Document ID: SEC-2009-0363-0001
Agency: sec
Document Type: Notice
Title: Application and Temporary Order : Automated Trading Desk Specialists, LLC, et al.
Posted Date: 2009-03-18T04:00Z

[Federal Register: March 18, 2009 (Volume 74, Number 51)]
[Notices]               
[Page 11617-11619]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr09-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28647; 812-13641]

 
Automated Trading Desk Specialists, LLC, et al.; Notice of 
Application and Temporary Order

March 12, 2009.
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 Automated Trading Desk Specialists, LLC 
(``ATDS'') on March 11, 2009 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: ATDS, 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 Investment Advisory Services Inc. 
(``Citigroup Advisory''), Citigroup Capital Partners I GP I Corp. 
(``CCP I'') and Citigroup Capital Partners I GP II Corp. (``CCP II,'' 
and along with CGMI, CEFOF, CELFOF, Citibank, Citigroup Alternative, 
Citigroup Advisory and CCP I, the

[[Page 11618]]

``Fund Servicing Applicants,'' together with ATDS, the 
``Applicants'').\1\
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which ATDS is or 
hereafter may become an affiliated person within the meaning of 
section 2(a)(3) of the Act (together with the Applicants, the 
``Covered Persons'').

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Filing Date: The application was filed on March 12, 2009.

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 April 6, 2009, 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 and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: ATDS, 401 S. 
LaSalle Street, Chicago, IL 60605; CGMI and Citigroup Advisory, 787 
Seventh Avenue, New York, NY 10019; CEFOF, CELFOF, CCP I and CCP II, 
388 Greenwich Street, New York, NY 10013; Citibank, 399 Park Avenue, 
New York, NY 10043; and Citigroup Alternative, 731 Lexington Avenue, 
28th Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870, or Julia Kim Gilmer, 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 
for a fee at the Commission's Public Reference Room, 100 F Street, NE., 
Washington DC 20549-1520 (tel. 202-551-5850).

Applicants' Representations

    1. Each of the Applicants is an indirect wholly-owned subsidiary of 
Citigroup Inc. (``Citigroup''), a financial holding company whose 
businesses provide a broad range of financial services to consumer and 
corporate customers. ATDS is a broker-dealer that was registered with 
the Commission under the Securities Exchange Act of 1934 (``Exchange 
Act'').\2\ Citigroup acquired the parent company of ATDS, ATD Holdings, 
Inc., in 2007. ATDS has never served or acted an investment adviser or 
depositor to registered investment companies (``Funds''), including 
unit investment trusts (``UITs'') and face amount certificate 
companies, or as principal underwriter to Funds, nor does ATDS have any 
present intention of doing so in the future. ATDS currently has no 
operations.
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    \2\ ATDS deregistered with the Commission as a broker-dealer on 
July 16, 2004.
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    2. CGMI is registered as a broker-dealer under the Exchange Act and 
serves as principal underwriter for one or more registered investment 
companies and as the depositor of certain unit investment trusts 
(``UITs,'' together with all other registered investment companies, 
``Funds''). Citigroup Alternative and Citigroup Advisory are registered 
as investment advisers under the Investment Advisers Act of 1940 and 
serve as investment advisers for one or more Funds. CEFOF, CELOF, 
Citibank, and CCP I and CCP II (``ESC Advisers'') serve as investment 
advisers to certain employees' securities companies within the meaning 
of section 2(a)(13) of the Act, which provide investment opportunities 
for certain eligible employees, officers, directors and persons on 
retainer of Citigroup and its affiliates (``ESCs'' and included in the 
term ``Funds'').\3\
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    \3\ Greenwich Street Employees Fund, LP, et al., Investment 
Company Act Release Nos. 25324 (Dec. 21, 2001) (notice) and 25367 
(Jan. 16, 2002) (order).
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    3. On March 11, 2009, the United States District Court for the 
Southern District of New York entered a final judgment, which included 
the Injunction, against ATDS (``Judgment'') in a matter brought by the 
Commission.\4\ The Commission alleged in the complaint (``Complaint'') 
that ATDS violated certain rules of the Chicago Stock Exchange by 
engaging in improper trades for its own proprietary accounts by trading 
ahead of, instead of matching customer orders, interpositioning and 
trading ahead of unexecuted open or cancelled orders. The Complaint 
also alleged that ATDS violated section 17(a) of the Exchange Act and 
rule 17a-3 by failing to make or keep a current blotter containing an 
itemized daily record of all purchases and sales of securities effected 
by ATDS for its proprietary accounts. Without admitting or denying the 
allegations in the Complaint, except as to jurisdiction, ATDS consented 
to the entry of the Judgment that included, among other things, the 
entry of the Injunction.
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    \4\ Securities and Exchange Commission v. Automated Trading Desk 
Specialists, LLC., Final Consent Judgment as to Automated Trading 
Desk Specialists LLC., 1:09cv1977 (LTS) (S.D.N.Y., Mar. 11, 2009).
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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 or in 
connection with activities as a broker or dealer, 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 UIT 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, 
among others, any person directly or indirectly controlling, controlled 
by, or under common control with, the other person. Applicants state 
that ATDS is an affiliated person of each of the Fund Servicing 
Applicants within the meaning of section 2(a)(3) of the Act. Applicants 
state that the entry of the Injunction results in Applicants being 
subject to the disqualification provisions of section 9(a) 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) of the Act 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 a 
temporary and permanent order exempting them and Covered Persons from 
the disqualification provisions of section 9(a) of the Act.
    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 the Fund Servicing Applicants 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 alleged conduct giving rise to the 
Injunction did not involve any of the Applicants acting in the capacity 
of investment adviser,

[[Page 11619]]

subadviser or depositor to a Fund, or principal underwriter for any 
open-end Fund or UIT and that the conduct occurred prior to Citigroup's 
acquisition of the parent company of ATDS when the Fund Servicing 
Applicants were not affiliated persons of ATDS. Applicants also state 
that none of the current or former directors, officers, or employees of 
the Fund Servicing Applicants had any involvement in the conduct 
alleged in the Complaint. Applicants further state that the personnel 
at ATDS who allegedly participated in the conduct giving rise to the 
Injunction have had no and will not have any future involvement in 
providing advisory, subadvisory or depository services to Funds, or 
principal underwriting services to open-end Funds or UITs and are no 
longer employed by ATDS.
    5. Applicants state that the inability of the Fund Servicing 
Applicants to continue to serve as investment adviser, depositor or 
principal underwriter to the Funds would result in potentially severe 
financial hardships for the Funds and their shareholders. Applicants 
have distributed, or will distribute as soon as reasonably practical, 
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 
Judgment, any impact on the Funds, and the application. Applicants 
state they will provide the Funds with all information concerning the 
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 state that, if the Fund Servicing Applicants 
were barred from serving as investment adviser, depositor or principal 
underwriter to the Funds, the effect on their businesses and employees 
would be severe. Applicants state that the Fund Servicing Applicants 
have committed substantial resources to establish an expertise in 
providing services covered by section 9(a) of the Act to Funds. 
Applicants further state that prohibiting the Fund Servicing Applicants 
from providing advisory and distribution services would not only 
adversely affect their businesses, but would also adversely affect 
approximately 50 employees that are involved in those activities. 
Applicants also state that disqualifying the ESC Advisers from 
continuing to provide investment advisory services to ESCs is not in 
the public interest or in furtherance of the protection of investors. 
Because the ESCs have been formed for the benefit of certain eligible 
employees, officers, directors and persons on retainer of Citigroup and 
its affiliates, it would not be consistent with the purposes of the ESC 
provisions of the Act or the ESC Order to require another entity not 
affiliated with the ESC Advisers to manage the ESCs. In addition, the 
employees of Citigroup and its affiliates subscribed for interests in 
the ESCs with the expectation that the ESCs would be managed by an 
affiliate of Citigroup.
    7. Applicants previously have received exemptions under section 
9(c) as the result of conduct that triggered section 9(a) as described 
in greater detail 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, 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 any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the Injunction, subject to the condition in the application, from March 
11, 2009, until the Commission takes final action on their application 
for a permanent order.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
 [FR Doc. E9-5790 Filed 3-17-09; 8:45 am]

BILLING CODE 8011-01-P