management Singapore, 
each became registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act'') and each serves as an 
investment adviser to one or more Funds (as defined below). First 
International, Metropolitan West, Golden Capital, Alternative 
Strategies, WF Funds Management, Wells Capital

[[Page 70194]]

Management, Peregrine, and Galliard are registered as investment 
advisers under the Advisers Act and serve as investment advisers or 
sub-advisers to various Funds. Alternative Strategies Brokerage and WF 
Funds Distributor are registered as broker-dealers under the Securities 
Exchange Act of 1934, and each serves as principal underwriter to 
various Funds. ``Fund'' means any registered investment company, 
including a registered unit investment trust (``UIT'') or registered 
face amount certificate company, as well as a business development 
company (``BDC'') or employees' securities company (``ESC''). ``Fund 
Servicing Activities'' means acting as an adviser, sub-adviser or 
depositor to Funds, or principal underwriter for any registered open-
end investment company, UIT, registered face amount company or ESC.
    3. On July 12, 2012, the U.S. Department of Justice filed a 
complaint (``Complaint'') against Wells Fargo Bank in the United States 
District Court for the District of Columbia (``District Court'') in a 
civil action.\2\ The Complaint alleged that Wells Fargo Bank engaged in 
a pattern or practice of discrimination on the basis of race and 
national origin in violation of the Equal Credit Opportunity Act 
(``ECOA'') and the Fair Housing Act (``FHA''). More specifically, the 
Complaint alleged that Wells Fargo Bank's policies caused African-
American and Hispanic borrowers to be placed into subprime loans at 
higher rates than similarly-situated white borrowers and to pay higher 
costs, fees and interest rates than similarly-situated white borrowers. 
Applicants state that Wells Fargo Bank has not been advised by the 
Department of Justice that any employee of Wells Fargo discriminated 
intentionally on the basis of race or national origin. On July 12, 
2012, Wells Fargo Bank executed a Consent Order, in which it denied the 
allegations of the Complaint other than those facts deemed necessary to 
the jurisdiction of the District Court. Pursuant to that Consent Order, 
on September 20, 2012, the District Court entered a judgment that, 
among other things, enjoins Wells Fargo Bank from violating the anti-
discrimination provisions of the ECOA and the FHA in connection with 
originating residential mortgages (the ``Injunction''), and requires 
Wells Fargo Bank to pay $125 million in compensation to borrowers who 
may have suffered as a result of the alleged ECOA and FHA violations, 
contribute at least $50 million to a homebuyer assistance program, and 
implement other measures that are designed to ensure Wells Fargo Bank's 
future adherence to fair lending practices.
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    \2\ United States v. Wells Fargo Bank, N.A., No. 1:12-cv-01150 
(D.D.C., July 12, 2012).
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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 acting as a bank, or from engaging in or 
continuing any conduct or practice in connection with such activity, 
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, UIT or registered face-
amount certificate company. Section 9(a)(3) of the Act extends the 
prohibitions of section 9(a)(2) 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, 
among others, any person directly or indirectly controlling, controlled 
by, or under common control with, the other person. Applicants state 
that Wells Fargo Bank is, or may be considered to be, under common 
control with and therefore an affiliated person of each of the other 
Applicants. Applicants state that the entry of the Injunction may 
result in Applicants being subject to the disqualification provisions 
of section 9(a) of the Act because Wells Fargo Bank is enjoined from 
engaging in or continuing certain conduct and/or practices in 
connection with its banking activity.\3\
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    \3\ Applicants believe that the conduct and/or practices covered 
by the Injunction could be deemed to be in connection with Wells 
Fargo Bank's banking activity.
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    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 the 
Applicants' conduct 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 
temporary and permanent orders exempting the Applicants and the other 
Covered Persons from the disqualification provisions of section 9(a) of 
the Act. On September 21, 2012, Applicants received a temporary 
conditional order from the Commission exempting them from section 9(a) 
of the Act with respect to the Injunction from September 20, 2012 until 
the Commission takes final action on an application for a permanent 
order or, if earlier, November 16, 2012.
    3. Applicants believe they meet the standard 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 conduct giving rise to the Injunction 
did not involve any of the Applicants acting in their capacity as 
investment adviser, sub-adviser, or principal underwriter for Funds. 
Applicants also state that the alleged conduct giving rise to the 
Injunction did not involve any Fund or the assets of any Fund for which 
they provided Fund Servicing Activities. Applicants further state that 
to the best of their reasonable knowledge: (i) None of the Applicants' 
(other than certain of Wells Fargo Bank's) current or former directors, 
officers or employees had any knowledge of, or had any involvement in, 
the conduct alleged in the Complaint to have constituted the alleged 
violations that provided a basis for the Injunction; (ii) the personnel 
who were involved in the violations alleged in the Complaint have had 
no involvement in, and will not have any future involvement in, 
providing advisory, sub-advisory, depository or underwriting services 
to Funds; and (iii) because the personnel of the Applicants involved in 
Fund Servicing Activities did not have any involvement in the alleged 
misconduct, shareholders of Funds that received investment advisory, 
depository and principal underwriting services from the Applicants were 
not affected any differently than if those Funds had received services 
from any other non-affiliated investment adviser, depositor or 
principal underwriter.
    5. Applicants further represent that the inability of Applicants to 
continue providing Fund Servicing Activities would result in 
potentially severe financial hardships for both the Funds and their 
shareholders. Applicants state that they will distribute written 
materials, including an offer to meet in person to discuss the 
materials, to the board of directors of each Fund, including the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of such Fund, 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. The 
Applicants will provide the Funds with all

[[Page 70195]]

information concerning the Injunction 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 the Applicants were barred from 
engaging in Fund Servicing Activities, the effect on their businesses 
and employees would be severe. The Applicants state that they have 
committed substantial capital and resources to establishing expertise 
in advising and sub-advising Funds and in support of their principal 
underwriting business.
    7. Applicants state that several Applicants and certain of their 
affiliates have previously received orders under section 9(c), as 
described in greater detail in the application.

Applicants' Condition

    Applicants agree that any order granted by the Commission pursuant 
to the application 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, 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.

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 the other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective forthwith, 
solely with respect to the Injunction, subject to the condition in the 
application, until the date the Commission takes final action on their 
application for a permanent order.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28385 Filed 11-21-12; 8:45 am]
BILLING CODE 8011-01-P